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APDN signs $3m DNA marking deal with US military
APDN imageApplied DNA Sciences has signed a $3m contract with the US Department of Defense to supply its DNA market technology to a host of new components destined for use by the military.
The two-year deal with DoD's Defense Logistics Agency (DLA) will give APDN an opportunity to demonstrate how its SigNature botanical DNA markers could be used to prevent counterfeit vehicular equipment, bearings, piping and tubing from penetrating the supply chain.
The DLA already requires Federal Supply Class (FSC) 5962 electronic microcircuits to carry DNA markers that allow them to be authenticated, and APDN has also made some inroads into non-military electronics, textiles, plastics, packaging/coatings and automotive.
The extended contract covers not only non-electronic products but also all electrical and electronic products in Federal Supply Group (FSG) 59, a broad category that spans 144 new FSCs, including resistors, capacitors, wiring boards, microcircuits, transformers, transistors and various types of cable and connector.
APDN said it will perform services such as "development, test and evaluation, field trials, and transition to government operations."
Signs of gathering momentum?
The new contract - along with an earlier two-year grant agreement with the Missile Defense Agency signed in July to fund the development of an optical reader that could be deployed in the field for rapid detection of the company's SigNature DNA markers - represents something of a turning point for APDN, which has been in operation for more than 10 years and has been selling its technologies commercially since 2009.
Although the new contracts are in the sponsored development phase, a successful outcome could mean they escalate to commercial scale quickly, which could transform the company from one that has hitherto made a few hundred thousand dollars a quarter to one bringing in "multimillion dollars a quarter", said chief executive James Hayward in a recent interview.
The company is getting close to that goal, generating more than $2m in revenue for the nine months ended June 30, an increase of 59 per cent or $768,000 from the same period a year earlier with a 40 per cent increase in turnover outside the US.
APDN took the time to pursue validation of its technology first - which it realised would cost the company and its investors both money and time - so has a history of "under-promising and over-delivering," he told SecuringIndustry.com.
That has proved to be a good strategy, particularly as in the last few years companies have made "increasingly outrageous claims in terms of their capacity to prevent counterfeiting, so customers … have come to live with the expectation that those who approach them with potential solutions are not going to perform as they hoped."
"We have had to sell into a disappointed marketplace," said Hayward. To overcome that, the company went initially after the relatively low-hanging fruit of using its DNA technology to protect cash-in-transit rather than trying to push into less accessible sectors such as brand protection and supply chain security.
Showing that DNA markers can help prevent theft of cash, identify the criminals and repatriate the money - as well as other applications such as protecting against copper theft and home asset marking - proved a good springboard for the DNA marker technology into other areas.
Now, moves into textiles and other sectors means that the company is already marking millions of kilograms of cotton and wool. As the amount of marked product accumulates, the demand for authentication does as well and this is "demonstrating the viability of our platform."
In textiles for example, the company signed marking contracts with Supima - a trade association representing Pima cotton growers - as well as H. Dawson Wool. On the authentication side, in June it signed an agreement with quality organisation Wakefield Inspection Services that could "pave the way for APDN's technologies to be used "at all points in the supply chain from raw materials to finished products [in] the retail market."
Previously, companies operating in textiles would try to authenticate by deconstructing a garment, fibre by fibre, to measure variables such as cell length that give an indication of the quality of the material used. Clearly, that is difficult for finished garments that have gone through multiple processing steps.
"There has really been no effective method until now for textiles companies to monitor their supply chains," according to Hayward, who noted there is a similar dynamic in the polyolefin (plastics) market which is a much bigger category in terms of the amount of bulk material produced every year.
In April, APDN added a new customer in the polyolefin sector, giving it a beachhead in a global polyolefin market sized at around 140bn kilogrammes per year as well as the products made using polyolefins, such as moulded auto parts, plastic pipes and medical devices.
In the meantime, the company is working on new manufacturing and authentication technologies to boost its capacity to serve its customer base. At the moment the company has two authentication labs - one in England and one in New York - and it is working on a device that will allow authentication in the field.
"The aim is to provide a forensic method that uses the same approaches to DNA authentication that we use in the lab, but miniaturised and free standing," said Hayward, who noted that the 'lab-on-a-chip' technologies that are already finding a place in diagnostics applications could underpin this sort of device.
"Right now, we are bidding on contracts that require a massive authentication capacity," he told investors on a conference call last month. "There are no guarantees that will win these contracts, but we would be guaranteed to lose if the framework for the capacity is not in place for our bids."
Pharma ambitions
APDN also has ambitions to break into the pharmaceuticals sector, and a few weeks ago recruited Mike Hogan - who has lab-on-a-chip experience that will be directly applicable to the in-field authentication device - to head up its operations in the life sciences sector.
The company believes its DNA markers could be used as a security feature on drug secondary and primary packaging and - with the appropriate regulatory approvals such as Generally Recognised As Safe (GRAS) status in the US - potentially even on individual dosage forms.
"We have now achieved the validation and capacity milestones that will allow us to develop our business in pharmaceuticals [and] have already begun working on the regulatory issues," continued Hayward.
"It is one of the areas where APDN really has the opportunity to save lives and make a genuine difference," he added.
APDN is in some ways just emerging from the development stage, according to Hayward, despite being incorporated in 2002. Yet at the same time - in other verticals - the company is "an increasingly solid revenue generator."
"We think it's a potent combination."
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© 2014 SecuringIndustry.com
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Phil Taylor
11-Sep-2014
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