Optiscan Imaging: Precision Focus
Alan Kohler sits down with Dr Camile Farah, the president and managing director of Optiscan Imaging Ltd, to discuss their microscopic imaging solutions for surgery.
Alan Kohler here and I'm talking to Dr Camile Farah who is the president and managing director of Optiscan Imaging Ltd (ASX: OIL). It's been listed since 1997, floated or started in 1994, spun out of Monash University. The technology is a miniaturisation of microscopic imaging for surgery mainly, but also endoscopy and obviously they've been working on it a long time as they were profitable for a period of time when they were licensing the technology to a Japanese company but that Japanese company got taken over so that ended and now they're in the process of transitioning from being an OEM, original equipment manufacturer to a private label manufacturer. Dr Camile Farah's job is to conduct that transition so whether they're selling the things themselves and they're setting up a business model that involves selling the hardware and a software subscription, so streaming the images anywhere in the world but also having an artificial intelligence overlay onto the product.
They're a little way off, they're still burning cash, they've got some money in the bank, they might need to raise some more before they get there but they won't be getting their first product approved by the FDA in US until 2026 so a couple of years off still having a product to sell but still look it's a very interesting piece of Australian technology that looks pretty good and is very disruptive so I think it's a very interesting prospect.
Here he is, Dr Camile Farah, the president and managing director of Optiscan Imaging Ltd.
Table of contents:
Cash position
Executive background
Company history
Technology
Patents
Royalties
Use cases
Business transition
Approval process
Business model
Sales universe
mce-anchorCamile, thanks for joining us. We always start these interviews talking about cash and cashflow. Tell us what your current cash burn rate is.
Yeah. Thanks, Alan. Current cash burn rate is about half a million dollars every month. We've got about $11 million dollars in the bank currently. We did a capital raise mid last year for $16.7 million and we're trying to obviously preserve the use of that capital very carefully over the next couple of years for our...
How much of it have you got left?
We've got 11.2 cash in the bank, our working capital is $13.3 million.
Right. Do you have a timeframe in your mind as to when you'll get to cash breakeven?
Yeah, cash breakeven we're anticipating four years from now, that's our projection based on our clinical work that we need to do, get regulatory approval. We do generate some revenue from devices that we sell under license but it's a five year plan that we're working towards and cash break even is four years from now.
mce-anchorJust a bit about yourself now. You were a researcher before you got the job and in fact you were on the board of Optiscan Imaging for a while, eight months or so before you became CEO. Tell us a bit about your background, because before this had you run a company before this?
Not a publicly listed company, no. My background is I'm trained as a clinician and as a pathologist by trade. I spent 20 odd years working in medical research and running hospitals and private practices, other sort of radiology practices along the way and had been using and researching technology that could allow us to image live tissue. My particular interest is in head and neck cancer. I was approached by the company to assist them with some clinical work initially as a consultant, then I was asked to join the board which I did particularly sort of trying to give a clinical perspective to the work that the company was trying to do at the time. Then eventually they asked me to take over as CEO and after significant consideration I did that.
mce-anchorHow long has the company been going?
The company was spun out of Monash University in 1994. It listed on disallowed in '97 so we just had our 30
th year anniversary as far as the company's history. For the greater majority of that time the company was focussed on being an OEM for other well known international medical device companies, so we created the technology.
OEM being original equipment manufacturer.
Correct, yes. Original equipment manufacturer. We basically created the technology but we would build the components and other companies would market and sell the product under their own labels. The first product that was launched onto the market ever was a product of ours that we partnered with Pentax, the Japanese endoscope manufacturer and we created the first flexible endomicroscope for them. They went on to sell that in the gastrointestinal endoscopy space for about ten years or so. We currently manufacture a rigid endomicroscope for Carl Zeiss, the German lens manufacturer, again under a license label as an OEM. We're basically going through a transformation in the business. I joined as CEO about two and a half years ago, obviously as you alluded to earlier I was on the board and involved a little bit before that. What we're trying to do is really move the company away from being solely focussed on being an OEM and really moving into a private label where the medical devices as a whole device will be sold under the Optiscan label, so we basically do the R&D ourselves, manufacture ourselves and we intend to commercialise those products through the pipeline.
We'll obviously partner eventually with sales and distribution channels when the products are cleared but we think there's a greater potential for the business taking control of the whole medical device product range.
Has the company ever been profitable?
The company has been profitable, especially when it was making devices for Pentax. They sold hundreds of devices obviously way before my time but yes, it was profitable at the time and that was reflected in the share price. Also at the time the share price was something around $2.50 at that time and unfortunately for the business but also part of the reason why we're trying to move away from the reliance of OEM. Pentax got bought out by Hoya, another Japanese lens manufacturer, after the financial crisis, the Global Financial Crisis. Hoya decided to terminate all R&D that Pentax was involved in at the time and they shut down the unit that basically had the contract with us to manufacture their endomicroscope so Optiscan lost that contract at the time and obviously it was solely reliant on that contract.
How long ago was that?
That was in 2008-2009, that's when they moved to a relationship with Carl Zeiss, they started to work on a different product with Carl Zeiss.
mce-anchorI see. When the company spun out of Monash University what was the technology that was the core of the business?
Essentially the core technology was an invention that two researchers at the time had been able to miniaturise a very large piece of equipment called a confocal microscope. Confocal microscope is typically the size of a room and you can bring a sample too that has very sophisticated lasers and lights and optics and you can basically look at this tissue in depth, in great detail. The inventors were able to basically miniaturise this down to the size of a pen and obviously with miniaturisation then it gives you the ability to put that particular microscope anywhere in the human body. They tried to really think about how could they really bring that technology and the ability of confocal microscopy into human use, into live imaging, that was essentially the call.
Tell us, what was the kind of essence of the invention, what was the breakthrough that they made?
The breakthrough really is the ability to focus light into one particular point which is essentially what a confocal microscope can do without very sophisticated and large pieces of equipment. Miniaturising that technology was part of the essence of that but also not losing any of the benefits of confocal microscopy. The whole idea about confocal microscopy is that light is focussed in and channelled essentially to one particular point. With that one particular point then you can basically transmit that light through tissue itself, so it doesn't just image on the surface it can actually penetrate tissue and with that penetration of tissue comes the ability then to see - literally you see through tissue. That was never possible previously. What the inventors wanted to do was really to be able to provide that power of confocal microscopy into the hands of clinicians because we don't have that capability in the clinical space. The microscopes that typically surgeons use, they basically just reflect light off the surface, we see things maybe magnified a little bit but the ability to transmit light through tissue and to see through tissue itself specifically at the cellular level, so basically at the microscopic level, what typically a pathologist would be doing under their traditional microscope, that had never been done before.
Since there has been some attempts at copying the technology which no one has been able to do which again speaks to how difficult it is to miniaturise this platform.
mce-anchorWas it patented early on, is it patented?
Yes, all of our IP is patented. Obviously, we've had patents since and we continue to develop the technology with different permutations so we can do different things with it so partly, for example, taking the original core application and then applying it into maybe a flexible endoscope so that brings with it it's own challenges because you need to be able to manoeuvre the microscope through the body as you're butting the endoscope in so there's patents around that, there's patents that we've basically had subsequently with having next generation optics that we've basically built into the system and that's part of our unique technology platform, no other competitor product has optics with moveable lenses that we've miniaturised to the degree that we can control them with electrical currents that also provides additional capabilities for the operator to see through tissue. We continue to innovate now, we're working on various other clinical devices and working on our third generation microscope which again will have its own patents.
mce-anchorDo you have to pay a royalty to Monash University?
No, the company owns all of the patents, the original deal after the tech was spun out of Monash concluded at the time, there's no royalties that we pay, we own everything and we license that technology to our partners currently, so to Carl Zeiss. All of our new IP is solely owned by the business, we're creating AI algorithms for our imaging platform, we're creating a streaming service to basically transmit the images in real time, all of that IP and the patents that will go with that are controlled by the company.
mce-anchorWe'll get onto the business model that you're planning in a moment, and you've described the technology but tell us, what actually does it look like and how is it actually used in the body?
It looks like a surgical endoscope so if you've ever seen a surgical endoscope it's basically a...
I've always been asleep at the time.
[Laughs] Yes, basically it's a fibre optic sitting in a cable and at one end you've got a stainless steel rod essentially, and that's got a lot of optics in it. I won't complicate it any further. At the other end it's got a computer system with a monitor that basically receives the images. Basically, what happens, the surgeon would be holding this scope as I describe it, it literally looks like a pen. They would be holding that in their hand if they're doing a surgery for example and they want to determine if they've got a whole tumour out for example. They would basically touch the tissue with the scope and instantly then on the monitor an image would appear and the image is live so basically you're creating images continuously as long as there's contact with that tissue. The images are at microscopic grade, so what we call everything in microns, we measure things in microns. Basically, we can see the cellular structure of tissue so we can see for example hundreds of cells on the screen at the same time and that gives the ability to the operator to then determine whether their tissue is normal, whether it's abnormal, it's cancerous, if they got the whole tumour out, they can see blood vessels, they can see nerves, they can see everything that a surgeon would like to see but they see it at 1,000 times magnification so that's the real power of the technology.
It's got to be touching the tissue?
Yes, it's a tissue contact endoscope so physically it has to touch the tissue.
Can it be used as an endoscope, an endoscopy, is that what it's being used for? Is that basically what it is?
Yes, that's one of the applications. One of the first applications was to be used in colonoscopies and endoscopies for GI conditions. Yes, we have been able to miniaturise our microscope to the degree that we can fit it into the front end of an endoscope and then of course as the doctor puts the endoscope into the body then the microscope moves with it as it snakes through say the colon or the throat or the nose, depending on where you're using it, but we've tried to make it more accessible to other medical specialists so we've created a device that's on a rigid scope for example and that's now being used for oral surgery, head and neck surgery, breast surgery, so many other medical specialists want to be able to use that technology and so we've modified the devices and the hardware and the software then specifically targeting that particular application that the doctors want to see used then. One of our biggest applications now is in breast cancer surgery.
How does it work in breast cancer surgery?
With breast cancers really there's sort of two types of breast cancer surgery. One is called the lumpectomy where basically the doctor tries to remove the tumour as a lump and the other one is a mastectomy where the surgeon will take the whole breast off. There's more and more of a push to focus on preserving the breast and therefore taking only the breast cancer as a lump but the problem in doing that the surgeon is never really 100% sure that they've got the whole cancer out. One of the ways they want to use our technology is after they've taken the cancer out as a lump they would then insert the metal rod or the pen probe structure that is on the end of our scope, they would insert that into the lump cavity and they would image inside the cavity to tell them if they've got all of the cancer cells out. Because they can see cancer cells individually it gives them greater precision and greater accuracy and that may take a couple of minutes to do that scanning inside the body and then because they can see the images in real time they don't need to worry about sending the patient home, waiting for a pathology report to come maybe a week or two later, they can do all of that determination on the spot, they can do it themselves as a surgeon or they could ask a pathologist to look at the images with them.
In essence they could give that really accurate diagnosis and answer to the patient in real time and say look, I've pretty much got every single cancer cell out and of course there's a significant benefit to the patient in doing that, the patient then doesn't have to come back and have another procedure done if the doctor missed some of the cancer cells. We're trying to provide that high precision tools and techniques to the surgeons in real time.
mce-anchorI take it you're in the middle of a sort of transition, as you say, from being an OEM to being private label. That's really what your job is, is to make that transition, right?
Absolutely, correct. We're halfway I think in a transformation of the business which we started in early 2022 in making that transition from being a components manufacturer I guess, just the owner of the core technology, into a business that really understands the clinical applications, understands the marketplace, whether we're talking to hospitals or hospital systems, whether we're talking directly to surgeons or doctors, whether we're talking to pathologists, whether we're talking to vet surgeons because the application is broader than just the human use, so trying to understand where the niche markets are and trying to understand really the applications. Then building the platform as a portfolio of devices that allow the company to move into those markets. We've built one device for oral imaging, we've unveiled earlier this year the breast cancer imaging device so no we're taking that through clinical studies. We'll reveal another device later in this year that's aimed more at the pathology markets, so working in the pathology laboratory, how do we simplify the pathologist's life there and make that transition into digital pathology. We're working to integrate our technology with robotic surgical systems, so we've signed a collaboration agreement with the Mayo Clinic in the US earlier this year to develop that robotic system together given that more and more surgery is moving towards minimally invasive and robotic applications.
We are trying to expand the portfolio, at the same time making sure that we understand how doctors want to receive the information and how they want to receive and use the data. The telepathology streaming service that we're building currently allows the platform to transmit those images anywhere in the world in real time without any delay so you could have essentially a surgeon in Melbourne operating and their pathologists in San Fransisco seeing the images received in real time and they could be collaborating on doing that surgery so it's what we call image guided surgery. There's a whole myriad of benefits to health systems in centralising their pathology workforce and their resources by doing that, and also then building software as a medical device, so AI and machine learning applications to also guide the surgeon or the pathologist into assisting them with making decisions around cancer diagnosis or cancer removal so really thinking about that whole application in the clinical sphere and understanding the markets and that segmentation of the marketplace.
mce-anchorTo what extent do you need approvals, what approvals have you got and are you waiting on?
Currently we're working through the approvals for all of our clinical devices so our main target market currently is the US and we're focussed on getting our FDA regulatory approvals in the first instance. The US is the largest market for this sort of technology and the FDA is a pathway for us that we believe will solidify some of the subsequent pathways. Our first product that we're putting in front of the FDA currently for a surgical application is the InVue which is built specifically at this stage for breast cancer surgery. We have an oral imaging platform that also we continue to work with the FDA around pathways for that. Then as we bring some of those additional devices onboard we'll continue to work with the FDA on them so whether it's the robotic device, the next generation flexible endomicroscope, whether it's the application for veterinary medicine, each of those will require FDA clearances in due course.
How long do you think it will take to get the FDA approval for the first one?
At this stage the first one we're anticipating we'll get that clearance in 2026, we're working with the FDA currently around he breast imaging platform, we're seeking their guidance around study design and what the end points might be so we're very clear before we start clinical studies in the US what data they need to see to clear the device. It is a novel sort of application in that sense for breast imaging so they're assisting us in making the right decisions along the way. 2026 is when we anticipate that first one and we think that the oral imaging device for surgical application will probably be six to twelve months behind that as we then move some of the other products through R&D, there'll be subsequent clearances then following that.
It's a long way off, isn't it?
It's not that too far off, the greater majority of the work has been done internally as far as creating the devices, it's not just a technology, the device actually exists, you can touch it, you can feel it, you can come down to our Melbourne headquarters and actually have yourself imaged if you like. We have many people actually come and do that. It's really just what is required by the FDA, they do take time to process applications, they do take time to give feedback and guidance on clinical studies and the clinical studies themselves take time. In the context of medical devices the study length is not that long actually, typically within about 12 months compared say to pharmaceuticals, drugs take many more years. The timeline is not that onerous, it's really getting that guidance from the FDA that's more important to us.
Is there any risk that they won't approve it?
No, there's no risk they wont approve it. They have previously approved our Pentax device, they previously approved the Carl Zeiss device so the technology is proven, it's been cleared through the FDA, it's actually been cleared through the TGA and through CE market in Europe previously. This is the first time that Optiscan as a business is now submitting that application to the FDA, previously it was always our partners that would do that for us when we were operating as an OEM. There's been some learning for the business along the way and again I spoke earlier about that sort of transition, that halfway transition, part of that transition is that we're making sure that we've got the right knowhow inside the company to guide us through that regulatory cycle with the FDA. We're not worried about the devices not being cleared, it's just about making sure it's cleared in the right way for the right indication. It gets a little bit more complex when you start to talk about specifics with the FDA so we're just trying to get really good guidance from them around that and then we'll launch into the US studies.
We currently have studies here in Australia that are looking at using our device for breast imaging, that's a study that we got approval for earlier this year at the Royal Melbourne and that will start recruitment in a couple of months and then as we learn from that we'll then launch into studies in the US.
mce-anchorWhat does the business model look like and how much of the money comes from selling the actual devices and how much from software subscriptions?
The software subscription model is still in development but basically that will be either licensing of the streaming service for a particular hospital or a healthcare system, so obviously if they start buying our devices they would like to be able to move the images around and so that streaming service will be licensed, that will be ongoing revenue and it's specifically part of the model. The hardware itself will be capex purchase upfront or leased, that's really a decision for the operators themselves. A greater majority of the upfront revenue will come from that sale of hardware and then the recurring revenue will come through either the streaming platform or through the AI applications on a userbase. There are different ways you can sort of look at that ongoing revenue model, it could be per image, per patient or it could be just a flat licensing fee. We haven't sort of nailed that down at this stage, there's still some work to be done in that regard but the important part of the model is that there's revenue coming from the hardware upfront and then this recurring revenue stream from the software as the patients are then treated in the hospital and the clinic.
Is anyone working on a competing product?
There are competing products in different segments, there's a competing product that is now available for the neurosurgery application with Carl Zeiss that was recently cleared. There is a competing product in the GI space to the flexible endoscope. In the areas that we're focussed solely on as Optiscan there are currently no competing products and that's an advantage for us currently, we want to have that first mover advantage in that space, I'm sure they will come eventually. In the context of robotics there are no competing products, we'll be the first company to basically integrate into robotics and we're making that sort of push there deliberately. Then the software space there are no competing products as far as the integration of that confocal microscopy hardware with the software assisted diagnosis and guidance for surgeons. There is an advantage for us to go hard into the market with that first mover advantage but the other protection for us is really in the technology itself. The image resolution that we have is second to none and that's been part of the distinguishing aspects comparing our platform with others and one of the reasons why very prestigious hospital systems like the Mayo Clinic have decided to partner with us because you need that precision and you need that accuracy when you're looking at these images.
Of course, the more detailed imaging resolution that you get with our platform compared to others is a part of that distinguishing feature. We'll continue to refine the technology, we'll continue to patent our advances in R&D to have that advantage in the market place but obviously there will always be competitors.
I take it that you've announced a month ago or so - you announced a memorandum of understanding with University of Minnesota College of Veterinary Medicine so I take it you're going for the animal world as well as humans.
Yes. This is really about understanding where that clinical application can be targeted. The animal space and vet surgeons and doctors have very similar problems to what we have in human health, they're trying to target cancers that they can't see properly. They've got a slight disadvantage that their patients don't talk to them, they can't describe what's going on so whether you've got a pet cat or a dog, they've got a tumour of some sort and vets have got similar problems, they're trying to discern whether they've got all the tumours out. There's a whole heap of additional applications. We do believe that by staying focussed on the core clinical applications but widening the markets in which we can actually place our technology that gives us, again, an advantage in the market place but it gives us another revenue stream. Yes, we are focussed on making sure we can meet that need within the vet space, there are some other implications in the context of that with the regulator but we're working also on meeting them. That relationship will continue to grow and will continue to then be a bit more precise on the clinical indication but at this stage we've focussed on oncology and we'll see some similarities between the tumours that cats and dogs have for example compared to the human equivalent.
mce-anchorDo you think that your sales universe is basically every hospital in America and every veterinary clinic as well?
We do definitely see our sales universe as every hospital in America. It's an approach where really if you think about it in the broader sense every surgeon would like to have additional precision when they're doing their surgery because they want the best outcomes for themselves but also their patients. We think all hospital systems will want the technology. If you think about the pathology space and how we're still using analogue approaches where we take a sample from a patient, we put it in a form and then send it off to the path lab, it gets processed through a whole myriad of chemicals and we produce a glass slide at the end of it for a pathologist to look at about a week later. There's a lot of time and distance between the patient and the pathologist looking at that glass slide. We think we can compress time and we can compress that utility of our technology into digital space so we're still having the benefit of the pathologist making the diagnosis but they're doing it now in a digital world. A whole heap of medicine has moved into the digital world, surgery is moving into the digital world, unfortunately pathology has not really moved into the digital space as fast as they probably should and if we look at our colleagues in radiology where now pretty much everything is digital and you can transmit a CT anywhere in the world why can't we do that with pathology? Our platform allows us to do that.
Again, you think about pathology labs as being part of our sales universe and yes, then of course you take that logic from human health down to animal health and the vet market in the US is absolutely massive. We do think then we can actually have our technology implanted into the core of vet clinics around the US. Yes, it's quite ambitious as a marketplace and that's just talking about the US, but it is a significant disruptive approach in really making pathology digital and then democratising the use of those digital images and what better place to get that moving than in the US.
Thanks very much, Camile. It's been great talking to you.
Thanks very much, Alan, appreciate it.
That was Camile Farah, the CEO of Optiscan Imaging.
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