Applied DNA Sciences, Inc. (APDN) CEO James Hayward on Q2 2022 Results - Earnings Call Transcript

May 13, 2022 11:37 PM ETApplied DNA Sciences, Inc. (APDN)
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Applied DNA Sciences, Inc. (NASDAQ:APDN) Q2 2022 Earnings Conference Call May 12, 2022 4:30 PM ET

Company Participants

Sanjay Hurry - Investor Relations

Beth Jantzen - Chief Financial Officer

James Hayward - Chairman, President & Chief Executive Officer

Conference Call Participants

Jonathan Aschoff - ROTH Capital Partners

Jason McCarty - Maxim Group

Jon Salmanson - Cantella


Good evening, and welcome to Applied DNA Sciences' Fiscal Second Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Sanjay Hurry, Head of Investor Relations. Please go ahead, sir.

Sanjay Hurry

Thank you, Ryan. Good evening, everyone, and welcome to Applied DNA’s conference call to discuss our second quarter fiscal 2022 financial results. You can access the press release that was issued after market closed today, as well as the accompanying slide presentation accompanying this call on the Investor Relations section of our corporate website.

Speaking on the call today are Dr. James Hayward, our Chairman, President and CEO; and Beth Jantzen, our CFO, Judy Murrah, our COO; and Clay Shorrock, our Chief Legal Officer and Head of Business Development, will also be available to answer questions on the Q&A portion of the call.

Before we begin, please note that some of the information you will hear today during our discussion may consist of forward-looking statements. I refer you to Slide two of the presentation and our Form 10-Q filed a short while ago for important risk factors that could cause the company’s actual performance and results to differ materially from those expressed or implied in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements or other information provided on this call as a result of new information or future results or developments.

Now, it’s my pleasure to introduce our first speaker in today’s call, Beth Jantzen. Please go ahead, ma’am.

Beth Jantzen

Thank you, Sanjay. Good afternoon, everyone. Thank you for joining us on our second quarter fiscal 2022 investor call. I will begin today with a review of our consolidated financial results for the second quarter of fiscal 2022, which ended on March 31.

I will then turn the call over to Dr. James Hayward, our President and CEO, who will summarize our operational performance for the quarter and outline key initiatives for the second half of fiscal 2022. We will then open the call to our analysts and institutional investors.

Prefacing my review of our financial results, we have now demonstrated excellent operational and financial execution for two consecutive quarters. Our clinical labs subsidiary Applied DNA Clinical Labs, or ADCL, continues to power our impressive total revenue performance.

Total first half fiscal 2022 revenues have exceeded total revenue for the entirety of fiscal 2021. The increase in revenue from ADCL has helped to reduce the overall company's cash burn rate.

And as you will hear from Jim shortly, we have reason to believe that we have proximity to demand for Tagged Cotton catalyzed by the Uyghur Forced Labor Prevention Act that passed into Federal Law in December 2021. That could serve as a source of future revenue and cash flow to supplement ADCL.

Beginning with the statement of operations and as a reminder, we now present the revenue and cost of providing testing services performed by our clinical laboratory, a separate line items in the statement of operations.

We are pleased to report a second consecutive quarter of record revenue. As I noted, our top line performance was driven mainly by COVID-19 testing. Our total revenues for Q2 were $6.1 million, compared to $2.7 million in the year ago quarter and $4.2 million in Q1.

The year-over-year increase in quarterly revenue is primarily attributable to increase clinical laboratory service revenue comprise of COVID-19 testing and related services. On a sequential basis, Q2 revenues increased 45%. That were also due to an increase in clinical laboratory service revenue. The sequential increase is due to the impact of the Omicron fueled spike on testing demand that began in Q1 and continues through today.

Product revenues are 408,000 in Q2, compared to $965,000 in the year ago period. The year-over-year decrease of $555,000 is primarily related to a decrease of approximately $605,000 in sales of our Linea COVID-19 Assay Kit.

This decrease was offset by an increase of approximately $85,000 in textiles, itself attributable to the shipment of a DNA transfer unit for the tagging of cotton in India. Service revenues are $249,000 compared to $152,000 in a year ago period. The increase of $97,000 is attributable to linear DNA projects for CRO customers.

As a reminder, service revenues comprise research and development, pilot projects, as well as authentication services associated with our industrial DNA business. Clinical Laboratory service revenues increased to $5.5 million compared to $1.6 million in the year ago period. On a sequential basis, clinical laboratory service revenues increased 72% from $3.2 million in Q1.

As I noted earlier, the increase on a sequential basis was driven by the Omicron fuel spike. You beginning in Q1, we began allocating depreciation expense, versus showing it as a separate line item on our statement of operations. As a result, we are presenting a gross profit line on the statement of operations.

The gross profit percentage was 40% and 65% for Q2, and the year ago period respectively. The decline in the gross profit percentage resulted from a substantial portion of clinical laboratory service revenue coming from testing contracts, where we also provide the staff -- provide and staff the testing centers. These contracts have higher associated costs compared with our surveillance testing contracts.

To a lesser extent, the decrease in gross profit percentage was due to a product sales mix and sales during the year ago period included a higher volume of sales of our linear COVID-19 Assay Kit, which are at a higher gross margin.

I draw your attention to the substantial sequential improvement in clinical lab gross profit percentages, from 18% for the first quarter of fiscal 2022 to 42% for the second quarter of fiscal 22. The high infection levels at the peak of Omicron spike eliminated our ability to conduct pooled testing, which generates higher margins for our clinical lab.

As infection rates declined, we are once again able to conduct pooled testing, and our margins improved as a result. That coupled with the increased testing levels during fiscal Q2 versus Q1, led to the improved gross margins for the clinical lab.

Given ADCL's concentration of educational clients, and as they approach their summer break, we anticipate a lower baseline for testing demand during these months as a consequence. Of course, this could be offset if testing demand increases, as the positivity rates are currently increasing in our region.

We are closely monitoring support levels going into the summer months and have an array of levers we can pull to right size support to testing demand with an aim to maintain a similar profit margin to what we reported in Q2. Total operating expenses in Q1 increased 11% or $436,000 to $4.5 million compared to $4.1 million in the year ago period.

The year over year increase is attributable to fiscal 2021 Q2, having a reversal of an accrual of approximately $817,000 for an accrued bonus that was forgiven by our CEO. The increase was also due to increase D&O insurance premium and to an increase in research and development expenses. These increases were offset by decreases in stock based compensation and professional fees.

During Q2, we initiated a cost management program designed to optimize our cost structure to position the LinearDNA platform for bio therapeutic applications to achieve maximum value for shareholders from current and future opportunities. Initiatives under the program primarily focused on the elimination of early stage industrial DNA and market pursuits such as cannabis, tagging and workforce optimization.

Resources have been realigned towards priority development programs centered on the LinearDNA platform, as well as the development and implementation of a diagnostic strategy to power the next stage of growth at ADCL that Jim will talk about. We did not anticipate material cost savings from these actions, rather we are allocating costs within OpEx.

Our Q2 net loss increased to $1.8 million versus a year ago period at $1.5 million. Included in net loss for the quarter ended March 31, 2022, is an unrealized gain from the change in fair value of common warrants associated with our February 22 registered direct of $783,000, as well as an expense of $391,000 for transaction costs that were allocated to the warrant liabilities.

Net loss per share was $0.23 in Q2, versus a loss of per share of $0.21 in the year ago period, and a higher number of weighted average shares outstanding. Excluding non-cash expenses, consolidated adjusted EBITDA for Q2 was negative $1.6 million, compared to a negative $1.5 million in the year ago period, and narrow compared to a negative $2.7 million in Q1.

Turning to our balance sheet, cash and cash equivalents totaled $6.5 million on March 31. This figure is inclusive of the registered direct conducted during the quarter for net proceeds of $3.7 million. Our strong cash collections caught up with a large increase in accounts receivable that occurred in Q1. Accounts receivable stood at $3.9 million at December 31st compared to $2.6 million at March 31. We collected an additional $1.1 million during April.

Our outstanding warrant balance increased as a result of the February registered direct. We now have a total of approximately $3 million warrants outstanding and carry no debt on our balance sheet.

Our just filed 10-Q for the second quarter maintains a going concern opinion, and that our ability to continue as a going concern is dependent on our ability to further implement our business plan, raise capital and/or generate revenues. Our cash position on April 30 was approximately $5 million.

This concludes my prepared remarks. Thank you for joining us today. I will now turn the call over to Jim for his comments.

James Hayward

Well, thank you, Beth. And good afternoon everyone. Thank you for joining us on our second quarter call of fiscal 2022. We are very pleased with the record top line results for the quarter. And I want to personally thank the Applied DNA team for their hard work and dedication.

My remarks this afternoon will focus on how the company plans to retain its significant top line revenue growth, balanced costs and continue to commercialize the LinearDNA platform. Applied DNA has one singular focus to commercialize DNA produced by the polymerase chain reaction or PCR, which the company accomplishes by selling PCR produced DNA in the biotechnology and industrial sectors. And by performing PCR based molecular diagnostic tests in its clinical laboratories subsidiary, ADCL.

The these three legs of the stool not only allow the company to avoid risk concentrations, but also provide a means of revenue and cash flow to help support the LinearDNA platform for bio therapeutic applications. While the platform is under development. We believe that the LinearDNA platform is a truly transformative technology that will impact almost all advanced therapies, and once it is fully commercialized, it will bring value to our shareholders.

In order for our three legged stool to stand, each of the legs must contribute. Over the past several quarters, our clinical arm has driven most of our top line growth. And as I will discuss in a moment, we have a plan that we believe will enable ADCL to continue with strong contributions to our top line.

Our sale of DNA to the industrial sector has historically been our top line driver. And based on the coalescence of new laws and a world emerging from the pandemic, we are seeing very promising signs that our industrial DNA sector will join the clinical labs as a material contributor to our total revenue.

And finally, there is our LinearDNA platform, which we believe will unlock the true value of the company. We've been hard at work developing and validating this platform. And during Q2 several projects provided extremely compelling data, which I'll share with you today.

Beginning with the clinical lab. on our first -- fiscal first quarter call, we discussed putting in place the next phase of ADCL's growth. We are mindful that COVID 19 testing will vary in volume with the state of the pandemic in our region. And with the rate of rise of new variants and their pathogenicity.

We are employing a phased approach to diversifying ADCLs diagnostic roadmap, that is designed to cushion uncertainty around COVID 19 testing in the near term, while concurrently putting in place the foundational components of ADCL's future growth.

First, we will continue to maximize our COVID 19 testing opportunities. Test testing demand from our clients continues. I'll be it at likely diminished levels allowing for the seasonally inherent testing concentration that's derived from the academic clients who are about to enter their summer break sessions.

One key educational client has indicated that it expects to renew his contract for the upcoming year. And we announced last month that the contract with the new financial services client who has engaged us for company wide testing.

In addition, COVID testing will likely remain relevant for some time. A report released by epidemiologists from CUNY earlier this month, estimated that only about a quarter of New York City adults have been infected by Omicron and its sub variants.

But with the more infectious sub variant accounting for more than 90% of cases in the region. The report suggests that the majority of adults, that's about 75% would still be susceptible to catching on Omicron's expanding bouquet of some variants.

Just this week, results show that this sub variant has substantially increased positivity rates throughout New York City. And for the first time in many months hospitalizations are up.

Meanwhile, the White House's warning of an expected surge in the fall. Clearly, no matter how immune our collective minds have become to the SARS-COV-2 virus. The virus will be challenging our personal and institutional immune systems for some time to come.

Now, beyond COVID-19 we see great promise in ADCL in high value genetic testing. Over the next three months, which include the academic summer semesters, we are prepared for a potential downturn in COVID-19 from our educational institution customers.

We aim to reduce the impact to ADCL's sales cash flow, by leveraging our existing clinical assets to cultivate supplementary non COVID-19 testing opportunities by offering one or more FDA approved molecular tests for cancer and for infectious disease. At that same time, we are bringing online a cutting edge molecular genetics platform that empowers diverse genetic testing, including pharmacogenetic testing.

Pharmacogenetic testing, or PGx is a form of high value genetic testing that determines how an individual will respond to certain medicines based on their genes. PGx testing is a rapidly growing area of genetic testing. That our market research shows is underserved in New York State generally, and on Long Island specifically where we are based.

Our first PGx test will be a panel that reads on 80 Plus drugs across psychiatric, cardiac and pain management indications. Validation testing is beginning this summer and will be performed by our clinical lab scientists. Once validation is complete, the test must be reviewed and approved by New York State Department of Health before it is offered commercially.

To speed our PGx tests path to market, we've engaged a third party analytical validation group to assist us with the assay validation. This group has deep expertise in PGx test validation that we believe will help us achieve a commercially available PGx test by the end of the calendar year.

Our go-to-market strategy for PGx focuses on two primary markets, reference lab testing, and direct-to-consumer testing. Our primary focus will be marketing our PGx test to other clinical labs and hospital systems, starting with those located in New York, where we believe the market is underserved.

These reference lab opportunities are very favorable to ADCL and allow us to test-on-contract for a set fee per test without the added expense and complications of third party reimbursement and sample acquisition.

In addition, the ADCL PGx panel will also be marketed as a direct-to-consumer test. On a per test basis, the economics of PGx testing to ADCL are better than COVID-19 testing. We believe that PGx demand is growing and durable, and will provide for long term meaningful revenue for ADCL.

Longer term, the very same genetic testing platform used for PGx testing can be leveraged to develop other novel genetic or molecular tests. We're currently in talks with several institutions regarding collaborations on using novel biomarkers to develop next generation cancer diagnostic, prognostic and risk assessment tests.

COVID-19 has shown us that we can successfully monetize clinical testing. We're excited for this next phase of ADCL and we believe it will continue to be a significant revenue contributor to the company.

Let's now consider textile tagging as our second cash flow stream. Our industrial DNA business comprising supply chain authentication and support systems was originally envisioned to play the cash flow role that ADCL presently occupies.

The growth of our industrial DNA business was negatively impacted by COVID-19. But we believe that recent world events have shifted its future prospects significantly for the better. The passage of the Uyghur Forced Labor Prevention Act that passed into law last December has the potential to be catalytic for us.

The Act establishes a rebuttable presumption that the importation of any goods, wares, articles and merchandise that's mine produced or manufactured, wholly or in part, in the Xinjiang, Uyghur or Autonomous region or SWOT [ph] region of the People's Republic of China or produced by certain entities is prohibited and goods are not entitled to entry to the United States.

With its passage interest in our CertainT platform to prevent the incursion of textiles from the Xinjiang region into the U.S. has really grown substantially. On the business development side what was previously a once a week CertainT presentation request has now turned into daily presentation. And the urgency on the part of brands and their suppliers is palpable.

We've been hard at work positioning our CertainT platform before federal and congressional officials during the Act's public comment period. We've presented to more than 75 congressional offices, made requests to multiple relevant federal branches for funds with which to advance our next generation sequencing capacity applied to global cotton service sources to develop a forensic DNA based curated cotton origin library.

We've given testimony on the hill, and we have provided written comment responses on the Act in March and in April. While the Act does not mandate DNA tagging, we do believe that our CertainT platform is the best solution for compliance with the Act.

Now, if you read the Guardian last week, you're aware that in an investigation conducted in Europe, several large athletic brands were recently found to have Xinjiang cotton in their finished goods despite the brands having previously declared their products free of cotton from that region.

If this same investigation were conducted in an American port, it's easy to see how testing finished goods can leave brands to incur significant losses if presented with the evidence of banned cotton use. Supply chain security must start with the source of the textile and follow the entirety of the supply chain.

Now the Act goes into full force on June 21. CBP's threshold is for detainment based on reasonable but not conclusive information indicating forced labor use. Withhold release orders give CBP wide latitude in detaining any inbound shipment coming from the SWOT region. They suspect that has been involved with forced labor.

The importer has three months to demonstrate that the goods detained were not produced with slave labor. If the importers paper trail cannot convince CBP, the importer must export the goods elsewhere or destroy them. We believe that potential for both legitimate and illegitimate goods to get caught in CBPS actions is high. And the onus is on the supply chain to prove legitimacy. This makes for a perfect storm for demand potential for CertainT.

In advance of the full enforcement of the Act, we in our cotton merchant partner, received a request to ship tagged cotton under an arrangement entered into a year ago, when the brand in question began to make preparations for the Act. The order through the brands supply chain will be partially delivered this summer, with the balance expected to be delivered by the upcoming cotton ginning season.

As we noted in our earnings press release today, the value of the order is immaterial relative to the intent behind it. That is, we believe this is year one of the brand's multi year commitment to deploy certainty within its many supply chains. This implies a natural uplift to demand for tagged cotton as it displaces unmarked cotton used by the brand's supply chain. And we should have more to say on this development and the brand's intentions as we approached the start of the continent ginning season.

We believe that this is just the beginning, and that the Act will be catalytic for our certainty platform. We anticipate that our industrial tagging business will join ADCL as a meaningful contributor to our top line, and we look forward to providing you future updates.

And now for a progress update on LinearDNA. Our activities at ADCL and industrial DNA have a more rapid path to market and their associated revenues can support the advancement of higher value LinearDNA to produce DNA for Biotherapeutics. Excuse me, one second.

On prior calls, I discussed the window of opportunity that is open for novel DNA production approaches to circumvent the bottlenecks presented by plasmid DNA in the manufacture of the next generation of nucleic acid based therapies. The global demand for DNA continues to rise at a breakneck pace. According to a May 2021 report from the American Society of gene and cell therapy, 1,745 gene or cell therapies and 600 RNA therapies were in development.

These numbers have continued to grow over the past year. The net result is an unprecedented demand for DNA, both for research and clinical development and for therapeutic manufacturing. The industry needs a new form and source of DNA. And we believe that LinearDNA is it.

While LinearDNA may be substituted for plasmid DNA in the majority of nucleic acid based therapies, we are currently focusing on two applications. Firstly, templating for IVT, or in vitro transcription to empower mRNA therapeutics. And secondly, DNA vaccines for the veterinary market. We believe these two applications, which are in essence, two sides of the same coin, represent the fastest path to commercialization revenue and increase valuation.

mRNA therapies have transformed the world. COVID-19 highlighted the power of mRNA therapies and biotechnology companies are off to the races with pipelines full of mRNA and self amplifying RNA. These therapies that target diverse indications ranging from infectious disease to cancer and gene therapy.

LinearDNA can accelerate and simplify RNA Research and Production workflows that have traditionally used plasmid DNA. Unlike plasmid DNA, which must be linearized via expensive restriction enzymes for IVT. LinearDNA is ready for IVT use without further modification. Moreover, contamination of linearized plasmids, but even trace amounts of residual circular DNA can lead to heterogeneous transcripts and issue completely avoided by our LinearDNA.

In addition, since LinearDNA is free of plasmid DNA backbone sequences, there are no adventitious DNA sequences to remove. Furthermore, a key aspect of mRNA production is the inclusion of a poly(A) or a polyadenylate tail, normally ranging from 80 to 120 nucleotides in length.

Plasmid based DNA production methods struggled to produce DNA sequences that contain long nucleotide repeats, such as those that are necessary to produce a poly(A) tail. Plasmid based amplification of sequences containing such long nucleotide repeats often produce heterogeneous DNA sequences, which leads to problematic heterogeneous mRNA constructs after IVT.

The LinearDNA platform on the other hand produces DNA with a precise number of long nucleotide repeats, which results in highly homogeneous mRNA constructs containing a precise number of poly(A)s. Finally, we believe that plasmid-based DNA manufacturing cannot match the speed of our LinearDNA platform.

Recently, we conducted a proof of concept study in which a commercial scale batch a LinearDNA was produced from a de novo synthetic DNA template in just 10 days, highlighting linear DNA is unparalleled speed of production.

Given its enormous advantages, LinearDNA is the ideal starting material for mRNA production. And to this end, we recently conducted a study in which RNA produced via a LinearDNA IVT template was compared to RNA produced via plasmid IVT template and you can see in this slide that the templates produced identical RNA from both plasmid and LinearDNA.

We believe that this study establishes the LinearDNA platform as a rapid cell free platform for IVT templating that offers mRNA therapeutic developers many advantages over the industry's for decades plus plasmid DNA approach. And we will be publishing more about this study soon.

In addition, we are currently working with a leading enzyme manufacturer to reduce the cost of DNA polymerase, while at the same time increasing DNA manufacturing yield. We believe these developments will further strengthen the advantages of LinearDNA over plasmid DNA.

So in sum, we have both the capacity and the expertise to supply a better IVT template today. And we will be attending and presenting at the mRNA-based Therapeutics Summit in Boston taking place in late July, which will serve as the formal launch of this exciting new services.

Moving now to our DNA vaccine work. LinearDNA holds several advantages over plasmid DNA as a vaccine, including speed, purity, simplicity, a lack of adventitious DNA sequences, such as the genes for antibiotic resistance, and the origin of replication, as well as a higher therapeutic index producing a similar therapeutic response at a lower total amounts of DNA.

Now, we've been working on DNA vaccines since the early days of the pandemic and have generated much valuable data, our data supporting the efficacy of LinearDNA vaccines in mice, ferrets and felines are robust, and show that LinearDNA vaccines invoke a powerful new moral response with high antibody titers and a cellular immune response that often exceeds plasmid DNA.

Recently in Q2, we achieved the pivotal milestone with the conclusion of phase 1 of our ferrets SARS-COV-2 challenge trial. The data show that in addition to eliciting a strong antibody and cellular response, our linear DNA vaccine delivered by electro gene transfer was protected against SARS-COV-2 in a challenge test.

As you are aware SARS-COV-2 was the disease we chose at that time as a test bed for our LinearDNA platform. We intend to publish data upon the conclusion of our Phase 2 trial. We are planning to use phase 2 of the trial to evaluate lipid nanoparticle mediated intramuscular delivery of LinearDNA vaccines

Are cell bio suite, an investment made in fiscal 2021 recently concluded in vitro studies that prove the LNP encapsulated LinearDNA manufactured by Applied DNA can transfect and express the desired protein.

Based on these promising data and the results of the Phase 1 trial, we intend to initiate a bridging study in mice in the next few weeks that, if successful, will itself provoke initiation of a Phase 2 ferret trial in which LNP LinearDNA COVID-19 vaccine will be administered to ferrets via intramuscular injection.

The combination of LNP and LinearDNA provides a differentiated DNA vaccine platform that we believe has wide ranging applications in the veterinary market.

We believe that the platform can be used both for prophylactic vaccines against infectious diseases and therapeutic vaccines in immuno oncology and immunotherapy.

We believe the best use of our LinearDNA vaccine platform is the veterinary market in immuno oncology. During Q2, we co-authored and published a manuscript that detailed the results of a preclinical study in which LinearDNA based vaccines for cancer immunotherapy produced a strong immune and specific anti tumor response in mouse models.

Armed with these data, as well as the data from the Phase 1 ferret trial and are successful feline trial, we have identified an initial candidate for the LinearDNA vaccine platform,

a canine lymphoma therapeutic DNA vaccine that is used in conjunction with standard of care chemotherapy.

We've licensed the DNA sequence for the vaccine from Takis Biotech in Italy, who previously conducted successful canine trials using a combination of DNA vaccine and CHOP chemotherapy. The learn LinearDNA vaccine is currently administered by electro gene transfer, but potentially could be delivered intramuscularly via lipid nanoparticles based on the results of our ongoing trials.

Our market research into the canine immuno-oncology space shows the rapidly growing total addressable market served by limiting existing therapeutics that are expensive and have an uncertain outcome for survival beyond palliative care. Lymphoma is the number one cancer in canines representing up to 24% of all canine cancers, and is estimated to impact one out of every 15 dogs.

In addition, the regulatory pathway through USDA for veterinary DNA vaccine differs substantially from human therapeutics and provides for a potential conditional approval of certain therapies based on smaller clinical trials.

Our goal is USDA conditional approval, at which point we will seek to out license the therapy to an animal health company that owns the last mile to market for which we would be the manufacturer of record.

We believe this is a proven commercialization path in the veterinary market with severally conditionally approved therapies developed by smaller biotech companies being licensed to larger veterinary health companies. As we put together the clinical design for this anti-canine lymphoma vaccine, we will be sure to keep you updated.

Now, before opening the call to questions, let me just offer a brief recap, we covered a lot of material. Firstly, we are executing on our differentiated approach to Biotherapeutics development. Our approach is unique.

ADCL is currently mitigating cash burn associated with LinearDNA platform development. And we are having customer conversations that we believe could suggest increased adoption of our CertainT platform and textiles that would have further ramifications to revenue and cash flow, potentially starting with the upcoming ginning season.

ADCL has a second phase of its growth mapped out. And having proven our ability to stand up and profitably run a diagnostic business in the middle of a pandemic. We are confident in our ability to execute both operationally and from a developmental perspective. LinearDNA has a window of opportunity. It's highly relevant today to the current nucleic acid base therapeutic world. And we're moving with speed to carve our place in it.

Now, thank you for your time and attention this afternoon. Operator, please open the call to questions.

Question-and-Answer Session


We will now begin the question and answer session. [Operator Instructions] Our first question comes from the line of Jonathan Aschoff with ROTH Capital Partners. Please go ahead, sir.

Jonathan Aschoff

Hi, thank you. So what kind of drop in ADCL revenue should we expect over the next two quarters? This quarter and next quarter owing to the lion's share coming from academic institutions?

James Hayward

It's a good question, Jonathan. And I think we should be prepared for just about anything. However, that said, that our major customers are in New York City. New York City is in the midst of a very significant uptake, the general population is having a positivity rate of 20% in New York. And hospitalizations have risen. So the need for higher levels of testing, albeit it in a lower population size. Could end up moderating the decrement in testing levels. I think we'll just have to wait and see.

Jonathan Aschoff

It sounds like you're expecting something like more than half rather than less than half?

James Hayward

Anything that I speculated at this time would be just that speculation. Right now, our run rate is at a pretty constant level. And our positivity is somewhat alarming. So I don't think you can say with much certainty, Jonathan.

Jonathan Aschoff

Okay. So you picked the two LinearDNA pursuits that you're going to go after. Most aggressively, did you pick those two because of time to market or because of ultimate market size? Just give me a little color there?

James Hayward

Sure. It's a combination of both of those. You know that the mRNA market is growing expansively. And the number of BLAs before FDA is larger than it's ever been. But our opportunity, as an IVT template is kind of unique, we have many advantages. So that's really been the driver more than market size or speed, it's our unique position and how well suited it is to that application. That said, the world had snapped around collectively pretty quickly when the two mRNA vaccines were so effective. And gene therapies that utilize DNA and have some small risk of insertion. That risk is totally eliminated if those gene therapies become a mRNA therapies that instead of being delivered once, are delivered to the patient on a more continual basis. And we're seeing a lot of gene therapies convert over to mRNA based approaches.

Jonathan Aschoff

Okay, Jim. Thank you very much. Congrats on progress.

James Hayward

Okay. Thank you.


Thank you. Our next question comes from the line of Jason McCarty with Maxim Group. Please go ahead.

Jason McCarty

Hey, Jim, glad to hear everything's going well. I'm really curious about the -- to get more information on the LinearDNA vaccine platform in canines for lymphoma. And more specifically, what a trial, even a pilot trial would look like in terms of an endpoint. I don't know if there's endpoints in canines or what is the extension of PFS or OS look like in a canine?

James Hayward

Sure. Right now the therapies are to some degree palliative and not too much life extending. So that clinical endpoint will have to be negotiated both internally and with USDA. But I would think it would be extension of life. And the size of those clinical trials typically are not so large, as long as the safety and efficacy is shown.

Jason McCarty

Is there an opportunity to use imaging CT scan to look -- because it's kind of similar to what the CAR T people did with those early stage trials was pilot studies where they're showing very, very significant reductions in tumor burden. Is that something that would be a part of these types of programs?

James Hayward

It's something we're considering. I think, also, we would consider liquid biopsy methods given these tumors. And so that still is under consideration.

Jason McCarty

In this lastly on this, what type of antigen would you target for lymphoma and a canine? Is they are comparable for CD19, something like a CD19?

James Hayward

We have a great skill. And that skill is echoed in our partner, Takis, in the design of unique antigens. And I would not want to say at this time what our target antigen is, but we're in the midst of its design.

Jason McCarty

Got it. Is that something that a program that you'd expect to possibly start this year?

James Hayward

Yes. We'd like to start as soon as possible. We'd like to probably do a bridging study beforehand. But then move on to canines.

Jason McCarty

Got it. And just generally, in terms of demand on the COVID testing side, you had mentioned that there's a little bit of an uptick, seemingly in New York right now. Is that impacting use of your diagnostic testing right now? Because you're doing a lot of pooled testing with universities in other senses, is that correct?

Jason McCarty

Well, right now our diagnostic testing has been at a durable steady rate. And we've actually added customers. And we'll have to see what happens over the summer. We're seeing both in our local cohorts here on Long Island, and in our much larger cohorts in New York City, that the positivity rates are very high. And moreover, just anecdotally, we're seeing that when infection does strike, it's spreads very rapidly throughout the patient's family and close contacts. So, under those circumstances, personally, I see higher need for testing whether or not that demand gets realized, is affected by the populations, psyche, programs available to fund it, and a variety of other factors. So, we're cautious and we're preparing for every eventuality.

Jason McCarty

Got it. Thank you for taking the question.

James Hayward

Okay. Thank you.


Thank you. [Operator Instructions] Our next question comes from the line of Jon Salmanson with Cantella. Please go ahead.

Jon Salmanson

Yes, Jim, quick question for you. You've talked a lot on the call and in a press release about the tagged cotton demand increasing coming from the Act that starts on June 21. How quickly do you think that you'll see your demand scale on a meaningful basis for APDN?

James Hayward

Well, I can tell you that our activity mix has already been impacted very significantly. The interest level from the brands who are preparing for the implementation of this Act is very, very strong. All of the logistic chains from the spinners, the weavers, The finished fabric folks are all going to be impacted. So personally, as I said, it's something of a perfect storm. We'll have to wait and see. We already have some indications that it will lead to an increase in our tagging business.

Jon Salmanson

Okay. Thank you.

James Hayward

Okay. Thank you, Jon.


Thank you. This concludes our question and answer session. I would like to turn the conference back over to Dr. James Hayward for any closing remarks.

James Hayward

Okay. Thank you. Well, I hope we've given our listeners compelling reasons to be excited about Applied DNA's near term and long term future. We look forward to keeping you updated on the progress over the coming summer months. And we're grateful that you joined us today. Thank you. Operator, back to you.


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

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