LBT INNOVATIONS LIMI

LBT
Verzögert Australian Stock Exchange - 01:17:11 27.01.2023
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Transcript : LBT Innovations Limited, Q2 2023 Earnings Call, Jan 25, 2023

24.01.2023 | 23:00

Presenter Speech
Jack Brown (Executives)

Thank you for standing by, and welcome to the LBT Innovations quarterly investor call. [Operator Instructions] An audio recording of this call will be made available on the company's website later today.

I would now like to hand the conference over to Mr. Brent Barnes, CEO and Managing Director.

Presenter Speech
Brenton Barnes (Executives)

Thank you, Jack. Happy New Year, everyone. Thanks for joining today's quarterly investor call. The company delivered a number of really important commercial milestones over the recent holiday break that set the foundations to achieve our mission of transforming the way microbiology practices are conducted. These have been a long time in the making, so we're thrilled to sign the recent agreements and be able to communicate with these to you today.

As usual, I'll provide an update on the activities of the last quarter. Ray, our CFO, will then summarize our quarterly cash flows and financial position before I provide an overview of our future outlook and upcoming milestones. I'll also spend some time focusing on our new APAS Pharma initiative and what it means for the company. There will be an opportunity at the end for question and answers.

I'd now like to introduce our Chief Financial Officer, Ray Ridge, who is with me on today's call.

Presenter Speech
Raymond Ridge (Executives)

Thanks, Brent. The usual 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 lodgements, 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, of course, differ materially from those forward-looking statements.

We're now ready to go back to you, Brent.

Presenter Speech
Brenton Barnes (Executives)

Great. Thanks, Ray. Look, I opened today's call by talking about our mission. And I want to start there. Our purpose is to transform microbiology practices specifically the way culture plates are managed in microbiology laboratories globally. We do it by disrupting what's a 130-year discipline, and we do that with our machine vision APAS platform technology. Today, culture plates are manually read by microbiologists all over the world. To date, our focus has been on microbiology in the clinical setting, so looking at infectious diseases. The same manual microbiology practices exist in other settings such as environmental, food, industrial monitoring, just to kind of mention a few there.

I think it's important to give this context because in the last quarter, the company established new commercial partnerships that support our mission as we advance our APAS platform into the pharma microbial quality control monitoring application or that new vertical. These new partnerships include funding, and have only been possible due to the success we've had in developing APAS and gaining traction in the clinical market with the technology. I'll talk later about how these achievements expand our addressable market for APAS in really a meaningful way. Regarding our commercialization plans, in December last year, we signed a full distribution agreement with Thermo Fisher for Europe. The agreement adds a further 30-plus or 30-odd countries where the APAS Independence will be actively marketed and sold. We estimate this increases our current addressable market to over 2,500 labs globally. So it adds around 500 potential customers to the addressable global market.

The important message here is that we now have the right structure of agreement in place, that being a full distribution model, in addition to expanding beyond just the U.K., Germany and France, which, as you know, has been our focus over the last few years. As a result of signing the distribution agreement with Thermo Fisher, we've terminated our existing agreements with Beckman Coulter and oneservice for marketing and support services, respectively. We will now work through a transition plan to transfer existing sales opportunities and support services to Thermo Fisher. In the United States, senior management, myself included, completed a number of trips to meet with Thermo Fisher for strategic sales planning to establish sales and marketing goals for the 2023 calendar year.

Our first year with Thermo Fisher has been successful in building that pipeline of qualified leads, and that's resulted in a purchase order from Thermo of 5 instruments. As we move into 2023, the current calendar year, we're looking to pivot and shift our focus to deliver on sales conversion of that already established pipeline, that sales funnel. From a product pipeline perspective, we secured over $3 million in funding for new development projects, that once completed will enable us to deliver automated plate reading to many, many more customers globally. We finalized development agreements with AstraZeneca and Thermo Fisher to develop new APAS analysis modules for microbial quality control applications.

The agreements bring over $1.5 million in funding that will enable the company to progress through the formal development and validation processes for the technology. This opportunity was enabled by the successful proof of concept that we completed last year, which demonstrated the suitability of the technology for this new application. Importantly, LBT will maintain all IP to the development and the commercialization rights for the technology and, therefore, opens up an exciting new market opportunity for the company, which I'll talk following Ray -- which I'll talk more about following Ray's update on the financials.

The company was also successful in securing $1.5 million in grant funding through MTPConnect's clinical translation and commercialization med tech program. The funding will go towards the development of a new smaller APAS system. We call it the APAS Compact. This system will reuse the core imaging that exists in the APAS Independence, but with a smaller capacity, enabling the system to be delivered at low cost and suitable for deployment as a benchtop instrument. By reusing the imaging system from APAS Independence, we're able to ensure that all of the analysis modules that we've developed will immediately be compatible with the newly developed system. So dual compatibility across both instrumentation.

This project is important as we know not all laboratories have the throughput and the testing volumes required to justify the higher-volume APAS Independence system. So bringing a smaller, lower-cost unit will, therefore, enable us to have plate-reading solutions that meet the needs for all laboratories regardless of their size. As a result, we see this as an important product that enables us to meet our goal of bringing digital microbiology to all laboratories, both in the clinical and now in the nonclinical applications.

Finally, before I hand over to Ray, I would like to thank all shareholders who participated in the company's recent entitlement offer. Through the offer, we'll be able to raise -- we were able to raise a further $0.5 million, which will be important as we progress through the next 12 months.

I'll now hand it over to Ray to talk through the financial results for the quarter.

Presenter Speech
Raymond Ridge (Executives)

Thanks, Brent. Hello, all. I will now provide 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. For the quarter ended 31st of December 2022, LBT reported net cash outflows of $0.3 million. This comprised net cash outflows from operating and investing activities of $0.5 million, including receipts of $0.4 million from customers and $1.2 million for the R&D tax incentive.

And then we had inflows from financing activities of $0.2 million, reflecting the $0.5 million proceeds received from the entitlement offer that Brent just referred to, less the $0.3 million in outflows, including the quarterly loan repayments for the South Australian government. Underlying cash outflows for the quarter, so that is before any inflows, were approximately $0.5 million higher than normal due to restructuring costs associated with recent cost reduction measures and due to the timing of payments and higher administration costs associated with that time of year and including the rights issue. The cost reductions have been an important part of the company's capital management since LBT first acquired 100% of the CCS business in December 2021. At that time, the combined business had an underlying quarterly cash outflow of $2 million to $2.1 million.

Following the most recent cost reduction measures, this is now expected to average under $1.8 million per quarter or so before inflows. So at the 31st December 2022, the business is funded by a cash balance of $2.5 million and receivables of just over $1 million. And as such, the company has sufficient funding for the next 3 quarters under normal operating conditions. With this extended, of course, by any additional sales and the commencement of receipts from AstraZeneca under the $1 million pharma analysis module development projects. The company's first option for raising additional capital was a pro rata entitlement offer to existing shareholders, which we worked to raise up to $3.5 million. The entitlement offer closed in November 2022, raising $0.5 million. And as Brent mentioned, even this $0.5 million is very important in our capital management plans going forward. But of course, the company is now progressing a number of funding alternatives to bridge the gap, including the placement of the entitlement offer shortfall, which we are allowed to do under the ASX Listing Rules. Back to you, Brent.

Presenter Speech
Brenton Barnes (Executives)

Thanks, Ray. Look, really pleased on the financial kind of management in the last half. And we actually had in the first quarter of the financial year, our first kind of breakeven quarter, so -- and you'll see that in the overall cash outflows being pretty close to that for the half as well. So some changes we've made over the last 12 months to really closely monitor our cash and pleasingly have some of the inflows from some sales activities.

Look, before I move into the business outlook, I'm just going to share a slide here to try to articulate a little bit more this APAS Pharma opportunity and what this means for the company. Pharmaceutical microbial quality control is a critical control process used during aseptic drug manufacturer to monitor the sterility of the environment. Settle plates are used as part of this process to monitor continuously for the presence of microbial contamination in the air. As you would expect, pharma companies are very good at keeping manufacturing environments clean. Meaning, we estimate over 90% of the settle plates are negative, showing no microbial growth.

For pharma laboratories, this process is largely inefficient. They have 2 technicians or microbiologists that are required to read and record those results for each of those plates with no long-term record of the plate itself, and this creates potential data integrity issues longer term. Our APAS technology is ideally suited. It's perfect for this application. We have demonstrated over numerous clinical applications that we can achieve exceptional performance for microbial growth detection on a variety of culture media. And through our APAS technology, we're able to automatically generate an image of the plate at the time of reading that can later be referenced or checked. It's for these reasons and others that both AstraZeneca and Thermo Fisher have decided to invest in the technology for this new application.

And we estimate the market opportunity for APAS Pharma to be in the region of $8 billion. The market is also attractive as by targeting large pharma companies, we have the potential to achieve multiple product sales through individual customers as they seek to standardize their processes across their manufacturing sites. For example, the top 20 big pharma companies represent over 200 manufacturing sites. From a competitive perspective, we offer an attractive, scalable solution that can be deployed to any size lab without the need for significant investment.

Industry is looking at new and improved ways of automating manual processes for microbial quality control testing, and the current solutions are simply just not addressing their needs. Our ability to integrate with existing laboratory practices from an incubation and culture media perspective, also reduced the potential barriers to entry from a process validation and an adoption perspective. We expect to have an APAS Pharma product for customer evaluations ready in the second half of this calendar year. We're able to do this because we're building on what we already have. And from a sales perspective, we see the potential for a quicker uptake due to the homogeneous customer workflows and increasing requirements to improve traceability of results for this particular application. So look, I hope that sets a bit of the context that it was a bit of a deep dive for the new application, but I think it's really important to recognize this new market opportunity and the potential.

Moving to the business outlook. There's going to be a particular focus in Europe where we're going to support Thermo Fisher launch the APAS Independence with their sales teams. This is going to include a number of training and marketing initiatives that will establish the APAS Independence under their banner throughout Europe. We have a number of trips planned during the quarter and have our European base sales executive on the ground providing frequent support and on the ground support. There are a number of nearer-term sales opportunities that we're going to look to work directly with some customers. However, our clear focus is to scale our sales reach, and this is best done by supporting Thermo as our exclusive channel partner within the region.

Overall, we expect the progress in Europe to follow a similar pattern in the U.S., where initial activities are going to be targeted towards building that sales funnel, that pipeline of customers. And obviously, we're going to transition the active opportunities that we have and hand them over to the Thermo sales teams.

In April, we're going to be attending the European Congress of Clinical Microbiology and Infectious Diseases, or ECCMID, in Copenhagen is the location this year. It's always the largest global conference for us, and it's going to be really exciting to see the APAS Independence promoted under the Thermo Fisher banner at the conference. We also expect to present new clinical data featuring the APAS-AMR analysis module for antimicrobial susceptibility testing. From a product side, we'll be commencing the development projects on both the APAS Pharma and APAS Compact products. A key part to this is conducting further voice of customer market research, which is an important part of informing what the technology requirements are and building those into our development plan.

Look, I just wanted to kind of -- as we -- and talk again about this addressable market. And sharing this slide here, it's a new slide that we lodged with the market last week. But it aims to really try to articulate where the segmentation or where that growth in the market opportunity comes because it's big. We estimate the total addressable market for the APAS products, so the new products, you can see over time here will increase from around $6.5 billion to $20 billion over future years as we continue to deliver on our mission and transform microbiology practices through our APAS technology. The clinical market for APAS Independence we've said for some time is approximately 13,000 labs globally. So that's the $6.5 billion opportunity. It remains a large opportunity in its own right.

The additional pharma microbial quality control market segment, in addition to the APAS Compact products, deliver significant opportunity and upside in our total addressable market. The future opportunity has grown significantly for our company. We have a product in the market today, we have partnerships that are established and are in place, and we have the potential to grow and to grow quickly through these relationships and through these products in future years.

So look, in closing, it's been really a tremendous end to calendar year '22 and a positive start to calendar year 2023. And I'm going to stop there and hand it back to Jack to manage Q&A.

Answer
Jack Brown (Executives)

Thank you, Brent. [Operator Instructions] Our first question comes via the Q&A box. And it is, is the shortfall entitlement offer still open? If so, when does this end?

Answer
Brenton Barnes (Executives)

Ray, do you want to take that or you want to me take it?

Answer
Raymond Ridge (Executives)

Yes, I can take that. So thank you for the question. We had, under the ASX listing rules, 3 months after the offer closed through existing shareholders to then place that shortfall elsewhere. So the shortfall was $3 million. The offer closed 22nd of November. So we had until the 22nd of February to place that with other external shareholders or external parties to come in as new shareholders or existing shareholders by that time. Sorry, hopefully that answers the question.

Answer
Jack Brown (Executives)

Thank you, Ray. Another question from [ Mark Paez ]. Will Thermo Fisher be selling into the pharma industry?

Answer
Brenton Barnes (Executives)

Yes. Look, great question. And certainly, Thermo are in that space, right? But there are others that are in that space as well. I mentioned that the IP and the commercialization flexibility or the rights, if you like, is still held by the company. And so what it means is that we have flexibility to put our best foot forward as we develop the product and get early market feedback. I think clearly, given Thermo's investment, nearly AUD 600,000 into supporting their media for this new application, they certainly have a vested interest. And so in summary, the company has options, and I think it's reasonable to assume that Thermo would be one of those interested parties if I can give some directional kind of outlook.

Answer
Jack Brown (Executives)

Thank you, Brent. Another question from [ Paul Jens ]. Please estimate the APAS unit sales for the next few years and when the first sale may be made to a pharma client.

Answer
Brenton Barnes (Executives)

Look, we haven't put out a forecast for what the unit sales are going to be in future years. I think what I've said fairly consistently around our sales is that we saw a step-up change in our sales last year in the calendar year. We sold 7 instruments last year, and we'd expect another step-up change as we kind of progress through 2023 calendar year. I would say in terms of the pharma opportunity, I highlighted that we do expect a quicker development time, and we obviously already have partners in place that are helping us with that from a funding, but also from a customer perspective. And so we would expect sales to occur for that new application in the 2023 calendar year.

Answer
Jack Brown (Executives)

A question from [ Peter Linus ]. Where do you manufacture? And can you scale rapidly?

Answer
Brenton Barnes (Executives)

We manufacture the instruments with a company called Planet Innovations who are headquartered in Melbourne. And look, they're very well regarded and quite well known within the industry for instrumentation, and we work really closely with them on supply chain and scaling their manufacturing processes. So look, the short answer is yes, we go through a sales and operation planning process where we're looking at where our pipeline is and our sales are estimated. We've put an order in to kind of have more of a routine cadence of manufacturing these instruments as we kind of look at the 2023 calendar year and what our demands are going to be. So look, we're working really closely with our manufacturer Planet Innovations and managing it in a way that we don't believe we will have supply chain issues.

Answer
Jack Brown (Executives)

The next question comes from [ Peter Gregory ]. Are we seeing consolidated financials with CCS included?

Answer
Raymond Ridge (Executives)

Yes, [ Peter ], it includes 100% of LBT and 100% of CCS consolidated. And I'm sorry, that has been the case since 100% of CCS was acquired on 31st December 2021.

Answer
Jack Brown (Executives)

And a further question from [ Peter Gregory ]. How confident are you in R&D tax incentive funds? And do you have advanced findings? Have you had an industry audit?

Answer
Raymond Ridge (Executives)

Thanks, [ Peter ]. The -- I'll start the other way around. We have had a finding originally back when we did file clinical trial in the U.S. I remember we had to do that to satisfy the audit requirements, and that was favorable. We also did have an audit around that, and that was approximately 3 to 4 years ago.

And in terms of R&D receipts, yes, we are confident with these. We use one of the Big 4 accounting firms to advise us and help prepare the submissions for that. And we received $1.2 million for the F '22 year. Yes, '23 will not be as high as that, but yes, we maintain confidence in that going forward.

Answer
Jack Brown (Executives)

Another question from [ Mark ]. When will the APAS Compact be ready for the market?

Answer
Brenton Barnes (Executives)

Look, we expect sometime in 2024 calendar year. So we've kicked off already actually the market research I'd referenced and that will better inform us the kind of specifics around what that product needs to look like, and that would then lead into a product development. So we would expect sometime in 2024 calendar year.

Answer
Jack Brown (Executives)

And a question from an anonymous attendee. Approximately how many units' worth of complete sets of parts do you have on hand by Planet Innovations?

Answer
Brenton Barnes (Executives)

Yes, good question. I probably can't give a very specific answer. But the way I'll kind of answer that is the way that we manage the supply chain. So there are certain long lead time items that exist for our product that we have procured. And obviously, there's always a balance. We don't want to be sitting on a huge amount of inventory. We want to make sure we're kind of managing the supply chain so we're not holding up our capital resources. But for those long lead time items, it's upwards of 20-plus individual components that we've got for some of those specific components to shore up our supply chain. And so we've got, I guess, a hit list or a targeted list of some of those key long lead time items that we've procured in advance, like I said, in the order of 20-plus volumes to manage the supply chain risk.

Answer
Jack Brown (Executives)

Thank you, Brent. There are no further questions at this time. Therefore, I will close the conference. Thank you to everyone for attending.

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