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

Ladies and gentlemen, thank you for standing by, and welcome to the Kane Biotech Quarter 3 2021 Financial Results. [Operator Instructions] And as a reminder, the conference call is being recorded. I would now like to turn the conference over to your host, Mr. Lorne Gorber, Head of Investor Relations. Sir, you may begin.

Thank you, Mel. Good afternoon, everyone. We're delighted to have you join us today for Kane Biotech's Q3 2021 Results Conference Call. With me to review the financial and operating results for the third quarter ended September 30, 2021, are Kane's CEO, Marc Edwards; and its CFO, Ray Dupuis. Following prepared remarks, we will open the lines and take your questions. Before handing it over to Ray, let me caution you that our comments and discussions will include forward-looking information within the meaning of applicable securities legislation. Forward-looking information will include, among other things, forecasts and projections which involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from such forecasts and projections. Therefore, although we believe that anticipated future results, performance or achievements expressed or implied by the forward-looking information are based on reasonable assumptions and expectations, you should not place undue reliance on such forward-looking information. Now I'll hand the call over to CFO, Ray Dupuis, to discuss the Q3 2021 results, and then Marc will provide an update and outlook for our business. With that, Ray?

Thank you, Lorne. To streamline things, all the numbers I will mention are rounded and are, therefore approximate. The following figures are all in Canadian dollars. Revenue from product sales in the 3 months ended September 30, 2021 was just over $438,000, an increase of 53% compared to just under $287,000 in the 3 months ended September 30, 2020. This increase is due mainly to sales attributable to a new agreement with PetSmart Canada and the financial reporting reclassification in the current period amongst revenue, cost of sales and general and administrative expenses retroactive to the beginning of 2021. In the 3 months ended September 30, 2021, the company recognized license revenue associated with license and milestone payments received from Animal Care and Dechra in 2021. License revenue increased by 114% from the comparative period. Gross profit for the third quarter of 2021 was just under $132,000, an increase of 2% compared to just over $129,000 for the quarter ended September 30, 2020. Total operating expenses for the 3 months ended September 30, 2021 were just over $1.7 million, an increase of 38% compared to just over $1.2 million for the quarter ended September 30, 2020. Loss for the third quarter 2021 was just under $1.6 million, an increase of 53% compared to just over $1 million for the quarter ended September 30, 2020. Cash at September 30, 2021 was just under $1.3 million compared to just over $1 million at December 31, 2020. Further detailed financial information concerning Kane's third quarter 2021 financial results is available on our website and on SEDAR. With that, I will now turn it over to Marc.

Thank you, Ray, Lorne, and good afternoon, everyone. I'm excited about the momentum we're generating through the end of this year and into the next. This is the case across all 3 of our strategic pillars: STEM Animal Health, OTC dermatology and wound care and surgical. In addition to my comments on Q3, I'd like to provide a more detailed business update as there are so many exciting developments this year. We are more confident than ever that our focus on being a biofilm company or the biofilm company, helping to resolve the many challenges and problems biofilm cause across multiple industries as well as the entire health care spectrum is providing to be the right strategy -- proving to be the right strategy. Both our DispersinB and coactiv+ technologies continue to be recognized for their effectiveness in dispersing biofilms. As a result, the pipeline of licensing and commercial opportunities continues to grow, while discussions with several potential partners are advancing through various stages of development. Now let's review each business line beginning with Animal Health. With investments in both our product line and across the supply chain, STEM is positioned for long-term growth, poised to capture market share and additional shelf space. I'm more excited than ever before about this business and our partnership with Animal Care. Now that these investments have been made, Kevin, our CEO, and his team are seeing the acceleration of this business. This business is top and bottom line as it further captures a larger share of the $5 billion pet oral care market. At the same time, getting our products onto the shelves of retailers like PetSmart, will create awareness and provide the ability for consumers to try a bluestem product. In addition, we remain confident that our oral health efficacy certification is imminent, will be a major milestone for STEM, and we look forward to announcing that shortly. Turning now to what was known as OTC, now dermatology. The DermaKB line of business continues to grow through direct sales to consumers online via our website as well as on Amazon, where we recently listed in both U.S. and Canada. We still remain largely focused on capturing licensing opportunities in this segment. We have a number of ongoing potential discussions with potential licensing partners. The high efficacy provided by our DermaKB shampoo that we've shown through a very large consumer trial provides a very compelling story. Focusing on biofilm disruption allows us to provide this high level of efficacy without using any harsh antimicrobials or antifungals, which generally cause irritation and other negative side effects, making our DermaKB line very attractive to potential partners. In addition to our shampoo line, Dr. Jeff Kaplan, the discoverer of DispersinB and a member of Kane Scientific Advisory Board; and Dr. Nanda Yakandawala, Kane's VP of R&D, have been building the business case for using DispersinB formulated into a face wash. They strongly believe that DispersinB could significantly enhance current treatment protocols. We're also finalizing a research partnership with the dermatologist at the University of Miami to conduct a proof-of-concept trial. We'll be sharing more on this in coming weeks. Last, but certainly not least, Wound Care. Recall, for the last several quarters, we made reference to our efforts around reviewing partnership for these businesses. As we introduced our technology to major global players in this space, a lot has developed. For DispersinB wound gel, we've completed the previously announced 28-day safety study. As we fully expected, both toxicity and biocompatibility pose no issue. And what's particularly interesting is that the wounds appear to be closing much faster than the control, which is extremely positive. We've also made notable progress on our coactiv+ wound gel, we're on schedule to begin the testing required for a 510(k) submission in the coming weeks. In late October, we attended the Symposium on Advanced Wound Care where we met with key opinion leaders who all seem to agree, both our platforms have great promise. They reiterated the biofilms [ remain ] one of the -- one of, if not the biggest unresolved problem in wound care. This is all very encouraging, further validating our commitment to make both coactiv+ and DispersinB game changers in wound care. Finally, with respect to our Wound Care business, we are currently in fairly advanced discussions with a global player that has serious interest in moving forward with a potential partnership, one that would be highly synergistic and very material for Kane. This momentum will hopefully lead to a strategic announcement for this business in early 2022. In closing, I hope I have conveyed our optimism about the current momentum for each of our businesses and the confidence we have in the model we started putting in place last year, specifically anchored around our IP, the coactiv+ and DispersinB platforms. Both are gaining in notoriety and bolstering the opportunity pipeline across many industries. As such, we will close financial 2021 and enter fiscal 2022 in a position of strategic strength with the wind at our backs. Thank you for your confidence. And let's see if there are any questions.

[Operator Instructions] I'm showing no questions at this moment. Please continue, presenters.