Earnings Enhancing Acquisition of d-wise and Investor Presentation

22 March 2021

Instem plc
(“Instem” or “the Company” or “the Group”)

Earnings Enhancing Acquisition of d-wise and Investor Presentation

Acquisition of clinical trial technology & consulting leader and Issue of Equity

Instem plc (AIM: INS), a leading provider of IT solutions to the global life sciences market, announces that, on 20 March 2021, it exchanged contracts to acquire US-based clinical trial technology & consulting leader d-Wise Technologies, Inc (“d-wise”) for a total consideration of up to $31m, net of any cash acquired and adjusted for a normalised level of working capital, to be satisfied by a combination of cash and ordinary shares in the Company (the "Acquisition"). 

Completion of the Acquisition is anticipated to take place on, or around, 31 March 2021, following the satisfaction of certain post signing formalities.

Highlights

The Acquisition provides the Group with a platform for:

  • Growth in software, technology enabled services and high value consulting
  • Broadened relationships with existing clients
  • Development of new technology solutions and new revenue streams

Phil Reason, CEO of Instem, commented: “We are delighted to have completed this acquisition. Access to a broad array of data is key to aiding and speeding up drug research and development. We believe that the enlarged Group is now even closer to becoming a one-stop-shop for life science companies looking for a long-term relationship as we assist them across the drug discovery and development landscape. We have known d-wise for nearly a decade and have been impressed with their growth, as well as the position they have developed as highly trusted thought leaders in clinical trial analysis and regulatory submission technology.

“This is an exciting addition to the Group, significantly enhancing our scale and market reach. We very much look forward to building on this as part of our ongoing strategy.”

Acquisition Rationale
d-wise adds a market leading position to the Group in an attractive adjacent area of clinical trial analysis and submission, with good future visibility through recurring revenue streams and already contracted, high value consultancy projects.   Like Instem, d-wise enjoys high levels of client retention, opening up the potential for cross selling of solutions to the combined client base.

The Acquisition, which is expected to be earnings enhancing in 2021, is an integral part of the Company’s transformational growth strategy. It will enable the Company to deliver solutions that meet the rapidly expanding needs of life science organisations for data-driven decision making, leading to safer, more effective products.

The consolidation of key application areas will help customers streamline and accelerate their research and development processes, while access to a broader range of data from across the R&D continuum will increase the power of future in silico modelling and predictive analytics solutions.

About d-wise
Founded in 2003, d-wise is a well-respected clinical trial technology domain expert that advises on and builds clinical trial analysis & data anonymisation solutions, leveraging open-source and cloud technologies. d-wise has had a significant impact on the creation of operational and clinical data efficiencies that have accelerated clinical trial analysis and regulatory submissions for 19 of the top 20 global pharma companies. It supports its global customer community through its US headquarters based in the Raleigh-Durham area, North Carolina along with an additional office in Manchester, UK.  Approximately 70 of the d-wise staff are based in North America and 20 in the UK or mainland Europe and the Board expects to broadly maintain this split following the Acquisition.  The d-wise team will join approximately 350 existing Instem staff.

d-wise has three, market leading lines of business:

  • High value technology consulting, primarily helping clients to evaluate, implement and manage the next generation of statistical computing environment (SCE) for large scale clinical trial analysis
  • A standardised, hosted SCE architecture for small to mid-sized companies
  • A Software-as-a-Service (SaaS) solution and technology enabled outsourced services, which enable clients to anonymise their clinical trial data and clinical study reports for internal and industry data sharing initiatives, as well as to meet the requirements of government regulators, such as EMA (European Medical Agency) Policy 0070 and Health Canada’s Public Release of Clinical Information

In the year ended 31 December 2020 d-wise had unaudited adjusted profit before tax of $3.1m and adjusted EBITDA of $3.6m on sales of $24.1m.  Approximately 30% of revenue was recurring SaaS, hosting services and software support and maintenance. As at 31 December 2020, d-wise had net assets of $4.8m.

Combined Organisation
The combined strength of Instem & d-wise positions the enlarged Group as the foremost authority and driving force in generating, analysing and leveraging data from Discovery through late-stage Clinical Trials. Instem and d-wise will be poised to deliver unique value to clients as one, unified, technology-driven powerhouse.

The d-wise team and its solutions will create a new business unit at Instem known as Clinical Trial Acceleration Solutions, led by the d-wise CEO John Leveille (who is also one of the company’s two founding shareholders), with all management and staff to be retained following the acquisition.  Finance and HR functions will be immediately integrated with the rest of the Group, with the d-wise Chief Financial Officer retiring after a suitable hand-over period.  Further integration will be phased over a 12-month period post completion.

Terms of the Acquisition 
The total consideration of up to $31m comprises $20m on completion (the "Initial Consideration"), $8m of deferred consideration (the "Deferred Consideration") and up to a further $3m which is payable contingent upon the future financial performance of d-wise (the "Earn Out").  Further information on the terms of the Acquisition is set out below. Completion of the Acquisition is anticipated to take place on, or around, 31 March 2021, following the satisfaction of certain post signing formalities. A further announcement will be made in due course.

The Initial Consideration is being satisfied by $13m in cash and $7m in new ordinary shares of 10 pence each in the Company (the "Initial Consideration Shares") equating to 868,203 shares at a deemed price of approximately £5.81 pence per share.  The cash is being funded from the Group’s existing financial resources.
Immediately prior to completion of the Acquisition, d-wise will become a wholly owned subsidiary of DWT Holdings, Inc (“DWTH”), a company formed specifically for the transaction, whose shares will principally be held by the two founding d-wise shareholders. DWTH will receive 868,203 Initial Consideration Shares as part of the consideration.  Subsequently, DWTH will transfer all of the initial Consideration Shares to the two d-wise founding shareholders and a further seventeen (17) employees (collectively “Individual Shareholders”). DWTH and the 19 Individual Shareholders will be subject to lock-in agreements covering the Initial Consideration Shares and any shares issued pursuant to the Earn-out (as described below).

The lock-in agreements provide DWTH with the ability to distribute the Initial Consideration Shares and any shares issued pursuant to the Earn-out to the Individual Shareholders. The lock-in agreements also provide for the progressive release of shares from lock-in commencing 4 December 2021, at which point 288,208 Initial Consideration Shares in aggregate will be released.   There are two subsequent dates of 7 June 2022 and 19 March 2023 to release the lock-in for the remaining shares.

The Deferred Consideration will be payable in two tranches, the first tranche will comprise $3m in cash and $1m in ordinary shares, payable on the 12-month anniversary of completion.  The second tranche, comprising $4m in cash, will be payable on the 24-month anniversary of completion.

The Earn Out comprises $3.0m contingent upon d-wise achieving certain EBITDA targets in the financial year ending 31 December 2021. If achieved, the Earn Out will be paid as $1.5m on 31 March 2022, in any combination of cash or Instem shares at Instem’s discretion, and $1.5m in cash payable on the 24-month anniversary of completion.

The number of shares issued in settlement of the Deferred Consideration and Earn Out will be based on Instem’s average closing share price for the five (5) business days immediately preceding the relevant future payment date.
 
Issue of Equity
Application will be made to the London Stock Exchange for the admission of the 868,203 Initial Consideration Shares to AIM ("Admission").  It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on or around 14 April 2021.  The Initial Consideration Shares will rank pari passu with the existing ordinary shares in the Company. 

Investor Presentation
Management will be providing a presentation on its acquisition strategy and hosting an Investor Q&A session at 14.00hrs on Tuesday 30 March 2021 through the digital platform Investor Meet Company. Investors can sign up for free and add to attend the presentation via the following link https://www.investormeetcompany.com/instem-plc/register-investor

Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9am the day before the meeting or at any time during the live presentation.

Phil Reason, CEO of Instem, commented: “More than a growth-based acquisition, this can truly help us transform the industry landscape. Our combined capabilities will help us meet the demand by our clients to create a more connected ecosystem across the life sciences in the global effort to bring life enhancing products to market faster. Behind all of the technology is a highly talented, experienced and motivated d-wise team that shares our mission and values. They are widely trusted industry thought leaders and practitioners, committed to delivering an exceptional client experience.

“d-wise is well known for its drive to transform the life sciences through open and flexible access to data. It acts as strategic advisor to many of Instem’s existing clients and is one of the leading IT solution engineering and integration partners in the market today. We are extremely excited about future opportunities to leverage wider areas of data and knowledge, backed by leading technologies and services, to maximise client value in ways we and the industry have only dreamed of in the past.”

John Leveille, CEO of d-wise added: “Our mission has always been to help our clients navigate technology change in pursuit of human health and wellbeing. Today is a watershed moment in our journey as we take d-wise products and services to the next level and achieve even greater reach and impact. We are excited to be part of Instem, a growing global organisation of over 400 professionals with a shared purpose of helping our clients in their life changing missions.”

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

For further information, please contact:

Instem plc www.instem.com
Phil Reason, CEO Via Walbrook
Nigel Goldsmith, CFO  
N+1 Singer (Nominated Adviser & Broker) +44 (0) 20 7496 3000
Peter Steel  
Alex Bond  
Rachel Hayes  
Wallbrook Financial PR Tel: +44 (0) 20 7933 8780
Tom Cooper instem@walbrookpr.com
Nick Rome  
Nicholas Johnson  

About Instem

Instem is a leading provider of IT solutions & services to the life sciences market delivering compelling solutions for Study Management and Data Collection; Regulatory Solutions for Submissions and Compliance; and Informatics-based Insight Generation.

Instem solutions are in use by over 500 customers worldwide, including all the largest 25 pharmaceutical companies, enabling clients to bring life enhancing products to market faster. Instem's portfolio of software solutions increases client productivity by automating study-related processes while offering the unique ability to generate new knowledge through the extraction and harmonisation of actionable scientific information.

Instem products and services address aspects of the entire drug development value chain, from discovery through to market launch. Management estimate that over 50% of all drugs on the market have been through some part of Instem's platform at some stage of their development.

To learn more about Instem solutions and its mission, please visit instem.com.