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

Good afternoon, and thank you for standing by. Welcome to Kane Biotech's Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, March 26, 2024. I would like to turn the conference call over to Ray Dupuis, Kane Biotech's Chief Financial Officer. Please go ahead.

Thank you, operator. Good afternoon, and welcome, everyone, to Kane Biotech's Fourth Quarter and Full Year 2023 Earnings Conference Call. We are delighted to have you join us today. This call will cover Kane's financial and operating results, along with a discussion of some of our recent highlights and goals for 2024 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 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 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. For the financial results, all the numbers that I will mention have been rounded and are therefore approximate. The following figures are all in Canadian dollars. Starting with the fourth quarter 2023 financial highlights. License and royalty income for the 3 months ended December 31, 2023 was $251,000, an increase of 66% compared to $151,000 in the 3 months ended December 31, 2022. The increase is due mainly to incremental license and royalty income associated with Skout's Honor's launch of its oral care product line as well as increased royalty revenue from Animalcare in the current period. Product revenue for the 3 months ended December 31, 2023 was $491,000, an increase of 9% compared to $450,000 in the 3 months ended December 31, 2022. The increase is due mainly to higher online sales of bluestem products in the current period. Total revenue for the 3 months ended December 31, 2023 was $765,000, an increase of 11% compared to $692,000 in the 3 months ended December 31, 2022. Gross profit for the fourth quarter of 2023 was $398,000, an increase of 24% compared to $321,000 for the fourth quarter ended December 31, 2022. Total operating expenses for the 3 months ended December 31, 2023 were $1.735 million, an increase of 96% compared to $884,000 for the 3 months ended December 31, 2022. The increase is primarily due to short-term compensation expense adjustments in the comparative period as well as higher noncash long-term incentive expense and higher contract research expenditures related to the company's coactiv+ Antimicrobial Wound Gel product development in the current period. Loss for the fourth quarter of 2023 was $1.612 million, an increase of 92% compared to $838,000 for the quarter ended December 31, 2022. Moving on to the full year 2023 financial highlights. License and royalty income for the 12 months ended December 31, 2023 was $731,000, a decrease of 22% compared to $933,000 in the 12 months ended December 31, 2022. Excluding the onetime revenue recognition in the prior period associated with contract -- contractual Veterinary Oral Health Council milestone payments received from licensing partners, license and royalty income increased by 46% in the current period over the comparative period. The increase is due mainly to incremental license and royalty income associated with Skout's Honor's launch of its oral care product line as well as increased royalty revenue from Dechra and Animalcare in the current period. Product revenue for the 12 months ended December 31, 2023 was $1.872 million, an increase of 25% compared to $1.497 million in the 12 months ended December 31, 2022. The increase is due mainly to higher online and pet retail sales of bluestem products in the current period. Total revenue for the 12 months ended December 31, 2023 was $2.818 million, an increase of 6% compared to $2.668 million in the 12 months ended December 31, 2022. Gross profit for the 12 months ended December 31, 2023 was $1.389 million, a decrease of 2% compared to $1.413 million for the 12 months ended December 31, 2022. Total operating expenses for the 12 months ended December 31, 2023 were $5.475 million, an increase of 15% compared to $4.777 million for the 12 months ended December 31, 2022. The increase was primarily due to higher long-term compensation expense and employee separation costs incurred in the current period as well as higher government assistance received in the comparative period, partially offset by lower contract research expenditures incurred in the current period. Loss for the year ended December 31, 2023 was $5.27 million, an increase of 38% compared to $3.824 million for the year ended December 31, 2022. Contributing to the higher loss were higher financing expenses in the current period and higher noncash fair value adjustments on government loan advances in the comparative period. Cash from continuing operations as of December 31, 2023 was $749,000. With that, I will now turn the call over to Marc.

Thank you, Ray. Dear fellow shareholders, I'm very proud of everything that my team has accomplished in 2023 and look forward to 2024 with great anticipation and excitement. We started the year with multiple licensing and distribution agreements, starting with ProgenaCare Global, who promises to be a fantastic partner in the U.S. wound care market. We have developed a close collaboration shared vision for our revyve Antimicrobial Wound Gel. We've slowly started introducing revyve to a number of partners as we ramp up manufacturing, and the response has been overwhelmingly positive. Salud Pharma has built an impressive network in Colombia, Panama and Costa Rica. They have a solid track record of success with complementary wound care products, and we're confident they will do very well with revyve once they obtain the regulatory approval in their jurisdiction, which is expected later this year. Skout's Honor licensed and launched our pet oral care line in the North American pet specialty market, establishing our first animal health licensing agreement outside of the veterinary channel. They have done a remarkable job of building a strong network of retailers, which will allow them to ramp up sales in this channel. Now the achievement I'm most proud of is, obviously, our U.S. FDA 510(k) clearance for our revyve Antimicrobial Wound Gel 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. Revyve is a triple threat combination of efficacy, thanks to our patented coactiv+ technology, ease of use due to the thermal gelling properties that easily -- that make it easy to apply and stays on the wound and is easy to remove. And last but not least, accessibility, as Kane intends to offers its gel at a price point that fits within Medicare and private payor allowables. So far, it has been extremely well received by practitioners as it checks all the boxes. In November, we strengthened our Board of Directors with the addition of Dr. John Coleman, who brings a wealth of scientific and business expertise to the Board. We've already started to reap the benefits of Dr. Coleman's knowledge and experience. Finally, we closed 2023 with the signing of a nonbinding offer for the sale of our interest in STEM Animal Health. In 2018, when I joined Kane -- when I joined as CEO, Kane made the strategic decision to continue to build Kane's animal health portfolio while expanding into advanced wound care. Since that time, we have created STEM in partnership with Animalcare, received VOHC's Seal of Acceptance for our pet oral care water additives, and signed licensing deals -- licensing and distribution agreements with Animalcare and Skout's Honor Pet Supply Company. These achievements have created real value within STEM, which we believe is reflected in the offer we received. The sale of STEM will allow us to strengthen our balance sheet and provide capital to grow the company, and it will certainly focus Kane. We believe that most persistent topical infections in both wound care and non-abraded skin, such as acne or atopic dermatitis, are particularly hard to treat due to the existence of biofilms. We have both the right technologies and the right team to win in this rapidly growing market. Now 2024 is off to a fantastic start. The appointment of Dr. Robert Huizinga as Executive Chair of the company. Dr. Huizinga will devote his time to the development and implementation of strategic initiatives, strengthening the company's partnerships with existing clients and fostering key relationships that will lead to new business, including strategic acquisitions. The announcement of the revyve Antimicrobial Wound Gel spray, a follow-on product to our FDA 510(k) cleared revyve Antimicrobial Wound Gel, which we have now loaded into a new patent pending delivery, creating a highly differentiated product ideal for burns and other sensitive wounds. I was also very proud and honored that Kane was named the Bioscience Association of Manitoba Company of the Year. Once again, I'm extremely proud of everything we've accomplished and look forward to a big 2024 for Kane. Robert Huizinga, our new Executive Chairman, was not able to join us today, but I do have a recorded message from him, which I will share immediately.

Hello, everyone. Firstly, I'd like to thank Philip Renaud, the entire Kane Board and you, as shareholders, for your trust in me. As you may know, I've been part of the Scientific Advisory Board for Kane since 2018, at the same time that Marc Edwards became the President and CEO of Kane. And during that time, I've had a chance to review and work with the portfolio of technologies that Kane has, and my decision to take on the executive chair role at this important time is fueled by my absolute conviction in the potential of Kane's portfolio to transform wound and skin care. I have worked in nephrology for much of my career. I have seen the devastating impact of biofilm on both chronic wounds and long-term catheters. I was really fortunate to work with the Kane team on their successful 510(k) clearance on coactiv+ Antimicrobial Wound Gel from the U.S. FDA, and I look forward to continuing to work with the team. Once again, thank you for this opportunity and thank you for your trust in me.

So with that, I will now pass the call over to the operator to begin the question-and-answer session. Thank you.

[Operator Instructions] Our first question comes from the line of David Kemp with ITG.

Congratulations on all the accomplishments you've done over the past while. It's very gratifying to see. I wanted to just touch base briefly on an independent lab called Valisure, who recently did a very in-depth study on all the current acne medications. And it was found that virtually all of them have a multiple of the levels allowed for benzene, which is a cancer-causing agent. And I would think at some point, these things will have to either be reformulated or pulled off the shelf, and that seems to play into your hand quite well. What are your thoughts in that regard?

Yes. I think that the products in question were creams that contained benzoyl peroxide, if I remember correctly there. And yes, it was quite alarming to see the levels of benzene. I think that really that's the beauty of Kane is that as people become aware of biofilms and how they impact bacteria, making bacteria hard to treat, we have 20 years of research and technology developments in that market. So we really believe that we're very, very well positioned for the topical infection market that includes acne. And that potentially our technologies could make -- could really be game changers and be the missing link in a variety of topical infections. So it is a big concern. And the beauty of using our technology is also, David, is that by first breaking up the biofilm, you can significantly reduce the amount of antibacterials and antibiotics that you need to use to treat a topical infection. So that's really I think key to us and key to where the future lies for -- in dermatology for us.