Genetic Signatures

23 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 3 Gross margins on materials were 70%, a 3% improvement over the previous year. Freight and warehousing costs now represent a significant cost due to increased volumes generally plus overseas shipments. Margins should continue and possibly improve in future as the proportion of international sales rises. Employee benefits expense were up 50% vs. prior corresponding period to $10,024,000 as additional personnel were added to the teams in Europe, USA and locally across all functions. This expense line also includes share-based payments expense of $1,484,000, a non-cash item. Scientific consumables also increased over 50% over prior year, reflecting the work on continuing and new R&D projects, and clinical trial costs for the US FDA Enteric Protozoan submission. Depreciation and amortisation expenses were also up as a result of significant growth in fixed assets, primarily instruments to place at customer sites but also automation of manufacturing processes. Cash balance was $30,121,000 at 30 June 2021. The Group has reported net operating cash inflows for the year of $4,195,000 which includes collections from customers of $30,031,000. Offsetting this were $4,653,000 investments in instrumentation for use at customer sites, and machinery for production. Inventory balances are higher than 30 June 2020, though are declining as the increased purchases made during the year to meet customer demand is now being used. Genetic Signatures is well capitalised to make investments in future growth opportunities. Commercialisation Progress by Market Australia Genetic Signatures’ home market continues to represent an important share of revenue contribution to the Group. Sales were boosted late in the year as SARS-CoV-2 kit deliveries increased to meet demand caused by the surge testing in NSW and Victoria. The Company started supplying a number of new sites in Australia during the year and has recently secured its first site in Queensland. Research and development activity continued through the year on current and newly announced projects which include a next generation “sample to result” instrument optimised for 3base™ assays that Genetic Signatures believes will give real competitive advantage to the Group. Other new infectious diseases identified as opportunities are for measles/mumps/rubella due to falling vaccine rates globally, tick-borne diseases, and dermatophytes which are fungal infections. Europe Europe (European Union and United Kingdom) represents ~35% of global molecular diagnostics market 1 . Sales increased four-fold over FY20 to $4.4m. All sales were COVID-19 related, though discussions are underway with customers regarding adoption of other tests including the expanded Respiratory assays and the Enteric range. Genetic Signatures now has five products registered for sale under CE-IVD: SARS-CoV- 2, Respiratory, Enteric, Anti-Microbial Resistance, and Sexually Transmitted Infections (STI) which achieved its registration during the financial year. North America This is the largest market opportunity globally, and the US accounts for an estimated 40% of worldwide molecular PCR testing revenue 1 . First routine sales were achieved in the region this financial year with a contribution of $1.6m in SARS-CoV-2 kits and related equipment. Testing volumes have decreased from their peak in December 2020 due to the concerted vaccination program through USA, though infection rates appear to be increasing again. It is not apparent whether this will result in an increase in the number of PCR tests performed. FDA clearance for the Enteric Protozoan Detection Kit is a major plank in the Group’s strategy to expand Genetic Signatures’ markets, and the Company is targeting up to 40% market share within 5 years of clearance being granted, generating potential revenue of up to US$88m per annum. Clinical trials are being conducted at three US sites to accompany the FDA application. These trials have been slower than hoped with data collection being hampered by COVID related restrictions, such as sample collection and availability of laboratories. One of the three sites is nearing completion of their sample testing though, while the other sites are at the early stages. Genetic Signatures is still hopeful that its 510k application will be submitted to FDA by the end of 2021. 1 World Market for Molecular Diagnostics, 5th. Edition (Infectious Disease, Oncology, Blood Screening, Pre-Natal and Other Areas) Kalorama Information, Published: 1/9/2013 & company estimates for the financial year ended 30 June 2021