GBS: Second Quarter Results

By John Vandermosten, CFA

NASDAQ:GBS

READ THE FULL GBS RESEARCH REPORT

Second Quarter Fiscal Year 2022 Operational and Financial Results

GBS, Inc. GBS announced second quarter fiscal year 2022 financial and operational results for the period ending December 31, 2021 in a February 10^th press release and subsequently filed its 10-Q with the SEC.

Fiscal Year 2022 Events

➢ $4.7M award from Australian Federal Government to build manufacturing facility - July 2021

➢ L.E.K. Consulting engaged to identify potential sublicensees - July 2021

➢ Appointment of Dr. Steven Boyages as Chairman and Interim CEO - October 2021

➢ Pre-submission package filed with FDA for glucose biosensor - October 2021

➢ Clinical trial preparation for SARS-CoV-2 test - November 2021

➢ GBS & LSBD file application for saliva glucose test Breakthrough Device Designation - December 2021

Upcoming Milestones

➢ Upgrade existing fabrication facility - 1Q:22

➢ Secure site of manufacturing facility - 1Q:22

➢ Initial batch of equipment ordered and finalized - April/June 2022

➢ Plasma-saliva correlation studies with Johns Hopkins - 1H:22

➢ Preliminary biosensor response study - 3Q:22

➢ Biosensor algorithm development - 4Q:22

Financial Results

GBS generated revenues from government support of $178,000. Operating expense totaled ($3.6) million producing a net loss of ($3.5) million or ($0.23) per share.

For the second quarter of fiscal year 2022 and versus the prior year period:

➢ General & Administrative expenses rose 49% to $1.0 million from $0.7 million driven primarily by an increase in operational activities following completion of the IPO in December 2020;

➢ Development & Regulatory Approval expenses grew 673% to ($2.6) million from ($0.3) million, driven by funding availability since completion of the IPO in December 2020 that has allowed the Company to progress on its milestones as well as expensing of the prepaid R&D contribution of $ 2,600,000;

➢ Prospectus and capital raising expenses were zero vs. $187,000;

➢ Total operating expenses rose 204% to $3.6 million from $1.2 million;

➢ Net other income was de minimis vs an expense of ($1.1) million;

➢ Net loss including non-controlling interests was ($3.5) million vs. ($2.0) million or ($0.23) and ($0.23) per share, respectively.

As of December 31, 2021, cash and equivalents totaled $11.2 million. This amount compares to a $12.6 million held on June 30, 2021. GBS continues with no debt on its balance sheet. Cash used in operations for the first six months of the fiscal year totaled ($1.3) million. No financing cash flows were recognized. GBS parent company, Life Science Biosensor Diagnostics (LSBD), continued to decrease its stake in GBS and as of December 31, 2021 owned 18.5% of shares outstanding. In an 8-K filed November 22, 2021, LSBD provided further insight into its divestiture of GBS, citing that proceeds from sale of its subsidiary would fund continued R&D and commercialization efforts that it had planned for the next five years.

$4.7M award from Australian Federal Government to build manufacturing facility

On July 8, 2021, GBS announced that it had received a US$4.7 million grant from the Australian Federal Government to fund the buildout of a biosensor manufacturing facility. The Australian government identified GBS' project as one of six National Manufacturing Priorities as a part of its Modern Manufacturing Strategy. The Strategy is a public-private initiative to develop Australian manufacturing infrastructure. The grant, deemed the Medical Products Priority Grant, will support the establishment of a medical device manufacturing facility for the scaled production of Printable Organic Electronic Biosensor technology for the Asia-Pacific (APAC) region. The manufacturing facility is expected to have capacity to produce 100 million biosensor units annually. On February 10^th, GBS provided updates on the progress of its manufacturing facility initiative. Sourcing for required equipment has commenced. This sourcing has the dual purpose of immediately utilizing the equipment in the interests of efficiency to progress development of the biosensor and at the same time commission this equipment in preparation for the facility. The initial batch of equipment is expected to be ordered in April and finalized in June 2022. GBS is in discussion with University of Newcastle for the location, buildout and commissioning of the manufacturing facility. GBS intends to pursue further funding through the Medical Research Commercialization Initiative, specifically the Medical Research Future Fund that will have approximately $225 million to invest over the next 10 years in line with the fund's criteria and goals.

L.E.K. Consulting engaged to identify potential sublicensees

In July 2021, GBS enlisted the services of L.E.K. Consulting Hong Kong Pty Limited to identify suitable commercial partners for distribution in China. The arrangement with LEK builds on a recent global survey conducted by GBS to facilitate marketing efforts where GBS was, with key findings, able to support commercialization of a non-invasive alternative to current standard of care glucose monitoring. Sublicensing to a commercial partner in the China region will support GBS' initiative to offer a saliva glucose biosensor test to this rapidly increasing Chinese diabetic population. LEK was established in 1983 and is a global management consulting firm featuring deep industry expertise.

Appointment of Dr. Steven Boyages as interim CEO

On November 1, 2021, GBS announced the appointment of Steven Boyages, Ph.D. as the Chairman of the Board and Interim Chief Executive Officer, effective October 29, 2021. The appointment accompanies the transition that GBS is making into a new phase focused on product development and planned manufacturing. Dr. Boyages is an endocrinologist with extensive experience in research and clinical science, as well as being a seasoned healthcare executive leading complex, large organizations across the healthcare industry. Furthermore, he is a Clinical Professor of the Sydney Medical School at The University of Sydney. GBS' Board is initiating a search process with a leading executive search firm to identify a permanent CEO. Harry Simeonidis will continue to serve GBS now as President Asia Pacific, Sales & Marketing. In this role, Mr. Simeonidis will facilitate GBS' continued focus on the APAC markets, drawing on his vast experience and skill developed over his 25-year tenure in the region.

Pre-submission package filed with FDA for glucose biosensor

On October 13, 2021, GBS announced that it had submitted its pre-submission package to the FDA to ensure that GBS' clinical plan is in line with the FDA's guidance. The pre-submission package will allow the FDA to review GBS' next steps, including clinical trial protocols, and provide feedback to GBS on any perceived challenges. GBS is undertaking a three-step clinical plan that begins with the generation of prospective data that tracks both salivary and blood glucose and the time relationship between the two, targeting enrollment of 20-40 subjects. GBS is finalizing arrangements with US clinical sites. Once the relationship between the saliva and plasma tests is established, the next phase will aim to develop the algorithm between the two then generate data for regulatory submission.

Clinical trial preparation for SARS-CoV-2 test

GBS announced on November 30, 2021 its intent to commence clinical saliva SARS-CoV-2 antibody trials with the objective of submitting an Emergency Use Authorization request to the FDA. A clinical validation study was conducted at the Wyss Institute at Harvard University to develop a diagnostic test to detect SARS-CoV-2 IgG in human plasma. It found that the SARS-CoV-2 Antibody biosensor assay was 100% sensitive and 100% specific, using positive and negative SARS-CoV-2 human plasma samples. Time to results was less than 10 minutes. GBS intends to pursue the COVID-19 antibody test further through clinical trials.

GBS & LSBD file application for saliva glucose test Breakthrough Device Designation

On December 13, 2021, GBS announced the filing of an application with the FDA for Breakthrough Device Designation (BDD). If granted, the BDD would allow GBS and LSBD the opportunity to interact with the FDA to address topics as they arise during premarket review in a timely manner. The BDD also features prioritized review. Together, these features expedite the process of approval for medical devices that provide more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases and conditions. On February 10, 2022, GBS provided an update informing that the FDA suggested further data generation is needed to advance the submission.

Initiating Coverage

We recently initiated coverage on GBS where we provide a review of saliva testing and the biosensor technology used to identify analytes in this medium. Included is a section discussing the OTFT technology and its commercial viability. GBS' technology is examined, including its anticipated manufacturing process of reel-to-reel printing. The report delves into the opportunity for antibody detection and identifies other clinical indications that GBS is pursuing.

Key reasons to own GBS shares:

➢ Organic thin-film transistor biosensor

◦ Low cost

◦ Easily produced

◦ Accurate and sensitive

➢ Large addressable testing markets

◦ Diabetes

◦ COVID-19

◦ Oncology Diagnostics & Staging

◦ Luteinizing Hormone

◦ Nucleic Acids

➢ Attractive research collaborations

◦ Harvard's Wyss Institute

◦ Johns Hopkins Bloomberg

➢ Commercialization rights to Asia-Pacific region including China

➢ Option to purchase rights to North American region

➢ De Novo application pathway

Summary

On February 10, 2021, GBS announced 2Q:22 financial and operational results. GBS generated revenues of $178,000, a net loss of ($3.5) million and loss per share of ($0.23). As of December 31, 2021, cash and equivalents totaled $11.2 million with no debt. GBS parent company, LSBD, owns 18.5% of shares outstanding as of December 31, 2021.

Highlights for fiscal year 2022 so far include a $4.7M award from the Australian Federal Government, engaging L.E.K. Consulting to identify potential sublicensees, appointment of Dr. Steven Boyages as Chairman and Interim CEO, pre-submission package filed with the FDA, preparation for clinical trials in SARS-CoV-2 antibody detection, and filing of an application for Breakthrough Device designation for saliva glucose testing. During the earnings call, management updated investors on progress on the regulatory, clinical and manufacturing fronts. GBS has begun sourcing equipment for its manufacturing facility, and discussions are underway with the University of Newcastle for the location, buildout, and commissioning of the new facility. GBS plans its regulatory approach to the Asia-Pacific region, is implementing a new Quality Assurance system, and audit of suppliers is underway. The FDA provided feedback for its Breakthrough Device Designation stating that further data generation is advisable. Meanwhile, Institutional Review Board (IRB) approval was requested at the Mills-Peninsula Medical Center (MPMC) facility where GBS' plasma-saliva correlation study will take place, informing the saliva sensor strip algorithm.

We recently initiated on GBS. GBS is developing saliva-based, non-invasive biosensors for use in glucose monitoring in diabetes and antibody detection in COVID-19. Advances in organic thin-film transistors have paved the way to inexpensive, easy to manufacture, flexible and sensitive devices. If successful, the technology could impact the lives of diabetics who have relied on finger-prick standard-of-care, which can be painful, cumbersome and inconvenient. In preclinical work, GBS' saliva glucose biosensor production in artificial saliva in in progress to meet the ISO standard for glucose monitoring accuracy and consistency. GBS is now conducting collection protocol and correlation studies in preparation for pivotal studies. This work is expected to be complete in 2022 leading to a pivotal study that should generate registrational data by 2023.

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1. GBS Corporate Presentation January 2022

2. GBS Corporate Presentation January 2022