Universal Biosensors posts big jump in service fee

Universal Biosensors (UBI) appears to have fully recovered from a product recall earlier this year with sales of its test strips jumping 58% in the first half from a year ago.

The Uncapped 100 company supplies one-time use test strips to LifeScan (a Johnson & Johnson company) for use in a glucose testing device for diabetics, and receives a 1 US cent service fee for every strip sold.

The service fee for the six months to end June came in at $1.6 million compared to $1 million in for same period last year despite a recall of the LifeScan device hurting sales of the strips in the March quarter.

However, total revenue fell 35% to $9.6 million because of a loss in manufacturing and the lack of milestone payments.

Universal Biosensors generates income from making the strip and the service fee, but LifeScan has decided to manufacture the strips themselves in Scotland, although Universal Biosensors will still get the 1 US cent fee regardless of who makes the strip.

Universal Biosensors’ chief executive, Paul Wright, plays down the impact of LifeScan’s move even though he admits that service fee does not offset the revenue loss from the manufacturing business.

“We are still in the early stages so the service fee revenue is still relatively small,” he told Eureka Report. “But manufacturing margins are pretty small anyway as we made around 7%.”

This means manufacturing has only a relatively modest impact on Universal Biosensors’ bottom line while every cent in the service fee will flow through.

More significantly, the drop in the Australian dollar to below 90 US cents will be give the service fee revenue an additional tailwind.

There is also plenty of room for Universal Biosensors test strip volume to grow. There are 17 billion tests done every year, and Universal Biosensors strips are currently used in around 1% of tests.

Further, the small cap is developing a coagulation test with Siemens and first sales of the device and test strips are expected in the current half year.

However, don’t hope for Universal Biosensors to reach breakeven or post a profit for the six months to December after it posted a loss of $7.7 million in the first half. A maiden profit won’t come until 2014 at the earliest.

The stock shed 2 cents to 73 cents in lunch time trade.