Ranked fourth among countries with the highest HIV prevalence in the world, there were about 7.5 million people living with HIV in South Africa in 2021, and the number keeps growing. Subsequently, the HIV test market in South Africa is also growing as HIV testing initiatives have been implemented to increase access to testing and reduce the stigma surrounding HIV via community-based testing by public and private health systems. 

For Atomo Diagnostics (ASX: AT1), the HIV test market in South Africa has become its latest venture in pursuit of growth and profitability. As Covid tests are no longer in high demand, its share price has slumped from $0.50 per share in 2020 to $0.04 today. Hoping to become a part of the HIV response, the medical testing company has signed a ‘take-or-pay’ agreement with long term partner Viatris for its HIV Self-Test for the South African private market.

The take-or-pay clause will obligate Viatris to take an agreed-upon amount of a commodity from Atomo on a certain date or pay a set penalty fee if it does not. In this case, Viatris has committed to purchasing a minimum quantity of tests each year over a 5-year period, with a total value to Atomo of $1.9 million.

Commenting on the agreement, Atomo’s CEO John Kelly said, “In this post-COVID environment we are seeing a return to growth for HIV testing and the emergence of ‘consumer-initiated testing’ as a key driver of growth in the diagnostic market.”

“It is pleasing to be able to expand our partnership with Viatris to the South African private sector market, where there is strong demand and improved pricing relative to global health channels. Viatris has an established consumer health business in South Africa and will be leveraging this network to expand sales of the Atomo designed and manufactured HIV self-test into pharmacies and other private sector channels.”

This new agreement for the private sector market is considered to be material from a growth perspective and is separate and additional to the existing agreement between the parties for HIV Self-Test public health markets in South Africa and other countries.

A month prior to securing the agreement with Viatris, Atomo has also secured a purchase order from UK based diagnostics company Newfoundland Diagnostics Limited for immediate supply of the HIV test kit worth approximately $900,000, subject to updating Atomo’s existing HIV Self-Test CE certificate to include the relevant distributor information and branding. Seeing an increase in HIV sales volume globally, Atomo expects the commercial relationship with Newfoundland to be a meaningful first step towards entering the European market. 

Being the only HIV Self Test listed on the Australian Register of Therapeutic Goods, the Atomo HIV Self Test provides results in just 15 minutes, boasting specificity and sensitivity level of 99.6% with comfort to be carried out by lay users in a private and discreet setting.

In the Half Year ended 31 December 2022, Atomo incurred a net loss of ($5.7m) compared to a net loss of ($2.4m) in the previous corresponding period (pcp). Total customer revenue amounted to $1.36m, while $970k of which were non-COVID-19 revenue comprises $870k relating to HIV test kit sales and $100k relating to sales of Pascal device sales. The HY revenue was lower than pcp of $5.3m as COVID-19 business fell away. As COVID test inventories approached expiry, they were sold at reduced costs which negatively impacted overall gross margins. The Company has been taking approaches to moderate expenses, and are within target at <$1m per month.