Novacyt S.A.: Full Year 2020 Results and Update on Growth Strategy
Transformational performance in 2020
Continued strong demand for COVID-19 testing in 2021
Strategy to deliver long-term growth through test, instrument, and geographic expansion in key areas, supplemented by M&A
PARIS & CAMBERLEY, England–(BUSINESS WIRE)–Regulatory News:
Novacyt (EURONEXT GROWTH: ALNOV; AIM: NCYT) (“Novacyt”, the “Company” or the “Group”), an international specialist in clinical diagnostics, announces its audited results for the year ended 31 December 2020 and provides an update on its growth strategy.
Graham Mullis, Group CEO of Novacyt, commented:
“2020 was a year of transformation for Novacyt as we responded to the worldwide spread of COVID-19. Historically, we have built a reputation for the innovation and high performance of our diagnostic technologies, which allowed us to rapidly respond to the pandemic through the development of a reliable COVID-19 PCR testing portfolio. As a result of supporting an urgent global demand for PCR testing, the future of Novacyt has been secured, having repaid all long-term debt, significantly strengthened the balance sheet, and delivered on a number of strategic objectives to support future growth.
“As the COVID-19 testing market has continued to evolve in 2021, we have continued to strengthen our core capabilities and apply our bioinformatics and design expertise to expand our product offering. We therefore expect to see Novacyt continue to play a major role in COVID-19 testing and, specifically, we expect to see strong revenue growth in private testing as markets and international travel re-opens.
“As we look to build on our solid foundations, and develop Novacyt into a major diagnostics player, we have updated our strategy for delivering long-term growth with a refined focus in key areas of test, instrument, and geographic expansion. We will also continue to supplement these growth initiatives through our M&A strategy. The Board believes that Novacyt is well positioned to create sustainable, long-term value.
“I would like to extend my sincere gratitude to all of our employees for their ongoing hard work and dedication, as well as our partners and suppliers for their loyalty throughout 2020 and so far in 2021 as we continue the fight against COVID-19. Finally, I would like to thank our shareholders, long-standing and new, who continue to support Novacyt.”
Financial highlights
- Group consolidated revenue increased by over 20x to £277.2m in 2020 compared with £11.5m in 2019
- Group gross margin continued to improve, increasing to 76.3% in 2020 from 64.0% in 2019
- Group EBITDA increased to £176.1m in 2020 compared with £0.2m in 2019, with EBITDA margin increasing to 64% in 2020 compared with 2% in 2019
- Operating profit of £167.4m in 2020 compared to a loss of £1.6m in 2019
- Profit after tax of £132.4m in 2020 compared to a loss of £5.7m in 2019
- Cash at year-end of £91.8m compared with £1.5m in 2019
- The Group exits 2020 debt free after all debt of £7.1 million was repaid during H1 of 2020
| £’000 | 2020 | 2019 | 2018 | |||
|
| Consol | Consol | Consol | |||
|
|
|
|
| |||
| Revenue | 277,204 | 11,468 | 12,140 | |||
|
|
|
| ||||
| Gross profit | 211,500 | 7,340 | 7,613 | |||
| Gross margin % | 76% | 64% | 63% | |||
|
|
|
|
| |||
| EBITDA | 176,145 | 174 | 512 | |||
|
|
|
|
| |||
| Recurring operating profit / (loss) * | 174,843 | (1,088) | (376) | |||
|
|
|
|
| |||
| Operating profit / (loss) | 167,441 | (1,556) | (1,225) | |||
|
|
|
|
| |||
| Profit / (loss) after tax | 132,423 | (3,419) | (1,869) | |||
|
|
|
|
| |||
| Loss from discontinued operations | – | (2,330) | (2,323) | |||
|
|
|
|
| |||
| Profit / (loss) after tax attributable to the owners | 132,423 | (5,749) | (4,192) |
Operational highlights
- Rapid development and launch of 10 new products to support laboratories and clinicians testing for COVID-19
- Developed one of the first molecular tests for COVID-19, receiving CE Mark accreditation and Emergency Use Authorisation from numerous regulatory authorities around the world
- Launch of a number of additional innovative PCR products, including Exsig®, PROmate®, genesig® COVID-19 HT 2.0 and Winterplex®, to improve workflow efficiency and address testing needs in both central and near-patient settings
- Significant organisational scale-up, including a manufacturing capacity increase of over 100x, an increase in supply chain capacity, and a significant investment in R&D and commercial infrastructure to support growth
- Strategic collaboration with AstraZeneca plc, GSK plc and University of Cambridge to support COVID-19 testing in the UK
- Secured significant contracts with national governments, including the UK DHSC, and global non-government organisations for the supply of COVID-19 products
- Acquisition and successful integration of IT-IS International Ltd in line with strategy, securing key instrumentation IP and expanding core capabilities and product offering
- Development of VersaLab™ for near-patient PCR testing in the emerging private sector testing market
- Expertise in bioinformatics surveillance used to assess ongoing accuracy of COVID-19 tests and monitor new viral sequences of SARS-CoV-2
Post-period highlights
- Continued expansion of COVID-19 portfolio to support evolving customer needs
- Launch of SNPsig®, a new PCR genotyping portfolio (including VariPLEX™) to diagnose variants, initially focused on SARS-CoV-2, to address the rapidly shifting landscape of new virus variants and vaccine escape detection
- Expansion of PathFlow® lateral flow test portfolio with COVID-19 tests
- Inclusion in Public Health England National Microbiology Framework for Diagnostic Goods and Services and NHS England Framework for detecting Variants of Concern
- Launch of VersaLab™ mobile processing laboratories and VersaLab™ Portable to expand near-patient testing opportunities in private sector testing
- Strengthened executive team and commercial operations to support future growth
- Appointment of James McCarthy as Chief Financial Officer
- Anthony Dyer assumed a new role of Chief Corporate Development Officer to focus on business development
- Appointment of Guillermo Raimondo to newly formed role of Chief Commercial Officer to lead global commercial operations
- Recent appointment of Kevin Crittenton as US General Manager and set-up of Novacyt US Inc
Strategy update highlights
Novacyt has continued to build on its strategy for delivering long-term growth, with the following organic and R&D growth opportunities identified
- Test menu expansion: Continue to leverage the Company’s strong bioinformatics and design expertise to develop testsin three areas of focus
- COVID-19 testing – expanding test menu for new variants and innovate to support testing efficiencies and results delivery
- COVID-19 Plus testing – targeting expansion into closely adjacent areas of COVID-19, and biomarker monitoring to predict COVID-19 progression and to diagnose conditions in affected patients
- Post-COVID-19 testing – addressing unmet testing needs, such as pathogens resistant to antimicrobials, sepsis, and transplantation, for central laboratory and near-patient testing
- Instrument expansion: Following the acquisition of IT-IS, Novacyt will expand the placement and use of its q16 and q32 instruments through developing test menus based on the requirements of different near-patient settings. Further expansion of protein based diagnostic technologies, including lateral flow, will also be developed, licensed, or acquired by the Company
- Geographical expansion: High priority geographies (including UK, US, Germany and other European markets) to be targeted with a focus on direct sales, marketing and distribution supported by organic investment and acquisitions
- Commercial infrastructure already established in the UK positions the Company well to support expansion in these diagnostic markets
- Expansion underway in US market, with establishment of Novacyt US Inc and appointment of a US General Manager, with up to 10 additional hires expected in H2 2021
- Novacyt remains focused on M&A to supplement these initiatives
Post balance sheet event / DHSC Dispute
On 9 April 2021, Novacyt announced it was in dispute with the DHSC in relation to its second supply contract and made a further update on 21 May 2021. The dispute primarily relates to Q4 2020 revenue totalling £129.1m in respect of a specific product supplied to the NHS. The Company has taken independent legal advice and a provision has been made in the financial statements with the Board’s estimate at this time in respect of this claim with DHSC.
The Board has formed a judgment that, in accordance with the contractual terms, and if required, it should be possible to replace the product in dispute and a product warranty provision has been made accordingly. The Board’s best estimate of the cost to replace is up to a maximum of £19.8m, the timing of any outflow is dependent on settlement of the dispute. If no settlement is achieved and legal action is required, the timing of any possible outflow will be extended.
It is possible, but not probable, that the DHSC’s claim for a refund under the limited assurance warranty will be successful. The timing of any cash outflow is dependent upon the success of the claim and the terms negotiated for repayment. If the resolution of the claim is materially different from the Board’s determination of replacing the product, the financial statements with regard to revenue and the provision for product warranty could be significantly impacted.
Of the Q4 2020 revenue, invoices amounting to £24.0m in respect of product delivered to the DHSC remain outstanding at the date of signing the financial statements and recovery of this amount is also dependent on the outcome of the dispute. In addition, after the year-end, a further £49.0m of product delivered and invoiced to the DHSC in 2021 remains unpaid and is now also part of the dispute. The unpaid invoices total £73.0m and include VAT.
At this time, the Company is unable to provide further clarification on the dispute or the timing of resolution due to the confidential nature of discussions underway. However, the Company has taken legal advice in relation to the dispute and believes it has strong grounds to assert its contractual rights.
Trading update and outlook for the remainder of 2021
For the five months ended 31 May 2021, the Company had unaudited sales of £88.4m compared to £40.8m for the same period in 2020. This £88.4m includes £40.7m of sales to the DHSC, which are part of the dispute. Excluding the DHSC, the Company saw a run-rate of over £10m in sales per month in Q1 2021, which has declined to approximately £7m per month in April and May as infection rates eased and testing has dropped sharply. This is a repeat of the trend seen in 2020 as countries moved into the summer period and the spread of COVID-19 declined.
Looking forward, the Company expects strong growth in private testing as markets and travel re-open, which could lead to higher infection rates, and an increase in testing to return in Q4 2021, in line with Q4 2020, during the winter period. The Company also expects to see significant new growth from the launch of new products during the second half of 2021, including an expansion of its lateral flow antigen testing portfolio for both professional and home use. If demand picks up in line with expectations, the Company expects to see full year sales of approximately £100m, excluding the sales to the DHSC which are in dispute.
In the first five months of 2021, Novacyt has delivered a gross margin of over 70% and an EBITDA margin of over 40%, excluding the impact of sales to the DHSC, and the Directors are confident the Company can maintain these levels of underlying profitability for the balance of the year if volumes are in-line with its current expectations. This assumes no further sales to the DHSC for the balance of the year and no further provisions or adjustments relating to the current dispute.
By combining a broad technology base with agile and innovative product development and a clinical trial functionality, the Board believes the Company is well positioned to rapidly address new areas of unmet need with market leading products. The R&D outlook for 2021 is strong, with a number of new products in development that will continue to meet the rapidly changing requirements of COVID-19 testing and address the broader non-COVID-19 respiratory, transplant and infectious disease markets. This is underpinned by a strengthened cash position and the business will continue to invest in innovation, organic expansion, and external business development, in line with its growth strategy. The Company also continues to evaluate M&A opportunities and will consider additional bolt-on acquisitions to add strategic assets and expand its geographic footprint.
The information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under Article 7 of the Market Abuse Regulation (EU) No. 596/2014 (as amended) as it forms part of the domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018 (as amended). Upon the publication of this Announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.
About Novacyt Group
The Novacyt Group is an international diagnostics business generating an increasing portfolio of in vitro and molecular diagnostic tests. Its core strengths lie in diagnostics product development, commercialisation, contract design and manufacturing. The Company’s lead business units comprise of Primerdesign and Lab21 Products, supplying an extensive range of high-quality assays and reagents worldwide. The Group directly serves microbiology, haematology and serology markets as do its global partners, which include major corporates.
For more information please refer to the website: www.novacyt.com
Chief Executive Officer’s Review
A transformational year
Novacyt experienced unprecedent sales demand for its COVID-19 products during 2020, which transformed our financial position, resulting in the Company significantly exceeding its full year 2020 budget and surpassing any previous performance.
Our response to the coronavirus pandemic across the entire business has been outstanding and this is down to our employees. I am very proud and humbled at how hard everyone has worked and continues to work during a difficult and challenging time. Despite the pandemic causing havoc with our lives and economies, Novacyt remains focused on helping countries around the world diagnose and manage the spread of SARS-CoV-2 and its variants that naturally follow.
The Group achieved an increase in revenues of over 20x to £277.2m with a gross margin of 76.3% and EBITDA profitability of £176.1m for the full year of 2020. In June 2020, the Company was able to settle all outstanding debt obligations of £7.1m in total with Harbert European Growth Capital (“HEGC”) and Vatel Capital SAS (“Vatel”), making the Company debt free for the first time. The Company’s cash position at 31 December 2020 was £91.8m.
In February 2020, the Company produced one of the world’s first CE-Mark COVID-19 tests for the 2019 strain of the novel coronavirus, with approval received from both the US Food and Drug Administration (FDA) and the World Health Organization (WHO) for the test to be eligible for procurement under the Emergency Use Listing (EUL). The EUL is a risk-based procedure for assessing and listing unlicensed vaccines, therapeutics and in vitro diagnostics with the aim of expediting the availability of these products to people affected by a public health emergency. This product has now received regulatory approval from 53 countries.
As part of the UK government’s five pillar plan to increase testing for COVID-19, Novacyt collaborated with AstraZeneca, GSK and the University of Cambridge to take action to support the national effort. Novacyt ensured an effective workflow process for COVID-19 within a new testing laboratory set up by these partners at the university’s Anne McLaren laboratory in addition to providing its COVID-19 test to generate results data.
Towards the end of April 2020, Novacyt secured a supply contract with the UK Department of Health and Social Care (DHSC) to supply its COVID-19 test to central testing laboratories. This partnership reinforced Novacyt’s existing support of the UK government’s five pillar plan to increase testing for COVID-19. This was then followed by a second contract award by the DHSC in September 2020 for the Company’s near-patient system of instruments and tests.
Significant operational scale-up
The Company’s biggest challenge during 2020 was, and remains, to develop the organisation and systems required to support scale-up of the business at an unprecedented rate. Whilst retaining our core competitive advantages, such as speed to market and the quality of our products, our headcount has increased by more than 200 in the last 18 months.
Our manufacturing function has experienced the largest scale-up over the past 12 months. We remain focused on our manufacturing activities, as the complexity of this function increases, to continue to deliver substantial margins through low cost of goods, as well as adapting to multiple new products being introduced to meet continuously shifting market requirements. This requires the manufacturing function to be designed with flexibility as it accommodates an increasing complexity of PCR tests.
The Company has a number of non-financial key metrics the management team use to monitor, control and make decisions, balancing demand, supply, stock levels, customer service and capacity decisions, which are reviewed weekly. Multiple quality control key performance indicators are also reviewed weekly and we have established a cross-functional Material Review Board (MRB), which is responsible for manufacturing and product quality.
Acquisition in line with strategy
Novacyt remains focused on executing against its ambitious organic growth and innovation strategy, as well as its M&A strategy to supplement growth initiatives, which includes engaging with potential acquisition targets.
In October 2020, the Company acquired IT-IS International Limited, a profitable diagnostic instrument development and manufacturing company, for a net cash consideration of £8.7m. IT-IS is the exclusive manufacturer of Novacyt’s q16 and q32 rapid PCR instruments. The transaction reinforced our strategy, securing key IP, expanding our core capabilities in instrument manufacturing and strengthening our product offering in mobile PCR devices with an immediate increase in earnings.
IT-IS is an important addition to the business’s capability, acquiring a deep knowledge of and expertise in PCR instrumentation to support continued innovation, and we now have a guaranteed supply of q16 and q32 instruments which can easily be scaled depending on demand.
Innovative R&D and investment in IP
2020 was a year of agile and innovative product development. One of the Company’s key strengths is to innovatively address market needs with our products. We were quick to respond to COVID-19 in January 2020 and we maintained this pace throughout the year, launching new assays and workflow solutions to build a comprehensive COVID-19 product portfolio. This pipeline pace continues in 2021.
The continued development and expansion of our COVID-19 portfolio is a testament to our ability to match the rapid evolution of SARS-CoV-2 with real-time bioinformatics surveillance and accelerated product development. This is demonstrated post-period end by the rapid development and launch of our PCR genotyping portfolio, known as SNPsig®, to detect variants, initially focused on SARS-CoV-2 variants.
To date, Novacyt has launched over 28 new COVID-19 related products since the beginning of 2020 and has moved from one to three major molecular diagnostic product platforms. All three product platforms, detailed below, have proven to be successful and open different potential markets.
- genesig™ PCR tests for small to medium central laboratories
- PROmate® PCR tests for near-patient testing
- High throughput genesig™ PCR tests for large laboratories
Our broad technology base covers both protein and molecular platforms and a range of testing settings: near-patient, hospital laboratory and high-throughput (HT) laboratories. Therefore, we can develop a range of PCR, ELISA and lateral flow antibody and antigen tests for near-patient, central laboratory, HT settings that can run on many open laboratory systems as well as our own q16/32 rapid-PCR systems. Our internal R&D is complemented by an expert business development function, which has developed a global network of innovative partners and has successfully in-licensed antibody, antigen and work-flow solutions to expand our product offering. These three main molecular platforms complement our PathFlow® LFT protein-based platform.
Across the COVID-19 market, testing requirements are increasing in complexity. There is a regulatory requirement for multigene assays (two and three gene assays) to exclude the (S and N) genes that are most prone to mutations and for suppliers to provide detailed bioinformatic surveillance. We are well positioned with an expert bioinformatics team and will continue to invest in this area as we develop our plans for our focus in product expansion post COVID-19.
During the period, the Group developed a new patent strategy to protect our novel content, with the filing of patents now being a routine part of the Company’s product development process, and forming a key part of protecting future value within the business. We have filed over 20 patents since the beginning of 2020 to protect our proprietary assays, the q16/32 PCR systems and workflow innovations. This culture and practice of developing novel and cutting-edge diagnostic technology underpins the Company’s continued growth and agility. As such, the R&D team has more than doubled in size and now includes the bioinformatics team and a clinical trial function.
This clinical trial expertise is a key requirement of the new IVD-R regulation being introduced in May 2022. The team consists of more than 40 qualified people dedicated to designing, running and reporting on clinical trials in the UK, Europe, US and Latin America. During the year, this team completed over a dozen product validations. To date, Novacyt has run six clinical trials in support of its product development and is able to assess new products (internal and external) rapidly and thoroughly through this operation. This, coupled to our bioinformatics and surveillance functionality, will enable the Group to remain at the forefront of new diagnostic innovation as part of our growth plans.
Expansion of private sector testing
As COVID-19 has evolved around the world, so have the testing mechanisms used to detect the virus. At the outset of the pandemic, governments looked to use centralised testing facilities based in laboratories to map the spread of COVID-19 as nations around the world went into lockdown. As the pandemic progressed, governments looked to augment their testing capabilities, with decentralised, near-patient services added to ensure hospitals and other non-laboratory settings were able to maintain testing at the height of COVID-19 infections.
As the pandemic has continued to evolve, and countries have started to ease lockdown restrictions around the world, the private sector has offered a growing market for testing. As a result, in November 2020, Novacyt launched VersaLab™ to support private sector testing of infectious diseases, initially focused on COVID-19.
VersaLab™ combines the expert technical and commercial know-how of Novacyt’s network with its COVID-19 product portfolio and market intelligence to offer private companies bespoke testing solutions.
Contacts
Novacyt SA
Graham Mullis, Chief Executive Officer
James McCarthy, Chief Financial Officer
+44 (0)1276 600081
SP Angel Corporate Finance LLP (Nominated Adviser and Broker)
Matthew Johnson / Charlie Bouverat (Corporate Finance)
Vadim Alexandre / Rob Rees (Corporate Broking)
+44 (0)20 3470 0470
Numis Securities Limited (Joint Broker)
Freddie Barnfield / James Black
+44 (0)20 7260 1000
Allegra Finance (French Listing Sponsor)
Rémi Durgetto / Yannick Petit
+33 (1) 42 22 10 10
[email protected]; [email protected]
FTI Consulting (International)
Victoria Foster Mitchell / Alex Shaw
+44 (0)20 3727 1000
[email protected] / [email protected]
FTI Consulting (France)
Arnaud de Cheffontaines
+33 (0)147 03 69 48
[email protected]
