Kane Biotech Inc. (KNE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Kane Biotech Q4 and Full Year 2019 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Steve Kilmer. Thank you. Please go ahead, sir.

Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call will include certain forward-looking information and statements within the meaning of securities laws, which may not be based on historical fact. These include, without limitation, statements containing the words believe, should, may, plan, will, estimate, predict, continue, anticipate, potential, intends, expects or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among others, the company's stage of developments, level of product revenues, additional capital requirements, a risk associated with the completion of clinical trials and obtaining regulatory approval to market the company's products, the ability to protect its intellectual property and dependence upon collaborative partners. These factors should be considered carefully, and readers and listeners are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements are made as of the date hereof, and the company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments. I'd now like to call over -- now I'd like to turn the call over to Ray Dupuis, Chief Financial Officer of Kane Biotech to discuss our fourth quarter and year-end 2019 financial results. Ray?

Thank you, Steve, and thank you, everyone for your support and interest in Kane Biotech. We're delighted to have you join us on the call today. Before I turn the call over to Marc for an update on our commercial activity, I'd like to provide a brief update on our fourth quarter and year-end 2019 financial results. To streamline things, all the numbers I will mention have been rounded and are therefore approximate. The following figures are all in Canadian dollars. For the 3-month period ended December 31, 2019, the company recorded total revenues of $564,000, more than 3.5-fold increase compared with the same period in 2018. Total revenues include $49,000 from license and royalty and $515,000 from product and services revenues, which increased 70% and 302%, respectively, compared with the same period in 2018. The increase in fourth quarter 2019 revenues is primarily due to our fulfillment of the Eetoys bluestem product order, increased bluestem product sales to large pet specialty retail customers, and increased royalty payments and contract manufacturing services demand from Dechra. These factors also contributed to the increase in annual revenue, which I will discuss in a moment. Gross profit for the fourth quarter of 2019 was $200,000, $129,000 higher compared with the 3 months ended December 31, 2018, due to higher royalty and product and services revenues. Fourth quarter 2019 operating expenses were $1.4 million, a 79% increase compared with $784,000 for the 3 months ended December 31, 2018. The increase is primarily attributable to an increase in staff and other compensation-related expenses, higher business development cost related to bluestem marketing programs and higher contract research costs related to our DispersinB human wound care program. The company recorded a fourth quarter 2019 loss of $1.2 million or $0.01 per share compared with a loss of $622,000 or $0.01 per share for the same 3-month period in 2018. Moving to the results for the full year ended December 31, 2019, the company recorded revenues of $1.7 million, a 235% increase compared with 2018. Total 2019 revenues include $197,000 from license and royalty revenues and $1.5 million from product and services revenues, which increased 77% and 280%, respectively, compared with 2018. Gross profit for the full year 2019 was $610,000, $494,000 higher compared with 2018 due to higher royalty and product and services revenues. Full year 2019 operating expenses were $4.2 million, a 26% increase compared with 2018. The increase is primarily attributable to an increase in staff and other compensation-related expenses, higher business development costs related to bluestem marketing programs and higher contract research costs related to our DispersinB human wound care program. The company recorded a 2019 loss of $960,000 or $0.01 per share compared with a loss of $3.3 million or $0.04 per share in 2018. During 2019, we were fortunate to be awarded 3 funding awards in Canadian Federal Government programs: First, we were awarded $50,000 in funding from the Government of Canada's CanExport Small and Medium Enterprises Program; second, we were awarded a nonrepayable contribution of up to $341,000 from the National Research Council of Canada Industrial Research Assistance Program; finally, we were awarded $3.8 million to be received over a period of 3 years in interest-free repayable contributions from Western Economic Diversification Canada as part of its business scale up and productivity program. I'll let Marc elaborate on these in a moment. As of December 31, 2019, Kane Biotech had cash at $834,000. Subsequent to year-end, we further strengthened our balance sheet by completing the second and final tranche of a non-brokered private placement offering for aggregate gross proceeds of $3.5 million, which includes the gross proceeds from the first tranche of the private placement, which we completed in December 2019. At this time, I would like to discuss the impact of the COVID-19 pandemic on the company. The COVID-19 outbreak has resulted in a widespread health crisis that has affected economies and financial markets around the world, resulting in an economic downturn. The effects of this pandemic on the company may include decreased customer demand, interruptions to supply chains, manufacturing activities and research and development programs and increased government regulations or interventions. The duration and impact of the COVID-19 outbreak is unknown at this time, and it is not possible to reliably estimate the length and severity of these developments nor the impact of these developments and the financial results and condition of the company's future periods. The government of Canada has announced that they have formulated a COVID-19 economic response plan designed to support Canadian businesses during this crisis. There are many programs included in this plan, including loans, grants, wage subsidies and tax deferrals. The details of these programs are in the process of being fully communicated to businesses. The company is actively reviewing these programs as information becomes readily available and a plan to fully optimize its use of these programs in a timely manner. The company has implemented a number of temporary cost control measures during this period of uncertainty. These measures are being continually evaluated and will evolve as the extent of length of the economic downturn and the effects of this downturn on the company become more certain. With that, I'll now turn the call over to Marc.

Thanks, Ray. I hope everybody on the call is staying healthy and -- in home and taking care of themselves. 2019, as you can see from the numbers, was a transformative year for Kane Biotech. We put a lot of time and energy into building a world-class team, which has enabled us to make significant inroads into the Human Health market and also relaunch and expand our Animal Health business. Building around a very solid core of individuals, we announced new management additions in 2019. We welcome Lori Christofalos as Vice President of Quality and Compliance; Shabnam Bashiri as Manager of Quality Control; Scott Nicol, as Vice President of Supply Chain; and Michel as Vice President of Animal Health. These new additions along with our existing management team, our Scientific Advisory board as well as their external consultants have been instrumental in the growth we've seen in 2019 and will continue to be going forward. We've recently -- more recently, we welcomed renowned Canadian veterinarian, Dr. Jean Gauvin as Chief Veterinary Officer in addition to serving as a member of our Scientific Advisory Board between Kane Biotech and the vet industry. I'll start with our Human Health business, which is focusing on the development of a wound care hydrogel, containing our patented DispersinB enzyme. In early 2019, we renewed our exclusive worldwide license agreement with the University of Medicine and Dentistry of New Jersey, now part of Rutgers University for all human, animal, and industrial applications of DispersinB enzyme. To further support our strategy, we retained GR Consulting to develop and implement our DispersinB wound care hydrogel out license strategy for the U.S. and Europe, and Gary has been absolutely fantastic. We believe this will accelerate our licensing of our technology while maximizing the value of a potential licensing agreement in the future. As Ray mentioned, we are very pleased to have perceived a $3.8 million interest-free loan -- interest-free repayable contribution from Western Economic Diversification, or WD. This funding enables us to ramp up our product development, regulatory and commercialization efforts on DispersinB for the wound care market, and we should see significant progress on all fronts through 2020. In late 2019, we announced that Kane had been selected to receive a potential award of up to $3.4 million from an unnamed government agency related to the continuing clinical development of our DispersinB enzyme to treat biofilm mediated antimicrobial resistance in non-healing chronic wounds. The government agency is still reviewing the budget on this project, and we're hoping to have more clarity on this research award in about 6 weeks or so, at which time, we'll provide investors with an update. Also, in late 2019, we announced that we had launched a consumer product test to evaluate the efficiency of a shampoo developed by our Vice President of Research and Development, Nanda Yakandawala on dermatitis and dandruff. This appears to be a very promising product, and we expect to provide investors with preliminary results in the coming weeks. I'd now like to turn our attention to our Animal Health business, whose successful relaunch has resulted in fantastic sales growth and expanded oral care product line, growing royalties as well as geographic expansion of our licensing agreement with Dechra. During 2019, we focused on growing product sales in the pet specialty and online sales channel to increase marketing efforts and continued expansion of the bluestem product line. Our efforts have resulted in significant sales growth through the most comprehensive portfolio of pet oral care products in the markets. Over the past year, we saw growing interest in our Animal Health products, particularly our bluestem line. We've seen an increase in both the number and value of purchase orders from retailers and distributors in North America and China, which contributed to our nearly fourfold increase in product sales compared to 2018. Also driving the revenue increase were orders related to our exclusive distribution agreement with Eetoys, who is distributing our bluestem and StrixNB oral care products to more than 2,000 retails across China. Subsequent to year-end, we've signed our first U.S. distribution agreement with King Wholesale, further expanding our distributor network. Also driving our 2019 revenue was our exclusive license and distribution agreement with Dechra. We began seeing steady increases in royalty revenues from Dechra in early 2019, largely due to the Vetradent line receiving broader approval when it was added to the formulary of major American veterinary groups. Since then, Dechra has expanded its Vetradent line to include 3 new products. Kane Biotech receives an ongoing royalty from Dechra on net sales of Vetradent products in North America, and more recently, in South America, with the expansion of our agreement with Dechra in October. We believe this expansion will further support increasing royalty revenue in the future. Looking ahead, we continue to focus on growing the Animal Health revenues and expanding our animal health product line in 2020. One such product line is the silkstem anti-itch shampoo, we launched at the Global Pet Expo in February. As Ray mentioned, the $341,000 from NRC IRAP and the $50,000 from the CanExport SME program will support our Animal Health sales and commercialization efforts and increase our visibility in the high-growth markets of Brazil, China and U.K., respectively, going forward. I am very pleased with the progress Kane Biotech has made over the past year, and I'm looking forward to working with our strengthened team to build on this momentum in 2020 and beyond. In summary, our focus in the human Health Business is on identifying license and commercialization partnership opportunities, as we progress DispersinB wound care hydrogel towards regulatory filing. In Animal Health, we've planned to seek additional licensing and distribution partners for our various products and technologies and continue to grow our sales of oral care products as well as our royalty revenue. We've had an incredible team. We have some game-changing technologies. We've only just begun turning into products and commercializing. We're doing so in a variety of industries on our own and through world-class partners. So although I do believe there will be some short-term revenue loss caused by COVID-19, we've adapted and will continue to adapt very quickly to this new reality. And we should come out of this global pandemic in a very strong strategic position. So this ends our prepared notes for today. With that, we are happy to take any questions you might have. Operator?

[Operator Instructions] At this time, I'm showing no questions. I would like to turn the call back over to Marc Edwards, Kane's CEO, for closing remarks.

Thank you, Gigi, and thank you, everyone for attending. Again, please, thank you for listening in. And please stay safe, stay healthy, and we look forward to moving this business forward successfully for months to come. Thank you very much, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.