Instem (LON: INS), which provides software and services for drug developers, has boosted its In Silico modelling and simulation operations by acquiring the rights to the ToxHub data sharing platform from eTRANSAFE.
The services help to narrow down the number of potential drug candidates and predict safety, tolerance and other aspects of the potential treatment. The combined service will be rebranded as Centrus.
Thirteen large pharma companies got together and over six years invested €41m to develop the ToxHub platform, where they share research information. This platform speeds up the development of medicines through using artificial intelligence and natural language processing. Around 10,000 non-clinical studies are included on the platform.
Bayer is the first of the companies to take a licence. Others are likely to sign up with discounts provided depending on the level of data provided by the licensee. This will boost group recurring revenues.
There is a serviceable addressable market of £150m. There will be £2.5m of start-up costs in the first year, but there will be limited revenues until 2025.
The fact that these global pharma companies thought that AIM-quoted Instem was a suitable company to take on the platform shows it standing in the sector. It would cost a lot more money for Instem to develop this platform from scratch.
In 2022, revenues improved from £46m to £58.9m, while underlying pre-tax profit jumped from £5.9m to £8.2m. Net cash was maintained at £12.7m. There is an HSBC facility of up to £20m.
A 2023 pre-tax profit of £8.8m is forecast, which reflects good profit growth in most of the existing businesses considering the additional £2.5m of costs. There will also be a higher tax charge that will mean lower earnings. An improvement in pre-tax profit to £11.1m is expected in 2024.
The share price fell 40p to 620p. The shares are trading on 22 times prospective 2023 earnings even after the downgrade. There is potential for further acquisitions.
