INS.L Regulatory News (INS)

25 September 2013

Embargoed for 07:00

Instem plc

("Instem", the "Company" or the "Group")

Unaudited Interim Results

Instem plc (AIM: INS.L), a leading provider of IT applications to the global early development healthcare market, announces its unaudited interim results for the six months ended 30 June 2013.

Financial Highlights

§ Revenues increased by 13% to £5.5m (H1 2012: £4.9m)

o Recurring revenues accounted for 76% of total (H1 2012: 74%)

o Software-as-a-Service (SaaS) revenue rose 16% to £0.7m (H1 2012: £0.6m)

§ Operating profit* of £0.7m (H1 2012: £0.3m)

§ Seasonal net operating cash outflow of £0.6m (H1 2012: £1.2m)

§ Closing cash balance as at 30 June 2013 of £0.9m (H1 2012: £1.8m), reflecting normal seasonality in cash collection and acquisition related payments totalling £0.8m

§ Adjusted** earnings per share of 3.2p (H1 2012: (0.6)p)

o Basic earnings per share of (0.7)p (H1 2012: (0.1)p)

*Operating profit before amortisation, share based payment and non-recurring items.**After adjusting earnings for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items and amortisation of intangibles on acquisitions.

Operational Highlights

§ Provantis, our integrated pre-clinical study management suite enabling automated collection, analysis and sharing of data, continues to perform strongly, securing new customers and upgrade orders

§ Provantis 9 awarded a significant, 10-year US$6.2m revenue  contract with the National Institute of Environmental Health Sciences (NIEHS) a US Government body in February 2013

§ Won the VOLTAGE Technology Innovator Award for its submit™ solution, which implements the FDA Standard for the Exchange of Nonclinical Data (SEND)

§ Acquisition of Logos Technologies (rebranded "Instem Clinical") and its ALPHADAS product suite in May 2013

§ SEND contract with major healthcare customer - May 2013

§ Customer retention rate remained strong at 95%

§ Strong pipeline of new business opportunities across all product sets

§ Instem Clinical Won a major new client, the operating subsidiary of Retroscreen Virology Group PLC (AIM:RVG "Retroscreen"), through a contract for the newly acquired ALPHADAS early clinical software suite, worth high six-figures GBP of revenue

Phil Reason, CEO of Instem plc, commented: "We are very pleased with Instem's strategic, operational and financial progress in the first half of the year. We have continued to broaden our product range, extend our geographical reach and sign top tier clients across the breadth of our expanded product set. In addition, Instem also made an important move into the early phase clinical market through the acquisition of Logos Technologies, which has already proven beneficial.

Both the regulatory and fiscal environments continue to be favourable to Instem, driving demand for all areas of our product suite. With a strong order intake in the first half, the Board continues to view the future prospects for the business with confidence."

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About Instem plc

Instem is a leading supplier of IT applications to the early development healthcare market delivering compelling solutions for data collection, management and analysis across the R&D continuum. Instem applications are used by customers worldwide, meeting the rapidly expanding needs of life science and healthcare organisations for data-driven decision making leading to safer, more effective products.

Instem's portfolio of software solutions increases client productivity by automating study-related processes while offering the unique ability to generate new knowledge through the extraction and harmonisation of actionable scientific information.

Instem supports its clients through full service offices in the United States, United Kingdom and China with additional locations in India and a full service distributor based in Japan.

To learn more about Instem solutions and its mission, please visit www.instem.com or its investor centre http://investors.instem.com/

Chairman's Statement

The achievements in the first half of the year demonstrate continued progress by the Group as it successfully executes its strategy of both increasing its market share and extending its product portfolio. The growth in revenues and operating profit during the first half of the year, and the recurring element of these revenues, is particularly encouraging.

Instem has again proven to be the leading supplier in the pre-clinical marketplace, extending its footprint within existing clients and across the industry as a whole. Instem has a broad base of blue chip customers and has been pleased with the continued uptake of its solutions by the most notable global leaders in the pharmaceutical market.

Of great importance, and testimony to the quality of our people and our technology, was the decision of the NIEHS to use Provantis as the cornerstone IT system for its National Toxicology Program. The contract is planned to run for 10 years, and is expected to provide a minimum of $6.2m revenues to Instem over that period.

Further, in May 2013, Instem acquired Logos Technologies and rebranded the business 'Instem Clinical'. This acquisition allows Instem to make an important strategic step into the adjacent early phase clinical market. We were delighted that in June Instem Clinical secured its first contract win since being acquired by Instem. This was from Retroscreen, a virology healthcare business that recently floated on AIM.

The pipeline of opportunities continues to be strong across our established product set, and our entry into the under-automated early phase clinical market represents an additional opportunity. Following the sluggishness of the market in recent years, the US and Chinese markets in particular are now showing signs of recovery.

Instem remains well positioned to benefit from the strategic trends in its end markets towards multi-site, collaborative and outsourced R&D. The Company has a strong base of recurring revenues and with excellent renewal rates consistently above 95%, and the stronger order intake in the first half, the Board is confident in the prospects for Instem.

David Gare

Chairman

24 September 2013

Operational Review

The business has been developed extensively in the last three years, building on its leading position in the global early development healthcare market. During the half year, Instem has further augmented its strong position to drive growth through a broadened range of software solutions and extended market reach.

The global pharmaceutical market, and particularly the Contract Research Organisations (CROs) that service it, continue to slowly recover. Importantly, the significant polarisation of new business orders towards the final quarter of the financial year experienced in the last two years has this year moderated, with a much improved level of bookings being received in the first half of the year.

The return to growth of the preclinical and early clinical CROs that was reflected in Instem's H2 2012 performance has continued. CROs have provided a significant proportion of new business in the first half of the year, and are a strong component of the forward pipeline. Several of Instem's small to medium sized CRO clients and mid-sized pharma have also added additional user licenses as their operations have expanded.

In line with market sentiment, we continue to focus the business model on recurring revenue streams, as illustrated with the NIEHS contract, rather than on initial licencing of software. This may have a short-term impact on revenues and profits but will substantially improve the predictability of future income.

Acquisition of Logos Technologies

The IT supplier marketplace is highly fragmented and Instem's customer base has indicated its preference to purchase software from a smaller number of core suppliers, such as Instem. During the first half of the year, Instem again added to its product capabilities through the acquisition of London-based Logos Technologies. The consideration was for an initial cash amount of £0.55 million with an additional consideration of up to £4.45 million (in a mixture of cash and shares at the Company's discretion) depending on the achievement of profit related performance targets over the next four years.

The early phase clinical market is much less automated in terms of data capture and analysis than Instem's core pre-clinical market, with larger clinics typically not yet fully automated and the majority of smaller clinics still using paper records. Logos' ALPHADAS® software suite is the market leading, e-source data capture system and site automation software suite for early phase clinical studies.

This acquisition therefore represents a significant strategic development, as it both extends Instem's addressable market and increases cross selling opportunities for our Provantis suite of study automation and workflow products, as well as for our data integration and bioinformatics solutions.

Global Customer Wins & Renewals

Instem's ability to provide support for all geographic areas and offer software via either a 'SaaS' or perpetual licence model provides the Group with a strong competitive advantage. Due to this, and the strength of the product set, Instem continues to outperform in competitive product evaluations.

The Group has an impressive and longstanding customer list of leading global pharmaceutical, chemical, academic and government research organisations. During the half year, Instem was pleased to add several prestigious names, to extend significantly its relationship with the NIEHS, and to experience an encouraging level of sales across the enlarged product suite.

Provantis: pre and non-clinical studies

Provantis is the market-leading suite of pre-clinical Study Management and Data Collection modules and its dominant position continues to generate significant revenues for the Group.

The strong performance of Provantis version 9, since its launch in 2012, has continued in the first half of 2013 generating upgrade and additional module sales from existing clients. Once again it was the leading solution in the growing Asian market, as demonstrated by the addition of a Chinese government research laboratory client during the period.

The Provantis Portal, a new module introduced in 2012, gained two further clients. The portal enables CROs, their sponsors and study partners to access and download Provantis study data in near real-time through commonly used web browsers.

Centrus: data access and harmonisation

The continuing momentum of Centrus, Instem's software suite aiding enterprise information integration in early drug development, data management and reporting, has been pleasing. In particular, modules associated with the US Food and Drug Administration sponsored SEND are proving increasingly attractive following the FDA's statement of preference for SEND datasets. Three additional clients licensed Centrus modules in the period; including the purchase of the entire Centrus software suite by a world leading R&D organisation.

During the half year Centrus Submit gained further endorsement and was recognised for innovation and industry leadership at the SmartCEO VOLTAGE Awards.

Instem Scientific: translational science capabilities

The acquisition of BioWisdom in 2011 provided sophisticated technologies to aggregate, analyse and extract knowledge from huge volumes of disparate internal and external data. This ability enables considerable additional value to be unlocked from billions of dollars of prior research investments. These big data and translational science capabilities are expected to become increasingly compelling to the evolving pharma industry.

Instem completed the development and launch of the next version of the SRS Data integration platform (version 8.4) in early July 2013, including advanced searching and matching features, further enhancing our clients' abilities to identify patterns and trends in their data, generate new knowledge and scientific insight. Two new clients for SRS were added in the period, including the first sale as an integrated part of the Centrus suite.

A new version of Omniviz, an advanced visualisation and data projection solution, was also released in the period. This contributed to securing several additional license purchases from existing customers and a number of new clients.

Trimetra Partnership - Logbook: GLP-compliant paper replacement application with powerful tools

Logbook is an Electronic Notebook and Data Collection system, which Instem has partnered with Trimetra to provide. Logbook replaces a wide variety of GLP (Good Laboratory Practice) and Non-GLP paper forms that exist in many laboratory environments. Amongst other benefits, Logbook creates a fully GLP compliant audit trail, enables electronic archiving of lab records and provides comprehensive search capabilities. Reflecting these and other user advantages, Instem continues to see a good level of interest in Logbook from customers and prospects alike and secured another new client in the period.

Instem Clinical - ALPHADAS: early phase clinical study software

Since acquiring Logos Technologies (now branded 'Instem Clinical') in May 2013, the business has performed well and continues to do so. The early phase clinical market is relatively under-automated and there is recognition that IT processes and new software capabilities represent an opportunity to drive efficiencies, particularly in the recruitment and screening phases of trials. The first post-acquisition new client for Instem Clinical was Retroscreen which took a perpetual licence plus implementation services, with on-going annual support and maintenance fees.

Prior to the acquisition, Logos Technologies had developed an innovative tablet version of parts of its core software, addressing the market demand for solutions that run on the latest Android technology. Developed in conjunction with the CRO Inflamax Research, the solution is now in live use. Earlier this year, Inflamax authorised work to commence on the next version of this platform, which is expected to further enhance the potential for this product in the wider market.

Financial Review

The financial results demonstrate a good performance in the period with total revenues increasing by 13% year-on-year to £5.5m (H1 2012: £4.9m). Instem's core business, excluding revenue from the recently acquired Instem Clinical, increased by 4% compared with 2012 to £5.1m.

The business continued to expand in developing markets with revenue from outside North America and Europe, primarily Asia-Pacific, increasing to £0.7m (H1 2012: £0.6m), representing 12% of total revenue (H1 2012: 12%).

Instem's business model consists of fees for perpetual licences, annual support & maintenance, SaaS subscriptions and professional services. In the period, approximately 76% (H1 2012: 74%) of revenue, excluding Instem Clinical, (70% including Instem Clinical) was of a recurring nature from annual support & maintenance fees and SaaS subscriptions. SaaS revenue was up 16% to £0.7m (H1 2012: £0.6m). The Group generates the majority of its revenue in US dollars and there are hedging policies in place to protect the sterling values.

Profit from operations before amortisation, share-based payment and non-recurring costs for the period, amounted to £0.7m (H1 2012: £0.3m). Operating expenses increased by £0.2m in the half year compared with the equivalent period in 2012 including the acquired Instem Clinical cost base. Amortisation of internally developed intangibles remained constant at £0.2m.

Development costs incurred in the period were £0.8m (H1 2012: £0.9m), of which £0.1m was capitalised (H1 2012: £0.1m).

Non-recurring items include a charge of £0.1m in respect of legal and professional fees associated with the acquisition of Instem Clinical (H1 2012: nil).

Finance income/(costs) include a loss of £0.2m arising from the revaluation of inter-company balances at the period end using an exchange rate of $1.52 (H1 2012: gain £0.1m). If the revaluation had been carried out using exchange rates applicable at the date of this announcement the loss would be largely eliminated.

The increase in the funding deficit of the Company's defined benefit pension scheme during the period was £0.2m (net of deferred tax). The defined benefit pension scheme is calculated in accordance with the provisions of IAS19 and has been recognised in Other Comprehensive Expense. This non-cash charge arose in the period due to a combination of lower discount rates and a higher rate of inflation used for calculation of the liabilities that exceeded the gains in asset values.

Instem's cash flow is seasonal, with cash inflow being weighted to the second half of the year, resulting from the annual fee renewals occurring at the year-end. As a result of the normal working capital cycle, cash at the end of June 2013 was £0.9m (H1 2012: £1.8m) compared with £2.4m at December 2012. A final scheduled debt repayment of £0.25m was made in the period leaving the Company debt free. The first half cash position also reflects the initial outlay for the Instem Clinical acquisition of £0.58m, including stamp duty, funded from internal cash reserves.

In line with previous periods the Board has not recommended the payment of a dividend.

Principal risks and uncertainties

The principal risks and uncertainties remain unchanged from those described in our 2012 Annual Report, available at www.instem.com.

Outlook

The Company has continued to maintain its leading position in the pre-clinical market and during the period has made important strategic progress including expansion of its product sets and entry into the early phase clinical market. The Board will continue to evaluate additional internal development and acquisition opportunities to extend Instem's product portfolio and market reach as appropriate.

The Company is seeing positive signs of growth within the pre-clinical and early clinical CROs. Indeed, Instem sees this as a lead indicator that the broader global pharmaceutical market is continuing to recover slowly. In addition, the industry's regulatory and fiscal pressures continue to work in Instem's favour, driving demand for all areas of our product suite.

Instem's well-established study automation and workflow product, Provantis, continues to dominate its market and is anticipated to deliver the majority of revenues to the Group in the short to medium term. However, growing interest in Centrus, the newer translational science solutions and the recently acquired ALPHADAS suite, offer additional revenue streams for the future and represent important entry points for winning new business.

Instem is a robust business, with net cash and a valuable blue-chip customer base delivering high levels of recurring revenue. We believe Instem has bolstered its already strong position, and is well placed to take advantage of the structural changes in the processes of drug development that are currently taking place, which should drive further growth in global demand across our expanded product set.

Phil Reason

Chief Executive

24 September 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2013

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2013

NOTES TO THE FINANCIAL INFORMATION

For the six months ended 30 June 2013

GENERAL INFORMATION

The principal activity of Instem plc and subsidiaries is the provision of world class information solutions for life sciences research and development.

Notes to the accounts

1. Basis of preparation and accounting policies

Basis of preparation

The Group's half-yearly financial information, which is unaudited, consolidates the results of Instem plc and its subsidiary undertakings made up to 30 June 2013. The Group's accounting reference date is 31 December.

The company is a public limited liability company incorporated and domiciled in England & Wales. The consolidated financial information is presented in Pounds Sterling (£) which is also the functional currency of the parent.

The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. It does not therefore include all of the information and disclosures required in the annual financial statements.

The financial information for the six months ended 30 June 2012 is also unaudited.

Instem plc's consolidated statutory accounts for the year ended 31 December 2012, prepared under IFRS, have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. 

Significant accounting policies

The accounting policies used in the preparation of the financial information for the six months ended 30 June 2013 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS') as adopted by the European Union and are consistent with those which will be adopted in the annual statutory financial statements for the year ending 31 December 2013.

While the financial information included has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), these financial statements do not contain sufficient information to comply with IFRS's.

Instem plc and its subsidiaries have not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK AIM listed Groups, in the preparation of this half-yearly financial report.

Cash and cash equivalents

Cash and cash equivalents for the purposes of the Statement of Cash Flows comprise the net of cash and overdraft balances that are shown on the Statement of Financial Position in Cash and Cash Equivalents and Current Financial Liabilities.

2. Segmental Information

The Directors consider that the Group operates in one business segment, being IT applications to the global healthcare market, and that therefore there are no additional segmental disclosures to be made in these financial statements.

3. Earnings per Share

(a) Basic

(b) Diluted

The loss for the period and the weighted average number of ordinary shares for calculating the diluted loss per share for the period ended 30 June 2013 are identical to those for the basic loss per share. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and would therefore not be dilutive under the terms of International Accounting Standard ("IAS") No 33.

4. Non recurring costs

Non recurring costs of £0.1m represent professional fees and other costs incurred in relation to the acquisition of Logos Technologies Limited.

5. Taxation on ordinary activities

6. Acquisition of Logos Technologies Limited (now Instem Clinical)

On 10 May 2013 the Company acquired the whole share capital of Logos Technologies Limited using an initial cash consideration and a deferred element, based upon defined EBIT performance, of cash and shares. Initial cash consideration paid was £0.55m plus stamp duty, and contingent consideration amounting to £2.89m is expected to become payable in a mix of cash and shares, based on the directors' assessment of the EBIT generated by Logos during the earn out period. Provisional fair values have been ascribed to the assets and liabilities acquired.

7. Availability of this Interim Announcement

Copies of this announcement are available to download from the Company's website, www.instem.com as well as being available from the Company's registered office at Diamond Way, Stone Business Park, Stone, Staffordshire ST15 0SD, UK.

INDEPENDENT REVIEW REPORT TO INSTEM PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 30 June 2013 which comprises the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity and the related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "'Review of Interim Financial Information performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The interim financial report is the responsibility of, and has been approved by the directors. The directors are responsible for preparing and presenting the interim financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee pronouncements as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with the presentation, recognition and measurement criteria of International Financial Reporting Standards and International Financial Reporting Interpretations Committee pronouncements, as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with the presentation, recognition and measurement criteria of International Financial Reporting Standards and International Financial Reporting Interpretations Committee pronouncements as adopted by the European Union, and the AIM Rules of the London Stock Exchange.

Chartered Accountants

3 Hardman Street

Manchester M3 3HF

24 September 2013