Prepared remarks
Good morning, and welcome to the BioHarvest Sciences First Quarter 2026 Financial Results Conference Call. The operator will provide instructions. As a reminder, this conference is being recorded. I will now hand the call over to Dory Kurowski of LifeSci Advisors. Please go ahead.
Greetings, and welcome to the BioHarvest Sciences First Quarter 2026 Financial Results Conference Call. With us on the call this morning are Dr. Zaki Rakib, Chief Executive Officer; Bar Dichter, Chief Financial Officer; and Ilan Sobel, Director of the Board and Co-Founder. Before we begin, I'd like to remind you that management will be making projections and forward-looking statements on the call today regarding future events. Any statements that are not historical facts are forward-looking statements. These statements are made pursuant to and within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. We encourage you to review BioHarvest Sciences' SEC filings, including the company's most recent Form 6-K, which identify risks and uncertainties that may cause future actual results or events to differ materially. These filings can be found on the company's website as well as the SEC's website at www.sec.gov. Please note that the forward-looking statements made during today's call speak only to the date they are made, and BioHarvest Sciences undertakes no obligation to update them. And with that, I would like to turn the call over to Dr. Zaki Rakib, Chief Executive Officer of BioHarvest Sciences.
Thank you, Dory, and thank you all for joining us this morning. BioHarvest Sciences is an industrial plant cell culture biotech company and a leader in Botanical Synthesis, which is a patented non-GMO platform technology that industrializes what nature otherwise does slowly and produces high-value plant-derived compounds and botanical compositions without growing the plant itself. Using proprietary plant cell biology, elicitation technologies, AI-driven development and industrial scale bioreactors, BioHarvest creates highly consistent, bioavailable and patent-protected precision botanics or compounds possessing enhanced potency and purity compared to the original plant, along with the characteristics for commercial scalability. The platform has already demonstrated significant commercial validation through VINIA, BioHarvest's flagship Blood Flow health product, while also serving as the foundation of the company's rapidly expanding CDMO business across pharmaceutical, nutraceutical, nutrition, cosmetic and fragrance markets. With more than $100 million invested in its platform technology, 15 patents, multidisciplinary scientific capabilities as demonstrated in various clinical publications and proven industrial scale manufacturing, BioHarvest has 2 businesses representing its dual growth engines: The D2C business that has already generated cumulative VINIA-based sales of close to $100 million; and the CDMO business that is well positioned as a strategic partner for next-generation plant-based innovation across the nutraceutical, pharmaceutical, cosmeceutical and nutrition industries. These 2 businesses have different operating models that have compelled the operating changes we have recently communicated. The two-lens framework for managing the company is designed to optimize performance, capital allocation and growth execution. As such, and as announced last quarter, we will be reporting revenues and operations with this two-lens approach. With this, Bar will provide a more detailed summary of our numbers for this quarter.
Thank you, Zaki, and good morning, everyone. I will provide you with a simple review of our financial results. A full breakdown is available in our SEC filings and in the press release that crossed the wire before market opened today. Please note that all figures are in U.S. dollars unless stated otherwise. Revenues for the first quarter of 2026 increased 8% year-over-year to $8.5 million from $7.9 million in the same year ago quarter. Cost of revenue was $3.5 million compared to $3.3 million for the same period last year. Gross profit in the first quarter of 2026 is $5 million or 59% of total revenue as compared to $4.6 million or 58% of total revenue in the same year ago quarter. Sales and marketing expenses totaled $4.1 million for the first quarter of 2026 compared to $3.7 million for the same period last year. General and administrative expenses totaled $1.4 million for the first quarter of 2026, in line with the same period last year, but reduced on a percentage of revenue basis to 16% as compared to 18% in the same year ago quarter. Total operating expenses for the first quarter were $6.9 million compared to $6.3 million for the same quarter last year. The increase in operating expenses was primarily due to increased marketing spend and higher expenses for the CDMO Services division. Net losses for the first quarter of 2026 totaled $2.6 million or $0.11 per basic and diluted share compared to a net loss of $2.3 million or $0.13 per basic and diluted share for the same period last year. Adjusted EBITDA loss, a non-IFRS measure, totaled $1.2 million, aligned with previous period last year. Under the two-lens approach, the adjusted EBITDA loss for the CDMO services division is $904,000 and $286,000 for the Products division for the first quarter of 2026 compared to $953,000 and $235,000 in the same year ago quarter, respectively. Cash and cash equivalents, together with bank deposits as of March 31, 2026, totaled $20.2 million compared to $3.4 million as of March 31, 2025. I would like now to pass the call back to Zaki.
Thank you, Bar. As we announced on April 29, in accordance with our new two-lens approach, a leadership transition was put in place to optimize the performance of the 2 businesses. This transition reflects BioHarvest's strategy of maximizing the value and efficiencies of its Botanical Synthesis platform. Prior to the transition, I was able to convert the R&D group from a one-project-at-a-time setup to a simultaneous multi-project development organization. The successes announced recently in all of our 4 projects that have been advancing in parallel are the fruits borne by this conversion. The consolidation of manufacturing, quality control, quality assurance and regulatory affairs under a unified leadership as part of this transition will allow for the future production of multiple compounds simultaneously in the new facility scheduled to operate in the second half of 2027. The need for that has become even clearer with the completion of Stage 1 and now with the Stage 2 contracts that we announced for both the fragrance and saffron projects. In my role as CEO, I plan to utilize my decades of executive leadership experience and proven track record of growth performance to enable high shareholder value creation. Ilan's focus as Co-Founder and a member of the company's Board of Directors is on growing the D2C business. With his decades of experience in the fast-moving consumer goods or FMCG sector, he will guide the implementation of high-yield marketing initiatives as well as entering the retail sphere for augmenting the online sales. Turning now to the CDMO business. This past quarter in March, we announced completion of what we believe to be the first ever successful stable cell culture development of a rare scent-producing plant used in the global fragrance industry as part of the multistage development program. This phase of the process is considered Stage 1, where a stable cell bank of a unique cell culture-based composition containing rare molecules was successfully produced. Notably, this particular scent is widely regarded as one of the most valuable fragrance raw materials in the world with premium grades commanding prices exceeding tens of thousands of dollars per kilogram and demand growing across the Middle East, Asia and luxury Western perfume markets. On Tuesday, we announced that our CDMO division signed a $1.2 million Stage 2 contract as part of this development program. Importantly, these milestones collectively bring BioHarvest closer to entering the growing premium fragrance segment estimated to represent a $23 billion market opportunity within the global $58.9 billion scents and fragrances industry. Stage 2 means that we have crossed the tallest technological hurdle of this development. It also means that we can be ready for production in the second half of 2027 in tandem with the manufacturing capacity increase due to the commissioning of the second factory. Importantly, under the terms of the Stage 2 agreement, BioHarvest retains 20% ownership of the compositions developed, creating a long-term royalty stream. The major principal of the partner firm, which is a prominent United Arab Emirates-based investment group, has said that they will be soon initiating a commercialization program to bring the product to market in the second half of 2027. We expect this contract to serve as a catalyst for engaging additional potential customers in other future fragrance programs using BioHarvest's Botanical Synthesis platform. We believe that the unique scalable capability of our technology significantly expands the addressable market opportunity for our CDMO division and further strengthens our long-term royalty-driven growth strategy. Like our fragrance program, our collaboration with Saffron Tech is a prime example of how our Botanical Synthesis platform can redefine the economics and accessibility of high-value compounds we call precision Botanics. Saffron Tech is a company pioneering advanced cultivation methods for saffron, one of the world's most valuable and health-promoting botanics. As you may know, it's among the most researched plants with multiple health attributes to its active components such as crocin, picrocrocin and safranal. We have partnered with them to develop and commercialize saffron-derived botanical compounds using BioHarvest's patented Botanical Synthesis platform. Yesterday, we announced the completion of Stage 1 of a multistage development program with Saffron Tech. As a result of the successful completion of Stage 1, BioHarvest has subsequently moved to Stage 2 under this development agreement to generate enough material expected to support future sustainable pre-commercial testing of saffron. The successful completion of Stage 1, the most crucial stage for advancing the program resulted in the creation of a stable saffron cell bank using BioHarvest's proprietary Botanical Synthesis platform. This means that the cell cultures we developed demonstrated the molecular profile of the key active ingredients naturally found in saffron, including crocin, picrocrocin and safranal, compounds widely associated with saffron's sensory characteristics as well as its scientifically researched health attributes. This is yet another important validation of the power and versatility of our Botanical Synthesis platform to create sustainable cell banks from scarce botanicals. There are multiple programs we're excited about as well as new prospects and additional advancement being made with other existing programs that we will be able to provide an update about in the coming months. The combination of existing projects and new ones expected to be added before the end of the year will generate a total revenue, as previously guided, between $4 million and $6 million. So despite quarterly fluctuations in CDMO revenue, total CDMO revenue is expected to remain as guided previously. Total CDMO 2026 revenue, including intercompany VINIA production is expected to be between $12 million and $14 million. Total adjusted EBITDA loss for the year, as previously guided, is expected to be between $4 million and $5 million. Now turning your attention to the D2C business. Today, we have more than 90,000 active users of the VINIA brand, supported by recognition from a myriad of medical experts on the importance of arterial health and blood flow. We believe that we have a best-in-class dilation and blood flow delivery nutraceutical, which has the capacity to positively impact the health and wellness of millions of consumers. As you know, we have recently made great strides with our VINIA Blood Flow Hydration product which has experienced rapid consumer adoption and high customer satisfaction ratings, which are the top in its category. To date, VINIA Blood Flow Hydration remains the #2 contributor to incremental new customer sales with 20% of new customer revenue year-to-date on vinia.com and Amazon, ahead of all categories except for capsules. With more than 100 consumer reviews on vinia.com and more than 60 reviews on Amazon for our key variety pack package, VINIA Blood Flow Hydration product has achieved an average rating of 4.7 out of 5, living up to its promise to consumers of delivering superior science, superior efficacy and superior taste. Importantly as well, VINIA Blood Flow Hydration is gaining positive traction in new key scaling channels with TikTok and our Health Pros channel. In Q1, we started implementing significant changes in our marketing and sales approach, aiming at improving the profitability of the D2C business. While it has created a one-time decline in revenue in Q1 2026 compared to Q4 2025, we expect for the remainder of the year a quarter-over-quarter revenue growth with improved metrics such as the ratio of the lifetime value of the consumer or LTV, over customer acquisition cost or CAC. Revenue guidance for 2026 for the D2C business remains ranging from $38 million to $42 million with adjusted EBITDA profit of $0.5 million to $2 million. I'd like now to turn the call over to Ilan to provide additional elaboration on Q1 outcomes related to our D2C business and the 2026 marketing programs that are influencing our outlook for healthy revenue growth in this division over the next few quarters.
Thank you, Zaki. VINIA delivered modest year-over-year revenue growth in the first quarter. While we are not satisfied with the level of growth delivered in the quarter, we believe that the quarter must be understood in the context of the deliberate steps we took to begin resetting and optimizing our direct-to-consumer growth engine. Q1 was a deliberate period in which we took important actions to better understand, refine and optimize our marketing engine for stronger and more efficient growth over the balance of the year. In January and February, we undertook a comprehensive review of our marketing mix with a clear objective: reduce customer acquisition cost; improve conversion; and better understand the true incremental contribution of our core acquisition channels, including TV, Meta and YouTube. To do this properly, we needed to test channel performance in a disciplined way, including reducing or pausing spend across specific channels during defined time period. As expected, this significantly reduced overall marketing investment in the first 2 months of the quarter, which directly impacted near-term revenue growth. In March, we began scaling investment again behind the revised marketing mix. This included a strategic reduction in our reliance on TV and a greater shift towards digital channels, which better align with where we are taking the VINIA portfolio, particularly with the launch and scaling of VINIA Blood Flow Hydration, our electrolyte product designed to reach a broader and younger consumer base. Q2 will be an important quarter of continued testing, learning and refinement as we continue to aggressively optimize every element of the marketing mix, including channel allocation, creative performance, funnel conversion, our offer structure, media efficiency and our customer retention strategy. Our focus is not simply to spend more, but to spend better as well as to build a more scalable, more diversified customer acquisition engine. As a result, we expect Q2 results to improve versus Q1. However, we believe the full impact of these actions, including the refined marketing mix, new product launches, channel expansion initiatives and positive impact of VINIA Blood Flow Hydration seasonality will be most meaningfully reflected in the second half of the year. On a personal level, as I move into my new role within the company, I remain fully focused on working closely with our highly talented marketing and sales team to deliver the guidance we have provided, while also architecting the next phase of the VINIA growth blueprint, one that we believe can accelerate the brand towards $100 million in annual revenue over the next 3 years. So in summary, Q1 was a reset quarter for VINIA. Q2 will be an important quarter of further testing and optimization, and we expect to see improved results versus Q1. However, we believe the full benefit of the actions we described will be felt in the second half of the year. We believe the actions we are taking are the right ones and that they position VINIA for stronger, more efficient and more diversified growth going forward, while forming the foundation for our ambition to build VINIA into a $100 million revenue brand over the next 3 years. Now I'll turn the call back over to Zaki.
Thank you, Ilan. Before turning to Q&A, I just want to add how invigorated I am after returning from the Vitafoods Europe Conference in Barcelona. This conference brought together approximately 1,800 exhibitors spanning functional foods, nutraceuticals, ingredient suppliers, finished product companies and CDMOs. Our participation was strategically important since it provided direct access to many of the world's leading nutraceutical, functional ingredients and consumer health companies actively seeking next-generation innovation products. At the conference, we conducted approximately 30 highly meaningful meetings over 3 days with prospective partners and customers. The consistent message we heard and what was visibly evident across the exhibition floor was that much of the industry is currently offering highly similar products and formulations, resulting in an increasing urgency among companies to find genuine innovation and meaningful differentiation. In that context, BioHarvest's Proprietary Botanical Synthesis platform and CDMO business model were repeatedly viewed as a highly differentiated and compelling proposition capable of introducing entirely new plant-based compositions, improved efficacy profile, sustainability advantages and defensible innovation into the marketplace. Overall, the conference significantly reinforced our confidence in the growth potential and strategic positioning of BioHarvest's CDMO business. At Vitafoods, I had the pleasure of having with me our new Head of Business Development, Mrs. Nedira Salzman-Frenkel, who started with us in March. We're very excited to have her with us and want to stress that her appointment underscores our efforts to support BioHarvest as a true strategic partner in collaborative development versus simply a service provider. We plan to participate in similar subsequent events, like the upcoming Bio U.S. convention being held in San Diego in June. In summary, I'm excited about the growth opportunities that lie ahead with BioHarvest, striving for optimum execution in both businesses for the creation of significant shareholder value. With that, I'd like to open the floor to questions. Operator?
Questions and answers
Your first question comes from the line of Sameer Joshi with H.C. Wainwright.
Zaki, congratulations on your new role, and I'm sure Ilan will be around. My first question is about the size of the market that the saffron opportunity affords you. It seems like it is a multibillion-dollar market. And I just wanted to see what kind of entry you are going to get? What is the actual addressable market that you can supply? Just metrics on the market would be good?
Thanks, Sameer. Maybe I'll take the opportunity to share something with everyone on the call, and I'll address your question directly. A couple of days ago, I had the opportunity to smell success and see success. I smelled the fragrance that we are developing and for which we've made the announcement. And I also saw the saffron with a beautiful color of that substance. And really, I was very encouraged. And I just want to talk about it today and then your question is really enabling me to discuss the saffron in particular because, like you said, it's a multibillion-dollar market. The initial focus would be on the dietary supplement segment, basically addressing health-related indications from a nutraceutical perspective, which is, as you know, faster to market. The arrangement we have with Saffron Tech would allow for us to be actually becoming an integral part of bringing it to market. So in a way, we would have more control over the speed at which we bring it, or the regulatory approach to it as well as targeting which indication we should go after initially because one of the things about saffron, as you know, is it addresses a lot of areas: cognition, ADHD, PTSD, among other things. So what we're doing now is as we analyze the results, we're looking for the possibility of having multiple compositions, meaning—because, as you know, there are—and I mentioned that in my speech earlier about the 3 major ingredients—interesting enough, the ratio between these ingredients may target—depending on which ratio you could target one indication better than the other. So we're going to put everything into our AI models to try to come up with which combination we think fits better to which market. In terms of time to market and efforts, we expect to soon be done with the Stage 2 so that we can have enough samples, so we start doing some possible trials. My goal is to start manufacturing the product in the second half of next year in tandem with the factory that we're building, as you probably know. And as such, we think towards the end of next year, we should be starting marketing and selling the product as a dietary supplement, most likely to be in the form of a capsule. You may have heard Ilan and he may echo that as well that we're looking at possibly also the combination of saffron and VINIA because VINIA is kind of an adjuvant basically to every dietary supplement you can think of because of its ability to conduct better the substance into your bloodstream. So that's kind of the approach we have and the time frame that we have in mind. And I will probably need another quarter before I can tell you which indication we're likely to be focusing on.
No, this was helpful. And the saffron target is really a well-chosen target. Congrats on that. On the CDMO pipeline, so to speak, I know you gave outlook of around $12 million to $14 million, and there will be some of it, a meaningful portion from intercompany VINIA. The rest of that outlook, does it include 2 or 3 or 4 additional sort of relationships that you would be announcing between now and the end of the year?
The answer is yes. We on purpose segregate between the third-party, call it, or revenue, which is service for 2026, it's all service or development, and then the production, which is internal right now. In 2026 we've guided for $4 million to $6 million, stemming from some of the projects as we advance them and then we can recognize more revenue related to the products that we have. And we are doing 4 molecules right now simultaneously and have at least 3 to 4 additional projects; allow me to call them projects, and these will be across the next 3 quarters, including this quarter. And of course, we'll announce them as soon as we sign the appropriate agreement. But our pipeline now calls for a minimum of 3 to 4 new projects that will go in. Interesting enough, some of them might be from an existing substance. Part of the assets of the CDMO, and I think I probably need to do better work to clarify it, there are molecules that are owned by the CDMO part of the business that are in a more advanced stage. So basically, more of a de-risking. As you know, Stage 1 in our development with the Botanical Synthesis process is a stage with a little more risk. So by bringing to the market or bringing to the customer something that has already been de-risked, we can command higher prices to start with. And of course, time to market would be shorter. I mean, hopefully, in 2028, I should be able to produce at least 4 different substances in our new factory.
Sounds really good. Thanks for that color, Zaki. Just one more question on D2C actually. So Ilan, maybe you can remind us what is in the pipeline of new product development? And should we expect anything over the next 12 to 18 months to hit the market?
Thank you, Sameer. When it comes to the D2C business and from a new product perspective, I first want to just talk about our VINIA Blood Flow Hydration product, which is still a new product. And we've seen really significant success. We're on track to delivering $1 million in sales of the product since we launched the product in late November. I think that's quite a significant achievement. We should get to that by the end of May. It's always good to have your first $1 million of a product, and that's pretty quick and the ramp-up is going really well. The consumer feedback is really overwhelming. The reviews are 4.7 out of 5 from now close to 160, 170 verified reviews. Feedback on a consumer level regarding the efficacy and regarding the taste is super strong. And we're very, very bullish about Blood Flow Hydration, and we continue to put more spend behind it and broaden the channels of distribution. We've opened up TikTok. Again, great feedback from TikTok, and we're ramping up quickly on TikTok. Our Amazon business is also ramping up. It's a significant—we're talking multi-billion-dollar category just on Amazon. Our rankings are improving day by day on Amazon. And what's amazing about this product which we don't have in the rest of our business is there's a seasonality curve. And as we're now moving into May, June, July, August, September, this is when it starts to obviously get extremely hot in the U.S., and we literally see significant benefits that we will be able to enjoy as we have the growth of the brand plus the seasonality impact which is going to significantly drive the second half of the year for us. So very, very encouraging on Blood Flow Hydration. And I think it's all anchored in the fact that we have the best nutrient delivery system as a result of our VINIA blood flow dilation and delivery system. And I say that very purposefully: we're now coining the machine that VINIA puts inside your body, the VINIA blood flow dilation and delivery system; ultimately by dilating your arteries, more blood flow where in the case of our electrolyte product, we're delivering the electrolytes and fluids faster and deeper to all of your cells. And that's why we're getting the feedback from consumers to say, 'Wow, efficacy, this is amazing.' And obviously, we always are very focused on delivering superior taste, which is anchored in all the consumer research we do before bringing products to market. As we look at new products coming into the marketplace, we will again double down focus on Blood Flow Hydration. Secondly, we will be bringing an additional chew product to the marketplace. We have our 2X double chew in the market, targeting elite athletes, which is going very, very well. And now we're bringing a single chew into the marketplace. I'm sure you've seen the chew category is growing significantly as its fair share representation increases of the total supplements pie, and that we will bring into the marketplace in the third quarter. And as I said in the last earnings call, we are targeting a number of multi-billion-dollar categories that we will leverage in our VINIA blood flow dilation and delivery system to be able to really deliver superior efficacy and superior taste in these categories. We're now doing a lot of product development. And towards the back end of the year or early next year, we will be bringing one of these breakthrough products to the marketplace.
Understood. Thanks for that color, Ilan. And as Zaki also highlighted, so VINIA is an adjuvant and can be combined with even saffron when that product comes online. So looking forward to that. May I squeeze one more on the financials. I think you have hired a new business development person for CDMO. Should we expect the SG&A or marketing expenses to slightly increase as the next 3 quarters unfold?
The answer is no. That's a very modest increase as a result of hiring. In fact, it's actually a replacement of someone that I had last year. So it's not even a new additional person in the overall budget. For the purposes of what we're trying to do this year, there would be no increase in the marketing costs for the CDMO.
Congrats on all the progress.
Your next question comes from the line of Nicholas Sherwood with Maxim Group.
Kind of looking at the CDMO business, how are you evaluating your pipeline of opportunities? I know right now, it's like you have an agreement with a food ingredients company with Tate & Lyle, there's a pharmaceutical company, there's saffron and then there's the fragrance company. Are you looking for—trying to keep things broad and make sure that you're not putting everything into one basket—looking at these pipeline of opportunities, how should we think about your thought process?
It's a great question. One of the advantages of BioHarvest technology, fundamentally the Botanical Synthesis, is that it's agnostic to industry. We can serve pharma, nutraceuticals, cosmeceuticals, fragrances as well as nutrition. Each one has its own characteristics. For example, nutrition would be the one with the largest volume, lower margins. We don't expect to be active too much in the nutrition space just because of capacity constraints until the next factory is commissioned. We are happy with what we do now with Tate & Lyle in terms of the molecule we're developing in terms of where it is right now in the development stage and when we can bring it to market and build volume. I'd say our sweet spots are in nutraceuticals and fragrances. The breakthrough in fragrance is going to create and increase the pipeline in that area. Those are interesting because nutraceuticals are mid-volume, really good margins and speed to market, meaning they don't require long cycles of regulatory approvals to bring to market. Once we are crossing Stage 2, trials can be conducted so the cycle is shorter. Fragrances have even shorter regulatory cycles and bring great margins. So those are the spots where I believe the pipeline is converging faster. We are a little more selective and trying to gravitate our attention to those two markets. On pharma, there is a lot of interest. We are trying to be very selective just because, again, where we are in terms of capacity and development as well as where we think the pharma opportunities in terms of manufacturing are. We're not saying no to pharma, but we're a little bit more selective in timing of bringing them in. What you will see more likely in the next few quarters would be more nutraceutical and cosmetics in general, and then progress that we would be making in the area of nutrition would take a while. You'll be hearing more about it in the next couple of quarters.
Okay. And kind of a follow-up question on the cosmetics scent agreement. Do you think you'd be doing more of these through your current partner and then they would potentially be along with you selling the product on to whether it be in-house? Or do you think it will be—you'll be kind of going directly to some of these larger brands that are creating, whether it be like a perfume or a scent oil, like how should we kind of think about that?
The current fragrance that we're talking about has multiple applications. It's a very big market. Some of it is serving as an incense, and that's billions of dollars in that market as well as ingredients for the fragrance market. So it's really not just what people buy in the store in terms of spray or perfume. It's more than perfume. The partner we have has an approach of more likely B2B and then to line up companies that would be buying what we produce. As you know, we're at an 80-20 split: 80% is owned by the partner, 20% is owned by BioHarvest, which would increase our stream of revenue. I believe that this fragrance can start getting into the market in the second half of next year. I don't think we're going to have a lot of capacity initially required to support that effort because of sampling in the market, etc., but you'll see a mix of businesses that will be taking the raw material that we provide and then integrate it, either selling it directly for incense purposes or as an ingredient into the fragrance stream, creating an oil out of what we produce to serve the fragrance industry—top brands that are looking into this particular fragrance ingredient. Unfortunately, we're not at liberty yet to disclose the name of that ingredient, but it's a well-sought ingredient, and it's part of the luxury fragrance segment and is appearing in the Western market recently with many designers adding it to their lines.
Understood. And my last question is, I know that it was presented as a very long-term opportunity a couple of years out. But what sort of interest have you seen in the plant-based exosome extraction breakthrough that you announced last year? And just kind of give us as many details as you can on how that's developed?
Great question. It's actually not so much long term. This is part of the CDMO assets. We are in the midst of testing now quantitatively the exosomes that we have. We do produce exosomes. Not only do we produce exosomes, but we produce them at commercial quantities in our bioreactors. And now we're in the process of characterization of the content of those exosomes to decide which markets they best serve. For plant-based exosomes, we should call them extracellular vesicles. Those extracellular vesicles and the content that they have may target dietary supplements. So then we can decide, in the case of VINIA, whether we want to double down and have additional dietary supplements that are based on them. We are also considering topical markets with those extracellular vesicles, because they have the advantage of better penetration of the skin due to their small size. We're weighing our opportunities based on the results. Hopefully, next quarter, by the time we do our earnings release, I'll be able to expand on the exosomes from a quantitative standpoint. We're also looking at downstream processing. As you know, when we dry our material, we have a lot of residue left that normally we throw away. Now we can use it further downstream. For an industrial process, we need to do some additional downstream work that we're assessing now. We should be able to speak about it next quarter more from a quantitative standpoint of what it means, what a 1 milligram of that material contains in terms of vesicle count, when we can bring this to market and what would be the best vehicle to do that.
I would just add that it's a very important asset that the CDMO has because when we engage with customers in this area who are starting a project with us, they have the ability to develop a unique molecule at a cellular level. With that, they also have the potential of developing one of these extracellular vesicles in addition. So it's like one plus one, which makes our CDMO proposition to customers extremely compelling when you think about the initial Stage 1 costs and the ability to really drive significant value for our customers.
Your next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.
Thanks for the update. Regarding the Barcelona conference, it sounds like you had some really active dialogue. How quickly would it be before you start to see some contracts come out of that type of an event? I'm just trying to think—obviously, you've got 3 to 4 more potential CDMO contracts before the end of the year. Is that Barcelona conference, does that create maybe a second tier for early next year? I'm just not sure how quickly those types of conversations turn into actual business?
There are two elements to take into consideration. My capacity of development, although I have increased it dramatically, still has limits. I now have the ability to select which projects are better to bring in this quarter, next quarter and the one after. So if we look at the 3 to 4 projects I have in the pocket for the remainder of the year, I may reorder them in a way where one of those would be the one from Barcelona. I would be surprised if there is not at least one faster conversion from the Barcelona meetings because of the urgency of companies wanting differentiation. One of those Barcelona opportunities would likely be with one of the already pre-developed molecules that we have. We have a series of molecules already developed, and that would be a faster process, which is why I can sign those deals a little faster because I have de-risked especially the first stage, the cell bank. So I would say Barcelona contributes one out of those four and the rest are part of the pipeline that exists. The others from Barcelona can be put into the pipeline that can start creating more projects into 2027 and beyond.
Got it. And then maybe a question regarding the new marketing strategy. Given that in January and February you were making some of the tweaks to the go-to-market strategy and in March you initiated the new strategy, what are some of the initial feedback or metrics that you were tracking in March? And how does that shape up for the rest of the year?
When we looked at our mission for the team, we were very focused on driving the metric of cost of acquisition as a ratio to lifetime value. This is a critical metric. If you look at a recent acquisition example where the LTV to CAC ratio was about 3:1, that's a sweet spot. We're doing pretty well as it relates to this, but we have room to improve to be best-in-class. The work we're doing now is anchored in getting that ratio right and moving our business to a best-in-class operation to grow from 90,000 customers towards 0.5 million customers and from roughly $35 million of revenue to north of $100 million. We don't want to take another five years to hit the next milestone, and that's part of my stepping into this role to build the architecture and blueprint to get from $35 million to $100 million quickly. That key metric drives focus on improving cost of acquisition, which is based on several areas: specific personas, improved product messaging translating into better creative, stronger offers to improve conversion, and optimizing email sign-ups, post-purchase flows and retention. We have high retention levels but want to improve. We did some strong test-and-learn in January and February, saw encouraging results in March and April, and are readying Phase 2 to be implemented June 1st with more fundamental changes in both the marketing mix and what the consumer sees. We believe these will have significant impact on overall conversion.
Your next question comes from the line of Sean McGowan with ROTH Capital Partners.
A couple of financial questions. Can you talk a little bit about the—remind us of the financial impact of the shift from Stage 1 to Stage 2 for not just saffron, but for any of those businesses? So what happened financially?
Phase 1 is normally in the vicinity of a contract size of $0.5 million. Entering Phase 2 is normally a contract between $1 million and $1.5 million depending on the molecule. Then there's another $1 million to $1.5 million in Stage 3. Overall, we're doing our best to try to shrink development within 24 months from initial work to finalized Stage 3. When you finish Stage 3, you're basically ready to go into production. That's how you should be looking at it: Stage 2, $1 million to $1.5 million; Stage 3, $1 million to $1.5 million.
And what happens to expenses during that transition?
Completing Phase 2 means I have biomass that not only validates the proposition, but enough to let the customer do trials—perception trials, clinical or pre-commercial trials—which is a major step toward de-risking. Stage 1 is the riskiest; if you cross Stage 1, you can typically proceed to Stage 2. By the end of Stage 2 you know what the final product is, the certificate of analysis, cost structure and you can begin sampling and testing. The difference between having milligrams or grams and having a few kilograms at the end of Stage 2 is significant. Between completion of Stage 1 and signing an agreement for Stage 2, sometimes it's a matter of a few weeks. Between Stage 2 and Stage 3 there may be a little longer—maybe 1 to 3 months. The good news is we can provide materials before the end of a stage so customers can start tests and not necessarily wait until the end, enabling faster movement between stages.
And then shifting gears for a second. Can you give us an update on the status of the development of the new plant, both from an operational standpoint as well as a financial standpoint?
We are looking at starting to produce in the second half of next year, which means that I still will run the two facilities in parallel. Ultimately, the goal is because the new facility is more efficient, you'll see improvements in gross margin over time. Sometime in 2028 we're looking at reducing capacity in the first facility in favor of increasing capacity in the second. But we will start to add capacity in the second facility in the second half of next year above what we have in the first one.
Okay. And in terms of cash flow and investment, I thought there'd be more investments reflected in the...?
We're looking at what we have in our coffers, and we believe we have sufficient funds. We're doing prioritization and trying to live within what we currently have. So we're optimizing a few areas so that what we have can suffice to complete the first steps required to start producing. Now we may want to do additional things down the road that could require more capital, and then we'll see where we are in terms of earnings and the speed at which we need more capacity. My feeling is that the CDMO may actually be the contributor to get additional capital towards the second half of next year because of the faster requirement for capacity. That would be good news and something we could finance in different ways. Remember, CDMO manufacturing would be done under contracts, not a D2C situation, so it will be done under contract. Ilan, do you want to add?
Yes. Sean, I just wanted to add that the focus of the team now—and this is something Zaki is spending a lot of time on—is finalizing the detailed engineering design drawings. It's a serious undertaking. This is the next generation of our technology. We're looking to bring in a lot of AI and new layers of technology. The engineering and detailed technical design work is paramount. That's why you're not yet seeing long lead items from a CapEx perspective because we're working through the tough decisions related to final technologies and suppliers. There's a lot of testing going on worldwide with different types of technology that we're considering for harvesting and drying, etc. But you should start to see that CapEx build in the second and third quarters of this year.
That's very helpful. And my final quick question maybe for Bar is when will the SEC filing hit? Because I don't see it yet in the SEC?
It should be out very soon.
There are no further questions at this time. I will now turn the call back to Dr. Zaki Rakib for closing remarks.
So I'm going to say what I said earlier in the call: I smell success. I saw success and I was able— I hope I was able to speak about success. I'm really feeling strong confidence—high confidence—in the prospects of the business on both segments. The latest success in the CDMO has not only technological meaning, but financial meaning. Hopefully, we'll roll those soon with models that will be able to explain to you and to the market what they mean and when manufacturing starts kicking in, etc. So once again, I want to thank everyone here and look forward to our next earnings in August, I guess.
Yes, August.
Yes. Thanks, everyone. Enjoy the rest of the day.
This concludes today's call. Thank you for attending. You may now disconnect.