Business Overview and History
Applied DNA Sciences, Inc. (NASDAQ:APDN) is a biotechnology company that has been at the forefront of pioneering DNA-based technologies for over two decades. The company’s expertise in the manufacture and detection of DNA has enabled it to carve out a unique niche in the rapidly evolving fields of therapeutic DNA production, molecular diagnostics, and industrial supply chain security.
Applied DNA Sciences, Inc. was founded in 1983 and is headquartered in Stony Brook, New York. The company is a biotechnology company that develops and commercializes technologies to produce and detect DNA and RNA. Using the polymerase chain reaction (PCR) to enable the production and detection of DNA and RNA, the company currently operates in three primary business markets: the enzymatic manufacture of synthetic DNA for use in the production of nucleic acid-based therapeutics including biologics and drugs, the detection of DNA and RNA in molecular diagnostics and genetic testing services, and the manufacture and detection of DNA for industrial supply chain security services.
In the early 2000s, the company developed its core enabling technology, the Linea DNA platform, which allows for the rapid, efficient, and large-scale cell-free manufacture of high-fidelity DNA sequences. This technology became the foundation for the company’s work in the production of nucleic acid-based therapeutics.
Over the years, the company has faced some challenges. In 2020 and 2021, the company incurred significant losses, with net losses of $13.0 million and $14.3 million, respectively. These losses were driven by increased operating expenses related to research and development as well as selling, general, and administrative costs.
Despite these challenges, the company has achieved several milestones. In 2021, the company received full approval from the New York State Department of Health for its pharmacogenomics testing services. This allowed the company to provide genetic testing services targeted at guiding individual drug therapy decisions. Additionally, the company has leveraged its expertise in DNA detection via PCR to provide clinical molecular diagnostics and genetic testing services through its subsidiary, Applied DNA Clinical Labs, LLC.
Financial Performance and Ratios
Applied DNA’s financial performance has been characterized by strong revenue growth in recent years, driven by the commercialization of its Linea DNA and Linea IVT platforms, as well as the expansion of its molecular diagnostics business. In the fiscal year ended September 30, 2023, the company reported total revenue of $13.37 million, down from $18.17 million in the prior fiscal year. The company reported a net loss of $9.95 million for fiscal 2023, compared to a net loss of $8.27 million in fiscal 2022. Operating cash flow for fiscal 2023 was -$6.22 million, with free cash flow of -$6.30 million.
For the most recent quarter (Q3 2024), the company reported revenue of $797,519, a significant decrease of 72.5% year-over-year. This decline was primarily attributed to a decrease in clinical laboratory service revenues from the end of the COVID-19 testing contract. Net income for the quarter was $1,879,796, while operating cash flow was -$3,494,660 and free cash flow was -$3,516,486.
The company’s financial performance is reflected in the following key financial ratios:
The company’s negative net income and operating cash flow have been a concern for investors, as the company continues to invest heavily in research and development to support the growth of its Linea DNA and Linea IVT platforms, as well as the expansion of its molecular diagnostics business.
Liquidity
Applied DNA’s liquidity position remains stable, as evidenced by its current ratio of 3.91 and quick ratio of 3.76 as of June 30, 2024. This indicates that the company has sufficient short-term assets to cover its short-term liabilities. The company’s conservative capital structure, with a debt-to-equity ratio of 0.25, suggests that it has maintained financial flexibility while funding its growth initiatives.
As of June 30, 2024, the company reported cash and cash equivalents of $10.44 million. The company has not disclosed any available credit lines.
Therapeutic DNA Production Services
Applied DNA’s Therapeutic DNA Production Services segment is centered around the company’s proprietary Linea DNA and Linea IVT platforms. The Linea DNA platform enables the rapid, efficient, and large-scale cell-free manufacture of high-fidelity DNA sequences for use in the production of a broad range of nucleic acid-based therapeutics, including gene therapies, cell therapies, and mRNA therapeutics.
The company is currently in the process of establishing a Good Manufacturing Practices (GMP) facility for the production of Linea DNA IVT templates, which are critical starting materials for the manufacture of mRNA therapeutics. This facility is expected to be operational by the end of fiscal 2024, with an initial annual manufacturing capacity of over 5 grams, sufficient to produce up to 15 million doses of mRNA vaccine.
The acquisition of Spindle Biotech in July 2023 has further strengthened Applied DNA’s position in the mRNA therapeutics market by integrating Spindle’s proprietary RNAP technology with the Linea DNA platform to create the Linea IVT platform. This integrated platform offers several advantages over conventional mRNA production methods, including the prevention or reduction of double-stranded RNA (dsRNA) contamination, faster turnaround times, and reduced manufacturing complexities.
The company’s Therapeutic DNA Production Services segment has seen strong customer interest, with several biopharma and CDMO customers currently evaluating Linea DNA IVT templates. However, the lack of GMP production capacity has gated commercial adoption to date. The planned launch of the GMP facility in fiscal 2024 is expected to be a key catalyst for this business segment, as the company looks to secure large-scale supply contracts with clinical and commercial mRNA and self-amplifying mRNA (sa-RNA) manufacturers.
For the three-month period ended June 30, 2024, the Therapeutic DNA Production Services segment generated revenues of $278.76 thousand, with a gross profit of $194.34 thousand. For the nine-month period, the segment reported revenues of $679.64 thousand and a gross profit of $462.46 thousand.
Molecular Diagnostics (MDx) Testing Services
Applied DNA’s molecular diagnostics business, operated through its wholly-owned subsidiary ADCL, leverages the company’s expertise in DNA and RNA detection to provide a range of clinical genetic testing services. The company’s primary focus in this segment is its TR8 pharmacogenomic (PGx) testing service, which evaluates a patient’s unique genotype to help healthcare providers make more informed decisions about drug therapy.
On June 12, 2024, ADCL received full approval from the New York State Department of Health (NYSDOH) for its TR8 PGx testing service, making it one of the first commercial entities in New York to offer a broad-based PGx panel test. The company believes this approval, coupled with ADCL’s ability to provide faster turnaround times compared to out-of-state providers, will position it to capture a significant share of the PGx testing market in New York and surrounding regions.
Beyond PGx, ADCL has also expanded its testing capabilities to include Mpox (formerly monkeypox) detection, with the launch of an assay that can detect both Mpox Clade I and Clade II. This expansion is particularly timely given the World Health Organization’s recent declaration of a public health emergency of international concern (PHEIC) related to the Clade I outbreak.
The company’s molecular diagnostics business has faced headwinds in recent quarters due to the decline in demand for COVID-19 testing services, which had previously accounted for a significant portion of the segment’s revenues. For the three-month period ended June 30, 2024, the MDx Testing Services segment generated revenues of $324.73 thousand, with a gross profit of $12.26 thousand. For the nine-month period, the segment reported revenues of $992.45 thousand and a gross profit of $56.70 thousand.
Going forward, APDN plans to leverage its PGx Testing Services to provide testing to large entities, self-insured employers, healthcare providers, and concierge healthcare providers. The company is targeting both concierge physician practices and larger enterprise customers, with the goal of the service approaching profitability over the next two quarters, even at low testing volumes.
DNA Tagging and Security Products and Services
Applied DNA’s DNA Tagging and Security Products and Services segment focuses on leveraging the company’s expertise in DNA manufacture and detection to provide authentication and traceability solutions for industrial supply chains, with a particular emphasis on the cotton and textile industries.
The company’s core offering in this segment is its CertainT platform, which utilizes a combination of DNA tagging, isotopic testing, and genomic testing to verify the origin and authenticity of materials and products throughout the supply chain. The CertainT platform has been widely adopted by customers in the cotton and textile industries, who are increasingly under pressure to ensure supply chain compliance and transparency, particularly in the wake of regulations such as the Uyghur Forced Labor Prevention Act (UFLPA).
In the third quarter of fiscal 2024, Applied DNA announced a significant 5-year commercialization agreement with a leading global cotton apparel manufacturer, Indus. Under this agreement, Applied DNA will provide Indus with a comprehensive suite of CertainT-based services, including DNA tagging, testing, and on-site detection capabilities. The company believes this partnership has the potential to drive sustainable growth in its DNA Tagging and Security Products and Services segment, as Indus serves major apparel markets with stringent supply chain regulations.
For the three-month period ended June 30, 2024, the DNA Tagging and Security Products and Services segment generated revenues of $194.03 thousand, with a gross profit of $63.15 thousand. For the nine-month period, the segment reported revenues of $946.22 thousand and a gross profit of $366.22 thousand. Going forward, the company plans to leverage its expertise in DNA manufacturing and detection to expand the use of its CertainT platform for supply chain security and product authentication across various industries.
Risks and Challenges
Despite the company’s progress in developing and commercializing its various technology platforms, Applied DNA faces several risks and challenges that investors should be aware of:
Competitive Landscape: The company operates in highly competitive markets, with both established players and emerging startups vying for market share in the therapeutic DNA production, molecular diagnostics, and supply chain traceability spaces. The company’s ability to maintain its technological edge and secure customer contracts will be critical to its long-term success.
Liquidity and Financing Needs: As a company with a history of generating negative net income and operating cash flow, Applied DNA’s ability to continue funding its operations and growth initiatives will depend on its success in attracting additional capital, either through equity or debt financing, or through revenue generated from commercial partnerships and contracts.
Dependence on Key Customers and Partnerships: The company’s business model is heavily reliant on securing and maintaining key customer contracts and partnerships, particularly in its Therapeutic DNA Production Services and DNA Tagging and Security Products and Services segments. The loss of a significant customer or the failure to secure new contracts could have a material impact on the company’s financial performance.
Market Volatility: The recent decline in COVID-19 testing demand has significantly impacted the company’s revenues, highlighting the potential for rapid shifts in market dynamics that can affect the company’s financial performance.
Outlook and Conclusion
Applied DNA is well-positioned to capitalize on the rapidly evolving landscape of DNA-based technologies, with its unique capabilities in the manufacture and detection of DNA. The company’s strategic focus on high-growth markets, such as mRNA therapeutics and pharmacogenomics, has the potential to drive significant long-term value, provided the company can successfully navigate the regulatory and competitive challenges it faces.
The planned launch of the company’s GMP facility for Linea DNA IVT template production in fiscal 2024, as well as the continued commercialization of its TR8 PGx testing service and CertainT platform, will be crucial milestones to watch in the coming quarters. While the company’s financial performance has been hampered by its ongoing investments in R&D and business development, as well as the decline in COVID-19 testing revenues, the potential rewards of the company’s technology platforms could justify the current challenges, provided the company can execute on its strategic initiatives and secure the necessary financing to support its growth.
The company has expressed confidence in achieving an “imminent revenue inflection” and a “return to growth” starting in the first half of fiscal 2025, primarily driven by developments in its LineaRx biotherapeutics segment, DNA tagging segment, and initial contributions from its pharmacogenomic testing service. However, it’s important to note that this expected growth is reliant on future commercial activities that have not yet formally begun.
The global mRNA therapeutics market is expected to grow at a CAGR of over 20% from 2023 to 2028, driven by the success of COVID-19 mRNA vaccines and the development of new mRNA-based therapies. Similarly, the global DNA sequencing market is projected to grow at a CAGR of over 15% from 2023 to 2028, supporting the company’s MDx Testing Services. These market trends provide a favorable backdrop for Applied DNA’s growth strategies.
Overall, Applied DNA’s combination of innovative technology, diversified business model, and experienced management team make it an intriguing player in the rapidly evolving world of DNA-based solutions. As the company continues to navigate the challenges and opportunities ahead, it will be crucial for investors to closely monitor the company’s progress and the potential long-term value it may be able to unlock.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.