Ann: AT1 secures significant order for HIV self tests for LMIC, page-66

Interview with John Kelly from January 2024. Apologies or the length, but a good read:

John, we always start these interviews talking about cash and cash flow. What’s your cash burn rate at the moment?

Yeah, we closed the half-year, 31 December, with around $6.5m in cash on hand, no debt. We’ve managed to bring our opex down about 15 per cent over the last year to try and obviously conserve capital in a tight market. Our opex is sitting around about $600k a month for the total business. Obviously, we then have revenue and margin offset against that, so our burn rate’s been coming down and certainly, we have sufficient funds to run through all of ’24 and into ’25.

How much money do you have in the bank?

We had $6.5m at the start of the year, the start of January, so that’s our cash balance, yeah.

What’s your revenue, your cash receipts?

We had about just under $2 million for the half-year, we’re seeing significant growth in our HIV business both in Europe and Australia, so we do expect those revenues to be stronger in the second half of the year. We haven’t put out a forecast to market just given that some of the contracts are lumpy, particularly in global health, so it’s difficult for us to be precise, but certainly, we would be expecting the revenue to grow quarter on quarter and we’ve started to show the last couple of quarters, that happening post COVID.

Yeah, we’ll get onto the contracts and how the sales are working at the moment. Can we just go back in time a bit? You started the business in 2010, is that right?

Yes, that’s correct, that was when we sort of had the idea and started to look at various concepts that we could look to develop and commercialise.

And did you get the idea off Elizabeth Holmes and Theranos? Because I think she started her business before that in the mid 2000s, 2005 or something.

I certainly was aware of what she was doing and I was very impressed with he market cap that she was able to build in the business with a focus on consumer health, so that was certainly part of our thinking in terms of the size and the prize. I think where it differed, is she tried to push the boundaries of chemistry and physics and obviously was unable to do that. We, I think because we’re in Australia, didn’t have access to the kind of venture capital funds that she had, so we were a little bit more circumspect around how we’d go about consumerising diagnostics, so we decided to essentially take existing proven technology and not do too much research around that, but really look to deliver a much more consumer friendly version to market. So we had similar goals, but we chose a less risky pathway, I think, to try and deliver against.

Well, you’re not in jail and she is.

And I’m very grateful that we took the path that we took because I think, you know, pushing the boundaries of physics and chemistry is never easy, particularly in a venture that’s funded by private equity.

Not to mention the boundaries of the law, of course.

Indeed.

But what was the existing technology that you decided to use and adapt?

Yeah, so we decided to essentially consumerise lateral flow testing, so the most obvious example of that that most people would be aware of, is through antigen testing during COVID, so that little strip. We initially focused on blood testing and to do a blood test, lateral flow test, it’s got multiple components, it’s not very intuitive, consumers don’t really know how to do it well. As a result, error rates are high and performance in the field’s pretty poor and as a result, regulators have been reluctant to approve those types of blood test kits at home and clinicians have been reluctant to adopt them. So, we essentially got rid of the accessories and designed all of the functionality directly into the test set itself, so it made it much more consumer friendly, less steps, less need to be an expert. So we were able to really pick that base technology, but deliver a consumer friendly version that people could use first time and do correctly.

I’m just looking at your prospectus dates in 2020, the prospectus was issued on the 4^thof March, 2020…

Yes.

I mean, that’s just when people were going down with COVID. It was unbelievable timing, did you consider pulling it?

We were the first virtual IPO on the ASX in the pandemic, so we came to market essentially as COVID broke, the book had been built and we were issued with a prospectus in advance of the COVID pandemic really flaring up, so the timing was obviously challenging.

When the pandemic flared up, you were locked in, you couldn’t really get out of it?

Yeah and to be fair, there was a lot of interest in diagnostics as a result of the COVID pandemic and we had a partner in the US that we supported to use our devices to register a blood based antibody test and we also sold a couple of containers of that device to a partner in France, so we did have some COVID business at the time as well that was helpful in that transition through to COVID. But we’re primarily a blood testing company and a lot of our customers, a lot of the pipeline that we built up disappeared over the pandemic as all the focus went on to swab testing and antigen testing and we’re now starting to see, over the last 18 months, a return to that blood based opportunity, particularly with the market being much more consumer focused now in terms of opportunities around testing and there’s certainly a lot more testing in supermarkets and pharmacies than there were before the pandemic.

So, how did the share price go after the float?

We were sitting over 20 cents for quite a while, well over a year post-listing, and it’s really only when COVID revenues tapered off and the market got uncertain as to the future for diagnostic companies post-COVID that we came down materially, along with most of our peers and it’s really been that period post-COVID where we’ve looked to re-engage with our customer base, which was a customer base focused on blood testing and increasingly on consumer testing in supermarkets and pharmacies and our device, I think is well proven in that channel.

And so, you raised $30 million in the IPO. Have you raised any more since then?

We had a small top-up raise, $2.4 million, last year. Apart from that, no, we haven’t come back to market for any kind of substantial raise. We’ve still got $6.5m cash on hand and a modest burn rate, so I don’t think we’re urgently needing to come back to the market while it’s down, but certainly looking at where the market might go from here.

So, let’s look at the product, how many products have you got in market at the moment?

We have a HIV test that’s sold around the world, we have partnered with a French company to commercialise the world’s first home blood pregnancy test which it detects earlier than a urine test and more reliably in that early phase of pregnancy. That test is launched in France, the UK and Brazil and we have an application with the Australian TGA that’s pending and we’re looking at potentially taking that to the US market off the back of the TGA approval later this year if we can get TGA secured. Then we have one or two other customers that buy our devices for their own tests, so as well as selling our own finished products, we also sell our devices to other diagnostics companies that use them to improve their usability and their performance.

Right, but the two tests that you’ve got in the market are HIV and pregnancy, just to go through those one at a time, there are existing HIV tests already, I presume it’s a pretty competitive market, what does yours do differently?

Ours has integrated functionality that makes it a little bit more intuitive and easier to use. It also has a smaller blood requirement than most of the other tests which is important for first-time users that don’t necessarily know how to get blood out of their finger, having a small volume is much more user-friendly. So, it’s really just a better version of a similar product with better engineering and better usability.

So, with the other products, you’re saying that you have to get more blood, you still get the blood out of the finger, do you?

You do, but the more volume you need from your finger, the more difficult it is to do that reliably if you’re untrained, so having a smaller volume is helpful for compliance and performance.

How much blood does your test need?

10 microlitres, which is less than one drop. Some tests require up to 40 or 50 microlitres which are a couple of drops and you’ve really got to squeeze your finger and there’s a bit of technique involved, so having less blood is a big user benefit.

And you said that they’re in Tesco stores, how many Tescos are you in?

We launched across 300 or 400 stores in the first phase, I believe there’s a second phase starting in the next couple of months. We also are in the process of launching through pharmacy chain in Germany, as well as in Poland and the Netherlands. We’re seeing quite strong growth in Europe, we’ve sold into our European distributor 420,000 tests this last year and that is a very substantial commitment from them to get into the retail pharmacy market across the company.

So, they’ve committed to buy those, have they?

They bought those we delivered the first half and we’re in the process of manufacturing the latest batch, an order came through just before Christmas.

So, how much do you sell them for?

Well, it depends on the market. We have a range of gross margins, our gross margin in global health markets where we sell into African tenders is a lot less than it would be in Europe or Australia. The products are not identical but they’re similar. We have a blended margin in the business of just under 50 per cent, that blended margin has improved as we’ve sold more into developed markets and are less dependent on global health sales, so we expect to see that improved margin continue as we see expansion in Europe and also more recently in Australia, the Australian Government announced HIV self-tests as part of their policy on World AIDS Day on the 1^st of December, this year just gone. That was the first time they’ve adopted self-test policy in their sort of tool kit to fight HIV and we saw a more than doubling of our sales immediately in December and we expect to see continued growth through this year. So we’re seeing a lot more business in countries where we get a much better margin.

It's 50 per cent of what though, what’s the price of it?

It varies. In Australia, the tests are sold in pharmacies at $25 dollars Australian per test, we obviously sell that into a pharmacy supply chain at less. In the UK, it retails for around £12 to £15 pounds, which is equivalent. In global health markets, that same test sells for $2 to $4 US dollars.

So, do you sell them to a distributor? How does the process work?

Yeah, in Australia, we sell direct into pharmacy chains through wholesalers. We can do that because we’re based here, so that’s easy for us to support directly.

What, for $10 to $15 dollars each, do you? Is that roughly it?

Yeah, in that ballpark, it depends on the channel and the partner and the arrangement, but of that magnitude. In Europe, we have a partner called Newfoundland who were very successful in opening up retail channels for COVID and they’ve now expanded into other products, including our HIV tests that they launched into Tesco’s supermarkets in October.

So, Newfoundland sells COVID tests, RAT tests, do they?

That’s how they started and they do still sell some, but obviously they’ve now seen the consumer appetite for testing at home and they’d look to expand their menu and they’ve said to us that they wanted our HIV test and they’ll take whatever other test we can get commercialised and approved in Europe on our platform. So, we see them as a really strong channel partner, they’ve ordered 420,000 HIV tests in the first year of the contract, so we’re very excited about their ability to be able to get into the Tesco supermarkets of the world, where up until the pandemic diagnostic testing was not part of their product range.

I presume these devices are one use and chuck them away, disposable, are they?

Yes, they’re single use disposable, but unlike a RAT test, they’re fully integrated, so they’re much more user-friendly and they have less bits that need to be disposed of at the end of the procedure.

So, I guess what you do is you stick your finger in the end of it and then click the button and it takes a bit of the blood and then, what, comes up with a red or green light or something on the top?

Yeah, there’s no electronics because that makes it expensive and also, single use electronics are not that popular, but it works similar to an antigen test in that you get a reactive line if it’s positive. But we have a device where you have a little inbuilt lancet that lances your finger and then locks out, you have a little special collection tube that automatically sucks the blood off your finger, it only collects the right amount, you rotate it over, push a little button that activates the test and you get your results, so it’s really difficult to do it wrong, which is why it has really good performance and really good compliance and you mentioned we’ve got competitors in HIV, self-testing. Atomo’s the only product that’s got TGA approval in Australia and I think that speaks to the level of performance and accuracy that our test delivers in the hands of users.

Are many people still testing themselves – obviously they are – testing themselves for HIV?

Yes. In December, our sales for HIV for the month in Australia only was just under $100,000 dollars, so there is demand for tests and we think that demand will only increase now that the Government’s looking to formally adopt HIV self-test in its policy and we’ve been engaged with Government to see how best we can support the various programs that have piloted self-testing in public health and see how we can scale those or how the Government scale those.

So, what does your business plan tell you you could sell in HIV per month? Is there a steady state, do you think, of HIV testing sales around the world that you could aspire to?

Yeah, well we’re just under $100,000 dollars a month for Australia only. We have several million dollars of demand through Newfoundland in Europe. We’re looking at seeing what channel partner opportunities exist in the US for us to register the product, that requires some capital, but there is a large market in the US and having TGA and CE mark for Europe is a really helpful position for us to take into those conversations. We’re continuing to do business in global health, it’s not the most profitable business, but it does provide extra volume and extra economies of scale for our overall HIV business. Then we’re also very excited about demand for pregnancy, I mean that’s a much bigger market really. We had some independent research done, one in five women would be interested in a blood test that detected earlier than urine and we think that’s a 20 per cent slice of a very big market. There’s 3 or 4 million pregnancy tests done each year in Australia, 30-40 million a year in America, so that’s a very sizeable market that we think a blood based test could be a market leader in early detection.

I was going to move onto the pregnancy test and ask you, why would women use the blood test rather than just wee on a strip, is it because it’s earlier?

Yeah, so HCG, which is the hormone that’s measured in a pregnancy test, builds up earlier in blood than it does in urine, which means that a blood test will detect earlier in that pregnancy.

At what point, how soon after conception?

It varies by women, it depends on when in your cycle you got pregnant, it also depends on the individual women. We’re doing a large study in France with IVF patients to accurately determine what that distribution looks like across a larger cohort of women. But what we do know is that HCG builds up quicker in blood and is more stable in blood and therefore, in that first week of pregnancy, will be a more reliable way to test than a urine test, which depends not only on the test, but depends on what time of day you do it. So, first flow in the morning has a higher level of concentration, after that it’s lower. With blood, you can do the test any time of day, its accuracy doesn’t vary across the day so it’s more reliable. Some women have said they find urine tests quite messy and they’d like something a little bit more discrete and clean and quicker. Some women don’t like the idea of testing using blood and that’s a part of the market that we’ll not have, but I do think there is a sizeable cohort of people that really value that early reliable detection in the first week of pregnancy.

Are you selling those now or not?

They’re being sold in France, the UK and Brazil. We’re waiting on TGA approval, we submitted the dossier to TGA last year.

How are they going?

We’ve had a response, we have responded to that recently, so we’re in discussions with them, we’ve done some additional work. We used the French dossier initially in our application, the TGA one, to see some additional data that wasn’t part of the dossier used to get the European approval, so we’ve been working with our partner in France to do some of the extra work needed to respond to TGA and we’ve just done that recently.

No, but how are the sales going?

We are shipping to Europe about a container a quarter to France for finished product for France, the UK and Brazil. If you look in our last couple of quarterlies, we’ve announced the OEM sales. We didn’t have any sales over COVID because our partners were all focused on antigen testing, they started reordering last year, they launched in Brazil, we submitted into Australia, so we’re now starting to see some momentum in that market and I think moving forward that could be a real blockbuster product as blood becomes recognised in consumer settings as being more reliable than urine.

Are you pricing the pregnancy test at the same price roughly as the HIV test?

We expect that in Australia to be a little bit cheaper, partly because there’s a lot more competition in pregnancy testing. We do have confidence that we can command a premium over the standard urine test because of the earlier detection, but obviously we need to be mindful of the fact that there are urine tests out there that aren’t as accurate but are potentially cheaper. So, that’ll limit the premium somewhat, we do think we can still enter the market around $20 dollars a test rather than $25, so still a good margin for us.

What other things do you think you’ll be able to test for?

We’re in the process of validating a test for iron deficiency, so anaemia. A lot of teenage girls, a lot of pregnant women, up to 40 per cent of pregnant women, are anaemic and need iron supplements. If you take them on necessarily, there’s a lot of side effects including constipation, so people don’t really like taking iron supplements unless they need to, so this test is a way for you to quickly screen at home to see whether you are anaemic. That test, we’ve completed the process validation in our factory, we’re going to complete a clinical study in the next couple of months and then we can submit to the regulator, so we’ll be looking to launch that in Australia and Europe initially and then hopefully put it into a US channel partner as a follow-on.

Beyond that, we’re looking at testosterone, so that men can screen at home for low levels of testosterone and there’s also a similar opportunity for thyroid. I think consumer testing is now here to stay post testing and our device really is a proven way to do that reliably. So, we’re excited about the opportunity and the menu that we might be able to bring to market over the next four to five years.

So, I guess with each different sort of thing that you’re testing for, whether it’s HIV, pregnancy, anaemia and so on, the internal chemistry of the device needs to be different, is that right?

Yes, the device stays the same, the test strip stays the same but the chemistry on the test strip is different and we have partners that can develop those chemistries or we can source existing tests on market that have been developed and put them into our device and re-qualify them for consumer self-test approval.

Just back to Elizabeth Holmes and Theranos, the big vision that she kind of sold, successfully at first and then unsuccessfully later, was that you could do a little blood test with a very small amount of blood and get huge amounts of data off it that would basically tell you everything about yourself, more or less. Do you think that that’s ever going to be possible for your product? Are you even thinking in those terms or are you just going one test at a time and that’s fine?

I think she’s proven that the amount of research to get there is very significant and the timescale certainly beyond the appetites for investors to fund, so we certainly didn’t want to go down the path of trying to push the laws of chemistry and physics. We have a very reliable, very convenient, small, one-drop blood test, but we need to acknowledge that small drop really then only supports one or two anolytes on a test. The idea that you can take one very, very small drop of blood and test for 50 things simultaneously just isn’t technically possible and I think Theranos proved that. We took a slightly different approach, we said let’s develop a device that works really well and then let’s be able to drop in different tests as needed in the production line so that we could offer a menu similar to Theranos, but not have to try and bend the laws of science to get there.

Do you dream of a section at the chemist or the pharmacy with the range of Atomo tests, you know, here’s HIV, here’s pregnancy, here’s anaemia, here’s something else…? You know, half a dozen different tests and they’re all kind of stacked up on the Atomo shelf at the chemist, do you dream of that one day?

I certainly do. If you go into chemists in Australia, you can find our HIV test, hopefully this time next year there’ll be pregnancy tests sitting besides them and anaemia tests as well. So I do think that the technology’s there, our device is proven, the consumer demand is clear now post-COVID for these types of applications and I think our menu is looking attractive. It’s not just pharmacies, there’s now a large home e-commerce channel that’s built up, particularly in the US, companies like LetsGetChecked, myLAB Box that are really delivering online healthcare in the home, where you can get a test, you can get an online tele-health consult, you can get your prescription emailed out to if you’re positive. That type of e-commerce delivery and healthcare really suits our at-home testing solutions and we think there’s a lot of opportunity to support in-home doctor services with easy to use at home tests.

I see that your biggest shareholder is GZ Family Holdings and the second one is Dalrada Holdings…

Yes.

Are either of those you? Who are they?

Yes, Dalrada is essentially me. GZ is an Australian based private investor that’s been in the stock for a while.

And has been supporting you, no doubt?

Yeah and I think they see the change of landscape post-COVID, I think they see the emergence of consumer testing as a growth channel that didn’t exist before the pandemic and I think they want to be in stocks that give them some upside to that opportunity. I think Atomo, with its consumer focus, does that.

You’ve got about 12 per cent of the company though?

Approximately, yes, and I didn’t take any money off the table at the IPO, I’ve been committed to this opportunity from the start and remain bullish about the opportunities for the company moving forward.

And did you kick in your share at the other capital raising?

I have done, I’ve not participated in all of them, Alan, but I participated in many over the period of Atomo’s journey.

Just looking at your cash flow statements, you can’t be paying yourself very much either?

Well, we’re trying to run a lean business, we recognise that we are getting closer to profitability, but we’re not there yet. We’re not in a market that’s supportive of capital raisings unnecessarily, so we’re running as lean a business as we can. Our opex has come down about 15 per cent over the last 12 months, we are looking at further savings as we can make them and that gets us closer to profitability each quarter and I think with growth in the HIV business, new customers coming to the platform, we can continue to show quarter on quarter improvement on our performance. Then hopefully, with that, the share price then I think starts to take care of itself.

Yeah, sure. I was just going to ask you, I should’ve asked you before, where do you get the devices made?

We have our own factory in South Africa that we run ourselves, wholly owned by Atomo, that’s where we do the HIV finished product manufacturing.

Including the chemical strip?

The chemistry’s done in Cape Town as well, yes. The devices are made, we have a partner in Australia that does some manufacturing and moulding in China, we have the lancets sourced from a lancet company out of Europe, so it has a global supply chain and that’s how we remain competitive, that’s how we can sell tests in Africa for $3 dollars profitably.

Very good. Okay, thanks very much, John.

Well, thanks for taking the time to interview me.

That was John Kelly, the founder, managing director and CEO of Atomo Diagnostics.