Interview with: Dr. James Hayward, CEO - featuring: their customized DNA embedment and authentication solutions designed to help prevent and identify counterfeits and protect revenues, brands and consumer confidence.

Applied DNA Sciences, Inc. (APDN-OTC: BB)

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Applied DNA Sciences’ SigNature™ Program allows them to mark commercial and government products with DNA for instant recognition of DNA markers by virtue of a color change allowing for screening and authentication that can be performed anywhere in the supply chain

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(APDN-OTC: BB)


Applied DNA Sciences, Inc.

25 Health Sciences Drive, Suite 113
Stony Brook, NY 11790
Phone: 631-444-8090

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Dr. James Hayward
Chief Executive Officer

Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - December 21, 2006

BIO:
Dr. James A. Hayward has over 20 years of experience in the biotechnology, pharmaceutical, life science and consumer product industries. He was one of the founding principals and research director of Europe's first liposome company, Biocompatibles Ltd. From 1984 to 1989, he was responsible for product development at Este Lauder Companies, where he served as director of research worldwide.

Between 1990 and July 2004, Dr. Hayward was the Chairman, President and CEO of The Collaborative Group, Ltd., a provider of products and services to the biotechnology, pharmaceutical and consumer-product industries based in Stony Brook, New York.

Since 2000, Dr. Hayward has been a General Partner of Double D Venture Fund, a venture capital firm based in New York, New York. Dr. Hayward received his doctorate in molecular biology and biophysics from SUNY at Stony Brook.

Dr. Hayward received his bachelor's degree in Biology and Chemistry from the State University of New York at Oneonta in 1976, his Ph.D. in Molecular Biology from the State University of New York at Stony Brook in 1983, and an honorary Doctor of Science from Stony Brook in 2000. He also serves on the boards of the Stony Brook Foundation, the Research Foundation of the State of New York, Long Island Life Sciences Initiative and the Ward Melville Heritage Foundation.

Company Profile:

Applied DNA Sciences (APDN) provides customized DNA embedment and authentication solutions that are designed to help prevent and identify counterfeits. Utilizing our proprietary overt-DNA and covert-DNA embedded technologies, APDN provides the definitive forensic proof of authentication and validation to help protect revenues, brands and consumer confidence. Secure and cost-effective, APDN’s newly launched SigNature™ Program provides ready–to-use DNA encryption and authentication solutions that will complement barcodes, watermarks, holograms, RFIDs and many other security applications. APDN also provides customized safeguards to meet heightened security requirements for government programs and anti-counterfeit measures worldwide. APDN has successfully marketed nearly 1 billion DVD’s, artwork, alcoholic beverages, luxury and personal care goods, through our Asian licensee. In the U.S. and Europe, we have just launched our services to enhance brand value and intellectual property protection.

CEOCFO
: Dr. Hayward, what was your vision when you took on the CEO role and where are you today?
Dr. Hayward: “We were facing a company that required substantial reorganization and I agreed to be CEO under those circumstances. We restructured, relocated and financed the company, and we have begun a transition to allow the company to emerge from the developmental stage to full blown execution.”

CEOCFO: What does Applied DNA Sciences do?
Dr. Hayward: “Applied DNA Sciences provides patented DNA based technologies to prevent and identify counterfeits.”

CEOCFO: What methods are used currently and how is DNA different?
Dr. Hayward: “The methods that have been used to prevent counterfeits are many of the methods that are used in logistics; things like barcodes and RFIDs and some of the conventional technologies like holograms. DNA is different in that it contains an enormous amount of information content and to appreciate that all you have to do is look at any living organism. When you realize that the instructions for the reproduction of that organism are all contained in a small amount of DNA, you will be able to appreciate how DNA manages content. Therefore, we can use that same capacity for content to our advantage to provide a lot of information about a particular product. It takes very little DNA to mark a product because it is exquisitely sensitive and we can detect very small amounts. It allows us to provide an economic solution to the issue of marking and then authenticating original products.”

CEOCFO: Will you give us an example of how you would use DNA to mark a product.?   
Dr. Hayward: “We would use DNA to mark for example a high-end luxury handbag; the kind of product that might be copied very often in Asia, at low cost and a low quality imitation sold at flea markets or the side-street of Fifth Avenue in New York. It can be difficult to distinguish an original product from a counterfeit until the consumer gets the product home. Or worse, imagine a drug where the consumer wants to have not just a safe product, but also an effective product, and the counterfeit can often be neither safe nor effective. By including a small amount of DNA either in the packaging or in the product itself, we can authenticate the originality of the product and distinguish a counterfeit by the absence of a marker DNA. We can detect that DNA in essentially two ways; a rapid screen which can be done nearly instantly, which provides a degree of identification and in a more forensic style similar to the way the FBI or the police might identify DNA from one human vs. another, we can with a very high specificity and a forensic level of assurance, identify an original product.”

CEOCFO: How do you get the DNA onto the product?
Dr. Hayward: “We can get the DNA onto the product in many different ways; if we are talking about a label, it can simply be applied at a fixed location on the label where it is not evident, or it can be included in one of the inks, pigments or dyes used to manufacture the label in a way that is evident; we call that an overt label. A covert label is where it is not apparent where the DNA might be. It can actually be utilized just about anywhere on the product and the beauty of DNA or of our platform is that we provide a very stable DNA and it is compatible with many materials. Most often our DNA can be incorporated without any retooling, change in unit operations and it can be simply part of an ongoing existing process.”

CEOCFO: Where is the DNA coming from?
Dr. Hayward: “The DNA originates from plant material, but we make something unique that we call a chimer and it is one of our patents. It is perhaps best explained by analogy. Imagine the DNA marker to contain roughly a gigabyte of information and a gigabyte is what is contained in the version of the Sunday New York Times. We can take the Sunday New York Times as the original plant genome and cut up the newspaper into its individual words, or bits, and reassemble the words to represent essentially a nonsense story because we do not need the DNA to code for anything biological. We need it to simply contain information content. We rearrange the words and ensure that it is not biological by comparing it with an internet resource, which is the genome bank. Once we verify that it is not biological, we will use that reassembled plant DNA, which we now call a chimer as the marker, and will assign that market to an individual customer.”

CEOCFO: So there is an infinite number?
Dr. Hayward: “Exactly. Without sounding too much like Carl Sagan, I can tell you that we can make billions and billions of different DNA genomes for specific customers.”

CEOCFO: I understand you have successfully marked over a billion products in Asia; why did you start in Asia?
Dr. Hayward: “The technology originated with a team of scientists that came from Taiwan and these are scientists associated with a very credible discovery in biotechnology, a discovery called the ‘gene gun’. When I saw, the intriguing way in which they knit together well established, well proved and well practiced technologies to make a very unusual product, it clicked right away. It originated in Taiwan with the scientific founders of the platform; it has further evolved since arriving here in the states and that is why we began selling first in Asia as well. We have marked well over a billion products.”

CEOCFO: You are launching your SigNature™ Program here in the US as well as Europe, will you tell us about that?
Dr. Hayward: “Our SigNature™ Program is our trademarked platform that allows us to mark commercial and government products with DNA and to have an instantly detected recognition of DNA markers coming from Applied DNA by virtue of a color change. The color change is brought about by a dye that we associate with our DNA at the time of marking. That allows a rapid, nearly instantaneous screen that can be performed anywhere in the supply chain of a product that requires authentication. A consumer buying a product at the supermarket if he or she wanted to be sure of originality could do the screening. A customs agent who is examining a container of imported product could also do it. Should a higher level of resolution be required, such as a forensic level of detection, it can be done in a laboratory where the sequence of the DNA is actually verified.”

CEOCFO: Since you have such a vast target market, how do you decide where to focus your efforts and how do you make people aware of what you have?
Dr. Hayward: “We are a start-up company and that means our assets and the number of people that we have is limited. We have organized our selling effort by industry verticals, so we are focused primarily on five or six industry verticals that we are tackling one at a time. The sales cycle for this kind of technology will vary within those industry verticals, so our concentration initially are on those verticals that have the shortest sell cycle. We are looking at consumer products, fine art, pharmaceutics and digital media industry; things like optical disks, DVDs and CDs.”

CEOCFO: Is the business world ready for this, or do they need to be convinced that they need this layer of protection?
Dr. Hayward: “What is evident in every presentation that I have made is that the world is in recognition of the dilemma they face from counterfeit products. Some drug products in the United States, a significant percentage of the drug product available; especially that coming from the internet is counterfeit. The lay public are very aware of it, all the manufacturers are aware of it. Anyone with a serious investment or serious equity in brand is aware of the impact of counterfeiting, piracy, and product diversion on their individual businesses. What they are wanting for are practical solutions. The concept of using DNA as a marker is new and for many people represents a paradigm of shifts. Paradigm shifts are not quick for adoption but have to be adopted first by free thinkers and people who are mavericks in their own rights. Lehman Brothers Holdings Inc. (NYSE: LEL) estimates that anywhere from 5 to 7% of global trade is negatively effected by counterfeiting and that is a very large market for our product to pursue.”

CEOCFO: Then it is an uphill battle!
Dr. Hayward: “It is an uphill battle, but we feel it is one that will be won in steps and we will gather momentum that way as well.”

CEOCFO: What is the revenue model?
Dr. Hayward: “The beauty of our platform is that no equipment is required on the part of our customers. These are methods that require no retooling; they are seamlessly integrated with existing manufacturing protocols. Moreover, our platform is one that can be integrated easily with the security platforms that are existent already. For example, including DNA in a barcode is as simple as printing the barcode and having DNA included in the ink. Including DNA in a hologram is just as simple, or in an optical strip or any of the various security devices. There is no serious investment. The revenue model for us involves a licensing fee, and a volume based price for the DNA included in the marking and then a final revenue line coming for us based on the process of authentication if the data required is at a forensic level. That is the kind of data that a brand owner or manufacturer would want to have if they are serious enough to prosecute a counterfeiter. Clearly they are out there; I heard recently on CNN that LVMH Mot Hennessy Louis Vuitton SA who owns many valuable brands, had in 2006, launched over 18,000 individual civil suits against people who were infringing their brand with counterfeit products.”

CEOCFO: I would suspect that if it were easier to prove fraud, companies would be more likely to go after the wrongdoers!
Dr. Hayward: “Yes exactly.”

CEOCFO: What is the financial picture like today?
Dr. Hayward: “We raised $5 million in the course of the last nine months. We have relocated the company, built our manufacturing facilities and laboratories at Stony Brook University. Therefore, we have the capacity to service our global need from our current location. We formalized our sales plan and initiated a sales force beginning in the early portion of the fall this year (2006), so we are now in full-blown selling effort.”

CEOCFO: Why is this a good time for potential investors to be interested?
Dr. Hayward: “The stock is clearly undervalued in light of our restructuring. For me the value proposition is the enormous market available for this platform. For a biotechnology company, it typically has technologies that might address a billion dollar or two billion or three billion dollar market. For the company to be in an interesting position it has to scratch and claw its way to a ten or twenty or thirty percent market share. For us, our market is perhaps as much as 5 or 7% of global trade. That is an enormous market with even just a fraction of any of the available markets, and that has real meaning for our company.”

CEOCFO: What part of the technology is patented, and what is the barrier to entry for a potential competitor?
Dr. Hayward: “There are multiple barriers to the entry of our competitors. One is that we have developed methods that allow us to use genomic DNA, which is DNA that is very large in terms of the total information that it contains. We developed methods that allow us to stabilize the DNA. DNA has an inherent degree of instability, that is why humans have to be careful about going out in the sunlight, why we develop cancer is because of changes in DNA that take place over time and it is also why we evolve. What we have done is develop methods of stabilizing DNA in a variety of different formats, where according to our accelerated predictors; we can stabilize DNA for at least 350 years, which is pretty much the limit of our experimentation to date. It may be stable even longer than that, which by the way makes our platform very apropos to the protection of the kinds of items like priceless fine art that we want to last for centuries. We have IP (Intellectual Property) that governs our ability to provide thermal stability to DNA up to and above temperatures 250 degrees centigrade. It allows us to formulate DNA into a variety of media, everything from heavy crude petroleum so that we can avoid a diversion of petroleum as it is shipped to refineries, to the inclusions in adhesives. We have also made DNA threads for the marking of clothing, passports, inks, adhesives and a variety of media. It is a robust platform and all of that is protected in our intellectual property.”

CEOCFO: Are the governments interested in terms of security issues, or is that yet to come up for you?
Dr. Hayward: “Absolutely! We have already been involved in the marking of passports and we are looking at the marking of currencies as well.”

CEOCFO: In closing, what should our readers take away from this interview?
Dr. Hayward: “I think that this is an enormous market to be developed. We are a company with a very secure platform and a company just transitioning to execution and given the market share, and given our current value, we are a worthy risk.”


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“The beauty of our platform is that no equipment is required on the part of our customers. These are methods that require no retooling; they are seamlessly integrated with existing manufacturing protocols. Moreover, our platform is one that can be integrated easily with the security platforms that are existent already. For example, including DNA in a barcode is as simple as printing the barcode and having DNA included in the ink. Including DNA in a hologram is just as simple, or in an optical strip or any of the various security devices. There is no serious investment. The revenue model for us involves a licensing fee, and a volume based price for the DNA included in the marking and then a final revenue line coming for us based on the process of authentication if the data required is at a forensic level. That is the kind of data that a brand owner or manufacturer would want to have if they are serious enough to prosecute a counterfeiter. Clearly they are out there; I heard recently on CNN that LVMH Mot Hennessy Louis Vuitton SA who owns many valuable brands, had in 2006, launched over 18,000 individual civil suits against people who were infringing their brand with counterfeit products.” - Dr. James Hayward

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