Good day, and welcome to the Applied DNA Sciences Fiscal Fourth Quarter 2023 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. 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.
Thank you, Vaishnavi. Good afternoon, everyone, and welcome to Applied DNA's conference call to discuss our fourth quarter fiscal 2023 financial results. You can access the press release that was issued after market close today, as well as the 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; Beth Jantzen, our CFO; and Clay Shorrock, our Chief Legal Officer and Head of Business Development. Judy Murrah, our COO, will also be available to answer questions on the Q&A portion of today's 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 2 of the presentation and our Form 10-K, 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 on today's call, Beth Jantzen. Please go ahead, Beth.
Thank you, Sanjay. Good afternoon, everyone. Thank you for joining us on our fiscal fourth quarter investor call. I will start this afternoon with an overview of our results for the quarter ended September 30th, 2023. I will then turn the call over to Dr. James Hayward, our President and CEO, who will update you on our ongoing business initiatives. We will then open the line for questions from our analysts and institutional investors. To preface the year-over-year comparison of our fiscal 2023 fourth quarter results, I highlight that the year-ago period included robust COVID-19 testing-related revenues, as well as a cotton tagging revenue that are not present in the quarter being reported today. The cotton order for the current ginning season was received and shipped subsequent to 9/30.
As Clay and Jim will speak to later, fiscal 2023 was an important building year for the company that we believe lays the foundation for our future growth in the manufacturing of DNA for biotherapeutic applications. With this as a backdrop, total revenues for the quarter ended September 30th, 2023, were $780 thousand, compared to $3.6 million for the same period last year. The decrease in revenue of approximately $2.8 million was due to an expected decline in COVID-19 testing services revenue of $2.4 million, driven primarily by the expiry of our testing contract with the City University of New York in June 2023. The decrease was also due to a reduction in product revenue of $341 thousand.
The decline in product revenue is primarily related to a decrease year-over-year in cotton tagging revenues within our textiles vertical. Gross profit was $79,000 or 10%, compared to $417,000 or 12% in the prior fiscal period. The decline in gross margin was primarily due to a higher percentage of COVID-19 testing services and textiles revenue in the three months ended September 30th, 2022, that generated a higher gross profit compared to the three months ended September 30th, 2023. Total operating expenses decreased to $4.2 million, compared to $4.7 million in the prior fiscal year period, reflecting an approximate $445,000 decrease in SG&A expenses. The decrease in SG&A is mainly due to a reduction in payroll expenses of approximately $341,000.
To a lesser extent, the decrease is due to a decline in insurance expense of $139,000. This decrease in SG&A was offset by a small increase in R&D expenses of approximately $26,000. With the unrealized gain on the change in warrant fair values classified as a liability that are included in our net loss line, we highlight operating loss as best representing the company's operations. Our operating loss for Q4 2023 was $4.2 million, compared to $4.3 million in the prior fiscal period. Excluding non-cash expenses, adjusted EBITDA remained relatively flat at -$3.5 million, compared to -$3.4 million in the prior fiscal year... Turning to our balance sheet, cash and cash equivalents totaled $7.2 million on September 30th, compared to $10.8 million on June 30th.
As of September 30th, our accounts receivable balance stood at $256,000, the majority of which has been subsequently collected. For the fiscal year, our average monthly cash burn was $672,000, compared to $786,000 in the prior year. Our average monthly cash burn for the fourth quarter of fiscal 2023 was $1.2 million, and largely in line with our forecasted post-CUNY contract expiry estimate. Our cash position on November 30th was approximately $4.5 million. As you will hear, in greater detail from Jim and Clay, our need for growth capital is clear and necessary to support our biotherapeutic manufacturing first growth strategy.
To that end, we are working closely with our board to explore all options to obtain the necessary growth capital, the first stage of which was which was concluded in November of this year, via the filing of an equity distribution agreement and prospectus supplement to empower an at-the-market facility grounded in our expectation for milestone-driven fiscal 2024. To date, we have issued approximately 29,000 shares for net proceeds of about $26,000 under the ATM. Before concluding my remarks, I note that our just-filed Form 10-K includes a disclosure from our prior Form 10-Q of a substantial doubt about a going concern. Our ability to alleviate the going concern is dependent on our ability to further implement our business plan and generate revenues or raise capital.
Finally, yesterday, we filed an 8-K disclosing a notification letter received earlier this week, informing us that we were not in compliance with NASDAQ listing rules that require listed securities to maintain a minimum bid price of $1 per share. Per NASDAQ listing rules, we have 180 calendar days in which to regain compliance. If at any time during this 180-day period, the closing bid price of the company's security is at least $1 for a minimum of 10 consecutive business days, we would be considered in compliance. Also, we may be eligible for an extension of 180 calendar days if we do not regain compliance within the first 180 calendar days allotted to us. This concludes my prepared remarks. Thank you for joining us today.
I will now turn the call over to Jim for his comments.
Thank you, Beth. Good afternoon, everyone, and thank you for joining us on our fiscal year-end call. Fiscal 2023 was a very productive year for us. At the start of the fiscal year, our plan was to lean into our biotherapeutic manufacturing strategy that we launched in the prior fiscal year. And after years of development, we implemented our LineaDNA platform to deliver on our vision for enzymatically produced LineaDNA as an alternative to plasmid DNA in the manufacture of genetic medicines. And a strong response has resonated across the industry. In 2023, our goal was to expand our presence in the marketplace for DNA with a focus on building a sales funnel, acquiring customers, scaling up our platform, and integrating it into our customers' workflows.
These initiatives are supported by the transition of our manufacturing capacity from research use only, milligram-scale DNA template orders, to multi-gram orders, capable of supporting customers' early-stage toxicology and clinical trials. It was the sudden appearance of the COVID mRNA vaccines, and then more broadly, other RNA vaccines, or therapeutics rather, on the industry stage in the last two years, that has sparked a rush for therapy development by many of the in the industry. In response to these industry developments, we completed the strategic acquisition of Spindle Biotech, which helped to empower the launch of our Linea IVT platform, and we initiated our build-out of a first-phase cGMP manufacturing footprint to produce critical messenger RNA starting materials. We acquired an enviable base of early-phase customers for both our LineaDNA and Linea IVT platforms. Several of these customers are today generating recurring orders....
Thereby affirming our capacity and timelines for the rapid production of multigram quantities of LineaDNA . Beyond messenger RNA templating, there are many needs for linear DNA. We have interest from, and in some cases, are already conducting lab-scale studies for companies developing products in the areas of CRISPR, CAR T, tRNA therapies, and other non-therapeutic in vitro diagnostic applications. Our addressable market, therefore, is every therapy whose production begins with or utilizes DNA. My remarks this afternoon will center on our first market deliverable, the migration of our early-phase GLP-grade customers to larger-scale supply agreements for Linea IVT templates and our Linea RNA polymerase manufactured under applicable GMPs to support their clinical messenger RNA aspirations.
Given the opportunity before us, we anticipate signing supply agreements in fiscal 2024, as several current customers have indicated their intention to be developing their toxicology data or starting in the clinic in calendar 2024. One or more of these agreements would have obviously positive ramifications to this segment's growth curve in fiscal 2024 and beyond, although we're not yet able to discuss the slope of that curve. Now, in a moment, Clay will offer insight into our plans to unlock the value of Linea DNA and how we can substantially improve our customers' biologics manufacturing workflows with Linea DNA and Linea IVT. This discussion will convey Linea IVT's clear advantages, both from a biologics manufacturing perspective and from the vantage point of the economics to us. Clay will also provide an update on our timeline to our initial GMP capacity.
But before turning the call to Clay, I'll brief you on our segments focused on supply chain traceability and on Applied DNA clinical labs. Now, in our CertainT supply chain traceability business, our repeat customers' tagging of 15 million pounds of cotton this season is due to be completed this month. One-third of the DNA was shipped new this season, with the balance from the customer inventory. Revenue is forecast for Q2. In parallel, we continue pre-commercial tagging with a new supply chain partner, as planned and as reported in prior quarters. This phase of the program will be completed in early January. The overall demand in the cotton industry for traceability technologies remains quite strong due to federal and international legislation related to forced labor. Now, turning to our clinical laboratory and the approval of our pharmacogenomics, or PGx assay, and that testing service.
Our submission to New York State Department of Health for approval of our assay remains actively in review. Our current COVID testing revenues largely cover all the direct variable costs for this segment. As we await a final determination on the approval of our PGx assay, we are building awareness with physicians and healthcare providers and cultivating potential customers. Now it's my pleasure to turn the call over to Clay, who is our Chief Legal Officer and the Executive Director of Business Development. Clay?
Thank you, Jim, and good afternoon, everyone. As Jim stated, our decision in August 2022 positioned our LineaDNA platform to produce IVT templates as a critical starting material for mRNA therapeutic production was a watershed moment for LineaRx, as it formed the foundation of the strong and growing customer demand we see today. Interest in our platform was further elevated in July of this year with the acquisition of Spindle Biotech and the launch of our Linea IVT platform, specifically targeting large-scale RNA production. Our goal for fiscal 2023 was initial customer engagement and laid the scientific and operational foundation to support scale-up and growth in fiscal 2024 and beyond... I am pleased to report that our team was very successful in meeting these goals. Our sales funnel is full, with marquee repeat customers from biotech, pharma, and CDMOs.
The momentum continues to build, with orders in November 2023 tying the largest number of LineaDNA order, monthly orders in the company's history. In addition, over the past year, we continued to hone our enzymatic manufacturing process to increase efficiency and to reduce costs, resulting in significant cost reductions as compared to just 12 months ago, and we are now building GMP around our workflow.
We also had numerous important firsts over the past 12 months, including the first repeat order of Linea DNA IVT template, the first repeat order of Linea DNA for CRISPR-related applications, the first customer shipment of Linea IVT templates to produce self-amplifying mRNA, the first customer shipment for the Linea IVT platform, including our newly acquired Linea RNAP, the first successful manufacture of self-amplifying mRNA with the Linea IVT platform, and finally, the first customer shipment of Linea DNA use to produce tRNA, a new therapeutic modality that enables genetic corrections at the protein editing level. Our goal for fiscal 2024 is simple: to convert our existing and new customers into larger and longer-term commercial supply agreements.
Now, critical to achieving this goal is the launch of our GMP manufacturing capacity for mRNA starting materials, which is slated for initial operations in the first half of calendar year 2024. As I will talk about shortly, our planned GMP capabilities are crucial to unlock the value of Linea DNA. Now, we acquired Spindle Biotech back in July, and its proprietary RNA polymerase, or RNAP, as we call it. We successfully integrated its institutional knowledge into our company. Armed with this knowledge, our team was able to further optimize the Linea IVT platform to enable the manufacture of a wide range of mRNAs and self-amplifying mRNAs, ranging from 1,000 base pairs all the way up to over 10,000 base pairs, all with significant reductions in double-stranded, or dsRNA, as compared to conventional mRNA production platforms.
As you'll recall, Linea IVT platform is a combination of our chemically modified, enzymatically produced IVT templates, coupled with Spindle proprietary RNAP, now marketed as Linea RNAP. The platform leverages these two unique technologies to provide for a simplified mRNA production workflow with reduced dsRNA contamination, which is a problematic and highly immunogenic byproduct of conventional mRNA production. A dsRNA is defined by the World Health Organization as a manufactured impurity that causes undesirable immune and inflammatory responses, and its presence must be mitigated in all mRNA therapeutics. Now, as you can see in slide 7, our recently obtained data shows that the Linea IVT platform has the ability to reduce dsRNA production by between 10-fold and 50-fold, depending on the RNA construct, without sacrificing mRNA yield.
Now, this substantial reduction in dsRNA production, coupled with the numerous benefits of enzymatic IVT template production, has driven a large amount of interest in the Linea IVT platform. Now, despite being launched only six months ago, we count several large CDMOs as evaluation customers and expect to enter into a joint agreement with a CDMO shortly to assess the platform's performance at clinical scale manufacturing. Encouraged by this rapid platform adoption, we actually plan to initiate a project in early 2024 with a third-party enzyme manufacturer to optimize the manufacturing scale-up of the Linea RNAP, to ensure we can meet large-scale customer demand and to reduce our per-unit costs. In addition to conferring a clear market advantage, the platform also offers more advantageous economics to the company than selling IVT templates alone, representing an approximate threefold improvement in the potential revenue per sponsored project.
We believe that the unique revenue opportunity offered by the platform allows us to better monetize the growing opportunity in mRNA starting material, and differentiates us from other enzymatic and non-enzymatic IVT template manufacturers. Now, as I noted before, our primary goal for fiscal 2024 is to secure long-term supply agreements with existing and new customers. Now, based on the market data and the public state of the mRNA pipelines, we believe that demand for mRNA manufacturing is likely to rapidly grow in the near future, likely starting sometime in calendar year 2025. Currently, approximately 68% of mRNA therapeutic candidates are still in preclinical development, but many of those therapies will reach the clinic, where large-scale GMP manufacturing of mRNA starting materials is required.
To this end, several of our existing customers are currently planning to enter the clinic in late calendar year 2024 or early calendar year 2025. In addition, several new mRNA therapies have just been approved or are nearing potential approval by applicable regulatory bodies, including the world's first self-amplifying mRNA approval in Japan and an mRNA vaccine against RSV, for which the global regulatory documents were just filed. Moreover, important for us as an enzymatic mRNA manufacturer, the first Investigational New Drug Application was recently approved in the U.S. that uses enzymatically produced starting materials for IVT templates. So armed with our planned GMP capacity and our differentiated platform, we plan to capitalize on the strong demand. We, as well as other industry experts, think that the differentiation in mRNA manufacturing will be critical in gaining market share as manufacturing demand increases.
Accordingly, we believe that our Linea IVT platform is perfectly situated in the market as a key enabling technology for the differentiated manufacture of mRNA. Now, finally, the ability to produce starting materials for the manufacture of mRNA under applicable GMPs is essential to our future success. In recent quarters, we have outlined our GMP plans, including the retention of engineering and compliance consultants and employees, and are currently targeting a first half calendar year 2024 launch of service. As a pioneer in PCR-based enzymatic reduction of IVT templates, there is no pre-existing model for us to follow, and I applaud our team for their ongoing hard work towards this very important goal.
In the short term, we believe that the launch of our GMP manufacturing services, coupled with the anticipated near-term growth in demand for mRNA starting materials, offers us the potentially largest revenue and growth opportunity in the company's history. Longer term, our forward-looking business plan calls for an upgraded and new separate facility under applicable GMPs, capable of producing DNA drug substance and drug products, which we believe will offer additional value, valuable large-scale manufacturing opportunities in gene therapy, gene editing, and adoptive cell therapy, for which we've seen increasing customer demand in the current fiscal year. So closing, fiscal 2023 was a significant and successful year in the company's pivot to biotherapeutic manufacturing.
We believe fiscal 2024, with the planned launch of GMP for IVT templates, will result in the procurement of larger and longer-term contracts, which will set the stage for significant growth in fiscal 2025 and beyond. Jim, now back to you.
Well, thank you, Clay. Our ability to bring a more rapid, cost-efficient, and qualitative process to creating DNA, we feel, places us firmly on a growth company trajectory with positive ramifications for long-term shareholder value. From Clay's remarks, it should be clear that our biotherapeutics manufacturing first growth strategy is the focus for investment and development moving forward. As shown in this slide, let me briefly recap our biotherapeutics expectations for fiscal 2024. Entering the year, our sales funnel is full with marquee repeat customers, and that momentum continues to build. Our goal this year is to convert customers into larger and longer-term commercial supply agreements. Despite being launched only six months ago, we already count several large CDMOs as Linea IVT evaluation customers, and we expect to enter into a joint agreement with a CDMO shortly to assess the platform's performance at clinical-scale manufacturing.
Our GMP capacity should be online in the first half of this calendar year. Coupled with the anticipated near growth in demand for the manufacturer of mRNA, critical starting materials provides us with the potential for the largest revenue and growth opportunity in our company's history. Now, all of us here at Applied DNA are very excited about what is to come, and we look forward to sharing fiscal 2024 milestones with you as they develop. This concludes our prepared remarks. Operator, please open the call to questions. Thank you.
Thank you. We will now begin the question -and -answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jason McCarthy with Maxim Group. Please go ahead.
Hey, Jim, and Clay. Thanks for, thanks for taking the questions. Just on a technical question, can you talk a little bit about something I think that is a little bit being overlooked by people, and that the Spindle RNA polymerase that you acquired wasn't really intended to do self-amplifying? And yet there was a lot of things that your group had to leverage its expertise to get it to work. Can you just talk a little bit about that and what that means for the self-amplifying aspect of what you're doing in the biotherapeutics world?
Clay, would you like to pick up the gauntlet?
Absolutely. Sure. And hey, Jason. So absolutely. When we acquired Spindle back in July, the data showed it could manufacture DNA up to about 900 base pairs. So we've taken it a very long way. Because of the mechanism of action of the polymerase enzyme and chemically modified the template system that we have, we weren't sure that the mechanism of action would allow for these long RNAs to be manufactured without an enzyme redesign.
But by optimizing the buffer system and some other tricks, we were able to get it to work with these very large saRNA, which to us is a very promising sign, both for our IP portfolio, which could protect several iterations of this modality, but also because of the growing market in saRNA, which does, like the rest of the industry, have a dsRNA contamination issue.
Got it. And you had mentioned the first IND was approved in the U.S. for enzymatically-produced DNA. Can you talk a little bit about a little more about who that is or what they're working on?
Yeah, absolutely. So, to our knowledge, it's the first IND approved for mRNA using enzymatically produced the critical starting materials, which are IVT templates. That was our competitor out of the UK, Touchlight Genetics. So we think it's a very positive sign for us, as FDA has shown that they're willing to engage on enzymatic DNA, and that they're willing to approve enzymatically produced DNA, at least at this point, as a starting material. So we view it as a very positive sign. We also think that our manufacturing technology is more cost-effective and more expedient than our competitors. So we think that the product is of equal quality, but we do think we can make it faster and better. So, we view it as a very positive sign.
So can you just last question, 'cause you use that for your preclinical, I guess, clientele. You'd said that 68% of mRNA candidates that are out there are in the preclinical stage, and a bunch of your customers now are in that category. Does that IND clearance can you leverage that and kinda show them and kinda pave the way for them to go a little bit deeper with APDN's technology and kinda getting yourselves baked into their development process?
We think so, and it has been a very effective marketing tool in about like 30 days since the IND was approved. But the catalyst for us, of course, 'cause we are an enzymatic manufacturer, it's not the same process, will be one of our clients bringing us to FDA, right? That will be the catalyst that will open the floodgate. But this is a first start. There were some concerns in the industry that FDA would have issues with enzymatic manufacturers, and it appears that they didn't.
Great. Thank you, Clay.
And Jason, just a further comment. FDA is an institution that works very much on the basis of precedent, and we saw that in the COVID vaccines. We saw, we're beginning to see that in the CAR T approvals, and I'm sure that we'll see it also in the self-amplifying RNAs as well.
Got it. Thank you, Jim.
As a reminder, if you have a question, please press star then one to be joined in the queue. Our next question comes from Yi Chen with H.C. Wainwright. Please go ahead.
Thank you for taking my questions. Could you comment on the revenue for clinical laboratory service in the fiscal fourth quarter? Do you think that whether that has reached a baseline level, or do you think that could continue to decline in future quarters?
Sure. I would say the safest way to forecast that, as most laboratories that are in the business of COVID testing, is to expect a decline. But Lord knows, what will happen with COVID in the coming future. As it turns out, locally, we're seeing an increase in positivity, so it's kind of hard to say, but I would say the safest thing to do is to predict that prevalent or not, people have had three years of COVID, and they're sick of it. And they are not willing to have it occupy the piece of their brain that it previously did. And so I think a decline is more likely, more likely than not.
Yeah. Is there a potential timeline as to whether or when the New York State Department of Health could complete the review process?
Well, you know, our fingers are crossed. There's not much anybody can do to accelerate things at the Department of Health, but their questions on our application were insightful, and we were able to answer them thoroughly. I'm sure that dialogue will continue. I'm hopeful that we'll hear from them again quite soon. I'm also hopeful that we gain approval, but you never know.
Got it. And, would you be able to comment on how many customers have actually ordered from your Linea IVT platform so far?
Clay?
Yi, I didn't quite hear that. I think you asked the number of customers we have for the Linea IVT platform. Is that correct?
Correct. Yes.
Okay. I'm trying to think off the top of my head. So first, we have two different technologies that are closely related, Yi, right? We supply IVT templates, which we manufacture via our large-scale platform called Linea DNA, right? For those IVT templates, we have well over 10 customers. I would say 4 or 5 of them are recurring for our Linea IVT templates, the DNA only. For our Linea IVT platform, which is a combination of the template plus the Spindle enzyme, we currently have 3 evaluation customers, expecting to shortly have a fourth. One of those customers we are expecting to sign a more substantive agreement with here in the near term, to see how the combined platform, the enzyme and the template, scales up in an actual large-scale manufacturing workflow.
Okay. Do you feel that customer orders from the Linea IVT platform could enable the company to demonstrate sequential growth in product and service revenue going forward?
We do. And I, you know, I think further to that end, we are hard at work at converting our customers that are currently only using our IVT templates over to the Linea IVT platform, because the economics for us of that platform are much more compelling as we talked about, right, in the call, but also it's a better platform for the customer. So, to answer your question, the template economics can certainly make that happen, but the economics of the combined platform would be much more advantageous.
Okay. Last question. Could you provide an update at the cash position after September, the end of September?
Sure. So I said a little earlier in the call, our cash position at November thirtieth is approximately $4.5 million.
$4.5 million. Okay, thank you.
You're welcome.
Thank you, Yi.
Again, as a reminder, if you have a question, please press star then one to be joined into the queue. As we have no further questions, this concludes our question -and -answer session. I would like to turn the conference back over to Dr. Hayward for any closing remarks.
Thank you very much, and thank you all for attending our call, and we look forward to keeping you updated on our progress as we move into this exciting period, and we wish you all happy holidays. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may all now disconnect.