BNB Plus Corp. (BNBX) Q3 2022 Earnings Report, Transcript and Summary

Good morning, afternoon, evening, and welcome to the Applied DNA Sciences Fiscal Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Sanjay Hurry. Please go ahead.

Thank you, Jordan. Good afternoon, everyone, and welcome to Applied DNA's conference call to discuss our third quarter fiscal 2022 financial results and corporate updates. You can access the press release that was issued after market close today as well as the slide presentation accompanying this call on the Investor Relations section of our corporate website. Speaking on the call today are Dr. James Hayward, our Chairman, President and CEO; and Beth Jantzen, our CFO. Judy Murrah, our COO; and Clay Shorrock, our Chief Legal Officer and Head of Business Development, will also be available to answer questions on the Q&A portion of the call. Before we begin, please note that some of the information you will hear today during our discussion may consist of forward-looking statements. I refer you to Slide 2 of the presentation and our Form 10-Q filed a short while ago for important risk factors that could cause the company's actual performance and results to differ materially from those expressed or implied in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements or other information provided on this call as a result of new information or future results or developments. I also want to inform you that management will participate virtually at H.C. Wainwright's 24th Annual Global Investment Conference next month. Please get in touch with your H.C. Wainwright representative to schedule a one-on-one with us. Now it's my pleasure to introduce on today's call Beth Jantzen. Please go ahead.

Thank you, Sanjay. Good afternoon, everyone. Thank you for joining us on our third quarter fiscal 2022 investor call. I will begin today with a review of our consolidated financial results for the third quarter of fiscal 2022, which ended on June 30. I will then turn the call over to Dr. James Hayward, our President and CEO, who will offer context on the equity capital raise, we conducted subsequent to the close of the quarter and outline the company's expectations and development milestones over the balance of the fiscal year and into fiscal 2023 for each of the end markets we serve. As a reminder, for our newer investors, we are on a September 30 fiscal year. We will then open the call to our analysts and institutional investors. Prefacing my review of our financial results, as we discussed on our prior investor call in May. We implemented a cost management program in the fiscal third quarter designed to optimize our cost structure to align resources to our LinearDNA platform for biotherapeutic applications to achieve maximum value for shareholders from current and future opportunities. Beginning with the statement of operations. Total revenues for Q3 were $4.3 million, compared to $1.7 million in the year ago quarter. The 153% year-over-year increase in quarterly revenue is primarily attributable to increased clinical laboratory service revenue comprised of COVID-19 testing and related services. On a sequential basis, Q3 total revenues declined from $6.1 million in Q2. This is due to lower COVID-19 testing services, due in part to the summer session seasonality inherent in our academia-heavy testing client base. Product revenues were $220,000 in Q3, compared to $640,000 in the year ago period. The year-over-year decrease of $420,000 is primarily related to a decrease of approximately $459,000 in sales of our diagnostic test kits and supplies to Stony Brook University Hospital as their testing levels declined. Service revenues were $183,000, compared to $234,000 in the year ago period. This decrease is attributable to a decrease in research and development projects. As a reminder, our service revenues comprised research and development pilot projects as well as authentication services associated with our industrial DNA business. Clinical laboratory service revenues increased to $3.9 million, compared to $826,000 in the year ago period. As a reminder, we had not yet secured the CUNY contract in the year ago period. On a sequential basis, clinical lab service revenues decreased 29% from $5.5 million in Q2 due in large part to the aforementioned seasonality in testing demand. Beginning in Q1, we began allocating depreciation expense versus showing it as a separate line item on our statement of operations. As a result, we are presenting a gross profit line on the statement of operations. The gross profit percentage was 24% and 34% for Q3 and the year ago period, respectively. The decline in gross profit percentage resulted from a substantial portion of our clinical laboratory service revenue coming from testing contracts where we also provide and staff the testing center, which, in our case, is predominantly CUNY. This contract has higher associated costs compared with our other COVID-19 testing contract where we only performed the testing services. As you know, we recently reported a 12-month contract extension with CUNY. In preparation for year 2, we have worked to squeeze costs out of this contract and believe that we are currently at an appropriate baseline of fixed costs, given the requirements of the contract. We and CUNY have learned a lot about how to efficiently implement very large-scale COVID-19 testing operations, and we will continue to closely monitor support levels going forward with an aim to minimize our costs and maximize our margins within the confines of the contract. Further, CUNY is now in its break prior to the start of the new academic year. As such, we expect a lull in testing rates between now and the start of the new school year in late August. With CUNY then ramping up testing thereafter. Total operating expenses in Q3 were flat at $3.9 million, compared to $4 million in the year ago period, reflective of the implementation of our cost management initiatives during this Q3. Total operating expenses on a sequential basis declined 15%, driven primarily by a reduction in headcount from 95% to 75% or 27%. Q3 loss from operations decreased to $2.8 million from $3.4 million in the year ago period. Given the transaction costs related to the warrant liabilities and the unrealized change in fair value of the warrant liabilities included in our net loss. Going forward, we will have a loss from operations as being the best representative of the company's operations. Our Q3 net loss decreased to $1.1 million or $0.13 per share versus a net loss of $3.4 million or $0.48 per share in the year ago period, on a higher number of weighted average shares outstanding. Excluding noncash expenses, consolidated adjusted EBITDA for Q3 was negative $2.3 million, compared to negative $2.8 million in the year ago period and negative $1.6 million in Q2. Turning to our balance sheet. At June 30, cash and cash equivalents totaled $4.7 million and accounts receivable stood at $2.9 million. For fiscal 2022 to date, our average monthly cash burn stood at $620,000 on June 30, representing a 46% reduction from fiscal 2021 average monthly burn of $1.2 million and is reflective of increased cash receipts and the cost controls I highlighted earlier. Subsequent to the close of the quarter, we conducted a public offering of common stock and 2 series of warrants for gross proceeds of $12 million. We also received an exercise of warrants in connection with this offering for an additional net proceeds of $3.6 million. Inclusive of the public offering and exercise of warrants, cash and cash equivalents on August 9 stood at approximately $16.8 million. Based on our current average monthly cash burn, our cash runway is currently 25 to 27 months. Our warrant balance increased as a result of the recent public offering. We now have a total of $7.3 million borrowings outstanding, with approximately $2.2 million of these warrants have an exercise prices ranging from $2.80 to $2.84 per warrant share and $5.1 million of these warrants having an exercise price of $4 per warrant share. We carry no debt on our balance sheet. As a result of recent funds raised, our just filed 10-Q for the third quarter eliminates our substantial doubt of a going concern. This concludes my prepared remarks. Thank you for joining us today. I will now turn the call over to Jim for his comments.

Thank you, Beth. Good afternoon, everyone. Thank you for joining us on our fiscal '22 third quarter investor call. My remarks this afternoon will focus on the company's biotherapeutics market opportunity and development plans for our LinearDNA platform. I'll also provide updates on the expansion of our diagnostic testing services at our clinical lab subsidiary and on our textile tagging business, especially given the Uyghur Forced Labor Prevention Act that went into effect on June 21. Let me begin first by putting our recent equity raise into perspective for our newest shareholders. The equity raise was the latest step on a strategy executed across the past 2 years to further evolve our components of sustainable growth. Those who have followed us during these 2 years will note that we weathered the pandemics impact on our textile supply chain integrity business. We opportunistically stood up a molecular diagnostic testing practice, Applied DNA Clinical Labs, or ADCL, that is presently centered on COVID-19 and with new ongoing test development is evolving into a launch pad for continued growth when the pandemic eases. And we accelerated our pivot to a biotherapeutics opportunity grounded in our almost 2 decades of PCR expertise. We have expanded on an already voluminous library of preclinical data that showcased LinearDNA's advantages over plasmids, even as the demand for therapeutic DNA grows nearly exponentially and the supply chain is bottlenecked. From Beth's prepared remarks, you've heard that we cut our average monthly cash burn by 46% since the beginning of the fiscal year. Operational expenses were reduced 15%, primarily from a reduction in headcount of 27%. Now these organizational adjustments have enabled us to optimize our cost structure and to reallocate resources to the value-creating potential of our LinearDNA platform. We believe that the equity raise will fund the development of the LinearDNA platform as well as our current expansion of the Clinical Labs commercial diagnostic testing offering and put us on a path to sustainable and profitable growth. Beginning first with our LineaRx spinal therapeutics subsidiary and the LinearDNA platform. Our recent fundraising will serve to accelerate the platform's development across 3 key service applications, RNA templating from LinearDNA, veterinary DNA vaccines and longer-term gene and cell therapies. The biotherapeutics industry is coalescing around the realization that plasmid DNA is a suboptimal DNA construct. Now these numbers are amazing. There are currently over 3,633 gene cell and RNA therapies in development from preclinical through preregistration stages, almost all of which use DNA in their manufacturing process. Now this number increased by over half just since May of '21. Demand for nucleic acids is increasing at a rate never seen before. We believe that the use of LinearDNA as a replacement for plasmid DNA can help solve many of the challenges currently experienced by DNA-based therapy developers and manufacturers. And that belief was enhanced by our experience at the summit on messenger RNA-based therapeutics in Boston at the end of July just weeks ago. We presented a plenary paper on the use of LinearDNA as the template for messenger RNA drug manufacturing, which was extremely well received. You'll find our recent presentation posted on our LineaRx website. Apparently, many scientists in messenger RNA drug development now share our opinion that LinearDNA is a far better drug development platform than plasmids. We have already been approached by several companies to quickly complete proof-of-concept experience, after which we would expect larger projects and commitments. On our last call in May, I advise that our initial focus would be on LinearDNA as a template for messenger RNA production. We did exactly that, and I will share a small selection of results in the next couple of slides. Our studies have shown that LinearDNA has 2 major advantages over plasmid DNA, as template for messenger RNA. The first advantage is the fact that equal mass LinearDNA contains a greater copy number of a DNA target sequence as compared to plasmid DNA. This fact allows less mass of LinearDNA to be used as compared to plasmid DNA to achieve the same RNA yield. While the magnitude of the LinearDNA copy number advantage varies a bit based on specific target and plasmid DNA sequence, it's always present. Our studies have shown that, on average, LinearDNA can be used at 25% to 50% of the mass of plasmid DNA to achieve the same RNA results. The second advantage is derived from the high purity of LinearDNA and the fact that plasmid DNA struggles with amplifying the challenging DNA sequences that are necessary for messenger RNA production. In this slide, we used a model therapeutic gene, a marker called green fluorescent protein, or GFP, to measure the efficiency of messenger RNA production from 2 different DNA templates and then measured the ability of that messenger RNA to yield the intended protein in the cell. The fluorescent green protein mimics the expression of a vaccine or a therapeutic protein. The upper image with the strongest florescence was obtained from a LinearDNA template that had a Poly(T) tail that was transcribed homogeneously into a highly functional Poly(A) tail on the messenger RNA. The lower image is the messenger RNA product from a plasmid, in which the messenger RNA was polyadenylated after IVT production. And it's made perhaps most easily understood in the bar graphs on the right that quantify the protein expression for the LinearDNA templates on the left. Which expresses 40% more protein than the plasmid template on the right. The key issue is 40% more of the target protein produced from the same amount of DNA if it's LinearDNA. These experiments highlight the importance and advantage of LinearDNA's ability to incorporate a precise number of Poly(T)s into a messenger RNA template and the improved expression of the target gene. Now imagine that instead of looking at green fluorescent protein you were looking at the expression of a vaccine or a therapeutic protein. The advantage of LinearDNA is clear. More RNA per mass of LinearDNA and more consistent expression efficiency, which, together, we believe strongly translate to a better drug. In addition to messenger RNA templates, we are also commercializing the LinearDNA platform for veterinary DNA vaccines. Intramuscular administered nucleic acids delivered via lipid nanoparticles alter the course of the COVID-19 pandemic and quite literally saved millions of lives. But without encapsulation by lipid nanoparticles, the so-called naked new clinic assets are not taking -- taken up efficiently by the cells in the body. Our announcement just yesterday of the successful delivery of LinearDNA constructs by encapsulation in lipid nanoparticles, or LNPs, followed by a simple intramuscular injection was a genuine milestone for the company and our investors. LNPs evolved out of the nearly 50-year history of liposomes, which were much more difficult to work with, but which we have a very deep experience. Our scientists produced LNPs that facilitate the delivery of RNA and LinearDNA to target cells and culture or to cells in the body following simple injection. Now we know we can deliver LinearDNA efficiently to patients, whether they are animals or humans. LinearDNA LNP constructs hold the potential to be used across a wide variety of therapeutic applications. Near term, we are working to formulate our canine lymphoma vaccine candidate for IM administration via LNP. LNPs may even one day enable freeze-dried LinearDNA to be delivered as a simple nasal spray. Turning now to our clinical lab. Earlier this week, we announced a 12-month contract extension with the City University of New York through July of 2023. Since the initial award in August of '21, the contract has fueled the company's record fiscal '21 revenues, a level that we surpassed in just the first half of this year. COVID-19 testing has been a significant driver of Applied DNA's revenue growth over the last 18 months. It has required exceptionally large-scale operational execution. Now in our second year of the CUNY contract, we are confident that we can execute our testing strategies at better margins than in our first year. Now COVID-19 was not the end game for our Clinical Labs, but rather just the start. The Clinical Labs are commercializing 2 diagnostic platforms. The first is high-throughput infectious disease testing. And the second is genetic testing, specifically pharmacogenomics, or PGx, testing. I'll address each of these platforms in turn. Now the Clinical Labs business model is to develop a specialized mix of PCR diagnostics that leverage our deep science bench and through which we generate revenues and cash flow. With access to Applied DNA's expertise in DNA and through COVID-19, the Clinical Labs established a track record of developing, securing regulatory approval for and deploying PCR-based molecular diagnostics that can positively impact public health. Now our path-to-market for our newest diagnostic is via the laboratory-developed tests, or LDTs. The regulatory path that specifies review and approval by the New York State Department of Health prior to commercialization. Armed with an approved LDT, our sales strategy will focus on the Clinical Labs serving as a reference lab to hospital systems and larger clinical labs in New York State as well as clinical labs located in other states that allows sample processing by clinical labs permitted under the New York State Department of Health Clinical Laboratory Evaluation Program. Currently, that's approximately 46 states nationwide. Now we have experience in this model, and we have served as a reference lab for COVID testing. Offering reference lab services is a cost-efficient way to go to the market, and it leverages our Clinical Labs' existing testing and reporting infrastructure. This path-to-market reduces sample acquisition costs, marketing costs and removes the burdensome process of seeking third-party payment. We can stick to what we do very, very well. Test rapidly, test accurately and report those results quickly as we have in our partnership with CLEARED4 and the CLEARED4's digital health management and results reporting platform. Now high-throughput infectious disease testing is principally geared toward high-volume testing that recurs within a population such as COVID-19. Our monkeypox virus test fits under this rubric and utilizes the exact same workflow, the exact same laboratory equipment as our COVID-19 testing practice. As such, we've had no equipment investments for monkeypox. We expect to offer a superior turnaround times that can help to mitigate monkeypox virus spread. Superior turnaround time should give us a sales advantage compared to other monkeypox testing providers in the marketplace. Most of whom offer testing based on the CDC's orthopoxvirus test that is less specific Additionally, commercial labs appear to be aggregating their testing in other states, thereby increasing their turnaround time and that heightens the potential for further transmission. Now if we've learned anything from COVID-19 as a nation, as an industry, it's that short turnaround times improve containment even more than test sensitivity. Our proximity to the national epicenter in New York City, we believe, gives us another advantage in a marketplace that we already serve. Analytical validation of our monkeypox virus test is ongoing. Once completed, if the results are in line with our expectations, we'll submit the validation package to the New York State Department of Health, who will review our submission. We intend to update our investors via a press release when we move forward with that submission. Now moving on our pharmacogenomics addition to our portfolio, whose capital investment was completed in Q3 last quarter, offers high-margin testing in a growing diagnostic field that is related to therapeutics. We believe the economics of complex molecular diagnostic testing services, such as our pharmacogenomics panel, are especially favorable to our business. Our PGx panel or pharmacogenomics panel is designed to interrogate multiple DNA targets and provide genome typing information initially relevant to certain cardiac, mental health and pain management therapies. Unlike COVID-19, for which our test has a single target, of course, in the virus, our pharmacogenomics test will utilize a remarkable 120 target panel test to evaluate the unique genotype of a specific patient to help guide precision individual drug therapy decisions. That's a far more complex test relative to COVID-19. It should be significantly accretive to our clinical lab margins, contingent, of course, on testing rates. We are pursuing the LDT route for our PGx panel and have already begun analytical validation. We anticipate the validation package submission to the New York State Department of Health this fall. And if approved, we are targeting an early calendar 2023 service launch. Now to provide a real-world example of pharmacogenomic testing and its value to individuals. Consider the psychotropic drugs and how they often are prescribed. It's not uncommon for a patient's medication to be changed several times before the right combination of drug and dose are determined, a process that can literally take years. Using pharmacogenomics, a physician will have the data necessary to prescribe the right drug the first time at the right dose based on the patient's genetics, saving health care costs and improving patient outcomes. This is the future of precision medicine. Now let's turn to our textile supply chain business. The implementation of the Uyghur Forced Labor Prevention Act, or UFLPA, on the 21st of June has brought home the potential for a very real-world negative impact, both financial and reputational, to textile brands and supply chains contracting with geographic centers that use forced labor. For the first time, the federal government has recognized DNA traceability and/or isotopic testing as evidence of compliance with the UFLPA. Since the 21st of June, the conversations around regulatory compliance have turned toward our CertainT platform due to its layered technology-first in forensic approach. Now this makes, we believe, CertainT well suited to helping clients standing the rigor of a customs and border protection inquiry of goods about to enter the U.S. marketplace. And that can also help to secure supply chains for brands and backstop their product plans. The CertainT platform is large scale, and it's been field-proven for many years, focused primarily on U.S. cotton, with footholds in other major cotton-producing countries, including India, Egypt and Australia. Our focus is on driving DNA tagging volumes for profitable growth and cash flow. CertainT platform is large scale and is field proven, and we've begun onboarding certain platform customers initially for isotopic abundance of textile goods prior to reaching American ports. It's our expectation that as UFLPA enforcement becomes ubiquitous at American ports, these customers and others will migrate in time to DNA tag across the entirety of their supply chains. We are also pursuing cotton opportunities in the U.S. and worldwide. We now have a vested interest in differentiating their cotton and textile production from those under the UFLPA scrutiny. Currently, we are broadening the application of DNA tagging that historically focused on home goods to include apparel. Before we open the call to questions, let me offer a brief recap. We are centrally focused on the biotherapeutics opportunity and the further development of our LinearDNA platform, which we believe can be the common denominator for the next generation of genetic medicines. Our recent equity offering serves to fund the development of the LinearDNA platform and the expansion of our diagnostic offerings. Our clinical lab and textile businesses are positioned as sources of continued revenue and potential cash flow with which to mitigate cash burn associated with the development of the LinearDNA platform all the way through to commercialization. We are well funded for the foreseeable future, and we are centrally focused on the value creation opportunity and growth trajectory ahead of us. Thank you all for your time and attention this afternoon. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Dipesh Patel with H.C. Wainwright.

Ladies and gentlemen, this is Dipesh Patel on behalf of Yi Chen at H.C. Wainwright. A couple of questions and then a follow-up. When do you expect to complete the analytical validation of the monkeypox PCR test? And how long will it take New York State Department of Health to review the validation package?

Sure. I can't put an hour on the monkeypox validation, but I can tell you it's very soon, certainly within the next 2 weeks, if not sooner. And New York State does not tell you in advance how long it will take to examine your filing, but we've had conversations with them that give us hope.

Okay. And then a follow-up, how do you expect your monkeypox test to compete with other monkeypox PCR tests that are currently available at, for instance, Labcorp or Quest?

Sure. We learned some wonderful lessons in COVID, and we did design a test that was for COVID that was extremely sensitive and extraordinarily selective. But the lesson we learned is that if your goal is to curb the spread of a cohort you're servicing in surveillance testing, those terrific aspects of science hardly matter. What matters is your turnaround time and, essentially, what is the service mentality of your team. And our Head of Operations, Judy Murrah, has cultivated a remarkable sentiment amongst everyone involved in the field and in the laboratory. And our turnaround times are really second to none, so we've done a great job of protecting our COVID clients from further spread. We intend to do exactly the same in the case of monkeypox. Now we have designed an assay, which is we did not just take the CDC assay off the shelf with the -- which is what the great majority of current testers have done. We designed our own target. It's selective for the signature DNA of monkeypox. So it's highly selective. We've contrasted it very carefully against the genomes of anything else that we could encounter in a test sample, and it is highly specific. But as I say, great science is not the only means of providing in a pandemic or in an issue of epidemiological concern, but providing the best service. The best service comes from the fastest turnaround time, and we have finally honed those skills.

Got it. And then last question. Currently, what is the number of shares outstanding?

$12 million -- around $12.9 million.

I'm showing no more questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Hayward for closing remarks.

Okay. Well, thank you, operator. And thank you to all of our investors who joined us on our call today. On behalf of the management team and all of our employees, we thank you for your continued support. And we look forward to speaking with you again on our fiscal fourth quarter call. Stay healthy, and goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.