Here's why the Atomo (ASX:AT1) share price is crashing 9% today

This ASX share is having a bad start to the week…

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The Atomo Diagnostics Ltd (ASX: AT1) share price has come under significant pressure on Tuesday.

At the time of writing, the medical device company's shares are down 9% to 30.5 cents.

Why is the Atomo share price sinking?

As well as being caught up in the market volatility, the Atomo share price is being sold down by investors following the release of an announcement.

According to the release, Atomo and Access Bio have restructured their commercial relationship to reflect the evolving structural changes in the COVID-19 diagnostics market.

What was the previous agreement?

In July last year, Atomo entered into an agreement with the US-based diagnostics specialist to supply its unique, integrated rapid diagnostic test (RDT) devices to Access Bio for use with its rapid test strip for detection of antibodies to COVID-19.

Under this agreement, Access Bio was obliged to sell a minimum of two million products by 30 September 2021.

The two parties then expanded the agreement a couple of months later. Under the expanded partnership, Atomo had non-exclusive rights to market and distribute Access' COVID-19 rapid antigen test in Australia, New Zealand, and India. These were to be branded as the Atomo COVID-19 Antigen Test, subject to obtaining the required regulatory approvals in each jurisdiction.

What's the latest?

Today's announcement reveals that the new agreement, which is effective immediately and expires on 31 December 2022, will see Atomo receive a one-off fee from Access Bio to replace any payments due to Atomo under the existing agreements.

However, while management considers the fee to be "material", it has not provided any colour on what that means in dollar terms. This could be weighing on the Atomo share price today.

In addition, the new agreement provides Atomo the right, but not the obligation, to purchase at a fixed price per unit up to 10 million Atomo branded COVID-19 Rapid Antigen tests between now and the end of 2022. These are for use in professional settings in Australia and New Zealand only.

This test was listed on the ARTG by the TGA in October 2020 and is currently being sold by Atomo in the Australian market in a number of channels.

What else?

Furthermore, the company has the right to purchase at a fixed price per unit up to 10 million Atomo branded COVID-19 Rapid Antigen Self-Tests. These self-tests will be able to be used in homes across Australia if approved by the TGA.

Management explained the logic behind the new agreement. It said: "The new agreement enables the parties to better align themselves to meet the opportunities resulting from changes in the diagnostic landscape in FY22."

"The termination of Atomo's OEM agreement with Access Bio will in no way affect Atomo's current HIV business where Atomo is the listed manufacturer of its own Atomo HIV Self-Test and AtomoRapid HIV professional use tests across LMIC and developed healthcare markets," it added.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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