Date Theme Sector

29 August 2022 Financial Result Healthcare

Company

Lumos Diagnostics (LDX)

M/W: Difficult to read

Recommendation MARKET WEIGHT
12-mth target price (AUD) $0.06
Share price @ 26-Aug-22 (AUD) $0.06
We maintain our MARKET WEIGHT rating on Lumos Diagnostics. It is difficult to assess residual Forecast 12-mth capital return 0.0%
value until the outcome of the company’s FDA appeal is known and a broader plan for FebriDx is Forecast 12-mth dividend yield 0.0%
articulated and properly financed. We have reset our price target to $0.055 per share, in line with 12-mth total shareholder return 0.0%
the current share price. FDA’s decision to not approve FebriDx for US marketing in July was an
unexpected blow that is challenging to recover from. Lumos has appealed that decision but we
Market cap ($m) 8.0
put a low probability on overturning that ruling. A surer path forward would be to focus on
Enterprise value ($m) 0.1
commercialising FebriDx in the countries where the diagnostic is approved (notably in
Europe/UK). Investors cannot be expected to invest in FebriDx until Lumos commits to an ex-US Shares on issue (m) 209.9
commercialisation campaign for its flagship asset, which to this point, has been cursory at best. Sold short (%) 0.0
US FebriDx commercialisation may require new clinical trials and a change in regulatory pathway. ASX All Ords weight (%) 0.0
Lumos has also closed down its Sarasota facility as it restructures its Services business. We Median turnover/day ($m) 0.1
attribute no value to Lumos’ ViraDx or CoviDx tests as undifferentiated products. Privatisation
may be the best option for Lumos shareholders.

Dr Shane Storey
 Key Points shane.storey@wilsonsadvisory.com.au
Appealing FDA’s decision. As a reminder, FDA’s review of FebriDx fixated on its viral rather than Tel. +61 7 3212 1351
bacterial diagnostic information. This was unexpected because the clinical trials supporting
FebriDx’s development focused on ruling out bacterial infections (in patients with a suspected Dr Melissa Benson
respiratory infection) with the goal of reducing inappropriate antibiotic prescribing. FebriDx melissa.benson@wilsonsadvisory.com.au
achieved a 97-99% negative predictive value (NPV) for bacterial infection across two clinical Tel. +61 2 8247 6639
trials enrolling a total of 572 such patients. The FDA’s objection seemingly ignored this utility and
instead focused on FebriDx’s potential misuse as a de facto COVID (viral) test. We remain Madeleine Williams
incredulous that FDA’s objections were not able to be resolved with appropriate ‘intended use’ madeleine.williams@wilsonsadvisory.com.au
and ‘indications for use’ product labelling. We understand that competitor MeMed encountered Tel. +61 3 9640 3834
similar objections to its ‘MeMed BV’ diagnostic but prevailed, FDA granting a clearance in Sep-
21. The complexity of MeMed’s product likely precluded its widespread use (or abuse) in primary
care settings. FebriDx’s comparative ease of use as a fast, finger-stick driven, rapid test may have 12-mth price performance ($)
paradoxically counted against it. Lumos has appealed FDA’s decision but not disclosed any
technical or other basis for the appeal. A decision is expected in the last quarter of calendar 1.40
2022. 1.17

Model changes. Revised product revenue expectations are just US$1-2M per annum with the 0.93
removal of US FebriDx sales from our model. We assess material revenue opportunities available 0.70
to Lumos outside US, noting that the rapid test format of FebriDx was CE Marked in 2018.
0.47
Lumos’ non-committal attitude towards these markets is a missed opportunity now that the US
outlook is in such jeopardy. The product badly needs successful ‘real-world’ case-studies 0.23
changing prescribing behaviour in primary care settings. In Lumos’ defence, COVID has made the -
Aug-21 Dec-21 Apr-22 Aug-22
real-world use case harder to demonstrate. Similarly, we have reverted to nominal forecasts for
Lumos’ Services business (~US$6-7M per year) in the absence of specific guidance or an updated LDX XAO

description of current contract activity and tender/quotation pipeline.

1-mth 6-mth 12-mth
Valuation. We have cut our price target to $0.055 per share reflecting our 12-month forward net Abs return (%) 8.1 (90.4) (95.5)
cash forecast.
Rel return (%) 3.9 (90.1) (95.0)

Financial summary (Y/E Jun, USD) FY21A FY22A FY23E FY24E FY25E Key changes 7-Mar After Var %
Sales ($m) 19.3 11.6 6.8 7.3 7.8 Sales FY23E 9.4 6.8 -28%
Consensus sales ($m) 12.2 16.6 ($m) FY24E 15.0 7.3 -51%
Sales growth (%) 130.2 (39.8) (41.5) 7.8 6.1 FY25E 20.9 7.8 -63%
EBITDA norm ($m) (10.6) (21.1) (14.9) (17.1) (23.4) EBITDA FY23E (19.4) (14.9) 23%
EV/Sales (x) n/m 0.0 n/m 0.1 n/m norm FY24E (16.5) (17.1) -4%
($m) FY25E (17.4) (23.4) -35%
Source: Company data, Wilsons estimate, Refinitiv.
Price target 0.50 0.06 -89%
All amounts are in US Dollar ($) unless otherwise stated.
Rating M/W M/W

Wilsons Equity Research

Analyst(s) who owns shares in the Company: n/a Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 – Australian Financial Services
Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies
that are subject of this report and an explanation of recommendations can be found at the end of this document.
29 August 2022 Healthcare
Lumos Diagnostics Holdings Limited

 Business Description  Investment Thesis

Lumos Diagnostics is a developer and marketer of rapid point-of-care We maintain our MARKET WEIGHT rating on Lumos Diagnostics. It is
(POC) diagnostic tests headquartered in Melbourne but with commercial difficult to assess residual value until the outcome of the company’s FDA
operations in USA. The company has developed intellectual property and appeal is known and a broader plan for FebriDx is articulated and
expertise in rPOCT development and makes that available as a service to properly financed. We have reset our price target to $0.055 per share, in
other innovators in the sector seeking to transform new diagnostic assays line the current share price. Privatisation may be the best option for
into commercial product. Separately to its CDMO business, Lumos is Lumos shareholders.
commercialising its own portfolio of diagnostics including FebriDx.

 Catalysts  Risks
a) regulatory approvals; b) favourable reimbursement outcomes; c) a) development and commercialisation setbacks/delays; b) adverse
favourable antimicrobial stewardship policy settings; d) jurisdictional reimbursement outcomes; c) slow adoption of new products; d) reliance
expansion; e) new CDMO contract wins; f) corporate activity; g) new on third party distributors.
product launches; h) Board and management changes.

P&L ($m) FY21A FY22A FY23E FY24E FY25E Balance sheet ($m) FY21A FY22A FY23E FY24E FY25E
Sales 19.3 11.6 6.8 7.3 7.8 Cash & equivalents 44.9 8.0 11.0 7.2 20.3
EBITDA norm (10.6) (21.1) (14.9) (17.1) (23.4) Current receivables 4.3 1.9 1.8 2.1 0.4
EBIT norm (11.2) (24.0) (17.6) (20.5) (27.9) Current inventory 4.4 2.5 0.7 0.5 0.6
PBT norm (15.5) (24.6) (17.6) (20.5) (27.9) PPE 6.2 3.5 5.5 7.6 10.1
NPAT norm (15.5) (24.6) (17.6) (20.5) (27.9) Intangibles 25.8 12.5 13.7 15.3 17.0
NPAT reported (15.7) (45.7) (17.6) (20.5) (27.9) Other assets 12.3 8.5 10.1 10.7 10.7
EPS norm (cents) (11.5) (15.6) (10.6) (12.4) (16.9) Total assets 98.0 36.9 42.9 43.3 59.1
DPS (cents) 0.0 0.0 0.0 0.0 0.0 Current payables 24.1 4.1 7.0 10.0 12.0
Total debt 0.0 0.0 0.0 0.0 0.0
Growth (%) FY21A FY22A FY23E FY24E FY25E Other liabilities 14.8 14.0 6.5 6.5 6.5
Sales 130.2 (39.8) (41.5) 7.8 6.1 Total liabilities 39.7 19.1 14.5 17.5 19.5
EBITDA norm (39.8) 98.5 (29.7) 14.8 37.1 Minorities 0.0 0.0 0.0 0.0 0.0
NPAT norm (15.5) 58.8 (28.5) 16.6 36.3 Shareholders equity 58.3 17.9 28.4 25.8 39.6
EPS norm (cents) 36.0 (31.7) 16.6 36.3
DPS (cents) n/m n/m n/m n/m n/m Cash flow ($m) FY21A FY22A FY23E FY24E FY25E
Operating cash flow (6.6) (18.0) (12.5) (18.5) (24.3)
Margins and returns (%) FY21A FY22A FY23E FY24E FY25E Maintenance capex (8.1) (2.5) (3.5) (3.7) (4.2)
EBITDA margin (55.1) (181.7) (218.6) (232.8) (301.0) Free cash flow (14.7) (20.6) (16.0) (22.2) (28.5)
EBIT margin (57.8) (206.0) (258.3) (279.2) (358.9) Growth capex (2.5) (1.8) (2.3) (3.0) (3.1)
PBT margin (80.0) (211.2) (258.3) (279.2) (358.9) Acquisitions/disposals 0.0 0.0 0.0 0.0 0.0
NPAT margin (80.0) (211.2) (258.3) (279.2) (358.9) Dividends paid 0.0 0.0 0.0 0.0 0.0
Other cash flow (3.0) (4.8) (3.7) (3.7) (5.2)
Interims ($m) 2H21A 1H22A 2H22A 1H23E 2H23E Cash flow pre-financing (20.1) (27.2) (21.9) (28.9) (36.8)
Sales 10.9 5.2 6.4 3.3 3.5 Funded by equity 63.3 (9.7) 25.0 25.0 50.0
EBITDA norm (4.8) (9.8) (11.4) (7.4) (7.5) Funded by cash/debt (106.4) 46.6 (28.1) (21.1) (63.2)
EBIT norm (5.1) (10.9) (13.1) (8.6) (9.0)
PBT norm (9.2) (11.1) (13.5) (8.6) (9.0) Liquidity FY21A FY22A FY23E FY24E FY25E
NPAT norm (9.2) (11.1) (13.5) (8.6) (9.0) Cash conversion (%) 59.4 85.4 83.9 108.6 103.9
NPAT reported (9.4) (12.6) (33.1) (8.6) (9.0) Net debt ($m) (44.9) (8.0) (11.0) (7.2) (20.3)
EPS norm (cents) (6.1) (7.4) (8.2) (5.2) (5.4) Net debt / EBITDA (x) 4.2 0.4 0.7 0.4 0.9
DPS (cents) 0.0 0.0 0.0 0.0 0.0 ND / ND + Equity (%) (335.2) (80.5) (63.8) (38.3) (105.4)
EBIT / Interest expense (x) (2.6) (39.3)
Stock specific FY21A FY22A FY23E FY24E FY25E
Services revenue ($m) 17.5 9.4 5.8 6.0 6.0 Valuation FY21A FY22A FY23E FY24E FY25E
Product revenue ($m) 1.8 2.2 1.0 1.3 1.8 EV / Sales (x) n/m 0.0 n/m 0.1 n/m
EV / EBITDA (x) 3.5 n/m 0.2 n/m 0.5
EV / EBIT (x) 3.3 n/m 0.2 n/m 0.4
P / E (x) n/m n/m n/m n/m n/m
P / BV (x) 0.2 0.5 0.3 0.3 0.2
FCF yield (%) (165.3) (230.9) (179.3) (249.7) (320.4)
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
Payout ratio (%) 0.0 0.0 0.0 0.0 0.0
Weighted shares (m) 135.0 157.6 165.1 165.1 165.1

Source: Company data, Wilsons estimate, Refinitiv.

All amounts are in US Dollar ($) unless otherwise stated.

Wilsons Equity Research Page 2

29 August 2022 Healthcare
Lumos Diagnostics Holdings Limited

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29 August 2022 Healthcare
Lumos Diagnostics Holdings Limited

Disclaimers and Disclosures

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