Clever Culture Systems Limited (CC5) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the LBT Innovations Investor Update Call. [Operator Instructions] There will be a presentation from Mr. Brent Barnes, CEO and Managing Director, followed by a question-and-answer session that I will announce at the end of the presentation. [Operator Instructions] An audio recording of this call will be made available on our website later today. A brief formality before we commence. I would like to remind those on the call that today's update may contain forward-looking statements, which involve inherent risks and uncertainties. For those -- those risks and uncertainties include those disclosed in our ASX lodgments, which we recommend that you review. There are reasonable grounds for any forward-looking statements made today. However, due to their inherent uncertainties, we recommend that you do not place undue reliance on those statements, and actual results may differ materially from those forward-looking statements. I would now like to hand the conference over to Mr. Brent Barnes.

Thanks, Jack. And just a reminder, if you haven't done so, to just hit the record button, so we can make this available later and you probably already did it, but just came to mind. But look, thanks, everyone, for joining us all today.

This meeting is being recorded.

And it's really with great pleasure to be providing this update following the appointment of Thermo Fisher Scientific as our distribution partner in the United States. We obviously announced that yesterday. This is a major milestone for the company and 1 that we've been working towards for some time. Put simply, the appointment of Thermo Fisher will completely transform the scale of our sales activities in the United States, which is the single largest market globally for us. Thermo Fisher are one of the leading health care suppliers worldwide. They have a deep history and experience in microbiology and diagnostics. When it comes to our customers in the U.S., Thermo Fisher are a genuine household name. Through their Remel brand, they are one of the leading suppliers of culture plate media to microbiology labs across the United States as well as having a portfolio of diagnostics instrumentation that will now include APAS Independence. As a result, they have unrivaled customer reach within the United States with existing account relationships with basically every hospital within the country. It's this brand recognition, it's this reach that is just impossible for us to have been able to replicate ourselves. Under this 5-year agreement, Thermo Fisher will act as our exclusive distributor to the APAS Independence in the U.S. providing all sales, marketing activities, including the provision of installation, maintenance and support services. As a common -- as with all common distribution agreements, Thermo Fisher will receive a fixed distributor margin or a fixed transfer price for the instrument. So practically speaking, when a customer wishes to purchase an APAS Independence, Thermo Fisher will purchase the instrument from Clever Culture Systems at that fixed transfer price and sell it to the customer at a pricing structure that's agreed between Thermo Fisher and that customer directly. With respect to the annual software license for the analysis module, Clever Culture Systems will have an ongoing involvement with the customer, which we see as a really important part, both from a technology and an overall installed base sales perspective. A major part of Thermo Fisher's microbiology offering in the U.S. is their culture plate media. This is the media each APAS analysis module is trained on to read. There is a clear link between the culture plate media and our artificial intelligence. With each media, there is a separate analysis module that is to be developed to read. With our current portfolio of analysis modules, we already have modules in place to support Thermo Fisher media for urine as well as MRSA. This provides a unique opportunity and synergy for Thermo Fisher, whether that would be to leverage the APAS Independence to further support their culture media sales and vice versa. So for example, we are already able to review their existing media customers to segment and identify the higher volume accounts that present the most likely sales opportunities for our APAS instrument. Adding the APAS Independence to their customer value proposition also opens up new sales avenues. For example, through reagent rentals, which will avoid the long lead times associated with capital purchases and helps to lock in customers for years to come. Whilst these strategies haven't been proven in the market yet, it's really the beginning of an exciting partnership with Thermo Fisher and one that the teams have spent really the last 12 months working very, very hard behind the scenes. In terms of what's happening right now, well, today is the start of the American Academy of Clinical Chemistry (sic) [ American Association for Clinical Chemistry ] meeting or AACC. It's been conducted in person this year, which is awesome, and it's in Atlanta. We typically attend this meeting every year. We've never had a booth at this particular meeting because it's not really a specific microbiology conference. But that said, many of the lab directors, many of our customers attend this meeting and definitely from a technology and distribution perspective, all of the large companies attend. So it's a fantastic opportunity to network on a number of fronts. Over the last several weeks, we've really ramped up our marketing efforts with Thermo Fisher. And pleasingly, they will have an APAS Independence featured on their booth at AACC in what is effectively a soft launch in the U.S. Our U.S. Business Development Director, Dr. Chris Ramsey, is at AACC at the moment, and he'll be working alongside Thermo Fisher teams, both on their booth as well as doing some initial support training and having some meetings with some customers. So it's really a fantastic opportunity to showcase this new relationship and a trade show that often gets 15,000 to 20,000 people in attendance. As we look more broadly to the business outlook, with Thermo Fisher as distributor in the United States and Beckman Coulter as our marketing partner for Europe, we've established partnerships in the 2 largest markets for sale of our APAS technology. Having the backing of the 2 world -- of the world's 2 largest microbiology companies is a clear endorsement of the capability of the APAS Independence and the potential it has to change what laboratories expect from automation. We know no one else has been able to achieve what we've been able to achieve from a plate reading perspective. And it puts us in a fantastic position to execute on our sales strategy in these key markets over time. Our focus now is on working with these key partners to develop the sales pipeline for each region and identify near-term opportunities that ultimately create broader adoption to the APAS Independence. This has made more challenging with the case numbers of COVID-19 on the rise again, once again, diverting some of the laboratory attention away from routine lab testing, but it's with these partnerships in place that we're really best placed to overcome these challenges. The other important area we need to deliver on is increasing the availability of new analysis modules to support our sales efforts and developing further next clinical data that demonstrates the benefit of APAS Independence. We are making progress on both fronts with additional clinical studies underway that demonstrate the cost savings and broader hospital efficiencies gained through the adoption of APAS Independence. And our new antimicrobial resistant analysis module for automated disc diffusion should be available for prototype use at one of our key opinion leaders at the very end of this calendar year. With respect to our application to the U.S. FDA for the MRSA analysis module, I'd like to be really clear that we remain confident on a positive outcome, which we -- which is an FDA-cleared product. It's the outcome that is the most important thing, and it's the outcome that is largely in our control for the work we've already completed through our original submission. What we don't have control of is the prioritization of COVID-19 and how that's impacted the U.S. FDA. And we tried our best to really gain some guidance from the U.S. FDA and that's why we put some timing into the market where we gave shareholders an indication that we expected to have an outcome in Q3, which clearly is only a few days away. At this time, I think it's quite unlikely we'll have an outcome in the next few days, but what I can say is that we have been in contact with the FDA and believe they are close to providing what's called a final determination report, which, again, we believe to be a positive outcome. On this point, I really want to stress, this is not impacting our -- the ability for customers to evaluate APAS and the technology. It's not holding up sales. And clearly, it hasn't held up the appointment of a U.S. distribution partner. It's definitely an important milestone to achieve, and we hope it's not too long before we can announce again a positive outcome. Finally, we announced just moments before, just before this call and before the market opens, the appointment of Brian O'Dwyer as a nonexecutive Director who will join the LBT Board next week, the fourth of October. Brian is based in the U.S. So we now have 2 U.S.-based directors on our Board and is currently the CEO of a company called Q2 Solutions, which is in the business of clinical trial laboratory testing. And really, Brian brings over 20 years of experience within the laboratory testing business. Q2 Solutions, for those who haven't heard of them before, used to be a joint venture between Quest Diagnostics, who are a leading clinical laboratory group in the U.S. and IQVIA, which is a very large health care data science and clinical research organization. And Brian reported to that mixed Board. Earlier this year, IQVIA acquired 100% from Quest. And so now they're at 100% of Q2, but the 40% acquisition from Quest was reportedly worth around $760 million. So I just give that context to give some clarity on the size of business that Brian runs. And it's fantastic to have the breadth of his experience with a big company approach and his contacts within the industry over so many years joining our Board. So really exciting there. Finally, as I've said before, I do believe that we are at a really pivotal point for the company. Having both Thermo Fisher and Beckman Coulter on board as partners puts us in the best possible position to succeed in delivering on the commercial opportunity of the APAS Independence over years ahead. It's going to be a really exciting 12 months for the company. And I'd now like to hand it back over to Jack to facilitate questions and answers.

Thank you, Brent. [Operator Instructions] So our first question is from [ Craig Murphy ]. Over to you, Craig.

Well done on signing Thermo. I'm just curious, you haven't got any sales targets or anything like that. So what's going to make this deal different from the Beckman Coulter deal where it took 14 months to place an instrument?

Yes. So look, I think it's -- firstly, it's not uncommon for exclusive distribution agreements to have sales targets kind of baked in. I can't go into detail around that. But some of the key -- or the primary key difference between this agreement and the sales and marketing agreement with Beckman Coulter is Beckman Coulter are effectively a lead generation. So they're representing the marketing and the lead generation efforts for APAS Independence. But then it's handed over to our salesperson to finally conduct the end transaction with the customer. And when we make a sale under that arrangement, there's a fee that we would pay to Beckman Coulter. Under a distribution agreement, it's quite different, right? So they are handling all the sales, marketing, including the servicing. So really, they're being the custodian of the customer completely. And they would then purchase an instrument from Clever Culture Systems at that transfer price. So it's quite different in terms of the shape of that agreement. And I think the other difference there really, under a distribution agreement, sets the sales team up to be successful and the sales metrics can flow through the organization as you would typically expect. So we think the structure of the agreements are significantly different enough to get better traction than we would have expected under the Beckman Coulter arrangement.

Do you think the sales pipeline time line or how long it takes to sell one is going to be reduced with Thermo?

Yes, we hope so. I think that's a reasonable kind of consideration to have -- as I kind of mentioned in the call, something we've discussed is obviously potentially moving more into an OpEx style of approach bundling and perhaps with their media. So that's something that we've kind of looked at as an opportunity. But clearly, that would be a fantastic way to accelerate some of the adoption.

Thanks for your time. Hopefully, the share market reacts because yesterday was pretty disappointing. Signing Thermo, a multibillion dollar company and finished flat was pretty horrible to see. But...

Yes. Yes, the markets, agree.

Yes. Markets do funny things. But good luck in the next 4 weeks, and hopefully, the share price gets up before the voting slip comes out.

Thank you, Craig. [Operator Instructions]. So we have no further questions at this time. So that does conclude our conference for today. Thank you all for attending.

Thank you.