Scientific Industries Inc

Good day and welcome to the Scientific Industries first quarter 2023 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joe Dorme from Lithum Partners. Please go ahead.

Thanks, Jason. Good morning and thank you for joining us today to review the financial results of Scientific Industries for the first quarter of 2023, ended March 31st, 2023. With us today on the call are Helena Santos, Chief Executive Officer, Daniel Grunes, CEO of Scientific Bioprocessing, and John Moore, Chairman. After the conclusion of today's prepared remarks, we'll open the call for questions. Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of scientific industries during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under risk factors and documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2022. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. Scientific Industry does not undertake and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Now I'd like to turn the call over to Helena Santos, CEO of Scientific Industries. Helena?

Thank you, Joe, and thank you and welcome to Scientific Industry's Q1 conference call. Today's comments will be brief since our year-end earnings call was just about a month ago. So in the last call, we shared the price we paid for SBI, or Scientific Bioprocessing, Inc., and our Torvald division, and the quick paybacks we realized from those investments. We also shared how we have reinvested those funds, mostly in Scientific Bioprocessing, and to a lesser extent in the Torvald Vivid Automated Pill Counters, This to create further growth and shareholder value. The benchtop laboratory business is a combination of the Genie product line as well as the Torbell scale and Vivid automated pill counting products. While most life science tool businesses that benefited from helping battle the COVID epidemic, such as scientific industries, they are suffering today but our benchtop business reported an 8% increase in sales, and this is because of the 50% increase in the Torbell product revenue. I'm also excited that we have launched the first paid subscription service for Vivid, this in our 70-year history. We are anticipating a very high level of our installed and grown customer base to sign up for the subscription, which we expect... between 350 in the first year all the way up to 2,500 in five years. And just to remind you, every Vivid pill counter is sold with a fully paid up one year license so customers can experience the benefits of automation. We will add new paid subscribers on a rolling 12 month basis from the time of a customer purchase. Then there's U.S. federal track and trace regulations on prescription drugs, and this is supposed to come into effect this November of 2023, and we expect it could substantially accelerate the adoption of vivid systems and pill counters. So when we were seeking to transform scientific industries from a small, profitable, but slow-growing business into a much larger, much faster growing business that could more richly reward our shareholders, we didn't have to look much farther for inspiration than the Sartorius AMBER system and the revolutionary sensors we licensed over the years to them. We have in good authority that AMBER, which is a miniaturized Parallelized bioreactor system is the most profitable product sold by Sartorius, and this is a $23 billion market capitalization company. There have been over $1 billion in Ember systems sold to date. One company, Gengo Bioworks, has 196 systems at an average sales price of $1 million. That is remarkable investment for a startup, We have committed ourselves to expanding on our original technology and improving the form factor to widely expand the applications. The creative genius of the four Aquila Biolab founders have exceeded our expectations in this regard. And so I would now like to turn the call over to Daniel Grunus, the CEO of Scientific Bioprocessing and its predecessor, Akela Biolabs, so he can speak further about what we're doing at bioprocessing and all the excitement. Daniel?

Thank you, Elina, and good morning, everyone from over here in Germany. The popularity and commercial success of technologies like the Ember system are driven by the evolution of synthetic biology and the breathtaking possibilities it brings about. In synthetic biology, we don't only just observe processes in living organisms, we redesign them in a way that they do what we expect them to do. As such, genetically engineered organisms already allow us to create sustainable biofuels and bioplastics, alternative proteins or artificial meat, and could help us cure rare and untreatable diseases or clean our polluted waters and air. If you look back a few thousand years, you realize that biology has taken us from gathering seeds to engineering DNA. and that engineering has taken us from rocks and caves to handheld computers and self-driving cars. We've come a long way already, but the true value lies ahead of us, and in the convergence of these two disciplines, or as Steve Jobs put it, the biggest innovations of the 21st century will be at the intersection of biology and technology. However, the technology in which the conversion happens, the bioreactor, has not yet lived up to the expectations. High-throughput automated bioreactor systems like the EMBER are obviously very powerful screening and development tools that help us understand, predict, and use biological systems, but they come at a sticker price of up to a million dollars, as Selina already mentioned, in capex and per experiment cost of around $2,000. Hence, the vast majority of the market cannot afford these systems. On top of that, they only provide insights into selected process steps while others remain unaccessible black boxes, as a result of which a recent BCG study concluded that 90% of all SYN bioprocessors still fail today. Our SPI DOTS platform for digitally simplified bioprocessing will change that by bringing bioreactor-like capabilities to the most ubiquitous and commonly used reaction vessel in the world, the shake flask. During the last earnings call, I've given you an update on the introduction of the first component of DOTS, our DOTS software, which enabled us to migrate all our legacy products to a single platform to launch a new line of fiber optic pH and DO sensors and to unlock closed loop control in ShakeFlash. During the first quarter of 2023, we have been working to further develop the DOTS software based on market feedback from our growing customer base, and we have realized and released a new version a new software version which includes new feature sets regarding data visualization, handling of experiment groups, and advanced data export options, and have implemented paid customer requests to customize DOTS to specific production environments. At the same time, we have worked on our second DOTS component, the multi-parameter reader. We have currently a working prototype of the new reader in our laboratories and expect to get them into the hands of early access customers for our pilot phase that we will kick off in summer. However, the biggest progress from our R&D team was achieved regarding the remaining component of the DOTS platform, our chemo-sensing pills. From the past year's successful proof of concept and IP protection phase, we have now transitioned our new pill concept towards the product development phase, with our Q1 activities centering around technical evaluation, optimization, and first steps towards production and QC planning. Hence, we are well on track for a targeted Q4 hot launch of the new multi-parameter reader together with our sensing pills. The first generation of the pills in combination with the new multi-parameter reader, as well as our legacy products, the combination of which we are already extensively testing in internal studies, will not only showcase our vision to the market, but already today allows us to run small production processes in shake flask that so far could only be done in a bioreactor. And we are not only doing it at a completely new level of simplicity and usability, but also at a fraction of the cost and a fraction of the time. And that's what we want to share with our customers in the market. We are extremely excited by the launch of the new tech because we see an increasingly huge appetite from potential and existing customers for the feature sets that we will deliver. And because we have a very clear and deliverable product roadmap for the foreseeable future, whereby we will be able to add new sensors to the platform every 6 to 12 months, and where we will be able to create tremendous value for our customers. Before I finish my portion, I would like to briefly comment on the commercial side of the business. As you may recall, we have adjusted our go-to-market strategy towards the end of last year. We have set up a dedicated distribution management, and have focused our sales team towards a more specialized profile to strengthen our approach to sell from scientist to scientist. It certainly will take a bit of time for those effects and the effects of such adjustments to show. And while our early stage pipelines are a leading indicator of strategic adjustments, sales successes are usually trading to be reflected in the results. However, I'm already very, very happy on both fronts. Compared to last year, we have doubled the value of our early stage pipeline with twice as many leads and opportunities in the last couple of months. Customers like Bond Pet Foods or Clarion, so industrial customers, are quantifying their return on investment from the use of our tech and sharing their success stories with us in the market. MQ1, for the biggest order in our history as a company, with the leading contract manufacturing company equipping a manufacturing site with our tech to monitor their production batches, a company in part where we have a lot more potential for additional sales. Of course, all of these are just stepping stones on our path to success, and I can assure you we will work very hard and diligently to capture the current potential as well as to set up organization to change bioprocessing with our new products in the future. But already, and why the bioprocessing business saw the absence of royalties due to patent expiration, Q1 product sales of $223,000 plus the backlog going into the second quarter indicates a 76% growth in customer orders compared to the same quarter last year, whereby I remain optimistic that we will achieve our 2023 annual targets. And with that, I'd like to hand it back to you, Elina.

Thank you, Daniel. At this point, Joe, would you like to make some comments? Joe Dorme?

Or ask for questions.

All right, we'll now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. You're using speakerphone. Please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Paul Knight from KeyBank. Please go ahead.

Daniel, what will be the difference with the multi-sensor platform, multi-parameter DOTS versus the DOTS that came out in January?

Okay, so thanks, Paul, and nice to talk to you again. So essentially, the DOTS platform has three components, right? It has the software for data analytics, it has the reader tech, and it has the chemosensing pills. What we launched last year was the DOTS software, and now we are working on the next gen of the reader and sensing tech. So the difference is essentially in what kind of component are we talking about. Towards the end of the year, what we will be launching is the reader, the new multi-parameter reader and the sensing pills. We will start with the first generation of sensing pills, which will see dissolved oxygen, one of the most common parameters that bioprocesses are controlled by. And we will launch the multi-parameter reader, which will not only see biomass, as a sensing capability, as a physical measurement, but it will have multispectral biomass, it will have fluorescence, so it allows us to differentiate between product and producer. It will allow us to do 2D spectroscopy and it will have environmental sensing, such as pressure, humidity, temperature, acceleration, speed and you know we can also via soft sensors that we calculate all of that data display combination parameters such as viscosity or turbidity for example. So we will just enlarge the sensing universe of that reader and it will be the hardware that in the future will be able to read out all the different sensing pills that we are continuously bringing to the market in that roadmap of you know every six to twelve months a new parameter that we will add to the sensing pill platform. We will start with DO, then we'll likely launch pH throughout 2024, and then we'll focus on the next parameter, which will be glucose.

Got it. Okay. And then, Helena, could you talk to this shake, excuse me, to the Vivid product, the regulations coming what, from FDA regarding exactly what?

Yes, so there's this regulation that is coming into effect on, like I said, on November. And all pills throughout the entire supply chain needs to be traced and tracked. And we have the ability, we have the ability within our algorithm to do that. And so, you know, this is just something that not the competition is able to do. So it puts us in the forefront.

What is the Vividge market share, Helena?

Well, right now, we are only in the independent pharmacy market. And out of that, we would probably have, since the rest of the market is also being addressed by two major competitors, one of which is in the forefront. We probably have, you know, without looking at the numbers, but we probably have a good 50% to 70% of that market today. So we still have... And that's just of independents. And independents only make up about 40,000 of a total of about 98,000 pharmacies between the U.S. and the Canadian market. So we feel that where the real... opportunity lies for us will be when we go after the non-independent, you know, after the change. And that will be when we have our workstation ready.

Okay, thanks.

This concludes our question and answer session. I would like to turn the conference back over to John Moore for any closing remarks.

Well, thank you all for attending the earnings calls. We're very excited by the progress and the potential of creating outsized shareholder value by increasing the profit margins, the sales growth, and the quality of earnings from recurring revenue related to both the Torvald Vivid product and the near future from recurring revenue related to single-use sensors and software subscriptions related to scientific bioprocessing. Those recurring revenues will start in the first quarter of 2024 when we and start shipping the DOTS multi-parameter sensors. So thank you all so much for your time, and we're looking forward to speaking with you all in the future. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.