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

Good day, and thank you for standing by. Welcome to Kane Biotech Q2 2022 Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Sendey, Investor Relations and Public Relations for Kane Biotech.

Thank you, operator. Good afternoon, and welcome, everyone, to Kane Biotech's quarterly earnings conference call. We are grateful to have you join us today. This call will cover Kane's financial and operating results for the second quarter of 2022, along with a discussion of some of our recent highlights and goals for 2022 and beyond. Following our prepared results, 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 and 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 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 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 and dependence 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 over the call to Chief Financial Officer, Ray Dupuis. Please. Go ahead, Ray.

Thank you, Nicole. 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 second quarter 2022 financial results. To streamline things, all the numbers that I will mention have been rounded and are therefore approximate. The following figures are all in Canadian dollars. For the 3 months ended June 30, 2022, the company recorded total revenues of $840,000, an increase of 201% compared to $279,000 for the same period in 2021. License revenue in the 3 months ended June 30, 2022, was $500,000, an increase of 1,295% compared to $36,000 in the 3 months ended June 30, 2021. This substantial increase is due to the company's subsidiary, STEM Animal Health, achieving a key milestone in April 2022, namely the Veterinary Oral Health Council, VOHC, Seal of Acceptance which triggered approximately $1.3 million in milestone payments from STEM's licensing partners pursuant to its license and distribution agreements. In the 3 months ended June 30, 2022, royalty revenue increased by 77% to $52,000 compared to $29,000 in the 3 months ended June 30, 2021. This increase is due primarily to VOHC certification achieved in the current period, immediately triggering minimum royalties as per the company's license agreements as well as the underlying product sales in the veterinary channel being less impacted by the COVID-19 pandemic in the current period than the comparative period. Revenue from product and services for the 3 months ended June 30, 2022, was $288,000, an increase of 35% from $214,000 in the 3 months ended June 30, 2021. The increase is due mainly to the reclassification of certain sales discounts to cost of sales and sales expenses and higher DermaKB sales in the current period. Gross profit for the second quarter 2022 was $639,000, an increase of 665% compared to $84,000 for the 3 months ended June 30, 2021. Second quarter 2022 operating expenses were just under $1.4 million, an increase of 25% compared to just under $1.1 million for the same quarter in 2021. This increase is due mainly to lower government assistance and higher nonfunded research expenditures related to the company's coactiv+ Antimicrobial Hydrogel and DispersinB Hydrogel programs in the current period. The company recorded second quarter 2022 loss of $795,000, a decrease of 26% compared to $989,000 for the same quarter ended June 30, 2021. Cash at June 30, 2022, was $2.5 million. During the quarter, the company received USD 500,000 from one of its licensing partners related to the achievement of the VOHC milestone, closed its nonbrokered private placement offering raising gross proceeds of $1 million and further amended its credit agreement with its lender resulting in approximately $1.8 million in new capital being provided. With that, I will now turn the call over to Marc.

Thank you, Ray. Thank you, Nicole. If you follow us on social media platforms such as LinkedIn, I'm sure you've noticed we've been very active in sharing lots of great content on biofilms and how Kane aims to solve biofilm-related problems. Nicole has been doing a great job with that and really helping us get our message out there. So thank you, in particular, for that, Nicole. Q2 2022 was a particularly solid quarter in which a number of key milestones were achieved. In Animal Health, STEM's water additive products obtained the long anticipated VOHC Seal of Acceptance, which not only provided, again, long-awaited milestone payments and minimum royalties in the veterinary space, but also bodes well for our U.S. retail penetration. Also, the very positive results we got from our 2 clinical trials in order to obtain the Seal further validate the efficacy of Kane's coactiv+ antibiofilm technologies. Also building on VOHC, Animalcare, which is our OUS partner for our Animal Health products, launched their Plaqtiv Water Additive, which they claim as the first European product of its type to earn the VOHC seal. In wound care, we had a very constructive pre-submission meeting with the FDA regarding our coactiv+ wound gel, where they recommended a number of additional testing, which we've completed just last week, in fact. Once we receive the final reports from the University of Miami, which are expected in a few weeks, we should be ready to submit our 510(k) application to the FDA, and we're confident we have a clear path forward. In terms of our DispersinB wound gel, we had a very positive update call with the U.S. Army, and I believe they shared our enthusiasm for the preclinical results we obtained. We expect clinical trials on the DispersinB hydrogel to begin in the coming months. Furthermore, and this applies to the entire business and not just wound Care, but Dr. Greg Schultz' appointment as Kane's Chief Scientific Officer, will provide tremendous support in the development of our wound care business, not only from a scientific perspective, by aiding the development and commercialization of our DispersinB and coactiv+ technologies but also from a business perspective as the company advances towards securing a strategic wound care partner. Dr. Greg has a fantastic network and extremely well respected in the industry. So he's certainly helping us out a lot there. In the second quarter of 2022 , Kane also obtained the ISO 13485 certification for its quality management system, specific to its ongoing efforts to design and develop novel medical devices and manufacturing processes for the wound care market. Quality and continuous improvement are core values of Kane and of paramount importance to our company's growth. I want to congratulate the entire team on that, but in particular, Lori Christofalos who is our VP of Quality. She was instrumental in getting that certification. We continue to see good online sales of our DermaKB line of scalp care products due largely to increase product sales on Amazon. But being a small company with limited resources and unlimited opportunities, we haven't yet committed the time and effort to DermaKB that it deserves. We continue to receive very compelling testimonials on a regular basis, and I'm looking forward to deploying a more robust commercialization strategy shortly. With regards to funding the business, I want to recognize Pivot Financial's continued support of Kane's product development and commercialization efforts, demonstrated by the recent access to additional working capital they have provided as discussions with potential wound care partners and other opportunities continue to advance. I will now pass the call over to the operator to begin the question-and-answer session. Thank you very much.

[Operator Instructions] And I am showing one question, one moment, please. And our first question comes from Steve Simons, individual investor.

I was wondering you said that you soon have your FDA presubmission completed. And then you said you'll be able to submit. That's a gigantic undertaking to put together all the paper to submit to them. Has that all been done? Or will that take like half a month or half a year or something like that to put together?

No, Steve. So we -- it's really a compilation of all the tests that we've done. So as -- when we report -- when we receive the reports, which should happen by mid-September, we're -- our plan is to have everything be finalized there for the submission and simply add the report to the submission when it comes in and submit a few days later, if all goes according to plan. So it should be -- I'm pushing the team very hard to get this done this quarter.

Sounds good. I got a question about your shampoo. I think you touched on it. You said you're -- like, you've got limited resources to market. And so are you possibly looking for somebody major to market these, like, the human shampoo or -- because you've done all the upfront, the studies and things that come out pretty rosy.

Yes. So we did a consumer trial, which we had 1,500 people complete 2 questionnaires, essentially before and after, 50 question medical questionnaires, and the results are extremely compelling there. Like I said, we haven't committed a lot of energy to the marketing of the product but the plan is to -- we're evaluating a number of different opportunities. I participate in a big salon and health spa conference called Cosmoprof in Las Vegas. We were there in July with Wendy, who's leading that initiative for us. And looking at -- we've met a number of potential distributors that are interested in commercializing in that space. And also we've been having different conversations with potential licensing partners. The one gap that we have is that although we have probably one of the largest consumer trials out there that's ever been done for a product like ours, it isn't quite the same as a clinical trial which would allow for more robust claims, if you like. So that's something that we're working with the potential partners to figure out what the best way of doing that is. But we're making good progress on everything within wound care. And as soon as we've buttoned up a few of the key items there, we'll be putting a lot more effort into dermatology.