Applied DNA Sciences, Inc. Price & Performance (APDN)

I refer you to Slide three of the presentation and our Form 10 Q 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 or other information provided on this call as a result of new information or future results or developments. Now it's my pleasure to introduce our first speaker on today's call, Beth Janssen. Please go ahead, Seth. Thank you, Sanjay, and good afternoon, everyone. First, let me set the agenda for our call today. I will provide a high level overview of the finances of the company. Next, Jim will briefly walk you through our important milestones achieved during fiscal year twenty twenty four. Then Clay will provide an update on the LRx business its growth strategy. And finally, Judy will provide you with an update on our operations. Prefacing my review of our financial results for the quarter.

And to put our performance into its necessary context, During the first quarter, we initiated a strategic restructuring intended to bolster our cash reserves and optimize our cost structure. This initiative was undertaken to reduce our cash burn rate and support the growth of our synthetic DNA manufacturing strategy beer, our LinearRx subsidiary. Having laid much of the necessary The restructuring reflects our belief that LinearRx offers the greatest potential to create sustainable value for our shareholders. Our October 2024 financing during what we expect to be a year of execution in fiscal twenty twenty five, a point reinforced last month with the certification of our GMP Site one facility which Jim and Clay will elaborate on this point in their remarks.

With our quarterly results press release we are announcing our exit from the DNA tagging and Security Products and Services business segment. We anticipate the wind down to be completed by the 20% of total headcount related primarily to employees in this segment. We will incur a one time charge of in the quarter ending March 31 related to this action. Turning to our financial results.

For the first quarter I'm beginning with our statement of operations, Total revenues for the first quarter of fiscal twenty twenty five one point two million compared with 891,000 for the same period of fiscal 'twenty four. The year over year increase was a result of higher product revenues, from our DNA tagging business segment and from an increase in our textiles isotopic testing services revenue. Our operating loss for the first quarter was 3,000,000 compared with $3,800,000 in the prior year period. This improvement in our operating loss is primarily attributable to a lower selling, general and administrative costs year over year related to lower stock based compensation expense and to a lesser extent from a decrease in consulting expenses resulting from the closure of the DNA tagging segment's European subsidiary. Net loss for the first quarter compared with $1,100,000 in the prior year period. I remind shareholders that our net loss includes an unrealized gain on the change in the fair value of warrants classified as a liability which has an inverse relationship with our stock price. For this reason, we highlight operating loss as best representing the company's operations. Adjusted EBITDA for the first quarter improved to a negative $2,900,000 compared with a negative $3,200,000 in the prior year period.

Now turning to our balance sheet. Cash and cash equivalents on December 31, totaled 9,300,000.0 which includes net proceeds of approximately $5,700,000 from our October offering and Series A warrant exercises of 509,000.

This compares to cash and cash equivalents balance of $6,400,000 dollars on 09/30/2024. As of December 31, our accounts receivable stood at approximately 912,000 Our average monthly cash burn is just over $1,200,000 fiscal year to date and essentially flat with the same period in the prior year. Our average monthly cash burn for the fourth quarter of fiscal twenty twenty four was 1,300,000.0 Cash and cash equivalents on January 3125 was $8,200,000 This figure includes additional Series A warrant exercises totaling approximately $215,000 Our just filed 10 Q maintains a disclosure from our prior Form 10 ks of a substantial doubt of a going concern. Our ability to alleviate the going concern is dependent on our ability to further implement our business plan and generate revenues raise capital. We sought shareholder approval for the exercisability of the warrants issued in the October 2024 financing, on January 23, in a special meeting that was adjourned due to a lack of quorum, We will reconvene the meeting tomorrow at 11AM Eastern Time.

And we encourage all shareholders who own shares as of the record date of November 25, 2024. Who have not yet voted their shares on the proposal As of the January 23 meeting, 80% of all shares that were voted did so in favor of the proposal. This concludes my prepared remarks. Thank you for joining us today.

I will now turn the call over to Jim for his Jim? Thank you, Beth.

And good afternoon, everyone. Thank you all for joining us on today's call. I want to begin by addressing our strategic restructuring. The restructuring reflects our full commitment to rebuilding shareholder value. Through an optimized cost structure prudent financial management and a deeper focus [indiscernible] Post pandemic, emergent trends in Bio therapeutics and interest among the investor community has centered chiefly on our LinearRx subsidiary, and its ability to enzymatically produce DNA at scale to meet the growing demand for alternatives to plasmid DNA. In particular, in the last eighteen months, we've seen an acceleration in the pace of LinearRx's operational progress. Interest and feedback on our Linea DNA and LINEA IVT platforms have exceeded even our most optimistic expectations. The biotherapeutics market is ready for what we have to offer. And as we'll talk about on this call, we are now ready to deliver. We recognize that while each of our business segments offered their own return on investment. These disparate ROIs blur our path to profitability. This drove our decision to exit our DNA tagging business segment and implement the workforce reduction. Segment customers have been informed and certain of them will be supported for a period of time.

Fiscal twenty twenty four had significant successes. We did not have the benefit of a fourth quarter investor Therefore, let me summarize certain key milestones we had achieved during the year then Clay and I will address our strategy for fiscal twenty twenty. So in fiscal twenty twenty four, we validated our Linea IVT platform. Data generated internally and with a CDMO partner were conclusive. Our platform demonstrates a reduction in problematic double stranded RNA contamination on a commercial scale. And is cost neutral to legacy manufacturing platforms. LINEARDNA also entered the clinic we announced that the Institute of Hematology and Blood Transfusion or IHBT in Prague received approval for and initiated Phase one trial of a first in human CAR T clinical [indiscernible] IHBT's therapy Applied linear DNA as a critical component of its CAR T therapy to enable a rapidly manufacturable viral vector free workflow for the treatment of relapsed and or refractory acute myeloid leukemia. This approval highlights the first instance of regulatory consent of LINEARDNA's use in a clinical setting. A key milestone. LineaRx's customer acquisition raise has exceeded our expectations. In fiscal twenty twenty four, we engaged over 25 customer projects and we expect multiple projects to enter the clinic in calendar 2025.

Furthermore, in advance of our GMP certification, multiple customers validated us as a Applied. As part of our strategic restructuring, The Board promoted Judy Mara to President where she will oversee a continued drive toward operational excellence and quality across our business segments. Congratulations, Judy. In a moment, Judy will discuss her role in greater detail. Similarly, the Board has given the additional responsibility of President of LineaRx to Clay Shirock. Congratulations Clay. In addition to his corporate officer duties, in recent years, Clay has led global sales and business strategy for LinearRx, and has cultivated a marked key list of customers. Applied DNA clinical outsecured New York State LBT approval for trait PG our pharmacogenomics assay that forms the basis for our PGx testing service. And we secured an expansion in use for our mPOCS assay.

And we are now licensed to accept samples from all 50 states. Finally, last month, our GMP Site one was certified operational as an ISO seven space. With ISO five workspaces. With this site, we've demonstrated a low CapEx approach to enzymatic DNA production at scale empowering our entry into long term GMP Applied agreements. Now let me turn the call over to Clay to offer some specific insights into LinearRx's plans for fiscal twenty twenty five.

Clay? Well, thank you, Jim. First, I want to thank the Applied DNA Board of Directors and management team for the opportunity to lead Linearx as we approach what I believe is an inflection point in a short trajectory. For those of you who are new to our story, Avin was Applied DNA since 2016, fitting in various legal and business roles.

My background is in biology and intellectual property and I have fifteen years of legal and business [indiscernible] I have a passion building companies. I believe with the plan we have in place, Linear Rx will be will be a growth engine for Applied DNA. Now, fit the COVID-nineteen pandemic, the growth trajectory for enzymatically produced DNA has rapidly increased. As you mentioned, with over 25 active projects in fiscal twenty twenty four, we see a strong market demand for our linear D and N, IVT platforms. With our initial DMP site now online, we are focused on monetizing this demand. To this end, our commercial emphasis is First, to sell our GMP capacity for IVT templates. Second, to develop additional LinearRx products and capabilities, And third, to leverage our platform scalability with Minimal CapEx to de risk growth and reach breakeven.

So first, as a quick primer, mRNA is made from a DNA starting material called an in vitro transcription or IVT It's these IDPs template materials that we are ready to produce in our GMP facility. The mRNA market continues to grow with almost 500 therapies in the global pipelines. We believe each of these therapies represent a manufacturing opportunity to produce IVT templates at our new GMP facility.

Based on our current customer interactions, the initial revenue opportunity for LINEARX for IVT templates used in the production of Phase one clinical trial materials varies. It ranges from about $50,000 to $1,000,000 per opportunity for IBT templates alone, ordered about $150,000 to $3,000,000 for opportunity for IBC templates sold with corresponding LINEAR R and D under the LINEAR IBT These opportunities grow rapidly as the projects progress through the clinical phases and eventually into commercial. [indiscernible] It suggests this exciting backdrop that we entered 2025 with a robust sales pipeline for GMP IVT templates. We are currently in the final stages of project development with a Boston based mRNA therapeutic developer for potential GMP. [indiscernible] If development is successfully completed, we anticipate GMV In addition, we continue to work on closing GMP manufacturing contracts with several CDMOs and therapeutic developers that have undergone successful evaluations of our technology and are targeting the clinic in the next twelve months. To help further expand our sales funnel, during our restructuring, we created a new multi person sales team within the NewRex.

This organization will be led by Vice President level employee for which we seek to hire an key opinion leader. We plan to have these position staff by the end of the current quarter. In addition, we have increased our attendance at trade shows and are in the process of overhauling the LINEARX website and marketing materials.

Finally, we're in the late stages of development of a new and proprietary enzyme, MS enzyme and buffer system to increase the manufacturing yields and sequence fidelity [indiscernible] In addition to being a valuable sales tool as a proprietary technology, we believe this new enzyme once launched, will provide us with a distinct advantage of our enzymatic DNA producers, while at the same time potentially improve our margin profile through lower cost of goods and higher G and A yields. Now history shows us that rarely does a single product make for a successful business. And we're no different. So as such, we have developed LRx to be a multi product business. While IVC's templates have been our initial focus, LRx built a diverse revenue base in fiscal twenty twenty four.

To support additional growth in non IVT template segments, we are currently engaged in the development of several new forms of LINEA DNA. Due to this end, we are announcing today the availability of a new type of linear DNA, We call [indiscernible] For use as a donor DNA in CRISPR gene editing applications. Linea donor DNA is a high fidelity double stranded once ended form of DNA optimized for use in CRISPR mediated homology directed repair or HDR applications, which are commonly used in a wide range of gene editing modalities. We believe the enzymatic we believe that enzymatic produced linear donor DNA has numerous advantage over plasmid donor DNA and like IVT templates, the market is primed for a large scale cell free alternative. Linea Donor DNA is available now. For research use only with targeted GMP availability later in this calendar year.

In addition, we are actively upgrading our G and P capabilities to allow for the manufacture of linear DNA drug substance and drug product.

These upgrades will allow plenty of DNA to be used in a wide range of high value clinical applications, and genetic medicine ranging from CAR T manufacturing to personalized DNA vaccines. Turning finally to our growth strategy. Our ability to manufacture scale is now proven [indiscernible] facility is operational. We are now sharpening our focus on using our platform's low CapEx requirements to achieve growth and eventually profitability. As opposed to GMP plasmid based DNA manufacturing that require large environmentally controlled spaces and expensive instrumentation Linear DNA platform uses benchtop instruments with minimal space requirements.

Our initial GMP facility was designed to use modular cleanroom designs and has an end to end manufacturing workflow in less than 1,000 square feet. Environmentally controlled space.

Our bench top instrumentation is cost effective and since we manufacture in smaller volumes of plasma DNA, our purification instruments are smaller and less expensive. In addition, PCR has fewer raw materials and potential contaminants Applied with DNA workflows, which leads to lower incoming and batch release QC costs. We believe these unique attributes of our [indiscernible] simple copy and paste approach. For a fraction of the CapEx that would be required for legacy DNA manufacturing technologies. This results in two near term benefits. First, using our simple copy and paste approach, we can scale and deal real time production contracts. We don't face to build it and hopefully they will come to life.

Where it's necessary to build a large complex and capital intensive facility before commercial contracts are signed. Instead, we can align CapEx spend to closely mimic our commercial contract timing. Thereby reducing our balance sheet risk. Second, we believe that our target CapEx investment needed to achieve D and A production DNA production capacity necessary to support our profitability is significantly less than other legacy technologies. Particularly in the biologic space. Based on our current cost of modular, cleaner construction and instrumentation, each of our cleaning costs less than $1,000,000 It each has a potential revenue opportunity of $10,000,000 to $30,000,000 per year depending on the applicable mix of product.

This we believed coupled with a strong margin profile for our our products allowed the company to breakeven on a fraction of the capital investment that has historically been required for the biologic CDMOs. In conclusion, we believe the operational launch of our GMP facility is a pivotal juncture for this company.

Representing the final piece of the multiyear business strategy to commercialize our expertise in PCR production of DNA into new markets with higher margin profile. We look forward to where the future holds. Now Judy, Over to you.

Thank you, Clay, and good afternoon, everyone. It's my pleasure to speak with you today. Let me use this occasion to first thank Jim, my fellow officers and Board of Directors for the opportunity to continue to lead Applied DNA operations with now a broader charter as President of the company.

It should be clear that we are a highly innovative company. Sitting at the precipice of tremendous market opportunity, I'm eager now to expand my efforts and further unlock value My immediate and ongoing focus be centered on overseeing the company's operations driving operational excellence. And enabling the company in setting and achieving its key business objectives. How well we orchestrate sales opportunity closure, [indiscernible] quality, delivery volumes and schedules, to ensure top notch customer success. These will determine much of our future success. Also in my new role, will work with the team in orchestrating deliberate resource allocation towards growth initiatives.

While at the same time, we drive and maintain spending discipline, and a quality culture.

With GMP execution as the cornerstone, we delivered. And we have a deep bench in how to manage going forward. We've operated under ISO 9,001 for ten plus years. We've managed our clinical lab operations at scale. And to the high bar of a demanding New York State Department of Health, the FDA, and in direct contact with healthcare providers and their patients. Leveraging this experience, GMP is also predicated on a quality culture. A quality that must permeate every individual every function, and our pursuit in every opportunity. Our customer base resides globally They have no mismanufacturing schedules. And these force us as a mission critical supplier to adhere to higher level FDA European Medicine Authority and Asian regulatory body requirements. We do have the building blocks in place today. To our knowledge, we have today the largest manufacturing PCR produced DNA in North America. Implemented under budget, This, in addition to continuing our supply of RUO and GLP grade materials for IVT templates and genetic medicine, and we also offer large scale supply for the IVD market. We have an initial projected annual IVT template a quantity we actually have delivered annually across several product categories in GLP grade.

For context, 10 grams is sufficient product capacity for our customers to produce up to 30,000,000 doses of mRNA vaccines. We complement all of this manufacturing capability. We stability chambers and programs to offer our customers, and an operative quality system from incoming materials, to outbound product. Moving to our clinical lab. In the face of the considerable undertaking that has been GMP, Our pharmacogenomics testing service, TRATEPGX, at Applied DNA Clinical Labs has admittedly been managed at a steady state Looking forward, we are assessing our markets and our capabilities to evaluate elements that could potentially establish further value in our New York State certified laboratory asset. Which is a very rare commodity. Under evaluation, are such things as more target segments for PGX the qualification for insurance reimbursement, and the validation of additional diagnostic assays. In closing, our goals are significant. Our resources are finite. That end, we will remain prudent in managing our financial structures and allocations through this restructuring and thereafter. To capture the market that we know is out there. We will stay closely tuned to our business operations [indiscernible] market dynamics.

Ready to modify and refine our business strategy as context may change. I strongly believe that we have the infrastructure the people and the determination to execute across all aspects of the company to unlock value for shareholders. Thank you. And I will now turn the call back over to Jim for concluding remarks. Thank you, Judy. Before opening the call to questions, I want to reinforce some key takeaways from our collective remarks. The market is very receptive to our [indiscernible] Our GMP-one side is in place and we can now deliver product ranging from evaluation and RUO to clinical grade.

And we have a blueprint for further expansion of Site one as warranted by customer demand. We have an excellent stable of DNA customers to convert into recurring orders. And those order sizes will increase as these therapies graduate through the late preclinical and clinical phases of their development. We are targeting additional new DNA markets and bolstering our product offering. And we recognize that the path to rebuilding shareholder value will come from a combination of disciplined OpEx and growth through enzymatic DNA production Well, thank you all for your time and attention this afternoon. Operator, please open the call to questions. Our first question comes from Yi Chen with H. C. Wainwright.

Please go ahead. Good afternoon. This is Eduardo on for Yi from H. C. Wainwright. I was wondering if you could provide any color on [indiscernible] interested to know how you quantify the opportunity there for these CRISPR therapies versus maybe conventional IVT or even the existing CAR T therapies that you guys are developing products for? Clay, that's for you. Sure, absolutely.

Nice to meet you, Eduardo. So yes, so we think that there's a lot of parallels between mean, the IVT template and the donor DNA market. In part, PCR is very good at making blunt ended DNA. And so we looked at the market and saw where there's market opportunities for large scale blunt end of DNA. One of them is IBC templates, the other is ACR donor DNA. So that's the logic there. We can use our existing [indiscernible] to our manufacturing workflow to make the donor DNA.

So it's an amplification of the kind of existing manufacturing line. In terms of market opportunity, obviously, CRISPR and CRISPR based therapeutics are less mature than mRNA.

In some ways, in some ways they're not. But we do believe it is a very large market, a especially in kind of the cell and gene therapy as CAR Ts start to move more to the gene editing space versus the viral vector like lentivirus based manufacturing workflows? And that's something we're very excited about.

We also think in vivo denetedting has a future, but I think near term we're really focused on kind of those CAR T lig workflows and ex vivo gene editing.

Great.

That's really helpful.

Then kind of I was also hoping if I could get any color on where the revenue increases were coming from, if they were primarily new acquisitions or primarily from increased kind of scaling and manufacturing of existing customers?

So for Q1, the two increases came from product revenue The primary reason for that was a shipment of DNA tagging for the marking of cotton with one of our customers contracts we've had for a while.

And the other bump in revenue this quarter came from increased volume in our isotopic testing services. [indiscernible] Clay, is there anything you'd like to add?

I would add to the shipment of DNA tagant to a cotton bagging customer is a contract we are currently retaining post restructuring. We're able to manufacture that with the same workflows that we have for the GleneaRx. So it just makes sense to keep that contract But now Jim, That's all I have to add.

Great. So much. And then if I could just have maybe one more kind of in that line of the you mentioned the AML therapy. And I'm curious what the timeline and kind of I know it's Phase one, I think you mentioned first in human. The timeline and revenue recognition dynamics that we should expect for that? [indiscernible] timeline for that trial, so it is in The Czech Republic. I think Phase one is probably about eighteen months. An interesting therapy and that is a non viral CAR T, it uses a transposon system. To actually make the CAR T. So we are excited for that. We don't know in terms of revenue opportunity how large it's going to scale because it's a hospital based trial. It's not run by a the commercial entity, but the important part there was twofold. One, we were able to get through the regulatory approval process quite easily. And two, we were chosen over a the plasmid competitor because we were faster, but also it eased the regulatory process for the customer. So those are two of the main takeaways from that. Jim, I don't know if it's a large revenue opportunity in that trial necessarily, but it was critically important validation in like Europe.

Brian, I think it demonstrates to a broader industry base the entire CAR T industry that linear DNA is an adequate [indiscernible] to utilize in the generation of these therapies and we provide a faster path which in many cases is urgently required.

This concludes our question and answer session. I would like to turn the conference back over to Doctor. Hayward for any closing remarks.

Well, thank you, and thank you everyone for joining us on today's call. Operator? You can now conclude the call.

The conference is now concluded. Thank you for attending today's presentation. May now disconnect.