Presentation Team
Phil Reason, Chief Executive Officer Phil is an experienced chief executive who has developed a number of IT businesses in the life sciences and nuclear industries, both organically and through acquisition. Phil joined the former parent Company, Instem Limited in 1982 and was appointed Managing Director of the Life Sciences division in 1995 and Chief Executive Officer of Instem LSS Limited on the demerger from Instem Limited. Given the importance of the North American market to Instem’s organic and acquisitive growth, Phil relocated from the UK to the US in 2003 and established a new headquarters in the Philadelphia area. Phil previously ran Instem Limited’s Nuclear and Laboratory Information Management Systems integration businesses.
Nigel Goldsmith, Chief Financial Officer Nigel, who joined Instem in November 2011, has a wealth of experience in senior financial roles, at both public and private companies within the pharmaceutical industry. After qualifying as a Chartered Accountant, Nigel spent over nine years at KPMG prior to moving into industry. Nigel was Finance Director for three years at AIM listed, pharmaceutical and medical devices company, IS Pharma plc. He also spent a seven-year tenure as CFO at Almedica International Inc, a privately held supplier of clinical trial materials to the pharmaceutical and biotech industry in Europe and the US and two years as European Controller for the sales and marketing division of laboratory equipment manufacturer, Life Sciences International plc.
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A leading provider of IT solutions & services to life sciences R&D
Helping our clients bring life enhancing products to market faster
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Agrochemicals
Medical Devices Pharmaceuticals
Overview
Provider of IT systems and services that
• Collect, analyse & report complex scientific data
• Comply with FDA, EPA & similar regulatory demands
• Improve quality, consistency, integrity and efficiency
• Generate insights from large volumes of information
Leading global market position
• Prestigious blue chip customer base
• Over 450 clients, includes 19 of top 20 pharma
• Operations in the US, UK, France, China, India and Japan increase growth opportunities
Good revenue visibility and customer renewals
• £10.0m, represents 62% of revenues that recurred in 2015 – an increase of 9% on 2014.
• Increasing recurring revenues from SaaS offering
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A selection of clients:
FY 2015 Agenda
FY15 Highlights
FY15 Financial Review • Financial Headlines
• Global Client and Revenue Distribution
• Recurring Revenue Progression
• FY14 / FY15 Cash Bridge
FY15 Operational Review • Product Overview
Strategic Focus
Summary Outlook
Appendices
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2015 Highlights
Continued Revenue & Profit Growth
High Operational Gearing
Strong Cash Conversion
Placing Raised £5m (gross)
Strong Balance Sheet
Strategy to Accelerate & Consolidate
Positive Market Dynamics
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£000’s FY 15 FY 14 Change Comments
Revenue 16,321 13,429 22% ALPHADAS & Provantis wins
Operating Expenses (13,553) (11,572) 17% £0.4m adverse translational effect due to strengthening US$ during FY15
EBITDA* 2,505 1,749 43% High operational gearing
Adjusted profit before tax** 1,711 1,071 60% Non-recurring costs of £1.4m & Amortisation of acquired intangibles of £0.6m
Adjusted basic eps** 13.3p 8.4p 58%
Net operating cashflow 2,504 482 420% Strong cash conversion ~100%
Investment activities (1,679) (786) 114% Payment of ‘earn outs’
Net increase/(decrease) in cash 530 (304) n/a Strong Balance Sheet
Cash & equivalents 2,183 1,676 30% Headroom for acquisitions
Pension deficit 3,933 3,881 1% Discount rate 3.8%. Fair value assets of £7.8m / Funded obligations £11.7m
Post balance sheet event Raised £5.0m (gross) at 200p to fund organic and acquisitive growth
Financial Headlines
*Earnings before interest, tax, depreciation, amortisation and non-recurring costs. **After adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items and amortisation of intangibles on acquisitions. Profit is adjusted in this way to provide a clearer measure of underlying operating performance.
8
Global Client and Revenue Distribution 9
Geographical Footprint 2015 Revenue
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,000
USA & CAD Rest ofEurope
UK RoW
£000
's
2013 2014 2015
0.0
0.5
1.0
1.5
2.0
2.5
FY11 FY12 FY13 FY14 FY15
£m
FY 2015 Recurring Revenue Progression 10
Total Revenue by Type SaaS Revenue
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
FY11 FY12 FY13 FY14 FY15
£m
Recurring Revenue Licence fees Professional Services
The R&D Lifecycle
• On average it takes 121 years and costs $2.56Bn2 to bring a new drug from patent registration to marketing approval
• Revenue loss the year after drug patent expiry is frequently >50%3
• Each day earlier to market yields >$2m additional patent protected revenue for a >$750m / year revenue drug
1 http://www.ca-biomed.org/pdf/media-kit/fact-sheets/CBRADrugDevelop.pdf 2 http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study
3 http://www.thesmartcube.com/insights/financial-services/item/patent-cliffs-2014-2015
Synthesis, Examination & Screening
Preclinical Testing
Clinical Testing
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 - 30
Indicative Timeline (Years)
Discovery Development Post Marketing
Product Surveillance
Pre-trial Phase I Phase II Phase III Phase IV
Regulatory Review & Approval
Study Management & Data Collection
Data Management & Electronic Submission
Big Data Analysis / Translational Science
ALPHADAS®
Provantis®
Perceptive
submit™
Instem Scientific™
Our Products & Markets
13
Drug Development Pipeline
Early drug development activity displaying consistent/accelerating growth
14
Source: Citeline Pharma R&D Annual Review 2016
7,737
9,605 9,713 10,479 11,307
12,300 13,718
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Mo
lecu
les Total R&D Pipeline Size
1,769 1,965 2,084 2,207
2,387 2,705 2,745
2,984 3,286
3,687
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Co
mp
anie
s Companies With Active R&D Pipelines
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Preclin Phase I Phase II Phase III
Pipeline by Development Phase
2012 2013 2014 2015 2016
Mo
lecu
les
Perceptive Mkt $3-5m1, Instem c.$1.5m
Provantis Mkt c.$40m1, Instem c.$15m
ALPHADAS Mkt c.$20m1, Instem c.$4m
Image analysis and data management solutions for in vitro preclinical market
Growing customer base includes 9 of the top 10 pharma
Over 400 clients in 49 countries
Opportunities
Replace dominant AMES solution from bankrupt competitor in Japan
Cross-selling to Provantis clients
New Cyto Study Manager solutions for existing and new clients
Add SEND related capabilities
Market leader in the in vivo preclinical safety assessment market
Significant recurring revenues from sticky clients
Pre-clinical study volumes increasing
Opportunities
Penetrate clients with complete suite of Provantis modules
Convert clients to SaaS deployments
Increase range of support services
Leverage/extend SEND related capabilities
Data capture & site automation software suite for early phase clinical research
Significant orders in 2015 and strong new business pipeline
Particularly strong presence in Europe
Opportunities
Relatively low levels of site automation but increasing demand
Sell integrated pharma sponsor capabilities linked to existing and new clinical CRO sites
Leverage Instem’s international presence
Reach into niche sectors of the larger later phase clinical market
Study Management & Data Collection 15
1. Management estimates
Big Data Analysis & Translational Science/Services
Instem Scientific Mkt >$20m1 (growth potential), Instem c.$1m
2015 revenue largely recurring product support from existing clients
Aggregate large volumes of structured and unstructured ‘Big Data’ and make it amenable to exploitation
Sophisticated tools & highly efficient services provide comprehensive and rigorous scientific insight
Restructuring in ‘Big Pharma’ has reduced internal capabilities, increasing service opportunity
Opportunities
Growing interest in KnowledgeScan, an informatics-based service for investigating safety concerns in drug development
‘Big Data’ analysis seen as a siginificant opportunity to radically increase the efficiency and effectiveness of pharma R&D
Accelerate product development times and reduce the need for animal (and human) based experimentation
Significant public and private grant funding available
Productised services supporting specific R&D processes, initially in Instem’s dominant preclinical safety assessment market
Scientific engagement with data from our collection and submission solutions
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1. Management estimates
Data Management & Electronic Submission
Submit™
Mkt $5-10m1 (2019 >$100m), Instem c.$2.5m
Submit™ tools enable aggregation, analysis and sharing of data, with a particular focus on the FDA mandated Standard for the Exchange of Non-clinical Data (SEND)
FDA prefers to receive new drug submissions using SEND, this becomes mandatory for all studies starting with those studies run after December 2016 that support the submission of a New Drug Application (NDA)
Submit™ integrates tightly with Provantis but readily connects with competitive/complementary data collection solutions
Instem and submit™ have dominated the SEND market to date
Opportunities
Invest in sales, marketing, service delivery and development staff to maximise chance of continued market dominance
Leverage our depth/breadth in non-clinical data collection to create seamless study workflows from initiation to regulatory submission
Extend submit™ to cover the equivalent clinical Study Data Tabulation Method (SDTM), which is similarly mandated by the FDA – could double the size of the market opportunity
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1. Management estimates
SEND in the Drug Development Lifecycle
NDA2 SEND Studies
Dec 2016 Mandate
IND1 SEND Studies
Dec 2017 Mandate
Synthesis, Examination & Screening
Non-Clinical Testing
Clinical Testing
5,000-10,000 compounds
250 compounds 5 compounds 1 compound
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Indicative Timeline (Years)
Discovery Development Registration
Product Surveillance
Pre-trial Phase I Phase II Phase III Phase IV
Regulatory Review & Approval
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Instem’s SEND Products & Services
Submit™
• Creates SEND datasets from any electronic source
• Uniquely manages SEND dataset workflow from creation through storage, checking and onward to submission
• Protects regulatory status of experimental data
SENDView
• Enables users to see their SEND datasets in a familiar form
• Supports dataset verification
SEND Conversion Service
• Performs SEND creation for customers
• Majority of SEND related market expenditure will be in this area by 2019
SEND Consultancy
• Providing guidance and planning services
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Management estimates of SEND Study Volume & Market Spend 20
Volume of SEND Data sets:
Created internally by larger
pharma & CROs
Outsourced by pharma
Outsourced by CROs
Study types in future SEND
versions (post version 3.0)
Total Market Spend:
SEND creation
SEND technology
$0k
$20,000k
$40,000k
$60,000k
$80,000k
$100,000k
$120,000k
$140,000k
$160,000k
0
2,000
4,000
6,000
8,000
10,000
12,000
2016 2017 2018 2019
SEND Volume Mkt Spend
Successful equity fund raising announced
Oversubscribed fund raising announced 3rd Feb 2016, issue of 2.5m new shares approved at General Meeting 23rd Feb 2016:
• £4.4m additional acquisition funds
• £0.3m additional working capital
• £0.3m fees
Non-executive founders sold 800,000 shares to help satisfy investor demand
Follow on investments from highly supportive existing institutional investors
Several additional, high quality institutional investors added to the share register
Ability to add to the three acquisitions completed since IPO in 2010
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Acquisitions in the Early Development market
Consolidate the highly fragmented pharma
software supplier market, emphasising:
• Niche regulatory Study Management
solutions
• Electronic regulatory data submissions
• Knowledge / Predictive / Modelling
solutions (Translational Informatics)
Supplier consolidation encouraged by
customer base
• Reduce cost of supplier management
• Increase efficiency and effectiveness of
their business processes
Early Development
Safety Assessment
Safety Pharmacology
DMPK / ADME
Electronic data
submission
Translational Informatics
Early
Phase Clinical
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Companies in Overlapping/Adjacent Market Segments (Examples not explicit targets at this time)
Strategic Focus
Organic growth through:
Further market penetration for existing product suites and services
Cross-selling of products across extended client base
Introduction of new solutions through product development
Expanded service offering leveraging our leading technology solutions
Potential bolt-on acquisitions/partnerships to:
Provide access to adjacent markets
Extend product suite through investment and M&A
Arrange exclusive third party product licensing arrangements
Focus will be on:
Client retention
Increasing recurring revenues
Profitable and Cash generative revenue growth
Market share for SEND and ALPHADAS solutions
Margin enhancement through: - Increased SaaS deployment - Blended on-shore / off-shore
resourcing
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Summary & Outlook
Another strong financial performance
Investments made to date should deliver financial rewards in FY16/17
Remain well positioned to benefit from ‘Big Pharma’ restructuring and market growth
Placing to consolidate fragmented industry and accelerate profitable growth
H1 16 has started strongly increasing FY16 visibility further
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2015 Consolidated Statement of Comprehensive Income 26
Continuing Operations
Year ended
31 December 2015
£000
Year ended
31 December 2014
£000
REVENUE 16,321 13,429
Operating expenses (13,553) (11,572)
Share based payment (263) (108)
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND NON-RECURRING COSTS 2,505 1,749
Depreciation (156) (127)
Amortisation of intangibles arising on acquisition (640) (640)
Amortisation of internally generated intangibles (376) (297)
PROFIT BEFORE NON-RECURRING COSTS 1,333 685
Non-recurring costs (1,426) (123)
(LOSS)/PROFIT FROM OPERATIONS (93) 562
Finance income 4 9
Finance costs (272) (359)
(LOSS)/PROFIT BEFORE TAXATION (361) 212
Taxation (67) (62)
(LOSS)/PROFIT FOR THE YEAR (428) 150
OTHER COMPREHENSIVE EXPENSE
Items that will not be reclassified to profit and loss account
Actuarial loss on retirement benefit obligations (339) (621)
Deferred tax on actuarial loss 61 124
(278) (497)
Items that may be reclassified to profit and loss account
Exchange differences on translating foreign operations (24) 34
OTHER COMPREHENSIVE EXPENSE FOR THE YEAR (302) (463)
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR (730) (313)
(LOSS)/PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY (428) 150
TOTAL COMPREHENSIVE EXPENSE ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY (730) (313)
Earnings per share from continuing operations
Basic (3.5p) 1.2p
Diluted (3.5p) 1.2p
2015 Consolidated Statement of Financial Position 27
31 December 2015 31 December 2014
ASSETS £000 £000 £000 £000
NON-CURRENT ASSETS Intangible assets 12,035 12,439 Property, plant and equipment 376 263 Deferred tax assets 663 574 TOTAL NON-CURRENT ASSETS 13,074 13,276
CURRENT ASSETS Inventories 822 506 Trade and other receivables 4,745 4,432 Cash and cash equivalents 2,183 1,676 TOTAL CURRENT ASSETS 7,750 6,614
TOTAL ASSETS 20,824 19,890
LIABILITIES CURRENT LIABILITIES Trade and other payables 1,797 1,364 Deferred income 7,107 6,811
Current tax payable 541 231 Financial liabilities 385 1,903 TOTAL CURRENT LIABILITIES 9,830 10,309
NON-CURRENT LIABILITIES Financial liabilities 448 281 Retirement benefit obligations 3,933 3,881 TOTAL NON-CURRENT LIABILITIES 4,381 4,162
TOTAL LIABILITIES 14,211 14,471
H1 2015 Consolidated Statement of Financial Position 28
31 December 2015 31 December 2014
£000 £000 £000 £000
EQUITY
Share capital 1,304 1,221 Share premium 7,903 7,892 Merger reserve 1,241 (326) Shares to be issued 641 378 Translation reserve 204 228 Retained earnings (4,680) (3,974) TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 6,613 5,419
TOTAL EQUITY AND LIABILITIES 20,824 19,890
2015 Consolidated Statement of Cash Flows From Operating
Activities
29
Year ended
31 December 2015
Year ended
31 December 2014
£000 £000 £000 £000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/Profit before taxation (361) 212
Adjustments for:
Depreciation 156 127
Amortisation of intangibles 1,016 937
Share based payments and shares to be issued 263 108
Retirement benefit obligations (427) (398)
Finance income (4) (9)
Finance costs 272 359
Increase in deferred contingent consideration 1,361 -
2,276 1,336
2015 Consolidated Statement of Cash Flows 30
Year ended
31 December 2015
Year ended
31 December 2014
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN WORKING CAPITAL 2,276 1,336
Movements in working capital: Increase in inventories (313) (196) Increase in trade and other receivables (71) (1,436) Increase in trade and other payables 493 743
109 (889)
CASH GENERATED FROM OPERATIONS 2,385 447 Finance costs (86) (65) Income taxes 205 100
NET CASH GENERATED FROM OPERATING ACTIVITIES 2,504 482
CASH FLOWS FROM INVESTING ACTIVITIES Finance income received 4 9 Purchase of intangible assets (612) (369) Purchase of property, plant and equipment (113) (124) Payment of deferred contingent consideration (950) (302) Repayment of capital from finance leases (8) -
NET CASH USED IN INVESTING ACTIVITIES (1,679) (786)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of share capital 12
Loan notes repaid (303) - Finance lease interest (4)
NET CASH USED IN FINANCING ACTIVITIES (295) - NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 530 (304)
Cash and cash equivalents at start of year 1,676 2,053
Effects of exchange rate changes on the balance of cash held in foreign
currencies
(23) (73)
CASH AND CASH EQUIVALENTS AT END OF YEAR 2,183 1,676
Share Information 31
Share Price (p) 216.5
Market AIM
Ticker INS
Market Cap. (£m) 32.3
Ord. shares in issue 15,550,217
Director Holding %
David Gare 1,418,000 9.1
David Sherwin 1,380,000 8.9
Phil Reason 665,000 4.3
Mike McGoun 37,000 0.2
Major Shareholders Holding %
Henderson 1,951,000 12.5
Liontrust 1,426,000 9.2
Giles Wilson 947,000 6.1
Hargreave Hale 873,000 5.6
Adrian Gare 834,000 5.4
Deborah Walker 834,000 5.4
Alto Invest 824,000 5.3
Close 636,000 4.1
Legal & General 618,000 4.0
Artemis 571,000 3.7
Unicorn 563,000 3.6
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