Two years ago, Clever Culture Systems (CCS: $0.017) identified a new application for its flagship product, the APAS Independence, specifically for use in pharmaceutical manufacturing.
The APAS instrument is an automated system that detects negative agar plate readings, which are commonly used to test for bacteria. In drug manufacturing, the majority of samples are negative, making this instrument particularly ideal for that use.
The company’s first customer was AstraZeneca. Initially secured through a partnership, AstraZeneca has since become a key customer, validating the instrument’s use. CCS has now sold nine APAS instruments to AstraZeneca, two to Bristol Myers Squibb, and a total of 13 to various pharmaceutical companies. The installed base of APAS instruments, including those used in pathology, is now 27. The main market for the product is clearly in drug manufacturing.
CCS is currently working with 40 potential customer leads, including 14 of the top 20 global pharmaceutical companies. The company estimates that the potential market for the APAS instrument in pharmaceutical manufacturing is around $75 million. The instrument currently sells for US$350,000, and CCS has also developed a recurring revenue stream, generating at least $500,000 annually from software license fees and servicing.
The company is expanding the use of the APAS system from its initial application with settle plates (90mm) to include contact plates (55mm), which are used to test other surfaces, such as staff clothing. CEO Brent Barnes has stated that CCS will be the only company offering automated assessment of both contact plates and settle plates. Internal validation and the official launch of the contact plate application are expected by mid-year. This will involve slight modifications to the existing APAS system, and the software license fee will increase from US$30,000 to US$50,000.
In the March quarter, CCS reported cash receipts of $2.1 million, up from $0.3 million in the prior corresponding period (PCP). The company also achieved a positive operating and investing cashflow of $0.6 million, compared to a negative cashflow of -$1.2 million in the PCP (excluding the exercise of options).
CCS is expecting another positive cashflow quarter in June, with receipts projected to reach $3.6 million over the next two quarters, including $2.1 million from product orders placed by AstraZeneca.
Currently, CCS has a third major pharmaceutical company evaluating its APAS instrument, with the product being assessed on approximately 6,000 agar plates by that group. Bioshares expects the number of pharmaceutical evaluations to increase from two this financial year to four or five next year. Eventually, as the product becomes more mainstream, evaluations may become less frequent, but each customer and site will still need to conduct their own validation before commercial use, accounting for their specific media and internal processes.
Next financial year may also see larger orders from Bristol Myers Squibb (potentially up to 10 in total). BMS has already evaluated the product for settle plates, and contact plate use is currently under evaluation.
The expansion of the APAS instrument’s use to include contact plates not only widens the product’s market but also increases annual software fee revenue for CCS.
Cash Balance
CCS finished with $2.2 million in cash at the end of March, and an additional $2.2 million from the exercise of options is expected this year (net of loan repayments). With what now appears to be a profitable business, CCS is in a stable financial position.
CCS is capitalised at $30 million.
Bioshares Recommendation: Speculative Buy Class B
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