FY21 Trading Update

FY21 Trading Update

Immunodiagnostic Systems Holdings PLC

16 April 2021

Immunodiagnostic Systems Holdings plc
FY21 Trading Update - Encouraging Trading Performance During H2 and Improving Outlook

Immunodiagnostic Systems Holdings PLC ('IDS' or 'the Group'), a specialist producer of diagnostic testing kits and instruments for the clinical and research markets, today provides an unaudited trading update for the Financial Year ended 31 March 2021 ('FY21')

1. GROUP HIGHLIGHTS

IDS's trading in H2 FY21 has recovered strongly from the adverse impact of the COVID-19 pandemic seen in the first half. Unaudited revenue in H2 FY21 is expected to be £19.0m, up from £13.7m in H1 FY21, representing 39% growth H2 on H1. Overall revenues for FY21 amounted to £32.7m (FY20: £39.3m).

The development of the Automated Business strongly correlates with the placement of new instruments, as each new instrument generates recurring incremental revenues. Therefore, we are pleased to report that instrument placements/sales in our Automated Business unit were 79 during H2 FY21 (H2 FY20: 61) bringing full year placements/sales to 100 (FY20: 93). This rate of placements represents the strongest performance in eight years.

2. REVENUE

As explained in our H1 Trading Update in October, the COVID-19 pandemic had an extraordinary impact on global economic performance and to healthcare systems around the world. Due to the resulting drop in routine diagnostic testing, this materially impacted IDS revenues recorded in H1 FY21. Therefore, in this trading update focus will be placed on comparing H2 FY21 performance with H2 FY20, as this best demonstrates the underlying trajectory of the business.

H2 Automated Business Revenue: Record Speciality Business Revenues

An analysis of the key revenue streams in the Automated Business unit is set out below:

Revenue - £m	H2 FY21	H2 FY20	Change
Vitamin D (25-OH and 1,25)	2.6	3.7	-29%
Speciality - Endo	6.2	5.8	+6%
Speciality - AI	1.2	1.1	+10%
Speciality - Others	0.4	0.3	+21%
Instrument and Service Revenue	1.8	1.5	+27%
Total	12.2	12.4	-1%
Speciality revenue	9.6	8.7	10%

Vitamin D revenues, encompassing both 25-OH Vitamin D and 1,25 Vitamin D assays, continued to decline. This decline continues due to the structural change in this market as explained in previous Annual Reports. Lower reimbursement rates, more focused prescription guidance for Vitamin D tests, and the migration of these tests to workhorse analysers have all impacted IDS's revenues.

It is pleasing to see that all the IDS speciality business streams (i.e. all business streams excluding Vitamin D revenues) have grown, with overall 10% growth in the second half versus the same period in FY20. We consider this particularly impressive as the comparative period was the strongest second half performance delivered in many years, thus the FY21 H2 performance represents record revenues for our automated speciality business.

This strong performance masks the fact that the COVID-19 pandemic continues to have an adverse impact on the business, particularly in emerging markets like Latin America and Asia. While the quantitative effect of the pandemic on our routine testing business is difficult to estimate, it is clear that the growth in our speciality business would have been even stronger without this impact.

From a strategic perspective, as a result of our diversification strategy away from Vitamin D, speciality revenues have grown at a CAGR of over 11% in the five years to FY20 and have returned to a similar growth rate in H2 FY21. In H2 FY21, speciality revenue amounted to 78% of the overall Automated Business unit revenues, whereas six years ago they only comprised 43%. This performance represents the successful efforts of the IDS team to diversify to become a provider of numerous valuable speciality assays, underpinned by a robust and flexible instrument platform.

H2 Manual Business Revenue: Swift Recovery from Pandemic

During H2 FY21 the Manual Business unit revenues amounted to £5.2m (H2 FY20: £5.6m), a decline of 7%. This is a significant improvement in trajectory compared to H1 FY21, when the rate of decline stood at 37% versus H1 FY20. As H2 FY21 progressed, order patterns from key distributors approached pre-pandemic levels and as a result we expect this business to deliver similar revenues to those seen in FY20 moving forwards.

H2 Technology Business Revenue: Customer Diversification Continues

Technology Business revenue in H2 FY21 was £1.6m (H2 FY20: £2.5m). The reduction was mainly due to one-off license income received in H2 of FY20 relating to a legacy contract.

As explained in the 2020 Annual Report and Accounts, revenues in this business unit are contingent on the success of the development and commercialisation of the assay panels of our partners. IDS continues to focus on expanding the number of partners using the IDS technology, to reduce the concentration risk inherent in this business unit. To this end, during the year we have made good progress on contractual discussions with two potential new partners, where we have targeted reaching agreement of contracts during the next few months.

3. AUTOMATED KPIs

Instrument Sales

We achieved sales or placements of 100 (FY20: 93) analysers in our direct and distribution businesses, our strongest performance since 2013. FY21 H2 performance was particularly strong, with 79 machines being placed or sold. The annualised performance is summarized below:

	FY21	FY20
Direct Gross Placements [1]	38	43
Direct Returns	(23)	(25)
Direct Net Placements [2]	15	18
Sales to Distributors [3]	62	50
Total Installations [1]+[3]	100	93
Increase in Installed Base [2] + [3]	77	68

Returns in the year reduced to 23, from 25 in the prior year. Most of these returns were in the US market, where we lost one customer group which only ran 25-OH Vitamin D tests. This level of returns is the lowest recorded in many years, and validates the assay diversification strategy, which makes the IDS instrument a more versatile and widely used piece of equipment, and hence more likely to be retained by a laboratory at the end of the initial contract. As there are now very few customers running only the 25-OH Vitamin D assay, we expect instrument returns to decline significantly in future years.

Automated Assay Launches

Despite the operational challenges of the pandemic, FY21 was a successful year in terms of the expansion of the IDS automated assay menu in both Europe and the USA, as set out below:

Europe

During the year, 7 new automated assays were launched on the IDS instrument platform for the European region and other territories which accept CE mark accreditation:

· The launch of the automated Cortisol assay has successfully rounded out the IDS automated hypertension panel.

· IDS entered the field of therapeutic drug monitoring, with a panel of four new tests. These are the first such automated tests on the market. They are used to monitor the efficacy of Infliximab (trade name Remicade) and Adalimumab (trade name Humira) which are multi-billion Dollar selling antibody-based drugs used in the management of chronic inflammatory diseases.

· COVID-19 fully automated IgG and IgM antibody tests were launched, as set out in the COVID section below.

USA

In the US we achieved 510k approval for the IDS automated BAP assay during H1 and made the first sales of this assay during H2 to a major laboratory chain. The Cortisol assay achieved FDA approval in April 2021, despite only being released to the European market in August 2020 - this rapid approval is evidence that the revised development process introduced by IDS produces assays 'out of the gate' which have performance characteristics and supporting data sufficient for FDA approval.

Additionally, IDS gained emergency use authorisation for the IDS automated SARS-CoV-2 IgG antibody assay, which allows this test to be used for clinical testing purposes in the US.

The assays available for sale on the IDS automated instrument at 31 March 2021 now comprise:

	Europe / CE Mark	USA
Speciality Endocrinology	23	12
Infectious Disease	25	1
Autoimmune Disease	29	-
Allergy	67	-
Therapeutic Drug monitoring	4	-
Total	148	13

At the end of FY21 there were a number of assays in our development pipeline very close to completion, thus we expect to announce at least two new assay launches in Q1 of FY22.

4. COVID-19 PRODUCTS

IDS now has a comprehensive portfolio of COVID-19 tests available - ranging across fully automated IgG and IgM antibody tests, manual ELISA tests and distribution rights for a variety of rapid antibody and antigen tests. Revenue from this product portfolio has helped IDS deliver the strong performance seen in H2 FY21.

As explained in our most recent Interim Report, the focus of health authorities is currently on antigen testing - to test for an active infection of SARS CoV-2. IDS is working with our partners to gain approval for more convenient antigen tests, which are not reliant on the unpleasant nasopharyngeal swab sample collection method, to the European market. We will be well positioned to secure a share of this market assuming approval of these products is forthcoming.

In terms of antibody testing, with the progression of the vaccine rollouts globally, public health studies into antibody levels in the population should increase to enable the success of this program to be measured. This is likely to drive additional demand for antibody testing, and because a fully automated solution such as that offered by IDS provides better accuracy than rapid tests, and better laboratory efficiency than manual ELISA based tests, IDS is well positioned to win a share of the laboratory business for these tests.

5. OPERATIONS

IDS has faced unprecedented challenges and restrictions arising from the COVID-19 crisis - these have varied in each of our operational locations, and across the territories where our customers and suppliers are based. While the world is now more accomplished at 'living with' COVID-19 than in 2020, these challenges have persisted throughout the year. However, our operational team have coped superbly with this situation, and we have managed to continue to provide a full service, along with continuity of supply, to all our customers.

The impact of Brexit was also managed smoothly by the team; while there were some minor problems due to the disruption to the European logistics network, our planning served us well in this regard, and customers were not impacted. The post-Brexit world continues to create inefficiencies in our supply chain, however these do not amount to anything that represents a significant risk to the operational or financial performance of the IDS business.

During the year we have carefully managed our cost base -fixed costs will be around £3.5m to £4.0m lower than our plan as a result of targeted cost actions and changes to working practices to mitigate the impact of the pandemic on EBITDA. Closing cash and cash equivalents were £23.3m on 31 March 2021 (30 September 2020: £24.2m, 31 March 2020: £27.6m).

6. OUTLOOK

The performance of the business during H2 FY21 was extremely positive as all key speciality revenue streams in our Automated Business unit returned to growth and the accelerated rate of placements of new analysers lays the foundation for future growth from recurring assay sales.

We are now very confident that moving forward the revenue growth seen in this business unit pre-pandemic will continue, and most likely accelerate because the Vitamin D products which have historically depressed growth rates are a progressively less significant proportion of the product mix. Thus the underlying growth in the speciality business should increasingly show through.

For further information:

Immunodiagnostic Systems Holdings plc Tel : +44 (0)191 5190660

Jaap Stuut, Chief Executive Officer

Paul Martin, Group Finance Director

PeelHunt LLP Tel : +44 (0)207 418 8900

James Steel

Oliver Jackson

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