Hi all,
I picked up my first parcel of Optiscan in 2018and sat on it until earlier this year when I had the chance to re-examine myportfolio for opportunities which presented promising near and medium (12-24m)term inflection points.
I've definitely become more excited about thecompany and its prospects of late, so I thought it might be beneficial to listsome of the rationale underlying my decision to appreciably increase myholdings in Optiscan, the company I now cheekily refer to as "bigOIL" when discussing stocks with my conservative friend in the resourcessector (for some reason he doesn't share my sense of humor in this matter). I alsofigured this type of thread could be useful fornew or prospective holders given the recent SP action we've seen over the pastmonth.
I think the main applications for Optiscan’stechnology are pretty well understood around these parts already so I won'trehash them (there are some great posts covering this already). Suffice tosay I think the prospect of in-vivo digital biopsy and its applications across diagnosis and surgical practice has thepotential to introduce faster time to identification of cancer and better patient outcomesacross multiple indications. To me this seems like a fairlycompelling set of initial applications alone. I’d like to lay out a few otherpoints around the edges though based on my research to date and would welcome anydiscussion.
Technology and Competition:
- Optiscan’s main competition, Manua Kea, make a fiber bundle microscope, however Opti’s microscopes (single fiber) are able to produce images of an appreciably higher magnification and resolution along with offering the ability to visualise at multiple depth levels. This might not seem like a huge deal, but when you consider the relationship between magnification and image resolution as requirements for performing in-vivo digital biopsy, it becomes clear where technology leadership exists in this domain and where the potential areas of growth exist.
- Consider the prospect of the Opti ViewnVivo being the only commercial grade handheld device capable of producing images of sufficient quality to support in-vivo digital biopsy, and then combine this with the absence of clinical device packages with requisite safety approvals and backing clinical studies. It becomes clear that a significant barrier to adoption is the problem of technology availability, this also explains why knowledge of these techniques is so thin on the ground in clinical settings. It is really only this year that we’ve seen Zeiss Convivo come to fruition around software platform readiness, and it was late last year when we saw the Opti Invivage emerge as a complete, feature rich product in the oral cancer space ready to progress with trials and approvals.
- Technology leadership is a massive advantage in almost all markets and while the advantages that Opti has in image resolution and depth bring significant diagnostic implications, they also have significant implications as enablers from a machine learning (ML) and image feature recognition standpoint. The use of machine learning in medicine is really heating up, for example, these researchers use ML to “compute dyes” based on IR measurements, really interesting stuff that may have implications for Opti’s use of ML going forward (https://www.sciencedaily.com/releases/2020/02/200213090921.htm).
- I think Opti has the opportunity to create a ‘positive feedback loop’ for continual improvement of the Invivage via remote diagnosis workflow. Cloud software platforms which enable pathologists to evaluate high resolution images scanned by Invivage can use data on identification of suspicious areas to refine machine learning models which operate in real time on the Invivage device itself. In this way, as both Zeiss’ and Optiscans deployments scale and more clinical data becomes available (images -> marked areas -> verified cancerous cells), the device itself can begin to adapt meaningful improvements.
- This positive feedback loop can also be run and refined centrally using clinical trial and research data and then scaled out to every Invivage device with an over the air software update. As new cancer specific dyes emerge with potentially different visual performance properties/characteristics, and as new information emerges from research on key pre-cancer physical changes at the cellular level, supporting data can be used to develop and refine image feature recognition models. This should allow for the rapid scale out of ML augmented ‘cancer identification expertise’ and could, for example, result in Convivo/Invivage devices being aware of the dye type used and adjusting image feature recognition models accordingly, or adjusting models based on patient circumstances, cell type or observed cell state.
- Of particular note for shareholders, the continual improvement of a product in this manner, also has additional implications from an ongoing revenues standpoint – i.e licensing and subscription.
Barriers to adoption
- This publication (2016) touches on a few barriers to adoption of confocal endomicroscopy, of particular note I think are “standard of care” and “physician image interpretation”: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4707318/
- On standard of care - outcomes from the Melbourne Dental school trial (beginning this month?) should contribute significantly in the oral cancer screening domain and is one of the stated trial objectives (https://pursuit.unimelb.edu.au/articles/towards-the-early-detection-of-oral-cancers). From my understanding, additional clinical trials would be required after this trial concludes, but notionally these would be on a much larger scale and I can only see this being positive for Opti and quite a bullish signal if we see positive results from the Dental school trial.
- On physician image-interpretation - separate to the ML pieces above, the Zeiss cloud workflow solution for remote pathology is one potential answer here, i.e. a fully integrated workflow from Convivo image capture to assessment by a qualified histopathologist. However the option of integrating to existing PACS systems and established workflow is also really compelling I think – as it presents an adoption pathway of least resistance for the technology in existing settings.
- The new Convivo brochure highlights this on page 9 "Recorded images can be transferred via the hospital network (shared network drive or PACS server), where they can be conveniently accessed by pathologists). (https://www.zeiss.com/content/dam/Meditec/ref_master/products/convivo/documents/convivo_brochure.pdf). From my reading, there are also a number of cloud based PACS offerings available today which enable remote collaboration workflow between parties.
- In a recent presentation, Darren Lurrie also called out specific technical integrations here between Opti’s Invivage system and clinical information systems. It wouldn't surprise me if both the Convivo and Invivage shared significant portions of an underlying software platform that has been graduated for both devices (at least at the clinical device operating system level). Further, on this front I suspect that the IP exchange between Opti and Zeiss may be more significant than is currently appreciated by the market. More on the Zeiss relationship below.
Partners
- Zeiss Meditec is a huge player in diagnosis and visualization solutions and from my research are super impressive from a technology and IP standpoint. Their investment in Convivo and the underlying effort to have Convivo 510k approved by the FDA, speaks volumes from a technology validation standpoint. One can only imagine the process and technology assurance rigor of a leading medical technology player like Zeiss – I think it’s safe to say that Optiscan’s core technology has passed through the fire, and Optiscan as a company has undoubtedly benefited from this.
- There is evidence that Zeiss will acquire when it suits them (https://www.zeiss.com/meditec/int/news/2018/zeiss-to-acquire-iantech.html). Noting that the acquisition amount wasn’t disclosed here, this level of disclosure neatly aligns with what we know of the existing Zeiss/Opti partnership, which to my knowledge, is highly confidential. Maybe this is just the way Zeiss likes to play things. Either way, we will see the fruits of this partnership borne out as Opti announces various revenues from component sales to Zeiss. Without a clearer picture from the company on the nature of the agreement, we’re left with trailing indicators like revenue from orders for a given quarter, which aren’t really forward looking and mean that it’s hard for us to make forward looking assumptions as we don’t know the agreement parameters. We can look to other telling indicators on this front though.
- Recent mention by Opti on the agreement with Zeiss is something fairly consistent with “moving to a production phase.” I note that these discussions have been ongoing for some time now. As I’m sure many of you would appreciate, Opti’s financial position pre-capital raise would not have allowed it to build sufficient inventory in order to support a production grade component supply agreement with Zeiss. An optimistic interpretation of the capital raise announcement would suggest that the stated purpose for raising funds was articulated by the company in priority order, i.e. “Funds raised from the Placement will be used for inventory expansion, testing for regulatory purposes, product research and development , funding of potential clinical trials, market development, recruitment and working capital.” To break this down:
- inventory expansion – to my understanding, demand for the ViewnVivo device has been predictable to date, so I would struggle to attribute ‘inventory expansion’ solely to this device. A newly minted production grade partnership with Zeiss however, would surely cement a supplier agreement with mandated guarantees on supply of ‘x number of units/components’ at any given time. This is my chosen interpretation at this point.
- testing for regulatory purposes – I think we can safely point toward the Invivage 510k submission here.
- product research and development – see below.
- funding of potential clinical trials – we haven’t seen any updates in the breast cancer trail space lately, but I note in an announcement this year that the company has applied for additional grant funding (which they’re pretty good at securing to my mind). Indicators of success from the Melbourne dental school trial should be apparent throughout the course of the trial, and I imagine Opti will want to start collaborating and designing additional subsequent trials in short order.
- market development & recruitment – the transformation journey from a “med tech startup” to a commercially profitable entity will be marked with recruitment into key operational positions (sales and marketing – keep an eye out for these).
- working capital – I think the company runs pretty lean here at the moment and so I don’t have any specific concerns on this front.
Additional applications
- I think there are a ton of diagnostic and surgical applications for the underlying tech here and that these will start to emerge over the coming years. Of particular interest to me on this front is how Zeiss is currently marketing Convivo. If you check the Convivo brochure I link above, you’ll note that it’s not really pitching the offering as a purely neuro-centric device, but focused instead on ‘digital biopsy’ and the latest in ‘cellular imaging.’
- The thing that really excited me here was seeing the Convivo scanner unit listed as a separate product (page 15). The potential implications here are profound from a product architecture and device component manufacturing standpoint. With this in mind, thinking of these devices as platform technologies starts to make sense, where the modular architecture implied should allow for the rapid development and testing of attachments for specific diagnostic and surgical scenarios. In addition, as the underlying Convivo and Invivage platforms share significant DNA, this means fewer variations and reduced manufacturing complexity for Optiscan, both huge positives in regards to scaling manufacturing and achieving associated efficiencies.
- I’m also anticipating that we’ll start to see development and testing of different probe types for Invivage (e.g. flexible probes) as the next logical set of product offerings. As soon as we see the swappable nature of these probes in action, this should act as an explicit clarification for the market on exactly what we’re dealing with here – Convivo as a platform and Invivage as a platform.
Financials and Management
- As a relatively new holder, I haven’t experienced the frustration of a long hold through historical mismanagement and financial strife. What I can say however, is that I think this type of underperformance breeds contempt, contempt is lasting, but it is also blinding.
- Contempt is so overriding sometimes it means you cannot see when the game has changed. I believe this is the case with Optiscan and that this has resulted in a chronic undervaluation by the market – something that has only recently started to correct. I also believe that we will see multiple re-rates occur as various milestones are checked off over the next couple of years.
Questions
- Zeiss has neuro and Opti has oral – what do you think are the other priority indications and how will they be carved up between the two players?
I am genuinely excited about Optiscan and itsprospects, I also realise now that Sunday morning has drifted into Sundayafternoon, my coffee mug has long been emptied, and wonderfully Melbourne is finallyoffering some sunshine (and that this has also become quite the lengthy post). HappySunday everyone.
(20min delay)