Earnings Enhancing Acquisition of Leadscope
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
("Instem", the "Company" or the "Group")
Earnings Enhancing Acquisition of Leadscope, Inc. ("Leadscope")
Acquisition of In-silico Research and Development Software Provider, Issue of Equity
and Total Voting Rights
Instem (AIM: INS.L), a leading provider of IT solutions to the global life sciences market, announces that it has exchanged contracts to acquire US-based Leadscope (the "Acquisition"), for a total consideration of up to $4.6m, to be satisfied by a combination of cash and new ordinary shares in the Company. Completion of the acquisition will occur on the transfer of the cash element of the Initial Consideration (as defined below) to the sellers and a further announcement will be made in due course. The Acquisition is expected to be earnings enhancing from 2020.
The consideration comprises $3.35m on completion (the "Initial Consideration"), $0.75m of deferred consideration (the "Deferred Consideration") and up to a further $0.5m which is payable contingent upon the future financial performance of Leadscope (the "Earn Out"). Further information on the terms of the Acquisition is set out below.
The Acquisition will extend Instem's currently small but rapidly growing Informatics business, adding a regulatory-backed business with strong recurring revenues and high levels of client retention, in addition to opening up the potential for cross selling of solutions to the combined client base.
Founded in 1997, Leadscope is based in Columbus, Ohio, USA and is a leading provider of in-silico safety assessment software used to enhance and accelerate life sciences research and development. Developed, in part, through several Research Collaboration Agreements ("RCAs") with the US Food & Drug Administration ("FDA"), its solutions use a database of over 500,000 toxicity studies for over 200,000 chemicals covering all major potential safety-related risks.
Provided on a subscription or pay-per-use basis, Leadscope's software employs sophisticated artificial intelligence and machine-learning algorithms to predict potential safety outcomes and to enable scientists to perform expert reviews. Deployed as Software-as-a-Service, or on client premises, Leadscope's software allows clients to extract knowledge from both public data and their own proprietary sources.
Leadscope has seven employees, all of whom are expected to remain with the business following the acquisition and c. 65 clients, including 10 of the world's top 20 pharmaceutical companies.
In the financial year ended 31 December 2018, Leadscope's profit before tax was $0.5m. For the 12 months ended 31 July 2019 (being the latest management accounts period completed prior to financial due diligence), excluding non-recurring grant income and non-recurring expenses,
Leadscope reported sales of $1.9m and earnings before interest, tax, depreciation and amortisation ("EBITDA") of $0.4m. In this 12-month period, recurring subscriptions accounted for 78% of revenues, providing strong levels of visibility.
The acquisition is expected to be earnings enhancing from 2020. As at 31 July 2019, Leadscope had net assets of approximately $0.4m.
The Emerging Market Opportunity
Although in-silico safety assessment solutions have been used in non-regulatory applications for about 20 years, in 2018, a number of the world's major regulatory agencies, including the FDA and the European Medicines Agency, adopted a standard known as ICH M7 (R1) for the assessment and control of DNA reactive (mutagenic) impurities in pharmaceuticals to limit potential carcinogenic risk. This was the first time that sophisticated in-silico safety assessment software was accepted by the regulatory authorities as an alternative to laboratory experiments for an essential element of the R&D process.
Leadscope worked extensively through RCAs with the FDA, and in collaboration with other agencies, to develop both predictive and expert review solutions for ICH M7 (R1) and has licensed the software widely in the industry. New clients continue to adopt the Leadscope solutions for this specific application.
Building on the success of ICH M7 (R1), the life sciences industry and regulatory authorities are investigating multiple further in-silico safety assessment use cases that can:
· provide earlier indication of potential safety liability;
· reduce the use of animals in R&D; and
· substantially reduce the time and cost required to bring new life changing products to market.
Leadscope is coordinating a collaboration of 60 life sciences companies and regulatory authorities, funded by a grant from the US National Institute of Health, to standardise in-silico safety assessment protocols as the basis for future regulatory adoption. This industry and regulatory appetite is expected to fuel significant future growth in the market for in-silico safety assessment solutions.
Instem will integrate Leadscope quickly, support the introduction of new models and will be targeting increased market penetration in specific clients and geographic sectors. Management has identified considerable Sales, Marketing and Client Management synergy with other Instem solutions, including Instem's market leading genetic toxicology data collection application that manages the experimental assay that is complemented by Leadscope's ICH M7 (R1) compliant solution.
Terms of the Acquisition
The Initial Consideration is being satisfied by $2.25m in cash and $1.1m in new ordinary shares of 10 pence each in the Company (the "Initial Consideration Shares") equating to 231,966 shares. The cash is being funded from existing resources.
The shareholders of Leadscope include the seven employees, who will receive 228,679 Initial Consideration Shares in aggregate as part of the consideration. These will all be subject to a lock-in agreement, precluding them from selling any ordinary shares prior to the 12-month anniversary of the Acquisition.
The Deferred Consideration, to be satisfied in cash, comprises $0.375m which is payable on 21 November 2020 and $0.375m which is payable on 21 November 2021.
The Earn Out comprises $0.5m payable in cash, contingent upon Leadscope's EBITDA exceeding $0.5m in financial year 2021. If achieved, this would be payable in March 2022.
Application will be made to the London Stock Exchange for the admission of the 231,966 Initial Consideration Shares to AIM ("Admission"). It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 21 November 2019. The Initial Consideration Shares will rank pari passu with the existing ordinary shares in the Company.
Total Voting Rights
Following the issue and allotment of the above Initial Consideration Shares, the Company's issued share capital comprises 16,529,234 ordinary shares of 10 pence each. The Company does not hold any ordinary shares in treasury, therefore the total number of voting rights in the Company is 16,529,234.
The figure of 16,529,234 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change of their interest in, the Company under the FCA's Disclosure and Transparency Rules.
Dr. Glenn Myatt, CEO of Leadscope, stated: "On behalf of our clients and staff, we couldn't be happier to be part of the Instem group and the transformation they are leading in health and life sciences. This acquisition by Instem will bring us global reach, a depth of existing pharmaceutical clients and a highly complementary informatics services business that should maximise our growth potential. I am confident that together we can expand the value and impact that we bring to our client partners and the wider life sciences market."
Phil Reason, CEO of Instem plc, further commented: "Leadscope aligns perfectly with our strategy of expanding organically and acquisitively into adjacent market areas, particularly those having strong regulatory drivers for technology adoption. We have been in regular dialogue with Glenn and the Leadscope team for over 10 years, looking for the right opportunity and timing to partner or acquire. They have built a deep relationship with the regulatory authorities, a fantastic client base and a profitable recurring revenue stream. We are looking forward to delivering the next stage of growth across the enlarged business and helping our clients to achieve a material reduction in the time taken to bring their life changing products to market."
For further information, please contact:
+44 (0) 1785 825 600
Phil Reason, CEO
Nigel Goldsmith, CFO
N+1 Singer (Nominated Adviser & Broker)
+44 (0) 20 7496 3000
Walbrook Financial PR
+44 (0) 20 7933 8000
Instem is a leading provider of IT solutions & services to the life sciences market delivering compelling solutions for Study Management and Data Collection; Regulatory Solutions for Submissions and Compliance; and Informatics-based Insight Generation.
Instem solutions are in use by over 500 customers worldwide, including all the largest 25 pharmaceutical companies, enabling clients to bring life enhancing products to market faster. Instem's portfolio of software solutions increases client productivity by automating study-related processes while offering the unique ability to generate new knowledge through the extraction and harmonisation of actionable scientific information.
Instem products and services now address aspects of the entire drug development value chain, from discovery through to market launch. Management estimate that over 50% of all drugs on the market have been through some part of Instem's platform at some stage of their development.
To learn more about Instem solutions and its mission, please visit www.instem.com
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