TIDMSBI
RNS Number : 9557D
SourceBio International PLC
08 March 2022
SourceBio International plc
("SourceBio", the "Company" or the "Group")
Acquisition of LDPath Limited
and trading update - COVID-19 PCR testing
Utilisation of cash resources to accelerate digital pathology
offering and enhance AI capability
Acquisition of LDPath Limited
Key highlights
-- Earnings accretive acquisition to accelerate growth in core business
-- Transforms the Group's Digital Pathology offering
-- Creates a dominant position in the Cellular Pathology market
-- Acquisition funded from existing cash resources
SourceBio International plc (AIM: SBI), a leading international
provider of integrated state-of-the-art laboratory services and
products , announces that it has purchased the entire issued share
capital of LDPath Limited ("LDPath") , a London based leader in
Digital Pathology testing services (the "Acquisition"). The initial
consideration comprises GBP18.5 million in cash, with further
performance-based consideration payable dependent on revenue growth
achieved up to 31 December 2024, as further detailed below.
The Cellular Pathology market is undergoing a structural shift
away from physically transporting patient tissue samples for
analysis and reporting, to instead transmitting digital images of
patient samples. Digital Pathology enables shorter turnaround and
reporting times and greater throughput, at lower cost. The use of
Artificial Intelligence ("AI") further increases the efficiency of
Digital Pathology.
Acquisition highlights
-- The Acquisition strengthens SourceBio's position to become
the leading outsourced partner providing cellular pathology testing
to NHS Trusts and private healthcare providers in the UK
-- LDPath's proprietary Digital Pathology solution transmits
complex images of human tissue samples between the healthcare
provider, the pathology testing partner and its individual
pathology consultants
-- The enlarged Group will target the conversion of both NHS and
private clients to the Digital Pathology offering, including the
use of AI to further streamline the reporting of more routine
pathology cases and to ensure the highest quality of reporting
-- The successful rollout of LDPath's Digital Pathology platform
is expected to reduce turnaround times for results from five to
seven days, to approximately 24 hours
-- The Acquisition is expected to be immediately earnings
enhancing (excluding transaction costs)
Background to the Acquisition and overview of LDPath
The Acquisition is in line with the Group's stated acquisition
strategy to accelerate growth of its core business units, utilising
the substantial cash resources generated over the past 18 months
.
The Acquisition is expected to be immediately earnings enhancing
(excluding one-off transaction related costs of approximately
GBP0.6 million) and complements SourceBio's existing Cellular
Pathology business within its Healthcare Diagnostics business
unit.
The Acquisition of LDPath follows a year of strong growth in
2021 for SourceBio's Cellular Pathology revenues, which grew by 78%
compared to 2020 levels. Before the impact of COVID-19, this
business was delivering annual revenue growth of approximately 40%
due to the increasing shortage of pathologists in the UK. The
growth in 2021 was fuelled by increased volumes from the strong
early inroads into the long-term national backlog of pathology
testing work, caused by both the pathologist shortage and the
significant delays to elective surgeries seen during the COVID-19
pandemic. The sheer enormity of this backlog has been well
publicised in the media and the proposed initiatives to reduce it
are a key government priority, as recently stated by Sajid Javid,
Secretary of State for Health and Social Care. While the national
backlog of pathology testing work provides a substantial short to
medium term growth opportunity, the continuing shortage of
pathologists also offers a significant opportunity for future
long-term growth in outsourced pathology testing work.
Additionally, market demand is moving with increasing pace
towards a Digital Pathology solution. With Digital Pathology,
complex images of human tissue samples are transmitted between the
hospital or healthcare provider, the pathology testing partner and
its individual pathology consultants. This reduces turnaround time
to report results, increases throughput of sample volumes and
decreases carriage costs compared to the traditional method of
manually sending tissue samples in a glass slide format. In
particular, when employed in combination with AI, it enables
pathologists to be even more efficient as the AI can screen out
many more common or obvious cancer cases, allowing for more time to
be spent focused on more complex cases.
These strong growth drivers provide a highly attractive market
backdrop for SourceBio's enlarged Cellular Pathology business.
LDPath has developed a proprietary Digital Pathology platform which
is already being successfully rolled out and adopted in the
marketplace. Its technology-enabled offering has been adopted
within both private healthcare providers and within NHS trusts and
is highly complementary to SourceBio's strategic direction and
provides the Group with enhanced digital capability.
The Group is targeting the conversion of both NHS and private
clients to the technologically enabled Digital Pathology offering
and to introduce opportunities for the use of AI in the digital
platform to further streamline the reporting of more routine
pathology cases and to ensure the highest quality of reporting. The
Board believes that, following the Acquisition, the Group will be
very well placed to seek and secure nationwide scale contracts with
private healthcare providers and to expand with internationally
located consultant pathologists.
LDPath's revenues are currently concentrated in the UK market,
with both NHS and private healthcare provider clients. LDPath
currently employs 40 staff and additionally has a network of
approximately 80 active consultant pathologists providing reporting
and diagnostic services. It is based in London and has a newly
fitted-out laboratory facility in Chichester, UK.
LDPath was incorporated in 2017 by a management team with many
years of experience in the pathology field who will stay with the
Group post Acquisition. LDPath provides rapid histopathology
reporting by specialist pathologists, delivering a surgical
pathology service to NHS hospitals and private healthcare
providers. As one of the pioneers of Digital Pathology scanning
technology in histopathology, approximately 75% of LDPath's team
report digitally and, with its unique integrated second opinion
feature, international expertise can be sought and delivered very
quickly. Unaudited accounts for the year to 31 January 2022 showed
revenue of GBP4.6 million (a growth of 97% over the prior year),
earnings before interest, taxes, depreciation and amortisation
("EBITDA") of GBP0.4 million and profit before tax of GBP0.3
million. LDPath has grown significantly since inception and, like
SourceBio, has seen a recent sharp rise in activity levels as
demand has increased.
In recent months, LDPath has outsourced work to SourceBio,
allowing the two management teams to develop a strong working
relationship. The combined management team believes the enlarged
business will benefit from a dominant market presence, a balance of
NHS and private healthcare clients, a market leading Digital
Pathology offering, as well as increased laboratory capacity and
the scope to address national contracts. All these factors are
expected to accelerate the market conversion towards technology
enabled Digital Pathology solutions and to strengthen the Group's
leadership position in the Cellular Pathology market.
Principal terms of the Acquisition
The principal terms of the Acquisition are summarised below:
Initial consideration
The initial consideration comprises GBP18.5 million in cash,
with the cash payment to the vendors on completion reduced by a
retention of GBP1.9 million which will be held for a period of two
years to cover any claims under customary representations and
warranties. There is a further retention relating to the collection
of certain receivables of GBP0.4 million. Following the reduction
of these retentions, GBP16.2 million was paid in cash to the
vendors on completion.
The cash consideration was funded from the Group's existing cash
resources and SourceBio still retains a strong balance sheet with
cash balances totalling GBP15.6 million following the payment.
Working capital
The terms of the Acquisition are based on a 'locked box'
completion mechanism. SourceBio has agreed to adopt the balance
sheet on the completion date, which is estimated to show net
working capital of GBP0.3 million and total net assets of GBP0.6
million, and to include net debt of GBP0.9 million.
Earn-out payments
Subject to exceeding revenue thresholds for the remainder of
2022 as well as for calendar years 2023 and 2024, additional
consideration will be payable to the vendors of LDPath. The
aggregate earn-out payments are capped at a technical ceiling of
GBP15.0 million. Any earn-out payments will be paid in cash
following completion of the audit of the accounts for the relevant
year.
Jay LeCoque, Executive Chairman, commented: " LDPath is a key
strategic acquisition and is a natural fit with our existing
Cellular Pathology business, which was already growing at 40% per
year pre COVID-19. This transformational acquisition elevates us to
a dominant position in the marketplace and provides the Group with
a proprietary Digital Pathology platform . The market opportunity
is huge, with the long-term backlog of pathology testing work
caused by the lack of pathologists in the UK being further
exacerbated by the delays in elective surgeries caused by the
COVID-19 pandemic. The UK Government has prioritised addressing
this and the Acquisition will provide significant further momentum
to the Group's roll-out strategy initially in the UK, but then
ultimately to the rest of the world.
"With the client base increasingly looking for a 'gold standard'
Digital Pathology solution and the Group having a strong presence
in both NHS and private healthcare markets, SourceBio is very well
placed to capitalise on growth opportunities and lead the migration
to Digital Pathology. I am delighted to welcome the LDPath team to
SourceBio as we work together to lead and transform the Cellular
Pathology marketplace.
"The revenues from COVID-19 PCR testing have funded the
Acquisition and we are focused on utilising the additional cash
generated to deliver strong growth from the three core business
units - Healthcare Diagnostics, Genomics and Stability Storage,
both organically and through acquisition."
Dr Alistair Robson, founder and principal shareholder of LDPath
added : "LDPath is very excited to join SourceBio, bringing
together two complementary healthcare business models in what is a
highly synergistic combination. The market strengths of LDPath and
SourceBio are very well matched and the resultant combined
organisation is superbly placed to provide a full solution to the
shortage of pathology services, from digital diagnosis by experts
benefiting from AI algorithms, to advanced molecular analyses.
Digital pathology has been central to our business, leading to our
winning the only UK NHS digital pathology implementation and
reporting tender to date. Continued technical and software
investments will bring NHS and private pathology into the 21st
century, revolutionise the way pathology services are delivered,
and significantly contribute to greater efficiency in managing
workload across the UK, at a period of unparalleled NHS
strain."
Trading update - COVID-19 PCR testing
Since May 2020, SourceBio has provided COVID-19 PCR testing
services as part of its newly formed Infectious Disease Testing
business unit. Since inception, t hese services have generated
revenues exceeding GBP100 million from delivering more than two
million test results, with substantial earnings and cash
generation.
Whilst future demand for COVID-19 PCR testing remains uncertain,
with the lifting of all COVID-19 restrictions in the UK, testing
volumes continue to reduce, with average daily testing volumes for
the Group of approximately 1,000 tests in March compared to
approximately 2,700 in January. The Board's approach is to maintain
an appropriate level of capacity and to continue to offer COVID-19
PCR services where opportunities exist at attractive economics. The
Group has already materially downsized its cost base in this area
and will continue to monitor this in relation to revenues
generated. A fuller update will be provided at the announcement of
the Group's 2021 results, scheduled for 5 April.
Reflecting the cash generated by the Company and the continued
strength of its balance sheet, the Board is considering the
implementation of a share buyback programme, which would require
approval at its 2022 AGM, which is scheduled for 15 June 2022.
Details of such a programme, if approved, will be announced
alongside the Group's 2021 results.
The Group remains committed to maintaining a prudent balance
sheet after taking into account capital required for any buyback
and potential strategic opportunities and, taking into account the
purchase of LDPath, including potential earn-out payments.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 as amended by The
Market Abuse (Amendment) (EU Exit) Regulations 2019. Upon the
publication of this announcement via the Regulatory Information
Service, this inside information is now considered to be in the
public domain.
Contacts:
SourceBio International plc www.sourcebiointernational.com
Jay LeCoque, Executive Chairman Via Walbrook PR
Tony Ratcliffe, Chief Financial Officer
Liberum (Nominated Adviser and Broker) Tel: 020 3100 2000
Bidhi Bhoma / Richard Lindley / William
Hall
Walbrook PR Limited Tel: 020 7933 8780 or sourcebio@walbrookpr.com
Paul McManus / Sam Allen Mob: 07980 541 893 / 07502
558 258
About SourceBio International plc
www.sourcebiointernational.com
SourceBio is a leading international provider of integrated
state-of-the-art laboratory services and products with clients in
the healthcare, clinical, life science research and biopharma
industries, with a focus on improving patient diagnosis, management
and care. Group revenues are derived from four business units:
-- Healthcare Diagnostics - histopathology cancer screening and
clinical diagnostic services for the NHS and private healthcare
across the UK and Ireland.
-- Genomics - DNA sequencing services and Precision Medicine
offering for pharmaceutical and biotechnology companies, academia,
contract research organisations (CROs) and other research groups in
the UK, Europe and North America.
-- Stability Storage - shelf-life testing services and equipment
for pharmaceutical and biotechnology companies, contract
manufacturers and analytical testing companies from around the
world but primarily in the UK, Ireland and the USA
-- Infectious Disease Testing - a range of COVID-19 testing
services for commercial enterprises, private healthcare groups and
the NHS. Utilising multiple technologies, SourceBio offers
screening, gold standard RT-PCR and whole genome sequencing
COVID-19 testing solutions and operates under ISO 15189
accreditation. SourceBio also provides employee testing solutions
to industry, direct to consumer home test kits and venue
testing.
More details on Group operations can be found here:
www.sourcebioscience.com
SourceBio International plc (SBI) is listed on the AIM market of
the London Stock Exchange.
About LDPath Limited
Established in 2017, LDPath is one of the top private
histopathology providers in the United Kingdom.
-- LDPath provides rapid histopathology reporting by specialist
pathologists, delivering a surgical pathology service to NHS
hospitals and private healthcare providers
-- Intelligent Laboratory Information System ("LIMS"): LDPath's
bespoke LIMS application sends real time case status notifications,
encrypted to the highest level, for secure access. LDPath designed
its LIMS Application to be intuitive and fast with a degree of
automation to facilitate workflow. Functionality is available for
pathologists, clinicians, laboratories and hospitals. Once
authorised, reports are made available immediately online and are
notified by automated email. Case status can be traced as soon as
specimens or slides are received
-- LDPath designed LIMS with the needs of its users in mind,
encrypted to the highest level and can be accessed via secure
connection
-- As one of the pioneers of digital scanning technology in
histopathology, approximately 75% of LDPath's team report digitally
and, with its unique integrated second opinion feature,
international expertise can be sought and delivered very
quickly
-- LDPath currently reports every major discipline of surgical pathology including: Dermatology, Gastrointestinal, Gynaecology, Breast, Urology, Ear Nose & Throat as well as Head & Neck
-- LDPath is engaged with approximately 80 specialist consultant pathologists
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