Know Labs Q2 2023 Earnings Call Transcript

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May 15, 2023

There are 4 speakers on the call.

Operator

Greetings. Welcome to the NOLabs Fiscal Year 2023 Second Quarter Earnings Conference Call. Please note, this conference call is being recorded. I would now like to turn the conference over to Jordan Hujar, Knowlabs' Chief of Staff. You may begin.

Speaker 1

Thank you, operator. Thank you, everyone, for joining us for today's conference call to discuss NoLab's Q2 of fiscal year 2023 financial And recent operating highlights. If you have not seen today's financial results, press release and 10 Q filing, please visit the Investors page on the company's website. Before turning the call over to Ron Erickson, Knowlabs' Chairman and Chief Executive Officer, I would like to remind you that during this conference Call, the company will make projections and forward looking statements regarding future events. Any statements that are not historical facts are forward looking statements.

Speaker 1

We encourage you to review the company's SEC filings, including without limitation, the company's Forms 10 ks and 10 Qs, which identify specific risk factors that may cause actual results or events to differ materially from those described in these forward looking statements. These factors may include, without limitation, Risks inherent in the development and or commercialization of potential diagnostic products uncertainty in the results of clinical trials or regulatory approvals The need to obtain 3rd party reimbursement for patients' use of any diagnostic products the company commercializes such as failure to realize anticipated benefits legal, regulatory or political changes in the applicable jurisdictions Accounting and quality controls, greater than estimated allocations of resources to develop and commercialize technologies or failure to maintain any laboratory accreditation or FDA certification and uncertainties associated with the COVID-nineteen pandemic and its possible effects on our operations. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward looking statements. NOLabs expressly disclaims any intent or obligation to update these forward looking statements, except as otherwise may be required under applicable law. Today's call will be followed by a Q and A session.

Speaker 1

Your questions can be submitted through the webcast portal, which can be accessed through our website. We will not be taking questions over the phone during today's call. With that, I'll turn the call over to Ron Erickson, KnowLab's CEO. Ron?

Speaker 2

Thanks, Jordan. Welcome, everyone, to our conference call to discuss the financial results and operating highlights of our Q2 fiscal year 2023. Joining me today is Pete Conley, our Chief Financial Officer and Senior Vice President of Intellectual Property, who will discuss our financial results. I'm going to walk through our progress against our strategic milestones today, provide an overview of our achievements for the fiscal quarter ending on March 31, 2023 and preview our goals for the balance of the fiscal year 2023. We are committed to making a difference in the lives of millions people worldwide by developing convenient, affordable and non invasive medical diagnostic solutions.

Speaker 2

We envision a world in which people can continuously and accurately measure different aspects of their health on a molecular level Using a small non invasive sensor instead of the current invasive options available in the market. Blood glucose is our top Priority and our team continues to work to bring the 1st FDA cleared truly non invasive glucose monitoring device to market. As communicated during our last earnings call, we have welcomed new members to the executive team and redistributed core responsibilities, which as hoped for Accelerated product development and clinical testing. Our strategic partners in data science, sensor technology, product design and regulatory affairs Have been integrated with our operations over the last few months. This integration and frequent collaboration and update sessions have allowed our team to accelerate our progress.

Speaker 2

Look forward to announcements that are evidence of that progress throughout this coming year. We have an aggressive and results oriented plan in place and I'm happy to report meaningful progress across all four work streams we enumerated in our earnings call last quarter. Our most important goal for 2023 is the external validation of our Bio RFID technology platform. We will achieve this by continuing focus on clinical development and trials, feature engineering through data science and algorithm refinement. Through partnerships with leading research institutions, we will obtain additional data collection and accuracy validation.

Speaker 2

As I said, our 2023 operating plan has been structured around 4 coordinated work streams. They are: 1, Continued development of our hardware solution, our patented sensor 2, the continued development of our software working in conjunction with key third parties on our proprietary trade secret algorithm and machine learning platform. 3, Continued testing internally under current and future IRB approved protocols to increase our clinical data collection and analysis And 4, continued strategic development of our intellectual property portfolio, our patents issued pending and in development, as well as codifying our trade secrets. As a result of the work done across these work streams, we've published a technical report of our proof of concept study and presented the results of 2 studies at 2 different conferences. The first study, a proof of concept titled Non invasive blood glucose monitoring, a validation of a novel sensor compared to DexCom G6 This report outlined data science techniques used to train our neural network model to make glucose level predictions and included metrics of model Success.

Speaker 2

It served as a foundation for our other studies, assisting our product team in defining the future direction of our clinical work. This study was peer reviewed by members of Note Lab's Scientific Advisory Board. The second study, a proof of principle study titled Detecting unique analyte specific radio frequency spectral responses in liquid solutions implications for non invasive Physiologic Monitoring was conducted in collaboration with Mayo Clinic in 2021. Its results were presented in the 2023 American Physiological Society Summit held from April 20 to April 23 in Long California. The study demonstrated the accuracy of the NOLab's proprietary Bio RFID technology platform in quantifying different analytes in vitro proving a 100% accuracy rate in these tests.

Speaker 2

These results prove that Bio RFID accurately detects, measures and quantifies specific molecules in liquid. While these findings Have in vitro commercial applications. These proof of principle studies provide strong support for the application of Bio RFID The complete study is currently undergoing peer review publishing process and we will provide an update as soon as we receive additional feedback. The 3rd study, which focused on proving the technical feasibility of BioRFID, was presented at the American Association of Clinical Endocrinology Annual Meeting held here in Seattle from May 4th to May 6th just a week ago. This study titled Technical feasibility of a novel sensor for noninvasive blood glucose monitoring compared to DexCom G6 Trained a neural network model to predict blood glucose concentrations in humans using only radio frequency readings And the DexCom G6 as a reference device.

Speaker 2

Its results validated Bio RFID as stable to deliver repeatable results and provided infrastructure for future data collection efforts. We have several protocols being followed by our team, Both are in vitro and in vivo testing. Additional research is underway to continue refining and developing our technology and respective algorithms. We expect to publish additional studies in the remainder of fiscal year 2023. I encourage you to visit a new page on our website called Research and validation.

Speaker 2

You will find documentation related to these studies and updates on our development progress. Pictures of NOIEW's Generation 1 prototype have been disclosed in these studies. If you haven't seen these, I encourage you to review the posters presented at these last two conferences, which can be viewed on our website and provide detailed and exploded views of the prototype. Assuming the clinical testing with these devices continues to deliver successful results, we plan on building a significant number of these devices performed with our proprietary bio RFID sensor. The sensor, which is complete and has been used in our tests for many months, It's the key component of the Generation 1 prototype.

Speaker 2

Keep in mind that I'm talking about the Generation 1 prototype. Lessons learned from this prototype will inform modifications for future generations. As we have discussed, when we undertake FDA clinical trials To achieve clearance for our non invasive glucose monitor, those trials will utilize the final market ready product That may be a generation or 2 from now. I want to emphasize that point as we have completed the foundational hardware development phase of our work. And while there is more work to be done, we are now heavily focused on broad clinical data collection to inform algorithm development.

Speaker 2

To date, our current clinical testing has generated billions of observations and that continues daily in our laboratory. That massive amount of data is critical to refine our algorithms and to train our machine learning platform to accurately measure glucose levels The BioRFID sensor has the potential to capture 1,500,000 observations per hour per test. Based on the current operating parameters, this means the sensor makes a prediction every 22 to 23 seconds during each test. As we prepare to undertake clinical testing with the new Generation 1 devices, we estimate we will have tens of billions of observations to process. We are confident that as we get more reference labels combined with more raw data collected with our sensor, our algorithm performance will improve.

Speaker 2

This is The standard procedure in machine learning and will hopefully lead to a higher accuracy level and lower MARD or MAR figures. As we increase sample size, it's expected there are changes in accuracy resulting from variability in testing conditions, biological diversity and other factors. This is the core goal of expanded data collection. This massive amount of data requires a robust approach to data engineering, artificial intelligence And machine learning. Edge Impulse, the creator of the industry leading development toolkit for machine learning, has been collaborating with our team to accelerate Bio RFID's algorithm refinement.

Speaker 2

We've also started to build our own internal team focused on supporting this effort. Moving on, we announced last month the establishment of a Scientific and Technical Advisory Board comprised of distinguished researchers, innovators and experts In Medical Technology and Human Health, these individuals will advise the company and its strategic partners on advancing the company's progress against all work streams, including algorithm refinement, device development, clinical trial design and research publication strategy. They are working alongside our current Medical and Regulatory Advisory Board, which was established in 2020. Bringing industry experts on board will help us to validate And accelerate our work. No one has achieved true non invasive monitoring of blood glucose.

Speaker 2

We're focused on changing that and we cannot do it alone. We rely on our team, partners and advisors to work with us to achieve our goals and we rely upon Support from you, our shareholders and others who provide encouragement. That makes a real difference. To touch on IP, P, we continue to expand our patent portfolio. As previously disclosed, PatSnap Research and IP Capital Group, 2 leading patent analytic firms ranked Nolabs number 1 for patent leadership in noninvasive glucose monitoring.

Speaker 2

I'm happy to share we currently have more than 159 patents issued and pending, which is a remarkable 62% single quarter increase Over the last quarter's total of 98 patents issued and pending, further evidence of the pace of our product development and our accelerating IP leadership. Our goal is to reinforce our position as the top worldwide IP holder in non invasive blood glucose monitoring. That said, We are a platform technology with other aspects of our patent portfolio reaching beyond blood glucose into other realms of medical diagnostics. As it relates to FDA clearance, shareholders often ask us when will we go to the FDA to commence clinical trials and ultimately obtain FDA clearance Our non invasive glucose monitoring device. It is difficult to set forth exact dates.

Speaker 2

We are inventing and developing new technology that has never been done As we expand data collection and testing conditions, we learn more about what needs to be addressed. This takes time, but rest assured that as soon as we have high confidence in FDA clearance related timelines, we will share them with you. 2023 has been a year of change for no labs. Pete will cover our financials, but rigid budget planning and control has also been a priority. We rebuilt our budget from the ground up to ensure every resource was contributing to our strategic and operating goals, the And to ensure capital is being used effectively.

Speaker 2

This included the elimination of certain positions and the creation of new ones. Our full time employee count was reduced from 19 to 10, but we also increased the number of contractors, advisors And vendors supporting our core team. Most important as Pete will soon share with you, these actions will reduce our monthly burn. In summary, we are executing on the plan to deliver the 1st FDA cleared, truly noninvasive blood glucose monitoring device in the market and our broader vision to transform medical diagnostics through non invasive means. Now, I'd like to turn the call to Pete Conley, our Chief Financial Officer, to review our financials.

Speaker 2

Pete?

Speaker 3

Thank you, Ron. We detailed the financial results in today's Q2 earnings release, Which as noted by Jordan, you can find on our website, where I'll share a few key line items. Nolas reported a net loss of 4.93 $1,000,000 in the Q2 of 2023 compared to a net loss of $6,140,000 in the year ago period, This translates to earnings per share of a loss of $0.10 an improvement over the year ago period of a loss of $0.16 Research and development expense for the Q2 was $2,560,000 as compared to 1,250,000 The increase in R and D expenses related to staff increases in engineering, 3rd party technical services and expenditures related to the development of our Bio RFID technology and Generation 1 device As we continue to execute our path to FDA clinical trials and commercialization. Selling, general and administrative Which increased versus the prior year primarily due to key additions to the executive team and increases in third party services. Turning now to the balance sheet.

Speaker 3

As of March 31, 2023, we had cash and cash equivalents $6,270,000 as compared to $12,590,000 at the end of September 30, 2022. Net cash used in operations for the 6 months ended March 31, 2023 was $6,340,000 Compared with $1,020,000 in the prior year. During the end of the quarter ended March 31, 2023, the company made adjustments to its staffing level as noted by Ron and the impact of these adjustments will significantly reduce Our monthly burn rate. Given the significant reduction in fixed expenses, the company believes that it has enough cash And flexibility with its operating expenses to operate until at least February 2024. That concludes my review of our financial highlights, and I'll return the call to Ron for closing remarks.

Speaker 2

Thanks, Pete. We will now dedicate the next 10 to 15 minutes to questions submitted to the webcast recorder. And you should note that some of those started to come in here because we are So the first question and this is a question actually that It was asked in various ways by 5 or 6 different individuals. I touched upon this in our formal remarks. And so let me just reiterate what I've said.

Speaker 2

The question really has What are both optimistic and conservative timelines the company has established for FDA approval? Or put another way, when are you going to get to FDA? When are you going to submit to FDA? What's your timeline? So as I indicated in our formal remarks, It's very difficult to set forth exact dates.

Speaker 2

We're inventing and developing new technology that's never been done before. And as I indicated, as we expand our data collection and testing conditions, we learn more about what needs to be addressed. We have to achieve a repeatable accurate standard of With a market ready product that is a product that we can ship in the market. It's not GEN-one, it's a market ready product Before undertaking clinical trials for FDA clearance. This takes time, but I want you to know that as As soon as we have a sense of what that timing is and we have a high confidence regarding our ability to go before the FDA and So at this time, I'll just reiterate, it's very difficult to set forth exact dates.

Speaker 2

I appreciate the question. Next question, does NOLabs have any institutional shareholders interested in the stock? Pete, why don't you take that?

Speaker 3

The institutions with more than 100,000,000 Dollars of assets under management are required by the SEC at the end of each quarter to file a 13F. As of the last Quarterly recording period. We have 23 institutions that have positions in NOL Labs.

Speaker 2

And I would say that prior to the listing on the New York Stock Exchange, we had 0. So I think that as we have gone to a national market Once again, we've got 4 individuals that asked the question that's a variation on the theme of how much cash we have on hand and what's the runway. As of March 31, the company had $6,200,000 cash on hand. The question is, are you anticipating other capital raise by the end of the year Or are you exploring other alternatives to raise cash for operations? And somebody asked will you license to 3rd parties or engage in other perhaps strategic partnerships?

Speaker 2

Pete, do you

Speaker 3

want to handle that one? Sure. As we've noted both in our prepared comments and in the 10 Q, We have enough cash to comfortably last us through February 2024. That said, as we've disclosed in the 10 Q, we do anticipate Seeking additional financing between here and there, the benefit to having reduced our monthly burn rate so significantly And shifting from fixed to variable expense gives us a lot more flexibility in terms of when we choose to take

Speaker 2

There is a question and there are actually a couple of of individuals that have asked questions about our recent reporting results as it relates to MAR levels. And so, one wants to know what's our target MAR. The recent technical feasibility study showed a mark of 20.6. Another question said, I was confused by the recent validation. Are we Pointed by the March of 20.6, how does this compare to March announced by various competitors?

Speaker 2

So, Pete, if you'd speak to that, please.

Speaker 3

Sure. So, in October of 2021, we Disclosed the MAR average across 3 different benchmarks, the DexCom G6, the other 3 solidly grade And the Accu Chek by Roche. And in that study, we achieved an average of 5.8%. In the ACE results on the poster, which can be downloaded on our website, we announced an average mark of 20.6 The important thing to understand about MARG is the accuracy As measured by the confidence interval in the metric, there's a direct result proportional to the size of the dataset. So if you look at the results that were announced in October of 2021, we had Sample size of 3 and roughly 1,500,000 data points.

Speaker 3

In the ACE poster. We had a sample size of 92, in other words, 30x greater with Over 400,000,000 data points. So, we had a 30x increase in sample size and a 300x increase in data. Therefore, we had a higher margin, but it's important to keep in mind that that was across A very large sample size. And I would point you to the actual poster.

Speaker 3

And if you look at, for instance, We list a number of single tests that in test 7 for instance, We achieved a MAR of 9.7. In a couple of the other tests on the poster, we achieved MAR in the 10s. But across the entire of the 92 samples, we're at 20.6. As we continue to work on our algorithms and expand the cohort of our tests, We believe that we're going to see more trim lower. There is a follow on question here related to MAR targets.

Speaker 3

We've talked about our Intent and our belief that to have a medical grade device cleared by the FDA, we want to achieve a MARR Under 10, that's where the current CGMs that are cleared by the FDA are from DexCom, Abbott and so forth. The thing to keep in mind is the 10% target is not Carved and stoned, so to speak. If you go back to the original Medtronic MiniMed CGM when that was approved, the FDA approved it with the March of 'twenty. When DexCom had its 1st generation products approved, its margin were in the 16%, 17% range. So, it's a variable target.

Speaker 3

We won't know until we get into the FDA and talk to them that what the benchmark is going to be.

Speaker 2

There is a question here. We referenced the GEN-one and these two posters. And as So, Pete has indicated you can go to our website and there are some there are visuals. The question is do we plan to send a press release on the Gen 1's Tanner, and I would say, of course, what's been represented on those Posters is an early, not final design, as you can find that on our website. So we would intend to, as that gets Refined and completed, you can absolutely expect that we will share all the details we can, comprehensive details Somebody wanted to know if it's possible to have a current lab tour on our YouTube channel.

Speaker 2

That's a good idea. I think because a picture tells a 1,000 words. You tell a big story. And so I think it's a great idea. I would say over time look forward to that.

Speaker 2

We'll walk you through and tell you what goes on there. There is a question here. An individual has asked about a potential competitive product that wants to know if we could Comment on a holographic camera from SMART that might be used for spectroscopy. First of all, I want to thank everybody. You You can send e mails to us.

Speaker 2

You can get in touch with us. If you run across something that you think is competitive, we want to know about it. I mean, we have our tentacles out there. We try to pay attention with Various data feeds, but we are not going to see everything. So please bring things to our attention.

Speaker 2

So this question has to do with Holographic camera that could be used for spectroscopy is apparently the world's smallest LED phone camera microscope. And the question is whether or not this is competition or would need to use your patents. We believe that this is technology that is Photonic based, LED photonic based, we are using radio frequency spectroscopy with our Bio RFID technology. So we wouldn't see this as directly competitive. I think we also have a sense that photonics doesn't work especially well.

Speaker 2

Photonics can be inhibited by such things as the amount of melanin in the skin, skin tones, skin thickness and other things that Then we're not inhibitors for radiofrequency spectroscopy. But once again, please, you can send emails to ask at So here is another question here. Somebody wanted to know about the possibility of adding a smartwatch face to the U band. As you know, we've talked about 2 products, this Product called the No U that would take the place of periodic finger sticks. You could carry it with you, you could sit on the table.

Speaker 2

And then there is the U band, Which is the wearable device that is more for continuous glucose monitoring. And the question is, have we looked at the possibility of adding Smartwatch base to the U band of has this idea been considered. I would say right now today we are focused On Jan 1, the first product moving that to the FDA, getting FDA clearance there. We You don't have internal plans about follow on products. One of the things we say about our technology is, this is a term that gets off use, It's form factor agnostic.

Speaker 2

In other words, if you have a sensor, that sensor could be in all kinds of things. And in fact, at one point, I said in You could have our sensor in your tennis shoe. In other words, it could be in a wearable. So there are a lot of possibilities. Having a smartwatch face is certainly one of them.

Speaker 2

But right now, Clear focus on that GEN-one prototype going to the FDA with a working market ready device. That's our focus. There is another question that is about something that is in our 10 Q and you can read about there. We make reference Stuart, the question is, has the Particle Vault found a partner to take the product to market and plan? Pete, do you

Speaker 3

want to respond to that? Sure. As Ron indicated, we have disclosed in the 10 Q We are actively seeking partnership. And in terms of update, What we can say is, recently, we have begun discussions with 3rd parties. We'll keep everybody apprised as things

Speaker 2

Here is another question and this really kind of in the we had the question about could we do a tour of the lab And see what we are doing there. Again, I think at the same time, this question is, could you interview Steve, Kent and others on this YouTube channel? We don't know So, yes, no, I think that would be that's a great that's another great idea. The I think in the most recent press release, Steve Kent was quoted, but one thing that they quoted and another thing to see is picture on our website. I think it's always good to have more engagement with people to learn more about them.

Speaker 2

So it's a great idea. Appreciate that. There is a question, what happened to Phil's relinquishment of 3,000,000 shares? Phil did not relinquish 3,000,000 shares. Phil holds 3,000,000 shares.

Speaker 2

They are subject to a as part of his separation from the company, Part of that separation, they're subject to what we call a lock up, leak out agreement. So that they In other words, they can't be dumped on the market. I wouldn't want to dump it on the market. So but they are subject to a lockup, leak out agreement. So he continues to hold those.

Speaker 2

Those are shares in his name. As a part of his separation from the company, He did return and company returned to the option pool his unvested options. And I believe that's indicated in our 10 Q filing. But in the aggregate, we have had over this past year with a reduction in headcount And the options that came back with that, we have had in the aggregate between $8,000,000 $9,000,000 option shares go back into the pool, There's I'm going to I think we've pretty much gone through everything. There's one final question.

Speaker 2

And the question is, is it fair to say prototype is currently being made hardware wise and just requires final As we indicated in our prepared remarks, this is Jan 1. This is Jan 1. And Ultimately, you go to the FDA with final market ready product. When we sit here today, We don't know if that's going to be Gen 2, Gen 3, Gen 4 because you go through a process of refinement, you go through iterations. And so it's hard to say.

Speaker 2

What we have said and continue to say is The sensor itself, that's part of the radio frequency spectroscopy So to the guts of BioRFID, the sensor is complete. The sensor is will be embedded and embodied in that prototype. But the prototype itself has a number of other components. So that will no doubt go through refinement. I think the other thing That we're all alert to and we have been over the certainly the last year or so are supply chain issues.

Speaker 2

You can build a device and have your building materials and everything you're going to put in that and then suddenly Be surprised by a serious issue with the supply chain and you might not have the component, you might not have availability for We have heard from our manufacturing partner in Singapore, Racer Technologies, that there are some chips that are back ordered 12 So you just have to be alert to those kinds of things. Jan 1 is Jan 1 and we believe that there will be We find this in that over time before we end up having a market ready product.

Speaker 3

Ron, if I could expand on your comment about supply chain, I would note for shareholders that we have in house all of the components necessary to build 100 of the Gen 1

Speaker 2

Right. So we thanks, Pete. Yes. We've got enough to build 100. We don't have enough to build 200.

Speaker 2

So thanks a lot, Pete. And thank you all so much for your support, for your encouragement. We are here on your behalf working every day. We appreciate everything you have done to get us this far And you can count on us continuing to work hard to achieve our goals for you. Thanks so much.

Speaker 2

This now concludes our Q and A. I want to thank everybody for joining us today. There's a lot to look forward to in 2023 And we're excited to report on our progress. Obviously, as I said earlier, we appreciate your support. And I also want to acknowledge The efforts of our team, we've got a really first class group of individuals who are doing great work.

Speaker 2

I want to thank them. I want to thank you. And to all of you, have a great day.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.

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