Kane Biotech Inc Ord

Good day and thank you for standing by. Welcome to the Kean Biotech Q3 2022 Financial Results Conference Call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. 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 Sendi, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome everyone to Kean Biotech's quarterly earnings conference call. We are delighted to have you join us today. This call will cover Kean'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, Mark 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 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 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 of Kane, Ray Dupuis. Please go ahead, Ray.

Thank you, Nicole. Before I turn the call over to Mark 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 three months ended September 30th, 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 nine months ended September 30th, 2022, total revenue increased by 65% to just under $2 million compared to just under $1.2 million in the nine months ended September 30th, 2021. License revenue in the three months ended September 30th, 2022 was just over $69,000, an increase of 93% compared to just under $36,000 in the three months ended September 30th, 2021. This increase is due mainly to revenue recognition in the current quarter associated with VOHC milestone payments. And in the nine months ended September 30th, 2022, license revenue increased by 499% to just under $606,000 compared to just over $101,000 in the nine months ended September 30th, 2021. This is due mainly to revenue recognition associated with the VOC milestone having been achieved in the second quarter of the current period. In the three months ended September 30th, 2022, Royalty revenue increased by 118% to just under $77,000 compared to just over $35,000 in the three months ended September 30th, 2021. This increase is due primarily to VRC 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 nine months ended September 30, 2022, royalty revenue increased by 73% to just under $176,000, compared to just under $102,000 in the nine months ended September 30, 2021. Revenue from product and services sales for the three months ended September 30, 2022, was just under $426,000, a decrease of 9%. from just over $470,000 in the three months ended September 30th, 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 service of sales in the nine months ended September 30th, 2022 was just under $1.2 million, an increase of 20% compared to just over $993,000 in the nine months ended September 30th, 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 three months ended September 30th, 2021. Gross profit for the nine months ended September 30th, 2022 was just under $1.1 million, an increase of 187% compared to just over $381,000 in nine months ended September 30th, 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 dispersant B hydrogel program, partially offset by higher research expenditures related to the company's proactive plus antimicrobial hydrogel program in the current period than the comparative period. Total operating expenses for the nine months ended September 30, 2022, were just over $3.9 million, a decrease of 1%, compared to just under 4 million in the nine months ended September 30th, 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 30th, 2021. Loss for the nine months ended September 30th, 2022 was just under 3 million, a decrease of 17% compared to just under 3.6 million in the nine months ended September 30th, 2021. Cash at September 30th, 2022 was just under 1.3 million. With that, I will now turn the call over to Mark.

Thank you, Ray. Thank you, Nicole. Q3 2022 was another solid quarter in which Cane 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 510K application for a CoActive Plus 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 reimbursements in the US and will really be the only premium gel that does that. Coactive Plus is one of the important features of Coactive Plus is that it's a thermal reversible gel, making it ideal for sensitive wounds such as burns. What do I mean by a thermal reversible gel? Well, essentially most gels when you cool them, they'll solidify, 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 onto 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 the price point we can have it manufactured at, even though we come in within reimbursement, still provides some very, very generous margins for our wound gel. So we're very excited about that. For dispersant B wound gel, following our very positive preclinical results, we were awarded an additional $425,000 of funding from the United States Department of Defense for the manufacturing of our dispersant B 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 non-diluted funding previously awarded from for the continued clinical development of Cane's dispersant B 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 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. Dispersin-B hydrogel has shown great promise to inhibit biofilm formation with the potential to promote wound closure and ultimately accelerate return to duty. We are excited to see Cane Biotech's progress into clinical studies, and we anxiously await its safety evaluation in human subjects. In turning to animal health, obtaining VOHC earlier this year enabled animal care to launch its plactive lineup of products in the European veterinary markets, and they're currently working on expanding their commercialization globally. DECRA has also demonstrated that VOHC was the missing link for them to start scaling up their sales. DECRA has gained good traction with the highest sales so far, reporting during the three 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 Co-Active Plus 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 channels. I will now pass the call over to our operator to begin the question and answer session. And thank you very much.

Thank you, sir. As a reminder, to ask a question, you need to press star 11 on your telephone. Once again, to ask a question, you need to press star 11 on your telephone. One moment while we compile our Q&A roster. And I show we have a question from Steve Simmons from Shaw. Please go ahead.

Hi. For marketing the collective, well, 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 it um i mean we believe we can get this turned around in in 90 days okay so um 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 clear on the call we are we are since we filed the the um the 510K and we actually have a product now and we have a manufacturer and a cost of goods and it's become a lot more tangible and we have progressed quite a bit with the number of interested partners in our gel there. So 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 will shortly be finalizing an agreement there with a partner to bring that to market.

Yeah, and for the dispersion, did I, am I right, that's like a year or two off, you have to do a lot more

Yeah, we think it'll take another couple years still, yes.

So the Army trial they're doing now, is that with this person?

So we're doing the trial, but it's funded by the Army. Yeah, that's with this person, B, exactly.

Okay.

Yeah. And so we did all the preclinical work with, and the results were very, very good. And following that, we went back to the DOD and they agreed to provide additional funding there based on those results. So that, I mean, obviously that's very encouraging. They see a lot of these products and if they're, increasing their funding based on those preliminary results, I think you've got a pretty smart group of people there that believe this has got some real potential.

Thank you.

Oh, I got another question. Sure. So what's the difference between Like I see there are two different chemicals, one of them, this coactive, it's like a gel thing you said, changes temperatures, changes its composition. So what's the difference between it and dispersant B as far as use? I know the B doesn't even have any antimicrobial properties, I think you said. It just, like they both inhibit the biofilm, but like what's the difference in the types of uses for them?

So I'm going to tread lightly, Steve, but just because Our proactive plus wound gel is a 510K and a 510K basically doesn't allow for label claims. So that'll fit within an existing reimbursement category and should offer for that category really the best efficacy possible. This person B, we believe, will warrant a reimbursement code that is substantially higher, as we believe it'll be... We're going down this route to actually have claims, and we'll be pursuing higher reimbursement and a significantly higher price point.

Okay. So a proactive person takes it at home, they can put it on, they can apply it. Like the guy would start them out in the hospital and then he gets released and then he takes some home?

Yeah. So most... This is advanced wound care there. These are chronic non-healing wounds. So generally the patients will see the doctor every three to seven days and they'll change the gel every... at every visit, but as part of our 510K, we're also applying for an OTC application. So yes, patients will be able to use it at home as well.

So OTC means... Over the counter.

It could be sold in pharmacy.

Yeah. Okay. I guess that's all. We can see what happens.

Great.

Thanks, Steve. Thanks a lot.

Thanks. As a reminder, to ask a question, you need to press star 1-1 on your telephone. I'm sure there are further questions in the queue at this time. This concludes our Q&A session and today's conference call. Thank you all for participating.