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

Thank you for standing by, and welcome to the LBT Innovations Quarterly Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brent Barnes, CEO and Managing Director.

Thank you, Jack, and welcome, everyone. Thanks for joining today's quarterly investor call. I'm really pleased to join you today after what has been an exciting couple of months for the company. Firstly, the appointment of Thermo Fisher as our distributor for the U.S., which will transform our sales reach in the region; and secondly, last week, receiving clearance from the U.S. Food and Drug Administration, the FDA, for our MRSA analysis module. It really shows that our technology continues to lead the way with respect to digital microbiology. As usual, I'll provide a company update on the activities of the past quarter. Ray, our CFO, will then summarize our quarterly cash flows before I'll wrap it up with a future outlook, and we'll start Q&A. An audio recording of this call will be made available on our website later today. I'd now like to introduce Ray Ridge, our Chief Financial Officer.

Thanks, Brent. 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 do involve inherent risks and uncertainties. Those risks and uncertainties include those disclosed in our ASX lodgments, which we do 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 of course, actual results may differ materially from those forward-looking statements. We're now ready to go back to you, Brent.

Great. Thanks, Ray. Look, as I said at the start of the call, the last 4 months we've delivered on a number of important milestones for the company that represent a big step forward in our commercialization plans for the APAS Independence, particularly in the United States, which is our single largest market globally. In September, we finalized the agreement with Thermo Fisher as exclusive distributor for the APAS Independence in the United States. Thermo Fisher are leaders in culture plate media with sales of over USD 20 billion in North America alone. They are a household name for every one of our customers in the U.S. and for most labs around the world. Importantly, they manufacture the culture plate media, which our APAS technology reads, creating inherent alignment between our 2 technologies. In addition, it opens up the potential for bundling their media without instrument. This creates stickiness from a customer perspective and overall creates an improved value proposition for our customers. Since we announced the distribution deal with Thermo Fisher, our teams have kickstarted our new relationship with immediate enthusiasm and energy. For example, the day after the contract was signed, the APAS Independence was presented at the Thermo Fisher booth at the American Association of Clinical Chemistry Annual Conference in Atlanta. And obviously, it's a face-to-face meeting this year, which was fantastic. Our U.S. sales executive, Chris, I'll refer to him a number of times, will join the Thermo team on their booth and provide an opportunity to talk to them about APAS with both the Thermo teams as well as customers over a number of days. It was also really great and a positive start that we're able to identify some leads that came out of people attending that conference. This started what has been an extremely busy month, working closely with Thermo Fisher to begin the process of establishing the APAS Independence within their sales and marketing teams. In October, Chris completed the first training call with the Thermo Fisher sales teams. To give you some idea of the scale of the Thermo reach, we had over 50 people attending that webinar from all over the United States. It was a real call to action for each representative as they were challenged to identify early sales opportunities. We have also completed some joint sales calls, where Chris and the Thermo teams visited customers in person together talking about APAS Independence and the technology. It's another example of the immediate action being taken to start bringing teams up to speed about APAS and reinforces the benefits of our strategy to have a local U.S. representative on the ground. Chris is doing an awesome job, and he is thrilled to be working with the Thermo teams. And of course, he's supported very well from our teams headquartered here in Australia. Shifting gears and talking about Europe. We have begun to see the benefits of the Beckman Coulter partnership that we knew were possible, particularly now that the COVID situation in Europe is improving. With customer access getting better, the Beckman sales teams have been targeting new potential lab opportunities and establishing a solid pipeline of customer evaluations. In the U.K., an evaluation was completed at a Beckman Coulter Center of Excellence Laboratory. This was immediately followed by our first installation at a lab in France. Feedback from the clinical teams for both evaluations has been positive, and we are now working with the customer to progress the return on investment and procurement process. We're due to complete that evaluation in France next week actually, and pleased that we've scheduled another evaluation at a German lab to immediately follow. What is extremely promising here is that the cadence of these evaluations has been a duration of 5 weeks, where we've now completed 2 customer evaluations within this time frame and are scheduling our third in Germany to follow using that kind of same protocol. This increased velocity in our sales process is a result of the Beckman Coulter relationship, and it's pleasing to see the hard work paying off across customers now that these COVID restrictions are being eased. Having both Thermo Fisher and Beckman Coulter selling the APAS Independence in the U.S. and Europe means that we now have 2 of the largest diagnostic companies in the world, supporting our technology. With their sales teams behind our product, we are now in a much stronger position to deliver the potential scale and reach into the global market for the APAS Independence for years to come. We announced last Friday, we received 510(k) clearance from the U.S. FDA for the APAS Independence with MRSA analysis module. MRSA is the identification of golden staph, and it's a routine test that's conducted in labs all around the world. For the United States, it means that we can now start marketing and selling this module to customers. It's worth reminding shareholders that we are still the only FDA-cleared plate-reading technology globally. We have 3 FDA clearances now. Recently, the FDA published a list of medical devices using AI that have been cleared, and we are one of only few companies with an AI image analysis device cleared by the FDA to make clinical decisions. We are truly leading the way with respect to AI in the discipline of microbiology. We now have regulatory cleared modules for the 2 largest specimen types processed by labs, accounting for 60% to 70% of typical lab culture plate volume. Ultimately, this provides a stronger value proposition for our customers by delivering them increased cost savings as they're able to put more tests through the APAS instrument. Also during the quarter, a number of important scientific peer-reviewed publications featured APAS Independence. At the European Congress of Clinical Microbiology, or ECCMID, we had 5 poster publications featuring our technology, which was the largest body of scientific evidence we have presented at a conference. More recently, the Journal of Clinical Microbiology published the Johns Hopkins evaluation of the APAS Independence with MRSA analysis modules that was completed last year. This study demonstrates the accuracy and efficiency of the APAS technology, successfully identifying all positive MRSA specimens, including identifying 5 positive samples previously missed by microbiologists. These high-impact publications are critical to raising awareness of the technology and providing important evidence to our customers when evaluating the technology. Finally, this quarter, we completed our Board renewal process to refresh the current Board and bring new skill sets to support commercialization activities. Joanne Moss joined us back in July, and after a handover period with Kate Costello, she has now assumed the role of Chair of the LBT Board. Joanne brings a wealth of experience in U.S. commercialization and medical technology through her involvement with Queensland-based diagnostic company, Ellume. We are also excited to welcome Brian O'Dwyer to the Board in October. Brian has over 20 years of leadership experience in health care and laboratory testing industries and is currently the CEO of Q2 Solutions in the U.S., a subsidiary of IQVIA, which is the world's largest clinical research organization. I'm really looking forward to working with Brian and Joanne and the rest of the Board as we enter the next phase of commercialization for our APAS technology. I'll now hand it over to Ray to talk through some of the financials.

Thanks, Brent. Good morning all. Before I get to the financials, I would just like to mention that during the quarter, we were delighted to execute an extension to our loan facility with the South Australian government, which has resulted in the deferral of $0.5 million of loan repayments over 6 months. This was provided by the government in recognition of the COVID-19 impact on global commercialization efforts for the APAS instrument and of course, in support of our ongoing development activities. I will now turn to an overview of the financial results as reported in the Appendix 4C lodged with the ASX. These numbers are all in Australian dollars and in accordance with ASX listing rules, they are not audited. So for the quarter ended 30 September 2021, LBT reported net cash outflows from operating and investing activities of $1.4 million and net cash outflows from financing activities of just $40,000, reflecting the deferral of the loan repayments. This resulted, of course, with net cash outflows for the quarter of $1.4 million and has resulted in a cash balance of $8.2 million at 30 September. Back to you, Brent.

Great. Thanks, Ray. I'm now going to turn to a look at the business outlook. Over the last couple of months, we've really begun to see a shift in customer access in both the U.S. and in Europe. We are now once again able to meet face-to-face with customers and advance the sales process forward through product evaluations. It was pleasing to see both New South Wales and South Australia begin to open their borders, which is another sign of the impact of COVID beginning to ease. I don't expect it to be smooth, but we are definitely heading in the right direction. Our #1 focus over the next few months will be executing sales training and building marketing collateral with Thermo Fisher in the United States. We have already seen how quickly they are moving to get in front of customers so that we're going to work with them to establish the APAS Independence within their sales process. In Europe, we're going to continue to support the new customer evaluations in that region, I mentioned those before, and progress these sales opportunities through that sales funnel. These opportunities will still take some time to close, but there's a real sense amongst the Beckman team and our European sales executive that the market is improving and momentum is building with customers. From a development perspective, we remain committed on progressing analysis module development with the team focused on the APAS-AMR module as well as extending the coverage of our urine analysis module to support additional media for Europe and the United States. Our AGM will be conducted later this month, which will be conducting virtually this year to avoid potential last-minute changes due to COVID restrictions. We're also going to look to organize an Investor Day at our new office in Adelaide, which we'll communicate in due course. In closing, it's really been a tremendous previous quarter, delivering a number of important critical milestones that aim to deliver long-term value for our shareholders. I'll end it there and hand it to Jack to facilitate any questions.

Thank you, Brent. We will now commence the question-and-answer session. [Operator Instructions] So our first question comes from Liam Mahoney.

Yes. Can you hear me?

Yes. I can hear you now.

Yes. Just I suppose my question is just following up on the distribution agreement, which was announced with Thermo Fisher. The announcement stated that sort of in due course you'll be able to expand upon, I suppose the nature of the agreement. I just sort of wanted to know when can shareholders expect more detailed information of the distribution agreement. And of course, specifically, potential sales targets or sort of strategy on how they can shorten the sales process?

Yes. So I think I'll start on the shorter sales process. So I think one of the things we have kind of alluded to as part of that agreement is that bundling of their media with the instrument. And that's certainly a strategy that we've spoken with Thermo about and moving forward. So what that effectively means is that perhaps there's an ability to slightly increase the media cost for -- in combination with placing the instrument. And so we expect that to certainly provide an opportunity to shorten the sales time. Now in terms of -- I guess you're talking about sales targets and the like. Look, Thermo ideally are not really interested in putting that out to the market for competitive reasons, primarily. I understand from shareholders the reason why that makes sense. And look, I think from a company perspective, what we will be looking to do is engage with Thermo, express some of the feedback that we are having from our shareholders and look to be able to potentially work towards providing a bit more color of what that means. But we've got to be careful about that. Like I said, mainly from a competitive standpoint that we have, I guess, kind of mutual concerns around that.

Yes. I've got just another second quick question, more following on ECCMID. But has there been sort of any feedback from other labs or Beckman Coulter from performance that LBT had with ECCMID? Because we're supposed to see those 5 posters. I'm just wanting to know if sort of there's anyone else that came up after the presentation and just sort of touched on those posters? And yes, sort of all that sort of stuff.

Yes. So I guess in another words, you kind of want even know what was the result of ECCMID. Look, yes, ECCMID was a virtual event. So it's always very challenging. We didn't get a huge number of leads come out of ECCMID as we would have done in other years. And I think that's just the nature of being a virtual conference versus a face-to-face conference. I think the important thing is about the public -- the posters that were available there, those 5 posters, is that they've been incorporated into our sales tools. And so while we didn't get the leads come through the conference, which we kind of expected anyway. It was important to have the posters made available and published on the ECCMID platform because that is certainly kind of getting out to those people who attended virtually. But I think the other thing is being able to incorporate those poster presentations into our sales tool kits. And that's really important from a reference standpoint when the sales teams are going out selling.

Next question comes from Graham Coleman.

It seems like you're on mute, still.

At the health and biotech [indiscernible], you touched on a product expansion in the end of your paper, new industry verticals created. Does that mean non-medical applications? And what are the products and who might distribute them?

Yes. So it was referring to nonclinical applications. So industrial applications, things like water, dairy, environmental type of monitoring. And so there's some work that we're doing from an R&D perspective around extending that capability into these other industry verticals, if you like, because it's the same thing. It's a culture plate that is used to identify other things in a nonclinical application. And of course, we have an ability to automate the reading of that. So that's some R&D work that we've been working on, which has actually opened some doors with some partnerships. So can't go into detail yet. It's a bit too early, but it is looking promising.

And with the -- obviously, there's still regulations in those -- some markets. What I imagine the approvals process is somewhat less than the FDA to our process?

Yes, definitely true. So the -- I guess, the clinical study component that we need to go through in the clinical spend effectively doesn't occur. Now we still have to make sure that technology work. So there's some work we needed to validate that as an internal process. But you're right, I think the key difference is that there is no requirement to undertake the clinical trials, and that body of evidence and body work is something that we need to do in order to get it through in the clinical applications. So that goes away when we're looking at other applications, which I guess translates to an expected faster delivery of these analysis modules by comparison.

And next question comes from James Tracy.

So you made a comment earlier that you're one of a few FDA-approved AI devices out there. Can you just outline your point of difference versus the other devices that are using AI? And then clearly, you've got this MRSA application approved. What other sort of applications are you working on that we might see in the future?

Yes, sure. So I think there are kind of sort of 2 questions there. So the first is that there is a, and maybe we looked up for this on the website but because it's publicly available, but the FDA released a list of AI applications generally in kind of image analysis, clinical kind of setting. So we're obviously the only AI application within clinical microbiology that has FDA clearance. But there are other applications in radiology and these other things. I think the point of mentioning that is that we're one of only very few companies who have been able to go through the FDA process to have an FDA-cleared indication to market and sell a product, generally. So kind of broadly speaking, across all clinical disciplines. But specifically for microbiology, we are the only one. So that's kind of what we meant there as a reference point. In terms of the other modules that we're working on, so MRSA is golden staph that I mentioned. So that's kind of FDA-cleared. I think the most exciting next module that we're working on is the antimicrobial-resistant analysis module. And antimicrobial resistance is a big health issue at the moment globally, and there's a particular method called a disc diffusion method, which looks to measure the zones of resistance, if you like, to the antibiotics based on the bacteria. And it's the zone measurements and these zone analysis that we're training our algorithm for, and it's quite a manual process at the moment. And this goes beyond just plate reading. So you kind of think APAS screens out of the positives automatically. Well, those plates that have significant growth go through this diffusion methodology, and that's also very, very manual. So this is something that we're working on that we're super excited about. We expect to have kind of at the end of this year and early version on our key opinion leader in Germany and over the next kind of 12 months look to expand that out more broadly. But this is a significant kind of step forward in addition to just kind of culture plate reading.

Okay. That's great. And just another question on Thermo Fisher. So since September, when you signed that agreement with them, can you give us a bit more color on how your sales pipeline has changed?

Yes. So I guess we've -- it's been almost 5 weeks since we've kind of signed. So I kind of mentioned some of the activities that we've done to date, and Chris has been super busy, gone in with Thermo teams. What we have done is that we've handed over out. I mean, Chris has been on the ground now for about 15, 18 months. And so we've handed over those leads to Thermo, and they're going through their own segmentation. Clearly, they sell -- they're one of the leaders in culture plate media sales in the United States. So they know the volumes media that they're selling. So MRSA, just taking that recent example. MRSA, they will be able to identify through their own sales reports, all of the customers that they've shipped MRSA media to. And so it's a way that they're able to segment very quickly to identify those high-volume like throughput customers to target initially. And so I think that's probably the key thing around how they're able to expand our opportunities in a fairly fast fashion.

[Operator Instructions] We have another question from Liam Mahoney.

Can you hear me?

Yes. I can hear you, yes.

Yes, just first one, my last question for focusing on the board as opposed to the company. But I'm just sort of wanting to know quickly if in sort of the sense of the Board as well is that they've satisfied with their performance over the past year, will be able to comfortably avoid the second strike? Because I know that the new rational report was issued at a price of about $0.073. And we seem to be hovering around that 10 to 7, 11 -- sorry, $0.10 to $0.11 mark for a little bit, even though we've had a couple of big announcements. I'm just sort of wanting to know if the Board is satisfied with that sort of share price performance. And they do feel like they can have wanted the second strike from shareholders, if there potentially is one.

Yes. Reasonable question. I think, look, on the share price side, it's what the Board and management are focused on is delivering the milestones that we set out. So we say we're going to deliver these things at appropriate times. And we put all of our efforts into making sure that we deliver against the milestones that we've achieved. So I think we've been seeing some pretty important milestones over the last kind of 4 months like what we've said. And those things don't happen overnight. They've been in the pipeline for over a year. So I think that's where our efforts from a Board an management are really focused. And the share price is in the public market, it's traded on an open market. What we have done, I guess, from our last AGM recognizing the first strike is that, we have engaged with the shareholders, we've been quite proactive in the notice of meeting that went out were quite deliberately articulate with Joanne's letter as the incoming chair to explain some of the things that the Board have done to try to address some of the shareholder sentiment following the last AGMs. And so I think we've kind of worked to -- or we've certainly taken a proactive stance in trying to engage, understand the feedback and take action over the last 12 months. How shareholders will vote will be ultimately determined by shareholders. And so I can't predict that. But I can tell you that the engagement has certainly increased, and the feedback has been received with actions being taken. I think we're meeting later today as well, Liam. So we can talk more that with Joanne.

Yes. should be good.

And one final question from Joel Floyd.

Question is just around the cash flow. So obviously, cash is around $8 million at the moment. Current quarter burn was about $1.4 million. Do you expect a need for a capital raise based on current sales activities in the next, say, next 12 to 18 months?

Yes. Ray, that's kind of financial one. Why don't I going to hand that one to you?

Thanks, Brent. So Yes, Joel, you're right, we have $8.2 million. We also have the R&D tax incentive, which we expect to be around $800,000 and again, next year for that as well. So putting our cash balance at about $9 million with that run rate of around $1.5 million would obviously see us into 2023 based on that current cash burn. In terms of raising capital, look, the Board are always trying to assess the needs and keeping an eye on that as commercialization efforts unfold, particularly with Thermo Fisher in the U.S. So I cannot give a definitive answer in terms of if or when we might raise capital, but just that the cash balance does see us into 2023.

There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.