REG - Diaceutics PLC - Revenue growth of 22% & order book growth of 57%
21/05/2024 07:00
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RNS Number : 1888P Diaceutics PLC 21 May 2024
Diaceutics grows revenues by 22% in FY 2023 and delivers order book growth of
57%
52% of revenues are now recurring
Six customer engagements now at enterprise-wide level
AI upgrades to the DXRX platform driving improved data insights
Diaceutics becoming the primary commercialisation partner for pharma and
biotech launching precision medicines - 17 of the top 20 global pharma
companies are Diaceutics' customers
Strong balance sheet with cash of £16.7 million
Strong momentum enjoyed in 2023 has continued into 2024
Belfast and London, 21 May 2024 - Diaceutics PLC (https://www.diaceutics.com/)
(AIM: DXRX), a leading technology and solutions provider to pharma and
biotech companies, today announces the continued strong performance and
growth across its business for the full year ended 31 December 2023.
Ryan Keeling, Diaceutics' Chief Executive Officer, commented: "2023 was
another year of strong performance and growth for Diaceutics despite it being
a challenging year for the wider pharma industry. This growth demonstrates the
significant value our customers place on our differentiated offering, as
reflected by the increasing number of precision medicines we are working with.
The good momentum we enjoyed in 2023 has continued into 2024 to date and we
see many opportunities for growth both with existing and potential new
customers."
Financial Highlights:
FY 2023 FY 2022 Change
Revenue £23.7m £19.5m +22%
Recurring revenue percentage of overall revenue 52% 35% +17 ppts
Annual Recurring Revenue (ARR) £13.7m Not reported -
Order book £26.5m £16.9m +57%
Gross Profit £19.7m £16.7m +18%
Gross Profit Margin 83% 86% -3 ppts
Adjusted EBITDA* £2.4m £3.6m -33%
Profit /(loss) before tax (£2.4m) £0.6m -£3.0m
Net cash £16.7m £19.8m -£3.1m
*Adjusted EBITDA is earnings before interest, tax, depreciation,
amortisation and exceptional items.
· 22% revenue growth in FY 2023 - 19% on a constant currency basis
· 52% of revenues in the period were recurring (FY 2022: 35%)
· Good visibility on future revenues - order book value at 31 December of £26.5
million (2022: £16.9 million), of which £12.3 million will be realised in FY
2024
· Adjusted EBITDA of £2.4 million (2022: £3.6 million)
· Diaceutics remains debt free with cash of £16.7 million at 31 December (2022:
£19.8 million)
· Continuing to scale and invest in line with accelerated growth strategy
Strategic & Commercial Highlights: Continued progress across our key value
drivers and expansion of our team, further enhancing our competitive advantage
as we scale the business for future growth
Enhancing our lab network, data capabilities and DXRX platform
· Further expansion of lab network, data assets and capabilities in Europe
· Accelerated roll out of DXRX Signal across US markets, which identified over
500,000 patients in 2023
· Enhanced platform scale and capabilities improving customer experience and
service
· Significant technical upgrade to DXRX platform involving best in class AI
Investing in our team
· Leadership team further developed and strengthened - Ryan Keeling appointed
Chief Executive Officer, Graham Paterson appointed as a Non-Executive Director
and Jillian Beggs appointed Chief Commercial Officer. Co-founder and former
CEO Peter Keeling now focussed on business development & partnership
opportunities.
· Q1 2024 - appointment of Ken Ruppel as VP Scientific & Medical Services
and Amie McNiece as VP Marketing
Strong commercial progress
· Four customers at enterprise level during 2023 (2022: Nil)
· Two new enterprise-wide engagements in 2024 - bringing total enterprise ARR to
£9.0 million
· Worked with 69 individual therapeutic brands, an increase of 23% YoY
· Q1 2024 - Signed KPMG strategic alliance facilitating joint marketing
· May 2024 - hosted Practice Gaps & Economic Forum in Belfast
Current Trading & Outlook:
· Continued strong growth in Q1 2024 - Total Contract Value up 82% and revenues
up 25% vs Q1 2023
· Q1 2024 Adjusted EBITDA and cash in line with expectations and accelerated
investment strategy to scale for growth continuing to plan
· Deployment of enhanced technologies across the DXRX platform delivering
operational leverage
· Market opportunity significant and growing, including expansion beyond pharma
· Continuing to win new business and expand enterprise-wide engagements with
existing large pharma customers
· Strong demand for DXRX insight and engagement solution products driven by
customer success
Analyst Presentation:
A webinar presentation for investors and analysts will be held at 1330 BST
(0830 ET) on Tuesday, 21 May 2024. Those wishing to attend can register using
the following link:
https://stifel.zoom.us/webinar/register/WN_avvLvNSEQ-GNugz8dbboZg
(https://stifel.zoom.us/webinar/register/WN_avvLvNSEQ-GNugz8dbboZg)
Investor Meet Presentation:
A webinar presentation for investors will be held via the Investor Meet
platform at 1630 BST (1130 ET) on Tuesday, 21 May 2024. The presentation is
open to all existing and potential shareholders and registration can be
completed via the following link:
https://www.investormeetcompany.com/diaceutics-plc/register-investor
(https://www.investormeetcompany.com/diaceutics-plc/register-investor)
Questions can be submitted pre-event via your Investor Meet Company dashboard
up until 0900 (BST) the day before the meeting or at any time during the live
presentation. Investors who already follow Diaceutics on the Investor Meet
Company platform will automatically be invited.
This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance
with the Company's obligations under Article 17 of MAR. The person responsible
for making this announcement on behalf of the Company is Nick Roberts, Chief
Financial Officer.
Enquiries:
Diaceutics PLC
Ryan Keeling, Chief Executive Officer Tel: +44 (0)28 9040 6500
Nick Roberts, Chief Financial Officer investorrelations@diaceutics.com
Stifel Nicolaus Europe Limited (Nomad & Broker) Tel: +44 (0)20 7710 7600
Ben Maddison
Nick Harland
Kate Hanshaw
Alma Strategic Communications Tel: +44(0)20 3405 0205
Caroline Forde diaceutics@almastrategic.com
Kinvara Verdon
Kieran Breheny
About Diaceutics
At Diaceutics we believe that every patient should get the opportunity to
receive the right test and the right therapy to positively impact their
disease outcome.
We provide the world's leading pharma and biotech companies with an end-to-end
commercialisation solution for precision medicines through data analytics,
scientific and advisory services enabled by our platform DXRX - The
Diagnostics Network ®.
Statement from the Chair
I am pleased to report on another year of significant progress for Diaceutics,
as we continue to meet our strategic objectives and advance towards our goal
of becoming the primary commercialisation partner for pharma and biotech in
precision medicine.
In the past year, we announced our accelerated investment strategy which has
resulted in enhancements to our data and platform technology. We have also
expanded our lab network and successfully rolled out our customer experience
teams and enhanced service offerings. These efforts have solidified our
position as a trusted pharma partner and reinforced our competitive
advantage.
Additionally, we have seen increasing traction with our customers at an
enterprise-wide level, successfully growing our top line through the number of
brands we work with, whilst also maintaining the average revenue per brand we
generate. An enterprise-wide engagement is characterised by a customer
deploying the DXRX solutions across three or more of the precision medicines
in their portfolio, or a customer engaging Diaceutics as the primary
commercialisation partner for their precision medicine.
Our financial performance remained robust despite challenges in the wider
pharma industry during 2023, with a 22% increase in revenue to £23.7 million
in 2023, growth in future revenue visibility through our order book, and an
increasing proportion of our revenue being recurring. This success
substantiates our decision to accelerate the investment in the business,
demonstrates the value our customers place in our offerings, and gives the
Board great confidence in the Group's continued momentum.
A continued commitment to strong governance, social and environmental
responsibility
Driving Diaceutics' growth is our commitment to our purpose: that every
patient should get the opportunity to receive the right test and the right
therapy to positively impact their disease outcome. Eligible patients are not
getting access to the medicines they need due to various 'gaps' in the
diagnostic and treatment pathways. This was startling to see in our
groundbreaking practice gaps study (Journal of Clinical Oncology, November
2022). Accessing data and analytics through our DXRX platform helps to
overcome these gaps, so physicians can deliver the right medicine to
individual patients - realising the promise and opportunity that precision
medicine can deliver upon.
Our purpose shapes our culture; we believe in the importance of developing our
people and supporting each individual's wellbeing and career. We also
recognise the hard work of our teams in helping Diaceutics achieve its
strategic goals and purpose. This was demonstrated in the results of our
employee pulse survey, with 82% feeling a sense of personal accomplishment,
93% feeling empowered to excel in their roles, and 85% citing motivation to
exceed expectations in their work, further underscoring our dedication to
nurturing a supportive and fulfilling environment at Diaceutics.
With employees operating across 16 countries and fluent in 17 different
languages, the exceptional diversity within our team at Diaceutics not only
reflects our global reach but also fuels our ability to approach challenges
from multiple perspectives and embodies our commitment to inclusivity and
innovation.
At the Board level, we welcomed Graham Paterson as Non-Executive Director in
October 2023, replacing Charles Hindson who stepped down after four years and
the Board thank him for his service to Diaceutics. At the end of the year, the
successful transition of CEOs took place, with Ryan Keeling taking over as CEO
and Peter Keeling, co-founder, transitioning to a corporate development role
on the Board.
As we continue to grow, we have also looked to strengthen our senior
leadership team through the appointment of Jillian Beggs as Chief Commercial
Officer and a series of Vice President appointments during and after the year
end, ensuring we have the right structure to capitalise on the growth in our
market, bringing additional expertise and leadership.
Diaceutics recognises the importance of maintaining high standards of
corporate governance. We adhere to the principles of the QCA Corporate
Governance Code (the "QCA Code") and will be reporting against the new 2023
QCA Code next year, in respect of the Group's financial year ending 31
December 2024. To ensure that the Group is operating to its highest level, we
have rigorous processes in place to assess the effectiveness of the Board and
its committees and assess how our standards can be improved.
I am especially pleased to see us publish our first Streamlined Energy and
Carbon Reporting (SECR) report in our annual report. As a Board, we take
environmental issues seriously and have voluntarily adopted the SECR framework
to allow us to better measure and improve on our carbon footprint as we
realise our growth ambitions. This echoes many of our pharma customers' own
environmental ambitions and demands on their partners.
Global transition towards precision medicine presents a growing opportunity
As the global shift towards precision medicine accelerates, Diaceutics is well
positioned to seize the opportunities presented. I am grateful to our
dedicated team whose hard work has fuelled our growth, and as a result of our
accelerated investment strategy, we have the infrastructure in place to
deliver our solutions at scale. I am confident in our ability to drive
continued progress in the year ahead.
Deborah Davis
Chair
CEO transition
On 26 September 2023, Diaceutics announced that Peter Keeling, co-founder and
CEO of the Company for 18 years, would transition from his role as CEO on 1
January 2024. Peter continues to serve on the Board as an Executive Director,
focusing on accelerating Diaceutics' corporate development and further
strengthening Diaceutics' leadership position as the primary partner for
pharma companies as they seek to commercialise the new generation of precision
medicines across a range of disease areas over the coming months and years.
Since co-founding Diaceutics in 2005, Peter has guided the Company's evolution
from a niche consulting service provider to a high margin, high growth
diagnostic commercialisation platform, now serving 17 of the top 20 global
pharma companies, with operations spanning Europe, North America and a network
of around 1,000 labs worldwide.
On the same day, Ryan Keeling, then Chief Innovation Officer, was appointed
CEO Designate and officially assumed the role of CEO on 1 January 2024. Ryan,
who joined Diaceutics in 2006 and became a member of the Board upon its IPO in
2019, brings over 17 years of expertise in diagnostic commercialisation. He is
the architect of the Company's data capabilities and DXRX platform, driving
its technology advancements and product innovation.
Chief Executive review
Business and strategic overview
Transformational year
I am delighted to present my first set of results as CEO of Diaceutics. These
results are validation of the market opportunity that Diaceutics is pursuing,
and I am excited to continue to build upon this success, further establishing
Diaceutics as the primary commercialisation partner for all life science
companies launching precision medicines.
The past year has marked significant progress and strong financial performance
for Diaceutics. Our accelerated investment strategy is yielding results,
evidenced by our revenue growth and increasing proportion of recurring
revenues, which enhance revenue quality and visibility.
Simplified model
At the start of the year, we outlined our accelerated investment strategy
bringing focus to the business across our four value drivers:
· Data
· Lab Network
· DXRX Platform
· Our Team
We remain resolutely driven by our purpose; ensuring every patient should get
the right test and the right therapy to positively impact their disease
outcome. This shapes the strategic decisions we make.
Data
Our competitive advantage continues to be reinforced through our unrivalled
depth of data. The expansion of our data supply network has significantly
augmented our data coverage, particularly in the US market, and the launch of
daily alerts via DXRX signal in August 2023 is a ground-breaking innovation
which provides Diaceutics' customers with close to real time data that can be
used to identify patients eligible for therapy prescription or clinical trial.
Lab network
Expanding our lab partner network has empowered labs to improve the patient
diagnostic and treatment journeys. We have augmented our lab networks and data
sets, with 941 labs now across 55 countries. Over the last year, Diaceutics
has produced and promoted a range of exciting content to engage these labs and
encourage a beneficial two-way relationship.
DXRX platform
To solidify our market leading position, we continually enhance our
capabilities. Development of new functionality for the DXRX platform,
including patient level linkable data, generative AI (Diaceutics Large
Language Model, DLLM), and comprehensive US data sets that include data on
social determinants of health, underscores our commitment to innovation.
The deployment of generative AI in the form of Diaceutics' Large "Lab" Model
has enabled the platform to ingest large unstructured data sources from
multiple sources on a daily basis, where it is sorted, labelled and
communicated on to customers as insights within 24 hours.
This technology advancement enabled the launch of daily signal in 2023 and
empowers Diaceutics' customers with even timelier insights, allowing
healthcare professionals to be engaged precisely during the treatment decision
window and ensuring the most effective drugs or therapies are offered promptly
to patients.
The successful launch of new subscription offerings and the securing of six
enterprise-wide engagements to date align with our objective to transition
larger customers onto the DXRX platform, driving platform-based subscription
contracts. 52% of our revenue is now subscription based, with ultimately, 70%
of our business expected to be subscription only and platform enabled by the
end of 2025, with peak adoption expected to reach 80% two years later.
Crucially, we are seeing increasing traction for our enterprise-wide
engagements, which offers Diaceutics a significant opportunity to scale.
Our team
At Diaceutics, our purpose - to ensure each patient receives the right
treatment - guides every endeavour. Our team's dedication has been
instrumental in driving significant progress, and it has been a privilege to
work alongside them in various capacities within the organisation.
Investing in our people remains a priority. We have strengthened the team
significantly through recruitment and investment in training and development.
At a senior leadership level, we have recruited a number of Vice Presidents
across the business, enhancing our industry expertise and supporting our
strategic growth.
Financial performance
Strategy validated by strong financial performance
Business momentum has continued throughout the year, driven by further DXRX
platform adoption by large pharma customers. Increasing both the number of
therapeutic brands we work with and the average revenue per brand has allowed
us to capture a greater share of customer budget. We worked with 44 customers
during the year, adding 13 new therapeutic brands in 2023, and we have
increased our average revenue per brand to £0.38 million up from £0.35
million in 2022.
Revenue grew 22% to £23.7 million in 2023 (2022: £19.5 million), 19% on a
constant currency basis, with 52% of revenues in the year being recurring
(2022: 35%). 72% of revenues were DXRX platform enabled, and our continued
progress towards becoming a recurring revenue business is supported by our
newly introduced metric of Annual Recurring Revenue (ARR) of £13.7 million as
at 31 December 2023.
Our robust order book, totalling £26.5 million at December 31, 2023,
represents 57% growth in the year (FY 2022: £16.9 million). £12.3 million of
the order book will be realised as revenue in FY 2024.
The six enterprise-wide engagements secured across 2023 and Q1 2024 have an
Annual Recurring Revenue (ARR) of £9.0 million. An enterprise-wide engagement
is characterised by a customer deploying the DXRX solutions across three or
more of the precision medicines in their portfolio, or a customer engaging
Diaceutics as the primary commercialisation partner for their precision
medicine. All six current enterprise-wide engagements are with top 20 global
pharma companies, and are on autorenewal contract terms with contact lengths
between 12 and 36 months.
We are committed to continuing to invest in the expansion of our key value
drivers, and our strong balance sheet means we are fully funded to deliver
significant growth in line with our strategic roadmap. Our cash at 31 December
2023 was £16.7 million (FY 2022: £19.8 million) and we continue to have
no debt.
Market opportunity
Growing market opportunity and reach
The rapid expansion of the precision medicine market offers significant
opportunities for Diaceutics. As global pharma intensifies their focus and
dedicates more resources to this field, aiming to improve patient access,
capture lost revenue and increase profitability, Diaceutics is well-positioned
to capitalise on these trends. Despite their best efforts, we estimate that
pharma is still losing up to US$3 billion¹ of lifetime precision medicine
revenues due to inadequate testing. This underlying market strength, combined
with pharma's potential diagnostic commercialisation budget of US$10-15
million per brand, reinforces Diaceutics' growth ambitions. We are committed
to scaling by expanding the number of brands we work with and increasing the
average revenue per brand.
Capturing the opportunity
The Board is confident that Diaceutics has the right offering and competitive
advantage to capitalise upon the growing market opportunity. Peter Keeling's
increasing involvement in a corporate development role underscores our
commitment to accelerating growth through wider industry partnerships.
With our infrastructure investments (our platform, people and lab network)
largely complete, we are poised for the next phase of growth, extending our
market reach through partnerships and sales and marketing initiatives. Our
recent strategic alliance with KPMG, exemplifies our commitment to expanding
our commercialisation solutions to life science customers launching precision
medicine. The strategic alliance will combine Diaceutics' and KPMG's extensive
knowledge, expertise and industry reputation, and enable Diaceutics and KPMG
to engage their life science customers, through a new sales channel, and with
a broader and more comprehensive range of precision medicine services.
1 The US$3 billion of lifetime precision medicine revenues lost and US$10-15
million commercialisation budget for pharma are estimates based on Diaceutics
market data.
Quarter 1 2024 trading
We are pleased to have seen positive progress in Q1. Notwithstanding the
cautious spending of the pharma industry due to macroeconomic concerns
observed during 2023, recurring revenues are growing, fuelled by strong demand
for our insight and engagement solutions. The Total Contract Value ('TCV') of
contracts signed grew 82% to £7.3 million and revenues grew 25% to £5.0
million (vs. Q1 2023). The Adjusted EBITDA and cash in Q1 2024 are both
performing in line with Diaceutics' accelerated investment strategy and
management expectations. The net headcount increase was 9 between 31 December
2023 and 31 March 2024.
The growing demand shows the underlying strength of the market and validates
our accelerated investment strategy, and we are confident in sustaining this
momentum as we turn our focus to extending our reach through increased sales
and marketing activities.
We have further strengthened our senior leadership team. In February, Ken
Ruppel was appointed Vice President of Scientific and Medical Services, to
lead the expansion of our current offering and the development of innovative
solution in precision medicine. Most recently, Amie Mc Neice has been
appointed Vice President of Marketing, to oversee our three-year marketing
vision, brand position, messaging and integration of marketing automation, as
part of Diaceutics' drive to scale its marketing capabilities in the US and
Europe.
We have also further solidified our central position within the precision
medicine industry, announcing in April the formation of our landmark Economic
Forum, composed of leading experts in the industry, aiming to urgently address
the specific economic gaps limiting the advancement of precision medicine,
which is synonymous with our purpose.
Outlook
Diaceutics continues to grow the number of precision medicines it is working
on and is seeing continued strong demand for its insight and engagement
solution products from customers, which is in turn, driving order book growth
and increased recurring revenues. The importance and positioning of precision
medicines in global pharma and biotech drug asset portfolios is maturing as
they seek to improve patient access to therapies, capture lost revenue
opportunities and increase profitability. As a result, the market opportunity
available to Diaceutics is significant and continues to grow. Furthermore,
recent collaboration with strategic partners has deepened our understanding of
the competitive landscape and has served to validate our unique value
proposition and superior market offering. Our success in 2023 and the
sustained positive momentum in 2024 to date gives the Board confidence in
current market estimates.
Ryan Keeling
Chief Executive Officer
Chief Financial Officer review
Diaceutics has delivered another year of strong revenue growth and financial
performance in line with market expectations, against the backdrop of a
challenging year for the pharma industry and supporting technology and service
companies.
Despite these headwinds, Diaceutics posted top line growth of 22% in 2023, has
a three-year Compound Annual Growth Rate (CAGR) of 23% and recurring revenues
of over 50%. The progress Diaceutics continues to make against its strategy,
teamed with the growing pharma market demand for data led insights, ensures
that the opportunity available to Diaceutics is larger than ever and growing.
Accelerated investment strategy
With cash flow breakeven achieved in 2022 and a strong balance sheet at the
start of 2023 with £19.8 million of cash and no debt, the Company announced
its accelerated investment strategy in January 2023. This strategy is designed
to support the Company's future revenue and profitability growth, positioning
the Company as the primary precision medicine commercialisation partner for
the global pharma and biotech industry.
To fully capitalise on this opportunity, expedite the introduction of
additional data offerings to the market, and maintain its first-mover
advantage, the Board decided to accelerate and enhance the Company's
investments in data, and products, platform capability, and operating model
over a two-year period spanning 2023 and 2024. The total net cash investment
was expected to be approximately £7.0 million over the two year period,
whilst preserving a robust minimum cash balance of approximately £12.0
million throughout - we are in line with both these metrics.
These investments primarily target data acquisition, greater platform
functionality, AI capabilities, product innovation, lab network and sales and
marketing teams. They are poised to bolster mid-term revenue growth,
accelerate the transition towards recurring revenues, and enhance the Group's
scalability. The Group anticipates that this investment will result in a
reduction in EBITDA margin, but remaining EBITDA profitable throughout the
two-year investment period.
As expected and outlined, the accelerated investment strategy has progressed
in line with plans during 2023, and to date during 2024. Notable highlights
are:
· Continued growth in the number of enterprise-wide engagements - six announced
to date
· Improved data coverage and AI automation of data feeds in the US, EU and UK
· Enhanced Real World Data (RWD) products - daily, linkable, patient level
insights
· The KPMG strategic alliance
Alongside these achievements, Diaceutics maintains its position as a
pioneering thought leader within the precision medicine sector. Our recent
hosting of the groundbreaking Precision Medicine Practice Gaps Economic,
Policy, and Operational Solutions Forum on May 1, 2024, underscores our
commitment to driving meaningful change within the industry. We look forward
to sharing the insights and outcomes from this forum in the near future.
KPIs and Alternative Performance Measures ('APMs')
The Group's Key Financial Performance indicators are summarised below:
2023 2022 Change
£000's £000's
Revenue 23,699 19,504 22%
Revenue growth constant currency basis* 19% 26% -
Proportion of revenue which is recurring* 52% 35% +17 ppts
Annual Recurring Revenue* 13,662 not reported -
Order book 26,517 16,928 57%
Order book visibility for next 12 months 12,334 10,898 13%
Gross profit 19,706 16,741 18%
Gross profit margin (%) 83% 86% -3 ppts
Adjusted EBITDA* 2,357 3,583 (1,226)
EBITDA* 1,754 3,583 (1,829)
EBITDA margin* 7% 18% -11 ppts
(Loss)/Profit before tax (2,438) 564 3,002
Cash and cash equivalents 16,667 19,841 (3,174)
* Alternative Performance Measures
Alternative Performance Measures ('APMs')
In measuring and reporting financial information, management reviews APMs such
as EBITDA, adjusted EBITDA, revenue growth on a constant currency basis and
recurring revenue, all of which are not defined measures under financial
reporting standards.
Management believes that these measures, when considered in conjunction with
defined financial reporting measures, provide management and stakeholders with
a broader understanding of the performance of the business.
Operating profit is the financial reporting measure under IFRS most comparable
to EBITDA and adjusted EBITDA. EBITDA is defined as earnings before interest,
tax, depreciation, amortisation and certain exceptional items, but after
share-based payment costs. The Directors may make certain adjustments to
EBITDA, for nonrecurring or noncash items, to derive adjusted EBITDA, both
measures of which they consider more readily reflect the Group's underlying
trading performance, enabling better comparisons to be made with prior periods
and industry peers. A reconciliation of operating profit to EBITDA and
Adjusted EBITDA is included later in this report.
Recurring revenue is calculated as the value of revenue generated from
auto-renew subscription contracts as a percent of total revenue. The Directors
consider this metric to be a key measure of the strength and visibility of the
Group's revenue in the year, and of the Group's progress towards realising its
near-term strategy of transitioning to a platform-based recurring revenue
model.
Annual Recurring Revenue (ARR) is the annualised value of revenue generated
from subscription contracts with auto-renewal clauses as at a point in time.
The annualisation calculation assumes that all subscription contracts expiring
during the next 12 months will renew.
The Directors consider and report revenue and revenue growth in the current
reporting period on a constant currency basis. This is because a majority of
the Group's customer contracts are written in US Dollars and this can result
in significant changes in the Group's performance, relative to the comparative
period, based on the prevailing exchange rate in the year. Reporting the
current period revenue on a constant currency basis allows stakeholders to
better understand the underlying growth of the Group's activities, before the
influence of foreign currency exchange rates.
'Order book' is defined under financial reporting standards as the aggregate
amount of the revenue transaction price allocated to customer contracts that
are partially or fully unsatisfied as at the year end and are not considered
an APM. Order book is disclosed in note 4 of the Group financial statements.
We continue to evolve our KPIs and APMs to highlight and evidence the
financial and operational performance of the Group and its progress against
strategy.
Revenue growth and future visibility
Revenue for the year grew 22% to £23.7 million (2022: £19.5 million), a 19%
increase on a constant currency basis. The underlying organic growth has been
driven through the expanded sales and marketing team, account team structures
and investment in insight solution delivery systems.
Revenue growth has been especially strong within the insight and engagement
solutions ('IES', formerly 'Data' and 'TES'), growing 36% to £17.2 million
(2022: £12.7 million). The IES platform-based solutions now represent 72% of
all revenues - a transition which has been achieved in just three years since
the platform launch and a standing start in 2021.
Scientific and advisory services ('SAS', formerly 'Advisory Services' and
'TES') revenues were £6.5 million in the year, down slightly on the
comparative year of £6.9 million. These services were impacted by the pharma
industry trading headwinds, and exacerbated by slower spend due to
consolidation in the industry. Despite these challenges, SAS remain a
fundamental offering of the business and its end-to-end customer precision
medicine commercialisation offering.
As well as achieving impressive overall top-line growth in the year, the
Company continues to enrich the quality of its earnings with 52% of all
revenues now being recurring (2022: 35%), and the visibility of its earnings
with the order book at 31 December 2023 growing 57% to £26.5 million, up from
£16.9 million at December 2022. Order book represents the value of future
contracted revenue yet to be realised, and in terms of visibility for 2024,
stood at £12.3 million, giving coverage of approximately 42% of the consensus
guidance revenue forecast for 2024.
The Total Contract Value (TCV) secured in the year was £35.9 million, a
relatively modest increase on the value of contracts secured in the prior year
of £34.3 million. The lower TCV growth in 2023 highlights the importance of
the Company's accelerated growth strategy, specifically the need to investment
in more sales and marketing capacity and establish additional sales channels
with our existing and new customers.
The Group's customer base is heavily weighted towards blue-chip pharma
companies, with 88% of revenue generated by customers based in the USA (2022:
74%). The Group worked with a total of 44 customers during the year (2022: 43)
across 69 therapies (2022: 56). The group has increased its average revenue
per brand to £0.38 million, up from £0.35 million in 2022, and continues to
increase the value of addressable lifetime therapy brand spend secured with 37
brands with lifetime brand spend over $1 million (£0.8 million) (2022: 26).
The Group continues to see a higher weighting of revenue, and therefore
profitability, in the second half of the financial year. In 2023 the revenue
weighting first vs. second half of the year was 42:58 compared to 38:62 in
2022. This weighting has historically been driven by the pharma industry's
propensity to spend more of its budget in the second half of the year,
particularly the fourth quarter of the year, as it reaches the end of its own
budget and financial year. The Company saw the second half revenue weighting
reducing slightly in 2023 and expect this to continue in future years as a
result of the Group's shift to multi-year recurring revenue contracts. This
transition may be impacted in the short term by the strong revenue growth
rates experienced by the Company and the 'accumulation' effect of the
recurring revenue contracts sold in the first half of the year.
The table below sets out the revenue split between the key solution offerings:
2023 2022 Change
£000's £000's
Insight and Engagement solutions 17,150 12,653 36%
Scientific and Advisory services 6,549 6,851 (4%)
Total revenue 23,699 19,504 22%
Investment in customer service, scale and capacity
During 2023, the business focused on delivering against its investment
priorities, all of which are key to enabling our future growth and scale.
Specifically our investment focused on, and delivered:
Investment focus Delivered in 2023 and 2024 to date
Enrich data and platform products Enhanced Real World Data (RWD) products: Improved data geographical and
therapeutic area coverage, Daily Signal launched, linkable datasets and
European Signal development progressing.
Accelerate growth and engagement of the laboratory network and platform-based Broadening the laboratory network and relationships and launched first US
community virtual lab conference
Invest in platform scale and capability Strengthened data supply chain.
Enhancing platform functionality and AI capabilities.
Launched My DXRX platform iteration for network stakeholders.
Transform our customer experience and service through customer account teams Seven account teams with a project manager, data analyst, precision medicine
expert and key account manager in each team.
13 brands added during the year.
Six enterprise-wide engagements with top 20 pharma.
Work with 17 of the top 20 pharma.
The additional investment undertaken by the business in people saw the
headcount increase from 151 at December 2022 to 184 at the end of December
2023, growth of 22% and in line with the top-line growth of the business. The
investment in people is critical at this stage to service the recurring
revenue model, unlock the business growth opportunity and build scale through
technology deployment. The increase in headcount was across people in customer
service and delivery teams, platform technology teams and the breadth of
senior management (Vice Presidents).
EBITDA and profit before tax performance
The Group generated an EBITDA of £1.8 million at a margin of 7%, behind that
of the prior year at £3.6 million and a margin of 18%. The adjusted EBITDA in
2023 was £2.4 million at a margin of 10% vs. £3.6 million and 18% in 2022.
The Company remains EBITDA profitable but has experienced a drop in
profitability as a result of the deliberate and measured investment in its
customer service, scale and capacity initiatives. The Company continues to
invest in its platform development with the overall spend remaining similar
year on year, but the value of development costs which are expensed through
profit and loss rather than capitalised has increased from £0.2 million in
2022 to £1.0 million in 2023.
The intensity of development costs being capitalised will continue to curtail
over the coming years, instead being expensed to profit and loss as the
business matures.
The drop in profitability during 2023 and forecast in 2024 is in line with the
accelerated investment strategy communicated to investors in early 2023 and
will allow the mid-term rate of revenue growth to increase, accelerate the
continued shift towards recurring revenues and to improve the future
scalability of the Group.
In addition, included within EBITDA in 2023 are one-off US sales tax costs of
£0.6 million, which the business has accrued as a liability as at 31 December
2023, but which related to 2023 and prior years. These sales tax costs would
usually be charged to customers, recovered and remitted to the relevant US
state authorities with no impact to the costs of the Group. However, because
the Company had not historically registered for sales taxes in certain states,
the related costs could not be charged and recovered from customers. As such,
the Company is in the process of disclosing this historic position to the
relevant state authorities and will settle this liability during 2024. Future
sales taxes arising on sales in these states will be charged to customers,
recovered and remitted with no significant further impact to the costs of the
Group.
The Adjusted EBITDA of the Group is £2.4 million, an Adjusted EBITDA margin
of 10%, after removing the one-off US sales tax costs incurred. There were no
adjusting items included in Adjusted EBITDA in the 2022 year.
Profit before tax reduced £3.0 million from a profit of £0.6 million in 2022
to a loss of £2.4 million in 2023. As described above, much of the reduction
in profitability was driven by the investment the Company has made in its
customer service, scale and capacity initiatives and the one-off US sales tax
costs. In addition, the amortisation costs have increased year on year from
£2.7 million in 2022 to £4.5 million in 2023, this increase being primarily
driven by a change in the estimated Useful Economic Life (UEL) of the data
assets from four years to three. Further details regarding this change are
included under the 'Financial Strength' section.
The table below sets out the reconciliation of operating profit to EBITDA and
Adjusted EBITDA:
2023 2022
£000's £000's
Operating profit (3,018) 575
Depreciation & Amortisation 4,772 3,008
EBITDA 1,754 3,583
EBITDA margin 7% 18%
Adjustments for:
- US sales tax provision 603 -
Adjusted EBITDA 2,357 3,583
Adjusted EBITDA margin 10% 18%
Financial strength
At 31 December 2023, the Group reported a strong net asset position of £40.8
million (2022: £42.5 million), with cash and cash equivalents of £16.7
million (2021: £19.8 million) and no debt.
During the year, the Group invested in its customer service capabilities,
platform development and its data repository.
Platform development spend, in the form of technology stack capacity and
scale, was £2.0 million of which £1.0 million was capitalised in the year
(2022: £2.6 million of total platform development spend of which £2.4
million was capitalised). The intensity of platform development has remained
relatively consistent with comparative periods. In line with the continued
investment in DXRX platform capacity and scale, and as set out in our
accelerated investment strategy, the proportion of development costs which are
capitalised has decreased from £2.4 million in 2022 to £1.0 million as the
platform reaches maturity.
As planned and set out in our accelerated investment strategy, the volume of
data acquired in 2023 significantly increased resulting in data expenditure of
£3.6 million compared with £2.2 million in 2022. The increased data
investment has been in sources identified through our lab network and existing
data supply chain and has enabled us to procure richer, more unique and more
timely data, over a wider geographical spread. We expect this level of data
expenditure to continue and more proportionately increase in line with Insight
and Engagement Solution (IES) commercial engagements.
During 2023 the business updated the estimated Useful Economic Life (UEL) of
its data assets from four years to three to more accurately reflect the
weighted average timeframes of the data commercial and internal use cases. No
data assets were impaired and the change of estimated UEL is a prospective
change in amortisation rates from 1 January 2023. The business will continue
to monitor and adjust accounting policies and estimates as required.
The financial strength of the Group is underpinned by its strong cash
reserves, £16.7 million at 31 December 2023. During 2022 the business moved
to a position of overall cash flow generation, a pivotal moment which unlocked
the confidence in accelerating the investment strategy through 2023 and 2024.
Through 2023 the cash received from operations were £0.6 million (2022: £3.7
million). The free cash flow (Net cash inflow from operating activities less
capital expenditure less the payment of lease liabilities) for the year was an
outflow £3.7 million, a reduction on 2022 which saw an inflow of £0.1
million. The free cash outflow is predominately driven by the increased level
of data acquired (up from £2.2 million in 2022 to £3.6 million in 2023) and
increased operating cash outflows in customer service, scale and capacity
initiatives. After 2024, the growth in operating costs will start to curtail,
realising greater levels of profitability and free cash flow, but levels of
data acquisition are likely to stay around £5.0 million annually, but subject
to business data utility demands.
The Group maintained an undrawn multi-currency Revolving Credit Facility for
£4.0 million with its primary bank, SVB UK, until it expired in July 2023.
Negotiations had progressed with multiple providers to renew the facility in
July, however the Board agreed that the advantages of the facility were
outweighed by the costs of the facility and the Group's continued access to
its own substantial cash reserves.
Outlook
While the pharma industry remains cautious in response to macroeconomic
concerns and political pressures in the form of drug-pricing policies,
Diaceutics continues to grow the number of precision medicines it is working
on and is seeing continued strong demand for its insight and engagement
solution products, which is in turn driving order book growth and increased
recurring revenues.
The market opportunity available to Diaceutics is larger than ever and
continues to grow at pace as global pharma accelerates the shift to precision
medicine to improve patient access, capture lost revenue and increase
profitability. The successes of 2023 and the sustained positive momentum in
2024 serve to validate the Group's growth strategy.
Nick Roberts
Chief Financial Officer
Group Profit and Loss Account
Note 2023 2022
£000's £000's
Revenue 4 23,699 19,504
Cost of sales 5 (3,993) (2,763)
Gross profit 19,706 16,741
Administrative expenses 5 (22,784) (16,280)
Other operating income 60 114
Operating (loss) / profit 5 (3,018) 575
Finance income 646 111
Finance costs (66) (122)
(Loss) / profit before tax (2,438) 564
Income tax credit 692 160
(Loss) / profit for the financial year (1,746) 724
All results relate to continuing operations.
Group Statement of Comprehensive Income
for the year-ended 31 December 2023
2023 2022
£000's £000's
(Loss) / profit for the financial year (1,746) 724
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (378) 440
Total comprehensive (loss)/income for the year, net of tax (2,124) 1,164
All results relate to continuing operations.
Group Statement of Financial Position
as at 31 December 2023
Note 2023 2022
ASSETS £000's £000's
Non-current assets
Intangible assets 7 15,262 15,222
Right of use assets 1,180 1,333
Property, plant and equipment 719 759
Deferred tax asset 1,143 46
18,304 17,360
Current assets
Trade and other receivables 8 11,367 9,209
Income tax receivable 6 1,846
Cash and cash equivalents 16,667 19,841
28,040 30,896
TOTAL ASSETS 46,344 48,256
EQUITY AND LIABILITIES
Equity
Equity share capital 10 169 169
Share premium 10 37,126 37,126
Treasury shares 10 (312) (263)
Translation reserve 10 (240) 138
Profit and loss account 4,043 5,344
TOTAL EQUITY 40,786 42,514
Non-current liabilities
Lease liability 1,059 1,205
Provision for dilapidation 88 79
Deferred tax liability 28 706
1,175 1,990
Current liabilities
Trade and other payables 9 4,237 3,628
Lease liability 146 124
4,383 3,752
TOTAL LIABILITIES 5,558 5,742
TOTAL EQUITY AND LIABILITIES 46,344 48,256
Group Statement of Changes in Equity
for the year-ended 31 December 2023
Equity share capital Share premium Treasury shares Translation reserve Profit and loss account Total
equity
£000's £000's £000's £000's £000's £000's
At 1 January 2022 168 36,864 (165) (302) 4,084 40,649
Profit for the year - - - - 724 724
Other comprehensive income - - - 440 - 440
Total comprehensive income for the year - - - 440 724 1,164
Transactions with owners, recorded directly in equity
Conversion of loan notes 1 133 - - - 134
Exercise of warrants - 129 - - - 129
Share-based payment - - - - 536 536
Treasury shares - - (98) - - (98)
Total transactions with owners 1 262 (98) - 536 701
At 31 December 2022 169 37,126 (263) 138 5,344 42,514
Equity share capital Profit and loss account Total
equity
Share premium Treasury shares Translation reserve
£000's £000's £000's £000's £000's £000's
At 1 January 2023 169 37,126 (263) 138 5,344 42,514
Profit for the year - - - - (1,746) (1,746)
Other comprehensive loss - - - (378) - (378)
Total comprehensive income for the year - - - (378) (1,746) (2,124)
Transactions with owners, recorded directly in equity
Share based payment - - - - 445 445
Treasury shares - - (49) - - (49)
Total transactions with owners - - (49) - 445 396
At 31 December 2023 169 37,126 (312) (240) 4,043 40,786
Group Statement of Cash Flows
for the year-ended 31 December 2023
Note 2023 2022
£000's £000's
Operating activities
(Loss) / profit before tax (2,438) 564
Adjustments to reconcile (loss) / profit before tax to net cash flows from
operating activities
Net finance costs (580) 11
Amortisation of intangible assets 5 4,459 2,704
Depreciation of right to use asset 5 153 157
Depreciation of property, plant and equipment 5 161 147
Research and development tax credits (42) (86)
Share-based payments 5 445 536
Loss on disposal of fixed asset 3 -
Increase in trade and other receivables (2,158) (1,594)
Increase in trade and other payables 618 1,266
Cash received from operations 621 3,705
Tax received 690 1,391
Net cash inflow from operating activities 1,311 5,096
Investing activities
Purchase of intangible assets 7 (4,730) (4,684)
Purchase of property, plant and equipment (125) (186)
Finance income interest received 646 111
Net cash outflow from investing activities (4,209) (4,759)
Financing activities
Interest paid (11) (59)
Leasehold repayments (179) (163)
Purchase of treasury shares 10 (49) (98)
Issue of shares on exercise of a warrant - 129
Net cash outflow from financing activities (239) (191)
Net increase/(decrease) in cash and cash equivalents (3,137) 146
Net foreign exchange (loss)/ gain (37) 20
Cash and cash equivalents at 1 January 19,841 19,675
Cash and cash equivalents at 31 December 16,667 19,841
Notes to the Group Financial Statements
for the year-ended 31 December 2023
1. General information
Diaceutics PLC (the "Company") is a public company limited by shares,
incorporated, domiciled and registered in Northern Ireland. The Company's
registration number is NI055207, and the registered office is First Floor,
Building Two, Dataworks at King's Hall Health & Wellbeing Park, Belfast,
County Antrim, Northern Ireland, BT9 6GW.
The consolidated financial statements consolidate those of the Company and its
subsidiaries (together referred to as the "Group"). The Company financial
statements present information about the Company as a separate entity and not
about the Group.
The principal activity of Diaceutics PLC ("the Company") and its subsidiaries
(together "the Group") is data, data analytics and implementation services.
The Group has established a core suite of products and outsourced advisory
services which help its Pharma customers to optimise and deliver their
marketing and implementation strategies for companion diagnostics. Their
mission is to design, create and implement innovative solutions that enhance
speed to market and increase the effectiveness of all the stakeholders in the
personalised medicine industry.
The financial statements are presented in pounds sterling.
Basis of accounting
These consolidated financial statements have been prepared on a going concern
basis and in accordance with international accounting standards in conformity
with the Companies Act 2006 applicable to companies reporting under UK adopted
international accounting standards. These financial statements have been
prepared under the historical cost convention unless otherwise specified
within these accounting policies.
The preparation of financial statements in conformity with UK adopted
international accounting standards requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in
the process of applying the Group's accounting policies. Judgements in
applying accounting policies and key sources of estimates and uncertainty are
disclosed in the notes.
The material accounting policies adopted in the preparation of these
consolidated financial statements are set out below.
The material accounting policies have been consistently applied to all the
years presented, unless otherwise stated.
Going concern
The financial performance and balance sheet position at 31 December 2023 along
with a range of scenario plans to 31 December 2026 has been considered,
applying different sensitives to revenue. Across these scenarios, including at
the lower end of the range, there remains significant headroom in the minimum
cash balance over the period to 31 December 2026 and the Directors have
satisfied themselves that the Group has adequate funds in place to continue in
operational existence for the foreseeable future. Accordingly, the Group
continues to adopt the going concern basis in preparing its consolidated
financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. Control is achieved when the Company has power over
the subsidiary, is exposed, or has rights, to returns from its involvement
with the subsidiary; and has the ability to use its power to affect its
returns.
The Company considers all relevant facts and circumstances in assessing
whether it has control over a subsidiary, including the ability to direct the
relevant activities at the time that decisions need to be made.
Intra-group balances and transactions, and any unrealised income and expenses
(except for foreign currency transaction gains or losses) arising from
intra-group transactions, are eliminated. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date on which control commences until the date on which control ceases.
Employee Benefit Trusts ('EBTs'), including the UK and Global SIPs, are
accounted for under IFRS 10 and are consolidated on the basis that the parent
has control, thus the assets and liabilities of the EBT are included on the
company balance sheet and shares held by the EBT in the Company are presented
as a deduction from equity.
2. Accounting policies
New and amended IFRS standards that are effective for the current year
The Group has applied the following standards and amendments for the first
time for their annual reporting year commencing 1 January 2023:
· IFRS 17 Insurance Contracts including Amendments to IFRS 17
· Amendments to IAS 12 Income Taxes - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction
· Amendments to IAS 12 Income Taxes: International Tax Reform - Pillar Two Model
Rules
· Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice
Statement 2 - Disclosure of Accounting Policies
· Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors - Definition of Accounting Estimates
There has been no material impact on our financial statements as a result of
any of these changes.
New accounting standards and interpretations not yet adopted by the Group
The following new accounting standards, amendments and/or interpretations have
been published but not yet endorsed by the UK and are not mandatory for 31
December 2023 reporting year. They have not been early adopted by the Group
and these standards are not expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable future
transactions:
· Amendments to IAS 1 Presentation of Financial Statements - Classification of
Liabilities as Current or Non-current, Classification of Liabilities as
Current or Non-current - Deferral of Effective Date and Non‑current
Liabilities with Covenants
· Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback
· Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments:
Disclosures: Supplier Finance Arrangements
· Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of
Exchangeability
We are still assessing the implications of the new standards and
interpretations however it is not expected to have a material impact on the
Group.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable
for the provision of services in the ordinary course of the Group's
activities. Revenue is shown net of value-added tax and after eliminating
sales within the Group.
The Group has two separate products and service lines: Insight &
Engagement Solutions (Data and related information services); Scientific &
Advisory Services (Professional services).
The Group's performance obligations for these revenue streams are deemed to
either be the provision of specific deliverables to the customer, at or over a
period of time, or subscription-based deliverables.
Revenue billed to the customer is allocated to the various performance
obligations, based on the relative fair value of those obligations, and is
then recognised when it transfers control of a deliverable to a customer as
follows:
Insight & Engagement Solutions (Data & related information services)
Insight & Engagement Solutions (formerly referred to as Data) comprise
access to the DXRX platform diagnostic testing data repository to utilise
licensed data insight products, typically: Lab Segmentation, Physician
Segmentation, Testing Rates Tracker and Physician Signal.
The contract with the customer defines the nature, quantity and price of the
data license to be provided. Licenses provided under each contract are split
into the identifiable and distinct performance obligations which are satisfied
at or over time, depending on whether the data license deliverable has
retrospective or prospective components, and if there are any data consultancy
service components included. In determining the performance obligations for
the data consultancy service component of the customer contract, judgment may
be required in interpreting the contract wording and customer expectation of
the data consultancy as a separately identifiable and distinct service if the
contract is not explicit.
The transaction price associated with the performance obligation components is
determined by reference to the contract and change orders. Where the contract
does not determine the transaction price for performance obligations,
judgement may be required to determine the transaction price. These judgements
include allocating transaction prices to data consultancy services based on an
adjusted market assessment approach with the residual transaction price
allocated to the retrospective and prospective data license performance
obligations pro-rated depending on the data license period of coverage.
Where a contract confers the customer with the right to benefit from existing
data insight IP as at a specific date, as is the case for a retrospective data
license, that is treated as a right to use licence and the revenue recognised
at a point in time when delivered or access is enabled to the data. Where a
contract confers the customer with the right to benefit from future data
insight IP developments as they occur, as is the case for a prospective data
license, that is treated as a right to access licence and revenue recognised
on a subscription basis over the period of time that the customer has access
to the data and the right to future IP developments. Revenue for data
consulting services is recognised as the performance obligation milestones are
satisfied.
Insight & Engagement Solution services are invoiced based on predetermined
activities or milestones. Where there is a timing difference between the
recognition of revenue and invoicing under a contract, a contract asset
(accrued revenue) or liability (deferred revenue) is recognised.
Scientific Advisory Services (Professional & Tech-Enabled Services)
Scientific Advisory Services (formerly referred to as Advisory Services and
Tech-Enabled Services) comprise a range of services developed to help improve
patient care by accelerating the development, delivery and uptake of precision
medicine, as well as a suite of services designed to solve the challenges
affecting precision medicine commercialisation success at a regional and
global level. Typically this includes ranges of Consulting, Strategy and
Planning, Insights, Education and Content Production, Impact Assessments,
Market Access studies, Lab Alerts, Lab Training, Lab Engagement and Physician
Engagement.
The contract with the customer defines the nature, quantity and price of the
various services to be provided. Services provided (including those provided
by a third party and reimbursed by the customer) under each contract are split
into the identifiable and distinct performance obligations which are satisfied
over time. The Group is the contract principal in respect of both direct
services and the use of third parties that support the service. The
transaction price is determined by reference to the contract and change
orders, including any pass-through or reimbursable expenses, adjusted to
reflect the amount the Group expects to be entitled to in exchange for
transferring promised goods or services to a customer.
Revenue for the identifiable and distinct services is recognised as the
contract performance obligations are satisfied. The progress towards
completion of Scientific Advisory Services performance obligations is measured
at a point in time: where milestones specified within client contract are
satisfied or based on an input measure being project costs incurred to date as
a proportion of total project costs (including third party costs) at each
reporting period, depending on the nature of the service obligation.
The service fees for Scientific Advisory Services are invoiced based on
predetermined activities or milestones. Third party costs are invoiced to
customers as they are incurred. Where there is a timing difference between the
recognition of revenue and invoicing under a contract, a contract asset
(accrued revenue) or liability (deferred revenue) is recognised. Significant
accrued and deferred revenue can arise for the Scientific Advisory Services as
a result of these timing differences.
Contract assets and liabilities
The Group recognises contract assets in the form of accrued revenue when the
value of satisfied or part-satisfied performance obligations is in excess of
the payment due to the Group, and deferred revenue when the amount of
unconditional consideration is in excess of the value of satisfied or part
satisfied performance obligations. Once a right to receive consideration is
unconditional, that amount is presented as a trade receivable.
Changes in contract balances typically arise due to:
· adjustments arising from a change in the estimate of the cost to complete the
project, which results in a cumulative catch-up adjustment to revenue that
affects the corresponding contract asset or liability;
· the recognition of revenue arising from deferred revenue; and
· the reclassification of amounts to receivables when a right to consideration
becomes unconditional.
Cost to obtain and fulfil contracts
Contract fulfilment costs in respect of the service line contracts are
expensed as incurred.
The Group expenses pre-contract bidding costs which are incurred regardless of
whether a contract is awarded.
Intangible assets
Research and development
Expenditure on research activities and patents is recognised in the profit and
loss account as an expense as incurred.
Expenditure on development activities is capitalised if the product or process
is technically and commercially feasible and the Group intends and has the
technical ability and sufficient resources to complete development, future
economic benefits are probable, and if the Group can measure reliably the
expenditure attributable to the intangible asset during its development.
Development activities involve design for, construction or testing of the
production of new or substantially improved products or processes. The
expenditure capitalised includes the cost of infrastructure and direct labour
including employer national insurance. Other development expenditure is
recognised in the profit and loss account as an expense as incurred.
Capitalised development expenditure is stated at cost until it is brought into
use. Capitalised development expenditure that is not available for use is
tested for impairment annually.
Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation
Amortisation is charged to the profit or loss on a straight-line basis over
the estimated useful lives of intangible assets. Intangible assets are
amortised from the date they are available for use. The estimated useful lives
are as follows:
· Patents and trademarks 3 years (33.3% straight line) from date of registration
· Datasets 3 years (33% straight line)
· Software 5 years (20% straight line)
· Platform 10 years (10% straight line)
· Platform algorithms 6 years (16.7% straight line)
The Group reviews the amortisation period and method when events and
circumstances indicate that the useful life may have changed since the last
reporting date. In 2023, the Group changed the estimated useful life of its
datasets from 4 years to 3 years. The revised useful life is based on
management's assessment of the period that more accurately reflect the
weighted average timeframes of the data commercial and internal use cases. The
nature and amount of the effect of the change in useful life of buildings and
improvements in the current period and the expected effect in future periods
are disclosed in note 3.
Impairment
Intangible assets, property, plant and equipment, and right-of-use assets are
tested for impairment at the reporting date, or whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs of disposal and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of assets
(cash-generating units).
The Group also considered the potential impact of climate change. This is an
area of estimation and judgement.
3. Judgements in applying accounting policies and key sources
of estimation uncertainty
The preparation of the Group and Company financial statements requires
management to make judgements and estimates that affect the application of
accounting policies and the reported amounts of assets, liabilities, income
and expenses.
The significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty were the
same as those described in the last annual financial statements and are
summarised below.
Sources of estimation uncertainty
Source of estimation uncertainty Description
Useful economic life (UEL) of intangible assets The assessment of UEL of data purchases and platform require estimation over
the period in which these assets will be utilised, it based on information on
the estimated technical obsolescence of such assets and latest information on
commercial and technical use. The platform has been assessed to have a UEL of
10 years, platform algorithms six years and data three years. In 2023, the
Group changed the estimated useful life of its datasets from 4 years to 3
years. The revised useful life is based on management's assessment of the
period that more accurately reflect the weighted average timeframes of the
data commercial and internal use cases. The change in useful lives were
accounted for prospectively. The change in the useful lives of datasets
increased amortisation expense by Group of £750,000 and Company (£433,000)
in 2023. There were no changes in useful lives of other intangible assets.
Impairment of assets The assessment of the recoverable amount of property, plant and equipment,
intangible assets, and right-of-use assets is made in accordance with IAS 36
Impairment of Assets. The Group performs an annual review in respect of
indicators of impairment, and if any such indication exists, the Group and
Company are required to estimate the recoverable amount of the asset.
Following this assessment, no impairment indicators were present at 31
December 2023. The Group's policy is to test non-financial assets for
impairment annually, or if events or changes in circumstances indicate that
the carrying amount of these assets may not be recoverable. The Group and
Company have considered whether there have been any indicators of impairment
during the year to 31 December 2023 which would require an impairment review
to be performed. Based upon this review, the Group and Company have concluded
that there are no such indicators of impairment at 31 December 2023.
With respect to the impairment considerations of an intangible asset,
significant estimates are considered within the value in use calculation.
The most significant estimate would be the revenue growth rate.
Discount rate Application of IFRS 16 requires the Group and Company to make significant
estimates in assessing the rate used to discount the lease payments in order
to calculate the lease liability. The incremental borrowing rate depends on
the term, currency and start date of the lease and is determined based on a
series of inputs including the Group commercial borrowing rate of 4.3% (2022:
4.3%)
Attrition rate In the calculation of share-based payments and related costs charge, an
assessment of expected employee attrition is used based on expected employee
attrition and, where possible, actual employee turnover from the inception of
the share option plan. The attrition rate varies depending on the nature of
the award, rising to a maximum 3-year rate of 39.9% (2022: 37.6%)
Critical accounting judgements
Accounting policy Description of critical judgement
Revenue In determining the performance obligations for the data consultancy service
component of Insight & Engagement Solutions, judgment may be required in
interpreting the contract wording and customer expectation of the data
consultancy as a separately identifiable and distinct service, if the contract
is not explicit.
The transaction price associated with the performance obligation components of
Insight & Engagement Solution services is determined by reference to the
contract and change orders. Where the contract does not determine the
transaction price for performance obligations, judgement may be required to
determine the transaction price. These judgements include allocating
transaction prices to data consultancy services based on an adjusted market
assessment approach with the residual transaction price allocated to the
retrospective and prospective data license performance obligations pro-rated
depending on the data license period of coverage.
In revenue recognition for certain Scientific & Advisory Services where
the input method is used to determine the revenue over a period of time, a key
source of estimation will be the total budgeted hours to completion for
comparison with the actual hours spent. Further details are disclosed in
note 4 revenue and segmental analysis.
Deferred tax In assessing the requirement to recognise a deferred tax asset, management
carried out a forecasting exercise to assess whether the Group and Company
will have sufficient future taxable profits on which the deferred tax asset
can be utilised. This forecast required management's judgment as to the future
performance of the Group and Company.
Intangible assets The Group capitalises costs associated with the development of the DXRX
platform and data lake. These costs are assessed against IAS 38 Intangible
Assets to ensure they meet the criteria for capitalisation.
4. Revenue and segmental analysis
Operating Segments
The Group currently operates under one reporting segment, there are no
individual groups of assets generating distinct and separately identifiable
cashflows. Revenue is analysed under two separate revenue streams. Revenue
represents the amounts derived from the provision of services which fall
within the Group's ordinary activities, stated net of value added tax. Revenue
is principally generated from the DXRX platform Insight & Engagement
Solutions lines, as well as the Scientific Advisory Services lines. Revenue is
disaggregated by primary geographic market, timing of recognition and by
product/service line. Timing of revenue recognition and product/service line
are the primary basis on which management reviews the business.
Revenue
For all periods reported the Group operated under one reporting segment but
revenue is analysed under two separate product / service
lines.
The following tables present the disaggregated Group revenue for the current
and prior financial years:
a. Major product/service line
2023 2022
£000's £000's
Insight & Engagement Solutions 17,150 12,653
Scientific & Advisory Services 6,549 6,851
23,699 19,504
b. Timing of recognition
2023 2022
£000's £000's
Point in time revenue recognition 9,359 9,370
Over time and input method revenue recognition 14,340 10,134
23,699 19,504
c. Geographical market by customer location
2023 2022
£000's £000's
North America 20,832 14,454
UK 352 561
Europe 2,470 2,696
Asia and Rest of World 45 1,793
23,699 19,504
In 2023 there was one customer who had sales which exceeded 10% of total
revenue, accounting for £3,659,000 (15.4%) of Group revenues. In 2022 no
customers each had sales which exceeded 10% of total.
The receivables, contract assets and liabilities in relation to contracts with customers are as follows:
2023 2022
£000's £000's
Contract assets
Trade receivables 7,430 5,792
Accrued revenue 2,402 2,582
Contract liabilities
Deferred revenue 306 284
Accrued revenue primarily relates to consideration for work completed but not
billed at the reporting date. The contract assets are transferred to trade
receivables when the rights become unconditional.
Deferred revenue primarily relates to the advance consideration received from
customers. There are no significant financing components associated with
deferred revenue.
There were no significant amounts of revenue recognised in the current or
prior year arising from performance obligations satisfied in previous periods.
The carrying value of trade receivables and accrued revenue approximates to
their fair value at the reporting date. Information about the Group's exposure
to credit risks and expected credit losses for trade receivables and accrued
revenue is included in note 8.
Order Book
The aggregate amount of the transaction price allocated to product and service
contracts that are partially or fully unsatisfied as at the 2023 year end
('Order Book') are as follows:
2024 2025 2026+ Total
£000's £000's £000's £000's
Platform-based products and services 12,238 9,509 4,674 26,421
Advisory services 96 - - 96
12,334 9,509 4,674 26,517
Order book as at the 2022 year end:
2023 2024 2025+ Total
£000's £000's £000's £000's
Platform-based products and services 10,621 4,108 1,922 16,651
Advisory services 277 - - 277
10,898 4,108 1,922 16,928
The order book as at 31 December 2023 includes future contracted revenue
beyond 2024 which, although subject to annual customer break clauses, the
Group expects will not be exercised by customers, and the revenue and
performance obligations deliverable under these contracts will be realised.
5. Operating (loss)/profit
2023 2022
£000's £000's
Employee benefit costs
Wages and salaries 11,487 11,045
Social security costs 1,416 1,446
Pension costs 376 317
Benefits 325 130
Share-based payments and related costs 445 536
Capitalised development costs (1,026) (1,895)
Total employee benefit costs 13,023 11,579
Other cost of sales and administrative expenses
Amortisation of intangible fixed assets 4,459 2,704
Depreciation of tangible fixed assets 161 147
Right-of-use depreciation 153 157
Subcontractor costs 1,060 779
Platform transaction value 1,892 907
Travel costs 516 352
Legal and professional 1,687 1,202
(Loss)/gain on foreign exchanges 360 (130)
Other expenses 3,466 1,346
Total other cost of sales and administrative expenses 13,754 7,464
Total cost of sales and administrative expenses 26,777 19,043
Included within other expenses in 2023 is the accrual of £0.6 million related to US sales tax costs pertaining to 2023 and prior years. These sales tax costs would usually be charged to customers, recovered and remitted to the relevant US state authorities with no impact to the costs of the Group. However, because the Group had not historically registered for sales taxes in certain states, the related costs could not be charged and recovered from customers. As such, the Company is in the process of disclosing this historic position to the relevant state authorities and will settle this liability during 2024. Future sales taxes arising on sales in these states will be charged to customers, recovered and remitted with no significant further impact to the costs of the Group.
6. Earnings per share
Basic earnings per share are calculated based on the profit & loss for the
financial year attributable to equity holders divided by the weighted average
number of shares in issue during the year.
Basic earnings per share are calculated based on the profit & loss for the
financial year. Diluted earnings per share is calculated on the basic earnings
per share adjusted to allow for the issue of ordinary shares on the conversion
of the convertible loan notes and employee share options. In the current year
there are no exceptional items and therefore there is no adjustment required
to basic earnings per share or to diluted earnings per share.
Profit attributable to shareholders
2023 2022
£000's £000's
(Loss)/Profit for the financial year (1,746) 724
Weighted average number of shares to shareholders
2023 2022
Number Number
Shares in issue at the end of the year 84,501,390 84,472,431
Weighted average number of shares in issue 84,478,882 84,357,387
Less treasury shares (252,063) (207,791)
Weighted average number of shares for basic and adjusted earnings per share 84,226,819 84,149,596
Effect of dilution of share options - 1,939,925
Weighted average number of shares for diluted earnings per share 84,226,819 86,089,521
Earnings per share 2023 2022
Pence Pence
Basic (2.07) 0.86
Diluted (2.07) 0.84
The group has outstanding share warrants and share options that could
potentially dilute basic earnings per share in the future. These were not
included in the calculation of diluted earnings per share during the year
because these are antidilutive for the period.
7. Intangible assets
Patents and trademarks Datasets Development expenditure* Platform Software Total
£000's £000's £000's £000's £000's £000's
Cost
At 1 January 2022 1,144 4,849 216 9,727 562 16,498
Transfer from development expenditure to Platform - - 2,401 -
-
(2,401)
Foreign exchange translation 59 228 4 301 1 593
Additions 1 2,169 2,359 - 155 4,684
At 31 December 2022 1,204 7,246 178 12,429 718 21,775
Foreign exchange translation (25) (164) - (159) (1) (349)
Transfer from development expenditure to platform - - (178) 178 - -
Additions - 3,554 - 918 258 4,730
At 31 December 2023 1,179 10,636 - 13,366 975 26,156
Patents and trademarks Datasets Development expenditure* Platform Software Total
Amortisation £000's £000's £000's £000's £000's £000's
At 1 January 2022 1,085 1,692 - 721 179 3,677
Foreign exchange translation 59 77 - 35 1 172
Charge for the year 41 1,313 - 1,112 238 2,704
At 31 December 2022 1,185 3,082 - 1,868 418 6,553
Foreign exchange (26) (64) - (27) (1) (118)
Charge for the year 15 2,944 - 1,316 184 4,459
At 31 December 2023 1,174 5,962 - 3,157 601 10,894
Net book value at 31 December 2023 5 4,674 - 10,209 374 15,262
Net book value at 31 December 2022 19 4,164 178 10,561 300 15,222
*Development expenditure relates to an asset under construction and as such no
amortisation has been charged. This expenditure is subject to the same annual
impairment review as the other intangible assets.
Intangible assets relate to patents, trademarks, software, DXRX platform and
datasets which are recorded at cost and amortised over their useful economic
life which has been assessed as three to ten years.
During the year ended 31 December 2023, £178,000 was transferred out of
development expenditure and into the Group's DXRX platform (2022:
£2,401,000). In 2023, the Group changed the estimated useful life of its
datasets from 4 years to 3 years. The Group assesses the useful life of all
assets on an annual basis.
The Group has determined that the useful life of data and platform is a
significant area of estimation.
The platform has been assessed to have a useful life of 10 years based on
information on the estimated technical obsolescence of such assets. However,
the actual asset useful life may be shorter or longer than 10 years depending
on technical innovations and other external factors. If the useful life were
reduced by 2 years, the carrying amount of the asset at 31 December 2023 would
reduce by £267,000 (2022: £283,000) to £9,943,000 (2022: £10,278,000). If
the useful life of the asset were increased by 2 years, the carrying amount of
the asset at 31 December 2023 would increase by £267,000 (2022: £170,000) to
£10,476,000 (2022: £10,731,000).
On reviewing the useful life of the data sets it was determined that based on
latest information on commercial and technical use, that three years
represented the best estimate of the useful life of such assets, as this
reflects the period over which this data can provide meaningful insights to
support client projects. However, the actual asset useful life may be shorter
or longer than three years depending on technical innovations and other
external factors. If the useful life were two years, the carrying amount of
the asset at 31 December 2023 would reduce by £454,000 (2022: £482,000) to
£4,220,000 (2022: £3,682,000). If the useful life of the asset were four
years, the carrying amount of the asset at 31 December 2023 would increase by
£993,000 (2022: £259,000) to £5,667,000 (2022: £4,423,000).
These are all definite life intangible assets. There were no impairment
indicators identified at 31 December 2023 and therefore no impairment.
8. Trade and other receivables
2023 2022
£000's £000's
Trade receivables 7,430 5,792
Contract assets 2,402 2,582
Other receivables 294 207
Prepayments 1,241 628
11,367 9,209
Other receivables primarily consist of recoverable taxes and as such are
considered to have low credit risk. Derivative financial instruments consist
primarily of foreign currency forward contracts and are considered to have low
credit risk. The maturity period of these assets were less than 12 months, and
given their nature, the expected credit loss allowance recognised in the
period against these assets were £Nil (2022: £Nil).
Trade receivables are non-interest bearing, are generally on 90-day terms and
are shown net of a provision for impairment. Management's assessment was that
the trade receivables are fully recoverable except for the specific provision
netted against the trade receivables balance of £175,000 (2022: Nil).
Most of our customers are large pharma; we do not foresee any credit
difficulties within our customer base. The age profile of the trade
receivables and contract assets are as follows:
Total 0-30 days 31-60 days 61-90 days >90 days
£000's £000's £000's £000's £000's
2023 9,832 5,864 1,472 1,635 861
2022 8,374 6,568 1,354 319 133
The Group's contract assets as at the statement of financial position date are
expected to be invoiced and received in the following year. The maturity
period of these assets were less than 12 months, and given their nature, the
expected credit loss allowance recognised in the period against these assets
were £Nil.
The following table shows the movement in contract assets:
2023 2022
£000's £000's
Contract assets recognised at start of the year 2,582 1,003
Revenue recognised in prior year that was invoiced in the current year (2,582) (1,003)
Amounts recognised in revenue in the current year that will be invoiced in 2,402 2,582
future years
Balance at the end of the year 2,402 2,582
The carrying amount of trade and other receivables are denominated in the
following currencies:
2023 2022
£000's £000's
UK sterling 1,105 881
Euro 382 504
US dollar 9,762 7,737
Canadian dollars 73 31
Singapore dollars 45 56
11,367 9,209
The maximum exposure to credit risk is the carrying value of each class of
receivables and cash and cash equivalents. The Group does not hold any
collateral as security.
9. Trade and other payables
2023 2022
£000's £000's
Creditors: falling due within one year
Trade payables 1,065 759
Accruals 2,255 1,996
Other payables 38 39
Other tax and social security 471 423
Contract liabilities 305 284
Deferred grant income 103 127
4,237 3,628
Contract liabilities of £305,000 (2022: £284,000) which arise in respect of
amounts invoiced during the year for which revenue recognition criteria have
not been met by the year-end. The Group's contracts with customers are
typically less than one year in duration and any contract liabilities would be
expected to be recognised as revenue in the following year. In 2022, the
amount of deferred grant income was previously included within contract
liabilities.
The following table shows the movement in contract liabilities:
2023 2022
£000's £000's
Contract liabilities recognised at start of the year 284 208
Amounts invoiced in prior year recognised as revenue in the current year (284) (208)
Amounts invoiced in the current year which will be recognised as revenue in 305 411
the later years
Balance at the end of the year 305 411
The carrying amount of trade and other payables are denominated in the
following currencies:
2023 2022
£000's £000's
UK sterling 2,062 3,079
Euro 415 203
US dollar 1,587 326
Singapore dollar 130 16
Other 43 4
4,237 3,628
10. Equity share capital
2023 2022
£000s £000s
Authorised, allotted, called up and fully paid
84,501,390 (2022: 84,472,431) Ordinary shares of £0.002 each 169 169
Authorised 84,501,390. (2022: 84,472,431)
169 169
Treasury shares
Treasury shares are shares in Diaceutics PLC that are held by the Diaceutics
Employee Share Trust for the purpose of issuing shares under the Diaceutics
PLC SIP scheme. Shares issued to employees are recognised on a first in, first
out basis.
Details Number of shares £000's
2023 2022 2023 2022
Acquisition of shares by the Trust 44,272 74,791 49 98
Closing balance 252,063 207,791 312 263
All ordinary shares rank pari passu in all respects including voting rights
and the right to receive all dividends and other distributions, if any,
declared, made or paid in respect of ordinary shares.
Reserves
Share premium account: This reserve records the amount above the nominal value
received for shares sold, less transaction costs.
Translation reserve: This reserve records foreign exchange differences on
translation of foreign operations.
11. Post balance sheet events
On 25 January 2024, the rights over 177,915 warrant shares were exercised at a
price of £0.76 per share. Following this exercise, no further warrant shares
remain outstanding.
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