Novacyt S.A. (“Novacyt”, the “Company” or the “Group”): Half Year 2020 Results

Transformational performance set to continue

PARIS & CAMBERLEY, England–(BUSINESS WIRE)–Regulatory News:

Novacyt (ALTERNEXT: ALNOV; AIM: NCYT), an international specialist in clinical diagnostics, announces its unaudited results for the six months ended 30 June 2020 and provides an update on its growth strategy.

Summary highlights

  • H1 2020 sales of €72.4 million and EBITDA of €49.4 million, resulting from the sale of the Company’s market leading PCR COVID-19 test, has transformed Novacyt
  • Performance provides period end cash of €19.7m, following repayment of all debt and significant investment in inventory
  • New strategy implemented to continue growth trajectory and consolidate performance through broadening focus on respiratory and transplant clinical diagnostics
  • Visibility of orders for the Company’s COVID-19 product portfolio suggests H2 2020 performance on track to exceed that of H1 2020

Graham Mullis, Group CEO of Novacyt, commented:

“The first half of 2020 has been transformational for Novacyt, delivering sales growth of more than 900%. The significantly strengthened cashflow has enabled us to also settle all outstanding debt. The Company’s market leading position in COVID-19 PCR testing has resulted in an increased customer base and a reputation for innovation and high performance of our products, enabling us to forge a number of strategic partnerships.

“From this solid foundation, Novacyt has reviewed and accelerated its strategy for delivering long-term value to shareholders, which it expects will be supported by the continued strengthening of its financial position from operational cashflows over at least the next 12-18 months. We have identified specific high value opportunities for growth in the diagnostics market where Novacyt can leverage its innovative position for developing new in vitro diagnostic products. In addition, with new opportunities created by an increased demand for diagnostics and investment in the industry, we expect to further boost revenues and profitability through selective and accretive acquisitions. We believe the Company is well placed to deliver on our vision of becoming a market leader in respiratory and transplant clinical diagnostics.”

Financial highlights

  • Group consolidated unaudited revenue increased over 900% to €72.4m (H1 2019: €7.2m)
  • Primerdesign revenue increased over 2,000% to €70.6m (H1 2019: €3.3m) due to the success of the COVID-19 product portfolio
  • Group gross margin strengthened to 83%, delivering a gross profit of €60.3m, an increase of 20% from H1 2019 (63%)
  • Primerdesign maintained its strong gross margin, delivering 85% in H1 2020 (H1 2019: 86%), demonstrating strong control of margins as the business is scaled
  • Group EBITDA of €49.4m (H1 2019: €0.2m)
  • Operating profit of €48.3m compared to a loss of €0.7m in H1 2019, driven by the growth in sales in molecular products business
  • Profit after tax of €40.2m compared to a loss of €1.2m in H1 2019
  • Cash at 30 June 2020 of €19.7m after paying down all long-term debt and significant working capital investment made into stock to ensure the continuity of supply to meet the demand for COVID-19 tests

€’000

 

H1 2020

H1 2019

 

 

Consol

Consol

Revenue

 

72,374

7,223

Gross profit

 

60,265

4,580

Gross margin %

 

83%

63%

EBITDA

 

49,365

153

Recurring operating profit / (loss)

 

48,672

(598)

Operating profit / (loss)

 

48,324

(664)

Profit / (loss) after tax

 

40,195

(1,208)

Loss from discontinued operations

 

 

(786)

Profit / (loss) after tax atrributable to the owners

 

40,195

(1,994)

Operational highlights

  • Rapid development of new products to support laboratories and clinicians in the fight against the spread of COVID-19

    • Developed one of the first molecular tests for COVID-19, subsequently received CE Mark accreditation and Emergency Use Authorisation from most major regulatory authorities, including the US Food and Drug Adminstration and the World Health Organization
    • Launch of three new innovative products (Exsig™ Direct, Exsig™ Mag and COVID-HT) to support laboratories through improving workflow efficiency and helping to address the reported shortfall in global manufacturing and supply of extraction reagents
    • Launch of a saliva sampling type to support ease of patient sampling, lower levels of discomfort and demonstrate more reproducible data than other sampling types
    • Developing, together with a partner, a serology (antibody) test to detect past infection of COVID-19, with launch expected in Q4 2020
  • Significant scale-up of the organisation, including increasing manufacturing and supply chain capacity and commercial support with the addition of a number of new hires
  • Collaboration with AstraZeneca, GSK and University of Cambridge to support the UK COVID-19 testing effort
  • Secured a supply contract with the UK Department of Health and Social Care for the Company’s COVID-19 test
  • Signed a number of new and significant strategic partnerships, including a distribution agreement in the US
  • Surveillence programme of the Company’s COVID-19 test to assess different SARS-CoV-2 viral sequences continues to demonstrate 100% detection of more than 64,000 sequences

Post-period highlights

  • Initiation of a 2,000-patient clinical trial by Queen Mary University of London using the Group’s innovative near-patient testing system
  • Launch of respiratory test panel (Winterplex™) to diagnose and distinguish between influenza A&B, RSV and COVID-19
  • Launch of a two-gene target test for COVID-19 to address markets employing this testing approach

Strategy update highlights

  • New strategy to focus on organic, R&D and acquisitive growth in the respiratory and transplant bacterial and viral diagnostic markets
  • Investment in R&D and commercial infrastructure to deliver new products and establish a direct sales force in key markets in the US and across Europe
  • Selective product/technology and company acquisitions to generate additional revenues and profits to offset potential future reductions in COVID-19 revenues and enhance the Group’s trajectory towards becoming a market leader in respiratory and transplant clinical diagnostics
  • Acquisition of specific assets to enable Novacyt to expand its core capabilities whilst maintaining attractive margins
  • Investment in developing new IP portfolio to enhance and secure future value

Outlook

Novacyt’s near-term focus is to deliver strong organic revenue growth in the core business, where the Directors believe demand for its products will continue to grow into at least H1 2021 as COVID-19 testing continues. In the medium-term, Novacyt expects to leverage its reputation, market intelligence and relationships developed during the COVID-19 response to commercialise new products, as well as expand its presence in respiratory and transplant clinical diagnostics, to meet significant unmet market needs. The Directors expect to supplement the Company’s product portfolio and expand its core capabilities through executing selective and accretive M&A at the right time.

The Directors reiterate guidance announced on 13 July 2020; given the visibility of orders, extended contracts and the launch of new COVID-19 related products, revenue for the second half of the year is expected to be greater than the first half of the year and margins to be at least at a similar level. Full year revenues are expected to exceed €150 million and EBITDA profitability to exceed €100 million. The Company expects this rate of financial performance to extend into the first half of 2021. The Directors remain confident in and excited by the prospects of the business, not only for the short-term, but also for the longer-term.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

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 oncology, 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

Operational review

The COVID-19 pandemic has highlighted Novacyt’s intrinsic ability to design, develop and rapidly scale-up market leading molecular in vitro diagnostic (IVD) tests which enable it to compete successfully at a global level. The Company has significantly increased its customer base, has built a recognised reputation for the performance of its products, formed multiple new and significant strategic partnerships and established an influential position in UK diagnostic testing. This solid foundation, combined with a transformational financial performance during H1 2020 as a direct result of the continuing success of the Company’s COVID-19 product portfolio, has enabled Novacyt to eliminate all long-term debt and greatly enhance and accelerate its strategy for delivering long-term value to shareholders, further detail of which is provided in this report.

Molecular diagnostics

During H1 2020, Novacyt’s molecular diagnostics division, Primerdesign, delivered revenue growth of over 2,000% to €70.6m compared to H1 2019 revenue of €3.3m. This growth reflects the successful launch of a number of diagnostics products for COVID-19, including one of the first polymerase chain reaction (PCR) tests to combat the outbreak.

Market leading PCR test for COVID-19

In response to the emerging COVID-19 emergency, Novacyt made the strategic decision to develop a diagnostic test for SARS-CoV-2 in early January 2020. The Company launched the test in late January 2020 and subsequently received clinical use approval from a number of leading global regulatory authorities, including CE Mark accreditation and Emergency Use Authorisation (EUA) from the US Food and Drug Adminstration (FDA) and the World Health Organization (WHO). This rapid development of a test for COVID-19 positioned Novacyt at the forefront of the global response to the spread of the virus.

Significant demand and capacity expansion

To meet the unprecedented demand for the test following its launch, Novacyt initiated a programme to significantly scale-up the organisation. The Company engaged Chartwell Consulting, a specialist in rapid process improvement, in early April 2020 to manage and support the planning, procurement and logistics for the capacity increase. This included increasing the Company’s own production capacity at the Primerdesign site in Southampton, UK, as well as entering into contract manufacturing partnerships. The Company also needed to manage suppy chain capacity, which included expanding its key raw material supplier base to develop a long-term and sustainable high volume supply of its tests.

Established an influential position in UK diagnostic testing

The COVID-19 pandemic has highlighted the importance of diagnostics as part of the treatment regime across the globe. In the UK, the government has a goal of supporting and creating a national diagnostics industry that can compete on the global stage. During H1 2020, Novacyt has been actively engaged with the UK Department of Health and Social Care (DHSC) in supporting this goal. This was demonstrated in April 2020 through a contract with the DHSC for the supply of its COVID-19 test and separately a collaboration with AstraZeneca, GSK and the University of Cambridge for high-throughput COVID-19 testing. The Company has also partnered with multiple private testing laboratories who support various industries as they try to manage and maintain their businesses.

Having established an influential position in UK diagnostic testing during the pandemic, Novacyt continues to be actively engaged with the DHSC and remains well positioned to support future national testing initiatives.

Product portfolio expansion in COVID-19 and respiratory diseases

Using Primerdesign’s in-house expertise and specialisation in rapid development of molecular solutions, Novacyt continued to evolve its offering during H1 2020 with a range of new products to support the application of the Company’s COVID-19 testing solution in a number of scenarios. This included various formats of the Company’s first generation test to support traditional and high-throughput laboratory settings (exsig™ Mag and COVID-HT), direct-to-PCR products (exsig™ Direct) which significantly reduce the time-to-result by reducing the cumbersome pre-analytical extraction phase of testing, a two-gene test to support testing in markets that mandate a two-gene testing approach, near-patient testing solutions, and a respiratory test panel aimed at supporting testing during the winter season (Winterplex™).

In July 2020, Queen Mary University of London announced the initiation of a 2,000-patient clinical trial using Novacyt’s innovative near-patient testing system, which can deliver a result within an hour. The study is investigating whether daily COVID-19 testing reduces the infection rate, morbidity and mortality in the high-risk care home population. Novacyt believes daily testing has the potential to reduce the transmission of SARS-CoV-2 in the high-risk care home population and in a wider community setting.

The Company has also been investing in its rapid testing instrumentation platforms, q16 and q32, which allow for efficient and high-performance testing in near-patient environments. By the end of the year, Novacyt expects to manufacture and install an increasing number of instruments and will have capacity for significantly more as demand builds. As part of its investment, the Company is further improving the operational workflow of its reagents with these instrument platforms, reducing cycle times significantly below 60 minutes and reducing the level of operator involvement.

Continued high-performance of products

The success of the Company’s COVID-19 test has been built around robust design principles and the selection of a gene target that has so far demonstrated exceedingly low levels of genetic mutation and variation. To date, the gene target has been analysed against over 64,000 individual COVID-19 viral sequences and demonstrated 100% detection. The Company’s recently launched two-gene target test for COVID-19 has also been added to this weekly surveillance monitoring programme to demonstrate continued efficacy of the test to diagnose SARS-CoV-2.

Expansion of product portfolio in respiratory and transplant bacterial and viral diseases

As part of its renewed strategy, Novacyt plans to build its international presence with an increased portfolio of IVD products for clinical use in respiratory and transplantation markets. A new R&D pipeline of products is being developed to enable Novacyt to build upon its reputation established in COVID-19 testing. The Company will continue to seek immediate approval for IVD classification of new products, as well as developing current, specific products from Primerdesign’s extensive research-use-only range to establish a portfolio of high value, clinically approved diagnostics.

Protein diagnostics

During H1 2020, the Company’s protein diagnostics business, comprising of Lab21 Healthcare and Microgen Bioproducts, was significantly influenced by the COVID-19 pandemic and saw a reduction in global demand for its products. As a result, Novacyt engaged Chartwell during the period to focus on operational efficiencies in manufacturing to improve future outputs and lower the cost of goods.

The Company has also developed a plan to expand its Pathflow® brand of products and expects to launch a number of additional tests over the next few months to expand its rapid testing portfolio for infectious diseases.

The Company continues to make good progress in the development and launch of a central lab-based serology test for the detection of the IgG antibody to COVID-19. To date, the product has demonstrated significant levels of sensitivity and specificity for detection of IgG in patients 14 days after testing positive for COVID-19 by a PCR test. Novacyt now expects to launch a CE Mark approved product by the end of September 2020.

Strategy update

Next stage of growth

The Directors have identified specific growth opportunities in the large, fast-growing diagnostics market. Supported by its core clinical diagnostics capabilities of IVD product development, manufacturing, regulatory and commercialisation, the Company remains committed to creating shareholder value through its three-pillar strategy of organic, R&D and acquisitive growth, which will be focused within the respiratory and transplant bacterial and viral diagnostic markets.

Respiratory and transplant are both high-margin, fast-growing IVD markets where the Company already has expertise, including COVID-19 and EBV and BKV products launched last year. Novacyt intends to leverage the new customers and brand position it has established during the COVID-19 pandemic to further penetrate these markets through 2021 and beyond. Importantly, Novacyt will use the skills, infrastructure and experience of both its business divisions (Primerdesign and Lab21) to deliver solutions that utilise the Group’s protein and molecular diagnostic capabilities.

The growth strategy aims to enable Novacyt to continue to grow the size of the core business but also to accelerate this through strategic acquisitions. The Directors believe the strong demand for COVID-19 diagnostic testing will continue through the next few months and well into next year, which will underpin the ongoing financial transformation of the Group and its trajectory towards becoming a market leader in respiratory and transplant clinical diagnostics.

The Company intends to invest both organically and through M&A in establishing a direct sales force in certain markets. Novacyt plans to establish a strong commercial infrastructure in the UK, where a significant investment in the diagnostics market is taking place. In addition, it is in the process of evaluating the best model to operate in the US, the world’s largest IVD market. It is also considering certain key mainland European markets. In the rest of the world, Novacyt will continue to develop its successful distributor and partnership sales model.

Novacyt has demonstrated during the last six months the financial value and profitability it can generate in the right clinical IVD markets with a low-cost base. To achieve additional revenue, the Company will continue to invest in R&D to drive new product development. Novacyt also plans to accelerate revenues and additional profitability through selective and accretive acquisitions. These actions are expected to replace any potential lost revenues from a future decline in COVID-19 testing.

Market dynamics to support strategy

The focus on the importance of diagnostics, as a result of the COVID-19 pandemic, is leading to increased opportunities and anticipated significant new investment in the sector.

IVD market

With an estimated global market size of $69.5 billion1 in 2020, the IVD industry is set to experience steady growth and continued consolidation. Growing at a 5-year CAGR of 5%, some analysts expect IVD to top $110 billion1 by 2030. The industry is expected to see growth in profits as consolidation and technological advancements lead to greater economies of scale. Growth drivers include an aging world population, increased technological innovation leading to increased personalisation of medicine and care, involvement in healthcare by technology companies, rising living standards in developing nations, industry consolidation and an increase in the incidence of chronic and infectious diseases.

Centralised and decentralised testing markets

COVID-19 continues to present Novacyt with a significant opportunity to place rapid mobile instruments where the shortage of testing capacity and limitations of laboratory-based testing is driving healthcare away from large centralised platforms into decentralised more flexible platforms. Beyond COVID-19, Novacyt believes there is the potential for a long-term shift in testing policy towards decentralisation. With the launch of Novacyt’s near-patient testing system in July 2020, the Company is well positioned to address this drive towards rapid, decentralised testing.

The pandemic has also highlighted the limitations of closed testing systems (platforms which are only compatible with tests supplied by the instrument manufacturerer) in centralised laboratories where availability of tests and related consumables has been limited and has, therefore, impacted utilisation of testing capacity. The Company believes healthcare providers will identify a need to have more open systems (platforms which are compatible with tests from a variety of suppliers) along with a decentralised testing policy. Both shifts in policy would play to core strengths of Novacyt.

1 BIS Research; Global In Vitro Diagnostic Market, July 2020

Financial review

Revenue

Unaudited revenues for the first half of 2020 were €72.4m compared to revenues for 2019 of €7.2m, representing a growth rate of over 900% predominantly driven by the strong growth from Primerdesign. This follows the successful development and launch of one of the world’s first molecular tests for COVID-19 in January 2020.

Gross margin

Gross profit has shown continued positive momentum, increasing to €60.3m (83%) compared to €4.6m (63%) in the first half of last year. This margin (83%) is in line with Primerdesign’s historic margin and, therefore, as Primerdesign has increased its overall share of Group revenue, it has driven up the overall Group percentage margin.

Primerdesign maintained its strong gross margin delivering 85% in H1 2020, demonstrating that gross margin can be maintained as the business is scaled.

The Lab21 Products business unit has been significantly impacted by COVID-19 as many of its customers focused their attention on COVID-19 testing resulting in a significant year-on-year revenue and margin decline. However, the business entered H2 with a strong order book and expects to see sales and margin improve towards the end of 2020.

EBITDA

The Group continued its profitability trend delivering an EBITDA of €49.4m in the first half of 2020. The underlying Primerdesign EBITDA margin has increased to over 80% from 40% in H1 2019 when management charges are excluded, demonstrating that the division can be scaled without significant additional overheads. With Primerdesign delivering approximately 98% of Group revenue in H1 2020 at 85% gross margin, its continued success contributes substantially to the Group’s positive EBITDA as the effect of increasing Primerdesign revenues as a percentage of overall Group revenues has been to enhance the overall profitability of the Group.

To support the substantial growth seen by the Group in 2020, investment has been made in overheads including the hiring of new staff and additional facilities spend to maximise manufacturing output. As a percentage of revenue these incremnental costs are negligible, which is reflected in the Group delivering an EBITDA margin of 68% in H1 2020.

Operating Profit

The Group delivered an operating profit of €48.3m compared with a H1 2019 loss of €0.7m. Year-on-year exceptional charges and depreciation/amortisation costs are only €0.

Contacts

Novacyt SA
Graham Mullis, Chief Executive Officer

Anthony Dyer, Chief Financial Officer

+44 (0)1276 600081

SP Angel Corporate Finance LLP (Nominated Adviser and Joint 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 (Corporate Broking)

+44 (0)20 7260 1000

Allegra Finance (French Listing Sponsor)
Rémi Durgetto / Yannick Petit

+33 (1) 42 22 10 10

r.durgetto@allegrafinance.com ; y.petit@allegrafinance.com

FTI Consulting (International)
Victoria Foster Mitchell / Mary Whittow

+44 (0)20 3727 1000

victoria.fostermitchell@fticonsulting.com / Mary.whittow@fticonsulting.com

FTI Consulting (France)
Arnaud de Cheffontaines

+33 (0)147 03 69 48

arnaud.decheffontaines@fticonsulting.com

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