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Date : 15/02/2022

Proteomics International Laboratories Ltd

ASX :

PIQ

Market Cap : $121.5 Million

Buy

52 Week Range : $0.825 - $1.480

Share Price : $1.16

PIQ has recently announced two major milestones in two key medical areas, the validation study targeting oesophageal adenocarcinoma cancer and the development of a Proof-of-Concept to diagnose asthma and COPD. We recommend a “Buy”.

Company Analysis

Proteomics International Laboratories Limited (ASX: PIQ) is a medical technology company that operates at the forefront of predictive diagnostics and bioanalytical services. The Company specialises in proteomics, which is the industrial scale study of the structure and function of proteins. Proteomics International’s mission is to improve the quality of life by creating and applying innovative tools that enable the improved treatment of disease.

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Source: Tradingview

Proteomics exhibits a solid growth cycle driven by the Company’s strengths

Proteomics International is a pioneer in the medical technology sector. The Company is operating at the forefront of predictive diagnostics and bioanalytical services. PIQ specialises in proteomics which is the industrial-scale study of the structure and function of proteins. Proteomics International’s business model is centred on commercialising the Company’s pioneering test for diabetic kidney disease, PromarkerD.

What is good about PIQ is that the Company offsets its cash burn from R&D and product development by providing specialist analytical services whilst using its proprietary Promarker technology platform to create a pipeline of novel diagnostic tests.

Three products and services are driving growth at Proteomics International:

PromarkerD: Targeting the global diabetes epidemic, PromarkerD is a predictive diagnostic test for diabetic kidney disease, a progressive disorder found in one in three adults with diabetes. In peer-reviewed clinical studies, PromarkerD correctly predicted 86% of otherwise healthy diabetics who developed chronic kidney disease within four years. The prevalence of kidney disease is rising rapidly, and many patients progress to need dialysis or a kidney transplant.

Diagnostics: Proteomics International’s diagnostics development is made possible by the Company’s proprietary biomarker discovery platform called Promarker, which searches for protein “fingerprints” in a sample. This disruptive technology can identify proteins that distinguish between people who have a disease and people who do not, using only a simple blood test. It is a powerful alternative to genetic testing. The technology is so versatile that it can provide diagnostics from any biological source, from wheat seeds to a blood sample. The global biomarkers market is expected to exceed USD 129 billion by 2027.

Analytical Services: PIQ also run a lucrative specialist contract research focusing on biosimilars quality control and pharmacokinetic testing for clinical trials. We are confident that this specialist contract business is poised for substantial growth. Hence, Australia is a global leader in clinical trials due to its efficient regulatory framework and high-quality trial sites, and all samples from each trial require specialist analytical testing. Significantly, the fastest growing class of drugs entering clinical trials is biologics and biosimilars. The global clinical trials market is projected to reach USD 69.3 billion by 2028, whilst the market size of the global biosimilar market was valued at USD 11.8 billion in 2020 and is projected to reach USD 35.7 billion by 2025. The global proteomics market was valued at USD 21.1 billion in 2019 and is expected to reach USD 50 billion by 2027.

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Source: PIQ

Proteomics reached several key milestones during FY21

We can surely say that it has been an exciting twelve months for Proteomics International. Hence, the Company has reached several key milestones in commercialising its flagship diagnostic product, the PromarkerD test for diabetic kidney disease. FY21 highlights include:

  • the first distribution agreements for the PromarkerD immunoassay test,
  • the achievement of ISO 13485 certification,
  • and the publication of validation and clinical performance results.

We are also beginning to witness the benefits of PIQ’s strategy to expand its diagnostic development pipeline of CY20, with several biomarker research programs progressing to the next stage of the Promarker pipeline. All programs are in areas of unmet need and can deliver significant value for the Company. However, the rollout of a novel chronic disease diagnostic test during a global pandemic presents many challenges. The necessity for clinical pathology laboratories to focus on the Coronavirus has naturally restricted testing for other diseases, presenting barriers to the immediate rollout of the novel PromarkerD test. Proteomics International has unquestionably revealed its professionalism amid the COVID-19 pandemic. Indeed, the Company has shown dedication in keeping the global commercialisation strategy for PromarkerD on track and progressing the Promarker pipeline.

We think there is a strong, pent-up demand in screening for major diseases that have been overlooked during the pandemic, including diabetes and its complications such as diabetic kidney disease. We believe diagnostics companies such as Proteomics International will also be strongly positioned with additional testing capacity, alongside a community more aware of the importance of early testing for the disease.

Discussions are progressing with multiple prospective partners for the distribution of PromarkerD

Italy and Israel became the first markets for the easy-to-use immunoassay version of the PromarkerD test for diabetic kidney disease. Italy is home to 3.7 million people with diabetes or one in twelve adults. In October, Proteomics International signed a distribution licensing agreement with innovative medical distributor Medical Horizons SRL to bring PromarkerD to patients in Italy. PIQ through Medical Horizons has completed the registration of PromarkerD with the Italian Ministry of Health and is now engaged with several Italian Key Opinion Leaders for early adoption of the test by major hospitals. However, the COVID-19 pandemic has slowed the rollout of the test in Italy.

One in eight adults in Israel has diabetes, and the disease is the country’s fifth leading cause of death. In November, Proteomics International appointed Zotal Ltd as the exclusive distributor for PromarkerD in Israel, a country recognised as a global leader in the life-science industry and renowned for its early adoption of cutting-edge medical technologies. PIQ through Zotal will complete product registration and reimbursement applications for PromarkerD with the Israeli Department of Medical Devices of the Ministry of Health and engage with Israeli Key Opinion Leaders to promote and adopt the test by major hospitals.

Both distribution agreements in Italy and Israel are for two years, exclusive to their respective countries and exclusive to PromarkerD. Proteomics International will receive payment for each kit sold.

Furthermore, Proteomics International continues discussions with diagnostic and pharmaceutical companies in multiple countries to bring the immunoassay kit version of the PromarkerD test to patients. This simple technology platform is cost-effective and standard to clinical diagnostics laboratories worldwide. The format allows hundreds of blood samples to be analysed quickly as part of a panel of routine blood tests. Proteomics International is also currently renegotiating deals with the Company’s existing PromarkerD partners for access to the immunoassay version of the test.

PromarkerD: simple integration and utilisation

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Source: PIQ

PIQ has achieved the ISO 13485 certification for its PromarkerD product

In April, Proteomics International received ISO 13485 certification, the most widely used international standard for quality management systems in medical devices. The standard provides the foundation for regulatory requirements in the European Union, Australia, Japan, Canada, and the United States. The certification is a key milestone underpinning production and future global sales of the PromarkerD test for diabetic kidney disease. ISO 13485 certification is awarded to PIQ as the Company has demonstrated a solid ability to produce safe, effective products that consistently meet the expectations of customers and regulators. The ISO 13845 certification will also apply to Proteomics International’s pipeline of other diagnostics currently under development.

PIQ is instigating several processes that will facilitate the scale-up in producing the PromarkerD immunoassay reagents and kits. This includes producing specialist synthetic protein standards and stabilised recombinant versions of the antibodies used to detect the target protein biomarkers. At the end of FY21, Proteomics International has engaged global life science Company Abcam as the reagent producer and ISO 13485 accredited specialist immunoassay manufacturer Biotem for the kit production. Coupled with the Company’s own certification, these partnerships complete the Northern Hemisphere manufacturing capability for PromarkerD and allow the immunoassay kit to be manufactured in high volumes and to international regulatory standards.

PIQ is actively engaged with regulatory and reimbursement bodies for the distribution of PromarkerD

In April last year, Proteomics International filed a 513(g) submission to the United States Food and Drug Administration (FDA) for the PromarkerD test for diabetic kidney disease. The application allows Proteomics International to determine the best regulatory path for PromarkerD, either the De Novo Classification or 510(k) route. The FDA normally assesses applications within 60 days; however, it has advised all responses are delayed due to the COVID-19 pandemic. The Company is preparing to file a full application once the required pathway for PromarkerD is determined. The route to market in the US remains the laboratory-developed test path through Clinical Laboratory Improvement Amendments certified labs, which allows sales to commence before the FDA approval.

Proteomics International is set to seek a reimbursement code for the PromarkerD test for diabetic kidney disease following extensive engagement with expert panels representing physicians, laboratories, and payors, conducted alongside comprehensive economic health benefit modelling. Reimbursement codes and payer coverage in the US are initiated through the American Medical Association (AMA) and its Current Procedural Terminology Editorial Panel (CPT). This code, known as a CPT Proprietary Laboratory Analyses (PLA) code, uniquely identifies a test for the laboratory and the payors. A payer budget impact study was conducted by the US-based consultant Boston Healthcare Associates to demonstrate the potential economic health benefit of the PromarkerD test compared to the current standard of care. The study found that instigating PromarkerD testing produced savings primarily from slowing the progression of diabetic kidney disease and delaying or preventing dialysis and kidney transplants against costs from increased testing and the use of preventative medications. Boston Healthcare Associates and PIQ presented the modelling at the world’s leading conference for health economics, Virtual ISPOR 2021, in May last year. The Company was also present at the world’s largest diabetes conference, the American Diabetes Association’s 81st Scientific Sessions, in June 2021. Companies such as PIQ seeking reimbursement for any new test are required to provide a dossier demonstrating the potential economic health benefit of a test. The second element to achieving reimbursement is demonstrating the clinical utility of PromarkerD, namely the impact of PromarkerD on patient treatment decisions by primary care physicians and specialist endocrinologists. A clinical utility study on PromarkerD has also been conducted by Boston Healthcare Associates and is currently subject to peer review before publication.

Company Updates

FY22 onward outlook: PIQ is preparing to enter the US market with its flagship product PromarkerD

The Company is pleased to advise that it continues to advance its discussions with potential Global laboratory partners and, in particular, with American partners to provide PromarkerD to diabetes patients. Entry into the US market would mark a major milestone for the Company to execute its global commercialisation strategy for PromarkerD. Nonetheless, Proteomics International has been experiencing delays to its supply lines due to the variant waves of the Covid-19 pandemic. Whilst these issues are not currently material for the Company, they have delayed the ISO 13485 manufacture of the PromarkerD assay and can affect engagement with diagnostics facilities and subsequent rollout of PromarkerD. PIQ expects to achieve its PromarkerD’s first sales in Italy under its agreement with Medical Horizons targeting for the first half of CY22. Sales arising from the second distribution agreement for the PromarkerD immunoassay kit, with Zotal Ltd for Israel, remain dependent on completing the transfer to ISO 13485 kit manufacturing. Proteomics International will continue to pursue national and international regulatory and reimbursement approvals for its flagship product PromarkerD.

R&D for new diagnostic tests using the Promarker pipeline

Proteomics International continues to advance several of its diagnostic research and development projects using the Company’s Promarker technology platform. We believe that PIQ’s Promarker platform has broad applicability and the potential to produce multiple new diagnostic tests to address significant unmet medical needs. Over the coming months, we can expect the Company to update the market on several key developments:

  • Diagnostics, Endometriosis: PIQ notes the previously announced research agreement with the University of Melbourne and the Royal Women’s Hospital to develop a world-first test for endometriosis. Proteomics International has confirmed that the laboratory analysis continues to progress, although this clinical validation study has been affected by supply and critical equipment availability issues. Preliminary results are still expected in the first quarter of CY22, and if successful, we could expect this program to receive significant commercial interest.
  • Other diagnostic tests: The Company is also pursuing research on other areas, and we are looking forward to upcoming announcements of further results from other diagnostic tests in development during 2022.

Analytical services: Proteomics International secures major analytical services contract for pharmacokinetic testing

Proteomics International was awarded a major pharmacokinetic testing contract as part of its growing partnership with Linear Clinical Research. The $400,000+ contract will see Proteomics International test a novel drug for degenerative and inflammatory diseases on behalf of the Australian arm of pharmaceutical company Sironax Ltd. The study is part of a Phase 1 clinical trial examining the drug’s safety, tolerability, and pharmacokinetics and will be undertaken over the next twelve-month period. It comes amid strong global demand for pharmacokinetic testing, studying what happens to drugs once they are inside the body, including the rate at which they are absorbed, distributed, metabolised, and excreted.

PIQ currently anticipates growing demand for its analytical services during 2022 and is looking forward to updating the market when the Company enters into agreements.

Industry Analysis

PromarkerD – Market: PIQ’s Intellectual Property portfolio is expanding

Proteomics International has established a strong intellectual property portfolio for its flagship product PromarkerD, in the form of patents, trademarks and trade secrets. This IP provides the foundation for ongoing licensing discussions. Hence, the Company’s granted patents and trademarks cover 273 million, circa 59% of the addressable diabetes patient population globally. Moreover, in July 2020, PIQ secured new patents for the potentially important markets of Brazil, which has 16.8 million adults with diabetes, and Canada, which has 2.8 million.

In parallel to achieving manufacturing and regulatory milestones for PromarkerD, Proteomics International continues to engage with Key Opinion Leaders through conference presentations, direct consultation, and the publication of its clinical results in leading scientific journals. Key Opinion Leaders and peer-review publications are crucial in driving physician, payer, and patient-advocate engagement, which we believe, will drive the adoption of PromarkerD. As part of this strategy, Proteomics International presented the latest results on PromarkerD at several global conferences during FY21, and the Company is intended to continue as such onward FY22.

Proteomics International is expanding its Diagnostic and R&D

Proteomics International is beginning to reap the benefits of the Company’s strategy to expand its diagnostic development pipeline of CY20. PIQ engages with regional and international partners. Unfortunately, these partners have been heavily affected by the consequences of COVID-19, which has slowed progress in some programs. Nonetheless, we do not consider any of these delays material, as several biomarker research programs are progressing to the next stage of the Promarker pipeline, including four at the “clinical validation” stage. We believe all programs are in areas of unmet need and can deliver significant value for the Company.

Endometriosis: Proteomics International has identified and filed a patent application describing a panel of novel protein biomarkers with the potential to be developed into a simple blood test for endometriosis. Given the large unmet medical need and the deficiencies in existing diagnostic tools, Proteomics International believes there will be significant commercial interest in this program post successful clinical study validation. During FY20 and FY21, PIQ has been testing the stability of the discovered biomarker panel. This was part of the Proof of Concept and ensured the quality and analytical reproducibility of the biomarker panel before moving into the current Clinical Study phase of the project. After the year-end, the Company signed a research collaboration agreement with the University of Melbourne and the Royal Women’s Hospital, enabling access to this institution’s world-leading endometriosis database containing anonymous biological samples and survey information. This collaboration will seek to validate the panel of biomarkers discovered by Proteomics International and identify new biomarkers for the disease.

Giardia which is causing gastroenteritis: The Company continues its development of an improved diagnostic test for the parasite Giardia in collaboration with the Murdoch University Veterinary School and a leading US veterinary company. Giardia is a leading cause of infectious gastroenteritis worldwide and one of the most common parasitic human diseases. PIQ has identified strain-specific Giardia targets and developed a prototype immunoassay. Currently, the prototype is pending validation using field samples. The COVID-19 pandemic delayed this aspect, and analysis of the data from the field samples remains ongoing.

Asthma & COPD: Proteomics International is working to identify biomarkers for asthma and chronic obstructive pulmonary disease, which cost healthcare systems tens of billions of dollars a year. In collaboration with the Busselton Population Medical Research Institute, the study gives Proteomics International access to the globally recognised Busselton Health Study, first established in 1966 and one of the world’s longest-running epidemiological research programs.

Plant dieback: PIQ collaborates with the Centre for Crop and Disease Management at Curtin University to target the plant pathogen Phytophthora Cinnamomi, responsible for plant dieback that affects a wide range of species of native plant species and premium crops such as avocados and macadamias. Current investigations are focused on proteomic analysis of the life stages of the organism and how it infects its host. This may lead to a field test for the easier detection of infected soil and can identify weaknesses in the pathogen that could be targeted to help eradicate this disease. The estimated cost to the Australian economy is $160 million per year for damage to natural vegetation alone.

Diabetic retinopathy: Following the success of its diabetic kidney disease project, Proteomics International is extending its collaboration agreement with The University of Western Australia to seek early markers for diabetic retinopathy, the major cause of blindness in the US. This collaboration applies the Promarker platform to look for prognostic markers in the blood to identify patients at risk of retinopathy, especially sight-threatening retinopathy. The program utilises the Fremantle Diabetes Study, which provided the rich sample repository that led to PromarkerD.

Oxidative stress: Proteomics International has been in a long-term collaboration with The University of Western Australia to develop a methodology that could become the next generation of medical diagnostic tests. The patented technology called “2-tag” measures oxidative stress. Proteomics International holds several patents covering the “2-tag” method and is currently in commercial negotiations to unlock value from this innovative technology. Proteomics International has joined forces with QIMR Berghofer Medical Research Institute to improve the detection of oesophageal adenocarcinoma, the most common form of oesophageal cancer in Australia. The Company is employing its Promarker platform to analytically and then clinically validate a panel of biomarkers, a protein “fingerprints” in the blood that QIMR Berghofer researchers have found, which are associated with the early stages of cancer. The aim is to develop a simple blood test for oesophageal adenocarcinoma.

Retinopathy – ARC Centre for Personalised Therapeutics Technologies: Proteomics International collaborates with the Lions Eye Institute and The University of Western Australia as part of the Australian Research Council Centre for Personalised Therapeutics Technologies, a $3.1 million Federally funded Industrial Transformation Training Centre. PIQ is working alongside leading university-based researchers to apply the Promarker technology to seek a Complementary Diagnostic test to assess treatments for eye disease.

COVID-19: Proteomics International was awarded two grants under the Western Australian COVID-19 Research Grants Program to support the COVID-19 biomarkers and diagnostics research. The development studies were completed; however, the research programs have been suspended considering the extensive resources of COVID-19 worldwide. Revenue from analytical services remained robust, with no negative impact observed due to the pandemic. During FY21, strong revenue growth was seen in the Company’s target area of pharmacokinetic testing, whilst specialist analytical work, consulting services, and biosimilars testing remained stable.

Major analytical services contract in pharmacokinetic testing: During FY21, PIQ secured a major pharmacokinetic testing contract with Australia’s largest clinical trial contract research organisation, Avance Clinical. The contract engages Proteomics International to perform advanced pharmacokinetic testing of a novel drug for lysosomal storage disorder. It is the Company’s largest single analytical services contract to date, with a value of $243 thousand.

Investment Thesis

PIQ developments driven by earnings growth

PIQ’s business model is to continue the commercialisation of PromarkerD whilst using its Promarker technology platform to create a pipeline of novel diagnostic tests and offset the cash burn from R&D and product development through its analytical services revenue, coupled with the R&D tax incentive rebate. We can surely say that this diversified model has shown its strength in the current economic climate and has enabled the Company to continue to make optimum use of its resources.

Proteomics International achieved receipts from customers for the December quarter of $354,000, slightly below the September quarter of $373,000. Receipts continue to be driven by revenue from analytical services, which we believe will allow the FY22 earnings to remain in line with the last two years growth. Furthermore, trading volume is steady, which attests to the market confidence in PIQ. In particular, we have observed that the Company exhibits a noteworthy increase in demand for its pharmacokinetic testing services and renewed interest in biosimilars testing, an area that was negatively affected in FY21 by the COVID-19 shutdowns in markets such as India. The net operating cash outflow for the December quarter was just $0.1 million, which is much lower than the September quarter’s cash outflow of $1.16 million. The majority of PIQ’s expenditure was centred on the following areas:

  • Business development and commercialisation costs for the rollout of PromarkerD
  • Manufacturing costs for the PromarkerD immunoassay kit
  • Regulatory and reimbursement activities to support PromarkerD commercialisation
  • R&D for projects in the Promarker diagnostics pipeline

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Proteomics receives $1.2 million in R&D tax incentive

Proteomics International’s cash reserves were strengthened by the receipt of $1.2 million in research and development tax incentives. During CY20 and CY21, Proteomics International spent $2.85 million on R&D, enabling the Company to receive an Australian Government rebate of $1,240,156.

PIQ awarded $100 thousand manufacturing funding

On top of the tax incentive, Proteomics International was awarded a $100 thousand voucher to support the manufacture of clinical diagnostic tests in Western Australia. This $100 thousand voucher will be matched dollar for dollar by Proteomics International, with the project to be completed over nine months. This will allow the Company to establish local manufacturing quality control capabilities for PromarkerD, supporting the future large-scale manufacture of the test for Australia and the South-East Asia region. The funding is made possible through the MTPConnect WA Life Sciences Innovation Hub MTP Manufacturing Voucher Program. This was announced by WA State Development, Jobs and Trade Minister Roger Cook.

PIQ exhibits a solid cash position

We are confident that PIQ’s diversified business model places the Company in a strong financial position to fund its objectives for CY22. Hence, on the 31st of December 2021, Proteomics International reported cash reserves of $4.5 million. These reserves were strengthened by the R&D tax incentive rebate of $1.2 million received in the December quarter. Overall, PIQ is well-funded, and we forecast a steady increase in working capital from $6.56 million to $9.39 million by FY24. Moreover, the Company exhibits exemplary discipline in managing its cash burn rate, which since FY19 has declined from an Expense/Cash ratio of 219.87% to 76.79% in FY21. Positively, we also project this trend to decrease to 61.95% by FY24.

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Technical Analysis

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Since the 28th of January 2022, PIQ recovered significantly from its previous pullback. The shares appreciated by more than 34%. We believe that this positive momentum will sustain and that technically, further upside is highly probable. Hence, PIQ holds the $1.165 support level, which is the 38.2% Fibonacci level from last year’s swing high.

Recommendation

Proteomics International is a pioneer in the medical technology sector. The Company is operating at the forefront of predictive diagnostics and bioanalytical services. We like PIQ because the Company has a unique proposition that could sustainably support substantial growth. PIQ offsets its cash burn from R&D and product development by providing specialist analytical services whilst using its proprietary Promarker technology platform to create a pipeline of novel diagnostic tests.

PIQ has recently announced two major milestones in two key medical areas, the validation study targeting oesophageal adenocarcinoma cancer and the development of a Proof-of-Concept to diagnose asthma and COPD. We recommend a “Buy”.

 

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