Atomo Diagnostics Limited (AT1) Earnings Call Transcript & Summary

I think we're quite ready to get it, John?

Yes. Thank you. We're just seeing people coming through on the attendee list. So welcome, everyone, to the Atomo Diagnostics end-of-year results presentation, and we'll be looking in this presentation to go through the results for FY '23, talk a little bit about where we find ourselves now in the first quarter of FY '24 and review some of the priorities for the rest of this financial year. For those new to the business, just a quick summary of what we do. We're obviously headquartered in Sydney with operations internationally and commercial networks extending globally, and most of our revenue is derived from export sales. We deliver best-in-class diagnostic test solutions, and we're very proud of the technology that we've commercialized. We now have customers across the globe. And we're looking to grow the customer base that utilizes our technology as well as growing over the coming years, the amount of clinical test -- applications that use our product, whether we're the manufacturer or whether it's through an OEM partnership. We see a lot of opportunity in point-of-care testing, particularly at-home consumer testing. And that really delivers for us two business units. One is the sale of finished products where we have a list of manufacturer like HIV and soon others in the market. And then beyond those finished product, we have an OEM services business where we sell our devices to other diagnostics companies like, for example, Lumos Diagnostics who have the FebriDx test commercialized on our platform. This slide really talks, I think, to where we're at in our journey. We are significantly derisked as a business from a product perspective and from an investment perspective. I just wanted to touch briefly on some of the key areas of risk that businesses generate when they try to come to market and talk a little bit about where we are with the management or mitigation of that risk in terms of the product itself. We've developed a very new and novel solution to rapid testing, but it's now commercialized in more than 40 countries and successfully delivered to market for a range of different clinical applications. So that risk is really being managed now. In terms of revenue, our HIV -- once we strip out the once-off COVID business, we're seeing in our HIV business increased demands for self-testing, not just through OTC retail channels, but also for the first time now post pandemic, a real willingness and acceptance from governments that self-testing is a way to reach untested populations. And we're also seeing through our OEM engagements, a willingness to utilize our devices for a range of applications. So that revenue risk has been increasingly derisked by us post the pandemic. In terms of market risk, we are seeing increased levels of adoption. I think there's probably the one risk that's changed the most post pandemic, we're now seeing increased willingness for people to test at home for applications. And that really drives the market opportunity for us that didn't exist in -- outside of pregnancy before the pandemic. So I think that market risk is not only diminishing, but is one of our main strengths now, just this emerging growth opportunity in consumer testing. Regulatory risk, we obviously wanted to address from the onset. And we went to market with a Class IV HIV test, which is the highest regulatory approval the device can get, and we now have that across a number of markets. So that derisks the business significantly and we're very pleased that our partner, Lumos, received a 510(k) approval for their device on their test on Pascal. That was the one remaining market that we didn't have a regulatory approval in. And I think that now completes a global regulatory network that we can point to for our own products and our OEM customers. That's very encouraging. In terms of user acceptance, obviously, for new technologies, acceptance is key, particularly in consumer-focused products, we have an over 90% user preference rate across both professional and self-test users. And that's driven primarily by a very sizable reduction in errors when our devices use compared to a standard kit. So that user acceptance, I think, is critically important for us to be able to demonstrate, particularly the larger companies who typically have an inertia to move to new technologies. I think that user acceptance is increasingly compelling. Obviously, businesses are always at risk of disruption. I think in many ways, we are the disruption in this market. We've come into a market that had very little usability focus. We delivered a very well-engineered solution that addresses the human factor of challenges with blood testing. And we have a pretty robust IP portfolio granted across all key international markets that allows us to not only enter the market with disruption, but protect that market position with IP, know-how and proprietary expertise. And then in terms of technology risk, we've partnered initially in the rapid test market using lateral flow, a very well-established technology, and we've now got over 5 million devices scaled up and supplied into market. So we think that technology risk is manageable. So that gives us a business that we think is significantly derisked and ready for leverage on the upside. In terms of the key achievements for '23, we were able to reengineer a number of supply agreements that allowed us to really take advantage of the opportunities we were seeing in HIV. We have a -- nearly $2 million take-or-pay contract that we entered into for the South African private sector market. And the first batch of that product is being dispatched in the very near future. We also significantly restructured our arrangements for Europe and entered into partnership with Newfoundland Diagnostics, an emerging retail-focused go-to-market partner, and they put in an order -- initial purchase order for nearly $1 million worth of product. Pleased to announce that the first batch of that product was delivered this month, and they'll be using that to launch into a very large supermarket channel chain and there'll be some upcoming announcements around that in the next couple of weeks. We're very excited about that partnership. We expect to see photos from them as they roll out into Europe, and we're supplying very shortly the first non-English language batch for them to support their launch in German-speaking markets in Europe. So that really gives us a lot of comfort on the prospects for HIV over the medium term, and we're expecting to see sizable sort of half-on-half growth in that channel. Partners in OEM space are coming back to market after a bit of a hiatus when they focused on COVID. We're now seeing NG Biotech back in the market. They're buying our cassettes for their blood-based pregnancy test market. They're launched in the U.K. and France. They recently launched into Brazil. They're looking to close out [ Dames ] for Southern Europe. So we're expecting some growth there. And obviously, the pregnancy test rights that we secured for Australia and New Zealand, the U.S. and Canada will give us long-term upside in that market. The Australian submission, we'll talk a little bit later in the presentation, but that's now progressing with TGA, and we're very hopeful of approval in the coming months. The U.S. pre-sub activities continue. We'll be looking to meet with FDA later this year. In terms of point-of-care business, both NG and Lumos are reordering our Pascal devices, and we're seeing good demand there. We're very obviously pleased with Lumos' 510(k) announcement on FebriDx. That not only gives us a larger addressable market for them as a partner, but it allows us to now promote the platform in the U.S. as a 510(k) approved platform. And that significantly derisks the opportunity for partners looking to seek access to our technology. In terms of corporate activities over the year, Will's going to talk us through those and then go into some of the results in a bit more detail.

Sure. Yes. So thanks, John. Look, I think the -- in the current environment, everyone's had a quite a significant focus on their operating expenses. And I think just to reiterate the business model here at Atomo, it's a platform business. Now that we have these platforms out in the market, we've installed the production and manufacturing capacity that we need to support with. Our operating expenses should remain consistent and indeed, over the course of '23, have actually come down as we've been able to take some of those costs out once we reach that sort of steady state in terms of capital investment and in terms of those capital programs. So we took out nearly $1.5 million in OpEx from our overall OpEx base during '23. And we're continuing to focus on that and look at cost -- further cost savings into FY '24. So I think that's been a significant achievement over the course of the year, whilst continuing to focus on key revenue-generating activities and key growth activities. With that, we ended the year roughly on our target budget in terms of cash, around $6.5 million. In addition to that, as most people are aware, we did do a capital raising post that year-end cash balance. So we raised another $2.25 million. That funding is now in and so that's obviously not reflected in the year-end cash balance. We decided to do that as most people know, Lumos Diagnostics received the 510(k) approval. There was a strong response in the market to that for Lumos and for Atomo. It flowed through to Atomo. And it gave us an opportunity to raise some capital at a reasonable price compared to some of our earlier trading and top up that funding to really get after some of these growth initiatives that we're talking about for FY '24. Just coming down to the results. Here's a comparison between '22 and '23 in terms of the P&L. Obviously, the FY '23 number is significantly lower when compared with FY '22. And I guess just to remind everyone, we did a significant amount of COVID business during FY '22. Yes, we pivoted into that because that's where the market was. But we're reeling someone else's test and it wasn't really leveraging the core Atomo IP in the platform. And so what we're seeing now is obviously lower revenues but much more higher quality revenue and sustainable revenue from customers that are using the Atomo platform and from our own tests on the Atomo platform. So I think that's the key difference. And that sets us up for a nice platform as we move into FY '24. And I guess the other thing to remind people is that we actually did know OEM revenue in '22 because of that, everyone being focused on COVID, as John said, and so we've started to see that come back with some consistent ordering from NG, some new ordering from Lumos. So that's really encouraging in terms of a platform for growth and the ability to leverage, as I said, that installed capacity. Just looking at margins. Obviously, there was some impact from getting rid of some COVID stock at the end of the year, but the overall normalized gross margin of around 37% is at the lower end of where we'd like to be. And again, that's part of diversifying that revenue -- those revenue channels into different markets, particularly into U.K., Europe and U.S. and Australia as opposed to global health. So once we continue to expand that overall portfolio, then we should see margins start to move up into the 40s with a target of getting into the high 40s and close to 50. Again, to reiterate, we took around $130,000 a month out of our OpEx. We do run pretty lean by comparison with others in the sector, particularly for a global business in a highly regulated industry. We continue to focus on bringing those costs down, as I said, but doing that in a way that doesn't impact on our ability to grow. Just coming to the balance sheet of the cash flow. Investment activity was very much a laser-like focus on market-facing and revenue-generating activities and minimal CapEx was required throughout the period and we're expecting similar for FY '24. We're very much focused on sales, marketing, business development, new distribution agreements and growth. There's a bridge there that shows our opening cash flow through to our closing cash flow. You can see receipts from customers of around $3.4 million. We received some funding by way of R&D rebate around $1.2 million. OpEx and payments for stock accounted for most of the outflows, leaving us with that balance of $6.5 million. And I guess reiterating that we then subsequently raised funds and so that $6.5 million balance doesn't include the new funds in -- post the close of the year-end.

Thanks, Will. So just [ running ] you to the stock in terms of what's driving that opportunity and that excitement for FY '24 and beyond. It's really this ability for us to deliver a next-generation solution that replaces standard test kits. In doing that, it's [ seen ] as a procedure, users recognize that intuitive use and are much happier and confident running tests on our platform than standard kits. And that delivers a very high-level user preference, but also delivers very high levels of performance in terms of reliability and error reduction. And that's what's keeping regulators happy as we see market transition from supervised health care testing to consumer at-home testing. The performance we delivered is best-in-class by any measure, over 90% reduction in errors. [ 4% ] reduction time to run a test and over 90% user preference. And that's a very compelling set of validated results that we can now bring to partners, bring to regulators and bring to customers. And that's increasingly important because the market's transitioning away from doctor office and lab testing to consumer decentralized and at-home testing, whether it's through pharmacy chain purchasing, e-commerce or at-home telehealth by way of health care delivery. This is where the market's going. And for that to be successful, tests need to be reliable, easy to use and convenient and we're the only company with regard to blood testing that's delivering that level of performance across a range of tests. For us now, the challenge is to expand the portfolio, get products to market. We've already established now some very good channel partners like Newfoundland who have access to the pharmacy and supermarket shelves of leading retailers across Europe. We expect to see similar agreements in the U.S. over time as we get closer to regulatory approval there, and we've got the ability to go to market directly in Australia where we've already established HIV as a channel product in pharmacies. And once we expand the range to include pregnancy and others, then we can push into more mainstream supermarket channels as well. And we've got the evidence of the success of that through Newfoundland's U.K. operations to point to in that story. So HIV is our flagship product. We're seeing increased demand for retail partners for HIV. We expect to be able to announce some big market entry deals through Newfoundland in the coming weeks once we've now got that product to them, which was delivered this month. And we're expecting to also see that expansion beyond the U.K. and Europe over the rest of this calendar year and into next year. So I think our expectations for HIV are very strong. We're also seeing now, not just engagement from government, but genuine acceptance from government of Australia that self-testing is needed to reach people who aren't testing through facilities, and that was never the case before the pandemic. We're having meetings at the Minister level 2 years ago we couldn't have got. We're expecting to see some progress towards World AIDS Day on the 1st of December. And we're very confident over the next 12 months, we will see proactive procurement and government through various programs that we've evidenced in other markets and really brought to them a compelling offer. We continue to obviously support our business in global health. As Will mentioned, it does not generate the same kind of margins that business in Australia and other developed markets do, but it does, I think, make a very important need in terms of global health, and we're very proud of that. It does, from a business perspective, also give us economies of scale. And setting up manufacturing in South Africa, we've been able to continue to deliver low cost of goods, which keeps us competitive in global health, but more importantly, gives us very significant margins when we sell the product in markets like Australia at a much higher price point. We're expecting to see continued expansion into markets where Viatris haven't yet registered, and we've got ongoing discussions well progressed in South America and Asia. That will be, again, some announcements we look to bring to market later this calendar year. Overall, pregnancy is the next cab off the right for us in terms of opportunity. We are starting to see NG deliver success in the markets they entered. They're starting to take market share off urine tests. And we're expecting to see sizable market penetration here in Australia where we get to market. We know the market here is 5 million rapid test per annum. We completed a survey in Australia just recently, quite a sizable piece of work, over 300 women who had purchased a pregnancy test in the last 12 months. So this is the market for pregnancy in Australia and we're very pleased with the results. More than about half of the women said they were very or quite interested in using the product. And 1 in 5 were willing to pay a sizable premium for that product because of the improvement in performance, because of the improved accuracy, because of the earlier detection window and because they could use it as soon as they bought it and not have to wait until the following morning. And that gives us good prospects for pretty high levels of market penetration. And we have a very credible go-to-market channel partner lined up to go to market once the product's approved. And after a few months in the queue with TGA, we now have been advised that they're actively reviewing the dossier application, and we're very hopeful for approval in the coming months. That would allow us to enter a very sizable market with a best-in-class product that had a clear market differentiation as well as overseas validation. And we're very excited about the opportunities for that in terms of revenue growth for the business in Australia as well as providing a case study that would then allow us to generate a very attractive go-to-market arrangement for a similar type person of interest in the U.S. who wanted to take that product through to the U.S. market. We've had a number of discussions in the U.S. around those types of channel partners. So I think that pregnancy test opportunity for us is material. It's a very sizable market. And we now have the opportunity to come to market with a test that's unique in the Australian context and we believe in the U.S. context as well if we can get to market in the next 18 months. Beyond pregnancy, we have a whole range of applications that are in the pipeline. We're well progressed with an iron deficiency test. We're looking to validate our South African HIV production to be able to expand the validation to include the ferritin test. And that work will be done in October. We'll be then using that to complete the dossier and submit to TGA and to IVDR in Europe at the end of the year, and we'll be looking to launch that product in calendar year '24. Beyond that, we've had a lot of interest from our channel partners on different types of tests that they would really like to see delivered on our platform. Vitamin D is the next product behind iron deficiency. But beyond that, there's a whole range of applications that we are now actively discussing with partners, looking for test strip partners that can deliver tests that work well enough to go on to our platform. And we expect to see a sizable portfolio of products come to market in the next 2 to 5 years. Not all of them will be necessarily have Atomo Diagnostics as the listed manufacturer. Some of them may be hybrid developments where we have more of an OEM arrangement, we supply the dossier of the device and somebody else pays for the go-to-market clinical and regulatory. But that does give us the ability, we believe, to deliver a very comprehensive portfolio into a market that's increasingly focused on usability and performance in a consumer setting, and that's where we want to be. In terms of our strategy to get there for FY '24, we're going to continue to establish the platform as best-in-class, and the 510(k) for Lumos really helps us move into the U.S. market. Now we're seeing some sizable opportunities firm up post our presentations at AACC, which was very timely because it was a big conference that happened about 3 weeks after we got the 510(k). We're expecting to be able to validate the performance of the platform through the launch of pregnancy later this year in Australia and through a pre-sub with FDA, start to finalize the U.S. go-to-market and get a commercial partner lined up. We're also excited to see that our OEM business is back post COVID. We're seeing increased demand from NG. We're expecting to see some increased demand from Lumos now they got their U.S. 510(k). And we're also seeing a number of partners that we've contracted with, starting to promote our platforms to their customers and their customers are companies developing new assays. One of the things we decided to do was partner with companies that have [ near ] and the development contracts for new products because it's easier to get our platform [ in this ] -- the development and try and have it brought in post regulatory approval and revalidate. So getting into those networks early is fundamental to that, and we've had success securing agreements with three companies that are prepared to resell and promote our platforms into those channels. Obviously, two of them are in the U.S. and the 510(k) helps enormously with that. Our success in Europe and Australia helps again with that. And it's a particularly compelling proposition to anyone who's looking to get a clear waiver or OTC approval for self-test market applications for blood. And that's where we see the OEM business opportunity growing over the coming years.

So that concludes the presentation. [Operator Instructions] We haven't had any questions coming in advance of today's presentation. So we'll just wait a second or 2 to see if any come into the Q&A box.

Yes. Just while we're waiting for those questions, I think just at a sort of strategic level, I think, obviously, a lot of diagnostics companies have gone through pain in the last 18 months as the demand for COVID tests have disappeared quite rapidly. And Atomo was not the only diagnostic company that's shown a significant drop in revenues. I think the problem for a lot of the diagnostics companies has been what comes after COVID. And I think the difference between some of those companies and Atomo is that Atomo has been well positioned even before the pandemic for consumer health market growth. And that was a market that was constrained by customer awareness of the ability to test at home, clinical and regulatory barriers to testing at home and an expectation that testing was a medical/clinical event and not a consumer-initiated activity. And I think the real opportunity for us post COVID is that that's now changed, and everybody has done a self-test at home. Regulators are comfortable with it. Governments are starting to realize it's a much more cost-effective way to test and consumers are increasingly asking for other solutions in those channels. And we've got a ready-made platform that's ideally there to support that opportunity. So we're starting to see the types of interest and deals with companies like Newfoundland that just didn't exist before the pandemic. So that's allowed us to reestablish Atomo as a leader. There's been a time lag to getting that turned into revenue post pandemic, but we're now starting to see the start of that growth and the start of that opportunity as we roll into supermarket shelves across the developed world, and I think that's a very exciting position for us to be in.

We've had a question about cash and -- can our cash burn. Obviously, we're not going to give forecast for FY '24. But what I would say is, to reiterate the point that we've taken around $1.5 million out of the OpEx over the course of '23 and continue to focus on that whilst making sure we're investing in the areas that lead to revenue and revenue growth. And so the two key swing factors there, and we're focusing on achieving higher revenues in '24 with a lower overall cost base. And so that should see cash burn improve over the course of the year. But what I can say is we've got runway through into '25.

Yes. And the next question is TGA approval is how quickly can you generate sales after approval? And what's the risk of getting approval? The TGA have been on a bit of a backlog post the bolus of applications and work they needed to get through for COVID. We've submitted in early April. We were in a queue [ leading ] to get an assessor assigned. That happened quite recently. Our dossier, we think, is robust as it's based on an approved product in Europe. So we think the dossier is good. How long it takes for that approval to come through and where the approval finally comes? We don't know, but we are hoping it's in a couple of months, not longer than that. We do have a partner lined up to go to market through pharmacy channels almost immediately. So we are hopeful of getting approval, and we'll be getting into pharmacy channels pre-Christmas, if not then we expect it to be very shortly after the start of the new year. So we do expect to see pregnancy revenue impacting the second half of FY '24 and growing significantly into '25.

And we've had another question about the outlook for revenue and cash, which, again, I can't be specific about. But what I can say is that we do have these orders in the pipeline that were disclosed already because of timing and getting regulatory clearances and so on. We haven't been able to deliver those at the tail end of the financial year. So they're all now in Q1 for '24. So from that, you can figure out that compared to FY '23's total year revenue, we should be well ahead of that sort of run rate as we move into the end of Q1 and into Q2. So we're encouraged by that and the contractual arrangements we've got in place with some of these players will show revenue growth.

I was just going to say I think beyond that then, in the second half of the FY, we expect to see on top of that HIV growth, the initial revenues coming out of the pregnancy test. And then as we move into '25, that pregnancy revenue growing and then ferritin coming in behind that through the FY '25 period. So I think in terms of revenue from iron deficiency, we're looking to submit at the end of the year to the regulators. We don't know what the approval time is for IVDR in Europe. We think it's probably about 9 months. We're hoping that TGA is a bit shorter than that. So [ working on that ] we think, registration and launch for that product in the first half of the FY '25 period.

I guess just to add to that and remind people the plan, the iron deficiency test. So we have our facility in South Africa that [indiscernible] to produce the lowest possible cost, HIV -- the best quality HIV test out of that facility. We're going to use that same facility to do exactly the same thing but put an iron deficiency, a ferritin test strip in the device instead of an HIV test. So we've already got that production facility there. It should enable us to produce something out of that facility at very low cost and also increase our utilization of that facility. And that's a really great place to be where we can control that whole supply chain.

Yes. There's a question in on our OEM contracts and will these consume cash? Or do OEMs pay for development? There's not a lot of cost involved to bring new customers onto the platform. We've done it 5 or 6x now with different customers and applications. So that's quite [indiscernible] defined as a process. It takes a couple of months. It's less than $50,000 to do that work. We typically do a bit of that work to get customers on board. It's always going to be able to show their working samples of their test on our device to get them interested. Beyond that, in terms of regulatory and clinical revalidation, the OEM partners normally pay. But one of the things we're trying to do, as I mentioned, is get in at the ground floor so that they can do the development work on our platform from the start. So there's no revalidation cost. They just essentially do their development work as normal, but they do it on our device from the start, and I think that makes it a much more cost effective pathway for them to get to market. There's no real additional cost for them.

I think the other thing to add to that is where customers might want something more bespoke then it becomes a service contract to support that development that they'll pay for. And then we can go from there. The idea is to go from there into being a supplier. So there's been a renewed interest in that. As recently as this week, there's been some discussions in one of the bigger players about a bespoke cassette design using some of our IP and technology. So in those circumstances, we would charge the customer for that development work with a view to then becoming the critical supplier of something that's tailored for them using our IP and our patents.

Yes. And that's an interesting opportunity, I think, for us because we've sort of specialized in stand-alone devices that allow people to test themselves at home. But most of the bigger companies have over the past 10 years, really invested in doctor office point-of-care reader type markets because that's where the regulators were more comfortable. But those devices that they use don't deliver the usability on the front end that our device does. So now the opportunity for us, and I think some of the bigger guys are starting to recognize that is to deliver that level of front-end usability on a cassette format that's compatible with their validated installed readers because they've got tens of thousands of these readers in the U.S. health care system. If we can deliver a device that takes their solution from a 510(k) point-of-care approval to a clear waiver approval then they can expand the addressable market for those readers by a magnitude of 4% to 5%, and I think there's a lot of interest in that. So what we think that looks like is us delivering a custom cassette that is the front end of a Pascal with a back end of standard cassette that clips into a reader that's preinstalled in a clinic. And I think some of the big guys are starting to see that the consumer health usability we have can be essentially grafted on to a point-of-care reader system that sits in a doctor's office and allows them to expand their usability without having to redeploy their readers. So I think that's an exciting opportunity, albeit one that will take a couple of years to come to market in terms of sizable revenue.

Look, I think we're out of time. It's a busy time with the reporting season. So I appreciate a large number of people joining the call today, and we appreciate the ongoing support of all of our shareholders and people interested in the company. So thank you very much for your time.

Thank you.