Genetic Technologies Limited (NASDAQ:GENE) Q1 2023 Earnings Conference Call November 3, 2022 8:00 PM ET
Company Participants
Adrian Mulcahy – Investor Relations
Simon Morriss – Chief Executive Officer
Adrian Mulcahy
[Starts Abruptly] Genetic Technologies First Quarter FY ’23 Investor Webinar. We have with us today, which is great news, is Simon Morriss, the CEO of Genetic Technologies. And the way we’re going to run this is, Simon is going to go through some prepared slides, he’s going to talk through some of the overview of the quarter and some perhaps some forward-looking comments, if we can get that out of him as well. We’ll move into some questions at the end of that, and I encourage you — for those that are participating to lodge your questions and we’ll work through each of those in turn. Look, I expect this to probably run for roughly 30 minutes. So — but looking forward to Simon’s contribution and yours as well. So Simon, that’s a small introduction, can I hand back to you to get things underway.
Simon Morriss
Thank you, Adrian. Yes, looking forward to sharing the progress of the teams. Forward-looking statements here. Just we are going to give a few forward-looking statements over the course of this next 15 to 20 minutes before Q&A. So I will just make sure that we acknowledge those.
For those of you new to the Genetic Technologies story, we are really focused on unlocking personalized preventative medicine and transforming a one-size-fits-all model into a truly personalized preventative healthcare model. So we want to identify serious disease before onset, and we look well beyond family history, that empowers physicians and patients alike, to really take control of their health.
We have a world-leading guideline-driven portfolio, and it’s not just limited to some of the GeneType products that we’ve been accustomed to in the past. We had a lead patented GeneType multi-risk test, which covers up to 70% of mortalities and morbidities. We have NIPT testing, we have carrier testing, pharmacogenomics, oncogenetic testing and animal health. And we have three key brands that drive the revenues of our particular portfolio. The gene type for serious diseases, EasyDNA our direct-to-consumer brand and the recently acquired AffinityDNA brand.
Our GeneType product is a patented GeneType test with this genetic — polygenic risk test and clinical risk factors for both clinical and medical conditions. We are protected by 25 patents worldwide. It’s a noninvasive saliva-based test, combining those really sophisticated genetic component SNPs and clinical risk models, and they are cutting edge in identifying the risk of serious disease before onset.
A bit of an overview of the portfolio, who we are. We have 57 employees, across five locations around the world, where our brands are represented and sold across 40 different countries around the world. As I mentioned a moment ago, we have 25 patents granted, and those patents really protect the GeneType brand and the trademarks that we have. And we also have 14 test categories and 51 tests. So what’s really important, is we have relationships with 12 partner laboratories around the world, which allow us to get the presence in many of the countries. So we can’t do this without many of our partners in a number of the tests and the testing facilities around the world, as well as our leading CLIA and NATA certified facility here in Melbourne in Australia, which does a lot of our U.S.-based gene type samples as well as our samples from Australia as well, from the physicians.
Specifically focusing on the first quarter, FY ’23, which is why we’re all here for this update from the company here. We delivered $2.06 million in cash receipts. We have a gross margin of $0.9 million and around 44%, cash balance is just under $8 million at the end of the quarter. And what’s really important and really exciting for us is, there was 145% growth on prior year. So we’ve delivered now five consecutive quarters of growth on the prior year, and we’re aiming to deliver another — a sixth quarter of consecutive growth on prior year.
Our GeneType Multitest is now implemented in 64 clinics across the Australian market, and we’ve been promoting to over 10,000 GPs across the course of October on Breast Cancer Awareness month and really focusing heavily in that month around — beyond BRCA. And I’ll talk a little bit more about that in a moment.
Clinical utility demonstrated by a peer reviewed publication of the gene type of breast cancer in the Journal of Precision Medicine, is something that I really wanted to talk a little bit more detail about, in the upcoming slide, is that performance, because it demonstrated that our test outperformed traditional risk assessments of breast cancer, identifying high-risk patients about to 9x, and that was something that was really exciting.
We are really making material progress in the U.S. with the ALVA10, the Budget Impact Model and the payers. So we have a target list of 30. We have active conversations with 11, and we’re down to about four, which we believe are going to turn into really good commercial pilots or commercialization agreements in the near future in the coming three to six months or so.
We have been making some wonderful progress with our team in the United States with John Haslet, our Vice President of Business Development, along with our U.S.-based team, in concierge medicine clinics, independent doctor networks and obstetrics and gynecology clinics up there in the United States, and we’re really embarking on some wonderful progress, with a number of those clinicians. So there’s some really exciting strategic and operational highlights that we’ve had over the course of the last quarter, and building that momentum for growth into the future.
Focus is absolutely key for us as an organization and from the team, and we have four key focus areas. Number one, and I’m going to spend the majority of our time today talking about number one, which is the execution and the commercialization of the B2B strategy of the GeneType multi-risk test. I want to talk a little bit more about that and some of those pathways during this call. Demonstrating clinical validity and clinical utility of this test, really helps us enable that strategy to come to life in point number one. And the team have delivered on a number of supreme publications in the peer reviewed space, and also have a number of — up to 10 publications at the moment across all of the diseases, either in review format, in draft format, and being reviewed by the science community at the moment.
EasyDNA and AffinityDNA, both are direct-to-consumer businesses, and we are focusing heavily on the e-commerce strategy there of those two brands across the world, with new tests, new markets and new channels, and specifically the relaunch of the new website of EasyDNA in the coming weeks. So the technical elements of that have all been completed, and now we’re just finalizing all of the translations and uploading all of the content from the previous website. So that’s a real key for us. And the innovation is really key and starting with epigenetics in the coming quarter.
Innovation, as we mentioned, the multi-risk test, we have the first phase of the launch, which has been out there since earlier this year, gathering some great traction with breast cancer, colorectal cancer, prostate, ovarian, coronary artery disease and Type II diabetes. The other three tests are finalized in the science and the innovation component there and ready for submission for the regulators, and they’ll be available via regulatory approval from both the U.S. and from Australia. What’s really important here, is that the insight is guideline-driven and they’re actionable for physicians, and we’ll talk a little bit more about that in a moment, so they’re really key for us.
One of the things that’s most important from us from a piece of work and the body of work that’s driving a lot of the forward momentum in the B2B strategy for the GeneType tests, is the budget impact model and the payer system for the United States. And for those of you who have joined us in the past, you may have seen some of these figures in a previous slide, and those of you who have tuned into this, this is a real material piece of work.
So what we’ve done is, we’ve actually modeled with the team at ALVA10, implementation of our tests in the payer community and the payer system in the United States, whether they be health systems, employer groups, unions or whatever, and we’ve actually demonstrated that by the increased number of women being screened and the increased number of people who are being supplemented screening, because of their elevated risk, we’ve been able to demonstrate a drop in interval cancers significantly and that we’ve been able to detect a higher number of early-stage cancers. And overall, that has a positive impact on the health of the lifestyles of those through their early detection. But importantly, for the payers [indiscernible] it saves up to $1.4 billion per annum in the overall screening cost of breast cancer.
So not only do we have a better health outcome for patients in the United States to early detection and cheaper cost to treat, but we also have a savings and an economic benefit to the payer system in the United States, which is what’s getting us some really good traction, with a number of those payers.
And we have some smaller payer groups that we’re talking to, with the Kentucky Retired Teachers Union and we have some of the larger conversations happening, with things like HC21 and Anthem and the likes, and some smaller entrepreneurial-based payer systems out there, where they’re combining other services, which is part of a corporate health program. So there are some really exciting developments being — coming to life there.
What I wanted to take a moment here, was to really highlight some of the clinical utility that our team have developed, and there’s a hyperlink here. This presentation is available on the ASX, for those who want to have a look at it. There is a hyperlink to the paper that I’m referring to, as this slide here. But GeneType has demonstrated that it can identify up to 9x more cancer risk patients compared to the existing standard of care models. Now where we focus heavily on, is the sporadic element. Now 85% of breast cancer diagnosed, has no hereditary or familial link. Most people link this back to BRCA, for example. And if they’re negative for BRCA, they think that everything is okay and they’re safe, but that’s not necessarily the case.
We focus on the other 85%, the sporadic element of the cancer. And as you can see by the middle chart there versus, say, the IDS model, the GeneType risk test for breast cancer, which combines the genetics and the clinical risk models can identify up to 9x more high-risk patients. That means that those people are going to go into a higher level of surveillance, and therefore, the chance of us catching their cancer at the earliest possible stage, creating greater survival rate for those patients is actually better than the current standard of care that exists. And that’s something that’s really exciting from our team. We’ve got two more papers on breast cancer being submitted, that actually reinforces and supports this as well, and they will be coming up in the next couple of months. They’ve been submitted for review as we speak now.
Our divisions of operation focus heavily on oncology, cardiovascular disease, COVID-19 a serious disease, metabolic diseases and lifestyle. We actually have a pharmacogenomics test. We have germline testing, we have carrier and NIPT testing done through our partner laboratories around the world, and we really look to making sure that we can continue to bring those tests to our community as best as we possibly can, and with the greatest amount of affordability and better turnaround times, so we can allow patients to make better informed decisions, especially on things like carrier testing there.
You see the collection kit there for our GeneType products, is that FDA, TGA and EU require approved kit. So we have a really nice, narrow, simple supply chain, we have one collection device worldwide for all of our tests, that allow us to manage our supply chain and the consistency of our kids across the world.
Pathways to market, we have three, people — simple, medical business-to-business pathway, where we look at payers, payer communities. And I’ll talk a little bit more about that. That’s where the really big material upside from a revenue perspective is for us in the near term, over the course of the next three, six and 12 months. Consumer initiated is a really wonderful opportunity for consumers, who are really wanting to take a proactive approach to their health. They can go online. They can buy their tests. All they need to do is, provide their particular details to us from a doctor’s perspective. So the report — if you go back to them via their physician and get the right treatment and the right course of care.
And of course, our direct-to-consumer testing through EasyDNA and AffinityDNA, and we’ve made the decision that both of those brands will sit independently from a channel perspective, direct-to-consumer via EasyDNA and will use the AffinityDNA in the similar markets, but via other channels such as Amazon and eBay and those marketplaces out there, and that’s why they won’t cannibalize each other, and we’ll capture as much market opportunity and market penetration as we possibly can.
Focusing on just a little bit more about the payer and the B2B strategy here. It’s about leveraging the health and the economic modeling that by ALVA10 to really get that payer coverage in all of the big payer communities in the United States, and you can see a couple of others there where you’ve got Humana with 17 million lives covered, Aetna with 22 million lives covered, independents, such as the Blue Cross, the Blue Shields. And even down to some of the smaller ones I spoke about earlier, like the Kentucky Retired Teachers Union, which has about 20,000 members in there, and they’re just really, really the cutting edge of healthcare for their members.
I also wanted to take a moment to really showcase some of the clinical utility and the partnerships and the collaborations that our science team have developed over the years, that really bring this science to life, and we’re working really closely with the likes of Professor Bernard Rosner of Harvard Medical School there. We’re working with Professor Graham Colditz, at Washington State University; Professor John Hopper at the University of Melbourne, and they’re really great collaborations. We’ve also got Professor Jon Emery here in Melbourne and Memorial Sloan Kettering, and the Ohio State University. So there are some really important collaborations that we are having over the course of building the sites, especially the GeneType brand.
DTC, direct-to-consumer is a really important part of our business as well, to showcase our brands around the world. We’ve just finished a brand refresh with EasyDNA. We’ve just finished the final technical designs and the elements of the website for the relaunch of that, and that’s a new cutting-edge e-commerce-based, e-commerce platform for us. So that’s finalized and a lot of content is being loaded up there at the moment in the next couple of weeks. That then allows us for Phase 2 for revenue for growth, with the improved lead generation, better Google ads, better Facebook ads, better content and e-mail marketing and really e-mail marketing through testimonials. We have to manage better things like abandonment rates for to retarget, remarket to those people. And then with AffinityDNA, Amazon storefront and targeting a number of B2B conferences and things like that.
I’ll give you an example. We just participated last week at a Dog Owners show here, where we had our pet — and using our Petgen brand, where we were focusing heavily on that one there. And it was three days and the amount of groomers, amount of animal item, amount of dog rescue companies there, vets, that really wanted to have the gene tests the tolerance testing that we have there, and implement that into their portfolio was just incredible. So it was a great brand profiling piece for us, for the EasyDNA brand.
So with that, I’d like just to hand back to Adrian, because I’m sure that there are a number of questions, and I just didn’t want to make it a one-way round. So we have on this presentation also our LinkedIn page there. So when you do download this presentation off the ASX website or even off our own website, please follow us, because we share a lot of stories and a lot of activity that the team are doing via that platform there, and we encourage you to jump online.
So with that, I might stop sharing my screen Adrian, and just see if there’s any questions that may come from the floor over the sort of next 10 minutes or so.
Question-and-Answer Session
A – Adrian Mulcahy
Yes, thank you, Simon. And not surprisingly, there are a bunch. If I was to group them Simon, I kind of like — we’ve got a bit of revenue and cost type questions. We’ve got some operating partnership type questions and some more macro type ones. So why don’t we do a step for those in terms. So first one, and this is a pretty big quick one, what are the anticipated synergies we expect to occur between those three key brands of GeneType, EasyDNA and AffinityDNA?
Simon Morriss
I think they actually sit really quite nicely and independent in the market. So what we’re trying to do in managing a multi-brand strategy, is making sure that you position them in such a way, that they have as much clean air as possible. So GeneType is really focused on serious disease, so that’s important. Where we need to be really cautious and careful is, there is a lot of similarities between the EasyDNA and the AffinityDNA. So we need to make sure that they are channel specific. So the direct-to-consumer EasyDNA brand, which is the majority of the revenue of the two brands, and then making sure that we focus AffinityDNA on the likes of the other channels, such as Amazon marketplaces and things like that. So they don’t cannibalize each other and they don’t set themselves up to pricing conflict and things like that.
So there is lots of synergies in growing the business. However, we do like to try and create them as a multi-brand strategy, to make sure they both have their own groups of customers and groups that they talk to in the portfolio.
Adrian Mulcahy
That’s great. Next one, a really quick one, so what is the revenue breakdown between those three brands?
Simon Morriss
Yes. At the moment, the majority of the revenue is coming from the direct-to-consumer brands, and that’s close to 80%, 85% at this stage. And the GeneType brand is the smaller component of our current revenues that we’ve got at the moment, although we believe and we’re forward-looking and forward estimates, are that the most material growth for us as an organization in the coming six months, 12 and two years, will actually come out of the big material contracts that we’re looking to secure with the payers with the GeneType brand and expanding that one worldwide. So there will be growth in the EasyDNA. There will be growth in AffinityDNA, but one by one consumer versus many, so educating ones versus educating many with the GeneType brand, will see material revenue gains in the GeneType brand in the future.
Adrian Mulcahy
So Simon, a slightly more forward-looking a bit cheeky this question, but what is the revenue expectation, and when will it move to a profitable position?
Simon Morriss
That’s — I’m not in a position to probably forecast when it would be into a profit or a cash flow positive position, but we would hope that would be in that position probably within the next 12 to 18 months. But that’s all subject to what we can do with securing some of these payers. Now that’s a real variable there. So if we secure a payer that’s got 17 million lives covered, versus 1 million lives covered, there’s a materially different revenue model outlook there, for example. So I think that — I don’t want to be held at that one there, but we’re chasing as many big contractors as we can, to bring that as close as we possibly can.
Adrian Mulcahy
Great, thanks Simon. So moving on to operational and external partnerships. So can you tell us more about the partnerships with Medlab, Hahn Health and Siles Healthcare, and how this helps execution of the B2B strategy and convert your revenue leads?
Simon Morriss
Yes, I think all of those partners are really important in the Australian ecosystem, for us to secure the B2B primary care physician and the GPs there. So we start with Hahn Healthcare, with the virtual sales representatives, that actually identify the leads and identify those really innovative forward-thinking clinicians that want to implement the GeneType test as part of their routine patient care.
They then forward them on to our team at Hahn Healthcare, who are six medical site liaisons around the country, who then go and educate and onboard those clinicians, and then Siles come into it, when a clinician gets the results back, and they may have some element of uncertainty that, okay, so how do I handle this patient’s pathway, that the Siles Healthcare team identify with their counseling team, the right patient pathway and they’re there to support the clinicians.
So it’s a real clinician-to-clinician network that allows us to identify and onboard these tests in the clinical setting, to put that into the routine care for patients going forward. So they’re really important in their own right, as part of our B2B strategy in Australia going forward.
Adrian Mulcahy
Thanks, Simon. Next question. So what’s the plan to further expand the market distribution channels, and how are the online marketplaces performing and does Genetic Technologies have an intention to expand further in this area?
Simon Morriss
Sure. First and foremost, I go back to the core focus areas, B2B strategy, GeneType is our core focus. Australia and the U.S., our core focus, making sure that we get that right, then we will focus on moving that into more of the Northern Hemisphere into Europe, Southeast Asia and then up into India. So those market opportunities are great. The expansion of the tests to add on to those that, because the collection device allows us to report on all of those tests at the one time, so it makes it really efficient, so it’s just adding another check box for a physician to order those tests, so we can expand that really quickly as well.
So I think there are some really wonderful market expansion opportunities and product expansion opportunities for the GeneType brand. The marketplaces out there for EasyDNA and AffinityDNA, really is competitive out there, when you look at the likes of the Amazons and the eBays and those marketplaces. And there is an e-commerce strategy, there is e-commerce strategy, and a platform that we’re building our brands on there, is really, really important for us to be able to retarget, remarket bundles, sell more of them one at a time and move away from the old system that we’ve had there for many, many years into this new platform. So that’s where our growth is going to come from into the future.
There’s other opportunities with regards to clinical research, implementing the GeneType product into identified patient recruitment. So one of the biggest issues that clinical trials have with pharmaceutical companies, is the recruitment strategy for patients to be able to do Phase 2, Phase 3 trials. We have a role to play in there with physicians to be able to identify the right cohort of patients. So that’s another area, that’s part of the B2B strategy for the GeneType brand beyond the payer model, that we can actually make sure that we implement our testing to as well. So tremendous opportunity, but like I said earlier, focus is key and executing on the core four is key, before looking too broadly on some of the other opportunities there for ourselves.
Adrian Mulcahy
Thanks, Simon. So next question, with the comprehensive portfolio of testing offer by Genetic Technologies, is — are you looking to develop more products in pharmacogenomics?
Simon Morriss
Less in the development of pharmacogenomics, we will probably focus more heavily on making sure that we bring products to market with our partners, on things like carrier testing, NIPT testing, where that is becoming more and more prevalent. And especially in Australia, carrier screening will actually become reimbursable by the government towards the end of next year. So gearing up ready for that and making sure that our teams can support our physicians, with the carrier testing services and things like that. So they’re all things with our partner laboratories that we have in there, to make sure that our partners, to make sure that we can service our clinicians with the most comprehensive portfolio we possibly can, as a group.
Adrian Mulcahy
Thanks, Simon. You’ve made mention of this before, a budget impact model. So being completed for the U.S., is it your intention to conduct a similar process in the Australian market?
Simon Morriss
Yes. We’ll actually be reviewing the budget impact model at the moment. We’re actually talking to the team in Boston this morning. We will be completing an exercise on that at the moment, where we’ll actually overlay the payer model, which is the government here in Australia. So it’s actually a little bit simpler than the U.S., because there’s one real payer here in Australia versus many in the U.S., and they’re overlaying the thresholds for risk in Australia into that model, to identify how we can have a positive impact on health and have a positive impact on the economics, which is the government.
And obviously, with the rising debt levels, any way that we can identify ways to actually save the healthcare system money, I’m sure that we will get a great reception from government and policymakers there. So we’ll certainly be taking that as a key action item, which actually supports that B2B strategy and the GeneType brand, which is item number one in our key focus areas.
Adrian Mulcahy
Thanks Simon. And you’ve spoken about this earlier as well. So can you explain more about the engagement with ALVA10, and what are the next steps for the reimbursement pathway for the U.S. payers, and what about the Australian market as well?
Simon Morriss
Yes. So ALVA10 are critical in this. They are an independent company. They’re based in Boston. They are a market access team. They have the relationships with the payers. They understand the pain points of the payers, and they are our interface between us and the payer community, in order to be able to then justify why it’s important to implement a test like ours, to identify screening the patients, so that they can provide the right preventative pathways, and they get the best possible health outcomes and they can get the best possible economic outcomes for them.
So ALVA10 is really critical for us in the execution of our strategy from a B2B perspective there going forward. So they’re really important partners for us, and the market access team that they’ve got over there, in introducing us to the right communities, is really important.
Adrian Mulcahy
Simon just got a couple more here that have come through. So these are certainly more macro. So what works, if any are underway with the governments in Australia and the U.S. to have risk assessment tests subsidized?
Simon Morriss
Yes. I think in Australia, we’re focusing now, because there is an incredible number of women in parliament now, that we’re reaching out to, to really bring women’s health and priority in preventative health to the fore. So we’re doing some work with that. We’ve engaged a fellow in Tasmania, who is out to help us with our government relations strategy here in Australia. Women’s Health and some of those politicians, their policies, it’s right — really high on their agenda. Also, there are implementation of our tests, which can unlock things like MRI reimbursement surveillance programs for women.
So utilization of our tests can actually identify those people at elevated risks, and then put them on appropriate surveillance pathways, which is reimbursable by the government. So whilst in the first instance, our test is not reimbursable, it is an enabler for reimbursement to take place, with regards to, say, MRO surveillance and things like that, under some of the MBS item numbers, that are already being covered. So we’re working with physicians to make sure that we utilize our tool, to enable patients to get the best possible care that they can, and minimize late-stage diagnosis of cancers.
Adrian Mulcahy
Thanks, Simon. So this is the final question, and it’s probably a good one to wrap up on, to be quite honest. So what is the upcoming focus for Genetic Technologies and how do you see the next few years for the Group?
Simon Morriss
Yes, I think focus is key, absolutely, focus on execution is key, building the brand, building the strategy, executing on the plan is really key. Focusing on those four key focus areas that I shared in the slides a little earlier about B2B strategy, the payer community and the GeneType multi-test is absolutely key and critical for our brand. The clinical utility, clinical validity, so the peers really believe in the science and wants to adopt it in their routine treatment of care, is critical. Growing and building the EasyDNA and AffinityDNA brands are absolutely critical for us. And then looking at those new elements of innovation, which we’re starting with epigenetics, and then looking at other aspects there beyond that and opportunities for the brands, such as carrier screening, NIPT and partnering with our groups, to make sure that we bring the best possible tests to market.
So as I mentioned, there is a really good prosperous upside for the organization going forward, as long as we stay focused on those key areas there and then we really stay focused on executing the plan on that payer community and the B2B community, and bring the material revenues forward and bring them as fast as we possibly can.
Adrian Mulcahy
Thanks, Simon. We’ve exhausted the group. So thank you for those that have contributed those questions. So just back to you for any final remarks.
Simon Morriss
No, I think I’d like to thank everybody for jumping online. Thank everybody for following the journey, and we do have regular feedback from shareholders to actually help us give us feedback and shape what we do. We do take notice of that. We do take that seriously. It’s a wonderful time to invest in the organization. We have some tremendous upside. We’re building a great team to execute our plan, and we look forward to providing you with more updates going forward. So the future is wonderfully bright for the organization.
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