Earnings Enhancing Acquisition of PDS Pathology Data Systems

01 September 2021

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

Earnings Enhancing Acquisition of PDS Pathology Data Systems

Consolidates Non-Clinical Market; Further Extending Instem’s Leadership in Study Management and Regulatory SEND Submission Support

Instem plc (AIM: INS), a leading provider of IT solutions to the global life sciences market, announces the acquisition of life sciences software company PDS Pathology Data Systems Ltd (“PDS”) for a total enterprise value of CHF 14.25m (c.£11.4m). The consideration will be satisfied by a combination of cash and ordinary shares in the Company (the "Acquisition"). 

Highlights

  • Further extends Instem’s Study Management and SEND market share
  • Deepens Instem’s relationships with some of its largest clients
  • Opportunity for competing product and service rationalisation to:
    • Enhance client experience
    • Increase operating margin
  • The Acquisition is expected to be immediately earnings enhancing

About PDS
Headquartered in Switzerland with offices in the United States and Japan, PDS has been a direct competitor of Instem for over 25 years. PDS provides software for non-clinical study management and software and outsourced services for regulatory submissions using SEND (the Standard for the Exchange of Non-clinical Data). Seven of the world’s top ten pharmaceutical companies have relied on PDS, as have leading contract research organisations, chemical companies, universities and regulatory agencies.

PDS has a highly experienced and respected team with deep product and market domain expertise in non-clinical study management and the complex and continually evolving area of SEND submissions.
 
In the year ended December 2020, PDS had unaudited, normalised profits before tax of CHF 0.75m (c. £0.6m) on sales of CHF 6.5m (c. £5.1m), of which CHF 2.3m (c. £1.8m) was recurring SaaS and software maintenance revenue. As at 31 December 2020, PDS had net liabilities of CHF 1.5m (c. £1.2m), including loans from its shareholders of approximately CHF 3.0m (c. £2.4m). These loans will be settled in full out of the proceeds received by PDS shareholders.

Increased Opportunity
Instem will fully integrate approximately 35 additional PDS staff into its operations and expects to retain all of the combined workforce.  The Acquisition will immediately increase Instem’s operational capacity, providing an opportunity to combine teams operating in the significant United States, Swiss and Japanese markets.

The Acquisition will enable Instem to concentrate investment on a single line of SEND and preclinical study management products, removing unnecessary duplication in the market. The combination of technologies and highly experienced teams will enable the Company to enhance the development and delivery of existing and new solutions that provide higher value to its clients.

The Acquisition will also enable Instem to further strengthen its relationship with joint clients – 70% of PDS' top 20 clients are already clients of Instem. The Acquisition also broadens Instem’s customer base, with the addition of over 30 new clients providing opportunities for the cross-selling of the wider Instem product and service portfolio.

Terms of the Acquisition 
The consideration comprises CHF 8.2m payable to the sellers of PDS on completion of the Acquisition (the "Initial Consideration"), CHF 3.0mof seller loan repayments, CHF 2.0m to satisfy other net PDS liabilities and CHF 1.0m of deferred consideration (the "Deferred Consideration").

The Initial Consideration is being satisfied by CHF 4.7m in cash (c. £3.8m) and CHF 3.5m (c. £2.8m) in new ordinary shares of 10 pence each in the Company (the "Consideration Shares"), equating to the issue of 359,157 shares at a deemed price of a 777 pence per share.  The cash payment, loan repayments and other net liabilities payments are being funded from the Group's existing financial resources.

The shareholders of PDS comprise the founder and a holding company, PDS Group Holding AG, owned by one current and one former executive of the company ("the Vendors"). Other than CEO Vicente Nogués who is retiring, all of the PDS executives and employees will continue to be employed by the Group following the Acquisition.  The Vendors will be subject to lock-in agreements, precluding them from selling 179,579 of their Consideration Shares prior to the 9-month anniversary of completion of the Acquisition and the remaining 179,578 for a further 9 months.

The Deferred Consideration, to be satisfied in cash, comprises CHF 1m payable to the Vendors on the 12-month anniversary of completion.  

Issue of Equity  
Application has been made to the London Stock Exchange for the admission to trading of the 359,157 Consideration Shares to AIM ("Admission").  It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 7 September 2021.  The Consideration Shares will rank pari passu with the existing ordinary shares in the Company.

Total Voting Rights 
Following the issue and allotment of the above Consideration Shares, the Company's issued share capital comprises 22,139,856 ordinary shares of 10 pence each. The Company does not hold any ordinary shares in treasury, therefore the total number of voting rights in the Company is 22,139,856.

The figure of 22,139,856 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change of their interest in, the Company under the FCA's Disclosure and Transparency Rules.

Investor Presentation
Management will be hosting a presentation through the digital platform Investor Meet Company later this month when it announces results for the six months to 30 June 2021, providing an opportunity to talk more about today’s acquisition.

Investors can sign up for free and request 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: "We are delighted to have completed our third acquisition of 2021 which, along with the Company’s strong organic growth, ensures that Instem is positioned as the foremost authority and driving force in generating, analysing and leveraging data from discovery through late-stage clinical trials.

“We have known the team at PDS for many years and are well aware of their industry standing. We have spoken on several occasions about a potential combination and are delighted that they have agreed to join us at Instem, at a time when both of our businesses and the life sciences market are thriving. We look forward to integrating the business and benefiting from the scale and increased reach that will further cement our leading market position".

Vicente Nogués, CEO at PDS, commented: “This was a natural next step in our quest to help clients do more and go further than ever before. Our mission, values and overall company cultures are aligned very well – which was the highest of priorities for PDS. 

“As part of Instem, our clients will now have access to the most comprehensive range of solutions found in the market today backed by excellent customer service, while our staff will enjoy additional opportunities for professional growth. Together, we are looking forward to advancing the ever-important mission of helping clients to bring their life enhancing products to market faster".

For further information, please contact:

Instem plc www.instem.com
Phil Reason, CEO Via Walbrook
Nigel Goldsmith, CFO  
Singer Capital Markets (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 600 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.