Pattersons research note: IVF MARKET PROVIDES FIRST MAJOR REVENUE OPPORTUNITY

Investment Highlights

 Bluechiip Limited (BCT) has made a vital step in its journey to product validation and commercialisation by executing and delivering on the milestones set out in its agreement with Genea Biomedx. BCTs sample tracking and monitoring technology will now be integrated into Genea's Assisted Reproductive Technology (ART) instruments used in IVF clinics globally. Together, the companies are now targeting an early 2017 launch which has the potential to generate significant revenue for BCT. This agreement has also validated the OEM approach and should allow BCT the capability to convert its 15 OEM partner pipeline into commercial agreements. BCT is currently undertaking a rights issue to raise $1.5m to shore up its cash position. We believe BCT should rerate upward as more OEM partners are commercialised and further details of the IVF product launch are announced. We maintain our Speculative Buy recommendation.

 BCT has researched, developed and is set to commercialise its product suite which includes a Micro‑Electro‑Mechanical‑Systems (MEMS) smart chip, a Reader and the Stream software. The unique product suite has been developed as a full temperature and tracking solution to disrupt the traditional labels, barcodes and Radio‑frequency identification (RFID's) currently used in chain‑of‑custody activities. The technology also does not need to be handled or be in a visible line of sight to be read, thus is potentially more optimised, efficient and suitable for bio‑banking applications than the current equipment and process implemented. The technology was also created with the capability to be retro fitted into current equipment, thus lowering the barriers for adoption. The initial target market for BCT remains the bio‑banking industry, particularly the IVF cryogenics sector, where its MEMS based technology can be used to accurately monitor temperature and location. The technology may also be viable in any chain‑of‑custody or logistics driven market.

 BCT has made significant progress in FY16, with further development in its product suite and the growth of its OEM network. Importantly, BCT has started to commercialise its technology with first revenues being received in the second half of FY16 ($150,000). Its technology is also being used in the Autism CRC Biobank and a Starter Kit has been sold to the Chinese Centre for Disease, Control and Prevention (CCDC). Starter Kits are the first step toward a successful rollout of the full suite of product. Additionally, BCT has 2 agreements in place for protein crystallography and cell therapies and its OEM pipeline has grown from two to over 15 companies.

 The cryogenic market, in which BCT directly operates, is set to generate global revenue of US$97m in cryovial sales in 2017. BCT has near‑term potential in this market via its OEM partnership with Genea Biomedx. A number of key milestones have been achieved and BCT, in collaboration with Genea Biomedx, is targeting a full launch of the product in early 2017 after it executed the supply agreement. Genea has a global distribution agreement with a major pharmaceuticals company.

 The biopreservation market is forecast to be worth c.$2bn globally in 2016 and expected to grow to $6.5bn by 2024, with BCT's current identified total addressable market stated as $300m plus. Currently there are over 2.0bn biological samples held in bio‑banks, which include cryogenic bio‑banking, blood, pharmaceuticals and IVF samples, and 300m additional biological samples are processed and stored each year.

 As at 30 June 2016, BCT had $0.49m in cash and cash equivalents and $0.5 in debt, which relates to a loan facility, used to finance R&D and is expected to be repaid via the tax incentive rebate yet to be received. The Company currently has a quarterly burn rate of c.$0.5m and, thus, given the current depressed cash position has returned to market for a fresh capital injection. BCT has announced a 1 for 3 Non‑Renounceable Rights Issue to raise $1.48m at an issue price of $0.022/sh

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