BioHarvest Sciences Inc. (BHST) Earnings Call Transcript & Summary

Good day, and welcome to the BioHarvest Sciences Virtual Investor Webinar. Today's webinar is being recorded. Before we begin the formal presentation, I'd like to remind everyone that statements made on the call and webcast, including those regarding future financial results and industry prospects are forward looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's SEC filings for a list of associated risks, and we would also refer you to the company's website for more supporting industry information. At this time, I'd like to turn the webinar over to Ilan Sobel, CEO of BioHarvest Sciences. Sir, please go ahead.

Thank you, operator, and good afternoon to everybody on today's webinar. It's really very encouraging and inspiring to see so many people tuning in for the webinar this afternoon, specifically after the exciting news that we released to the market earlier today. Today, we're going to be really focusing to talk about specifically the new capability that we're building, leveraging the power of our Botanical Synthesis technology as well as providing an update on 2 of our major Big Bets for the balance of the year. But before I start the presentation, I always like to get everybody anchored on the North Star of the company. And obviously, the North Star is super important because it guides the DNA, the value system and what we get up every single morning to be able to focus on and execute to deliver value for our shareholder partners. And our North Star for BioHarvest is all about discovering, developing, manufacturing and importantly, democratizing life-changing compounds from plants that will change the world of health and wellness for hundreds of millions of people whilst preserving the planet for generations to come. And leveraging the power of our Botanical Synthesis technology, we are delivering on this North Star through leveraging our technology across 2 major business units. Firstly, our direct-to-consumer health and wellness business unit, which for us has been a major proof of concept, market validation of the power of our technology, allowing us to manufacture at significant scale, an important cash generator and a business unit that since we launched the unit in the U.S.A. in May 2021 has generated north of $60 million of revenue of our VINIA dietary supplement, a business that ensured that we delivered last quarter $8.5 million of revenue and a 60% gross profit margin for the business. And importantly as well, we have our CDMO services business unit that we already have 3 significant contracts that we continue to make important progress on. And importantly, we have within our pipeline as I speak to you, some really significant catalysts that we're looking to pull through the pipeline, and we'll see at least 1, maybe 2 catalysts delivered for the business in the CDMO before the end of the year. So let's now focus on today's agenda. The first area we're going to talk about is the new major capability that we talked about in the release earlier today. And I'm going to help unpack this for everybody so they can really understand the science and the magnitude of the technology breakthrough that we've been able to drive and what this means ultimately from a future revenue perspective. And then I will be providing you with an update on the 2 very important Big Bets that are so critical for us as we look at the downhill of the business, getting to fourth quarter focus of being able to get the company to an adjusted EBITDA profitability. And that's all about the launch of our blood flow hydration proposition and the Health Pros affiliate system launch, opening up a new channel for the business. So let's start first to talk about today's capability announcement regarding exosomes. And I think we'll start to basically from the beginning and dimensionalize what exactly are plant exosomes Well, ladies and gentlemen, I'll try and not make this a science or biology lesson, I'm going to try and really help dimensionalize the breakthrough here and the fact that our systems are able now to produce plant exosomes. And these are nano-sized extracellular vesicles that are naturally secreted by the plant cells in our bioreactors, and they play a crucial role in intercellular communication between the plant cells. You can imagine the plant cells are growing in the bioreactors, and I'm going to show you a nice visual a little bit later for those of you that are on the webinar. And basically, the exosomes are the critical extracellular vesicles that allow the plant cells to communicate to each other. They are derived from obviously the plant cells themselves and are rich in phytochemicals like polyphenols, flavonoids, terpenoids, peptides and alkaloids. And what's important to understand when you look at the significance of these plant exosomes is that they are able to penetrate and deliver molecular information also to our human cells in our body, in our skin very effectively with improved solubility and bioavailability characteristics, which is so, so important given the unique nano-sized particles. They are also extremely stable. They have a rich, you'll see lipid membrane that protects them from external agents, and therefore, they're able to always have almost a protective shield around the bioactive compounds inside. And as it relates to what does it mean for our overall human body and health and wellness, well, these highly bioactive compounds inside the exosomes, they offer critical antioxidant, anti-inflammatory, antiaging and antimicrobial properties, which can be leveraged for pharmaceutical-grade delivery systems, nutraceuticals and importantly, breakthrough cosmetic formulations. Now it's important to understand that our unique systems, our unique factories, our bioreactors have significant advantages in the production of these plant exosomes versus exosomes that may be produced inside the plants. And exosomes produced inside the plants are very limited. They have very low yield. They're not scalable and not consistent. They're obviously season dependent. And then we bring it into our world of our technology, and we're leveraging the power of cultured cells. And as a result of our ability to control our environment, we are able to have controlled and consistent production of these unique nano-cellular plant exosomes and are able to do this in a way which is much more scalable and economically viable. So when you look at our bioreactors, and I'll share with those of you, this is a representation of our bioreactors. Obviously, we keep a lot of this critical IP very close to ourselves. So this, please note is a representation. But when you look at our bioreactors, you will understand that we have spent hours and hours designing our bioreactors to do more than grow plant cells. We're able to create the ideal environment for high-yield growth of high-value plant exosomes. And by driving the combination of optimized growth media with light-permeable bioreactors, each of our BioHarvest factories or our BioHarvest bioreactors is able to naturally drive the cells to release exosomes that are enriched with these important metabolites. This critical combination is able to deliver superior yield, superior cargo quality, if you want to call it, really setting our technology, our Botanical Synthesis technology apart from conventional plant or animal-derived systems and ultimately resulting in scalable, cost-efficient and defensible advantage that opens a very powerful potential new revenue stream for our CDMO customers in cosmetics, health and pharma and also for us to leverage as part of our innovation pipeline in our direct-to-consumer business. So we're going to zoom in a little bit into our bioreactors. And here, we're seeing the plant cells. And our plant cells, they produce the Piceid Resveratrol magnified at 100 together with quercetin, catechin, anthocyanins and tannins. But then we talked about the communication network, the intercellular communication network between the plant cells being those critical exosomes. And you can see the small exosomes, and we're trying to illustrate this in this picture, and this probably does the job for you. You can see those exosomes. And what you see here is a magnified representation of our exosomes. And we have done the analysis, and it's amazing to see that we have unique molecule called viniferin inside our exosomes, which we do not have inside the actual plant cell, which is ultimately driven by the Piceid Resveratrol together with the catechin, quercetin, anthocyanins and tannins, but communicating cell to cell via exosomes is this amazing viniferin that we now have been able to develop inside the factories. Inside each factory, 1,200-liter bioreactor, we have our cells communicating with each other through these plant exosomes containing viniferin. Viniferin is a natural compound. It's a dimer of Resveratrol. So it's actually a double Resveratrol compound that bonds together. Now what's important here, ladies and gentlemen, is the exosome size is very unique. It's 120-nanometer, which allows for optimal activity and absorption into the body and specifically the skin. This is why plant exosomes today are one of the hottest subjects amongst cosmetic companies, global cosmetic companies as consumers demand more natural high-efficacy solutions as it relates to topical solutions. These exosomes, the size of our exosomes, if you look clearly at them, they're very, very homogenous, which is very unique compared to the plant itself in nature, where the exosomes have little or no consistency. And today, I'm really proud to say that to our knowledge, there's no scalable source today of viniferin exosomes. There are viniferin that comes from the plant, but not this unique nanometer homogenous exosomes, which have this optimal activity and absorption. And the potential of these benefits really lie in antioxidant, anti-inflammatory, even cardiovascular health and obviously, skin health, focusing on UV benefits, skin elasticity, and we've even seen some evidence in the area of cognitive support. So ultimately, this allows us to deliver, whether it's within our portfolio as we look at opportunities to disrupt the $14 billion cosmetics industry in the U.S., leveraging the power of our own brands or whether it's an opportunity for B2B to major global companies or importantly, as we look at this technology today, we see the opportunities within the CDMO. Now let's double-click on this as well. So if you look today at a company that we very much respect. This is Caudalie. It's a French company, global player, $400 million to $500 million in annual revenue. And one of the key lines that drive their revenue is a line, which they call -- it's Vinopure, which is their viniferin molecule and then viniferin comes from literally the stem of the grapevine. So importantly, how does -- how is it differentiated? It's differentiated given the unique particle size that we have and the improved activity of this particle size specifically in the cosmetic world. And I just shared this with you so you understand the magnitude and the opportunity that we have as it relates to how plant exosomes are being used across industry, which we're now able to capitalize on over the course of the next 18 to 24 months as we continue to scale our manufacturing and capacity to be able to really adequately address this opportunity. And from a CDMO perspective, it's super exciting, and Zaki and his team have done an amazing job really building a highly premium pipeline. And what this does for us now? If you're a CDMO customer, as we look at opportunities and we -- as it relates to development, as we go from plant to final compounds, we can now do this not just with plant cells, but with our customer partners in the CDMO, they will also be able to, in many cases, deliver unique exosomes simultaneously. So from a customer perspective, the value proposition is unique because as we look at our Stage 1 to Stage 3 process, in our system, they're able to walk away from that with obviously unique secondary metabolites, unique molecules in the plant cell and then ultimately also a unique or similar depending on the nature of the plant, primary or secondary metabolite inside the actual exosome produced by the plant cells as part of their cellular communication to each other. So I hope I've, in the last 15 minutes, adequately articulated the significance of this breakthrough of each of our many factories that today are producing hundreds of kilos of plant cells each factory in an 18- to 21-day cycle. But sitting inside the 1,000 liters plus of media, we've been able to get those cells to produce those exosomes, those plant exosomes, which have significant value as it relates to the different use cases that I've articulated that we're very, very much looking forward to being able to capture as part of our additional value streams and revenue streams we bring for the company. Great. I'm now going to move to the second key area I want to talk to you about today, which is updating on our Big Bets related to our disruption of the hydration category or importantly, what is a multibillion-dollar electrolyte beverage category. So this is all anchored in our strategy that we've spoken about many times in the last 12, 18 months around our VINIA Inside strategy, which is all anchored in superior science, superior taste and superior efficacy, ultimately backing everything with our clinical trial regimen. And we've been very successful so far in the coffee space. We've driven more than $3 million of revenue in coffee. We have the most premium coffee today on sale in K-Cup compatible in the marketplace. And we sell a lot of coffee every single day because consumers are looking for better-for-you health and wellness in all these critical delivery systems like coffee and like our tea, which is gaining also a significant momentum in the market. I now want to talk about the next disruption, which is anchored in our delivery of superior hydration in an $18 billion market. And it's important to understand the U.S. electrolyte drinks market, it's a monster of market, $18 billion this year. It has a 5-year CAGR. And literally, 30% of this market is in powder and the majority of that is in sticks. So literally, we're accessing with our channels, with our packaging more than $6 billion of opportunity. And when you look at the consumer because we're a consumer-driven organization, ultimately, hydration is top of mind for all consumers as they think about their broader wellness priorities. Consumers understand they need to hydrate throughout the day, not just during exercise. 64% of global consumers in a recent survey recognized a significance of hydration for overall health. 87% of American consumers agree that getting enough hydration in a day, especially in the morning, sets the tone for the day. And you start to see today so many people carrying around portable water bottles wherever they go, 46% and literally, 1 in 4 of those people are adding flavors and electrolytes. So it's a monster market for us to access with the right disruptive proposition. Our breakthrough positioning, when you start to understand the market, and I'll just break this out for all of you, you have the market leader is Liquid I.V. It's a $1 billion business owned by Unilever, roughly 45 calories per stick. 68% of its content is sugar. On the other hand, you have a new entrant that entered during COVID called LMNT, much higher sodium levels, so 80% salt, 1,000 milligrams, generating roughly approximately based on our estimates, about $50 million per year. So there is a significant opportunity for us to disrupt this market with a better blood flow, better hydration proposition, well-balanced taste, naturally sourced electrolytes, blood flow driven by unique Piceid Resveratrol and polyphenol matrix and importantly, third-party certified and verified as it relates to -- specifically for athletes as it relates to anti-dope making sure that we pass all anti-doping rules because this is a critical market for us. So our breakthrough positioning is really coming into the [ category and say ], listen, it's not about flavor, it's not about price, not about electrolyte levels, not about how many electrolytes you have, my electrolytes are bigger than your electrolytes. It's really about developing the next-generation electrolyte drink that goes beyond general water and electrolyte fluid intake. It's about hydration that's powered by our circulation, powered by our blood flow. Because at the end of the day, in order to have high-quality hydration, you got to make sure that the fluids and the electrolytes are moving throughout all the body's tissue cells and organs. And to do that, you need to have high-performing blood flow across our body's operating system. So it's not about what goes in your body, it's making sure with VINIA's BloodFlow Hydration Solution, we focus on where it goes by improving blood flow because ultimately, better blood flow delivers the required oxygen, fluids and electrolytes and nutrients for organs, muscles, tissues and cells right where hydration matters most. And importantly, we're leveraging the power of our clinically studied VINIA formulation in order to make sure that we're boosting -- increasing arterial dilation. We are improving blood flow as a result of increasing nitric oxide, which ultimately is helping to drive that improved delivery of fluid and nutrients to all the body tissue and cells. We've been very, very purposeful on everything we've done as it relates to this launch. Many of you understand that I worked in my previous life for 18 years for the Coca-Cola Company. One of the businesses I ran in the U.S. was the POWERADE business. POWERADE is the #2 player in this marketplace. So I have a high level of familiarity. And also, this is very, very personal for me to make sure that this really is a launch that counts for the company in a major way. And so we've literally spent more than 1,000 hours developing great-tasting formulas with really leveraging the power of probably 1 of the best, if not the best, product developers that I have worked with in my career, Louis Heinsz, who works for a company called Bevnology. He was previously the Head of R&D for Coke in Europe, Middle East and Far East Asia. And Louis has partnered with us with developing this amazing formula, fantastic natural flavors. All of our electrolytes are sourced from nature. We use premium sodium from Irish sea salt, potassium from coconut water and magnesium from the ocean bed, it's marine magnesium. I talked to you before about Informed Sport-certified, making sure we can provide the product to U.S. military, NBA, NCAA, MLS and any other professional sporting body. And ultimately, we are able to deliver because of this unique combination of our VINIA matrix plus an excellent matrix of naturally sourced electrolytes, we're levering every single day as people continue to consume this regularly, the increased benefit of dilation of arteries for more blood flow, improved electrolytes transportation to muscles, organs and cells. The outcome being improved physical energy and mental alertness, regulating body temperature under heat and stress and promoting cellular toxin removal. And I'm now going to show you very quickly what is really close to that 95%. They're our final packaging graphics, and you'll understand the detail and the focus that our own design team, ladies and gentlemen, this is all done internally by our own capabilities, amazing work by [ John, Yael, Yves ] and the team really pulling together and [ Claire ] some amazing work to deliver what we think is a real breakthrough graphics. So this is our mixed berry. You can see clearly blood flow hydration. You've got all the communication on the specific electrolytes, the benefits, and you can see sensory, it's breakthrough. It's different to the category. This is fruit punch. This is orange. This is lemon lime. This is watermelon, my favorite. This is lemonade, right? And I got to tell you, the taste testing we've done, some of the analysts out there have tasted the product, consumers, the product tastes amazing. We have done a fantastic job as it relates to the sweetener system, having sweetener system where there's no aftertaste and delivering on 25 calories. And here is the sachets all lined up together. And we also will be having a variety pack. And then this is the back of the pack where we tell our story. So super exciting. And importantly, strategically, our blood flow hydration proposition addresses the needs of all of our priority consumer segments, starting with the super active professional athletes all the way through to those youngsters that have crazy jobs, working crazy hours, families. They're looking for that nitric oxide performance that VINIA delivers on and the endorsement and verification of Informed Sport. And then the super seekers that I belong to at the tender age of 51, we're looking for basically clinical proof around validation of the power of the product all the way through to appreciating that food is wellness, and this is really the critical underpinning driver of the power of this formulation. And then our super seniors, which are really important consumers ultimately are looking for those blood flow benefits, and they need to be hydrated all through the day just given the stage of their lives, and they're looking for value. And we're going to be delivering value with our pricing strategy, blood flow benefits and the hydration benefits together. And lastly, as we look at this specific opportunity, you're going to start to see us breaking out a little bit as it relates to our channel strategy. And we will continue with our primarily focusing on vinia.com, having Amazon as part of our business. It's a must-have, as we all know. But you're going to start to see the Health Pros play a critical role as we build up 300, then to 500, then to 1,000 Health Pros as we build up our team of highly skilled Health Pros. So hydration is going to play a critical role. And importantly, some of our Health Pros are going to be able to give us access, and we already have started to sign partnership deals with what I call points of sweat. These are gyms, these are specific sporting associations where you have points of sweat, we have to be. So we're starting to kind of move further into the retail world at surgically strategically at points of sweat as we look to scale this and make sure that our blood flow hydration proposition is there where the consumer needs us most. And I'm now going to just spend quickly a few minutes just talking about a quick update on our Health Pros affiliate system. I know there's a lot of health pros out there listening, and it's exciting to see you join our team as we really look to scale the power of our VINIA portfolio as it relates to how do you VINIA. You can VINIA with capsules, coffee, tea, juice and then coming soon, the hydration. And by the way, the hydration, launch timing, we're looking to get this into the market by November 15. A lot of work between now and then, but November 15 and making this a major part of our Black Friday program. Okay. So let's talk now about Health Pros. Ladies and gentlemen, we are building a movement, a movement of Health Pro affiliates that are going to bring the power of our technology and initially VINIA to literally hundreds of thousands, millions of consumers, specifically now with the power of the portfolio that we have and all of the benefits that are accrued to this portfolio. And as we speak right now, we are recruiting our Health Pros affiliates. We're talking about doctors. We're talking about nutritionists. We're talking about physios. We're talking about chiropractors. We're talking about coaches. We're talking about trainers, people that understand the basics from a physiological and scientific perspective that can understand our science anchoring of our company and how we really move from science to consumer as we bring these powerful plant-driven compounds to consumers to improve their health and wellness. And literally, an hour ago, I just got off a call with a major gym chain that's coming on board as part of our Health Pros affiliate system. And this is all really being pulled together by a critical partner of ours called Mark Macdonald. Mark Macdonald, he's a global expert in nutrition and fitness. He is a New York Times best-selling author, a wonderful leader and has built literally a significant network of Health Pro partners, literally 60 countries, 6 continents leading the health movements, and Mark is now partnering with us to bring the strength of these ecosystems into the BioHarvest franchise. We are working with our Health Pros now, either they're coming on board as affiliates. In some cases, we will be bringing in strategic wholesale. We're working with them to train them. We're helping them understand all the elements of our business, understanding the whole VINIA blood flow movement of change. And anybody can go into our website, you can click at the bottom on VINIA story. There's an amazing 10-minute video that we're using to help educate our health pros on understanding BioHarvest and this movement of change we're driving the world and the power of VINIA to really help them understand the science, understand the company so they can convey this to their ecosystems because each of these people have significant social media ecosystems of hundreds of thousands of engaged followers on Instagram, Facebook followers, YouTube followers that they are now going to be talking about VINIA with and coming on board and really being a highly technical variable sales force that we can drive to extend VINIA into unique channels. Super, super exciting. The momentum is building. And between now and then literally the next 4 weeks, we plan to bring on board 300 of these health pros who ultimately have a significant opportunity to earn a really good percentage of revenue that they have full transparency and visibility from because we've built the whole back end, which really becomes a significant source of competitive advantage barriers. We spent the last 4 months building the whole end-to-end back end. So we're able to really bring these people, train them up and really allow them to unleash the potential of their significant engaged followers. Super exciting. We're starting to see the momentum build. And looking forward to seeing the real outcomes of this, specifically as we move into the fourth quarter. So I hope that this has been valuable half an hour that I've spent, helping you understand new capabilities. It's a major new capability that we've built in our bioreactors, in our individual bioreactor factories and also helps you understand the momentum and the detail that sits behind 2 of our 3 major Big Bets to really take the demand curve to the next level as we really focus on delivering the business on that targeted adjusted EBITDA profitability in the fourth quarter. I'm now going to stop, and I'm going to hand back over to the operator. We're going to open up for Q&A. And thank you, everybody, for your attention.

[Operator Instructions]. And our first question today comes from Nick Sherwood from Maxim Group.

Can you kind of talk about with your current production technology, how quickly it can be maybe retrofitted for the exosome production? Is it going to require large new installations that would be in the new facility? Or can the present technology be easily adapted to exosome production?

Thank you, Zaki. I just wanted to say that we are also joined today by Zaki Rakib, our Chairman and the President of the CDMO as part of the Q&A session. So Zaki, you may want to take Nick's question first.

Sure. Thanks, Ilan. I'd love to address this question. So we -- the exosomes are produced in the bioreactors themselves. In fact, as we speak, they are being produced while we're producing VINIA. We're not extracting them out of the liquid media. So your question to answer, there will be additional equipment, but not really anything that doesn't exist today off the shelf that would be added into the factory floor or adjacent to the factory floor to extract the exosomes out of the media. And you can imagine, large bioreactors, a lot of liquid that would -- that once we harvest the cells, that liquid will go into a downstream process through which we'll be able to extract those exosomes. But it is really not anything that would be considered unusual complicated or any of that. It's more of a straightforward type of a technology. And indeed, it's planned to be part of the factory that we are -- we started building as we speak.

And our next question comes from Hunter Diamond from Diamond Equity.

So my question relates to just what you see as the low-hanging fruit for exosomes. You went over very high level, a lot of great details. What's size of the company? Obviously, cosmetics, you mentioned. Where do you see sort of the near-term easy low-hanging fruits? And then what do you see as kind of the KPIs investors should be monitoring? Like unit economics or elements of those?

So there are...

[indiscernible] Zaki, do you want me to take that?

No, no. Go ahead. Go ahead.

Okay. We're not in the same room, so we can't look at each other. So I'll take the first go at it. Thank you, Hunter. So firstly, as we sit with viniferin and viniferin, obviously, being the exosome being produced by our VINIA red grape cells, this gives us a significant opportunity to build out our innovation pipeline. We've talked in the past about our pipeline and disrupting the cosmetic industry. With VINIA at a plant cell level, we know that the Piceid Resveratrol already today has significant benefit systemically and topically and ultimately provides us significant product innovation. You then layer on the possibility of what it can do now that we have being able to get the bioreactors to produce the exosomes. And the exosome is a totally separate phytonutrient—, polyphenol and with the unique efficacy of exosomes, it allows significant premiumization for us as we look at that innovation and gives us significant new, call it, swim lanes to take our product innovation from an SKU management. And as you know, in the direct-to-consumer world, when you look at cosmetics solutions, you're dealing with an 80% to 90% gross profit margin. So it really is significant. I'm going to ask Zaki to -- as heading up the CDMO to talk about what that means from a CDMO perspective. Over to you, Zaki.

Thank you. And Hunter, it means a lot. One, we have been tasked by several cosmetic companies, global cosmetic companies to look into exosomes. In fact, that question initiated several months ago, and that was the reason why it started actually that research and the work that we've done on our bioreactors. So when you look at the impact is that many CDMO potential customers, not only for cosmetics, by the way, for pharma, there are applications for plant-based exosomes in other areas because of the size of this, call it, this tiny biological courier, those tiny envelopes that carry cargo, that is very appealing to multiple industries. So that actually has been very well received in the private discussions we've had so far with potential CDMO customers, not only limited to, as I said, to the cosmetics industry. One other comment to be made is that we have tested not only on VINIA that we have been able to produce indeed exosomes into the media itself, but also on other products. So this is not just a one-trick pony and one lucky case where we were able to produce viniferin inside the exosomes that are being secreted into the media. We have -- the same thing is happening for olives, and we expect it to be the case for almost any new cell that we would be producing for our CDMO customers. So this is an appealing proposition for the benefits, the extra benefits that any CDMO customer, and it sets really us apart and improves the value proposition. And once again, I'm emphasizing this is not just limited to cosmetic application. The tiny size of those couriers really can deliver an important cargo to human cells. So it's not just the penetrability in topically, but also systemically, it brings a lot of value.

Yes. And I would just add to that, Hunter. You'll see today that plant exosomes are being used largely, as Zaki said, in the cosmetics world, you are starting to see potential targeted opportunities in the drug world. What you have seen yet is in a nutraceutical world. And part of that is driven by the fact that there's no company out there that's able to produce these exosomes at scale with economic viability. And so we believe that in the future, this is an important opportunity for us to be accessing and something that we will be looking at very, very focused on from our strategic innovation road map perspective because our systems and our technology, our Botanical Synthesis technology, as we've expressed, has the ability to produce those exosomes at scale with consistency, right, with economic viability and allowing us to bring premium, highly efficacious supplements to the marketplace. And I think that's something that we can really drive a significant disruption in the more traditional supplement nutraceutical business, whether that's for ourselves or on the CDMO side with many of the consumer goods companies that are out of the pharma companies, the spin-offs from the pharma companies, this also presents a significant opportunity for them, not just to develop new life-changing compounds from plants at a cellular level, but also now at an exosome level or the combination of the 2 together, which really also will be very, very compelling from a consumer perspective.

It makes perfect sense. I mean it's definitely a very exciting development.

Our next question comes from Matt Hewitt from Craig-Hallum Capital Group.

Congratulations on this new capability from your platform. Maybe first up, I think in the press release, you noted the 18 to 24 months, you'd be in a position to help your cosmetic partners. Is it safe to assume that you could potentially sign a contract well before that and you would be working with them during that 18 to 24 months? Or should we expect that it would take 18 to 24 months before you're in a position to even sign that first contract? And while you're going down the cosmetic path, could you also be in tandem working down the pharmaceutical path? And as you look out over the next 18 to 24 months, you could actually have 2, 3, 4 partnerships signed up?

Correct. So you're right, Matt, the 18 to 24 months is really a commercialization execution factor. The opportunity, as Zaki expressed earlier, and I'm sure he'll talk more about in a second, is really an opportunity now to be able to sign those deals given the attractiveness -- additional attractiveness of our technology as it relates to the value proposition that our CDMO brings to these customers that are in our pipeline. Over to you, Zaki.

Thanks, Ilan. So to answer your question, we're not limited. I mean, we could have a contract signed that has exosomes included as part of the development as early as next quarter. It's now that we have the assurance that we've made the test now that we know that we can produce exosomes at scale, we can advertise it. We can have those discussions with various parties. We know actually for sure that not only on the cosmetic side, but there will be other potential customers for the CDMO. From an execution like Ilan said, and in particular, for viniferin, we, as BioHarvest, can have a product to the market that contains those exosomes in that time frame. As you know, our CDMO, we have a development phase followed by the manufacturing phase. By the time, let's say, if we start having a contract on development of a new compound that includes also exosomes, then we are within this 2 years' time frame before we start manufacturing, but really not limited to sign development contracts ASAP and we'll actually be starting that campaign of advertising to potential customers, what the exosomes capabilities. Maybe just one quick comment and a little technical. We're looking at a vehicle that is about 100 to 1,000x smaller than the cells themselves. And the beauty here that because of the size, not only of the ability to penetrate, but they are able to contain other elements. So it's kind of the double dipping in many ways because plants, the beauty of them contain a composition of multiple components. The beauty of plants compared to a single, let's say, synthesized chemically where you're looking at a single component, now you can take advantage of multiple components. The case with the red grapes is a great example. Because you don't have viniferin in significant quantities into the cells, in VINIA cells, but now you get them into the exosomes. And same thing is going to happen with multiple products. So offer now a much wider opportunity for the customers, the CDMO customers to extract more benefits out of the plant that they have chosen to develop for whatever application there is. And that really opens up a lot of opportunities. And once again, I would say it sets us apart. I can't think of any factory today that is able to do at scale with the consistency. Remember, the same advantages we brought to the world using our Botanical Synthesis with the cells, we're bringing the exosomes. The exosomes, same problem. You want them to be homogenous. You want them to be same size. You want to be able to produce them consistently. You want to have the purity. So everything that -- every advantage we brought to the world using our cellular technology, our Botanical Synthesis are now being also conveyed and transferred to the exosome world. There is no factory today of the scale we talk about for plant-based exosome. It doesn't exist. We are pioneering this. And really, for me, I'm looking at it both from a scientific achievement, but also from a practical way of monetize this achievement in the CDMO world, I am unequivocally very excited about this milestone. It brings a lot of pride to me and to the team that has been involved in optimizing the bioreactor design to secrete those exosomes. This is not by luck. This is not something that, oh, I was lucky, I'm getting something. I'm getting a bonus. There's some gravy here now. This is a direct result of the way our bioreactors are designed, the way we maintain these particular conditions that are optimized for this type of release of those nanoparticles. So it is a significant milestone for the product division as well because it opens up a differentiated -- highly differentiated opportunity in cosmetics, particularly with the combination of VINIA. So think about a cream that can contain VINIA and exosomes that contain viniferin, it's a very powerful and highly differentiated product. But again, it opens up a lot of opportunities in the CDMO...

That's super helpful. And then I guess, maybe an extension of that, and you spoke to it a little bit. But do you anticipate or have you already submitted applications for patents that would protect you and create a moat around your ability to scale up production of these exosomes?

The answer is yes. Those are provisional. And the answer is there's more that can be done that we haven't disclosed. Of course, if you disclose something, you have to have the submission before. This is a public disclosure. So for anything we said today, we have covered ourselves from a provisional application standpoint and they're more than what we've said today that we have to file for additional provisional patent applications so that we're well covered from an IP. So since you've touched that subject, we are a biotech entity, and we are also measured by the amount of IP and know-how. In this mix of IP and know-how, we're doing quite well keeping some know-how that is not disclosed through even a patent, but also getting the appropriate protection from -- and being covered well by our patent, both the ones that have been already approved and several provisional that are related to this, may I say, invention because, again, the big news is at scale, we didn't invent exosomes, right? But we invented a way to produce consistently, reliably, economically plant-based exosomes. That's at scale. This is a big news not just to BioHarvest -- or for BioHarvest. It's big news for the health and wellness industry and it's big news for the cosmetics industry.

Our next question comes from Susan Anderson from Canaccord Genuity.

Alec Legg on for Susan. Really exciting news on the exosome progress. I guess on the commercialization process of that, there's already a couple of beauty brands, including the example you gave, Caudalie using exosomes within their products. How would the commercialization process look like for BioHarvest to, I guess, win new business? Would you potentially look to the ingredient provider for Caudalie or other companies like Skinfix that already use it and swap it out? Or are you more so looking for new business opportunities for other beauty brands that might be looking to add exosomes into the portfolio?

Yes. So I'll take that. So thank you for joining as well. Look, it's really, as I like to call it, 3 swim lanes. The one swim lane and selfishly, we have a very, very powerful direct-to-consumer business. I salivated the 90% gross profit margins that are there from a direct-to-consumer business in the cosmetic space. And so ultimately, just given the power of the VINIA matrix coming in and bringing in viniferin, whether it's as a supplement or whether it's part of our cosmetic pipeline that we're building, this is something that, obviously, we have to give very significant consideration to. So this is swim lane #1. Swim lane #2, ultimately, if there are companies out there and as they understand the value proposition that we deliver, we would obviously be open-minded to look at the B2B opportunities and weigh that up whether we -- in the case of the viniferin, whether it's something that we want to drive ourselves as part of our pipeline or whether it's something given the scale -- potential scale of the opportunity -- and importantly, in the case of viniferin, I just want to make sure that when you look at the viniferin that Caudalie uses, it's viniferin from the stem, okay? So it's a...

It's not from exosomes. It's not viniferin. Caudalie does not sell viniferin in the form of exosomes [indiscernible].

Correct. So obviously, there's a unique competitive advantage as Zaki very, very clearly articulated given the particle size, given its efficacy, bioavailability that ultimately has a very strong value proposition out there in the marketplace. And we would look [indiscernible] it could be one or the other, it could be both. And then the third swim lane, which is what Zaki articulated, is the opportunity that it gives us now to really be able to provide very unique value proposition to not just cosmetic players in the CDMO but also this, you're getting category fusion. There's so much fusion from supplements and cosmetics. And now specifically, as we also look at the opportunities in the pharma side that given the opportunity for us now in those little -- in our bioreactors, in those little factories, large bioreactors, but little factories that we're able to produce simultaneously the unique secondary metabolites or primary metabolites in a plant cell and in the unique carrier, cargo carrier being the exosome, this gives us a significant, I believe, compelling proposition to the industry as it relates to acquiring CDMO customer partners given the strength of the value proposition we bring to the table.

And our final question today comes from Robert LeBoyer from NOBLE Capital Markets.

In the opening remarks, you mentioned the pipeline and briefly touch on drugs. So I was wondering if there were any human therapeutic applications that you're working on or that you see potential for?

Zaki, do you want to take it? Or do you want me to...

No, I mean, is the question related to the [indiscernible] CDMO. So yes, actually -- so one of the applications, one of the early contracts is a pharmaceutical product. That has been approved by the FDA, and now we're basically providing a different way of manufacturing it. So that is indeed -- that actually is the particular project that we've announced recently that we've moved from Stage 1 to Stage 2, where we go from building the cell bank in solid media. Now we're into the liquid phase, and we've done that successfully. And that was announced. In the pipeline, there are more than one opportunity that one would be considering in the pharmaceutical space indeed. So we are working on finalizing potentially those contracts with those particular companies. And as soon as we sign, we announce. In many cases, we're limited with the announcements because those pharma companies or others, biotech entities are very careful as they're not wanting to disrupt their existing supply chain and which is, in some case, we are the replacement of this supply chain.

At this time, this concludes our question-and-answer session and today's virtual webinar. Thank you for your participation. You may now disconnect your lines.

Thank you, operator. I just want to close by thanking everybody for attending today's session. I hope it's been very informative for all of you and really understanding the power of our Botanical Synthesis technology platform, the breadth of capabilities that the company has built, which ultimately, we believe will generate significant revenue for the business and profitability as we develop life-changing compounds on plants at the cellular level as well as the exosome level. And as we've described in our Big Bets, the demonstration of the disruptive innovation we're bringing to multibillion-dollar categories, leveraging also the very strong commercial machine that we've built as our route to market now being amplified by our Health Pros affiliate system. We have an exciting few months ahead of us as we head to that target of adjusted EBITDA profitability in the fourth quarter. Look forward to more deep conversations like this as you all take time to understand the company, our values and our capabilities. Thank you, everybody. Have a great day.

And with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.