SourceBio International PLC (AIM:SBI) is to acquire LDPath, a London-based provider of digital pathology testing services.
The initial consideration will be £18.5mln in cash with the possibility of further payments depending on revenue growth. The aggregate earn-out payments are capped at £15.0mln and will be paid in cash.
The AIM-listed provider of integrated state-of-the-art laboratory services and products said the acquisition would be funded from existing cash resources.
The board of SourceBio believes the acquisition will enhance earnings and will strengthen SourceBio's position to become the leading outsourced partner providing cellular pathology testing to NHS Trusts and private healthcare providers in the UK.
The enlarged group will target the conversion of both NHS and private clients to the digital pathology offering, including the use of artificial intelligence (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 5-7 days to around 24 hours.
"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,” said Jay LeCoque, the executive chairman of SourceBio.
“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,” he added.
"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,” LeCoque said.
Dr Alistair Robson, the founder and principal shareholder of LDPath, said the market strengths of LDPath and SourceBio are very well matched.
“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,” Dr Robson said.
Having generated copious revenues from the provision of Covid-19 PCR test, the company is considering using surplus cash to instigate a share buyback programme, subject to shareholder approval.
The group said that Covid-19 PCR testing volumes continue to reduce, with average daily testing volumes for the group of around 1,000 tests in March compared to roughly 2,700 in January.
The group has already materially downsized its cost base to reflect the decline in demand.
Shares in SourceBio were up 2.0% at 125p in afternoon trading.