Company Interview / What's behind IDT's revenue boost?

Paul McDonald, CEO of IDT Australia (ASX: IDT), discusses the company's "strong" financial report. He mentions a revenue of 13.5 million, almost double from the previous year leading to a major boost in its fourth quarter. This spike in revenue is due in part to the advanced therapy deal struck with Sanofi and the increase of API programs. IDT Australia manages its bottom line effectively, controlling costs while expanding capacity and dealing with inflation.

Paul then elaborates upon their cost management strategies including transitioning from paper to digital systems and installing solar panels. He emphasises IDT Australia's (ASX: IDT) strategy of hiring direct labour to increase output while keeping indirect expenses stable. Paul breaks down the business into three pillars: API, new drugs, and 'MeToo' markets. He suggests that they are focusing on early stage assets, mRNA manufacturing and antibody drug conjugate, enhancing their value proposition.

He also sheds light on their relationship with Sanofi, as they establish a process platform to run multiple assets. IDT Australia's (ASX: IDT) initiatives include antibody drug conjugates which target chemotherapy agents. They make the most of Australia's efficient phase one clinical trial process approval to attract clients and expedite their research. Paul mentions a recent injection of funds to modernize technology, adding capacity and building barriers against competition. He also refers to a takeover offer by Min Bio which, after due diligence, is currently under review by their legal team.

Full unedited transcript below:

0:00

We think 13.5 million is almost double the revenue that we did in the previous year. Uh, it was a strong fourth quarter, 4.6 million. Um, which which is slightly above the the guidance we gave. So we've managed to beat guidance. A lot of that's come through from, um, our increase in our advanced therapy that's on the back of part of the deal that we did with Sanofi and also, um, more, more API programs coming through, coming through the plant plant Plant utilization. So yeah, we're quite quite excited about that fourth quarter result. And how's your bottom line looking?

0:36

Uh, bottom line, uh, expenses are reasonably flat. Um, we have added some new, uh, direct labor to move through with the increased, um, the increase in capacity and throughput. And we've also got a slight headwind from inflation and, and cost of goods at the moment. But we. We're trying to hold all the bottom line quite flat and increase top line till we get to that inflection point and cash flow positive. So we're getting really close to that point. Where would you say you're at in terms of particularly those input prices at the moment, given what looks as though inflation is coming off in the right direction? Of course. Are you seeing then perhaps that that's going to relieve some pressure for you? And have you actually tried to trim costs as you've gone?

1:23

Absolutely. We're looking for multiple ways to to move cost out and keep it flat. Um, so that, uh, we've, we've we've got a lot of initiatives to move from paper based systems and manual systems toward digital, uh, and electronic systems. So we have those coming through. We also have a, uh, a large solar plant coming through on our roofs quite shortly. So now we are managing costs. Um, we're focusing on hiring into the direct labor space only. So to positively impact our, our output, um, and hold indirect, um, stable. So the two levers I have there is to, to try and hold cost flat, but also increase top line, uh, to, to to make our break even point. You break the business down into what you call three pillars. Can you just give us a summary of how those businesses are performing?

2:16

Yeah, absolutely. So, um, API is our our legacy business at it and it's strengthening. So we've we've positioned a focus on early stage, um, assets, new new medicines, um, and a little bit less of the, the MeToo type sort of market. Um, so we're focusing on probably a little bit more complexity and a little bit more challenging, but also give a little bit higher revenue generating by, by being more smaller volume and high value rather than high value, high volume, small value. So we're we're reversing that a little bit. Um, and then the onset of our advanced therapy initiatives, that is mostly around mRNA vaccines, mRNA manufacturing and also antibody drug conjugate. Uh, backing off the support we receive from the Victorian government to expand more assets through our antibody drug conjugate pipeline.

3:16

Um, so these are in the early stages, but we're starting to get quite a few wins now, um, which will continue to grow and sort of start to produce substantial upside on the revenue and much more predictable, uh, revenue forecasts.

3:33

So how does that pipeline looking obviously mentioning there that, uh, that contract with Sanofi? Um, can you give us some clues as to what else you may have in the pipeline?

3:43

Yeah, well, it's not everyone is in the initial phase is to do a transfer of their technology into our plan and and build a robust process platform around that. Once that platform is established, they can run multiple assets through there. So, uh, we're building a relationship with Sanofi. And and we expect as this develops, many of Sanofi's assets will feed through that, that platform and continue to provide revenue. But on top of that we've got our antibody drug conjugate, um initiatives. So antibody drug conjugate is really when you look at global megatrends, um, a lot of the big pharmaceutical companies right now are developing these, these smart chemotherapy targeting chemotherapy agents. Um, they, they there isn't a premium in, in the, in the capacity of contract manufacturers. So when we're offering our facility up for that for

4:43

at least early stage candidates. Um, a lot of these, these, uh, biotechs don't really have anywhere to go or very limited ability to get their technology in into a finished product. So we're offering that to expedite their, their, their research. We're offering to do that in Australia where they can they can present themselves for our $0.43, uh, tax credit. And we're also in Australia where we have a very amenable, um, phase one clinical trial process for approval where you, you can put an IND application and have it have an approval in days rather than many months. So we're trying to pull those clients through, give them a home to, to to convert their research into into patients. And again Australian patients get to benefit uh for these uh these are brand new chemotherapy agents. And just in terms of funding that pipeline particularly that Sanofi contract then.

5:43

So you recently undertook a capital raise.

5:47

That's right. Um, with with a change in technology and bringing in modern technology, you need, uh, equipment. Um, in the mRNA space and also in the ADC space. Uh, the you need no zero cross-contamination because the most minute amount of these active substances are active. So just right down to the nanoparticle level. So you need you need advanced equipment that can protect, you know, product from product and people from product both. Um, and then also some of the diagnostic equipment to show our cell binding and, and and, um, and, and, uh, the efficacy of the drug that you've built. Right. So there's, there's a little bit of capital spend and there's also a facility that we are refurbishing that that has been dormant for for many years. So again, we're we're adding in capacity. We're we're adding in technology. Um,

6:47

and, and when we're um, so also got quite, um, building high barriers for, for competition at the same time. Now, Paul, last month, you acknowledge that you had received a takeover offer from Min Bio.

7:03

Uh, where's that proposal right now?

7:06

Well, um, my buyers come in with a with a 15 cent offer, right? Um, to to purchase all of our shares. Um, the board have not endorsed that that 15 cent offer right now, but I guess that the board have been curious enough with the, the the approach, um, from my bio to, to allow a, a light due diligence to, to take place and that due diligence has, has taken place. Uh, they've, they've spent some time at the facility. Uh, going through the records and going through a data room. So they have, um, progressed to, to the point where it's probably with their legal team, um, and, and, uh, the best of my knowledge, they're still very, very keen to progress with, with an offer, um, or at least, uh, with the current offer that's on the table. So now it's still progressing, but it's just going through that, that process at this point.