SourceBio International PLC (AIM:SBI) said it has bought a UK based leader in digital pathology testing services for an initial £18.5mln and is planning a share buyback, as it makes use of the cash generated from its Covid PCR testing services in the past two years.
The acquisition has been completed of London- and Chichester-based LDPath as the company noted 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, with the use of artificial intelligence further increasing efficiency, with LDPath’s proprietary digital pathology solution enabling the transmission of complex images of human tissue samples between healthcare providers, pathology testing partners and individual pathology consultants.
The rollout of LDPath's digital pathology platform is expected to reduce turnaround times for results from a week to approximately 24 hours, SourceBio said.
It added that the acquisition strengthens its position to become “the leading outsourced partner providing cellular pathology testing to NHS trusts and private healthcare providers in the UK”, with the enlarged group targeting the conversion of both NHS and private clients to the digital pathology offering.
SourceBio, which could make a further £15mln of potential earn-out payment to the LDPath vendors if revenue thresholds for 2022, 2023 and 2024 are surpassed, said the deal is expected to be immediately earnings enhancing.
LDPath generated underlying earnings (EBITDA) of £0.4mln and profit before tax of £0.3mln for its past financial year as revenue grew 97% to £4.6mln, according to unaudited accounts for the 12 months to 31 January 2022.
Jay LeCoque, SourceBio’s executive chairman, said: “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.”
He said the market opportunity is “huge” due to a long-term backlog of testing work caused by a lack of pathologists in the UK being exacerbated by Covid delays, with the government having made it a priority to address this.
“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,” he said.
LeCoque added: “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."
Following the payment of the initial consideration, the group’s cash balances totalled £15.6mln.
It said that levels of daily PCR testing fell to 1,000 tests in March compared to approximately 2,700 in January with the lifting of restrictions in the UK.
The company said it would maintain an “appropriate level” of capacity of PCR testing services, having already downsized its cost base in this area.
Reflecting the strong cash generation, the board was said to be considering a share buyback programme. This would require approval at the annual shareholder meeting, which is scheduled for 15 June 2022.