Zacks Small Cap Research – OTC Markets Hosts Virtual Investor Presentation with Brian Firth, CEO of Gemina Laboratories, and Brad Sorensen, Senior Analyst at Zacks SCR – Technologist

OTCQB:GLABF | CSE:GLAB

John Viglotti: Hello and welcome to Virtual Investor Conferences. My name is John Viglotti on behalf of OTC Markets, as well as our co-host Zacks Small Cap Research. We’re very pleased you joined us for our first presentation of the day from Gemina Labs. Their session will be moderated by Brad Sorensen. He’s a Senior Equity Research Analyst with Zacks Small Cap Research. Please note that you can submit questions for the presenter in the box to the left of the slides, and you can also view a company’s availability for one-on-one meetings through the Schedule Meetings tab found on the conference platform. At this point, I’m very pleased to welcome Brian Firth. He is the Chief Executive Officer of Gemina Laboratories, which trades as of this morning on the OTCQB venture market under the symbol GLABF and on the CSE under the symbol GLAB. Welcome Brian and Brad.

Brian Firth: Thank you very much, John. Let me just start by saying a little bit about who Gemina is. We are a listed company, and it’s a big day for us. We’ve just gone live with the OTC markets as of this morning. So because we’re a listed company, obviously the usual disclaimers, I would point people to our disclosures, which are now on otcmarkets.com under our page if you’re in the US. If you’re in Canada on CSC or on CDAR. What we are talking about here is point-of-care testing. I would say point-of-care testing came into its own with the original invention of the clear blue pregnancy test some 35 years ago. A company I know, well, having been chief operating officer there before I came to Gemina Labs. By point of care testing, we mean diagnostics that occur at the patient. That means you take the sample, run the test, and give them the result without having to leave the patient’s side. Of course, home pregnancy testing is probably the best example of that in some ways, nowadays maybe, COVID testing as well. The point-of-care market is worth about $43 billion. It splits up into three different areas. One is the lateral flow testing market. Another is molecular diagnostics, which we also heard a lot about during COVID. The third area is really dominated by electrochemistry and, therefore, diabetes self-testing.

BF: The challenge with point-of-care is really performance. People want point-of-care tests to be performed like central lab tests, the big analyzers in hospital central labs. And that really gets to my introduction to what we do at Gemina Labs. We are a diagnostics technology company. So if a medical diagnostic like a COVID test or a pregnancy test was a car, we are to diagnostics what the turbocharger is to the car engine. We provide specialist chemistries that really improve the performance of point-of-care diagnostic tests. To illustrate what I mean by that if I take something like a lateral flow test and a COVID test. That test works by spraying the antibody in a line, and that antibody is meant to capture the antigen you’re looking for and form the line.

BF: That’s why you see the pink line forming when you’re doing a COVID test. The problem is you want your antibody to be standing like netball players with their hands in the air in a straight line, ready to catch the ball. In reality, that doesn’t happen. When you spray it down, some of the antibodies lie on its side, and some are upside down. So it’s not quite the well-regimented line of players with their hands in the air you’re looking for. Gemina chemistry essentially sprays down before the antibody, flipping the antibodies all up correctly. What that does is it increases your sensitivity and, therefore, your performance, giving you a choice of whether you reduce the amount of antibody you use for the same performance or increase your test’s performance. And we do something similar in all other areas.

BF: We operate because we’re a done like an IP company, and we license our technology to other people. If you look across our pipeline at the moment, the customers we have in our pipeline represent about 25% of the global lateral flow market as one area. On average, we’re running at about 4 cents a test in that pipeline. A typical license size for us is about 500 million tests per annum. So that’s kind of what we’re pitching at. High margin, high repeat revenue business.

BF: And that’s where we are. We have strong patented technologies that have been validated by the clinical industry. We’ve got a focus strategy, which really means we’ve got an addressable market of about 3.4 billion-plus. We’re beginning to generate commercial traction after signing our first license deal at the beginning of this year. As I already said, 25% of the addressable market is already in our pipeline. We have a business model based on several routes to market, but generating at least 75% margins, some strong tailwinds, and a very experienced management team. With that, I think I’ll hand it over to Brad and let him quiz me or interrogate me.

Brad Sorensen: Well, hopefully, it won’t be that bad, but thank you. I’m excited to be here. Thanks for letting me talk to you and represent investors. Hopefully, I do a good enough job, and if there are investors that have questions, as we said before, feel free to type those in, and I’ll get those to Brian so he can address those as well because I certainly don’t have the monopoly on good questions. This is an investor forum, so we want to talk about the financials a little bit more. The margins looked really good. That’s what I think is very attractive about this.

BS: So can you go into a little bit about the manufacturing, the costs that go into it, how reliable those are versus variable versus fixed, and how predictable those costs are. Let’s talk about the manufacturing process. Is that in-house? Do you export it? Those kind of things.

BF: Yeah, absolutely. We do our own manufacturing, and the reason we do that is although I said we are licensed and that’s our sort of main revenue path. The way we license is we supply a core protein, a bit like McDonald’s would supply the syrup. So say you wanted to license the Coca-Cola brand. You would license the brand, but they supply the syrup, the magic ingredient. We do the same, right? So we supply proteins to people, attach a license to that, and make the proteins ourselves. That’s essentially the process. The best way I can describe the process is that it’s a bit like home brewing on a sort of industrial scale.

BF: So it’s highly predictable. We could do it significantly cheaper if we increased the size of the bioreactors. We deliberately choose not to do that because, of course, if you increase the size of a bioreactor, you also increase the risk of a whole batch going down, and it’s a much bigger batch. Put this in concept: If you think of some of those little packets of sugar you might get in a cafeteria on the side of the freeway or whatever, I think the sugar in that is about one cent. If you made that gold, that’s about $170, $180. I used to work in drug abuse, so this is why I know the next number. If that were pure cocaine, that would be somewhere around $500. It would be closer to $250,000 to half a million dollars if it were our material. We’re talking microscopic sizes here. It’s not as if we have a problem shipping it around. It’s high value, but it’s very, very small. We don’t need a factory the size of an oil refinery to produce the kind of volumes we’re talking about.

BS: Right. I understand. That’s good. You keep control of the process and the quality; that is all important as well.

BF: And it means we generate gross margin typically around 85%.

BS: Yeah, that’s awesome. And, yeah, we don’t want the headline to be that your product is more valuable than cocaine, but that is a good illustration. The question that came to my mind when you were talking about this is, okay, so you have these proteins that go out there, and you explain the way it works. I think that was a great analogy with supercharging the way it works, the way an automobile does because a lot of people understand that. Is there one set of proteins that affect multiple conditions? Or do you have to come up with a derivation of the original or continue to develop that to diagnose other conditions?

BF: That’s a really good question. Our patent basically covers something called a dual affinity binder. There are three components to the protein: the top, the middle, and the bottom. The top is the thing that grabs hold of your target, right? If it’s grabbing hold of an antibody, it’s one type. It’s basically the same protein for all lateral flow tests. But of course, if we move to something like molecular tests where you’re looking for DNA, we have to change the top end, as it were. We do that in order to be able to go after DNA. If you wanted to go after some bacteria, we’d have to change the top again, right? So we have to change that end.

BF: At the other end, we change depending on the material we’re trying to stick to. In fact, our CTO sometimes describes us as really at the root of what we are: clever glue guys at a microscopic scale. We stick things together that shouldn’t really stick together. In the case of a lateral flow test, you’re normally trying to stick onto nitrocellulose. Nitrocellulose is a horrible material, and it really only gets used in lateral flow by accident if you go back to history. But nobody can get antibodies to stick to paper, but Gemina chemistry does.

BF: So you can tune the bottom end of the linker to stick to nitrocellulose, paper, glass, graphene, or anything, right? So if somebody came to us and said, “Look, we want to run this assay, but we want to run it on glass,” we would have to tune the bottom half of the linker to pick on glass. So that’s the two variables. One, what target are you going for? Other, what are you actually trying to capture that target on? Depending on what those are, we tune them.

BS: So, in theory, you can manipulate your existing for a vast amount of conditions.

BF: Yeah.

BS: Excellent. How long does it take? COVID, for example. People say we will at some point. Hopefully, it’s not in our lifetimes. How quickly could you get a test out for something like that?

BF: So, modifying a linker for something is really quick for us. To prove the technology, we did put the technology onto a COVID test. I think we did it in record time. In fact, it was less than 18 months from start to finish, whereas normally, a diagnostic test takes years. Actually, the linker, the R&D team, can do it in months, even weeks, because it’s a click and connect. It’s almost like using Lego, really. They will not thank me for saying that, being a non-scientist. But they’ve almost got it down to that level. Rob, the CTO, is particularly good at doing that. The thing that takes the time when you look back to COVID is that actually, the time that it took to get a test out is two things.

BF: One, you’ve got to have an antibody, right? So if you’ve got no antibodies in the lateral flow test, you’re dead in the water anyway. But actually, we did have antibodies for COVID, right? They theoretically could produce lateral flow tests quite quickly. But the problem is that when you make a lateral flow test, a lot of optimization must be done when you’re tuning the antibodies onto the nitrocellulose. With Gemina chemistry, you’ve got the option of actually making a completely generic cartridge. And you put your antibodies into a lyophilized beat. That way, you can turn around a new test much faster in weeks, not months or years. That’s really where we come into the process of actually enabling all that.

BS: Excellent. Yeah, that is a big plus to be able to get that out. I think the world saw how important it was to be able to get these things out quickly sometimes. What conditions can your existing products test for or be part of testing for? And are there future conditions that you’re working on at this point in time?

BF: The way that we work is in order to tune particular things, we tend to pick something that’s quite difficult to do. Then, prove we can make the technology work on that. For lateral flow tests, we did COVID. We’re now working with partners covering everything from respiratory diseases to pregnancy to cardio tests and beyond across different sample types: saliva, urine, blood, et cetera.

BF: There’s a whole gamut there that we can do and are involved in as we partner with companies to do that. We’re also now turning our attention to molecular testing, which is not about capturing an antibody but extracting DNA. When you boil it down, many mobile molecular tests are really about whether you can get the DNA from an easy-to-collect sample. If you take a really hard one, like TB. What you want to do is get TB testing done by taking sputum samples, which are horrible things to take from deep down in the lungs.

BF: Can you actually get the DNA from saliva? Because then it’s a very simple process. You can also take mobile molecular tests right into the field. That’s something we’ve been working on. We’ve proved, I think we announced last year, and we’re carrying on working and taking into trials later this year, that you can actually detect TB from saliva.

BS: Wow, that would be a big improvement over the existing tests. Who are the partners you work with within the United States? Like are they at the pharmaceutical level, the biotech level, or the retail level? But, are they major pharmaceutical-type companies? Just kind of generalized, who are you looking for partners? Do people come to you with requests, asking, “Hey, we have this test and need to improve it? Can you guys work on this?”

BF: A combination of things. We’ve had people come to us, and we’ve got tests that need to meet future FDA requirements. They are saying, “We need to improve the performance to get there.” We have people who are generally looking at the technology saying, “Hang on, this needs a general improvement to what we’re doing.” I think the best way to describe the kind of people we work with, particularly in the States, is if you separated diagnostic companies into the very bigs, the Abbots, the Danahers, the Roches, these kinds of guys. Then you’ve got the next tier two, which are the sort of people that might be doing up to 500 million tests a year. They might be in pregnancy, they might be in cardiology, whatever. Then there’s a big tail of lots of smaller companies who’ll be doing anything up to 100 million tests a year but probably average around 10 or 20 million tests a year.

BF: We tend to focus on the top two. The biggest and the second tier. We’re working with people across pregnancy, cardiology, infectious disease, and respiratory diseases. We’re working with people across infectious diseases and respiratory diseases, so we’re full gamut. But you can probably say that they’re the significant players in the US and beyond.

BS: Right. Excellent. Yeah, that’s as specific as I want to get because I know there are some regulatory issues that we don’t want to get into. This sounds great. To the extent you can discuss, what kind of growth rate over the next few years? It sounds like this is almost an unlimited opportunity; really, there are just tons and tons. Obviously, people listening to this call know there are a lot of diseases out there, unfortunately. There are a lot of diagnostic tests needed. What kind of growth rate are you looking at? What countries are you in? Are you looking at expanding? Those growth-type things help investors get a sense of the company.

BF: At the moment, we’re in Europe, Canada, and the US. We will look beyond towards the east. We’re doing some stuff in India at the moment, and we’re doing some stuff in the Middle East. But ultimately, we’ll go where all the biggest players are. The biggest ones are really the US and Europe. There are some big players in South Korea. You might see us in South Korea. I don’t think you’ll see us in China in the short term.

BS: Yeah, a lot of issues that come with that.

BF: I’ve operated in China before; I mean, it’s difficult, and you have to deal with a government partner, so you know.

BF: In terms of growth rates, it’s really about how fast companies move through the various processes. When somebody starts talking to us, they come alongside us, looking at the technology, and then they get to the point where they want to put it into their own internal evaluation. An internal evaluation can take anywhere between three and six months. Then we get into a process of negotiating development licenses, and they start putting onto real products. That depends on their length and their product development cycle. Then, you’re into full license agreements for supply on an ongoing basis. The whole process, from the initial sort of look-see to a license, can take up to 18 months, typically around 12. Sometimes it can be between six and 12 from the point where you’re at evaluation. Although we signed our first license agreement at the beginning of the year, we’ve got another four companies already in evaluation. How fast we can keep up with the capacity will limit our growth.

BS: Right. As you said, you have a lot in the pipeline. So, are you already making plans to expand capacity?

BF: Yes, very much so. In fact, the best way I can describe what we’ve done is we have a sort of modular capacity, as it were, which is a specific size. We think it is a size that is not too risky if you lose one light, you’re not losing too much. That’s rare that it happens, but it does happen in bioreactors; suddenly, you’ll get some kind of contaminant in it even though you try and keep the thing completely clean. Maybe you can expect a bioreactor to fail once every two or three years. We’ve focused in on a size that doesn’t increase that risk, but it means that we can very easily and quickly add capacity to the end of the line. We’ve decided it’s better to have multiple smaller reactors than one big 1,000-liter tank. It also means that we can put them in other places. We can put them closer to where we need to be having the proteins. Over the next two or three years, you’ll see us adding capacity at our core plant in Vancouver, but you could see us adding capacity elsewhere.

BS: Excellent. You mentioned the contracts. These are ongoing licensing agreements. The revenue is recurring; it’s not just a one-time.

BF: Yeah. The way we do it is, as I said, a bit like the Coca-Cola model. What we do is supply the protein, and the license goes as on top of that protein, and it is priced per volume of protein. As long as they keep using that protein and as long as they keep manufacturing that diagnostic, we keep the revenues running. Typically, when thinking about what happens once you’ve got a regulated product, you don’t want to change it because putting it back to the regulators is such a pain. Once you’re on a product, you’re there for a long time. I mean, let’s face it. I used to work for Clearblue, and pregnancy tests have been the same. We’ve been making the same pregnancy test for about 35 years.

BS: This will be my last question, and then I’ll get to some listener questions I just want to talk about the regulations because, in this space, a lot of people are familiar with the FDA. It can be a bear to deal with. How regulated are you? What kind of burden is that on your operation?

BF: Well, actually, technically, we just need to have ISO 9001 because our products are going into somebody who is putting their products through regulations. We don’t have to carry the regulatory overhead, as it were, which is one of the other reasons we have quite a low operation cost. It does mean that we are working with customers who do, and we have to keep up with that. But actually, we operate using good manufacturing practices. We operate the factory a bit like it is regulated, even though we don’t have to be FDA-regulated to do it.

BS: To keep the quality where it needs to be and maintain quality control. Okay. Excellent. Yeah, and I think a lot of people listening that are used to investing in companies with FDA problems would be glad to hear that you’re not really having those because that is a big positive in this space. I want to get to a couple of listener questions. We addressed this a little bit, but they’d like you to speak a little more about upcoming milestones that you may see and how you see revenue ramping up for the next few years.

BF: Yeah. Actually, we just had our first revenue check-in last week. We are now beginning to generate revenues. This is a bit of a plus for a tech company and IP company. This year, we’ll see relatively small revenues. Towards the end, we’ll probably talk about the end-of-the-year run of about a quarter of a million dollars. But next year, we’ll see us doing somewhere around $3.7 million, and the following year, we’ll see 10 plus. That’s over the next three years. That’s really because as these big licenses kick in, there’s a lead into it, but we have multiples now lining up.

BS: When I talk to investors, that’s always a good time to start looking at a stock because you’re at this inflection point first revenues. I want to mention again that you just got on the OTCQB, so you’re investible in the United States much easier. It’s time for one more question. You mentioned two benefits of these: less antibody use and the ability to stick to surfaces. What is the impact of the licensure? How substantial is that benefit to them?

BF: If you took just sort of antibody savings, just for example, in the lateral flow industry alone, we spend somewhere around $4 billion a year on antibodies. Using Gemina chemistry, you could take 3 billion out of that. Now, that’s quite a big number. Of course, it doesn’t seem like such a big number when you boil it down to an individual test. But then the point is that manufacturers who’ve been manufacturing the same test for a long time have taken all the other costs out for most of these lateral flow tests. There is nothing left to go for in terms of reducing their cost. The minute there are supply chains here, hang on a minute, what do you mean we can save 75% of the antibody costs? They’re on you like a rash, right? So that’s the first thing.

BF: It is a big deal for them. The other way is to say if you look at something like flu, for example, the FDA is changing the requirements for flu tests from next year. There are a lot of people who then can’t meet that requirement. So that’s about the market. That’s like no business at all. Right? If our chemistry can help them get there, then they’re still in the market. What it can do is really significant, you know? Then, the molecular side. We talked earlier about the fact that getting DNA out of saliva suddenly means you can take TB testing to First Nations in the very north of Canada or into a slum in India or wherever. You don’t need to bring people to hospitals. So yeah, quite significant.

BS: Yeah, that is huge. That seems like a pretty good selling point. “Hey, you can save a lot of money by paying us a little, which will improve your test. Hey, what do you know?” I wish we could talk longer, but I really enjoyed this discussion. I think investors should look into Gemina Labs. I’m going to let you just wrap it up with whatever you want to leave investors with, a couple of major thoughts, and then we’ll say goodbye.

BF: Yeah. Well thanks very much, and Brad, for your questioning. I actually really enjoyed the conversation. I hope we’ll get to do it again sometime in the not-too-distant future. The one thought I would leave with people is just imagine that we are really into a reagent supplier; we’re a material supplier that supplies into diagnostics companies. We could effectively be everywhere, right? We could be the intel inside for all diagnostics. So that’s what we’re pushing for with a high margin and high return. Thanks very much.

BS: Alright, excellent. Thank you again, everybody, for being here. If you have further questions, feel free to reach out to the company. You can do that through the system or go to their website; they’re happy to answer them. I know I found Brian very helpful when I’ve talked to him in the past, so feel free to do that. And thank you for your time.

BF: Thanks all.

SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR. 

DISCLOSURE: Zacks Investment Awareness (ZIA) is a Zacks SCR product. This text is not a verbatim transcript. This transcript has been edited and does not reflect the video-recording exactly. You may find the video recording in its entirety here. Full Disclaimer HERE.