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Edited Transcript of APDN earnings conference call or presentation 14-May-20 8:30pm GMT

Q2 2020 Applied DNA Sciences Inc Earnings Call

STONY BROOK May 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Applied DNA Sciences Inc earnings conference call or presentation Thursday, May 14, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Beth M. Jantzen

Applied DNA Sciences, Inc. - CFO

* James A. Hayward

Applied DNA Sciences, Inc. - President, CEO & Chairman

* Judith Murrah

Applied DNA Sciences, Inc. - Chief Information Officer & Secretary

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Conference Call Participants

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* Anthony V. Vendetti

Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst

* Craig Pierce

Morgan Stanley - VP of Wealth Advisor

* Paul Cooney

Joseph Gunnar & Co., LLC - Director of Structured Products

* Yi Chen

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Applied DNA Sciences Fiscal Second Quarter 2020 Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Judy Murrah. Please go ahead.

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Judith Murrah, Applied DNA Sciences, Inc. - Chief Information Officer & Secretary [2]

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Thank you, operator. Good afternoon, everyone, and thank you for joining us for our fiscal 2020 second quarter financial Results conference call. A copy of the company's earnings press release and accompanying PowerPoint presentation to this call are available for download under the Events and Presentations section to the Investors page of the Applied DNA website. With me on the call today are Dr. James Hayward, Chairman, President and CEO; and Beth Jantzen, Chief Financial Officer.

Before we begin, I would like to remind everyone that this conference call may include forward-looking statements. Please see Slide 2 of the accompanying PowerPoint presentation and the company's SEC filings 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. Applied DNA undertakes 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 to today's call, Beth Janssen.

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Beth M. Jantzen, Applied DNA Sciences, Inc. - CFO [3]

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Thank you, Judy. Good afternoon, everyone, and thank you for joining us. Today, I will review our consolidated financial results for our 2020 fiscal second quarter. Then Dr. James Hayward, our President and CEO, will update you on developments in our linear DNA business and especially on our COVID-19 vaccine and diagnostic development programs that have focused the company's time and attention since the outbreak of the pandemic. Jim will then open the call to your questions.

As a result of the COVID-19 pandemic and the mandate by the state of New York to close all nonessential businesses until at least May 15, the company reduced the scope of its operations and where possible, certain workers have been telecommuting from home. Portion of -- portions of the company's business are deemed to be an essential business and have continued operations, such as our government and pharmaceutical contracts as well as the vaccine and diagnostic candidate development. However, we have experienced and may continue to experience in the future facility closures related to our nonessential businesses.

The impact of COVID-19 to revenue for the second quarter of fiscal 2020 was minimal. However, subsequent to March 31, we have been experiencing a decline in revenues from our nonbiological tagging and related services that comprise our supply chain security business segment. This segment services certain global supply chains, such as textiles, that transit through geographies and countries in Asia and North America. We are actively engaged with our partners and customers to monitor business activity levels during these unprecedented times.

Regarding our biopharma activities that now take up the majority of our business development activities, we do not anticipate any barriers to continuing to manufacture linear DNA at scale for therapeutic applications and in support of our COVID-19 vaccine candidates, nor do we see any barrier to continue development and manufacturing relating to our diagnostic kit programs.

Starting with the statement of operations, total revenues for the period decreased 29% to approximately $552,000 from approximately $778,000 in the second quarter of fiscal 2019. Product revenues were $198,000 as compared to $119,000 in the prior year period. The increase in product revenues is attributable to increased biopharmaceutical revenues and, to a lesser extent, initial revenue from the marking of a nutraceutical supplement offset by lower asset marking revenue.

Second quarter service revenues were $355,000 as compared to $659,000 in the prior year period. The year-over-year decrease in service revenues is primarily attributable to revenues in the prior period related to a government contract award that was completed in May of 2019 as well as a decrease in the number of textile and cannabis feasibility projects, the latter due to our canceled contract with TheraCann, although we are actively developing leads in cannabis tagging.

Cost of revenue as a percentage of product revenue in our fiscal second quarter of 2020 decreased to 91% as compared to 112% for the year ago period. The year-over-year improvement was due to the change in product sales mix as well as an inventory adjustment during the second quarter of fiscal '19.

Total operating expenses decreased 7% or $223,000 to $3.1 million in the second fiscal quarter of 2020 compared with approximately $3.3 million for the same period in the prior fiscal year, reflecting lower selling, general and administrative costs due principally to lower professional fees and, to a lesser extent, from a decrease in travel as a result of COVID-19 travel restriction.

Second quarter R&D expenses increased by $52,000 to $703,000 from $651,000 over the prior period. This increase reflects higher development costs for our biotherapeutic customers as well as an increase in payroll, offset by lower development costs for the government contract that was completed in May of '19.

Net loss for the second quarter of fiscal 2020 widened by 10% on a year-over-year basis to $3 million from $2.7 million. As a reminder, we implemented a 1-For-40 reverse stock split on November 1, 2019. As a result, reported earnings per share for the second quarters of fiscal 2020 and 2019 have been calculated using the post reverse stock split share count. Weighted average shares outstanding for second quarter of fiscal 2020 and 2019 are 3,758,512 and 834,990, respectively. Net loss per share for the second quarter of 2020 improved to $0.79 compared to a net loss per share of $3.22 for the same period in fiscal 2019. Excluding noncash expenses, adjusted EBITDA was negative $2.6 million for the second quarter of fiscal 2020 as compared to negative $2.3 million in the prior period.

Turning to our balance sheet. Cash and cash equivalents totaled approximately $8.7 million at March 31. This figure includes approximately $2.8 million in net proceeds from the exercise of warrants issued as part of our November 15, 2019 underwritten public offering. Total debt comprised of our secured convertible notes was $1.5 million at quarter end. Our average monthly cash burn rate, net of financing and warrant proceeds for the second quarter of fiscal 2020 was $880,000 compared to $399,000 for the year ago period, an increase of 121%. The increase is due to catch-up payments made after the November 2019 financing was complete as well as the timing of cash receipts.

Subsequent to March 31, we received additional warrant exercises totaling $2.9 million in net proceeds. As of yesterday, May 13, approximately 1.5 million warrants issued as part of our November 2019 offering remain outstanding. Our current cash position is approximately $11.5 million. Finally, subsequent to March 31, as a biopharma company with active, though as yet unsponsored COVID-19 programs across both vaccines and diagnostic kits, we applied and received Paycheck Protection Program funds totaling $874,000 as part of the second tranche of the program. As we intend to retain our staff, we expect full loan forgiveness. Full terms of the loan are found in our 10-Q filed a short while ago.

This concludes my prepared remarks. Thank you for joining us today. I would now like to turn it over to Jim for his comments.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [4]

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Okay. Thank you very much, Beth, and good afternoon, everyone, and thank you for joining our call. I hope that you, your families and friends are all staying healthy and safe. And on behalf of the entire Applied DNA family, I want to express our gratitude to the men and women on the front line of this crisis, to the doctors and nurses and everyone working so hard today, putting their health at risk to support the safety and health of our communities and our country. Given our work on COVID-19 in close proximity with Stony Brook University, that is right next to us here on the campus, we have front row seats to the incredible work these men and women do every single day. So to all of you, and to those of you who have family members on the front lines, we say a heartfelt thank you.

I'll begin my remarks today on our COVID-19 development programs that hold our investors' interest, given potential of these programs, to recast our revenue profile going forward due to their applicability to the pandemic and the advantages that we offer in these urgent times. I'll begin first with our COVID-19 diagnostic kit assay for which we have only just received emergency use authorization from the FDA. SARS-CoV-2 does not use DNA the way we do to encode its genes. It uses a single strand of RNA. Such viruses are detected by a method you have heard us reference often called PCR or polymerase chain reaction. As we are global experts on PCR, we also use in manufacturing, it made perfect sense for us to dedicate the effort to detecting COVID-19 by PCR.

Now let's talk about the virus we are battling and the logic of our approach. SARS-CoV-2 is small, about 100 nanometers in diameter, roughly 1/10 the size of most bacteria. Its genome is quite small, only about 30,000 base pairs long compared to human's 3 billion bases. But it is complex, and that little genome encodes for almost 30 proteins. The protein that has the attention of the scientists that apply DNA is spike, named because that's what it looks like. When dispersed around the surface of the membrane that surrounds the virus, in cross section, it looks like a crown, giving the virus its name, spike forms that crown. Spike is the means by which SARS-CoV-2 gains entry into a human cell by binding to a specific receptor on the surface of its host cells. It is an essential part of the mechanism of infection. For that reason, it made sense to us to target spike and the gene that encodes it called the S gene for our diagnostic target and to target it again in our approach to vaccines. Antibodies that bind to the spike protein might neutralize spike from binding to its receptor. So of necessity, we became quite expert at spike.

Our test is reverse transcription real-time PCR, a molecular diagnostic tool that identifies the virus' genetic material in patient samples. The reverse transcription step converts the viral RNA into its homologous DNA, which is easier to copy in the subsequent cycles of DNA-based PCR. To enable governments to significantly increase patient testing for COVID-19 and play a critical role in the fight against COVID-19, ours is a high throughput kit that allows for the mass testing for COVID-19, up to 94 samples per testing run, and each test run can be completed in as little as an hour.

We believe our test has several commercial advantages over other EUA approved COVID-19 diagnostic tests. We have designed our test for ease of use. Our test is an advanced single well multiplex test that allows for simple setup and higher throughput as compared to tests that require multiple wells per test. The test targets 2 portions of the spike gene, which we believe is unique in the COVID-19 testing space. These unique targets were selected due to their highly conserved nature based on the analysis of thousands of COVID-19 genetic sequence. In all, we believe we have developed a best-in-breed assay that has the potential to significantly help flatten the curve, both in New York and nationwide.

Regarding the economics of our COVID-19 diagnostic test, we expect the test to be profitable starting at day 1. We have been careful in choosing our kit components, and have worked closely with our domestic supply chain partners to develop safeguards for continued supply of necessary reagents. We've made sure that the manufacturing process for our test kit is as simple as possible, allowing the company to scale with demand. During the development of our test kit, we also worked diligently to identify and cultivate initial customers. We're currently in discussions with a large New York state institution as well as several public and private companies. We hope to have an update on these and other sales developments as soon as practicable.

Achieving the EUA is not the end of our diagnostic work. We are currently undertaking further developments regarding our kit, including evaluation studies for additional specimen types, like saliva, and additional testing equipment. We plan to file EUA amendments in the near future that if granted we believe will further increase the commercial utility of our diagnostic test. In effect, we plan to file amendments that we believe will make testing easier and more affordable and, therefore, enable a flattening of the curve.

The foundation of all our COVID-19 development programs is our unique approach of linear DNA. We are experts in DNA and its manufacture with the ability to produce linear DNA at very large scale. Our COVID-19 work is a natural extension of our linear DNA-based approach to DNA-based therapeutics that are the cutting edge of modern medicine. From engineered T cells, also known as CAR T therapies, to gene therapies, RNAi and DNA-based vaccines, such as for COVID-19, we believe that our DNA platform serves as a large-scale tool for the rapid manufacture of DNA based therapeutics that have the potential to revolutionize an industry that to date have been unwilling or unable to move beyond plasmid-based technologies.

In effect, we believe COVID-19 could initiate a sea change in the therapeutics development of our linear DNA platform at its forefront. Building awareness and adoption of our platform was taking place before the pandemic spread, and I'll have more to say about our success in gaining further validation that linear DNA is being increasingly seen by industry giants as a viable alternative for plasmid DNA. I also want to bring your attention to recent exciting developments in our supply chain security segment.

Now turning again to our COVID-19 efforts, and specifically our vaccine development efforts, and for the benefit of new investors, let me give you a summary of our work with Takis. Takis Biotech is our developmental partner for our COVID-19 vaccine candidate. They're based in Italy, another COVID-19 hotspot. And Takis was founded by scientists from Merck Research Labs. We first entered into a joint development agreement with Takis in 2018 to develop linear DNA-based anticancer vaccines. We would go on to jointly develop linear DNA expression vectors for 2 anticancer vaccine candidates, utilizing our linear DNA technology, one of which is nearing its first clinical trials for the treatment of cancer in dogs and cats. Thus, linear DNA amplicons carrying the DNA sequences for the anticancer vaccine candidates were delivered to preclinical animal models via Takis' proprietary electroporation technology. If this sounds familiar, it is the same road map we and Takis have articulated to jointly develop DNA-based vaccine candidates for SARS-CoV-2, the virus that causes the disease of COVID-19. We believe this roadmap holds much potential. Initial results from our linear DNA anticancer vaccines prior to COVID-19 were quite compelling. We reported last fall that the linear DNA anticancer vaccine showed rapid tumor clearance in test animals.

Now most approaches for synthetic genomics use plasmids in small scale to develop their constructs that contain the DNA design of interest. In Takis' case, they created 5 COVID-19 candidates that target the spike protein. But unlike our diagnostic, we engineered the linear DNA vaccines to use just those segments of spike that are determined to be the most antigenic.

Unlike most vaccines that are made of protein, a DNA vaccine can be designed and manufactured very quickly. DNA vaccines are also more stable than RNA or protein vaccines, and can be made more easily and moved through supply chains without the need for refrigeration. DNA vaccines use the patient as the bioreactor. The DNA resides for a brief time in the nucleus of the patient's cells and is transcribed and translated into the design proteins that provoke the immune response, enabling immune cells and antibodies to recognize spike as foreign.

The DNA is expressed without being integrated into the genome for a period of about just 2 weeks after which the DNA is destroyed by housekeeping enzymes in the nucleus, and immune memory is in place to convey immunity to the virus for the patient. Preliminary test results from the plasmid-based DNA vaccine template show that they were immunogenic, and they induced a strong production of antibodies across all 5 vaccine candidates.

Now based on our prior linear DNA anticancer results, we expect a close correlation in efficacy between the plasmid templates and our linear DNA vaccines. But without the risks, we believe to be safety issues for plasmid-based manufacturer. Subsequent to the close of the March 31 quarter, we shipped the 5 linear DNA versions of the vaccine candidates to Takis. Last week, Takis reported that its plasmid constructs had produced neutralizing antibodies in test animals. Takis believes this to be the first vaccine to produce neutralizing antibodies in an animal model. Using the plasmid results as a baseline, Takis began to dose test animals with our linear DNA versions of the COVID-19 vaccine candidates also last week, and we expect to see results over the next 2 months.

At this point, people often ask if plasmid constructs work, why is there a need for a linear vaccine? Well, there are several advantages, some of which have been made all the more imperative in this current pandemic state. Functionally, our approach to linear DNA does not require bacterial fermentation. This gives it the advantage of potentially lower risk of antibiotic resistance and unwanted genome integration. Unlike plasmids, linear DNA contains only the desired therapeutic DNA sequence with no bacterial or antibiotic resistance DNA sequences. We also have the advantage of speed and scalability to manufacture for global use. Speed and scalability take on a greater importance today. In addition, linear DNA-based vaccines as with DNA vaccines, in general, are more cost effective to produce and much more stable at a wide variety of temperatures, allowing for easier distribution as compared to RNA-based vaccines.

Finally, this virus has already shown the capacity to evolve. More than 2,000 stable variants isolated from humans have been sequenced in a large database that we use to design our COVID-19 diagnostic, which is sensitive to every single variant. But what happens if a new variant emerges that is not sensitive to the antibodies evoked by a specific vaccine? Well, our technological platform would allow us to respond quickly using linear DNA to target the new variant. To date, we function as a CRO, a contract research organization, to many companies where we design the linear DNA construct and produce volumes sufficient for preclinical trials.

As our relationship and our customers' DNA therapy matures, however, we begin to function as a CMO, a contract manufacturing organization, to therapy and drug developers, where our ability to manufacture at scale becomes relevant to larger volumes necessary for clinical trial purposes and precommercialization. Similarly, should our joint development with Takis progress to human clinical trial and under the best case scenario a linear DNA vaccine is approved for human consumption, we would be the manufacturers of that linear DNA vaccine potentially on a global scale. Transitioning from CRO to CMO is foundational to our biopharma commercialization strategy and offers a path to greater and more recurring revenue streams.

Our platform is also drug developer agnostic. If one of the other drug developers gets to a DNA-based approval for global use first or any other DNA-based therapeutic in other clinical areas such as oncology, we can make it for them, again, faster at a much higher purity and with a potentially lower risk profile to humans than the drug developers using plasma-based manufacturing can.

During the March 31st quarter, we added several market leaders to our development customer base. I'd like to highlight two. The first is the biologics subsidiary of a U.S.-based global biopharmaceutical company that is singularly focused on DNA-based therapies. They sent us 2 of their proprietary CAR T amplicons, and we sent them back linear DNA versions with which to evaluate our platform's capabilities.

The second customer, rather than giving us a development order, opted instead for a research agreement that gives them access to the full scope of our capabilities, our linear DNA platform, our own anti-CD19 CAR T construct for the treatment of acute lymphocytic leukemia and our collaboration with LifeSensors SUMO-fusion technologies to maximize protein expression. This customer is differentiated by its interest in our platform not for a specific therapy or therapies, but rather as a component of its improvement strategy for the manufacturing process of all of its CAR therapies moving forward.

Now over the last several years, the commercialization of our platform has increasingly run through highly regulated markets, such as drug development, and the FDA is the regulatory body that oversees key business verticals serviced by our supply chain security segment. And last month, we were accepted into the FDA's Emerging Technology Program that creates a pathway for us to DNA tag pharmaceuticals and packaging. The ETP serves to help promote the adoption of innovative approaches to pharmaceutical product design and manufacturing, and offers technology companies and their pharmaceutical customers the opportunity to discuss, identify and resolve potential technical and regulatory pathways early in the development and implementation of a novel technology like ours.

Our inclusion in the ETP, we believe, should make for a smoother regulatory path for pharmaceutical customers, who seek to employ the DNA marking of their pharmaceutical products in order to forensically prove their authenticity or their point of origin. The interest of the FDA in our tagging platform, we expect, will help us to recruit manufacturers of drugs whose patients want to ensure their supply chains are intact. It is not hard to imagine the positive impact we might still have on the opioid crisis or the transformation to come in global supply chains.

So now in conclusion, looking ahead to the second half of our fiscal year, we're primarily focused on our COVID-19 developments and, more broadly, our biopharma opportunity. With our EUA in hand, we're focused on commercializing our diagnostic kit, which we strongly believe, given its relative advantages in the market, can help all of us mitigate infection rates. We will stay the course of our therapeutic applications of linear DNA, especially our promising vaccines with Takis, our CAR T therapy and our CRO to CMO business.

Now as Beth stated, our cash position gives us a cushion with which to pursue our near-term objectives. We are also very grateful to receive funds under the Paycheck Protection Program, so we can continue to pursue our vital work with the full application of Applied DNA personnel.

Well, thank you for your time and attention this afternoon. This concludes my prepared remarks. Operator, can you please open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Anthony Vendetti from Maxim.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [2]

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If you could talk a little bit, Jim, just -- I know you have 5 vaccine candidates with Takis, the one that you're moving forward with right now, how would that work? Would you be responsible for manufacturing it with Takis? Who would own it? And how would it work if you were to roll it out in terms of revenues to you versus Takis?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [3]

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Sure. Good question. So we are still pursuing all 5 of our candidate vaccines right now. We have to get to the point where the molecular analysis of the response they provoke in animals is more clearly understood. We will be moving with Takis through a simple mouse model to more sophisticated animal model to get a complete survey of the response. This is a joint development program, so we mutually own the products and Applied DNA is the intended manufacturer.

Now that said, the best path for a vaccine to the market is with partners who have established vaccine divisions, who have the marketing, which is unique to vaccines, very different from pharma, and the regulatory experience to rise to the challenges of vaccine. So collectively, we are talking to interested parties right now who are large enough and have the wherewithal to get us to a global market, given that there's a need to vaccinate perhaps 7 billion people in a relatively short period of time.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [4]

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Okay. Yes, that's helpful. Obviously, according to at least Dr. Rick Bright's testimony, there's not yet a government plan to figure out how to roll it out and his view anyway is that there's not 1 company that can do this. So it sounds like you and Takis are having joint conversations with multiple companies should one of your vaccine candidates be one of the vaccines that could be mass produced?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [5]

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Yes. And you bring up, Anthony, the global nature. And the Gates Foundation has spent a lot of money, ensuring tight controls of temperature and humidity conditions in the logistics of vaccine distribution. The benefit of freeze-dried, double-stranded DNA vaccines is they're remarkably stable over very close to or more than a 100-degree centigrade span of temperature. So they'll be very stable in distribution and not require finicky-type controls that are very extensive.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [6]

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Right. Because a lot of the vaccines, a competing vaccine, some may require refrigeration, yours obviously does not.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [7]

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That's right.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [8]

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And then -- and just 1 last question on the testing. I know obviously, you received a EUA, emergency use authorization, for your COVID-19 test, the diagnostic test. Could you talk a little bit more about exactly how that would roll out?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [9]

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Yes. We -- right now, our test is approved for use on a particular platform, a very sophisticated PCR device. So we intend to broaden the platform it's relevant to. In addition, individual certified laboratories can develop what's called an LDT, a lab-developed test, that's approved not by the federal government but by the state, and that can be on virtually any instrument the laboratory happens to have. So they are able to buy kits directly and begin to deploy them in variations of the theme that we got our EUA for. And in addition, we're planning to increase the sample types, things like swabs to go beyond simply nasopharyngeal swabs. I said swabs, I meant saliva, and -- so that sample collection is much easier and faster to process. And we are speaking with some large entities who have shown an interest in helping us assemble these kits if the scale becomes very, very large. We can manage it ourselves to a very large scale. But once you consider the global need, we may need to manufacture this in multiple locations.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [10]

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Understood. And just lastly, I wonder if -- Jim, if you could just talk a little bit about the sensitivity and specificity of saliva versus a nasopharyngeal swab specimen?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [11]

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Yes. Those studies are still underway, but everything indicates that the viral load in saliva may, in fact, be higher than the viral load one picks up in a nasopharyngeal swab. The issue only with saliva is it's much more dynamic environment than on a flocked swab that you scrape the far reaches of your nasal passages with. And so sample handling is a little bit different, but it's more flexible, and it's a lot faster and more convenient, and patient compliance will be much higher. So we think it's a great way to move forward as countries, localities have to really address the issue of at least some people getting back to work.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [12]

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Right. So that's the last point, I guess, is if we're going to a test on a massive scale in order to get people back to work and have people submit to these tests and get a rapid response, it sounds like from your perspective and I would agree that something along the lines of a saliva test, where you would get much higher compliance, if it can be done correctly under proper direction and instruction, it could get you a result that's accurate enough and you could get that result back in a reasonable amount of time to make a judgment as to whether or not a particular worker should return to work or be sent home. So I was just wondering, so, A, if you agree with that? And then, B, if it turns out that you can do that with a saliva test, how fast -- or is it going to depend on the particular laboratory, but how fast do you think you can get some of the results back in an accurate way? And could these tests eventually be done with high specificity and sensitivity at home?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [13]

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You know that's an interesting question. So I can tell you that tests can be done. We know already with high sensitivity and specificity with a lower limit of detection below 5 copies of viral RNA, so that's very sensitive. And using our assay framework that we have, we know that there is no interference from any other respiratory pathogens. And yet at the same time, it's sensitive to the 2,000 different variants that have already been sequenced.

Now it's quite possible that this platform will lend itself very well to a point-of-care analysis, which may mean that offices and the like can do it. For the moment, I don't see a test being performed at home, not for PCR-based diagnostic, for the less specific diagnostics that rely on antibodies. But as you know, those rollouts have not gone very well. They can be done in a kind of pregnancy test format that would enable testing at home eventually, but not with the kind of resolution you need under the circumstance where a virus has a 6% mortality rate.

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Operator [14]

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Next question comes from Yi Chen from H.C. Wainwright.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [15]

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My first question is, have you publicized a number for the sensitivity and specificity of the COVID-19 test?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [16]

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Yes. Those numbers are included in the EUA, which is publicized on the FDA's dedicated site.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [17]

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Okay. Has any external independent institutions validated the test?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [18]

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Yes. In fact, our validation was done in close collaboration with Stony Brook University Hospital. And so they had their own collection of EUA test already in hand. And they were kind enough to validate as a third-party for our test.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [19]

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You mentioned that the test is run on a specific PCR platform. Can you provide us with some color on how many the current installed base of this specific PCR platform in the U.S.? And whether you have a preference since -- considering your location, whether you have a preference to collaborate with Clear Labs in the New York State first because of -- it's currently the most affected area in the country.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [20]

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Yes. That was part of our motivation, Yi, in the very beginning was to be able to service first our regional state community, and then the U.S. and more broadly. So I think that, that will be relatively straightforward. Now we chose our testing platform, which is a very sophisticated PCR machine called the QuantStudio Dx made by Applied Biosystems now Thermo Fisher, and that doesn't have a huge installed base, but the installed base does not limit the use of our kit. And we think it will very quickly migrate to LDTs that are developed by laboratories by the larger testing companies like Quest and LabCorp very, very quickly. And in addition, we'll be expanding -- amending our EUA by the inclusion of other bits of hardware that have a much larger installed base. We're actually pleased with the one we started because it's very precise, we're able to learn much more than we might have using a lower quality device.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [21]

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Got it. Lastly, could you let us know the pricing of the test kit and the manufacturing capacity or the volume of the test you will be able to ship within the next, let's say, in the coming quarter?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [22]

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Yes, sure. The testing, the cost is typically done on a per reaction basis, and we are competitive with the rest of the marketplace. I'm not prepared to give you a specific dollar amount, but I can tell you, we will compete well in that marketplace without difficulty. And the second half of your question, I've forgotten already.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [23]

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That's the manufacturing capacity or the volume of the test you will be able to ship?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [24]

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Yes. We think that any request we get from within New York state or the East Coast will have no trouble handling immediately. And as the weeks we're on, now that we have our EUA in hand, we'll be increasing capacity. So we think that it could be important to be able to supply this on a global scale perhaps as large as 1 million reactions per week.

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Operator [25]

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The next question comes from Craig Pierce from Morgan Stanley.

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Craig Pierce, Morgan Stanley - VP of Wealth Advisor [26]

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I wanted to ask 2 things. One is, do you have any sort of vague idea of when you could anticipate -- well, anticipate, hope to have commercial revenue coming in over the next few quarters from this particular pathway, this silo.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [27]

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Yes. We're hoping to ship our first products tomorrow. So I would say within the next 24 hours.

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Craig Pierce, Morgan Stanley - VP of Wealth Advisor [28]

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So -- and these are commercial sales, if you will?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [29]

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Well, yes, they're commercial sales. I'm not sure exactly what you meant by your emphasis, but these are from entities that buy hundreds of thousands of reactions per month in some cases or larger. So yes, commercial, definitely commercial sales. We're talking with public institutions, private companies, public companies and health care systems.

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Craig Pierce, Morgan Stanley - VP of Wealth Advisor [30]

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Okay. So it sounds like you basically were ready to go. You were just waiting for this emergency approval and ready to have the trucks pull up and ship the stuff out?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [31]

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Well, have you seen the size of a kit?

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Craig Pierce, Morgan Stanley - VP of Wealth Advisor [32]

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No, no.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [33]

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They are very small. It's more likely than pull up. The kits themselves are very, very tiny. Remember that diagnostic PCR is done microliters at a time. It's done at a very small volume. So that the kits themselves, while the components are expensive, they will be doing it at a good margin, and -- but it does not ship in a very large container.

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Craig Pierce, Morgan Stanley - VP of Wealth Advisor [34]

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All right. Well, I was more figuratively speaking, in terms of the size of the transport as opposed to literally. Well, how many 18 wheelers is it going to take product out the door. All right. Second question is this whole presentation has been focused on your involvement in helping -- you being Applied DNA Sciences involvement with dealing with this pandemic. What's going on or will be going on as far as getting -- I think Beth had mentioned that a lot of the other things that you've been working on are just basically put on hold. Fortunately, the government is providing the income to the employees, the salaries to have them stay on board, while you're going through this pandemic process of figuring out how and when and where we can all go back to work, so to speak. But what's -- what do you see as far as the phase-in of getting all of your other silos back on track. And I know it's a multi silo, so it is a multi answer. Just broadly speaking, any sense of how you're preparing and when you're preparing to begin to turn on the dimmer switch on these various silos?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [35]

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Yes. To be honest, we may need a 2-pole switch and not a dimmer, to be honest. I think the impact of COVID-19 has really interrupted supply chains of all types, including those in diverse industries, and it's also shown how quickly criminal players move in to fill the void, as we've seen in suppliers of inferior antibody tests or even counterfeit personal protective equipment or PPE. So ironically, the human crisis, that is COVID-19, has pointed out to many the utility of our platform in helping cure many of the global shortfalls that made the world the target for this new coronavirus. So I personally am optimistic that on the other side, as businesses gradually open, we will see applications coming to us more freely than they did before the crisis.

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Operator [36]

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The next question comes from Paul Cooney from Joseph Gunnar.

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Paul Cooney, Joseph Gunnar & Co., LLC - Director of Structured Products [37]

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Congratulations on all the activity you've got going on right now.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [38]

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Thank you, Paul.

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Paul Cooney, Joseph Gunnar & Co., LLC - Director of Structured Products [39]

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I know a couple of these were asked. But specifically, based on the timing, you stated that you can start shipping tomorrow. What is the capacity for shipping right away? Like what's your capacity, let's just say you got an order for 1 million test kits tomorrow, how fast could you fill that?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [40]

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Yes, 1 million kits tomorrow certainly would be a challenge. There'd be a few of us who wouldn't sleep all night. But remember, as I said in a prior reply, the size of these kits is quite small. And so it's a matter of getting reagents very carefully, very almost aseptically into specific containers and having them all labeled and prepared in a GLP kind of manufacturing scenario. So it's the caution that is the time consumer, it's not the actual labor. So we'll be able to scale up really very, very quickly. The skill sets required to manufacture these products are had by almost all of our employees. And having over 50 of us, there's -- we can operate if we need to in 3 shifts, we ended up doing that in the preparation and research that had to go into these diagnostics, and through the weekends, and we would do that as well. On top of that, we've placed orders for robotics that will help us greatly increase our output.

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Paul Cooney, Joseph Gunnar & Co., LLC - Director of Structured Products [41]

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Okay. So I mean, like just from now to get to 1 million, what would it take? You know what I mean to get -- because it's the packaging, and I understand like how long would it take to get to that point where you could do 1 million? Because you said earlier that you might be able to do 1 million a week at some point. How far would it be -- how long would it be to get from here to where you'd be able to produce that?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [42]

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Not very long at all. We've worked hard with our domestic suppliers to ensure that we have adequate reserves. One of the problems that held up the initiation of testing in the United States is that the raw materials were not available. We'll ensure that does not happen to us. And so the response time is simply a matter of production. And as I said, the production, we could rise to the occasion really very quickly. Put it this way, I don't see us being capacity constrained for 6 months or longer, and if we see that coming, we'll simply increase the robotics necessary to be able to increase the output. The robotics can be delivered typically in 2 to 3 weeks' time.

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Paul Cooney, Joseph Gunnar & Co., LLC - Director of Structured Products [43]

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And all this will be manufactured out of your offices in Stony Brook?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [44]

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If God willingness, scale gets very high, we have spoken to some very large-scale domestic manufacturers who would be able to help us increase the output of kits.

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Paul Cooney, Joseph Gunnar & Co., LLC - Director of Structured Products [45]

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Okay. Can you give us an idea of the cost per kit to Applied DNA?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [46]

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I'd rather not go through the numerics themselves other than to say right now that the margins are strong, and that the final price is very competitive. We can be extremely competitive in the marketplace. We design for simplicity and efficiency. And I think this will be a strong revenue line for us on a recurring basis, at least until we get this pandemic under control and that's unlikely to happen within, in my view, the next year.

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Paul Cooney, Joseph Gunnar & Co., LLC - Director of Structured Products [47]

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Okay. And the test that you have, how long does it take to get the results?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [48]

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The test can be -- it's 1 hour, and we can return the results to the physician the same-day they order it.

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Paul Cooney, Joseph Gunnar & Co., LLC - Director of Structured Products [49]

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All right. So it's not like one of those 5-minute tests that some people are talking about now?

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [50]

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No, this is a PCR-based test. So this is kind of the be-all and end-all to determine if you have active infection with the virus. This is not an antibody test, it's not an antigen test. And because it's got a very low limit of detection, we think it will also have little chance of false negatives, which is very important to control the spread, the flattening of the disease. And our evidence is that it has almost no false positives.

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Paul Cooney, Joseph Gunnar & Co., LLC - Director of Structured Products [51]

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Okay. So some of the tests that are out there claiming like 94% accuracy on some of the 5- and 10-minute tests that some people are claiming right now, so you're saying that yours should be close to 100% or 99-point something percent.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [52]

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We believe we have 100% specificity, yes.

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Operator [53]

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The next question comes from [John Samuelson] from Cantella.

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Unidentified Analyst, [54]

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Jim, congratulations on all your hard work. And we appreciate it. Would you elaborate a little bit on something that's gotten lost here on the ETP program? And what it means to the lead times and what can happen there? Because that's been in the works for a long time and now that we've been accepted in there, it could be an exciting other part of the company.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [55]

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Yes. We're very excited about this. And I'd like to say something in general that I hope no one misinterprets. But we have found the FDA to be great partners, they make us better, they ask very tough questions, they examine things very closely. Honestly, they made me feel better as an American, better as a scientist and we're thrilled to be able to work with them in the ETT program, or ETP. They will facilitate all of our meetings within FDA. They -- their role is to make less of a hurdle of meeting with FDA and the discussion of regulatory issues. They'll advise upfront as opposed to halfway through when you've made the mistakes already, and they will even participate in our discussion with industrial leaders who are interested in taking up the technology, so not everyone gains access to ETP, the members of the ETP, called the emerging technology team, we found to be extraordinarily bright and receptive. And so we think that this is going to help us very much in our implementation of tagging to increase the safety and security of the pharmaceutic industry.

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Unidentified Analyst, [56]

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So the lead time that used to be exceptionally long can now be cut down to something more reasonable. So from start to finish, it's a whole different process.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [57]

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Their motive in taking us into the ETP is to shorten the time frame for implementation.

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Operator [58]

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(Operator Instructions) There are no more questions in the queue. Excuse me, we have John Lippincott from FBL Consultants. I'm sorry, there's no more questions in the queue. This ends the question-and-answer session. I'd like to turn the conference back over to Dr. Jim Hayward for any closing remarks.

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James A. Hayward, Applied DNA Sciences, Inc. - President, CEO & Chairman [59]

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Okay. Well, first of all, thank you, everyone, for your steadfast support for our company and your interest. We've received lots of phone calls of inquiry over this period of time, and lots of expressions of support for what we're doing. I think together, both you, us investors, and we, as your partners, can make a huge difference in the world. And although it's a very difficult time for the world in general, we're very pleased to be able to offer the opportunity to flatten the curve and lessen the misery, and at the same time to make the world a better place.

So thank you very much. Have a good night.

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Operator [60]

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