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

Ladies and gentlemen, thank you for standing by, and welcome to the Kane Biotech First Quarter 2020 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 to your speaker today, Steve Kilmer, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone. Let me start by pointing out that some of the statements on this conference call will contain certain forward-looking information and statements within the meaning of securities laws, which may not be based on historical facts, including, without limitation, statements containing the words believes, 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 stages of development, lack of product revenues, additional capital requirements, risk associated with the completion of clinical trials and obtaining regulatory approval to market the company's products, the potential impacts of the COVID-19 pandemic, 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 events, results or developments. I'd now like to turn over the call to Ray Dupuis, Chief Financial Officer of Kane Biotech, to discuss our first quarter 2020 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 activities, I'd like to provide a brief update on our first quarter 2020 financial results. To streamline things, all of 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 March 31, 2020, the company recorded total revenues of $456,000, a 27% decrease compared to $621,000 for the same period in 2019. Total revenues include $65,000 from license and royalty and $391,000 from product and services revenues. The decrease in first quarter 2020 revenues is primarily due to a 31% decline in product and services revenues, as we delivered on our largest purchase order for bluestem products in our history during a large North American pet retailer in the first quarter of 2019. In addition, revenues for the current quarter were negatively impacted by the COVID-19 pandemic, as there were very few new orders in March. Most notably, a substantial order that we were expecting from our Chinese distribution partner Eetoys, did not materialize in the quarter. This was partially offset by a $14,000 or 41% increase in royalty payments from Dechra, as they continue to roll out their expanded Vetradent product line to their North American veterinarian customer base as well as $76,000 or 150% increase in contract manufacturing services revenue, which was mainly due to Dechra's new Rawhide Chews product that was manufactured and shipped to Dechra in the current period. Gross profit for the first quarter of 2020 was $179,000, $31,000 lower compared with the 3 months ended March 31, 2019 due to lower product and services revenues. First quarter 2020 operating expenses were $1.6 million, a 96% increase compared with $830,000 for the 3 months ended March 31, 2019. The increase is primarily attributable to higher staff and other compensation-related expenses, higher investor relations expenses and higher contract research costs related to our DispersinB human wound care program. The company recorded a first quarter 2020 loss of $1.4 million or $0.01 per share compared with a loss of $657,000 or $0.01 per share for the same 3-month period in 2019. During the quarter, we completed the second and final tranche of a nonbrokered private placement offering for aggregate proceeds of $991,000. As at March 31, 2020, Kane Biotech had cash at $426,000. Finally, earlier this week, we announced that effective May 19, 2020, our shares have been reapproved for and will recommence trading on the OTCQB Venture Market. Since February 4, 2019, shares of Kane Biotech have been traded under the Pink Open Market. With this upgrade to the OTCQB, our shares will continue to trade under the ticker symbol KNBIF. We believe this upgrade will help us to both increase our visibility and support our efforts to grow our U.S. shareholder base. With that, I'll now turn the call over to Marc.

Thanks, Ray. [Foreign Language]. Before I begin, I'd like to provide an update related to our response to COVID-19 pandemic, in addition to implementing the necessary precautionary measures, such as working from home, freezing all nonessential travel and switching to virtual meetings. And I'd like to take a minute to put out a special thanks to our quality and R&D teams that have continued their important work in the lab, while being extra careful to disinfect surfaces and respecting the recommended social distancing protocols. All members of our management and R&D teams have agreed to partial salary deferrals and certain marketing programs have been put on hold. We've identified and applied for government business support programs, for which we meet the requirements. We have received a $40,000 revolving line of credit as part of the Canada Emergency Funding Account, or CEBA program, we've also applied for the Canada Emergency Wage Subsidy or CEWS and are investigating co-lending opportunities with our bank as well as Export Development Canada and the Business Development Bank of Canada. These programs are evolving rapidly, and we're doing our best to take full advantage of all programs for which we're eligible. Now -- I'll now turn to our first quarter 2020 review. We started the quarter by welcoming renowned Canadian veterinarian, Dr. Jean Gauvin as Chief Veterinary Officer. In addition to serving as a member of our Scientific Advisory Board, Dr. Gauvin will serve as a liaison between Kane Biotech and the veterinary industry. In our Human Health wound care business, we continue to focus on the development of a wound care hydrogel containing our patented DispersinB enzyme, although we previously planned to seek regulatory approval for our DispersinB human wound care hydrogel as a medical device under the 510(k) pathway. We are currently reviewing other strategies based on market analysis provided by our consultants as well as preliminary feedback recently received by the FDA. Our goal is to pursue the optimal regulatory pathway for this technology that will maximize reimbursement, allow for claims, hence, significantly increasing the value for licensing agreement and better leveraging the approximately $7-plus million in nondilutive funding we have been awarded or selected to be awarded for this program. With regards to this nondilutive funding, as I mentioned on our last call, we were selected in late 2019 to receive a potential award of up to $3.8 million from an unnamed government agency related to the continuing clinical development of our DispersinB enzyme to treat biofilm-mediated antimicrobial resistance in nonhealing chronic wounds, quite a multiple. We believe we're in the final stage of the process, and we're hoping to have more clarity on this research award shortly, at which time, we will absolutely provide an update. We're -- I'm confident we're getting very close here. In addition to the significant amount of work we're doing in DispersinB, we're also looking at leveraging coactiv+ patents in the surgical, and wound care spaces, and the preliminary conversations we've had with licensing partners, this technology was also very well-received. In late 2019, we announced the launch of a new consumer product test to evaluate the efficacy of a shampoo, developed by our Vice President, Nanda Yakandawala, on dermatitis and dandruff. Nearly 1,500 individuals signed up to participate in the test, which far exceeded our expectations and indicates a gap in the market for efficacious products for these scalp conditions. We shipped 800 bottles of shampoo to individuals across Canada. And last week, announced the results of the consumer product tests where 82% of individuals reported an overall improvement in the condition with a significant reduction in dandruff, irritation, redness and itchiness symptoms. This is very encouraging, especially since the test was conducted on an unoptimized product. Once the product is optimized, we plan to offer the shampoo in Canada via online direct-to-consumer sales beginning in the third quarter 2020. We're looking forward to providing an update once the shampoo is available, including where you can purchase the shampoo. We also plan to apply for government of Canada's CanExport SME program to support some of the marketing costs associated with the U.S. launch, which we anticipate later this year. In addition, we received numerous requests for other products containing coactiv+. So we also plan to develop a scalp detoxifier, conditioner and face wash formulations in a second phase once we launch the shampoo. With regards to our Animal Health business, as I mentioned on our last call, we signed our first U.S. distribution agreement with King Wholesale and launched our silkstem anti-itch shampoo at the Global Pet Expo in February, which reflects our strategy to further expand both our distributor network and animal health product lines, respectively. We achieved more than 140% of our crowdfunding objectives and received almost unanimously positive feedback from more than 200 pet parents who have tried our silkstem shampoo. We are currently planning to launch our silkstem anti-itch shampoo through the pet retail channel and on Amazon this quarter. In summary, we're taking all the necessary steps to ensure Kane continues to thrive despite the uncertainty of COVID-19. We have a large number of projects underway, which are all going very well despite our temporary dip in sales caused by COVID-19. Our focus in the Human Health wound care business is to identify and license -- is to identify license and commercialization partnership opportunities as we continue the development of our hydrogel as well as identifying the optimal regulatory pathway for the DispersinB technology. We're also looking forward to launching our shampoo -- our human shampoo in Canada and subsequently in the U.S. In Animal Health, we continue to seek additional licensing and distributor -- distribution partners for our various products and technologies. We're looking forward to the launch of our silkstem, while we target long-term increased oral care product sales as well as royalty revenues. This ends our prepared remarks for today. With that, I'm happy to take any questions you might have. Operator?

[Operator Instructions] Our first question comes from Don Nicolson with D.J. and Planning & Design.

Marc, I have a couple of questions. Can you hear me okay?

Yes, we can hear you very well.

Yes. I've got a question -- a couple of questions. Our burn rate and what we have moving forward and I know we did the placement and raised money. Where does that get us, notwithstanding the fact that COVID has shown up both in the front windshield and the rearview mirror because we're in the middle of the pandemic, but where do we sit? Have we got enough gas in the tank to take us out 9 months, 6 months, a year? What would you say?

Yes. So we're -- Don, we're hoping to have this grant finalized. And that, combined with the WED funding, the $3.8 million there, which we've only started to tap into, will give us some legroom. We're making good progress on a couple of licensing deals in the Animal Health business. So I'm still confident that we have significant -- at least -- I don't want to overpromise here, but I'm hoping we can go at least the next 12 months without needing to raise for the Kane.