Diaceutics uses its data analysis and advisory services to make the development of precision medicines and their related diagnostic tests, more efficient and help pharma companies achieve a better return.
The data itself is a highly valuable asset and significant time and investment would be required for a competitor to develop its own version of the technology and collect the data.
This is a good business. The question is how much should be paid for the shares?
On top of the £17m raised by the company, existing shareholders raised £3.75m from share sales. However, they went to a limited number of institutions and liquidity is poor. That is why at one point, the share price rose to 102p before ending the first day of trading at 95.5p.
The placing price already assumes significant growth over the next few years and the additional premium since share trading commenced is more to do with the tight market than anything else. Even demand for a small number of shares could push the price up. Investors should be wary of chasing up the share price in such a tight market.
Diagnostic testing data analysis and provision
Flotation date: 21 March 2019
Issue price: 76p
Amount raised: £17m
Market capitalisation: £52.9m
Nominated adviser / broker: Cenkos Securities
What does it do?
Northern Ireland-based Diaceutics provides data analysis and advisory services that help pharma companies developing diagnostic tests to do this more quickly and maximise profit and revenue potential. The focus is tests that enable clinicians to identify whether or not a specific treatment will be successful if used by a specific individual.
Precision medicines are targeted on particular patient groups and my not be effective with other groups. This may be down to genetics or molecular factors. It is essential that these treatments are given to the correct people and money is not wasted providing them to people who will not benefit.
The headquarters is in Belfast and there are offices in Dundalk, New Jersey and Singapore. There are four separate services modules: Landscape, Planning, Implementation and Tracking.
Landscape: This provides information on what risks and challenges are faced while adopting and setting out the requirements of a diagnostic test. This is currently the largest generator of revenues.
Planning: This provides advice on effective test adoption and development, plus how the test should be marketed to doctors and patients.
Implementation: This identifies and solves issues that come about as the test is launched.
Tracking: This analyses data after a product launch in order to assess how the testing is affecting the commercial performance of a treatment.
The data generated is anonymised so there is no problem with Diaceutics using it. This is a valuable resource, which is growing in scope all the time and it will make the company’s analysis more and more effective.
Twenty out of the 30 largest global pharma companies are clients. The overall market for the company’s services could reach $2.5bn by 2023. At the moment, 70% of the data that Diaceutics has collated relates to oncology, so there is scope to expand the range of treatments covered.
Diaceutics has developed nearly all the software it uses to analyse data it has collected. The current focus of development is SaaS-based product NEXUS. This cloud-based portal should be up and running in 2020 and it will offer enhanced data security.
In the past three years, revenues have grown at a rapid rate and the company has been profitable as well.
Revenues increased from £4.59m in 2016 to £10.4m in 2018, while underlying pre-tax profit improved from £785,000 to £1.08m. Short-term profit growth has been held back by additional investment in the business that will pay off over the longer-term. In 2018, there was more than £1m of capitalised development. Net debt was £1.7m at the end of 2018.
There were £15.2m of placing proceeds net of expenses. The company intends to pay down debt as well as spending £5.5m on the acquisition of data and the development of AI analysis. There will be £3m invested in the new NEXUS SaaS platform. There will also be cash spent on developing international markets. Business predominantly comes from North America and Europe. The potential in Asia has only started to be tapped.
Julie Wallin is non-executive chair and she is vice-chancellor for innovation and strategy at the University of Texas System. She co-founded software company Cantilever Technologies, which was subsequently taken over.
Annual fee: £55,000
Peter Keeling is chief executive and he founded the business in 2005. He previously worked at Glaxo SmithKline and Diagnology.
Annual salary: £235,000
Philip White is finance director and he spent more than a decade in the same role at a company involved in a global export market.
Annual salary: £205,000
Rylan Keeling is chief innovation officer and he joined the company in 2009. His main short-term focus is the development of NEXUS.
Annual salary: £205,000
Independent non-executive director Mike Wort is a former financial PR man focused on the pharma sector.
Annual fee: £30,000
Charles Hindson is the other independent non-executive director and he will chair the audit and remuneration committees. He has been finance director of e2v Technologies, Filtronic and Eutelstat.
Annual fee: £35,000
The directors and their families own 36.3% of Diaceutics after the AIM fundraising. Individual shareholders Elizabeth Considine and Gordon McKeown, which backed the company in earlier times, hold 7.9% and 2.8% respectively. SLP Innovations works with Dieceutics in Scandinavia and it owns 3.5%.
The new investors coming on board at the time of admission are Canaccord Genuity with 9.6%, Gresham House with 8.5%, Berenberg Asset Management with 5.7% and Octopus Investments with 3.5%.
A limited number of shareholders own more than three-quarters of the company with the rest owned by employees and institutions. This means that there is a dearth of shares to trade in the market, which means that limited buying can lead to sharp share price movements.