Kane Biotech Inc Ord

Good day and thank you for standing by. Welcome to the Kean Biotech second quarter 2021 financial results call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Lorne Gorber. Cain Investor Relations and Global Spokesperson. Please go ahead.

Thank you, May. Good afternoon and welcome to Cain Biotech's Q2 2021 results call. We're delighted to have you join us. With me to review the financial and operating results for the second quarter ended June 30th, 2021, are Cain's CEO, Mark Edwards, and CFO, Ray Dupree. Following prepared remarks, we will open the lines and take your questions. Before handing over to Mark, let me caution you that our comments and discussion 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 Mark Edwards, Chief Executive of Kane Biotech. Mark.

Thank you, Lorne, and good afternoon, everyone. I'm excited about the momentum we're generating for the second half of this year and into 2022. This is the case across all three of our strategic pillars, animal health, OTC, which has mainly been focused on dermatology, as well as our wound care and surgical business. Both our dispersion B and coactive plus technologies continue to be recognized for their effectiveness in treating biofilms. As a result, the pipeline of licensing and commercial opportunities continues to grow, and discussions with several potential partners are advancing well. There is more and more awareness about biofilms and the related issues and how well Keynes Technologies address these issues. I'll turn it over to Ray now for a summary of the Q2 2021 financials, and then I'll provide a short operational summary and market outlook before taking questions.

Ray? Thank you, Mark. To streamline things, all the numbers I will mention are rounded and are therefore approximative. The following figures are all in Canadian dollars. Total revenues in the quarter were just under $279,000, an increase of 4% compared to just over $267,000 in the three months ended June 30, 2020. On a revenue category basis, deferred license revenue recognition was higher in the current period due to both the recognition over 10 years of the $500,000 initial payment related to the Animal Care License Agreement and the recognition over the remaining life of the DECRA agreement of the $125,000 milestone payment received from DECRA in April 2021 related to the successful production of a pilot batch of product by a manufacturer in South America. Royalty revenue was also higher in the current period as the underlying DecreP product sales in the veterinary channel were less impacted by the COVID-19 pandemic in the current period versus the comparative period. Partially offsetting the increases in license and royalties revenue, product revenue decreased from the comparative period due to the permanent U.S. store closures in Q4 2020 of one of the company's major pet retail customers, which resulted from the COVID-19 pandemic, as well as lower online sales. product services revenue decreased in the current period due to lower demand for contract manufacturing services during the current period. Gross profit for the second quarter of 2021 was just under $84,000, a decrease of 28% compared to just over $115,000 for the quarter ended June 30, 2020. During the current period, a provision was taken for inventory obsolescence. Total operating expenses for the three months ended June 30th, 2021 were just over $1,090,000, an increase of 53% compared to just over $711,000 for the quarter ended June 30th, 2020. The increase is mainly attributable to increases in staff, short-term compensation expense, and lower government assistance in the current period, partially offset by lower business development and contract research costs in the current period. Loss from operations for the second quarter of 2021 was just over $1,006,000 compared to just under $596,000 for the quarter ended June 30, 2020. Cash as of June 30, 2021 was just over $455,000 compared to just over $1,007,000 as of December 31, 2020. With that, I will now hand it over back to Mark.

Thank you, Ray. I'm delighted to provide our outlook and recent developments across each of Kane's three lines of business. First, in animal health, I want to start by saying that we're building a fantastic business in animal health. We've got a great line of pet oil care products. We've proven their efficacy not once but twice in clinical trials. We've got a great partnership with animal care. We had a board call today and continue to believe that they're They are and will continue to be a fantastic partner. We have a strong and growing relationship with Decra that now expands across all of the Americas. And we've got a very strong leader in Kevin Cole as STEM's CEO. Kevin has been organizing STEM to capture market share and shell space and has taken the opportunity to advance certain investments both in product line and across supply chain for long-term growth. Now that these investments have been made, we anticipate an acceleration of this business's top and bottom line as it further captures a larger share of the $5 billion pet oral care markets. This is a very big market in which we're well positioned with our water additive, toothpaste, and chews. In the coming weeks, as we position for 2022, You can expect to see new retail distribution partners and key milestones of licensing agreements being achieved. Again, I think we've built a fantastic animal health business and looking forward to replicating the model in the other verticals in which we operate. Turning to our OTC or dermatology line of business, we're seeing a modest but continued growth in selling directly to consumers via online websites and have recently listed the product on Amazon both in Canada and the US and believes the product will do very well on Amazon with the again modest but early traction we've seen on that platform. That being said, we remain largely focused on licensing opportunities in this segment We're in discussions and getting interest in this business from a number of partners. And when this really becomes interesting is when potential licensing partners want to add our technology to their existing lines. It's a win-win. By leveraging our technologies and adding to an existing line, our partners can significantly increase the efficacy of their own product. And given there's an existing sales base, the ramp up on royalties being paid to cane is much quicker. So we're very excited about everything happening in our OTC and dermatology business and look forward to sharing some news with you before the end of the year. On the wound care side, our third strategic pillar has been our primary focus for the last two years, as we believe our technologies can be a game changer in many ways. We're making real progress. And in July, we made some really exciting announcements. First, we announced the plan to expand our wound care and surgical portfolio with an antimicrobial hydrogel based on our Coactive Plus technology. We'll be pursuing a 510K regulatory route and are aiming to have this product out in the second half of 2022. And then really where we've been doing most of our investment is in our... in our DOD-funded and Canadian government-funded dispersant B wound care hydrogel, and we announced successful preparation of the first batch of our dispersant B wound gel intended to produce in preclinical studies, which will begin this quarter. In addition, we signed a new manufacturing partner with Dow Development Labs to scale up the process and ultimately manufacture under good manufacturing practices, or GMP, for a first in human proof of concept trial, which will begin in the first half of 2022. So these are significant milestones and are very confident that these will do very well as they get to market. In closing, September will mark my third anniversary as CEO of Kane. With more than half my tenure occurring during COVID, So it's a little off the cuff here, but really haven't had the pleasure of seeing Ray face to face in over a year and a half now. That being said, I want to thank all the stakeholders. It's an exciting time in Kane's history. Big things have happened and will continue to happen for the foreseeable future. And I'm proud to represent our great team every day. I also want to thank our board for their wise counsel. We've made several changes since I've come on board, and each has demonstrated such depth of knowledge and engagement. I sincerely believe it makes me a better CEO. Thank you for your confidence. And May, let's go to questions.

Thank you, sir. As a reminder, if you have a question at this time, please press the star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Again, if you would like to ask a question, please press star 1.

Great. Thank you, everyone. And I don't see any questions here, so I think we'll – I'll turn it over to you, May, to wrap this up.

Okay, so no further questions.

I'll turn the call back over to Mr. Lorne Gorber. Great.

So thank you, everyone, for joining, and I think we can sign off.

Thank you, presenters. This concludes today's conference call. You may all disconnect.