TIDMINS
RNS Number : 5017T
Instem plc
15 November 2019
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Instem plc
("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.
About Leadscope
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:
Instem plc +44 (0) 1785 825 600
Phil Reason, CEO
Nigel Goldsmith, CFO
N+1 Singer (Nominated Adviser
& Broker) +44 (0) 20 7496 3000
Richard Lindley
Rachel Hayes
Walbrook Financial PR +44 (0) 20 7933 8000
Nick Rome instem@walbrookpr.com
Tom Cooper
About Instem
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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END
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