20th Mar 2012 07:00
20 March 2012 Source BioScience plc ("Source BioScience" or "the Group") Preliminary results for the year ended 31 December 2011 Underlying business profitable and cash generative with good future growth expected across bothdivisions
The Board of Source BioScience plc , the international diagnostic and genetic analysis business announces its unaudited preliminary results for the year ended 31 December 2011.
Financial highlights
* Revenue increased by 13% to £15.2 million (2010: £13.5 million) * Adjusted operating profit* of £0.5 million (2010: £0.2 million) * Adjusted EBITDA* increased by 48% to £1.9 million (2010: £1.3 million) * Adjusted profit after tax* of £0.6 million (2010: £0.3 million) * Loss after tax of £2.8 million (2010: profit £0.1 million) * Cash generated from operating activities of £0.6 million (2010: £0.9 million) * Cash balance at 31 December 2011 of £1.1 million (2010: £4.2 million) * Purchase of the freehold land and buildings of the Head Office premises in Nottingham, eliminating the 17 year lease obligation and increasing EBITDA by £0.5 million per annum from 2012 * Integration and associated restructuring of the imaGenes business was completed as planned; expected to deliver annualised cost savings in the region of £0.7 million
*Results are stated after eliminating non-recurring restructuring costs of £0.6 million associated with the planned integration of the acquired imaGenes business and the impact of a charge of £2.8 million to reflect the fair value of the Head Office premises purchased during the year, as previously announced.
Operational highlights
* Major developments in LifeSciences business driving growth: * Overnight Service for DNA sequencing launched in the UK and Germany, providing the fastest available turnaround times to the life sciences research community * The world's largest integrated clone and antibody library is now available via GenomeCube, our proprietary search engine and bioinformatics tool; positive feedback from customers and demand growing * In the Healthcare business, contracts worth over £0.5 million per annum already signed with NHS Trusts following approval of the FocalPoint automated imaging platform for cervical cancer screening; further interest from other NHS Trusts expected
Post-period event
* Access to FocalPoint is the determining factor in winning the University Hospital of North Staffordshire NHS Trust's liquid based cytology contract; this is the first Trust to switch liquid based cytology technology and is worth £0.3 million per annum
Laurie Turnbull, Chairman of Source BioScience, said: "2011 was another year of improvements to the business and strategic progression for Source BioScience. Revenue and operating profit, before the impact of non-recurring items, have increased again and the Group is in a strong financial position.
"Key achievements have been the launch of the Overnight Service and GenomeCube which give us a dominant position as a world class provider of sequencing services and genomic products. In addition, our Healthcare division has the potential for significant growth with the approval of BD FocalPointâ„¢ in the cervical cancer screening programme.
"Significant opportunities are apparent across all areas of the Group in line with the increasing demands of the healthcare and life sciences markets for faster, more efficient and more accurate molecular diagnostics and gene sequencing services."
- Ends -
For further information, please contact:
Source BioScience plcNick AshChief Executive OfficerTel: +44 (0)115 973 9010www.sourcebioscience.com
For investor and media enquiries:
N+1 Brewin (Financial Advisor, Sponsor and Broker)Aubrey Powell/Luke BoyceTel: +44 (0)203 201 3710www.nplus1brewin.comCollege Hill (PR Agency to Source BioScience)Melanie Toyne-Sewell/Jayne CrookTel: +44 (0)207 457 2020Mob: +44( 0)7890 022814 / +44 (0)7979 462044Email: [email protected]
Cautionary statement
This Business Review contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Source BioScience plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Nothing in this Business Review should be construed as a profit forecast.
Chairman's StatementIntroductionOver the past five years, the Board has focused on improving the Group'sfinancial performance and delivering on specific objectives articulated toshareholders; primarily to create a robust business and financial platform todeliver enhanced shareholder value. We are again pleased to report that, beforenon-recurring items, Source BioScience has become increasingly profitableduring the year, in line with the Board's expectations, and we are building avibrant and sustainable business for the long term with attractive growthprospects.Summary results 2011 2010 % change £'000 £'000 Revenue 15,192 13,487 +13% Gross profit 6,751 5,821 +16% (Loss)/profit after tax (2,795) 93 - Adjusted operating profit* 461 170 +171% Adjusted profit after tax* 610 267 +128% Adjusted EBITDA* 1,860 1,256 +48%
*Results are stated after eliminating non-recurring restructuring costs of £0.6 million associated with the planned integration of the acquired imaGenes business and the impact of a charge of £2.8 million to reflect the fair value of the Head Office premises purchased during the year, as previously announced.
Divisional performance
The Group's operating divisions, LifeSciences and Healthcare, performed well during 2011 and both divisions returned increased revenue and operating profits.
LifeSciences
LifeSciences delivered growth in revenues of 18% to £7.8 million (2010: £6.6 million) with operating profit up to £1.1 million (2010: £1.0 million). The LifeSciences division continues to grow at a faster rate than our more mature Healthcare activities and now contributes just over 50% of Group revenue. We expect this rapid growth to continue as the market increases its demand for high quality, high speed gene sequencing.
A number of key initiatives were launched during the year to drive the growth of the business. The first of these was our Overnight Service for DNA sequencing. From our international network of laboratories we can now provide customers access to their DNA sequencing results by 9am the next day, including Saturdays. This enhanced service was launched in June and delivered a 30% increase in demand for our sequencing services in the second half of 2011, compared with the first.
In June we also launched GenomeCube which represented Phase II of the improvement programme to our LifeSciences e-commerce solution. GenomeCube is our proprietary search engine, database and bioinformatics tool enabling researchers access to the world's largest clone and antibody portfolio.
During the year, we restructured and consolidated our commercial activities, under the leadership of the Group's new Sales Director, Dr Khosrow Shami. Dr Shami has over 20 years sales experience and for the last twelve years has worked for a number of Europe's major life science companies whose activities included genomic products and sequencing.
Healthcare
In 2011 we achieved Healthcare revenue of £7.4 million (2010: £6.9 million), an increase of 8% and divisional operating profit increased by 13% to £2.3 million (2010: £2.0 million).
The robust performance of the Healthcare division continues to be underpinned by our Cytology business which provides the systems vital to the preparation and analysis of cervical smear samples in support of the NHS Cervical Cancer Screening Programme.
2011 was a significant year for our Cytology business with the NHS finally approving the BD FocalPoint system, our automated imaging platform for cervical cancer screening. Following approval in early December, we have already signed multi-year agreements with three NHS Trusts worth in excess of £0.5 million per annum, with a number of other Trusts expressing interest in adopting the technology.
Longer term, we believe the growth in this division will be driven by demand for our Diagnostics activities, in particular molecular (genetic) and companion diagnostic testing services. There is an increasing trend in the healthcare sector, including the NHS, to outsource its diagnostic testing. Further, with the sophistication of modern targeted medicines, there is an increased demand for patient stratification and companion diagnostics to match patients with the most effective treatment. With our expertise in both these areas, we believe Source BioScience is well placed to exploit such opportunities.
Staff
Our staff are fundamental to the success of our business. We have made a number of significant changes to the Group's operational and commercial structure and it is a great credit to the team that the changes have been so positively and enthusiastically embraced. 2011 was another year of significant improvement in the performance of the business and I would like to thank everyone for their hard work and dedication. We look forward to sharing continuing success together.
Purchase of Head Office premises
The acquisition of the Head Office premises in December was an important element in positioning the business for further growth and expansion. Under the terms of the lease agreement, the Group was committed for a further 17 years with no provision to terminate and the scheduled rent reviews were upwards only. This was not an appropriate arrangement for the Group and was not aligned with the ongoing investment in the business and its infrastructure. Acquiring the property has given rise to a charge of £2.8 million, to reflect the fair value of the Head Office premises, but will result in significant savings, improving EBITDA by £0.5 million, which will benefit the Group from 2012.
Strategy and outlook
The focus of the Group remains on the provision of leading-edge diagnostic and sequencing services and products to life science research and healthcare communities. The commercial and operational structure of the Group has been configured to reflect this. The commonality of our technology platforms and expertise is key to driving the organic growth of the business and enables significant operational gearing without introducing financial or operational inefficiencies from duplication of platforms and processes. This presents a "joined up" business built on common technology platforms, laboratory processes and intellectual capital.
We believe we have a very strong business model and opportunities for growth are apparent across both LifeSciences and Healthcare. The Board's strategy is to enhance further the service and product offering across LifeSciences and Healthcare, enabling greater market penetration and delivering increasing returns for shareholders. We aim to achieve this through both organic expansion from our existing operations and carefully selected acquisitions when the opportunities arise.
Laurie TurnbullChairman20 March 2012Business ReviewOverview
Source BioScience plc is an international diagnostic and genetic analysis company serving the healthcare and life science research markets. The commercial activities of the Group are organised into two divisions, LifeSciences and Healthcare. The business activities and performance during 2011, and expectations for 2012, are described below.
LifeSciences
In LifeSciences, we sell ultra-fast DNA sequencing and related services and products to academic research groups, biotechnology and pharmaceutical companies. These services and products are delivered via our international network of laboratories and distributors and we also provide on-line access to the largest portfolio of cloned DNA, RNA and antibody products sold by any single provider worldwide.
LifeSciences delivered double digit growth in revenues of 18% to £7.8 million (2010: £6.6 million) with operating profit up to £1.1 million (2010: £1.0 million).
DNA sequencing
During 2011 we launched the Source BioScience Overnight Service for DNA sequencing from our network of five laboratories in the UK, Ireland and Germany. Using this Overnight Service, powered by our proprietary SpeedREAD automated data delivery platform, customers can receive DNA sequencing results by 9am the next day, including Saturdays. Following the launch in June, demand for our sequencing service increased by more than 30% in the second half of 2011, compared with the first half, and this growth has been sustained into 2012.
In addition to conventional electrophoresis DNA sequencing delivered from our network of laboratories, we also offer what is widely known as "next generation sequencing". Our next generation DNA sequencing service is based on the Illumina HiSeq 2000 high throughput platform, which is the market leader. We were the first UK provider with an Illumina HiSeq 2000 and during 2011 we installed and commissioned our second HiSeq 2000 platform, doubling our high throughput sequencing capacity.
The global market for outsourced next generation sequencing has grown exponentially since these new technologies have been available. Although we only launched our next generation sequencing service three years ago, revenue in 2011 exceeded £1.5 million and we are expecting this to increase further, led by the rapidly expanding market demand for this technology.
Products and GenomeCube
The launch of the LifeSciences website and e-commerce platform during 2010 was the critical Phase I step in enabling us to maximise the benefits of the enlarged product portfolio that the acquisition of imaGenes delivered. The new website provided enhanced functionality and brought the Group's entire portfolio of services and products together on a single site.
In June 2011 we launched GenomeCube which represented Phase II of the improvement programme to our LifeSciences e-commerce solution. GenomeCube is our proprietary search engine, database and bioinformatics tool enabling researchers access to the world's largest clone and antibody portfolio which extends to over 20 million individual products. Following the launch of GenomeCube activity across our e-commerce platform has increased significantly; the number of visits to the website is up over 80% and the number of on-line orders placed has increased by more than 50%.
Phase III of the project is currently underway which will further enhance the functionality of GenomeCube®, enabling the platform to be rolled out across our distributor network. This will accelerate the globalisation of our products business and allow our international distributors, and customers, access to the majority of our product portfolio utilising the power of GenomeCube.
Logistical constraints restrict the cost-effectiveness of distributing our products from the UK, potentially limiting our penetration of the life sciences research market outside of Europe. High quality commercial partners have been identified in Asia and the Far East who will maintain a subset of our product portfolio locally and distribute products regionally, with customers using a local language GenomeCube module to identify, research and purchase products.
imaGenes integration
The integration of the imaGenes business was completed during the year. The restructuring costs associated with the planned integration were £0.6 million, as anticipated. A number of major operational and commercial initiatives were delivered during 2011 as a result of the acquisition, including the harmonisation of the Group's combined clone and antibody product portfolio onto a single site in the UK and the launch of our Overnight Service for DNA sequencing out of Berlin.
Our German facility, in Berlin, has established a local presence in the German life sciences market and extends the Group's geographical reach into Europe. This represents the first step in our strategy to roll out the Source BioScience services and products to these new markets.
PharmaBiotech
As we have referred to previously, we have restructured elements of our commercial and operational infrastructure. As part of that restructuring, we have consolidated our PharmaBiotech commercial activities into our LifeSciences division. The aim of the consolidation is to identify and exploit opportunities to cross sell our expertise in genomics into our existing key pharma and biotech accounts where we already possess a strong relationship based on our clinical trials support and diagnostics services.
Interest in our "one stop shop" enhanced pathology to genomics offering is increasing from a broad range of pharma and biotech customers. We also expect to benefit from the significant changes in the pharma industry as it undergoes restructuring programmes requiring outsource partners and more cost effective and efficient ways to develop new drugs.
This new approach is already producing results and we have a pipeline of contracts for clinical trial support and genomic services worth in excess of £ 2.0 million between 2012 and 2015. However, as with any clinical trial support contract, the value to the Group depends on successful recruitment of patients onto a trial and, to some extent, the efficacy of the therapy being trialled, both of which are outside our control.
Healthcare
The Healthcare division comprises our Cytology and Diagnostics activities including cervical cancer screening and diagnostic testing services for diseases such as cancer. The principal customer for our Healthcare services and products during 2011 was the UK NHS.
In 2011 we achieved revenues of £7.4 million (2010: £6.9 million), an increase on last year of 8%. Divisional operating profit increased by 13% to £2.3 million (2010: £2.0 million).
Cytology
Our Cytology (cell analysis) operation distributes and supports the BD SurePath liquid based cytology (`LBC') system and BD FocalPoint automated cytology imaging platform in the UK. These systems are vital in the preparation and analysis of cervical smear samples as part of the NHS Cervical Cancer Screening Programme.
Our Cytology business holds a dominant position in the UK cervical cancer screening sector. The BD SurePath system is one of only two systems approved by the National Institute for Health and Clinical Excellence (`NICE') and we have secured approximately 50% of the LBC market in England and Wales. During 2011 our Cytology operations delivered approximately 1.8 million tests to GP surgeries, clinics and NHS laboratories across England and Wales.
Cytology continues to be a real success story for Source BioScience. Revenue in 2011 was £5.5 million, an increase of 10% (2010: £5.0 million) and during the year we renewed a number of our LBC supply agreements, for periods of up to seven years.
As highlighted previously, cervical cancer screening lends itself to automation. With around 3.8 million cytology slides screened manually every year in the UK, automation is an obvious next step to improve turnaround times and reduce costs. An important milestone was achieved during the year with the decision by the NHS Cervical Cancer Screening Programme to approve the use of our BD FocalPoint automated imaging technology for cervical screening in the UK. This is the only automated cervical screening technology which has been approved and is the only one of its kind available. The technology can analyse and identify up to 25% of screening samples that require no primary manual examination, representing a significant reduction in laboratory workload and improved turnaround times for reporting.
Following approval of this automated technology in early December, we have already signed multi-year agreements with three NHS Trusts worth over £0.5 million per annum, with a number of other Trusts expressing interest in adopting the technology. Subsequent to the year end, University Hospital of North Staffordshire NHS Trust has awarded Source BioScience its LBC contract worth £0.3 million per annum. This represents the first time that any NHS Trust has switched LBC technology provider and access to FocalPoint was a key driver in the decision.
Diagnostics
Our Diagnostics operations provide expert histopathology (tissue analysis), molecular diagnostics (genetic analysis) and companion diagnostic testing services to public and private healthcare providers. These services are considered an essential element of clinical services, making a contribution to the effective detection, diagnosis, treatment and management of disease, especially chronic diseases such as cancer.
Companion diagnostic testing provides information about how a patient might respond to a particular drug therapy. An increasing number of these companion diagnostic tests have a genetic component and Source BioScience is uniquely placed to provide a full spectrum of diagnostic testing. During the year we experienced growing demand for our diagnostic services, especially the K-RAS gene test for colorectal cancer treatment; demand in the second half of 2011 was nearly double that in the first half and overall up 50% compared with 2010.
There are a number of other therapies approved by regulatory authorities that require a gene-based companion diagnostic test and Source BioScience is extremely well-placed to capitalise on this requirement.
Financial Review
Financial performance
Group revenue increased by 13% to £15.2 million (2010: £13.5 million). Owing to the operational gearing inherent in a laboratory services business, coupled with close management of the cost base, gross margins have remained consistent at 44% (2010: 43%). In the current economic environment with constant pressure on prices and rising input costs, this represents a very robust performance.
The level of normal administrative expenses increased in line with revenue to £ 4.5 million (2010: £4.0 million); the key area of increase being the additional premises and staff costs associated with imaGenes. A significant element of these additional costs have been rationalised during the integration of imaGenes and the ongoing normal administrative expenses are largely fixed and appropriate to the scale of the business.
Operating loss for the year was £2.9 million (2010: profit of £11,000). After adjusting for the non-recurring restructuring costs arising from the planned integration of imaGenes, in addition to the charge of £2.8 million to reflect the fair value of the Head Office premises acquired during the year, operating profit was £461,000 (2010: £170,000).
After net finance expense, loss before tax was £3.0 million (2010: profit of £ 0.1 million). After adjusting for the non-recurring restructuring costs and one-off expense associated with the property valuation, this was in line with expectations.
Included in the Consolidated Statement of Comprehensive Income are non-cash items, including depreciation, amortisation and property charge totalling £4.2 million (2010: £1.1 million). After accounting for these non-cash items, net finance expense, taxation and adjusting for the restructuring costs, adjusted EBITDA were £1.9 million (2010: £1.3 million), an increase of 48%.
Purchase of Head Office premises
In December, the Group announced the purchase of the freehold land and buildings of its current business and Head Office premises in Nottingham, UK. Prior to the purchase, the Group occupied the premises under a 25 year lease that had a remaining term of 17 years. Over the remaining term there was no provision to terminate the lease and the scheduled rent reviews were upwards only. The Directors recognised that this was not an appropriate arrangement for the Group and was not aligned with the ongoing investment in the business and its infrastructure.
The purchase price of £5.2 million, including stamp duty land tax and fees, comprised the market value of the freehold land and buildings in conjunction with the attached lease with 17 years remaining. In the Consolidated Statement of Financial Position, the premises have been recognised at their open market valuation of £2.4 million, without ascribing value to the lease. The element of the purchase price attributable to the remaining term of the lease has been recognised as a one-off cost of £2.8 million in the Consolidated Statement of Comprehensive Income, as noted in the announcement on 28 December 2011.
The Group secured a £3.0 million term loan facility provided by Royal Bank of Scotland, the Group's bankers. This loan is repayable 50% in instalments over three years with the balance on the fourth anniversary of the draw down. The purchase of the premises was part funded using this loan facility with the balance satisfied out of existing cash resources available to the Group. There will be an incremental finance expense of £0.1 million per annum for the next four years, being the interest on the loan.
As a direct result of the purchase, operating profit and EBITDA will be increased by £0.5 million per annum from 1 January 2012 onwards.
Restructuring costs
The integration of the acquired imaGenes business was completed as planned during the year. This entailed significant commercial and operational changes to the acquired business, in addition to infrastructure modifications in the UK to support the enlarged group, which in combination will transform the efficiency of the Berlin-based operations. The one-off costs associated with the integration amounted to £0.6 million which will generate annualised cost savings in the region of £0.7 million.
Financial position
At 31 December 2011 the Group net assets were £12.6 million (2010: £15.4 million).
Non-current assets increased by a net £1.9 million to £14.1 million at 31 December 2011 (2010: £12.2 million). The significant elements of this increase are the £2.4 million valuation of the Head Office premises acquired in the year; the £0.4 million invested in our second HiSeq and £0.3 million invested in our GenomeCube platform.
Net current assets reduced by £2.6 million to £1.2 million (2010: £3.8 million). The main driver of this change was the net expenditure (after financing) of £2.9 million on the Head Office premises and other non-current assets described above.
The Group has historically been funded primarily through equity although debt has been raised as and when appropriate for the needs of the business. At 31 December 2011 the Group had aggregate debt of £3.3 million (2010: £0.4 million). This debt represents the term loan funding of £3.0 million secured during the year in addition to finance lease liabilities of £0.3 million.
Cash flows and liquidity
After investment in the Head Office premises and other capital expenditure, net cash outflow was £3.1 million (2010: £2.8 million outflow). The Group was able to secure a £3.0 million term loan facility during the year which was used, in part, to fund the £5.2 million purchase of the Head Office premises. The loan is repayable 50% in instalments over three years with the balance on the fourth anniversary of the draw down.
In aggregate we invested £1.8 million in our laboratory infrastructure including £0.9 million for next generation sequencing technology and £0.5 million on the laboratory information management systems and GenomeCube.
The Group's cash balance was £1.1 million as at 31 December 2011 (2010: £4.2 million) and borrowings were £3.3 million (2010: £0.4 million) largely representing funding for the Head Office premises purchase.
Outlook
We are seeing growth across both divisions which is in line with the strategic plan implemented for the Group.
LifeSciences
We have forged a leading position in Europe for the provision of DNA sequencing services and genomic products. With our international network of facilities, we are ideally placed to meet the growing demand for ultra-fast sequencing analysis. Our share of the UK market for DNA sequencing has been boosted by the introduction of our Overnight Service and by the end of 2012 we aim to be the largest outsourced provider of DNA sequencing in the UK, a market worth an estimated £10 million per annum.
In addition, we have doubled capacity on the high throughput Illumina HiSeq 2000 platform during the year and in combination with our conventional sequencing service, it is our short term aim to become Europe's leading sequencing provider.
The launch of GenomeCube represented Phase II in the development of the commercial and operational infrastructure to drive sales of the product portfolio. The global market for clones and antibodies exceeds $1 billion and during 2012 Phase III of the GenomeCube development will enable the Group to establish a network of distributors across Asia, representing an international expansion opportunity that has previously been limited.
Healthcare
The approval by the NHS of the BD FocalPoint, our automated imaging system for cervical cancer screening, was an important trigger to further growth of our Cytology business. Demand is apparent from NHS Trusts across the UK looking to reduce laboratory costs and improve turnaround times for cervical screening.
In Diagnostics we are planning to take advantage of the increasing, but currently sub-optimal, demand by the NHS for outsourced services. With the UK government planning to reduce healthcare spending by £20 billion, the NHS is entering a period of considerable change and we believe this presents significant opportunities for our outsourcing model.
The global market for cancer diagnostics is estimated to be in excess of £4.0 billion and the market for molecular diagnostics is estimated at £1.5 billion and growing at 10% per annum. Our unique expertise in both these fields means that we are well placed to capitalise on the increasing demand for genetic testing and companion diagnostic testing for cancer and other diseases.
Patient stratification will become increasingly relevant and this will entail the use of genomic signatures for diagnostic and predictive purposes. The ability to provide many of the new and anticipated genetic tests is outside of the capability of all but a few NHS laboratories and is unlikely to be resourced in the near term. We see this as a significant opportunity to provide a broader diagnostic service to a wider customer base including infectious, cardiovascular and metabolic disease, in addition to oncology.
Conclusion
The Group's strategy is to grow its LifeSciences and Healthcare businesses both organically through its existing operations combined with appropriate investment, and by way of selected acquisitions to broaden the Group's portfolio of products and services, including expansion of our core expertise into complementary areas.
The Board remains confident that the opportunities for growth remain strong and we expect the markets for our services and products to improve. As described above, we are exploring new markets and will continue to exploit the cross-selling opportunities we now have from our broad customer base, enhanced portfolio and extended geographical reach. In order to match the demand for our services and products, we continue to equip the Group with the breadth and depth of service offering, technology platforms, expertise and products to deliver controlled growth and value to shareholders.
Dr Nick AshChief Executive Officer20 March 2012
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2011
Year ended Year ended 31 December 31 December 2011 2010 Continuing operations Note £'000 £'000 Revenue 15,192 13,487 Cost of sales (8,441) (7,666) Gross profit 6,751 5,821 Selling and distribution expenses (1,243) (1,231) Research and development (281) (220) Administrative expenses: - normal (4,521) (4,024) - amortisation of intangibles arising from (245) (176)acquisitions - restructuring costs 3 (559) - - property impairment 4 (2,846) - - acquisition costs - (159) Administrative expenses (8,171) (4,359) Operating (loss)/profit from continuing (2,944) 11operations Finance income 20 72 Finance costs (43) (9) (Loss)/profit before tax from continuing (2,967) 74operations Taxation 172 34 (Loss)/profit after tax but before loss (2,795) 108from discontinued operations Discontinued operations Loss from discontinued operations - (15) (Loss)/profit attributable to equity (2,795) 93holders of the Company Other comprehensive income/(expense) Exchange differences on translation of 18 (1)foreign operations Total comprehensive (expense)/income (2,777) 92attributable to equity holders of the Company Earnings per share: Basic (loss)/profit per ordinary share 5 (1.37)p 0.05p Diluted (loss)/profit per ordinary share 5 (1.37)p 0.04p
Consolidated Statement of Changes in Shareholders' Equity
As at 31 December 2011 Attributable to equity holders of the Parent Company Share Merger Special Translation Profit Total capital and reserve reserve and equity other loss reserves reserve £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2010 4,075 2,408 10,788 - (2,072) 15,199 Currency translation - - - (1) - (1)adjustments Profit for the year - - - - 93 93 Total comprehensive (expense)/ - - - (1) 93 92income for the year Transactions with owners, recorded directly in equity Employee share option scheme: - value of services provided - - - - 77 77
Balance at 31 December 2010 4,075 2,408 10,788 (1) (1,902) 15,368
Balance at 1 January 2011 4,075 2,408 10,788 (1) (1,902) 15,368 Currency translation - - - 18 - 18adjustments Loss for the year - - - - (2,795) (2,795) Total comprehensive income/ - - - 18 (2,795) (2,777)(expense) for the year Transactions with owners, recorded directly in equity Employee share option scheme: - value of services provided - - - - 40 40
Balance at 31 December 2011 4,075 2,408 10,788 17 (4,657) 12,631
Consolidated Statement of Financial Position
As at 31 December 2011 As at As at 31 December 31 December 2011 2010 £'000 £'000 Non-current assets Goodwill 8,343 8,345 Other intangible assets 1,128 992 Financial assets 40 - Property, plant and equipment 4,572 2,818 14,083 12,155 Current assets Inventories 709 716 Trade and other receivables 3,163 2,527 Cash and cash equivalents 1,094 4,170 4,966 7,413 Current liabilities Trade and other payables 3,024 3,522 Financial liabilities - borrowings 628 130 Deferred consideration 77 - 3,729 3,652 Net current assets 1,237 3,761 Total assets less current liabilities 15,320 15,916 Non-current liabilities Financial liabilities - borrowings 2,689 302 Deferred consideration - 77 Deferred tax - 169 2,689 548 Net assets 12,631 15,368 Equity Issued share capital 4,075 4,075 Special reserve 10,788 10,788 Other reserves 2,425 2,407 Profit and loss reserve (4,657) (1,902) Total equity 12,631 15,368
Consolidated Statement of Cash Flows
For the year ended 31 December 2011
As at As at 31 December 31 December 2011 2010 £'000 £'000 Cash flows from operating activities (Loss)/profit for the year (2,795) 93 Adjustments for: Depreciation of tangible fixed assets 992 792 Recognition of grant income (13) (13) Amortisation of capitalised development 116 40costs Amortisation of other intangibles 251 177 Impairment of assets held for sale - 223 Impairment of property, plant and equipment 2,846 - Loss/(profit) on sale of property, plant 102 (39)and equipment Profit on sale of discontinued operation - (224) Fair value loss on investments 5 - Finance costs 43 9 Finance income (20) (72) Taxation (172) (34) Share based payments - value of employee 40 77service Decrease/(increase) in inventories 7 (119) (Increase)/decrease in trade and other (668) 502receivables Decrease in creditors (73) (486) Cash generated from operations 661 926 Interest paid (40) (9) Net cash generated from operating 621 917activities Cash flows from investing activities Acquisition of subsidiaries - (2,449) Cash acquired with subsidiaries - (111) Share purchases (45) - Purchases of property, plant and equipment (7,028) (872) Proceeds from sale of property, plant and 939 10equipment Purchases of intangible assets (512) (265) Interest received 52 49 Net cash used in investing activities (6,594) (3,638) Cash flows from financing activities Repayment of borrowings (373) (107) Proceeds from borrowings 2,962 - Proceeds from finance leases 350 - Finance lease principal repayments (54) (4) Net cash generated from/(used in) financing 2,885 (111)activities Net decrease in cash and cash equivalents (3,088) (2,832) Cash and cash equivalents at beginning of 4,170 7,014year Exchange gains/(losses) on cash and cash 12 (12)equivalents Cash and cash equivalents at end of year 1,094 4,170
Notes to the Consolidated Preliminary Financial Statements
For the year ended 31 December 2011
1. Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (`IFRS') adopted for use in the EU (`Adopted IFRS') in accordance with EU law (IAS Regulation EC 1606/2002).
The financial information contained in this announcement of preliminary financial statements does not constitute the Company's statutory financial statements for the years ended 31 December 2011 or 2010. Neither the Directors of the Company, nor our auditor, have as yet approved the statutory financial statements for the financial year ended 31 December 2011. These financial statements are therefore unaudited. The financial information for 2010 is derived from the statutory financial statements for 2010 which have been delivered to the Registrar of Companies. The auditor has reported on the 2010 accounts and that report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory financial statements for 2011 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.
No revisions to Adopted IFRS that became applicable in 2011 have a significant impact on the Group's financial statements.
2. Operating segments
Information about reporting segments
At 31 December 2011, the Group's trading operations were organised into two main operating divisions of LifeSciences and Healthcare.
As previously noted, elements of the commercial and operational infrastructure of the Group have been restructured. As part of that restructuring, the PharmaBiotech commercial activities are now consolidated into the LifeSciences division. PharmaBiotech activity is now reported within LifeSciences; this reflects the basis of internal reporting which the chief operating decision maker reviews in allocating resources to, and assessing performance of, the business segments.
During the year there were immaterial sales between business segments (2010: immaterial), and where these do occur they are at arm's length pricing. Unallocated costs represent corporate expenses and common operating costs. Segment assets include intangible assets including goodwill, plant and equipment, stocks and debtors. Unallocated assets include property, central debtors and prepayments and operating cash. Segment liabilities comprise operating liabilities and exclude borrowings. Segment capital expenditure comprises additions to plant and equipment and capitalised development costs.
Year ended 31 December 2011 LifeSciences Healthcare Unallocated Group £'000 £'000 £'000 £'000 Continuing operations Revenue 7,789 7,403 - 15,192 Segment result 1,101 2,277 (6,322) (2,944) Finance income 20 20 Finance costs (43) (43) Loss before tax (6,345) (2,967) Taxation 172 172 Profit/(loss) for the year 1,101 2,277 (6,173) (2,795) Segment assets 11,864 2,600 - 14,464 Unallocated assets - property, plant and equipment 2,883 2,883 - financial assets 40 40 - debtors and prepayments 568 568 - cash and cash equivalents 1,094 1,094 Total assets 11,864 2,600 4,585 19,049 Segment liabilities 1,550 408 - 1,958 Unallocated liabilities - borrowings 2,962 2,962 - creditors and accruals 1,498 1,498 Total liabilities 1,550 408 4,460 6,418 Other segment items Capital expenditure - tangible assets 841 173 5,318 6,332 - intangible assets 453 59 - 512 Depreciation 578 109 305 992 Amortisation of intangible 312 55 - 367assets Impairment of tangible assets - - 2,846 2,846 Other non-cash expenses - share option scheme - - 40 40Year ended 31 December 2010 LifeSciences Healthcare Unallocated Group £'000 £'000 £'000 £'000 Continuingoperations Revenue 6,621 6,866 - 13,487 Segment result 1,004 2,011 (3,004) 11 Finance income 72 72 Finance costs (9) (9) (Loss)/profit before tax (2,941) 74 Taxation 34 34 Profit/(loss) for the year from 1,004 2,011 (2,907) 108continuing operations Discontinued operations Segment result (15) (15) Loss before tax (15) (15) Loss for the year from (15) (15)discontinued operations Net profit/(loss) for the year 1,004 1,996 (2,907) 93 Segment assets 11,693 2,300 - 13,993 Unallocated assets - property, plant and equipment 675 675 - debtors and prepayments 730 730 - cash and cash equivalents 4,170 4,170 Total assets 11,693 2,300 5,575 19,568 Segment liabilities 1,126 809 - 1,935 Unallocated liabilities - creditors and accruals 2,265 2,265 Total liabilities 1,126 809 2,265 4,200 Other segment items Capital expenditure - tangible assets 571 66 337 974 - intangible assets 88 177 - 265 Depreciation 339 229 224 792 Amortisation of intangible 195 22 - 217assets Other non-cash expenses - share option scheme - - 77 773. Restructuring costs
The integration of the acquired imaGenes business was completed as planned during the year. This entailed significant commercial and operational changes to the acquired business, in addition to infrastructure modifications in the UK to support the enlarged group, which will transform the efficiency of the Berlin-based operations. The one-off costs associated with the integration amounted to £0.6 million which will generate annualised cost savings in the region of £0.7 million.
4. Purchase of Head Office premises
On 28 December 2011, the Group announced the purchase of the freehold land and buildings of its current business and Head Office premises in Nottingham, UK. The Group occupied the premises under a 25 year lease that, at the date of the purchase, had a remaining term of 17 years.
The purchase price of £5.2 million, including stamp duty land tax and fees, comprised the market value of the freehold land and buildings in conjunction with the attached lease with 17 years remaining. In the Consolidated Statement of Financial Position, the premises have been recognised at their open market valuation of £2.4 million, without ascribing value to the lease. The element of the purchase price attributable to the remaining term of the lease has been recognised as a one-off cost of £2.8 million in the Consolidated Statement of Comprehensive Income.
5. (Loss)/earnings per share
Basic earnings/(loss) per share amounts are calculated by dividing net profit/ (loss) for the year attributable to ordinary equity shareholders of the Parent Company by the weighted average number of shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity shareholders by the weighted average number of ordinary shares outstanding during the year adjusted for the effects of dilutive options.
The calculation of basic earnings per share for the year was based on the loss attributable to ordinary shareholders of £2,795,000 (2010: £93,000 profit) on 203,765,232 ordinary shares (2010: 203,765,232 ordinary shares) being the weighted average number of ordinary shares in issue.
The calculation of diluted earnings per share for the year is based on the loss attributable to ordinary shareholders of £2,795,000 (2010: £93,000 profit) and on the weighted average number of ordinary shares in issue, adjusted for nil dilutive options (2010: 6,620,959 dilutive options), of 203,765,232 (2010: 210,386,191).
IAS 33 Earnings per share requires presentation of diluted earnings per share when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. Assuming that option holders will not exercise out of the money options, no adjustment has been made to the diluted earnings per share for out of the money share options.
Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below:
2011 2010 Earnings Weighted Per Earnings Weighted Per average share average share number amount number amount of of shares shares £'000 `000s (pence) £'000 `000s (pence) Basic EPS (Loss)/earnings (2,795) 203,765 (1.37) 93 203,765 0.05attributable to ordinary shareholders Diluted EPS (Loss)/earnings (2,795) 203,765 (1.37) 93 210,386 0.04attributable to ordinary shareholders About Source BioScience:
Source BioScience plc is an international diagnostics and genetic analysis business serving the healthcare and research markets. The LifeSciences division provides core laboratory research support from conceptualisation to implementation, calling upon a wide range of cutting-edge technology platforms including an online catalogue of biomolecular tools. The Group is a trusted provider of a complete range of sophisticated microarray, next generation and conventional sequencing services. GLP, GCP and CPA accreditations make the sequencing offerings also very attractive for applications in regulatory studies or clinical settings. Its Healthcare operations provide screening and reference laboratory diagnostic testing for cancer and other diseases and additional predictive testing for treatment optimisation for clinicians and patients. The Group has its headquarters in Nottingham, UK. Further information about Source BioScience can be found at www.sourcebioscience.com
Glossary Antibodies Antibodies are proteins that are found in blood or other bodily fluids; they are used by the immune system to identify and neutralise foreign objects, such as bacteria and viruses. Antibodies are also used as highly specific probes for detecting proteins of interest in tissues. A wide range of antibodies with a large variety of cellular targets is available to research scientists through distributors such as Source BioScience. BRAF The BRAF gene encodes a signalling protein. Mutations of the BRAF gene are quite common in melanoma and colorectal cancer. In colorectal cancer, such mutations make a tumour resistant to inhibitors of the EGFR signalling pathway. Bioinformatics The application of information technology, and computer science, to the field of molecular biology. Common activities in bioinformatics include mapping and analysing DNA and protein sequences, aligning different DNA sequences to compare them and handling and analysing huge data sets generated by the latest sequencing technologies. Biomarkers Biomarkers often refer to substances found in blood, urine or tissue, changes in which may be used to indicate presence of disease or response to treatment. More generally the term biomarker refers to any molecule that can be used to monitor a particular cellular process and may be a protein, DNA or RNA molecule.
Capillary Electrophoresis DNA sequences are determined using a chemical DNA Sequencing
reaction that results in an array of products that
(also known as Sanger terminate in a different fluorescent coloured dye, sequencing or
which vary in size by one nucleotide. The products
conventional sequencing) are separated, like the rungs of a ladder, by passing
them through a capillary with an electric current and determining the order in which they emerge. This method was used for the large DNA sequencing projects of the last 15 years and remains the only way of inexpensively analysing large numbers of small sets of samples (see also Next Generation DNA Sequencing - below). CYP2D6 Breast cancer patients with certain genetic variations in the CYP2D6 gene may be slow metabolisers of the drug tamoxifen to its active metabolite endoxifen. In this case changes to the treatment regime may be indicated because the efficacy of the drug is reduced. Circulating Tumour Cells The identification of small numbers of cancer cells (`CTC') circulating in the blood has been shown to be of potential prognostic significance in breast cancer, colorectal or prostate cancer, and useful for monitoring response to drug therapy. Clinical Pathology CPA is the accreditation body for clinical pathology Accreditation services. Accreditation involves audit of the ability(`CPA') of a laboratory to provide a service of high and consistent quality by declaring a defined standard of practice, which is performed by the CPA accreditation body. Clone A DNA sequence, such as a gene, that is transferred from one organism to another and can be replicated by genetic engineering techniques. Companion Diagnostic A test based on a biomarker (which might be a protein, DNA or RNA molecule), the presence or absence of which is associated with the likely efficacy of a drug or other treatment. Companion diagnostics are useful in stratifying patients into groups which are known to respond in a particular way to a drug. A good example of such a test from the Source BioScience breast cancer portfolio is the HER2 test, which assesses levels of the HER2 protein, expression of which is correlated with response to Herceptin. DNA and cDNA DNA (Deoxyribo Nucleic Acid) is a large, complex molecule which, by virtue of a unique sequence of building blocks, contains all the genetic information required to create a cell or organism. cDNA (complementary DNA) can be made from all the genes in a genome, from a single gene, or from part of a gene. cDNA is DNA that has been synthesised artificially using an RNA template (see below) from the gene(s) selected. Duty of Care Review An audit of a specific pathologist's practice. Pathology departments have a duty of care to patients whose treatment or clinical management may need to be changed in the light of revised opinions arising from a review of a pathologist's or team's work. Where good practice is suspected to have broken down it may be necessary to arrange a systematic review of cases to fulfil a department's duty of care to their patients. Source BioScience offers a full duty of care review service to pathology departments that need specialist second opinion in these circumstances. EGFR mutation testing Human EGFR is a cellular transmembrane receptor found on the cell surface of tumour cells. Clinicians wishing to prescribe Gefitinib (Iressa) for lung cancer patients are required to confirm the presence of any mutations found in the tyrosine kinase domain on the EGFR gene. FocalPoint (`FP') An automated imaging system for screening SurePath liquid based cytology slides. It uses complex algorithms to interpret the images of each slide and decide the 10 `fields of view' most likely to have any abnormal cells. It can archive up to 25% as "no further review" (`NFR') which then do not need to be manually primary screened. Fluorescence In Situ In situ hybridisation (`ISH') is a powerful Hybridisation technique, not unlike immunohistochemistry (below), (`FISH') for visualising the presence of specific sequences of DNA or RNA in tissue sections. The technique uses short synthetic sequences of DNA or RNA which will bind, or hybridise, to the tissue with high specificity for the DNA or RNA of interest. Fluorescent `tags' are attached to these synthetic sequences, allowing them to be visualised with a special microscope, even when present at very low levels (FISH). Genomics Genomics is the study of an organism's entire genome, where the genome of an organism is its whole hereditary information and is encoded in the DNA (see above) and RNA (see below). This includes both the genes and the non-coding sequences of the DNA.
Genomic clone libraries A clone library is a collection of clones containing
complementary DNA (`cDNA') (see above) and is often intended to represent the genes that are expressed within a given cell or tissue type at a given period. Genomic products and In this instance, DNA or RNA extracted and purified reagents from a range of species and provided in a variety of forms for research purposes.
Genotyping and sequencing DNA sequencing is the process of precisely ordering
the building blocks, or nucleotides, of an organism's DNA. The method can be used to determine short sequences of DNA or, in larger experiments, to sequence the entire genome of an organism. Genotyping, in turn, is the process whereby DNA is characterised and then compared to reference data or, if large numbers of samples are genotyped, the data can be examined for patterns which might lead to discoveries of the fundamental causes of inherited diseases. Genotyping is commonly performed by Polymerase Chain Reaction (`PCR') or DNA sequencing. Good Clinical Practice Good Clinical Practice is an international ethical (`GCP') and scientific quality standard for designing, conducting, recording and reporting clinical trials that involve the participation of human subjects. Compliance with this standard provides public assurance that the rights, safety and well-being of trial subjects are protected, consistent with principles that have their origin in the Declaration of Helsinki. Compliance with the principles of GCP is assured via monitoring by a governmental agency, the Medicines and Healthcare products Regulatory Agency (`MHRA'). Good Laboratory Practice Good Laboratory Practice is a set of principles that (`GLP') provides a framework within which laboratory studies are planned, performed, monitored, recorded, reported and archived. These studies are undertaken to generate data by which the hazards and risks to users can be assessed for pharmaceuticals (only preclinical studies). GLP helps assure regulatory authorities that data submitted is a true reflection of the results obtained during the study and can therefore be relied upon when making risk/safety assessments. Compliance with the principles of GLP is assured via monitoring by the Medicines and Healthcare products Regulatory Agency (`MHRA'). HER2 Human Epidermal Growth Factor Receptor 2 is a protein the over-expression of which within a breast or gastric/gastro-oesophageal tumour sample may indicate a patient is suitable for treatment with Herceptin. A test for such over-expression is carried out on all new breast cancer patients or patients with advanced stomach cancer. Human Papilloma Virus Human Papilloma Virus is a family of viruses that (`HPV') commonly infect human tissues. Several members of this family in particular genotype 16 & 18 are sexually transmitted and persistent infection with these subtypes is believed to play a key role in the development of cervical intraepithelial neoplasia (CIN) and invasive cancer of the cervix. HPV infection is also associated with other cancers, including those of the head and neck. Histopathology The study of changes in tissues and cells as a consequence of some disease or toxic processes. Human Tissue Authority The Human Tissue Authority licenses organisations (`HTA') that store and use human tissue for purposes such as research, patient treatment, post-mortem examination, teaching and public exhibitions. The HTA also inspect organisations to check that they maintain good standards and follow appropriate procedures against the legislation of the Human Tissue Act 2004. Immunohistochemistry Immunohistochemistry is a technique for visualising (`IHC') proteins and other molecules in thin sections of tissue. This technique uses antibodies raised in other species against the protein of interest as a tool, and exploits their exquisite sensitivity and specificity for binding to that protein. K-RAS K-RAS is a gene that produces an important cell signalling protein responsible for cell growth. The presence of a mutated form of the K-RAS gene in colorectal cancer may indicate that a patient is unsuitable for new anti-EGFR drugs such as Erbitux and Vectibix. Liquid based cytology Liquid based cytology is a process for collecting and(`LBC') processing cervical cytology samples from epithelial tissues such as the cervix. It produces a cleaner preparation of cells, without the other materials which frequently contaminate the sample such as blood or mucus. Microarray Microarrays are a microscopic series of nucleic acid spots of known sequence which are deposited in a regular array typically onto a glass slide. A DNA or RNA probe can then be hybridised to the slide which results in a DNA or RNA fingerprint of the sample in the probe enabling you to determine the sample nucleic acid sequence. Next Generation DNA Next Generation DNA Sequencing refers generically to Sequencing (`NGS'), a set of recent technologies, in our case Illumina Illumina GAIIx and GAIIx and Illumina HiSeq 2000, in which extremely large numbers of short sequences can be determined inIllumina HiSeq 2000 a single experiment; for example the Illumina HiSeq 2000 selected by Source BioScience can sequence two human genomes in approximately one week.
No further review (`NFR') A unique feature of the FocalPoint automated cytology
imaging platform that can identify up to 25% of cytology slides that are considered to be negative. These slides do not require further primary manual review, thereby improving the turnaround time and efficiency in the laboratory operations, saving time and cost for the NHS. Proteomics Proteomics is the study of specific amino acids, proteins or the entire proteome (a complete translated genome, see above) of an organism. Proteomic techniques include, for example, surveying complex biological samples for protein content, or determining the level of specific proteins in tissues using techniques like immunohistochemistry (IHC, see above). RNA RNA (RiboNucleic Acid) is a molecule similar to DNA, but is an intermediate product between the DNA of the gene, and the ultimate protein product of that gene. The level of expression of a gene can be gauged by the amount of RNA synthesised from that gene, a process usually measured by quantitative real-time polymerase chain reaction (`Q-PCR'). RNA expression analysis RNA expression analysis measures the activity of a large number of genes simultaneously, generating a global picture of cellular function. The expression analyses, or profiles, can distinguish between cells that are actively dividing, for example, or show how the cells react to a particular treatment.
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