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

Good day, and thank you for standing by. Welcome to the Kane Biotech Q3 2022 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, to Nicole Sendey, Investor Relations. Please go ahead.

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 third quarter of 2022, along with a discussion of some of our recent highlights and goals for 2022 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 do contain certain forward-looking information and statements within the meaning of securities law, which may not be based on historical fact, including, without limitation, statements containing the words believe, 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 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 of Kane, 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 third 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 September 30, 2022, the company recorded total revenues of just under $572,000, an increase of 6% compared to just over $541,000 for the same period in 2021. In the 9 months ended September 30, 2022, total revenue increased by 65% to just over -- sorry, to just under $2 million compared to just under $1.2 million in the 9 months ended September 30, 2021. License revenue in the 3 months ended September 30, 2022, was just over $69,000, an increase of 93% compared to just under $36,000 in the 3 months ended September 30, 2021. This increase is due mainly to revenue recognition in the current quarter associated with VOHC milestone payments. And in the 9 months ended September 30, 2022, license revenue increased by 499% to just under $606,000 compared to just over $101,000 in the 9 months ended September 30, 2021. This is due mainly to revenue recognition associated with the VOHC milestone having been achieved in the second quarter of the current period. In the 3 months ended September 30, 2022, royalty revenue increased by 118% to just under $77,000 compared to just over $35,000 in the 3 months ended September 30, 2021. This increase is due primarily to VOHC certification achieved in Q2 2022, immediately triggering minimum royalties as per the company's license agreements, which has resulted in an increase in related sales in the veterinary channel. In the 9 months ended September 30, 2022, royalty revenue increased by 73% to just under $176,000 compared to just under $102,000 in the 9 months ended September 30, 2021. Revenue from product and services sales for the 3 months ended September 30, 2022, was just under $426,000, a decrease of 9% from just over $470,000 in the 3 months ended September 30, 2021. The decrease is due mainly to the reclassification of certain sales discounts to cost of sales and sales expenses in the prior period. Revenue from product and services sales in the 9 months ended September 30, 2022, was just under $1.2 million, an increase of 20% compared to just over $993,000 in the 9 months ended September 30, 2021. Gross profit for the third quarter 2022 was just under $270,000, an increase of 105% compared to just over $132,000 for the 3 months ended September 30, 2021. Gross profit for the 9 months ended September 30, 2022, was just under $1.1 million, an increase of 187% compared to just over $381,000 in the 9 months ended September 30, 2021. Third quarter 2022 operating expenses were just over $1.1 million, a decrease of 35% compared to just over $1.7 million for the same quarter in 2021. This decrease is due mainly to lower long-term incentive expense as well as lower expenditures related to the company's DispersinB Hydrogel program, partially offset by higher research expenditures related to the company's coactiv+ Antimicrobial Hydrogel program in the current period than the comparative period. Total operating expenses for the 9 months ended September 30, 2022, were just over $3.9 million, a decrease of 1% compared to just under $4 million in the 9 months ended September 30, 2021. Loss for the third quarter of 2021 was just over $1 million, a decrease of 34% compared to just under $1.6 million for the quarter ended September 30, 2021. Loss for the 9 months ended September 30, 2022, was just under $3 million, a decrease of 17% compared to just under $3.6 million in the 9 months ended September 30, 2021. Cash at September 30, 2022, was just under $1.3 million. With that, I will now turn the call over to Marc.

Thank you, Ray. Thank you, Nicole. Q3 2022 was another solid quarter in which Kane accomplished a loss, in particular with respect to commercialization of wound care markets. Biofilm-impaired healing is one of the biggest unresolved problems in wound care and one of the key areas we think we can make a difference. Submitting our first 510(k) application for coactiv+ Antimicrobial wound gel was another major milestone for Kane. Our wound gel is a great combination of best-in-class efficacy and ease of use and really takes advantage of a real need in the advanced wound care market for a premium gel that is accessible to patients in the North American and international markets. We intend to price our gel, for example, below reimbursement in the U.S., and we'll really be the only premium gel that does that. Coactiv+ is -- one of the important features of coactiv+ is it's a thermo-reversible gel, making it ideal for sensitive wounds such as burns. What do I mean by a thermo-reversible gel? Well, essentially, most gels, when you cool them, they'll solidify. But our gel, as it cools, will become completely liquid and firm up again at body temperature. So by cooling the gel -- you don't need to, but by cooling the gel, you could basically pour it on to a sensitive wound such as a burn. And once applied, it will heat the body temperature and will thicken within seconds, providing a thick clear coating. Both the application of the cool gel and its potential removal with cold water as it liquefies again when you cool it down with cold water are both very soothing to patients. Preliminary response from potential partners and practitioners has been overwhelmingly positive. And I want to reiterate that there's really -- there are a number of premium gels out there today, but they are well within -- they're well outside the reimbursement range. And we think that the combination of best-in-class efficacy, the ease of use that our gel provides and the price point we're coming into market at will make it very, very compelling. We're finalizing agreements to have the gel manufactured in Montreal and a price point we can have it manufacture that, even though we come in with reimbursement, still provides some very, very generous margins for our wound gel. So we're very excited about that. For DispersinB wound gel, following very positive preclinical results, we were awarded an additional $425,000 funding from the United States Department of Defense, for the manufacturing of our DispersinB Hydrogel to be used in our upcoming clinical trials, which are due to begin next quarter. The additional funding supplements approximately $2.7 million in nondilutive funding previously awarded from -- for the continued clinical development of Kane's DispersinB Hydrogel to treat biofilm-mediated antimicrobial resistance in non-healing chronic wounds. In our press release that we put out when we announced additional funding from the U.S. Department of Defense, we had a quote from Dr. Lauren Palestrini, who's the Director of Research at the Medical Technology Enterprise Consortium, and stated that biofilm formation is a common problem that significantly affects wound healing, thereby affecting military readiness. DispersinB Hydrogel has shown great promise to inhibit biofilm formation with the potential to promote wound closure and ultimately accelerate return to duty. We're excited to see Kane Biotech's progress into clinical studies, and we anxiously await its safety evaluation in human subjects. And turning to human -- to animal health, obtaining VOHC earlier this year enabled Animalcare to launch its coactiv lineup of products in the European veterinary markets, and they're currently working on expanding the commercialization globally. Dechra has also demonstrated that VOHC was the missing link for them to start scaling up to sales. Dechra has gained good traction with the highest sales so far, reporting during the 3 months of Q3 2022, contributing in large part to the 118% increase in royalty revenue year-over-year, which Ray mentioned earlier. Finally, in addition to launching our coactiv+ wound gel in the advanced wound care market, we also believe there's a significant opportunity for this product in animal health. That's really the beauty of the business model we're building at Kane as we already have the vehicle in place to enable that commercialization. So I look forward to sharing our progress with you in this regard in the coming quarters. Finally, in dermatology, we continue to see modest but consistent growth of our DermaKB line of scalp care products due largely to increased product sales on Amazon, and we're working on commercializing DermaKB products in both the salon and medical spa channel. I will now pass the call over to our operator to begin the question-and-answer session. And thank you very much.

[Operator Instructions] And I show we have a question from [ Steve Simmons ] from Shaw.

For marketing coactiv -- or actually, the production, you said you're working with the facility in Montreal, how long would it take them to get mobilized, say, you get approval from the FDA in Q1?

It -- I mean, we believe we can get this turned around in 90 days.

Okay. So I guess you just have to hire -- well, obviously, you have to hire somebody to market it so...

No. Sorry, Steve, I wasn't clear. I should have been clearer on the call. We are -- since we filed the 510(k), and we actually have a product now and we have a manufacturing, a cost of goods and -- it's become a lot more tangible, and we are -- have progressed quite a bit with the number of interested partners in our gel there. So we -- we're not going to be hiring people to go out there and sell it but really going to be -- we're hoping that we're -- we will shortly be finalizing an agreement there to -- with a partner to bring that to market.

Yes. And for the Dispersin, did I -- am I right -- is that like a year or 2 walk? You have to do a lot more studies with it or...