Atomo Diagnostics Limited (AT1) Earnings Call Transcript & Summary

Hello. Thank you, and welcome, everyone, for the Atomo quarterly activity report. Myself, John Kelly and Will Souter our CFO, are presenting today. We're in different locations because I'm in the U.S. attending AACC, which is the large U.S. Clinical Chemistry and Diagnostics Conference, and we'll talk a little bit about what we're doing here and the kind of progress we've been making in -- later in the presentation. First, just to run into the quarterly highlights themselves. We'll start with our main product HIV Self Test. We're seeing significant interest in the product across a range of different territories and categories continued sales in global health and expectations are on some larger tenders coming out of that process as HIV screening gets back on track, both COVID and global health. We're seeing some significant opportunities emerge in the Australian market quarter-on-quarter growth in the first half of this calendar year. We're expecting to see that continue as we roll into more pharmacies, and we have pilots like the Vending Machine Pilot program expanded. And obviously, more recently in the quarter, a sizable order from Newfoundland, our new retail focused channel partner that's in the U.K. retail market, a sizable initial upfront order, nearly $1 million worth of sales and expectations for follow-on order later this calendar year. That order will be shipped and invoiced in this quarter. We did have to get an additional certificate for their branded version of our product in Europe and that came through very recently. So the first 50,000 have been built. And we'll be looking to follow through with the next 150,000 as we roll out to them this quarter. So very excited about the HIV business opportunities. We also have been at IAS, up in Queensland, the International AIDS Society Conference to meet with our partners there in global health, but also more importantly, to meet with some senior government people in both federal and state governments. We're seeing a recognition by Australian government that self-testing is a critical part of the HIV response to drop off in testing through COVID. And we're very excited about the feedback from them and the engagement with them, and we're very hopeful of some government support in a number of areas as we roll through the rest of this calendar year. So I think the message is that our HIV business is -- we expect it to grow materially quarter-on-quarter over the next 2 or 3 years. And we see it recovering from the dip that we saw during the COVID pandemic. Beyond HIV, we're encouraged by our OEM business return to business. Obviously, when the market and all the diagnostics companies pivoted to COVID, our OEM blood test cassette sales fell away. We're now back in supply with our 2 partners, NG Biotech and Lumos Diagnostics. And we'll talk a little bit about their plans for expansion on the platform. We're also now pleasingly able to offer potential U.S. partners and FDA-approved cassette by way of the Lumos 510(k) and that really significantly reduces a barrier to adoption for products in the U.S. market. And in addition to that, we've also recently entered into a number of OEM partner referral agreements, where we are partnering with companies that specialize in the development and commercialization of new assays in market and that allows us to get in at the ground floor with assays being developed on our platform so that they can go through regularly approval and launch. And that's much easier than trying to get an existing product requalified on our platform. There's a much larger barrier to entry for existing products in market converting than there is for new products. So by being able to partner with the key providers of those services in the market, we're able to really expand our network and the availability of our platform, and we're very excited about the opportunity to deliver OEM contracts through those relationships and our recent expansion into retail markets in the U.K. through the Newfoundland deal as well as the 510(k) approval here in the U.S. really underpin that offering, and these guys are very excited about the opportunity to really start to offer that cassette to their existing customer base. A large part of that, as I mentioned, is based on the 510(k) that Lumos secured for FebriDx. We're congratulating them on that significant achievement. That's allowed them obviously to look to bring that product to the U.S. market and we're keen to see that progress over the coming quarters. But equally and potentially for us more importantly, that platform now has a predicate approval pathway for other applications beyond FebriDx and that's a pathway for not only our own finished products, including the blood-based pregnancy test, but also platform products for other OEM customers. And our opportunity now is to move beyond the 510(k) into OTC, self-test approvals in the U.S. at present. There are not rapid test kits approved the way they are in Europe. The requirements for approval in the U.S. are significantly higher in terms of usability. And that's where our Pascal platform now has an opportunity to become the first test -- to test platform to secure a blood-based OTC approval, and we'll be looking to move forward with pregnancy as the first platform application to really test that hypothesis and that's because of the large addressable market for pregnancy as well as the fact that it's a well-established self-test category and provides a lower level of regulatory hurdle for us compared to, for example, HIV. So very excited about the FebriDx opportunity, not only for sales of cassettes or FebriDx, but the broader acceleration of our products in U.S. market off the back of that. Pregnancy, I mentioned being the first one. We did, as shareholders may remember, a deal with NG Biotech of France for blood-based pregnancy test. They have launched that on Pascal. It's CE marked. They're selling in France. They're selling in the U.K. They're looking to close out an agreement for [ pay ] in Italy and Portugal. They've launched in Brazil, and we're working with them to launch in a number of other territories, including Australia, where we submitted to the TGA more than 3 months ago, and we're hopeful for approval later this year. That will also be used to register in New Zealand and some other Southeast Asian markets. And in parallel with that, we're working with them and a regulatory consultant here in the U.S. to put together a pre-sub to FDA that we hope to then support a meeting later this year that will give us a clear pathway to market for that blood-based pregnancy test in the U.S. market. And the opportunity there is, we believe, significant blood-based pregnancy test detect earlier than urine that makes them very important for ultra early detection, which is not critically important in a large number of U.S. states as well as also offering a more accurate test in that early phase of pregnancy. And for a lot of women who really, really want to be pregnant or really, really don't want to be pregnant, that extra period of detection, that extra reliability in the early phase of pregnancy is critically important, and we're very confident we can get a premium for that product in the market and the feedback we've got from pharmacy groups in Australia would tend to support that. So we think that the outlook for the business over the coming year is extremely positive. And we're very keen to get on with growing our HIV business, bringing new products to market, expanding the OEM customer base and continuing to establish our platform as the leading self-test solution in the global market.

So just coming to the numbers. Total revenue for the quarter was close to $600,000. And we're just starting to see quarter-on-quarter revenue growth picking up again in the post-COVID environment. That brought us to $2.6 million in revenue for the full year, which was predominantly HIV close to $1.6 million in HIV sales, close to $400,000 in COVID sales that was right at the beginning of the financial year, a last sort of [ gas per orders ] that came through in Australia. And since then, there's been no COVID business. So we have been rebuilding and building on top of that. And that is now starting to show through in continued OEM sales growth and that accounted for around $600,000 of the $2.6 million across the year. Importantly, as we've gone through that transition away from COVID and really started to rebuild those other parts of the business, the pipeline for Q1 for FY '24 is looking really strong and is essentially underpinned by purchase orders and products under production, as John mentioned, for Newfoundland. So there's a significant order to go out to them over the course of Q1. NG Biotech and Lumos, we've got purchase orders in hand across all of those. There's also a significant tender that Viatris is participating in, which would be a game changer in terms of numbers compared to last year across the whole year. So there's some really, really positive developments coming through in Q1, and that's as a result of the work that was done over the course of the year as everyone got back to business post-COVID. In terms of cash receipts from customers during the quarter, just under $400,000, finishing the quarter with no debt and $6.5 million of cash on hand. And cash receipts from customers over the year of around $3.3 million. That balance of $6.5 million is before the capital raising that they will be aware that we launched a couple of weeks ago. It was to source some top-up funding to help us with some of these activities that John has described and in particular, to accelerate our entry into that U.S. market. Funding is required to do that. And funding on top of what we have in hand at the end of the period was seen as a really useful way of accelerating that and underpinning that growth. So the placement itself was for $1.25 million. We had a further $1 million commitment to take up any shortfall that might come from the SPP. So I guarantee $2.25 million across that raising with a target of $4 million, the SPP is still open. So I just wanted to remind everybody of that and what that looks like. The placement was done at $0.036 a share. The SPP will be priced at the end of the offer period, which is on the first of August and it will be the lower of $0.036 or 2.5% discount to a 5-day volume weighted average price of the stock as it's traded. So as a participant in the SPP, you're guaranteed of receiving either the placement price or a discount to the recent trading price. So there's no opportunity to be out of the money at that point when you invest. So we would encourage everyone to invest. The details are contained in the quarterly there on our website. There's a button on our homepage. And most people, I'm sure would have received some communication directly from us, and so you can access the SPP that way. We'll just talk a little bit about what we're planning to do with those funds and what the key priorities are for FY '24. So I'll hand back to John for that, and then we'll go to some questions after that.

Yes. Thanks, Will. So I mean, I think the question is what someone looking to potentially invest in through the SPP. And I think the answer from our perspective is a best-in-class consumer use platform that's now validated across key markets and across key aspects of risk regulatory, consumer demand, channel partner validation and now regulatory approval in the U.S. So our key focus for the coming year and beyond is actually quite simple to pivot into the new landscape for rapid testing is clear. We want to continue to grow the HIV business. We still see a lot of longevity and growth in that business. We have one of the best HIV self-test products available in the world. The only one approved by the TGA, that quality is now starting to get recognized. We're looking at opportunities for U.S. commercial partners to help with funding of that. And the only reason we haven't done that to date is because as a PMA, it's a very expensive exercise. There is talk of FDA downgrading that to a 510(k), which would make it significantly easier for us to bring that product to the U.S. market. But that notwithstanding, we're seeing significant growth in Europe. I met with Newfoundland last week in the U.K. They're very excited about launching into test goals. And into Germany, they've had a lot of interest from Eastern Europe and some other markets outside of Europe that we're considering giving to them in exchange for some commitments. So that's a hugely important retail channel partner for us, not just for HIV, but for other products coming behind HIV. And in Australia, we're very encouraged by the government engagement by the openness of government to look at pilots like the Vending program, online distribution to high-risk people and other activities that are being established overseas and now have been brought back to Australia with us as a very motivated partner to work with government to make that happen. Outside of HIV, our OEM business is now starting to grow again. We're seeing interest from new partners. But more importantly, our partnerships with Lumos and NG are starting to really bear fruit across the products that they've launched on our platform, and we're expecting to see growth over the next couple of years through those two partners as well as an expanding pipeline of new partners that are starting to see two things: one, the consumer testing is a growing channel, and we have got the best solution for that; and two, that we now have a platform that's derisked for the U.S. market. And I can't underestimate that -- the importance of both of those. By way of an example, we had a quite large diagnostic company, not top tier, but it's probably second tier, come to us at AACC asking for a meeting, and we were told by them that they had approached one of our channel partners with a view to swapping their existing bits and box format over to this company's own format of portfolio products and they were told by our channel partner that they want to be considered for that. They really need to come back with the products on our platform. That's the kind of market validation that we just didn't have before the pandemic, and I think it really now will drive significant uptake of the platform as we start to prove the utility of the device in the market. And the agreements in Newfoundland and the approvals in the U.S. are fundamental to that validation. So we're very excited about that. We're also very keen to work with other partners to bring new menu options to the platform. It's a blood-based platform, but very flexible across multiple applications, so outside of infectious disease, hugely excited about wellness, vitamin, thyroid, testosterone, anemia, there's a whole range of applications where people -- be interested and take ownership of their health, particularly in places like the U.K. where it's not taken up for 3 weeks to get an appointment to see a GP. That opportunity to grow consumer health is only going to continue with large efforts being made by retail partners and diagnostics companies to enter that market, and we've gotten, I think, a well-proven ready to plug-in platform that really addresses those needs. So I think that OEM business, although slow to get going post-COVID will show significant growth over the next 3 to 5 years. And we now have a real focus on some key products that we think we can own the market with in terms of the full value chain. So HIV is one, blood-based pregnancy is another. And aside that, iron deficiency and vitamin deficiency are associated with pregnancy and make a very attractive business unit by way of women's health, and it's one that we're starting to get a lot of interest from large retailers who see diagnostics and women's health intersecting at a really attractive point in the market. So very excited about the priorities for the business and the use of funds, not surprisingly reflect that. We are looking to, as Will mentioned, accelerate efforts to get that pregnancy test into the market. We're continuing to engage at conferences to show the platform and make sure it's widely available. We're supporting those three reseller 3 channel partner providers to make sure that the OEM opportunity is fully scaled into the market through their efforts and that gives us essentially an outsourced in relatively cost-effective way to scale that OEM business because they're doing their normal daily business, but they're not offering our platform into that and it saves us having to invest significant capital and resources into doing that ourselves. And then outside of that, obviously, making sure we get the pregnancy test approved in Australia and the [ FebriDx ] test approved into Australia and Europe as well as securing U.S. partners once we get the 510(k) converted into a clear waiver of OTC approval. I think that's the update on the future focus. We'll have you to maybe move on to some questions now.

Yes, sure, John. We've had a few questions come through. So there's a couple that I'll kind of bunch together about the FDA process. Why we haven't started that yet? What the costs are associated with that? And what the kind of program might be for that, specifically for taking the blood-based pregnancy test through to an approval?

Right. So I mean, while we haven't moved forward with FDA prior, I think the only product we had to do that with was HIV. HIV is a PMA, is very expensive. The market opportunity didn't warrant the return on investment for a small company with limited capital. So we've waited for the right opportunity, and that right opportunity is pregnancy because of the very large addressable market. The fact that a blood test has very significant and easily defined benefits over urine and also the fact that we're entering a market that's well accepted for home testing in pregnancy. So that is a low-hanging fruit entry for us and one that is significantly more cost-effective to engineer than the equivalent entry for HIV. So I think once that product is on the market, that platform approval will then allow us to expand into other applications such as Ferritin Vitamin D and others, and we hope that the FDA downgraded HIV to 510(k) so that we could also get HIV through that channel as well.

Okay. There's a couple of questions here, which I'll answer about our presence in the Australian market and what our channels are in the Australian market. And the question is about whether we are or will be in Chemist Warehouse and [ Priceline and Coles and Woolies ] with our products. So in terms of -- just to go back a step. The HIV Self Test approval we originally received from the TGA didn't allow us to sell through pharmacy or retail. We had to sell direct, and we were not able to advertise. And so it was a very restricted environment in which we were operating. All of that changed as a result of COVID and the TGA took those restrictions away. So we've only been able to directly access the market over the course of the last sort of 9 to 12 months. And obviously, it's taken a while for us to penetrate that market, particularly with HIV, which is a very specific product. So we have gone direct to many hundreds of pharmacies, particularly in high-risk areas and in the target areas where the HIV issue is at it's largest. The reason for launching tests like pregnancy and iron deficiency is, obviously, that's a much broader market, a much bigger audience. And so all 6,100 pharmacies in Australia could stop those and would be interested in stopping those tests because it's much broader appeal. So when we launch pregnancy, we will be going to a much, much wider target market, specifically pharmacies and also obviously online and direct. And we'll be doing that in partnership with a contract sales group that market certain products to that pharmacy network, very, very experienced over many years, and we've dedicated salespeople that will be selling the Atomo products. So that will give us an opportunity to launch and launch fairly quickly into a much broader range of pharmacy chains. To do that, you need to get at the parent company level at the buying group level as well as at the individual level. So you need to take that sort of 2-tiered approach. So that's our plan for the launch for pregnancy as well as obviously continuing to drive awareness about the uniqueness of that test. And then HIV will follow along from that as well. So we're expecting to get broader reach with our HIV test. And then that model will be rolled out with additional products like iron deficiency thereafter. And they're big markets. I mean the Australian market for pregnancy testing are north of 5 million tests a year. So it doesn't take very much penetration for us to pick up our part of that market and for that to be significant to a time in terms of potential contribution to revenue. That's just one test in one market. Obviously, we don't want to look to roll that out elsewhere as John said, New Zealand, other parts of Asia and then the U.S. And clearly, that's magnitude is larger. We've seen what happens to all these companies when they get U.S. FDA clearance, and we would expect a similar response in terms of shareholder value if and when we're able to get through that process in the U.S. So really, there is significant leverage to take the existing and proven platform technology, the existing and proven products and launch those out into various markets. Clearly, that takes some time and some work in some resources, but that's the clear focus of the company at this point.