DR BOREHAM\u2019S CRUCIBLE: UNIVERSAL BIOSENSORS<\/p>\n
By TIM BOREHAM<\/p>\n
When your columnist caught up with Universal Biosensors chief John Sharman early last Tuesday, he was exasperated about investor indifference towards the company.<\/p>\n
Indeed. In the spirit of Easter, one could say the stock indeed had been crucified.<\/p>\n
\u201cIt\u2019s a frustrating time but our key message is our sales are growing and we are investing heavily in sales infrastructure,\u201d Mr Sharman said.<\/p>\n
\u201cRevenue is up, costs are down, the balance sheet is strong and we have world class opportunities, both in terms of rolling out the products and new opportunities.\u201d<\/p>\n
A couple of hours later, Mr Sharman was much perkier after the US Food and Drug Administration (FDA) said it had approved its coagulation blood-testing tool, Xprecia Prime. as a class-two device.<\/p>\n
UBI shares shot up 50 percent \u2013 an impressive resurrection.<\/p>\n
Xprecia Prime is the second-generation iteration of UBI\u2019s foundation blood glucose and coagulation testing platform, originally developed for Johnson & Johnson\u2019s Lifescan and Siemens Healthcare, respectively.<\/p>\n
Mr Sharman dubs the FDA assent as an \u201chistoric moment\u201d, representing \u201cmore than 10 years of research and development work and many millions of dollars in investment.\u201d<\/p>\n
Now, the company is applying its electro-mechanical testing platform to other pursuits including winery quality control (Sentia), diabetes monitoring for dogs and cats and water testing.<\/p>\n
Currently the company has 11 revenue-generating products, which in December produced monthly revenue of $1 million for the first time.<\/p>\n
The evolution of UBI<\/p>\n
Similar to the cartridge-and-printer model, UBI derived annuity revenue from its hand-held devices (the \u2018printers\u2019) and the single-use disposable strips (the \u2018cartridges\u2019).<\/p>\n
The products are based on its proprietary electro-chemical sensing system, devised by a team led by CSIRO electro-chemist Dr Alistair Hodges.<\/p>\n
UBI listed in December 2006 after raising $22 million at 50 cents apiece. <\/p>\n
For reasons lost in the mists of time, the company is incorporated in Joe Biden\u2019s home state of Delaware but is not listed in the US.<\/p>\n
Mr Sharman was CEO of Medical Developments for 10 years, having previously run the nuclear imaging company Cyclopharm.<\/p>\n
When he started, UBI derived most of its (modest) revenue from providing its Xprecia Stride blood coagulation monitoring strips to Siemens (for users of blood-thinning drugs, like warfarin).<\/p>\n
Siemens launched Xprecia Stride in 2015, but UBI bought back the rights in 2019.<\/p>\n
In September 2018, US diagnostics giant Johnson & Johnson\u2019s Lifescan exercised its option to buy the rights to Universal\u2019s Xprecia Prime blood-glucose monitoring platform for $44.6 million \u2013 a disappointing deal that trashed the share price \u2013 despite being clearly flagged in the original prospectus.<\/p>\n
Xprecia Prime, was approved in Europe in February last year.<\/p>\n
A CLIA advantage for Xprecia<\/p>\n
The FDA approval for Xprecia Prime was accompanied by a Clinical Laboratory Improvement Amendment (CLIA) waiver, which is more momentous than its sounds.<\/p>\n
As Mr Sharman explains, the waiver means the tests can be used by laboratories that are not necessarily medical facilities and administered by non-doctors (nurses).<\/p>\n
The majority of US tests are done at such labs. \u201cBecause [coagulation] is more life-threatening than glucose, the FDA is very reluctant to allow [testing] outside of the hospitals,\u201d he says. \u201cSo, the agency did not take the decision lightly.\u201d<\/p>\n
Technically, the tests are prothrombotic time (PT) and international normalised ratio (INR) assays.<\/p>\n
In short, PT\/INR tests check the dosage of vitamin K antagonists (such as warfarin). Too much efficacy means there\u2019s a risk of dangerous bleeding; too little means there\u2019s a risk of thrombosis.<\/p>\n
At the end of 2023, 6,072 Xprecia devices had been sold in 36 countries, a year-on-year increase of 60 percent. Test strip sales grew 130 percent.<\/p>\n
No need to wine about testing<\/p>\n
Until now, busy vignerons have had to test their fermenting brews in separate procedures involving beakers and lots of fuss.<\/p>\n
The Sentia device enables instant hand-held testing of free sulphur dioxide, malic acid, glucose, fructose, acetic acid and titratable acidity.<\/p>\n
The company hopes to fill the obvious missing element \u2013 alcohol level testing.<\/p>\n
The Sentia devices sell for just over $2,000, with a per-strip cost of $3.50 \u2013 a fraction of the cost of the current tests.<\/p>\n
With more 100 million tests carried out each year, the wine market turns over $US850 million ($A1.1 billion) annually.<\/p>\n
Mr Sharman says 20 percent of Australian wineries have bought a Sentia device, as have seven percent of New Zealand and US wineries.<\/p>\n
Elsewhere the take-up has been minimal, notably in Europe where only about 300 of the region\u2019s 100,000 wineries have come on board. <\/p>\n
\u201cWe see [adoption by wineries in Australia] getting close to 40 percent and we see no reason why the US and the rest of the world won\u2019t get to those numbers in due course,\u201d Mr Sharman says.<\/p>\n
The truth about cats and dogs<\/p>\n
The company expects its Petrackr (sic) glucose testing device to be a howling success because these days owners will spend anything \u2013 or almost anything \u2013 to keep their treasured fluffballs healthy.<\/p>\n
At the same time, canine and feline obesity and diabetes levels are proliferating.<\/p>\n
Currently, UBI sells Petrackr in the US, Canada, the UK, New Zealand and here.<\/p>\n
The company cites a $300 million-a-year market, growing at 12 percent a year.<\/p>\n
However, sales have been slower than expected since the product hit distributors\u2019 shelves in the September quarter last year.<\/p>\n
\u201cWe thought we would do a couple of million of sales in the second [December] half, but we did just north of $500,000,\u201d Mr Sharman says.<\/p>\n
The key reason is that pet owners have about a year\u2019s supply of 50-70 strips for the incumbent product, sold by Zoetis.<\/p>\n
UBI\u2019s opportunity arises because Zoetis is discontinuing its current product and is forcing customers to upgrade.<\/p>\n
\u201cWe expect a large proportion of that market to move to Petrackr,\u201d Mr Sharman says.<\/p>\n
Why?<\/p>\n
\u201cOur device is easily the best and significantly cheaper.\u201d<\/p>\n
Need we have asked?<\/p>\n
Oncology not forgotten<\/p>\n
UBI has been developing an early warning test for the TN antigen which is expressed in at least 10 carcinomas including breast, lung, prostate, bladder and colorectal.<\/p>\n
Apart from early diagnosis, the simple test could help physicians to test cancer progression from stage one to stage three.<\/p>\n
The trouble is, the test is only about 70 percent effective, when 90 percent efficacy is needed.<\/p>\n
UBI would need to spend $10 million to $20 million over the next three to five years to perfect a test \u2013 a time span the market is not willing to support.<\/p>\n
Still, a reliable hand-held blood-based assay for a disease such as prostate cancer would be the Holy Grail of diagnosis.<\/p>\n
Water good idea<\/p>\n
With apologies to Danny Boy, the pipes, the pipes are calling for UBI by way of detecting heavy metal impurities in water.<\/p>\n
UBI\u2019s initial focus is on copper and lead, while arsenic and cadmium are also problematic.<\/p>\n
The company says about 180 million tests worth $US5.4 billion are done each year, with about 100 million properties in Western countries serviced by lead water pipes.<\/p>\n
Mr Sharman says these pipes are removed routinely when sites are redeveloped. <\/p>\n
That\u2019s fine, in theory: damaged, leaching lead pipes are dangerous. But many of these conduits are working fine and will do so for decades more.<\/p>\n
\u201cThe quicker the [housing] development, the more the pipes are cut and the faster the contamination,\u201d Mr Sharman says.<\/p>\n
UBI\u2019s device would enable house-to-house testing from the tap, enabling an accurate profile of where the problems lie.<\/p>\n
The company estimates one sample would cost around $5, compared with $60 for the current tests.<\/p>\n
Mr Sharman says water test is a low-cost, near-term opportunity that could help the company progress to break-even.<\/p>\n
Finances and performance<\/p>\n
UBI pre-empted the March 19 FDA news by announcing a $2.5 million institutional placement and a $10 million non-renounceable rights issue.<\/p>\n
The raising, which requires shareholder assent, is struck at the then market rate of 15 cents.<\/p>\n
The rights offer is underwritten by major shareholder Viburnum, which is represented on the UBI board by Craig Coleman.<\/p>\n
The offer also included a one-for-one option, exercisable at 20 cents within three years.<\/p>\n
In late February, UBI reported revenue of $6.63 million for the calendar 2023 year, 47 percent higher and narrowed its net loss to $6.74 million from $26.85 million previously. <\/p>\n
Product sales increased 66 percent to $5.64 million, while services revenue declined 14 percent to $990,000. The former is attributable to largely to Xprecia and Sentia sales and the latter to the company\u2019s legacy laboratory testing arm, HRL.<\/p>\n
Over the last year, UBI shares have ranged between 31 cents (mid-August last year) and 14 cents (mid-March this year).<\/p>\n
They peaked at around $2 in January 2010.<\/p>\n
Wielding the scythe<\/p>\n
Management has excised at least $4 million from the company\u2019s cost base \u2013 items such as rent and power \u2013 and invested it in sales and marketing.<\/p>\n
\u201cTwo years ago, we had one sales and marketing person; today we have 18,\u201d Mr Sharman says.<\/p>\n
Given the testing platform is mature, the company needs to spend little on ongoing research and development.<\/p>\n
UBI\u2019s key challenge is to improve utilisation of its production facility, at rented premises at Rowville in eastern Melbourne.<\/p>\n
While the factory spat out about two million strips last year, it can manage up to 70 million on a single shift, with no extra investment required.<\/p>\n
Dr Boreham\u2019s diagnosis:<\/p>\n
Mr Sharman likens the company to Roadshow Antiques, the multi-country TV franchise which appraises folks\u2019 trinkets in the hope of finding long-lost treasures.<\/p>\n
\u201cIf everyone dusted off what Universal Biosensors had \u2013 especially around its technology \u2013 they would go \u2018wow\u2019,\u201d he says.<\/p>\n
Given its slew of opportunities, UBI indeed has the potential to become the next Ming dynasty vase of the sector, rather than a mass-produced ceramic pot.<\/p>\n
Within 14 to18 months, sales from UBI\u2019s new and expanded products should flow in earnest \u2013 and it would not be a stretch for the company to double its revenue in calendar 2024.<\/p>\n
While investors have required oodles of patience, Mr Sharman promises that \u201cgreatness\u201d is around the corner.<\/p>\n
\u201cPatience and persistence are not the same thing,\u201d he says. \u201cYou can patiently wait for things that are never going to come, but persistence requires you to put effort in to stay on the right path.\u201d<\/p>\n
Disclosure: Dr Boreham is not a qualified medical practitioner and does not possess a doctorate of any sort. He is yet to discover a Ming dynasty vase among the chipped and crazed op-shop Carlton Ware but will never relinquish the hunt<\/p>\n
This column first appeared in Biotech Daily<\/p>\n
<\/span><\/p>\n The post Dr Boreham\u2019s Crucible<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"