Overview: Genetic Signatures Ltd (“Genetic Signatures”, “the Company”) is an Australian biotechnology company focused on molecular diagnostics (“MDx”). Its principal asset is IP surrounding ‘3Base’, a patented platform technology that reduces time and complexity in molecular testing by converting the original 4-base microbial genome to 3-base. The Company has commercialised this IP by launching a series of testing kits, branded ‘Easyscreen’, which identify more pathogens, 90% faster than traditional methods. Kits covering stomach bugs and influenza are approved for sale in Australia and the EU. Genetic Signatures listed on the ASX in 2015.
Catalysts: Easyscreen’s potential to create an efficiency step change in the MDx industry has been validated after Genetic Signatures this month secured a major new contract with a large Australian pathology service provider. FY19, therefore, has the potential to become Genetic Signatures’ sixth consecutive period of increasing sales. Advanced discussions with new EU distributors and FDA registration targeted for 2019 could also drive value growth as the Company prepares to launch in the US.
Hurdles: Genetic Signatures is reliant on external capital to finance operations and current cash resources may not be sufficient for the Company to reach a self-funding position. Whilst revenue has increased each year since 2013, the Company has yet to demonstrate scalability with operating losses increasing concurrently. Concentrated share ownership may impact liquidity in the stock and the Company’s ability to attract new investors.
Investment View: Genetic Signatures offers speculative exposure to the US$6bn MDx industry. We are attracted to the disruptive benefits which Easyscreen could deliver to the industry, Genetic Signatures high profile share register, and sales traction to date. Its recent large Australian contract win has the potential to galvanise international buyers, hence we expect sales and investor interest to accelerate ahead of 2019 FDA registration. With capital demands and competition being the primary risks, we initiate coverage with a ‘speculative buy’ recommendation.