Intelligent Bio Solutions Inc. (INBS) Q2 2022 Earnings Call Transcript

Greetings, and welcome to the GBS Inc. Second Quarter 2022 Earnings Conference Call. Currently, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim McCarthy of LifeSci Advisors, Investor Relations for GBS Inc. Thank you. You may begin.

Thank you, operator, and good afternoon. Joining us today from the company are Dr. Steven Boyages, Interim CEO and Chairman of the Board; and Spiro Sakiris, Chief Financial Officer. A press release announcing the results and the update was issued this afternoon and is available now on the GBS website. If you haven’t received this news release or if you’d like to be added to the Company’s distribution list, please send an email to [email protected]. I will now read the Company’s Safe Harbor statement. Some of the statements on this conference call are Forward-Looking Statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. Forward-looking statements on this call include, without limitation, GBS Inc’s ability to develop and commercialize its diagnostic tests, realize commercial benefit from its partnerships and collaborations, and secure regulatory approvals, among others. Although GBS Inc. believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. GBS Inc. has attempted to identify forward-looking statements by terminology including believes, estimates, anticipates, expects, plans, projects, intents, potential, may, could, might, will, should, approximately, or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, included in the Company’s public filings, filed with the Securities and Exchange Commission. Any forward-looking statements contained in this release speak only as of its date. We undertake no obligation to update any forward-looking statements contained in this release to reflect events or circumstances occurring after this date or to reflect the occurrence of unanticipated events. During this conference call, the Company may refer to EBITDA, a non-GAAP measure. EBITDA is not, and should not be considered an alternative to net income loss, income or loss from operations or any other measure in determining operating performance. EBITDA is normally calculated by adding back income tax, depreciation and amortization to net income loss. I would now like to turn the floor over to Dr. Steven Boyages, interim CEO of GBS, Inc. Steven, please go ahead.

Thank you, Tim. Good afternoon and thank you for joining us on our quarterly business and financial call today. We issued our second financial quarter 2022 preliminary financial and operating results after the close of the market today, and I hope you have been able to look at them briefly. On today’s call, I would like to highlight the key developments that the GBS team has made this quarter, highlighting specifically our clinical advancements, as well as developments in the build-out of our high-tech manufacturing facility. I will then turn the call over to Spiro for a detailed review of our financials, including our preliminary second-quarter results and our forecasted cash burn. As GBS discussed in November, we prioritized product development and manufacturing aspects of growth. We remain focused on advancing our diagnostics platform around biosensor technology and growing our lead asset in saliva-based glucose testing. Moving on to a quick business overview, GBS remains focused on developing and commercializing innovative new biosensors, the point-of-care model, and diagnostic tests. Our proprietary technologies incorporate saliva-based testing approaches with accuracy and ease of use not available on the market today. As we build our portfolio of validated evidence, we intend to demonstrate accuracy similar to other fluid-based methods, such as serum, blood, or urine. To simply put, we believe that by offering patients an affordable, convenient, and disposable testing option for people with diabetes, we can increase compliance and frequency of testing to drive better outcomes for our patients. We want to reiterate that we have prioritized the development of our flagship product, the saliva glucose biosensor, towards that commercialization goal and are actively working with our licensor toward regulatory approval in both North America and Asia. Now let’s review this quarter’s key highlights, where we made significant advancements. Firstly, in December, GBS announced that its licensor, Lifescience Biosensor Diagnostics, LSBD had filed an application with the U.S. Food and Drug Administration, FDA for breakthrough device designation. Based on feedback from the FDA to LSBD, further data generation would be advisable in order to advance this submission. The team is working towards this goal. Secondly, the team has submitted the clinical trial protocol for institutional review board approval to the Mills Peninsula Medical Center in California, which will be responsible for executing this initial clinical trial enrolling 40 subjects. The objectives of this key study are to explore the relationship between salivary glucose and plasma glucose, as well as the time course data between the two testing modalities. This will generate time course data to determine salivary glucose characteristics. This is expected to lead to the development of the algorithm between plasma and salivary glucose. It is anticipated that the first stage of this clinical plan will be completed by July 2022. Turning to our manufacturing advancements, following the recent grant of $4.7 million by the Australian Federal Government to fund the build-up of a high-tech biosensor manufacturing facility, GBS has begun sourcing required equipment. This sourcing has the dual purpose of immediately utilizing the equipment in the interest of efficiency to progress development at the biosensor while also commissioning equipment in preparation for the facility. The initial batch of equipment is expected to be ordered in April and finalized in June 2022. This non-dilutive capital is incredibly important for this next phase of manufacturing development in which GBS can accelerate product development through the purchase of several important technical machinery and equipment. Discussions are underway between the University of Newcastle and GBS Inc. for the location, buildout, and commissioning of the new high-tech manufacturing facility. Thanks to the Australian Government’s announcement of a medical research commercialization initiative, GBS is in the process of evaluating and preparing expressions of interest towards further Australian Government funding, as we believe GBS firmly fits into the objectives of this initiative. The initiative will focus on early-stage translation and commercialization support, which funds support for early-stage medical research and innovative projects with commercial potential. This Medical Research Future Fund will have approximately US$225 million available for project funding over the next 10 years for companies that meet the outlined criteria. Now, before turning over the floor, our CFO Spiro Sakiris will discuss the second-year financial quarter results. I feel it is important to briefly mention GBS in the small and micro-cap sector, which is currently experiencing volatile equity markets. While investors recite valuations and the need for capital on an ongoing basis, we remain engaged and committed to driving returns for our stakeholders. Finally, we would like to thank you for your support and look forward to sharing our successes as we progress. With that, I would like now to turn the call over to our CFO, Spiro Sakiris for a more detailed review of our second quarter financials.

Thanks, Steven. I will provide a brief overview of GBS’ second-quarter financial results. For the quarter ended December 31, 2021, the Company had a preliminary net loss of $3.46 million, or $0.23 per share, compared with a net loss of $1.9 million, or again $0.23 per share in the same period last year. This is predominantly due to the acceleration of development and commercialization expenditures, which includes the expensing of $2.6 million of prepaid R&D contributions that had been funded in the previous year. Government support income was $177,791 for the three months ended December 31, 2021, a decrease of $55,427 from the same period ending 2020. The nature of government support income is in the form of research and development tax offset payment and Australian Government MMI grants for the $4.7 million. The revenue from these grants is recognized as qualifying expenditure as the expenditure is incurred. As of December 31, 2021, the Company’s cash, cash equivalents, and marketable securities totaled approximately $11.19 million, compared to approximately $12.57 million on June 30, 2021. As of December 31, 2021, the company had 14.88 million shares outstanding. Despite equity capital market conditions being light, the company continues to be favorably positioned financially and has multiple funding resources and strategies with over $10 million in the bank. Management has maintained fiscal responsibility and controlling cash burn provides a calculated runway for the Company, and we are confident that the markets will recognize this value. GBS is of the view that based on the current operating plan and financial resources, its cash, cash equivalents, and marketable securities as of December 31, 2021, will be sufficient to cover expenses and capital requirements into the first half of 2023. With that overview of our financials, I will now turn the call back to the operator to open the line for questions. Operator, please open the floor to questions.

Thank you, ladies and gentlemen. At this time, we will be conducting a question-and-answer session. Our first question comes from John Vandermosten with Zacks Small Capital Research. Please proceed.

Thank you and good morning Steve and Spiro. Thanks for the quick rundown on progress on all the fronts. A few other items I wanted to follow-up on are just the partner identification for the Chinese markets. I know that you are making progress there and wondered if you have seen any other progress since our last update.

Yes, I will start off and then hand across to Spiro who can answer that too.

So basically the list as we have identified before, there is a short list of discussions commencing, as we identified before that we are not repositioning to report conclusive stages.

Okay, very good. And then on the COVID side, I know you are working with Wyss Institute and are progressing some validation efforts there. Any update on how that is coming along?

No updates yet. John, we understand that the progress is excellent as we announced previously to the market. We are expecting further announcements within the next quarter, but at this stage, nothing to report.

Okay, very good. And you did give us an update on the next step for the glucose sensor trial, the 40% trial. I guess after you complete that, I think you provided a date of July 2022. I guess that is when the study will end, and then results will come out shortly after that. After you have results, will you go into submitting a package to the FDA or what should we expect following the completion of that?

Yes, John, and that is our expectation. We are very excited about those studies. They are quite detailed studies and they are about setting up a gold standard for saliva glucose. We have been talking with our research partners in the U.S. on both the east and west coast. We are looking at what we call glucose tolerance testing, which involves glucose loads for individuals. We measure both plasma, capillary blood, venous blood, and saliva for the glucose parameters. This will establish an effective gold standard, and we are using mass spectrometry to validate those measurements. So, as you indicated, we are expecting results by July 2022, and you are absolutely correct. Then we will be looking at further submissions. This is the first stage of about a three-part clinical validation. There are some ongoing studies beyond that, but they will lay the support for our future submissions.

Okay, very good. And then, looking at the study, what is the magnitude of difference that would be acceptable to the FDA between saliva and plasma glucose? What would they be looking for in terms of numbers there?

Look, it is not going to be a magnitude of difference. It is really going to be on that coefficient variation. The gold standard for the market is we want to have a plus or minus 15%. When we measure anything in any body fluid, we want to be confident that that measurement is reproducible. We know that saliva glucose measurement will be a couple of log orders lower, but as long as we can differentiate between low, normal, or high, then the absolute magnitude of difference between blood and saliva won’t be an issue. It is really that coefficient variation.

Exactly. Right. Thank you for correcting me on that. Okay, great. And then, we have seen the COVID test number spike with the recent Omicron and then they are kind of rolling over. Do you think we are going to continue to see a lot of variation in the number of tests out there? Any thoughts on how that trend might continue?

Look, as much as we are all suffering from COVID fatigue, I don’t think it is going away rapidly. As we gain a better understanding of the illness characteristics and the need for understanding who is immune, who is not immune, and who is infected, there will be a great need for laboratory testing for both COVID antigen and COVID antibodies. So, we see strong demand in this market.

Okay great. I will hop back in and see if there is anyone else who wants to ask questions. Thank you.

Thanks, John.

Our next question comes from Ted Yu with Zach Small Cap Research. Please proceed.

Hey, Steven and Spiro, thanks for taking our questions. Just to piggyback off of John’s questions there. You had submitted a pre-submission package in October last year. Wondered if there is any update on that and whether you received feedback from the FDA.

Spiro, do you want to answer that one?

Yeah. So basically, it is the pre-submission that we are waiting for a response back from the FDA; their workload was quite busy regarding COVID, so there’s no further progress on that yet.

Okay, excellent, thank you. Regarding the manufacturing facility, we are excited to hear updates on that. It appears from your release that this is maybe going to be working a little closer with the University of Newcastle than maybe I had anticipated. Could you give a little color on the extent of this partnership or what the role and relationship with the University of Newcastle is going to look like with GBS funding a facility on University of Newcastle property?

Spiro, you can answer that one since you have been closely involved with that project.

Yes, so basically, what we are doing is, as we mentioned in the announcement, we are looking at getting the first batch of equipment across, which we will install on Newcastle University’s premises. The objective is to expedite the progress of commercialization, and at the same time, commission that property with the equipment. Once that is commissioned, we will not delay our aim to ultimately get the factory operational. While we are sourcing and finalizing the site, we are getting that work done on the equipment to operate as efficiently as possible. That is where the University of Newcastle's ongoing development will utilize that equipment.

Just to add to that, people may not be aware that the innovation and the founders are actually at the University of Newcastle. So co-locating the facility with them will create a lot of efficiencies and increase the rate of development.

Yes, and also I appreciate the additional color into the existing facilities. It sounds like they will run in parallel. That is it for me and I will hop back in the queue. Thank you, guys.

Thank you.

Thank you.

Our next question comes again from the line of John Vandermosten with Zacks Small Cap Research.

Thank you. Next question was just on the income statement. I noticed that the development and regulatory expenses were a little bit below trend in the first quarter, while they seemed to be above trend in the second quarter. I just want to see if those were timing issues that led to that. Looking forward, should we just maybe average those two amounts for the second half of the year?

Yes, John, that is a very good question. The nature of the expenditure is not even; it is very concrete depending on milestones that have been delivered by the research partners. For instance, we have included in that what I referred to in the announcements, prepaid R&D of about $2.6 million, which was funded in the previous year as a pre-payment. Once we derive the benefits from the R&D, we put that in the profit and loss. It is difficult to say to average or project forward because it is very clumpy in nature. I will keep that as a staff, but I suggest to keep an eye on our reporting and possibly update as we receive further updates on the R&D expenditure.

Okay. Because my forecast averages the first six months and uses up the same amount in the second half of the year. It sounds like I should keep that based on what you are seeing at this point.

Yes. Keep that for the time being. Like I said, it gets updated as we get further releases. Then you will see with milestones delivered that averages out the R&D expenditure.

Great, all right. Thank you, Spiro. Take care, and thank you, Steven, for your answers as well.

Thank you.

At this time, there are no further questions. I would like to turn the floor back over to Dr. Boyages for closing remarks.

Thank you, operator. As I mentioned in my opening remarks, we are extremely pleased with our performance this quarter. As we build momentum for a new testing platform, we look forward to seeing everyone at our Annual Shareholder Meeting in the coming months. In closing, I want to thank everybody for joining us tonight, and have a great evening. Thank you.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.