Phase Holographic Imaging – Investor Presentation

Phase Holographic Imaging

Investor Presentation

by robertVERITAS


“We redefine cancer research”

“Digital holographic cytometry is set to

transform cell biology, cancer research

and drug discovery”

“Our strategy is to divest the business into a leading industry player with a global sales organization”


TABLE OF CONTENTS

INTRODUCTION

TECHNOLOGY

Artificial Intelligence, Machine Learning and Deep Learning Make Advanced Software Algorithms

Automation, Quantification and Reproducibility

BENEFITS OF THE TECHNOLOGY & AREAS OF USAGE

ORDERS FROM BIG PHARMA

MARKET

VISION

SOURCES OF INCOME

SALES AND BUSINESS STRATEGY – LAYING THE FOUNDATION OF AN EXIT

Peer-Review Research

Scientific Articles – A Decisive Factor of Success

Scientific Publications Is An Indicator of Sales Growth – Exponential Branding Strategy

Product verification

Sales and Marketing Activities

PHI´s Business Strategy Is To Attract Leading Industry Players, Not To Become a World Reaching Sales Organization

What About Sales and Production Then?

MILESTONES

Achieved

By 2018

2018 and Beyond

COMPETITORS

Acquisition of The Nearest Competitor for $320 Million

PATENTS

IMPORTANT GRANTS

GOVERNMENTAL APPROVALS

FALLBACK IN SHARE PRICE

SOURCES AND FURTHER READING

All Press Releases from the company in English


INTRODUCTION

In order to better comprehend the written description of the technology, let us start by watching this introductory video.

TECHNOLOGY

What makes Phase Holographic Imaging (PHI) unique is that it provides scientists at universities and within the pharmaceutical industry with an unprecedented and disruptive way of viewing, studying and analyzing alive cells momentaneously as well as over time.

This is made possible through the company’s patented technology of time-lapse cytometry which results in unprecedented time-lapse imaging minute-by-minute and day after day.

The technology is applicable in all research areas studying cells.

Artificial Intelligence, Machine Learning and Deep Learning Make Advanced Software Algorithms

The unique holographic 4D images of the cells are created through a combination of AI, machine learning and deep learning. The results are advanced software algorithms that produce images and provides access to unique data from the cell samples. So, the creation of images is automated through the holographic microscopes (hardware), and the unique software provides scientists with immense data, information and automated analyses of the cells.

In addition, the scientists can actually watch the processes in alive cells as they happen, in real time, and over time thanks to the video and image production. All with a few simple clicks in the computer software. The holographic imaging cytometry analyzes intact cells, automatically counts them, precisely measures cell thickness and volume, and tracks them over time.

Automation, Quantification and Reproducibility

Many of the 120,000 labs performing cell-based assays worldwide are trying to get a picture of last night’s game by looking at a few still images. Phase Holographic Imaging offers cell biologists the ability to watch the game live.

Automation and quantification are fundamentally important features for setting up reproducible cell-based experiments. PHI enables quantification of cell death, migration, division and interaction effortlessly, to provide scientists with this reproducible data. So, the scientists are no longer limited by the very narrow focal depth of traditional microscopy, as the computer creates a stack of images and automatically selects the one in best focus. PHI´s latest model can be installed inside cell incubators, meaning samples no longer have to be disturbed to make observations.

I recommend the article “Reality Check on Reproducibility” in Nature, one of the most well renowned scientific journals, for further reading on the importance of reproducibility.

BENEFITS OF THE TECHNOLOGY & AREAS OF USAGE

Phase Holographic Imaging´s technology is applicable in all research areas studying cells. This in itself constitutes a large customer base.

Time-lapse holographic imaging cytometry also provides researchers affordable and easy access to unprecedented quantitative data and analysis on cellular populations in their native environments.

To mention one example, the drug industry´s scientific labs can use PHI´s technology to accurately study how drugs interact with living cells. In other words, researchers in the drug making industry can use PHI´s products to actually see the results of a particular drug on cellular level and how they interact with living cells. This has a direct effect on the medical industry. Needless to point out the entailing cost savings for drug makers utilizing PHI’s technology and products as early as in the preclinical phases.

According to the CEO of Phase Holographic Imaging, Peter Egelberg, cancer research is right now the area where the technology is most widely used. He also mentions the areas inflammatory and autoimmune disease, stem cell biology, gene therapy, regenerative medicine and toxicology among the research areas where PHI´s products are widely used.

The much lucrative In Vitro Fertilization (IVF) market, where the ability to study cells (embryos) without interfering with the cell would make a direct and decisive difference, must also be mentioned.

Note that this is not an exhausting list of areas of research where the technology can be used, since the products are suitable for basically every field of research where the cell is studied. But the company is naturally focusing on the areas that are most interesting from a market perspective.

ORDERS FROM BIG PHARMA

“The follow-up order from a world leading Swiss pharma company confirms the market potential within Big Pharma and the pharmaceutical industry in general. Big Pharma’s interest shows that our Holo­Monitor technology is rapidly becoming established and highlight the importance of our goal to create a Center of Excellence in the Basel area”, says CEO Peter Egelberg.

Basel is the home of two largest Big Pharma companies in the world, Novartis and Roche.

MARKET

The cell-based assays market is expected to reach USD 19.92 Billion by 2022 from USD 13.34 Billion in 2017, at a compound annual growth rate of 8.4% during the forecast period from 2017 to 2022.

Estimately, there are about 120,000 cell laboratories in the world.

VISION

Our vision is to make HoloMonitor technology the leading monitoring method in both cell-based preclinical research and in industrial cell culture for clinical use. Within ten years, we see that all 120,000 cellular laboratories in the world monitor their cell culture with HoloMonitor technology. This means that each cell laboratory has at least one HoloMonitor instrument or the like.”

Cell-based preclinical research, which today is largely a craft, will be automated. Future drugs will increasingly consist of living cells or of substances produced by cells. In order to be able to produce these medicines on a large scale, this type of cell culture will also need to be automated. A central part of this automation is the observation equipment that monitors the cells.

SOURCES OF INCOME

  • HoloMonitor Instruments

Three disruptive HoloMonitor time-lapse cytometers which allow cellular behavior to be continuously quantified and monitored.

  • Software Assays in the form of online licensing as mobile apps

Launch of HoloMonitor, a first assay in a series of software assays that will create additional sales. This is the first launch in a series of software assays. As additional software assays are released, HoloMonitor users will be able to measure an increasing number of cellular characteristics by online purchasing additional software modules.

SALES AND BUSINESS STRATEGY – LAYING THE FOUNDATION OF AN EXIT

“Our strategy is to divest the business into a leading industry player with a global sales organization.”

The management and the scientists of Phase Holographic has not settled after the success of a product launch. On the contrary, the company always seems to have something up its sleeve. There has been a steady pace of launching new innovations, all taking the research of the cell to an even deeper level.

As recently as September 25, 2017 Phase Holographic Imaging released HoloMonitor Wound Healing Assays, which mimic in vivo cell migration. They are in vitro assays widely used in all kind of research related to directed cell migration.

What drives PHI forward and makes it constantly innovate is its close association with and ties to the scientific community in a broader sense. The HoloMonitor Wound Healing Assays has been developed not only in close partnerships with the existing users and customers, but also based on a market research targeted to researchers and scientists around the world within all kind of different areas. Hence, It has been is based on an explicit demand from the targeted customers – the scientific community. The collaboration with Judson Lab and other top researchers aims to further develop the technology. HoloMonitor technology offers a wide range of opportunities that the company continuously evaluate together with research centers, such as Judson Lab at the University of California. They then develop the scientific applications that are most interesting from a market perspective, making them simple, repeatable and time-efficient to use.

This is characteristic for how PHI operates and says a great deal on their business strategy. The company is targeting the scientific community. By establishing usage of the company’s products by key opinion leaders, prominent researchers and scientists (who are tied to universities and/or commercial companies) and/or influential and leading company´s research departments, the branding strategy of Phase Holographic Imaging unfolds. And I would like to describe it as exponential branding strategy. Here is why.

Peer-Review Research

In the scientific community there is really only one way of establishing acceptance and confidence. That is through scientific publications. Publications – whether reports, articles, research, phase studies etc. – have one thing in common. They are scrutinized by peers. Every aspect of the publications have to go through several needle´s eyes in order to be accepted in the scientific community. An article will be miscredited if fellow scientists find it erroneous.

Peer-review is a critical part of the functioning of the scientific community, of quality control, and the self corrective nature of science. When the statement is made that research is “peer-reviewed” this is usually meant to refer to the fact that it has been published in a peer-reviewed journal. The basic criterion is that there is a formalized process of peer-review prior to publication – so this presents a barrier to publication that acts as a quality control filter. Typically, the journal editor will give a submitted paper to a small number of qualified peers – recognized experts in the relevant field. The reviewers will then submit detailed criticism of the paper along with a recommendation to reject, accept with major revisions, accept with minor revisions, or accept as is. It is rare to get an acceptance as is on the first round. One must of course also evaluate the publishing journal as well.

The National Center for Biotechnology Information (NCBI), which advances science and health by providing access to biomedical and genomic information, explains the essential role of peer-review: “An essential aspect of the scientific process in the life sciences is the thorough examination of manuscripts by other scientists. They read the article critically and then either suggest that it is accepted, rejected, or—most frequently—revised and improved before it is published. In fact, most scientists will not consider a scientific pronouncement as valid unless it has been approved by this anonymous process, known as peer review. Without such an external seal of approval, they would consider any results presented as preliminary, potentially flawed and generally of the same self-serving status as a press release.

Let us assume that your child loves basketball and has been training for years. You and your family believe the child is a great talent and can be a professional. But still nothing seems to happen and the child is not a regular in the line up. You put the child in another club. Nothing changes. The child goes to several tryouts but still nothing. The child has been evaluated in several ways, in several clubs and by several scouts. There seems to be a consensus that your child is not cut out for basketball on a professional level. You can think of scientific peer-review in a similar way. A published article in reputable journals have gone through several needle´s eyes and you can be confident that the publications are valid and accurate, unless published in an obscure journal.

Scientific Articles – A Decisive Factor of Success

In this report, CEO Peter Egelberg explains the decisive role peer-reviews has for Phase Holographic Imaging: “Independent experts review scientific articles anonymously. The articles thus both market and prove with high credibility to mainstream customers that HoloMonitor and holographic microscopy provides better research results than their old workhorse, the phase contrast microscope.The scientific articles make our industry unique. The articles are a fantastic tool to objectively provide knowledge of new technologies, but also to assess the interest in the technology and future sales.”

Scientific Publications Is An Indicator of Sales Growth – Exponential Branding Strategy

Academic and industrial customers purchase HoloMonitor to create new research results. The goal of academic research is to publish these new research results. The growth of number of published scientific articles featuring HoloMonitor is therefore an early indicator of future sales increase. The number of scientific articles, posters and doctoral thesis featuring HoloMonitor have now grown to well over 80 (27 this year alone), distributed over roughly 60 scientists. See the full list here.

Over the past year, an increasing number of scientific studies conducted using PHI’s technology have been published in prestigious scientific journals. The studies have been conducted at reputable research institutions, whose renowned researchers constitute valuable references for the company.

An example is the Department of Skin Diseases at the University of California, San Francisco, where the research group Judson Lab recently published a groundbreaking article. The article is the result of two years of cell analysis and research involving skin cancer, machine learning, Big Data and, not least, PHI’s instrument, HoloMonitor. The article quickly followed up a second article where HoloMonitor was also used, written by an international research team and also published by the enriched Nature Publishing Group.

The more scientists use the company’s technology in their studies and the more scientific articles that are published where the company’s disruptive technology is used, the more the demand for Phase Holographic Imaging´s products will increase and more scientists will use it. This will keep on going and growing almost by itself, hence the exponentiality of it. Hence my characterization of PHI´s business strategy as an exponential branding strategy.

Product verification

Too many companies with promising products have failed when eagerly pursuing

a rapid increase of sales; a much too costly sales organization is recruited before the product can be manufactured in volume with high and consistent quality for a sustainable cost. The difficulty is in the product verification. Every customer handles the product slightly differently. The only way to ensure that a product will work as expected in the field is therefore to test it in sufficient numbers in the field. All other form of product verification is associated with great uncertainty. The over 90 units in operation have made it possible to identify and verify the simple design changes necessary for HoloMonitor to among other things be able to tolerate the hot and very humid incubator environment without disruptions.

Sales and Marketing Activities

Phase Holographic Imaging has clearly stated that their extensive quality assurance efforts have resulted in that their marketing activities were first intensified in early 2017. The intensified marketing activities by their distributors and their expanded marketing department have resulted in a dramatic increase in number of quotation requests, a very important step in a sales process that in many cases span over several months. The increase in quotation requests, combined with the recent surge of published scientific articles, indicates that this year’s sales development is a direct consequence of that marketing activities were intentionally held back until product quality and delivery capacity was secured. Neither a house nor a company will persist to become valuable without a foundation. The foundation for profitable long term volume sales has now been built with improved gross margin, validated products, secured production, increasingly established technology, confirmed customer value and with currently limited competition.

The value of a company with innovative technology is the know-how and the products, not the sales organization. The sales organization has a limited value because the buyer generally already has a well-functioning one. Driving on your own means that the company itself builds a larger sales organization, which is very expensive, time-consuming and risky. A significant corporate value is therefore best created by focusing the resources on the products and sales in a few key markets, in order to demonstrate the products’ global sales potential for buyers of the business.

To sum it up and doing back to the value of published scientific articles: The number of scientific articles, posters and doctoral thesis featuring HoloMonitor have now grown to well over 80 (27 this year alone), distributed over roughly 60 scientists proving that the company’s business strategy is successful.

PHI´s Business Strategy Is To Attract Leading Industry Players, Not To Become a World Reaching Sales Organization

In a company like PHI, the values ​​are built primarily by demonstrating the potential of technology. It is the scientific findings that prove to potential buyers of PHI that they are about to achieve their goal of revolutionizing preclinical research. Sales from one quarter to another are therefore not what builds the great values ​​of PHI. PHI is not a one-off company with a given and nailed market potential. The scientific results show that HoloMonitor technology can be applied within a range of new applications. New results are likely to clarify additional areas. PHI´s disruptive technology completely changes the prerequisites for preclinical research, both in academic research and in the pharmaceutical industry.

Attending the global distribution capacity required to establish PHI’s products as standard equipment for cell laboratories is very time-consuming and resource-intensive. Marketing efforts are therefore aimed at a limited number of key markets to attract leading industry players with global distribution capacity through accelerated penetration of these markets.

The capital injection in 2015 (see below) was crucial for an expansion of the market and gives the company financial strength, with a clear goal at a subsequent stage, to successfully divest the business, well above the value we see today (http://www.phiab.se/contact/investor).

The sales forecast that the potential upcoming buyer presents to its shareholders will be based on sales through the buyer’s sales organization. The forecast will not be based on what PHI historically managed to sell on its own via our relatively modest sales organization. Therefore, strategic marketing and sales aim to support and imply the buyer’s sales forecast by demonstrating HoloMonitor technology’s revolutionary potential through scientific results, collaboration with opinion leaders and through sales to the right kind of customers, VIP customers (http://www.phiab.se/contact/investor-qa)

What About Sales and Production Then?

The company’s instruments are currently in operation at more than 80 cellular laboratories, which has resulted in 80 scientific publications. PHI’s main product, HoloMonitor M4.5, is manufactured by recall. Components are manufactured and stored according to forecasts to provide a smooth flow of products from production to customer. Series production also results in a significantly lower manufacturing cost, which is already reflected in the rising gross margin.

PHI has established market acceptance which underpins that the products are mature for offensive market investment. The company therefore implemented a capital acquisition of SEK 40 million in spring 2015 to expand the market organization, but also to transfer more of PHI’s products to serial production in order to build the efficient product flow that leads to profitability, all of which has been accomplished.

MILESTONES

Achieved

  • The company’s instruments are currently in operation at 80 cellular laboratories.
  • More than 60 scientific publications.
  • Gross margin of 72 (42) %.
  • Series production of PHI’s main product, HoloMonitor M4.5.
  • A capital acquisition of SEK 40 million in spring 2015 has resulted in an expansion of the market organization and a transfer PHI’s products to serial production has built the efficient product flow that leads to profitability.
  • Market acceptance which underpins that the products are mature for offensive market investment.
  • A first assay in a series of software assays has been launched.
  • All option holders have exercised all their options, thereby increasing their number of shares.
  • The EU funded cancer diagnostic project GycoImaging has started.

GlycoImaging is a EU funded collaboration between PHI, Bundesanstalt für Material-forschung und Prüfung (Germany’s federal technology research institute), Malmö University, University of Copenhagen, University of Turku and Umeå University, aiming to develop improved cancer diagnostic applications based on PHI’s holographic microscopy technology and molecularly imprinted nanoparticles, also known as synthetic plastic antibodies. The European Commission has appointed Phase Holographic Imaging, BAM, Malmö, Umeå, Copenhagen and Turku University to develop improved methods for clinically diagnosing cancer. The €2.1 million grant finances a three-year research project which is coordinated by Malmö University and commercialized by Phase Holographic Imaging (PHI). The development of plastic antibodies and innovative imaging techniques to identify cancer cells. If GlycoImaging achieves its ambitious goal, it will be possible to detect and diagnose cancer more cost efficiently at a much earlier stage than what is possible today. On November 20, 2017 a press release stated that PHI and BAM has agreed to jointly enter the national phase of international patent application “Molecularly Imprinted Polymers” in Europe, USA, China and Japan.

  • Additional HoloMonitor units deployed at Malmö University (2 units) and Umeå University.
  • 10 additional scientific articles based on HoloMonitor were published during may – july 2017.
  • The total value of orders received after the period amounted to SEK 307K on the day of the report.

(http://www.phiab.se/reports/2017/InterimReport1-2017-18.pdf)

By 2018

  • Establish another six Centers of Excellence in collaboration with world-leading universities in life science hotspots such as Boston, San Francisco and Basel
  • Have a total of 300 instruments in operation with customers and opinion leaders.
  • Market introduction of HoloMonitor M5. Will expand the market reach even further.

(http://www.phiab.se/contact/investor-qa)

2018 and Beyond

  • Divestment of the business into a leading industry player with a global sales organization. A clear goal at a subsequent stage, to successfully divest the business, well above the value we see today. A company that intends to acquire PHI looks at the future potential:
  • sales through a global market organization
  • Volume production with upward 80% gross margin towards end customer
  • Synergy effects in a large organization
  • Development of additional application areas

(http://www.phiab.se/contact/investor-qa)

COMPETITORS

The PHI’s instruments mainly compete with conventional methods for measuring cells. The customer rarely see any equivalent alternative to HoloMonitor. Sales work mainly consists of showing HoloMonitor technology’s advantages over conventional measurement methods. Once the customer understands the benefits, a new world is generally opened for them.

CEO Peter Egelberg on competitors:

“Essen BioScience. However, we see it more like Essen paves the way to us. Their success has led to the fact that cell biologists increasingly see the benefits of filming live cells in the incubator environment where the cells are grown. IncuCyte from Essen and other instruments, however, has limitations. For example. fluorescent dyes are required to study individual cells. With our holographic technology, we take the technology to the next step by making it possible to study individual cells without affecting them. For example, today researchers know that cancer is spread by a few individual so-called cancer stem cells. However, these disappear in the amount when cancer cells are analyzed at population level by conventional techniques, which is not the case when our HoloMonitor technology is used.”

Acquisition of The Nearest Competitor for $320 Million

Recently this year It was announced that Sartorius acquired PHI’s closest competitor Essen BioScience for $320 million in cash. Note that like HoloMonitor, Sartorius product IncuCyte is a cell analyzer designed to be placed in a cell incubator to study living cells for extended periods of time. But unlike HoloMonitor, IncuCyte builds on conventional microscope technology. This means that in most cases the cells need to be genetically modified or stained with toxic dyes, which increases the experimental complexity and the risk of introducing experimental artifacts.

PATENTS

The company has 12 approved patents securing their technology.

IMPORTANT GRANTS

One of the milestone recognition was the €2.1M European Commission funded cancer diagnostic project GycoImaging. “This Grant shows that the possibilities our holographic microscopy technology provides in the battle against cancer is rapidly becoming well known and established in the medical research community”, says CEO Peter Egelberg.

Another important award was the recently SEK 2.3 million grant by the Knowledge Foundation (KK-stiftelsen, Sweden). The funded project is called Glykomagine and aims to develop new methods for detecting blood-borne metastatic cancer cells.

GOVERNMENTAL APPROVALS

Because PHI´s research instruments are not used to diagnose or treat patients, they are not subject to the requirements normally imposed on medical devices. This means that the company’s products can be marketed without the approval of the FDA or other authorities.

FALLBACK IN SHARE PRICE

The fiscal quarter May – July 2017 saw a lower than expected sales. Market inertia resulted in that the company saleswise did not quite achieve what they wanted during the period.

Hence, the share price took a dive after the Q2 report was released. It fell from all time high at SEK 70 and the share is now trading at around SEK 35.

However, reassured by secured production and product reliability, a growing number of quotation requests and a flood of scientific publications, PHI looks forward to future sales.

The company is well equipped and is looking to increase sales in the coming periods. If the Q4 report, presented on december 18, continues to show a lower than expected sales, there is a risk that the share price will fall even more. Given that the share price has already taken quite the dive, there is most likely a limit to the potential fall and this uncertainty is already priced in in the current share price.

Given that PHI has already accomplished series production and an expansion of the sales organization, continues to expand through establishing another six Centers of Excellence, looking to reach a total of 300 instruments in operation at customers and opinion leaders, there is an attractive upside. Also, the clear goal to successfully divest the business, well above the value we see today, makes the stock attractive for investors at these levels of the share price.

SOURCES AND FURTHER READING

http://www.phiab.se/reports/2015/ProductBrochureM4-Online.pdf?v=11

http://www.phiab.se/contact/press-releases-2015

http://www.phiab.se/reports/nature/NatureInterview.pdf

http://www.phiab.se/reports/2017/InterimReport1-2017-18.pdf

http://www.phiab.se/reports/2017/PresentationAGM-170925.pdf

http://www.phiab.se/contact/investor

The Difference Between an Image, Flow, Time-lapse and Cell-sorting Cytometer

https://www.biostock.se/2017/03/phase-holographics-konkurrent-uppkopt-28-miljarder/

http://www.phiab.se/contact/press-releases-2016

http://www.phiab.se/contact/press-releases-2017

https://www.biostock.se/2017/09/phase-holographics-nylansering-forenklar-studier-av-metastaserande-cancerceller

https://www.biostock.se/2017/11/sondagsintervjun-phi-forandrar-synen-pa-cellanalys-publikation-for-publikation/

https://www.nature.com/news/reality-check-on-reproducibility-1.19961

http://www.nature.com/news/insideview-1.18555

http://news.cision.com/phase-holographic/r/nature-publishes-new-holomonitor-article–phi-achieves-50-publications,c9953614

http://news.cision.com/phase-holographic/r/big-pharma-company-orders-third-holomonitor,c9875866

All Press Releases from the company in English

http://news.cision.com/?q=phase%20holographic%20imaging

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