Intelligent Bio Solutions Inc. Q4 FY2022 Earnings Call

Greetings, and thank you for joining us for GBS, Inc's Fourth Quarter and Fiscal Yearend 2022 Financial and Business Update Conference Call. Currently, all participants are in listen-only mode, and a question-and-answer session will follow the formal presentation. This conference call is being recorded. Joining us today are Dr. Steven Boyages, GBS CEO and Chairman of the Board, and Spiro Sakiris, Chief Financial Officer. A press release announcing our financial results and providing a business update was issued this afternoon and is available on our website at gbs.inc. If you would like to be added to the company distribution list, please send an email to [email protected]. Some of the statements made during this call are forward-looking statements as defined in various sections of the Securities Act and the Securities Exchange Act, as well as the Private Securities Litigation Reform Act, and involve risks and uncertainties. These forward-looking statements include GBS, Inc.'s ability to develop and commercialize diagnostic tests, gain commercial benefits from partnerships and collaborations, and obtain regulatory approvals, among others. While GBS, Inc. believes that the expectations reflected in these forward-looking statements are reasonable as of today, actual results may differ materially. We have attempted to identify forward-looking statements using terms such as believe, estimates, anticipates, expects, plans, projects, intends, potential, may, could, might, will, should, approximately, or other phrases that indicate uncertainty. These statements are predictions and are subject to known and unknown risks, uncertainties, and other factors outlined in the company’s public filings with the Securities and Exchange Commission. Any forward-looking statements made during this call are only valid as of today, and we are not obligated to update them in light of new events or circumstances. During this conference call, we may refer to EBITDA, a non-GAAP measure. EBITDA should not be considered an alternative to net income or other measures for evaluating operating performance. It is generally calculated by adding back income tax, depreciation, and amortization to net income. I will now turn it over to Dr. Steven Boyages, CEO of GBS, Inc. Steven, please go ahead.

Thank you, Operator, and good afternoon, everyone. We appreciate you joining us today for our fiscal yearend and fourth quarter 2022 financial and business update call. Hopefully you've had the opportunity to review today's corresponding press release providing an overview of our recent achievements, important upcoming milestones and financial results for the fourth quarter ended June 30, 2022. On today's call, I would like to point out the accomplishments of this most recent quarter, as well as reflect on all we've achieved over the last 12 months. I'd also like to provide an update on our exciting, ongoing engagement with Intelligent Fingerprinting Limited for the rights to its point-of-care fingerprint, sweat-based drug screening technology, presently focused on opioids and drugs of abuse. I will then turn the call over to Spiro, our Chief Financial Officer for a review of key financial metrics, including our preliminary yearend and fourth quarter results with updated forecasted cash burn. Following a reshuffling of roles early in the year, including my appointment as CEO and Chair of the Board, the entire GBS team has successfully achieved several key milestones previously forecasted, specifically as it relates to the saliva Glucose Biosensor as our lead asset. And following IRB approval received in March we've now completed sample collection and analysis in our study of coincident sampling of oral fluid and blood to evaluate the time course of glucose. This study enrolled approximately 40 adults with Type II diabetes mellitus at the Diabetes Research Institute of Sutter Health Mills-Peninsula Medical Center in San Mateo, California, is being conducted to support clinical validation whilst also solidifying the direction of future clinical studies. I'm pleased to report that the results from that study were encouraging and in line with expectations, where blood, saliva glucose concentrations were consistent with previous studies. Work is now underway to refine the sampling protocols and establish a greater body of statistics. Meanwhile, we are moving into the final design and verification phase of Glucose Biosensor development, involving two key parallel clinical studies. The first of these studies will focus on eliminating variables affecting glucose levels in saliva and in the sample collection method. The second study will specifically examine saliva detection on the Glucose Biosensor test to assess accuracy and reproducibility. Both studies will further improve saliva collection protocols and fine-tune the Biosensor performance as we head towards finalizing our product design and moving it from research and development into manufacturing. With clinical development and regulatory dialogue proceeding at pace, we are concurrently establishing the manufacturing capacity to support further studies and prospective commercial supply. In June, we excitedly announced the selection of a site at the University of Newcastle in Australia for construction and operation of a new state-of-the-art proprietary Biosensor manufacturing facility. The company anticipates construction to commence before the end of calendar year 2022. To add to this, our first batch of new equipment arrived on site, with the next installment of deliveries scheduled to arrive before the end of September. This includes a new ink delivery system and a UV water purification system, both essential for the Biosensor production. We have also ordered a new inductively coupled plasma mass spectrometer, which we expect delivery early in the New Year. This equipment is vital when looking to improve the overall performance and reproducibility of the Biosensor. By yearend, we anticipate 60% of the equipment to have been delivered, with the remaining 40% due early in the New Year. Concurrently and while we continue to advance our saliva Glucose Biosensor effectively not only for glucose detection in diabetes, but also with research to develop new biosensors for hormone, tumor and allergen biomarkers. We are equally dedicated to exploring all opportunities to build out synergies for GBS business overall. Hence while we've been in active engagement with Intelligent Fingerprinting regarding its point-of-care fingerprints, sweat-based drug screening technology focused on opioids and drugs of abuse. In June of this year, we announced execution of an exclusivity agreement with IFP for its fingerprint sweat-based drug testing technology. This agreement represents the precursor for a proposed acquisition of IFP that if consummated, would allow GBS to further solidify its leadership position in rapid non-invasive diagnostic solutions, accelerate revenue growth and expand our portfolio of tests. We continue to see this as a prime and seminal opportunity for GBS future growth and success and look forward to updating the market accordingly. Before I turn the call over to Spiro to discuss our financials, I would also like to welcome Peter Passaris, GBS' new Director of Operations. Originally from the U.S., Peter and his family recently relocated to Sydney. And with 18 years of manufacturing and enterprise experience, Peter is exceptionally qualified to manage our Newcastle SRA and product development activities. He joins us most recently from Ecolab, where he served as Sales and Operations Manager, prior to which he worked as a Chemical Engineer in R&D before eventually moving into technical sales and operations. So with a warm welcome to Peter, I would now like to turn the call over to our CFO, Spiro Sakiris for a more detailed review of our third-quarter financials.

Thank you, Steven. I will now provide a brief overview of GBS' full fiscal 2022 and fourth quarter financial results. As of June 30, 2022, the company's cash, cash equivalents and marketable securities totaled approximately $8.2 million, compared to approximately $12.6 million on June 30, 2021. For the year ended June 30, 2022, the company had a preliminary net loss of $8.4 million or $0.57 per share, compared with a net loss of $7.3 million or $0.65 per share for the same period last year. This is predominantly due to the acceleration of development and commercialization expenditures. Government support income was $437,000 and $1.98 million for the year ended June 30, 2022, and 2021 respectively. Since our IPO, GBS has continued to bring forward expenditure on key resources and commercial partners to advance projects towards commercialization. The major categories include research and development and commercialization for the financial year of $3.8 million, compared to the prior year of $3.8 million also. Employee benefits expenses were $2.3 million compared to the prior year of $1.9 million, the increase being due to staff towards commercialization and development. GBS is of the view that based on the current operating plan and financial resources, its cash, cash equivalents and marketable securities at June 30, 2022, will be sufficient to cover expenses and capital requirements into the second half of the 2023 calendar year. Cash runway does not include exercising the Glucose North American license option agreement. The financial strategies discussed under financial stability are being pursued in parallel. Thank you. Over to the operator.

Thank you. We will now begin our question-and-answer session. Our first question is from John Vandermosten with Zacks. Please go ahead with your question.

Thank you, and hello, Steven, Spiro. How are you guys doing?

Good afternoon, John.

Good afternoon. The Fingerprinting deal is significant. I understand that the cutoff date for the arrangement was today, but it appears there may be an extension. What are the main points of contention, and what other details are you currently negotiating? I realize you may not be able to disclose everything, but I would like to know the key discussion points that you can share with us.

Sure. I'll hand it over to Spiro on that. But you're absolutely right. We're very excited about it. It's a long and detailed process. I was just talking to Spiro before this call. And they spent three hours negotiating. And as you stated, we can't give you all of the details, but I'll get Spiro to give you some of the key highlights going forward.

Thank you.

Spiro, are you on mute? Seems like we have a technical problem.

I can hop on to another question. You had mentioned on the first part of the call just that there were going to be some different sampling protocols for the strip. And I'm just wondering if you could let us know kind of what those are. I mean, just to get an idea of how they might differ. Obviously, that'll come into play when people are actually using them after approval. How does that look?

Sure, sure. So the initial study was not done on the strip. The initial Mateo study that we talked about in the script here was based on saliva using a mass spectrometer and doing glucose measurements in venous blood and capillary blood using the standard methodologies. But the exciting element of that was that it was detectable. It was in line with the previous published results. Paul Dastoor, our Chief Scientist and Innovator was very excited. And we're now proceeding apace onto milestone eight. These studies will then further look at all the variables that may affect glucose availability in saliva. And using the actual Biosensor to actually measure that glucose sample in the saliva itself. From a technical perspective, it's a matter of then trying to improve the sensitivity of the strips by looking at the chemical and conductive layers within the strip. And that's part of the next SRA that's been negotiated with the University of Newcastle. So we expect that to be completed within the next two quarters. But so far, we're extremely excited by the initial results.

Okay, very good. And Steven, since I have you on the line, I want to know if you will continue as Interim CEO or if you will take on the full CEO role. What should we expect regarding that?

Look, at the moment we just want to complete the IFP deal. Assuming that will be completed within the next month or two, our teams are going across to the U.S. and then the UK as well to have a look at the Cambridge site where IFP is based. And once we have some management representation with some Board representation, from IFP and you both views, then we will look at the Chief Executive position. But at the moment, it's business as usual. We're expanding, as you can see with our Director of Operations, Peter Passaris and Spiro Sakiris and Harry Simeonidis are doing a fantastic job. The company is growing in terms of numbers and activity and productivity.

Okay, thank you for the management update. And I don't know if Spiro's back, is he available?

Yes. Can you hear me?

Oh, yes. Perfect. I can hear you.

Alright, so good. Thank you.

I wanted to get a sense of the cash burn and understand how adding the new deal, particularly with Intelligent Fingerprinting, will impact cash flow in the future, assuming the deal goes through.

Some of the key directions going forward have certain sticking points.

Right, exactly. That's right. Yeah. Yeah. Yeah, the key sticking points going forward. And then assuming it does get done, how's that going to change the cash flow view going forward, because I know there revenue is positive. So it just be helpful to understand how that fits in.

Yes, can you hear me now?

I sure can.

Sure, let me address your questions. First, regarding the August 31 deadline, this date marks the beginning of the exclusivity period for IFP, allowing them to proceed once that date passes. It's not a strict deadline at this moment, and there are no plans to limit or define the exclusivity period. We are actively engaged in discussions and working through the details needed to finalize this agreement. There are numerous points to consider, and we are making progress, often working late given the different time zones involved. For your second question about cash burn, our situation is improved by the sporadic nature of our expenses, especially regarding R&D and equipment. This allows us to manage and extend our cash burn based on when these expenditures occur. If all goes as expected and the deal materializes, we plan to create pro forma statements and share them with the market to illustrate the effects on cash flow, keeping in mind the flexibility we have with our project-based spending.

Okay, and then kind of along that same line, you're getting some funds to support the building of the facility. What cash flow should we expect related to that to come in?

We are currently in discussions regarding the building, where the university plans to construct it, and we will lease it from them. This means there will be no initial capital expenses related to the construction itself; our capital spending will focus on the equipment instead. As previously mentioned by Steve, we have already begun ordering the equipment to ensure we can start using it promptly. This expenditure is reflected in our current cash flow figures. As we incur these costs, we will also receive matching government grants from the MMI facility, dollar for dollar. Therefore, we are prioritizing the procurement of essential equipment now, while scheduling the rest based on urgency and aligning our cash inflows and outflows effectively.

Okay, I just want to clarify whether the 60% of the equipment that you mentioned would be in before the end of the year refers to dollar terms or the quantity of equipment.

Yes, quantity, that's quantity. What you'll find is expensive pieces of equipment that come in towards the end. And what we're doing is the equipment is being staged according to A, completing the development stage. And then the final part of the equipment is moving into the hardcore manufacturing stage.

Okay, so in terms of cash flows for the equipment, is it more like 50-50, I guess, before yearend 2022, and then after yearend 2022?

I would say for 2022, that's probably a fair estimate, maybe more like 40-60 because the expensive items of equipment are planned for the end of that period.

Great. That is helpful. Thank you guys for taking my questions.

Thank you, John.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Dr. Boyages for any closing comments.

Thank you operator. In closing, I just want to reiterate our continued commitment and strong belief in innovative actionable Biosensors for point-of-care monitoring diagnosis as being integral to the future of all healthcare. Those suffering from diabetes deserve more affordable, convenient and disposable testing options which GBS aims to deliver whilst also reducing costs to all stakeholders, including not only patients but providers and payers as well. Finally, I'd like to thank the entire GBS team for their tireless effort and dedication, along with patients and investigators from our studies. And equally, it's important the continued support of our shareholders. Please visit us online for more information at gbs.inc or reach out to our investor relations department with any further questions.

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