By John Vandermosten, CFA
NASDAQ:GBS
READ THE FULL GBS RESEARCH REPORT
Fiscal Year 2022 Operational and Financial Results
GBS, Inc. (NASDAQ:GBS) announced fiscal year 2022 financial and operational results for the period ending June 30, 2022 in an August 31 press release and subsequently filed Form 10-K on September 22, 2022.
Year to Date 2022 Events
➢ Participation in Roth & Maxim Investor Conferences – March 2022
➢ IRB approval for glucose collection trial – March 2022
➢ Plasma-saliva correlation studies with Johns Hopkins - 1H:22
➢ Initial batch of equipment ordered and finalized - April/June 2022
➢ Exclusivity agreement signed with Intelligent Fingerprinting – June 2022
➢ Site selected for biosensor manufacturing facility – June 2022
➢ Completion of sample selection for correlation study – July 2022
Upcoming Milestones
➢ Upgrade existing fabrication facility - 2022
➢ Announcement of correlation study details – September 2022
➢ Biosensor algorithm development - 4Q:22
➢ Construction start for manufacturing facility – Before year end 2022
➢ Clinical trials & validation of ecosystem ready for FDA/TGA1 submission – 1Q:23
➢ Saliva glucose sensor FDA/TGA submission – 1H:23
Financial Results
In its latest fiscal year ending June 30, GBS generated revenues from government support of $437,000 up from $2.0 million in the prior year period attributable to the recognition of an R&D tax refund. Operating expense totaled $8.8 million producing a net loss of ($8.3) million or ($0.57) per share.
For the fiscal year 2022 ending June 30, 2022 and versus the same prior year period:
➢ General & Administrative expenses rose 46% to $4.9 million from $3.4 million driven primarily by an increase in operational activities following completion of the IPO in December 2020;
➢ Development & Regulatory Approval expenses were essentially flat at $3.9 million;
➢ Other expenses were zero vs. $359,000;
➢ Total operating expenses increased 16% to $8.8 million from $7.6 million;
➢ Net other expense was ($25,000) vs an expense of ($1.5) million on lower interest expense, absence of equity method investment expense partially offset by improved foreign exchange expense;
➢ Net loss including non-controlling interests was ($8.3) million vs. ($7.0) million or ($0.57) and ($0.68) per share, respectively.
As of June 30, 2022, cash and equivalents totaled $8.2 million. This amount compares to a $12.6 million held on June 30, 2021, the end of the company’s prior fiscal year. GBS continues with no debt on its balance sheet. Cash burn for FY:22 totaled ($3.7) million. No financing cash flows were recognized.
Sample Collection Completed for Correlation Study
GBS announced that it had completed its sample collection for the correlation study on July 13th. This study represents the next step required prior to the biosensor response study that will commence when the data from the correlation study has been compiled. The study enrolled 40 adults with type two diabetes with a broad distribution of gender and age. From this group, 1,400 samples were collected and analyzed to characterize the degree of agreement among the various sample types. GBS used independent glucose measurement procedures to quantify glucose in oral fluids and blood, in order to characterize the degree of agreement among the various sample types.
The work took place at the Diabetes Research Institute of Sutter Health’s Mills-Peninsula Medical Center (MPMC) in San Mateo, California. Next steps are to perform statistical analyses to determine the correlation of glucose levels among the sample types. Results from the study will support a portfolio of prospective clinical evidence that will support future regulatory submissions
GBS Signs Exclusivity Agreement for Fingerprint Drug Detection Company
In a June 16th press release, GBS, Inc. announced that it had entered into an exclusivity agreement to acquire Intelligent Fingerprinting Limited (IFP), a UK-based device company that is developing a fingerprint reader for drug screening and detection. GBS management is now conducting due diligence on the private company that offers numerous synergies to GBS’ legacy platform. Some of the primary synergies that can be shared between the two companies are:
➢ GBS’ regulatory experience with FDA
➢ GBS’ capital and cash balance
➢ GBS’ geographic experience in Oceana and Asia-Pacific
➢ IFP’s commercialization and research & development experience
➢ IFP’s manufacturing facilities
➢ IFP’s experience securing the CE mark
➢ IFP’s full ownership of technology rights
➢ IFP’s revenue and potential cash flow generation which may reduce the need for a capital raise
➢ Concentration of assets in the non-invasive diagnostic space
In return for the exclusivity period, GBS entered into a Bridge Facility Agreement to provide IFP with an unsecured loan facility of $500,000 which is repayable prior to year-end. Originally the exclusivity period was to end on August 31, but has since been extended to December 31, 2022. Ladenburg Thalmann is the financial advisor to GBS, and ArentFox Schiff is legal advisor. Bristows LLP is legal advisor to Intelligent Fingerprinting.
The next step for GBS management is to complete the due diligence process which is expected to conclude prior to year-end. Management will be reviewing the product and technology, including sensitivity and specificity of the system, cost and opportunity for the device and cartridge combination. It will also perform a financial review. If the acquisition is consummated, GBS will take next steps for commercialization in the Asia Pacific region and begin efforts to obtain FDA approval either via the de novo or 510k pathway. Since the product does not have a distinct predicate device, it is likely to require de novo approval in the United States.
According to Grandview Research, the size of the drug testing market was $8.1 billion in 2020 and is expected to grow at 4.9% per annum until 2028. GBS has indicated that IFP’s growth rate is in the low double digit range off of a small base.
Intelligent Fingerprinting
Intelligent Fingerprinting offers a point of service, 10-minute test that uses skin fluids to screen for a number of drugs. The testing kit is used to collect and analyze traces of eccrine sweat contained in fingerprints to screen for the presence of drugs and their metabolites.
The company offers a selection of products including the DSR-Plus drug screening device which accepts the fingerprint drug screening cartridge. The cartridges that collect the sample use lateral flow assay technology and fluorescence-labelled antibodies to detect cocaine, cannabis, opiates (methadone, benzodiazepines, buprenorphine) and methamphetamines. The technology behind the four-panel test can reveal the drugs or their metabolites in a portable, rapid approach that does not require special facilities. The company highlights applications in construction, transportation & construction, drug rehabilitation, post mortem analysis and offender management among others.
The drug screening system provides an on-the-spot, 10-minute test that works by analyzing fingerprint sweat to screen for recent drug use. The noninvasive system consists of a portable reader and single-use disposable cartridges. The cartridge is a self-contained unit that can either be read on-site with the accompanying IFP reader or be sent to the lab for analysis. The cartridge can be sealed and secured after the subject has provided the sample and includes an integrated buffer for maintaining pH.
We see a number of synergies between GBS and IFP. Both companies inhabit the non-invasive diagnostic testing space employing an improved collection method for analytes used in frequent testing. They can share regulatory development experience in both the US and EU. No information has been shared on how close IFP is to generating positive cash flow, its revenue levels or incremental margin; however, the asset may be able to contribute to the R&D budget of the company in the near term reducing the need for future capital raises.
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1. Australian Therapeutics Goods Administration (TGA).
2. Source: Intelligent Fingerprinting website accessed June 2022.
3. Source: GBS May 2022 Corporate Presentation