Carbiotix focuses on services and products for improved intestinal health via a diagnostic service and the development of a prebiotic fiber, Carbiotix AXOS. The diagnostic service, which is based on modern PCR technology, is a high-quality test for analysis and monitoring of the intestinal flora. The patented prebiotic fiber is in-house developed and can be included in a number of applications, such as food, beverages, dietary supplements, medical foods and pharmaceuticals. Read more about the company in BioStock's current analysis of Carbiotix here.
Q2 report
The company released its interim report for the second quarter this week. Here it was noted that the company reported net sales of SEK 21,4 thousand compared to SEK 55,8 thousand for the same period in 2019. The operating profit for the second quarter of 2020 was summed up to SEK -0,521 million compared to SEK -1,356 million for Q2 2019. Cash amounted to SEK 3,054 million on the balance sheet date with a negative cash flow during the quarter of SEK 1,419 million.
Significant events that have occurred since the balance sheet date include the launch of the updated gut health test and new partnerships within the white label service. LinkGoodAn improved diagnostic service and more collaborations pave the way for increased demand for Carbiotix prebiotic modulators containing AXOS fibers.
The company has also recently updated the market on its progress in scaling up production of AXOS fibers. BioStock will have reason to return to this topic shortly.
Gut health analysis
Approximately 70 percent of the immune system is located in the gut, and its well-being has a major impact on the body's ability to resist harmful infections caused by viruses and bacteria.
In a healthy gut environment, the body can absorb nutrients and minerals and regulate blood sugar and cholesterol levels. Several scientific studies have linked gut health status to the occurrence of a number of serious chronic conditions and diseases, such as inflammatory bowel disease, type 2 diabetes and cancer.
The microbiome, which includes billions of bacteria, viruses, fungi and other microorganisms, places high demands on analytical tools to achieve detailed test results. At the same time, technological developments have paved the way for making DNA technology widely available. With its capacity to handle large amounts of data, it has proven suitable for analyzing the diversity of organisms in the microbiome.
Modern PCR technology
Carbiotix has now launched a new test, Basic, which is based on Polymer Chain Reaction (PCR) technology that halves the cost compared to the standard test, which is based on Next Generation Sequencing (NGS) analysis.
Each test includes three sampling sessions, which improves the ability to monitor the presence of short-chain fatty acids in the gut, which are essential for good gut health. By being able to measure on more occasions and with great accuracy, it also becomes easier to design an individualized diet and treatment with prebiotic fibers and probiotics, i.e. live bacteria.
LinkGut – a white label service
Within the diagnostics segment, Carbiotix focuses on the LinkGut offering, which is a white label service for companies that want to offer a high-quality gut health test to build customer loyalty to their brand and strengthen their sales. The target group for the service is active in the production of food, beverages and dietary supplements, but the service is also interesting for health companies, dietitians and doctors who want to be able to offer an advanced service to their clients.
The test can be adapted to an existing website or set up as a standalone application. Each test generates a commission income, which means that the costs of establishing the service are low, both for Carbiotix and for the customer who wants to market the service. By allowing customers to continuously monitor their intestinal health, the intention is to create good conditions for long-term loyalty, new customers and increasing sales.
At the beginning of August, Carbiotix announced that it had signed agreements with three new LinkGut partners, thereby exceeding the company's goal of five collaborations by 2023. The new agreements mean that LinkGut is now distributed by a total of seven players.
BioStock contacted Christopher Cook, CEO of Carbiotix, for a comment.
Kristofer, what is the difference with the new PCR test Basic, compared to the standard test based on NGS technology?
- The main difference between the Basic PCR test and Standard NGS test is of course the analytical platform. Although we use PCR as a quality control of our Standard service samples, it is the main analytical platform for our Basic service. This has allowed us to halve the cost from 99 Euros to 49 Euros, while targeting specific bacteria and the presence of key Short Chain Fatty Acids (SCFAs) rather than inferring their presence as done with NGS. This means that we can provide consumers with more useful and longitudinal results at a lower cost, now actually at 1/6 the cost of the nearest competitor on a per sample vial basis. Moreover, like the Standard service, the Basic service is offered in triplicate (three samples), thus providing more reliable results. This is especially important given that we have seen over the past three years that up to 25 per cent of samples have some form of sampling error or are impacted by the natural variability of the gut microbiome, meaning that a single sample diagnostic test can hardly be regarded as reliable.
What is the capacity like, how many tests can you handle and are there any limitations to the service?
- We have built our diagnostic service from start-to-finish in a modular fashion. Right now, we can manage up to 10,000 samples a month. When we exceed this, we simply need to build out our packaging and lab modules, eventually introducing partial automation in key areas and then full automation where needed.
With seven current agreements, you have already exceeded your goal of five LinkGut partners for the period 2021-2023. Can you tell us more about the latest partnerships?
- We can clearly see that interest in the LinkGut service is quickly accelerating. This is, however, not strange given the increased awareness of gut health and the need to develop products and services to meet this growing demand. As a white label service, any food & beverage, supplement or drug company, as well as providers of health and wellness services, can provide their own gut health test to collect customer data, formulate improved products, and validate the efficacy of their products. This helps build customer loyalty and embraces the concept of full transparency. We take care of all logistics and legal obligations with the consumer, thus providing an end-to-end, dedicated, and customizable solution that can be branded in our name, in the name of our partner, or fully integrated as an API.
- Since the service is in triplicate and streamlined, it is both more reliable and at a lower cost than any other offering on the market, making longitudinal gut health monitoring cost-effective. Moreover, since we do not provide disease risk assessments or specific dietary recommendations based solely on microbiome data, we are regarded as a more neutral and less risky partner. Lastly, and probably most importantly, the service is free for our LinkGut partners and can be rolled out within weeks, making it easier to take a quick decision to implement the service.
– The LinkGut partners we have signed on to date include smaller food & beverage, supplement and health and wellness companies. While some have opted for all our testing services, others have expressed an interest in either our NGS or PCR service. The three most recent partners are companies in the health and wellness space. We are happy to provide the LinkGut service to all companies in our target groups, especially those who may become customers, channels to market, or advocates for our AXOS ingredient, medical food or therapeutics. Since higher margin (75-95 per cent) modulator sales will become our core business, and diagnostic service sales will serve to create a competitive advantage for this business, this gives us the freedom to continuously reduce the cost of our diagnostic services over time. This is a win-win-win scenario for our partners, their customers and Carbiotix. Consequently, this will also create disruption in the direct-to-consumer gut health diagnostics market, and, while it should contribute to substantial top-line growth for our business over time, it will create challenges for business focused solely on consumer diagnostics testing.
Finally, what role do diagnostic services play for Carbiotix as a whole?
- Diagnostic services at Carbiotix will serve to accomplish several things. As I mentioned, they will allow us to establish business relationships with potential customers, channels to market and advocates for our AXOS ingredient, medical food and therapeutics. They will provide an added value service for our food & beverage and supplement customers not offered by others in the market, thus strengthening these business relationships. They will contribute to top-line growth in a fast-growing market. Lastly, they will help accelerate the development and commercialization of our medical food co-treatments and therapeutic candidates across a broad range of disease areas, by allowing us to collect and validate more data, and form partnerships with drug companies.
- Although we now offer a highly competitive diagnostic service portfolio in the gut health area, we will continue to improve our current services, introduce new services, and drop our prices as our modulator business grows. This will, in turn, provide a key competitive advantage for our modulator business, where margins are substantially higher. Therefore, making progress in the scale-up of AXOS is now a priority and where we will aim to capture as much value as possible across all target applications: ingredients, medical foods and therapeutics.
The content of BioStock's news and analysis is independent, but BioStock's operations are to some extent financed by companies in the industry. This post refers to a company from which BioStock has received funding.