Genetic Signatures Limited

Good afternoon, and thank you for joining Genetic Signatures Investor Webinar today. I am Stella Maurice of Monsoon Communications. In today's webinar, Genetic Signatures will share their healthier results and latest developments. Joining us are CEO Alison Rossiter and CFO Carl Packman to brief you on the details. Before we begin, I would like to highlight that you can submit questions using the Q&A function and we will get to them after the presentation. Similar questions might be grouped and would be answered at once. I will now hand over to Alison to begin.

Good afternoon, everybody. It gives me great pleasure today to announce our first half of 2025 market update. Starting with the highlights, our sales come in at a triple digit 136% improvement over the former half of 2024. This is predominantly due to strong respiratory season across Australia, a comeback after the flu B issue that we suffered last year, and some great UK progress with our enteric panels. Another positive message around our gross margin has also increased from 42% up to 59%. And our underlying loss is at a 20% improvement. So the three key figures there are all going in the right direction, which we're very, very proud to announce today. We do have a loss of 15.2 million recorded statutory loss. But that does include the 6.8 million impairment, which we'll speak about on the next few slides. We're in a strong cash position. We'll speak about that later too. And in terms of the 6.8 million impairment, we've gone through a strategic assessment of the technology landscape to make sure that we are bringing the best automated solution to market at a reduced cost and at a faster speed for the market. And we'll speak about that on the next slide too. And finally, I think the thing that everyone's been waiting for, we've secured our first US commercial contract this month over in the United States. So for the operational, our new strategic direction, I'm so pleased to announce this to you because since I've been here, we've undergone a commercial landscape assessment. We wanted to make sure that what we do going forward is the right commercial decision, is the right decision for our customers, and puts Genetic Signatures in the best possible place to be successful. We want to ensure that our three-phase technology will continue to work on whatever option we choose going forward. And so we made the decision to cease development of the next generation instrument that has been on pause for about 18 months. And instead, we're going to partner with an already commercial organization who specializes in making great analyzers. And we will work with them to bring tried and tested technology to the market, implementing our three-based technology, and where we will be able to develop the best infectious disease tests that we can to operate in an area that today has already has unmet medical needs. And we believe that this is the right way forward to bring success to genetic signatures and the patients in which we serve. That does result in a 6.5 million impairment, but we believe it is a decision that is right for the organization. Onto the US, I spoke about we've had the first order. I'm so pleased to announce that as well. Our opportunity in the US still remains large. As many of you already know, we were granted FJ approval towards June, July last year for our GI parasite tests. There are eight parasites on our panel, and it's the only panel of its kind in the market. The market opportunity is huge. And we are doing our very best to convert the 5.5 million tests, or as many of those as we can, to an automated method. There is a reimbursement code already in place. So from a financial perspective, this makes the conversion much, much easier. The market opportunity, many of you have seen this slide before, the market opportunity remains very large in the large reference laboratories. But we today, we are working through our 65 opportunities that we have in our funnel through all aspects of that slide there. So we work with the large commercial labs through to the hospitals, large and small, because every single laboratory we work with counts. So some of them are doing 10, 20 tests a day, others are doing hundreds of tests a day, but we want them all and we're working throughout all of those potential opportunities. So our first contract is signed and sealed. The laboratory started validation with an aim to go live in the next couple of months to start testing patients. Many of you are fully aware of our customer experience sites that we have been working with long before FDA approval was granted. I did share at the last investor meetings that we had that actually in the FDA, you cannot start procurement proceedings until FDA approval has been granted. And so a lot of the work started around July time with our laboratories in terms of getting the procurement bowls rolling. We've just seen the first example of that, although that was not a customer experience site. That was another one of our opportunities in the funnel. We are engaged with all the major laboratories, the major reference laboratories from the former slide, and there's a great interest there. We continue to raise awareness where we attend all of the conferences we advertise on the relevant websites and we work with the key opinion leaders to make sure that our message and our brand is out there with the people making the decision. We also have one of the US key opinion leaders and one of the UK key opinion leaders attending a conference in Vienna, one of the biggest microbiology conferences, which will be in Vienna this year in April. And I'll hand over to Cole now to talk through some of the financials. Cole.

Thank you, Ali. All right, so as Ali had mentioned previously, Genetic Signatures has recorded $8.5 million of revenue for the half year, which is an increase from the previous corresponding period of $3.6 million. This is primarily due to the extended respiratory season, which we have experienced in the Australian market and, yeah, has been a key contributor. Revenue from international markets was 9.4% of sales for the half and we do expect that to grow within the rest of the financial year. Revenue contribution from overseas was primarily from the UK and Irish markets and represented a growth of 28% when compared to the prior period. The team over in Europe have been focusing on growing the Enteric portfolio, and we're starting to see very strong sales momentum in that region for that portfolio of products. And to the next slide, please. With the financial summary for the half year, our gross margins, as Ali mentioned, it also increased to 59% in the half from 42%. The main primary reason for that improvement in gross margin has been due to active inventory management, which has reduced our obsolescence expenses, which we've incurred during the period. We've also done some really hard work within the organisation to do rationalisation of our product portfolio, which has really focused both the sales team in growing top line revenue in our markets, but also reducing the complexity within our manufacturing process. And that is also a key contributor to our improvement in margin. Employee expenses has increased in the half when compared to the prior period. This is a combination of an increase in salaries and on costs during the period, and also growing our team over the period compared to the corresponding period. I do also note that in last year, you know, with our influenza B issue, we did have a temporary reduction in staff hours, which did reduce our overall employee benefits expense in the prior period. So there are multiple factors there for that increase. Scientific consumables and clinical trials expense did decrease during the period compared to prior corresponding period, primarily due to the cessation of the respiratory trial in the US, which we announced in FY24. Depreciation amortization expense had increased during the year compared to the prior period. And that's mainly due to accounting differences with us entering into a longer-term lease for our headquarters here in Sydney, which resulted in a different accounting treatment compared to the prior year. And that was the primary reason for the increase in depreciation and amortisation expense for the period. Just to the next slide, please, Ali. In terms of capital management, so we did complete our $30 million capital raising, which was announced to the market in June 2024 and was completed in full in July of 2024, where we received $8 million of proceeds from our retail component of the capital raise. We also received $5 million from the Australian Research and Development Tax Incentive Program, which was relating to an expenditure on R&D for the FY24 year. Operating cash outflows for the period was $8 million for the half, and the company holds a strong cash position at the end of December at just over $40.8 million heading into the rest of the financial year. Back to you, Ali.

Thank you, Cole. So in summary, I just want to end with three key points. The first one is around our customers. We already explained we've got US customer experience sites at the final contract stage. The team are working then every single day. We have a strong pipeline of around 65 million, sorry, 65 customers worth millions of dollars. which include the large US reference labs. We have newly signed contracts in Europe. We've evaluations underway in the UK and Germany. So from a customer and a commercial perspective, I feel very, very positive for the future. From our product perspective, we're working on the foundations of our three-based technology, on the products we have on market today, what we do for the future to bring the best tests that our technology can support. So all work is going into making what we have today even better than it already is. And alongside that, we will launch in the coming years this new system called Again, our technology will be at the forefront of that, and it will be faster, will be more cost effective, and it will offer more automation for our customers, making it easy to do business with us, easy for the laboratories to run our tests. And finally, we need our people to be in the best position to make number one and number two happen. So we're working towards having a highly engaged workforce, engage workforce equals higher profit organizations. There's plenty of evidence around that. We're already started implementing commercial methodologies to make sure we offer commercial excellence in all we do. We've got to work to the very highest standards and we're gonna solidify, we're in the middle of solidifying our foundations technology wise, process wise and making sure that we operate from an excellent perspective full of rigor in everything we do we will i'm very proud actually to be sitting here today and with the leader of this organization and where we are today i with with all of my might is the first step to where i think we will be in the future thank you

Thank you, Ali. I'll lead the Q&A section here. So please, I encourage everyone to submit questions through the Q&A function and I'll group where I need to the questions and look forward to answering all of the questions posted today. So first of all, we'll focus on the US sales. So the first question that we have is, In the US, is the two months of further validation work which was highlighted for the new customer signing likely to be similar for other potential US customers?

The US customers are at different stages in how they go forward. Some of them, the customer experience sites have done some validation. The one who signed with us was not a customer experience site, so they currently have not validated, which is why it's going to take them a couple of months to do their validation. If a customer experience site signs up with us, which we anticipate they will, they should have no or significantly reduced validation compared to the one we've signed. So they should go live with customers much quicker than this one.

Great. The next question is just wondering whether we can articulate or whether you can articulate what the percentage of the addressable market the 65 customers in the sales pipeline represents. Is it 1%? Is it 5%? You know, do we have a range on that?

I've not done that calculation if I'm totally honest, but it's a significant portion because some of the large laboratory, the large reference laboratories are in that funnel. So I'm going to say probably more than 50%.

Next question we have is whether the first customer announced for the US, whether it is a hospital or a pathology lab, and if you can provide some additional color on the status of discussions with other customers in the pipeline.

Yeah, sure. So it is a it's not a commercial reference lab that as you see on the on the sheet there, it's more of a of a smaller hospital setting with several. It's a laboratory for several hospitals. I think that's probably the best way to describe it. Sorry, Carl, the rest of the question was?

Oh, yeah, the next part of the question was, yeah, can you give us some color on the status of discussions with other customers in the pipeline?

Yeah, we're significantly towards the end of the funnel with quite a number of our customers now, our potential customers now, and we're looking to get things signed sooner rather than later. As I said during the foresee last time, I can't give you a timeline. I don't know the timeline. So but we are working and we're getting closer all the time. So there will be more contracts signed in the coming months. I'm sure of that.

Okay, related to the US, but more on the political events of the day in the US. So the next question is, yeah, will genetic signatures have to pay tariffs moving forward in terms of moving product into the USA?

At this moment in time, we don't know. It's a moving target, as I'm sure you're all fully aware. We are monitoring this. We have this as a risk on our risk register, and we are looking at it all the time. We follow the news very, very closely. We also have some of our board members and our team based in the U.S., so we also get the U.S. take on it as well. We have a plan in place, so if terrorists come in, we do have a plan to overcome that if it comes to it.

Now turning to the new instrument. So the first question I have here is, will the new instrument approach be customised for individual customers or will it be a standardised device?

Yeah, it will be a standardised device. We want to move away from it being more of a white glove boutique organisation to a larger brand. more commercial organization and so we will have we intend to have several actually two two analyzers of different sizes but that's our plan at this moment in time so that we can offer the personalization will be do you need a larger one or a smaller one and that's where how we will personalize but that will be where the personalization stops

Next related question is, in what way will the new bespoke automated solution be better than the planned next-gen product?

Yes, the planned next-gen product was a great concept, but with the information that I was handed over when I joined here, there was still a lot of unknowns. And for me, the risk was high. So with the option that we've chosen, It's tried and tested, whereas the former option was going to be made from scratch, so it wasn't tried and tested. The company knows how to manufacture the one we've opted for. There's already regulatory approval for the one that we've opted for, certainly in this current format. So we will customize it, but we need to customize it so it can run the three-based technology. but we know it's tried, we know it's tested and we know the risks are low. Whereas with the other one, the risks were, there was so many unknowns that was adding risks that we just couldn't afford to take. So we believe, I strongly believe we've made the right decision.

Okay. So next question is around respiratory testing in Australia. So the question is, are you still seeing higher respiratory testing in Australia in the current quarter?

Yeah, we really are. Spiritual testing has not gone anywhere in terms of down. It's just staying the same or going higher. I'm sure you see it with friends and family who are getting sick all around us. We are also getting our customers ready for the surge capacity that may well come when the winter season hits us. So, yeah, we're not seeing that going anywhere.

Okay, we have a question here around our headcount. It's a very specific question on what our headcount is today in the organisation.

Yeah, sure. We have 87 full-time equivalents today with us.

Okay, and another question we have, this is relating to our other facilities around the world. Mentioned in our Chairman's Report in 2023, Was the development of the company's laboratory facility in the UK an establishment of a German subsidiary intended to support sales and marketing activities in Europe? What is the current situation?

Yes, both of those things do exist. So we have a small laboratory in the UK that helps us deal with any customer issues so we can service our instruments and make sure that everything's running as it should. And we do have a German subsidiary as well. The other countries in Europe, the ones in which we're present, we actually sell through distribution. So we make sure we have the right coverage in the right places. That's how it is for now. Whether it will stay that way in the future will depend on growth. And we'll make the right strategic decisions going forward to make sure that we always try and get the best return on investment and the best spend.

Okay, I've got a couple of questions just coming in late now. So I'll just group them as best as I can. So yeah, back to US revenue. First one is, yeah, do you expect a significant uplift in sales in the US once the new customized analyzers are completed? And will the US sales be limited until this development is completed?

Yeah, that's a great question. No, we don't believe that they'll be limited because we've got such a lot of market to go after. So that'll keep us busy and it'll keep the prospective customers busy as well. So our timeline has been reduced by going with this new option. So by the time we've got all the customers on board that we intend to go after with our parasite panel, that will give us time to bring new tests to market for the U.S. So we don't see it impacting. If anything, we see it being a benefit than being a negative. So I think the news is all good on that front.

We've got a question here on the US pipeline. So the question is, you know, what's the approximate range of the revenue opportunity per annum for the 65 customers in the pipeline? Is it small like $50,000 and, yeah, to say $5 million? Yes.

Okay, I can't put a price on it right now that we're going to get this million or that million. It's tens of millions is the opportunity funnel today. We've got to convert all of those 65 in order to realize those tens of millions. And as I said earlier in the presentation, we've got some in the blue bar, which are the commercial laboratories that make up a huge portion of the market. And we've got some in the other segments as well. We won't turn any of them away. We want all of them because... I found in my experience at least that You know, they say like build it and they will come. They don't know how good it is today because we've only got one site and they're still through validation. But once they start using it and the word gets out, it will become more standard of care than having to go and look at a microscope, which takes a long time and is subject to human error. So I think once it starts, I called this before the snowball effect. Once we start to get our current site up and running, get a few more sites up and running, I think we'll be... will be off to the races, as they say.

Okay, there's a couple of questions here that I'll take because they're more financial in nature. So the first one is around the instrument cost. So the question is, is the $4 million to $5 million in instrument cost essentially a one-off cost with a CMO and whether or not it will be capitalised? So with the instrument costs, this range of development costs is a one-off cost in order to do the development required for both the instrument customization and also for the software development that will be further customized to suit our three base technology. In terms of whether what components will be capitalised or not, we're currently working through that and that will be subject to the final distinction from an accounting perspective. I would expect that there will be a portion of that cost that will be capitalised. Next question I have is, At what annual revenue do we need to be cash flow positive? So with that question, probably the best way to, I guess, highlight to all of you on the call around what kind of revenue we would need is to really take a look back at the revenue position that we incurred or earned as a business in, say, FY21. and FY22. Back in those years, we were earning revenue of circa $30 million, and we were posting relatively small profits during that time. And so whilst we don't publicly give guidance around our expected cash flows and revenue projections, using that historical data as a guide is a good indicator as to what the revenue would need to look like. Guy Coward- got one more question here as well, so please step through how the US reimbursement has been done today and will there be changes as gss rolls out the wide to the customer base with new new services.

The U.S. reimbursement for the current test, not the genetic signatures test, but the current method, is around $40. When the laboratory run the test, they put a claim in and they get the $40 reimbursement, which covers their costs, their staff, the cost of their laboratory, and the material, everything. With the test that we have brought to market in the U.S., the reimbursement is around $263. It's the same process that the laboratory would claim that, the same as they would claim the test for the manual OMP that they do today. But they would make a bigger profit out of that. Now, of course, they have to pay for our tests, which is a different price than buying a microscope, paying for a microscope that's probably been there for a long, long time. They would still have to pay for staff, but a different proportion of staff compared to someone looking down the microscope for hours on end. And from a profit perspective, the laboratories will be far better off using our tests than they are using the current method.

Thanks, Ali. So thank you for all of you today for posting your questions. They're the final questions for us to answer today. So I'll hand it back to you, Ali, for closing remarks.

Thank you very much. Thank you for your time today. Thank you for your questions. It's been my pleasure to share where we are for my first five months and for the first half of this year. And I look forward to sharing more successes with you as you move forward. Thank you very much.