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

Ladies and gentlemen, thank you for standing by, and welcome to the Kane Biotech Fourth Quarter and Full Year 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, Graham Farrell. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome, everyone, to Kane Biotech's quarterly earnings conference call. We are delighted to have you join us today. This call will cover Kane's financial and operating results for the fourth quarter and year ended December 31, 2020, along with a discussion of some of our recent highlights and goals for 2021 and beyond. Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by Kane's Chief Executive Officer, Marc Edwards. Before we begin our formal remarks, I would like to remind everyone that some of the statements on this conference call contain certain forward-looking information, statements within the meaning of securities laws, which may not be based on historical fact. Including without limitation, statements containing the words believes, should, may, plan, will, estimate, predict, continue, anticipate, potential, intends, expects or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other facts 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 development, lack of product revenues, additional capital requirements, risks associated with the completion of clinical trials and obtaining regulatory approval to market the company's products, the ability to protect its intellectual property independent upon collaborative partners. These factors should be considered carefully, and readers 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 will now hand the call over to Chief Financial Officer, Ray Dupuis. Please go ahead, Ray.

Thank you, Graham. Before I turn the call over to Marc for an update on our commercial activities, I would like to provide a brief update on our fourth quarter and year-end 2020 financial results. To streamline things, all the numbers I will mention have been rounded and are therefore approximately. The following figures are all in Canadian dollars. For the 3-month period ended December 31, 2020, the company recorded total revenues of $257,000, a 54% decrease compared with the same period in 2019. Total revenues include $61,000 from license and royalty and $196,000 from product and services revenues which increased by 24% and decreased by 62% respectively, compared with the same period in 2019. The increase in license and royalty revenues in the current quarter is due mainly to the initial licensing payment from Animal Care being recognized over 10 years. The decrease in product and services revenue in the current quarter is primarily due to supply chain disruptions brought about by the COVID-19 pandemic resulting in product shortages, a large order to an international customer in the comparative period that did not reoccur, and lower demand for contract services revenue in the current period. Gross profit for the fourth quarter of 2020 was $103,000 compared to $200,000 for the 3 months ended December 31, 2019, due mainly to lower product and services revenue in the current period. Fourth quarter 2020 operating expenses were $1.2 million, a decrease of 18% compared with $1.4 million for the 3 months ended December 31, 2019. The decrease is largely attributable to higher government assistance received in the current period. The company recorded a fourth quarter 2020 loss of $816,000 or $0.01 per share compared with a loss of $1.2 million or $0.01 per share for the same 3-month period in 2019. Moving to the results for the full year ended December 31, 2020, the company recorded total revenues of $1.3 million, a 21% decrease compared with $1.7 million in 2019. Total 2020 revenues include $212,000 from license and royalty revenues and $1.1 million from product and services revenues, which increased 8% and decreased 25% respectively, compared with 2019. The increase in license and royalty revenues in the current quarter is due mainly to the initial licensing payment from Animal Care being recognized over 10 years. The decrease in product and services revenue in the current quarter, sorry, in the current year, is primarily due to retail and supply chain disruptions brought about by the COVID-19 pandemic and lower demand for contract services revenue in the current period. Gross profit for the full year 2020 was $527,000, $83,000 lower compared with 2019 due mainly to lower product and services revenue in the current period. Full year 2020 operating expenses were $4.8 million, a 13% increase compared with $4.2 million in 2019. The increase is primarily attributable to higher compensation related and consulting expenses, higher business development costs related to the launch of our new DermaKB shampoo product line, and higher contract research costs related to our DispersinB human wound care program in the current period, partially offset by higher government assistance received in the current period. The company recorded a 2020 loss from operations of $3.7 million or $0.03 per share compared with a loss from operations of $3.6 million or $0.04 per share in 2019. At December 31, 2020, the company had cash of $1 million compared to $800,000 as of December 31, 2019. With that, I'll now turn the call over to Marc

Thank you, Ray. I would like to begin the call by thanking our employees and partners for all their hard work. Despite numerous personal challenges brought on by COVID, the Kane team was able to come together virtually and lay the foundation for tremendous potential growth in the 3 markets we believe we can win in. A lot of what I'm going to talk to you today certainly doesn't get fully reflected in our financial statements, but will really lay the foundation for growth, for potential growth. For me, one of the most significant elements of 2020 is that we confirmed that both our DispersinB, but especially our coactive+ patented technologies, our truly technology platforms with applications in multiple markets. In Animal Health, the transaction with Animalcare that led to the creation of STEM Animal Health brought about 4 important elements. First, it will expand the reach of our pet oral care line in the veterinary market globally, building on our great relationship with Dechra for the Americas. It provided $5 million of capital dedicated to growing our animal health business. It enables us to bring in Kevin Cole, an industry veteran, to lead our Animal Health business. Kevin has a strong track record of success, and I'm confident he will maintain that track record within the STEM organization. And fourthly, and one of the very, certainly one of the key elements, is that it provided the necessary funding to conduct their second clinical trial in our pet oral care water additive, which as we announced 2 weeks ago, met the primary endpoints which will lead to -- which should lead to milestones and increased royalty revenue. In Human Health, we launched our DermaKB shampoo line late in Q4. Recent research has indicated that the persistence of microbial biofilms may be linked with aggravating the symptoms associated with common skin and scale conditions. Our DermaKB line, which leverages our coactive+ technology is a product that has been formulated by Nanda, our VP of R&D, many years ago. We had anecdotal evidence that the shampoo really worked well. Following the leadership of our CSO, Dr. Gordon Guay, and his 25 years' experience as a research fellow at Procter & Gamble, we conducted 2 large consumer efficacy trials with a total of over 5,000 participants in Canada and the U.S. The results are extremely compelling, and we'll be presenting them shortly, with or over 85% of participants seeing improvement in their condition. Also, the DermaKB scale detox so far is approved by the Canadian Dermatological Association, which is certainly nothing to spit at. Finally, we made great strides in our Wound Care business. The USD 2.7 million grant from the U.S. Department of Defense announced in June, not only confirms the need for biofilm dispersion technologies in wound care, but is also a great validation of our technology. We are also going to be working closely with MTEC to secure venture funding for DispersinB gel as well. We also formulated another wound care hydrogel based on our coactive+ technology and expect to file a 510(k) on this product before year-end. Going forward, investors can expect announcements related to our 2 new strategic partnerships in both Wound Care and OTC as well as the veterinary efficacy certification on our water additive. I will now pass the call over to our Operator to begin the question-and-answer session.

[Operator Instructions] Our first question will come from the line of [ Don Nicolson ].

Could you give us kind of in Q1, Q2, Q3 sort of terminology, touchstones of these 3 fronts that we've got in motion? When you might expect kind of milestone events to occur? Like are we, on the Animalcare and on the 3 things you just enlightened us on?

So for the veterinary certification, there's the lab, the clinical trial has I believe 10 to 12 weeks to draft the final report and then the people that actually met the certification have about the same time. So we're probably talking another close to 6 months there. So before the end of Q3, we're hoping to have that achieved. On the wound care strategic partner search, we're making some good progress. There is a lot of interest. And we're moving that forward as quickly as possible. I don't think it would be -- so we're moving that as quickly, forward as quickly as possible. And with the launch of our DermaKB shampoo as well, the consumer trial as I said is very compelling. We've initiated preliminary discussions with a few potential partners, and there seems to be quite a bit of interest there. So those are -- they're moving forward and remain the strategy, and we're confident we'll get it done by year-end.