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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
Services
Business Services
(APDN-OTC: BB)
Applied DNA Sciences, Inc.
25 Health Sciences Drive, Suite 113
Stony Brook, NY 11790
Phone: 631-444-8090
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 Esteé 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 Moët 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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