27 September 2022

Diaceutics PLC

("Diaceutics" or "the Company" or "the Group")

Half Year Report for the period ended 30 June 2022

Strong market momentum and DXRX platform adoption provides increased revenue visibility

Diaceutics PLC, (AIM: DXRX), a leading diagnostic commercialisation company which provides data, analytics and technology enabled services via its proprietary DXRX platform to the precision medicine market, announces the following unaudited half year report for the six months ended 30 June 2022.

Financial Highlights

Operational Highlights

Outlook

¹ Total Contract Value ('TCV') is the overall value of customer contracts signed and includes revenue recognised in the period and the value of future contracted revenue not yet recognised (Order book)  

² Order book is the value of future contracted revenue not yet recognised

Peter Keeling, CEO and Founder of Diaceutics commented:

"I am pleased to report a strong performance in the first half of the year, with excellent revenue and order book growth providing positive momentum into H2 2022 and future years, and demonstrating the effectiveness of our platform business model as it scales. 

Continued investment in our platform business alongside our dedication to both platform adoption and customer migration has enabled Diaceutics to progress faster and farther than anticipated, with our customer adoption timeline currently a year ahead of plan.

As Pharma's investment in precision medicine returns to pre pandemic levels, we are optimistic that Diaceutics is well positioned to outperform market growth rates as we grow our innovative product portfolio and build upon our leadership position."

Enquiries:

 About Diaceutics

At Diaceutics we believe that every patient should have access to the right treatment at the right time. We provide the world's leading pharmaceutical companies with an end-to-end solution for the launch of precision medicine diagnostics enabled by DXRX - The Diagnostic Network®. 

DXRX is the world's first diagnostic commercialisation platform for precision medicine, integrating multiple pipelines of real-world diagnostic testing data from a global network of laboratories.

Diaceutics' data capability is one of the three key value drivers it has integrated into its unique DXRX platform alongside its global Lab network and product suite tailored for Precision testing.

Chief Executive Review

Business and strategic overview

I am pleased to report that the Group has built on the momentum from the 2021 year, delivering a positive trading performance for H1 2022. The encouraging financial performance includes strong revenue growth of 25%, improved quality of revenues from our subscription services and a significantly increased order book; all of which serve as validation for our recent transition to a platform business.

Importantly, we are now a full year ahead of our original timeline for customer adoption of the DXRX platform, providing increased visibility on our growth trajectory.

We have continued to invest in the expansion of our three key value drivers: our data repository, product offering and partner network, to ensure we are well positioned to capitalise on the availability of additional therapy team wallet, further embedding Diaceutics in our customers diagnostic commercialisation strategies.

The result of this progress can be seen in our heightened customer engagement. In H1 2022 we worked with 34 pharma customers, seven of which were new, including the 10 biggest global pharma companies. Across these customers we have engaged across 41 brands and increased the value of lifetime spend within these brands.

We anticipate significant further opportunity as further customers migrate to annual and multi-year subscription contracts, allowing the Group to leverage the platform to scale revenues and profits.

Growing market opportunity

We address a substantial and growing market opportunity. The Precision Medicine landscape has continued to accelerate, with clinical communication to physicians by pharmaceutical companies returning to pre pandemic levels and major pharmaceutical companies such as AstraZeneca and Bristol Myers Squibb confirming that their clinical development pipeline is growing beyond oncology, driven by precision therapeutics.

Personalised medicines have now accounted for more than a third of new drug approvals for four of the last five years, a trend the Company feels will continue, and in turn, driving the need for a well-functioning associated diagnostics industry.

An example of the importance and advances taking place in precision medicine came at the American Society of Clinical Oncology ('ASCO') conference in June 2022, at which AstraZeneca and Daiichi Sankyo, two of the leaders in oncology precision medicine, presented landmark data that could transform the treatment of breast cancer, through the use of Enhertu, their jointly owned medicine. Analysts predict that Enhertu could be a game-changer in breast cancer treatment, reaching $4.6 billion sales in HER2-low patients alone by 2030, and representing a significant precision medicine commercialisation opportunity.

Through the DXRX platform, we provide the world's leading pharmaceutical companies with an end-to-end solution for the launch of precision medicine diagnostics, meaning we are well placed to address the commercialisation hurdles currently prevalent in the market and help ensure medicines reach the patients who need it. A demonstration of the value our customers derive from the platform can be seen in the increase we have seen in lifetime spend levels across the top therapy brands we support, with our top five brands having now spent between $3.8 million - $7.8 million with Diaceutics over the lifecycle of the therapies.

Operating overview

Growing licensing and subscription contracts continues to be the primary goal for the Group as we focus on transitioning clients onto our proprietary DXRX platform.

Transition onto the DXRX platform is approaching peak adoption with 76% of revenues now being generated through the platform. This marks a notable success for the Group as adoption rates have been achieved a year ahead of expectations, with 37% of all revenues now being derived from subscription-based contracts.

Platform data services continue to deliver strong sales growth with 13 multi-year subscription contracts signed with leading global pharmaceutical and life science companies to date.

Investing in our value drivers

We are pleased to report that strong progress has been made across the Group's key value drivers in H1 2022: DXRX data, DXRX products and DXRX partner network.

DXRX data:

Diaceutics' competitive position is reinforced through its depth of data, and we have continued to enhance this proposition in H1 2022.  During the period, 110 million patient records have been added taking the total record database to 600 million, with CMS approval given in March 2022 to receive US medical claims data at an increased frequency. This approval enhances the unique weekly aggregated lab data we are able to distribute to clients, helping them to better understand the evolving testing landscape in near real-time and empowering strategies to drive faster access to the right treatment. 

With respect to our data services, we were pleased to announce key contract wins with top five global pharma companies, delivering customised data insights via our platform and contributing to revenue over the next five years. We expect our growing depth of data and data products to continue to facilitate a healthy pipeline of contracts with pharma clients looking for real world data and insights to support their therapy commercialisation.

DXRX products:

We continue to invest in our proprietary DXRX products and platform. As a result, we have now developed and launched 16 pharma focused and tailored products, 80% of which are now generating revenue. The six top performing products have contracted sales in excess of $1.5 million in H1 2022, including a second significant Technology Enabled Services ('TES') contract win in excess of $3 million, the revenues of which will be recognised over a two-year period.

The reach and utility of our DXRX platform has progressed significantly in H1. Key improvements made to the platform during the period include:

DXRX partner network:

During the period we added a further 231 labs to the network bringing the total network labs to 777 and this continues to grow weekly towards our mid-term goal of having 2,000 laboratories on the network. We continue to support active testing laboratory engagement via our unique platform collaborations and have launched 18 collaborations since the inception of the platform, five during the six-month period to 30 June 2022. Each of these are supporting our technology enabled services and provide new levels of exhaust data back into our data repository.

Investment in People

We are committed to building for future growth through continued investment in our people during the period. In H1 2022 we recruited over 20 new employees, primarily in data analysis and customer support (a net increase of 9 people since December 2021), including two additions to our executive management team, with Nick Roberts joining as Chief Financial Officer and Julie Browne as Chief Operating Officer, both in March.

As we build our organisational readiness for growth at scale, we have continued to invest in staff development, increasing the number of learning hours completed by our team, with a total of 5,686 hours achieved in H1 2022 (already 88% of the total learning hours achieved in the 12 months to 31 December 2021), and now standing at an average of 5.5 days per person. To help nurture the talents and skills of our people we are pleased to see that 85 of our employees were taking advantage of internal learning and development opportunities at the end of July 2022.

These development initiatives have broadened and deepened our skillsets across the Group and supported our transition to a platform-based business model.

Throughout the first half of the year, we have continued investing in marketing and business development across the Group. This led to the significant expansion of our sales and marketing capability at the end of Q1 2022, which has already delivered significant growth in our sales pipeline. In June this year, 22 key Diaceutics sales and operational staff attended the American Society of Clinical Oncology ('ASCO') conference, which was held in-person for the first time in three years. The event was a great success for Diaceutics and has resulted in a significant uplift in sales pipeline opportunities.

ESG

At a Group-wide level, we remain dedicated to operating in an ethical, sustainable, and well governed manner, and in a way which benefits all stakeholders and wider society.

As a global company with employees operating across 16 countries, we recognise the immense value people from all backgrounds can contribute to our success. Reflecting this, we now have 13 culture ambassadors from across the Group working to nurture and support our focus on the business mission.

Additionally, as part of our commitment to ensuring a positive impact on all our stakeholders and the communities in which we operate, we have established a charity working group, with the aim of supporting local and global charities and providing a structured means for the Group to support two charitable causes, one for Children's Cancer, and Médecins Sans Frontières, both closely linked to the Diaceutics mission.

We look forward to reporting further ESG initiatives and progress in our 2022 annual report.

Outlook

I am pleased to report we enter the second half in a strong position, with the healthy trading momentum continuing. In H2 2022, we will continue to focus on enhancing our three key value drivers: our platform data, our products and our partner network. Alongside this, we will continue to invest across the business to further fuel our long-term growth.

With a growing order book and substantially increased sales pipeline, the Board remains positive about the Group's outlook and expects to report full year results in line with expectations.

Finance Review

Revenue

Revenue for the six months to 30 June 2022 grew 25% to £7.5 million (H1 2021: £6.0 million) and 18% on a constant currency basis. This organic growth has been driven through the expanded sales and marketing team and the launch of a comprehensive suite of end-to-end data product and service offerings, designed to overcome the precision diagnostic commercialisation challenges facing pharmaceutical companies.

Revenue growth has been strong with the Data and Technology Enabled Service ('TES') platform-based products and services, growing 52% to £5.7 million. Platform based products and services now represent 76% of all revenues (versus 63% for the  comparative period), a level management consider to be approaching peak adoption, which has been achieved in less than two years, a year ahead of expectations. Professional service consultancy revenues were £1.8 million in the period, down slightly on the comparative period as a result of the reorganisation of the business service lines, but remaining a fundamental part of the end-to-end client precision medicine commercialisation offering.

The total value of contracts secured in the first six months of 2022 were $20.4 million, more than double the value of contracts secured at the same point last year (H1 2021: $8.8 million), and just short of the $20.6 million sold for the full 12 months of the prior year. The significant step up in the value of contracts secured is testament to the Group's dedication to platform adoption and the success in migrating pharmaceutical customers to multi-year recurring revenue contracts. This has also enriched the quality of the earnings, with 37% of all revenues now being derived from subscription-based contracts.

The culmination of the expanded sales and marketing team, launch of innovative products and services, and migration of customers to multi-year recurring revenue contracts, has resulted in a meaningful future order book for the first time. The order book at 30 June 2022 grew to £10.2 million, up from £1.7 million at December 2021. £3.8 million of the order book is expected to be realised in H2 2022, £4.1 million in 2023 and £2.3 million in 2024 and future years, greatly increasing revenue quality and visibility.

In addition, the Group's therapy brand engagement remains consistently strong with the Group generating revenue from 41 brands (H1 2021: 48) across 34 clients (H1 2021: 33) during the period, with an increase in the value of addressable lifetime therapy brand spend secured.

Gross Profit and Margin

The gross profit for the first six months of 2022 increased 16% to £5.1 million (H1 2021: £4.4 million). The gross margin for H1 2022 was 68%, down six percentage points from the gross margin in H1 2021 of 74%. The reduction in margin was the result of early stage and lower margin contract deliverables within the recently established TES business line. The gross margin excluding this early-stage contract was consistent with the prior year at 73% and is expected to return to levels above 70% for the full year.

The gross margin levels excluding amortisation remain strong at 84% (2021: 87%) with Professional Service and Data margins staying relatively consistent with the comparative period at around 69% and 90% respectively.

Operating loss and EBITDA

The operating loss for H1 2022 increased to £1.1 million (H1 2021: loss £0.5 million).

The additional gross profit generated in the period (£0.7 million) was offset by £1.2 million of expanded administrative expenses. The increased administrative expenses were primarily a result of the continued investment in people (net increase of nine heads to 138 at 30 June 2022) and additional travel costs as a result of the easing of COVID-19 restrictions and restart of precision medicine and oncology in-person conferences, including, for the first time in three years, the American Society of Clinical Oncology ('ASCO') conference in Chicago, USA.

Earnings Before Interest, Tax, Depreciation and Amortisation ('EBITDA') is calculated as the operating loss plus the add back of amortisation and depreciation for the period.

EBITDA profitability has remained consistent with the comparative period at £0.3 million (H1 2021: £0.3 million) while the Company has continuing to invest in people and operating overheads. The realisable future benefits of this investment, along with the investment in the proprietary technology and products, can be clearly seen in the growth of the order book and total value of contracts signed.

Investment in Data and Technology assets

The business continues to invest in Data and Technology assets with a total investment in intangibles of £2.2 million in the period (H1 2021: £2.7 million).

The investment in data amounted to £0.9 million, broadly in line with the £1.0 million spent in the same period last year. The Company has been able to maintain a similar level of direct data spend whilst still enhancing its proprietary data repository as a result of the Company's expanding laboratory network and exhaust data generated via this. Approximately 110 million patient test records were added in the period (H1 2021: 44 million) taking the total to 600 million, and the laboratory network, which is directly engaged through the proprietary DXRX platform, grew from 546 at December 2021 to 777 at June 2022.

Capitalised development expenditure relating to the continued investment in the DXRX platform amounted to £1.4 million (H1 2021: £1.7 million). The investment intensity in the platform continues to decrease as the platform matures. The DXRX platform investment in H1 2022 primarily related to data processing and machine learning capabilities within the platform, the launch of customisable dashboards for users, enabling direct data transfers from the platform to CRM systems without human intervention and enabling access to highly innovative content.

Cash flow and cash held

The operating cash inflows for the period to 30 June 2022 were £3.3 million (2021: £1.3 million inflow) and was enhanced by R&D tax credits relating to prior periods of £1.5 million (2021: £nil) which were received in quarter one of 2022.

After investing and financing activities, the largest out flow of cash was the £2.4 million (2021: £2.8 million) investment in data, technology and equipment assets, with the overall cash and short-term investments balance increasing to £20.4 million, up from £19.7 million at the end of December 2021 (£23.7 million at 30 June 2021).

The Company has an unused revolving credit facility with its primary bank for £4 million, continues to be debt free and is well funded to achieve its strong organic grow forecasts.

Condensed Profit and Loss Account

for the six months ended 30 June 2022

All activities in the current and prior periods relate to continuing operations.