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

Good day, and thank you for standing by. Welcome to the Kane Biotech Q2 2023 Financial Results Conference 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.

[Audio Gap] call will cover Kane's financial and operating results for the second quarter of 2023, along with a discussion of some of our recent highlights and goals for 2023 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 and statements within the meaning of securities law, 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 result 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 2023 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. Revenue from product and services for the 3 months ended June 30, 2023, was $484,000, an increase of 68% from $288,000 in the 3 months ended June 30, 2022. This increase is due mainly to higher STEM Animal Health online and pet retail sales as well as the higher demand for contract manufacturing services during the current period. Royalty revenue for the 3 months ended June 30, 2023, was $90,000, an increase of 74% compared to $52,000 in the 3 months ended June 30, 2022. The Veterinary Oral Healthcare Council or VOHC certification that STEM received in April 2022 immediately triggered minimum royalties from STEM's licensing partners which has contributed to the increase in royalty revenue recognized in the current period. Total revenue for the 3 months ended June 30, 2023, was $657,000, a decrease of 22% compared to $840,000 in the 3 months ended June 30, 2022. Total revenue in the comparative quarter includes license revenue of $431,000 recognized by STEM related to the VOHC certification that STEM received in April 2022. Excluding this revenue recognition, total revenue for the 3 months ended June 30, 2023, increased by $248,000 or 61% compared to the 3 months ended June 30, 2022. Gross profit for the second quarter of 2023 was $331,000, a decrease of 48% compared to $639,000 for the quarter ended June 30, 2022. Revenue recognized for VOHC in the comparative quarter significantly contributed to the gross profit recorded in that period. Total operating expenses for the 3 months ended June 30, 2023, were $866,000, a decrease of 36% compared to $1.361 million for the 3 months ended June 30, 2022. The decrease is due mainly to an adjustment in the current period of accrued short-term incentive compensation expense recorded in prior periods as well as lower contract research expenditures related to the company's coactiv+ Antimicrobial Wound Gel and DispersinB Hydrogel product development programs incurred in the current period. Loss for the second quarter 2023 was $968,000, an increase of 22% compared to $795,000 for the quarter ended June 30, 2022. Cash at June 30, 2023, was $1.146 million compared to $1.105 million at December 31, 2022. With that, I will now turn the call over to Marc.

Thank you, Ray. Thank you, Nicole. Once again, our second quarter saw us achieve significant milestones as we continue to successfully deliver on our business plan. Starting with STEM, our Animal Health subsidiary. Dena Mehraban, who's been running STEM for the past 5 months, has been doing a fantastic job. The significant period-over-period increases in bluestem product sales and royalty revenues is very encouraging and as is the signing of a licensing agreement, Skout's’ Honor for our pet oral care line. Skout's’ have built a fantastic business and brand and just officially launched their oral care lineup of products at SuperZoo earlier this month. We're confident they will do very well with our technology. STEM in partnership with Animalcare has 4 major revenue streams. Licensing agreements with Dechra Veterinary Pharmaceuticals for the veterinary market across the Americas, a licensing agreement with Animalcare for the veterinary market outside of the Americas, a third licensing agreement with Skout's’ Honor for the North American pet specialty markets and finally, the sales revenue from our bluestem product line. In early August, we announced that we have engaged Research Capital Corporation as Kane's exclusive financial adviser to conduct the strategic review process for our STEM Animal Health business division. Back in 2020, the partnership agreement with Animalcare -- signed with Animalcare funded our Animal Health business. And over the past few years, we've created significant value within STEM and now believe it's time to monetize that asset, at least in part, which would allow us to significantly strengthen our balance sheet and fund ongoing wound care and dermatology product development and commercialization efforts. Although capital markets are tough these days, pet care is a very attractive sector for investors and strategic investors with lots of perceived tailwinds. So we're very optimistic on this front. Our Wound Care business saw the achievement of 2 major milestones in the first quarter: first, obtaining 510(k) clearance of our coactiv+ Antimicrobial Wound Gel from the U.S. Food and Drug Administration, the FDA, for the management of ulcers, including diabetic foot and leg ulcers and pressure ulcers, first and second degree burns, partial and full-thickness wounds, large surface area wounds and surgical incisions for adult populations. This was a huge leap forward for Kane. We're bringing an effective, differentiated and accessible product to the multibillion-dollar wound care market. In addition, we're already working on expanding the product line to include aerosol applications, cleansers and sterile surgical gels and have multiple FDA interactions in this regard scheduled in the coming months. Second, signing an exclusive distribution agreement for the United States for ProgenaCare Global for our coactiv+ Antimicrobial Wound Gel was yet another defining milestone for Kane. We're working closely with our -- with ProgenaCare to bring our technologies to the wound care and surgical markets. The technology transfer and scale of process involving the contract manufacturer of our coactiv+ Antimicrobial Wound Gel is well underway, and the preliminary feedback we've gotten so far is very positive. We're also making good progress on our DispersinB Hydrogel clinical trial. The FDA recently confirmed our proposed designation as a combination product with the medical device being a primary lead, and we have subsequently filed an investigational device exemption, which will allow us to begin our clinical trial upon approval, which is expected this quarter. Finally, we continue to make good progress in acne. We filed some new provisional patents specifically around acne. The team at the University of Miami, who have been conducting an upcoming acne clinical trial using Kane's DispersinB technology are more engaged than ever. An application for funding for this clinical trial will be filed with the National Institute of Health in the coming weeks. In addition to this, Jeff Kaplan, who discovered DispersinB, has recently moved to Israel and accepted a position at the Galilee Medical Center in the dermatology department, which -- where he is planning on continuing his research on DispersinB and acne. And so far, his research has shown some very, very promising results. Therefore, as I said in my introduction, our second quarter saw us achieve significant milestones as we continue to successfully deliver on our business plan. With that, I'll turn it over to you, Josh, to see if there are any questions.

[Operator Instructions] And I'm not showing any questions at this time. I'd now like to turn the call back over to Marc Edwards for any further remarks.

Thank you, Josh. That will conclude today's remarks. I appreciate everybody for tuning in, and I look forward to keeping you updated on all our progress as we move forward. Have a great evening.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.