Ixico Regulatory News (IXI)

23 May 2023

IXICO plc

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

Half yearly report to 31 March 2023

IXICO plc (AIM: IXI), the medical imaging advanced analytics company delivering intelligent insights in neuroscience, announces its unaudited interim results for the six months ended 31 March 2023.

Commercial and operational highlights

· Client contracts worth £2.8m signed during the period;

· Order book of £13.3 million at 31 March 2023 (H1 2022: £12.6m) following the signing of contracts totalling £11.6m across the last twelve months;

· Expansion of core imaging (MRI, PET and SPECT) services to provide an extended offering to address clinical trial opportunities in Alzheimer's Disease (AD), Multiple Sclerosis (MS) and Parkinson's Disease (PD); and

· £1.0m additional funding secured for the IXICO-led HD-IH Consortium which is now committed to the analysis of over 6,000 Huntington's disease MRI data sets utilising IXICO's proprietary IXIQ.Ai analysis platform.

Financial highlights

· Revenues of £3.2 million for the six months to 31 March 2023 (H1 2022: £3.9m);

· Gross margin at 46.1% (H1 2022: 59.8%);

· Loss before interest, taxation, depreciation and amortisation ('EBITDA') of £0.6m (H1 2022: £0.5m profit);

· £5.0 million cash as at 31 March 2023 (H1 2022: £5.8m);

· £0.2m operational cash inflow (H1 2022: £0.2m);

· Net assets of £11.9m (H1 2022: £11.8m); and

· Loss per share of 1.50p (H1 2022: 0.35p profit).

Giulio Cerroni, CEO of IXICO, commented:

"We complete the first six months of the year on track to achieve our full year guidance of £7.0m revenues for the year. We expect the combination of our diversified order book and near-term opportunities to deliver revenue growth in the second half of this financial year, relative to the first half, and return the Company to year-on-year revenue growth in 2024.

Following a multi-year programme of ongoing investment in our IT infrastructure, we are excited by the anticipated launch of our next generation TrialTracker image data collection and management system in the coming year.

This highly scalable platform will ensure that IXICO continues to be able to satisfy our clients' increasingly stringent data security requirements as we look to further penetrate a highly regulated clinical trials market. The new platform ensures that our business can easily scale as we anticipate levels of investment in neurological development to accelerate further as tangible drug development progress in disease areas such as Alzheimer's disease is delivered by the biopharmaceutical industry.

As we look forward, the development of our order book remains a priority which we are addressing through further investment in our commercial capabilities.

Successfully executing on our five-pillar strategy will enable IXICO to secure more contracts from a more extensive customer base and capture a more substantial share of the growing market opportunity from the investments made in addressing a broader range of neurological diseases."

A recording of the results presentation will be made available on the Group's website here: https://ixico.com/investors/company-information/investor-videos/

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as amended by The Market Abuse (Amendment) (EU Exit) Regulations 2019. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

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About IXICO

IXICO is dedicated to delivering insights in neuroscience to help transform the advancement of investigational therapies for neurological diseases, such as Huntington's disease, Parkinson's disease and Alzheimer's disease. The Company's purpose is to advance medicine and human health by turning data into clinically meaningful information, providing valuable new insights in neuroscience by supporting pharmaceutical companies across all phases of CNS clinical research. IXICO's goal is to be a leading advocate of artificial intelligence in medical image analysis.

IXICO has developed and deployed breakthrough data analytics, at scale, through its remote access technology platform, to improve the return on investment in drug development and reduce risk and uncertainty in clinical trials for the Company's pharmaceutical clients.

More information is available on www.IXICO.com

CHIEF EXECUTIVE OFFICER'S STATEMENT

Statement from Giulio Cerroni

Across the past six months, we have delivered revenues of £3.2 million (H1 2022: £3.9m) and, as at 31 March 2023, our order book totalled £13.3 million (H1 2022: £12.6 million). These two figures reflect the full and final negative revenue impact in 2023 of the large client trial cessations reported in 2021 and 2022 and also provide improved visibility to future contracted revenues, as compared to twelve months ago. This supports our expectation that revenues would bottom out during the first half of 2023 before returning to revenue growth, relative to H1 2023, across H2 2023 and 2024.

As previously communicated, our revenue mix has shifted significantly across the last three years from revenues principally related to a single large late phase clinical trial, to revenues from a greater number of individually smaller, early phase clinical trials. This highlights the requirement to build operational capabilities and scale to service all phases of development in servicing the clinical trials market. Clinical trials commence with relatively small, more labour-intensive, early phase trials before, if successful, progressing into much larger trials requiring significant analysis of imaging data. Whilst this change in mix to early phase trials is accompanied by a reduction in gross margin over the last few months at 46% (H1 2022: 60%), we are well positioned to accompany more successful trials to later phases in the coming years, which can be expected to deliver revenues at higher margins.

Our strengthened order book compared to twelve months ago, continues to reflect the recent trend of a more diversified client base with our largest client expected to deliver approximately 20% of our 2023 revenues, as compared to almost 40% in the prior year. Similarly, whilst we continue to see our expertise contracted in Huntington's disease ('HD') we are also delivering over 25% of our revenues from Alzheimer's disease ('AD') studies as we pursue growth in this important and large neurological clinical trials market.

Despite recent reports by multiple pharma companies of cuts to R&D budgets, AD continues to represent a multi-billion-dollar market for successful disease modifying drugs and the recent progress achieved in this therapeutic indication is anticipated to attract long term investment into AD research and development. This is exemplified by the accelerated FDA approval of Eisai's Leqembi drug and reported successes of Eli Lilly's Donanemab, which has been shown to reduce clinical decline by approximately a third compared to placebo in early-stage AD patients. Further, the approval of these drugs, and their application in the clinic, opens further opportunities for image analysis service providers such as IXICO, particularly around safety monitoring. The monitoring of known potential side effects of these drugs such as the risk of ARIA (Amyloid-related imaging abnormalities) will be an important accompaniment in the healthcare setting to the prescription of these drugs.

At IXICO, this confidence in the growth opportunity for a specialist provider of neurological disease biomarker analysis has underpinned our continued investment program. A significant and critical investment for IXICO is our next generation image capture and analysis platform, which is approaching completion. In an increasingly regulated market environment, the platform will provide regulation and cyber-security risk-driven capabilities that are required to achieve seamless image data collection in an efficient, robust and secure CFR 11 compliant manner; irrespective of the global location of the original data collection. The nature of the technology that forms the basis of this platform (developed using Microsoft's Azure cloud platform) will provide IXICO with a highly scalable, extensible platform and it underpins our growth ambitions to become a leading neuroimaging clinical-trials service provider to the global pharmaceutical industry.

Alongside this we continue to strengthen our portfolio in both MRI and PET imaging technologies, including novel PET and SPECT analysis solutions that will launch later in the year, to provide a full offering across a wide range of CNS clinical trials, across all stages of development.

These investments follow the success of our IXIQ.Ai MRI imaging analysis platform, launched in 2022, which led to the formation of the HD-IH consortium. The consortium now constitutes three biopharmaceutical companies alongside IXICO and CHDI, securing additional funding to accelerate and complete the analysis of over 6,000 HD datasets which will enhance research and drug development in this therapeutic indication.

In reporting an EBITDA loss of £0.6m for the first six months of 2023 (H1 2022: £0.5m profit), careful cost management will continue to be a focus in 2023 as we balance a period of lower revenues and increased inflationary pressures alongside the commitment to investments designed to enhance growth across the medium- and long-term. As we rebuild our order book, we expect to see increased revenues in 2024.

We hold a strong, debt-free, cash position of £5.0m as at 31 March 2023 (H1 2022: £5.8m), and have generated £0.2m operating cash inflows across the six month period (H1 2022: £0.2m), which provide a resilience to our financial position, important at a time of wider global and market uncertainty, and which allows us to continue to pursue the growth opportunities presented by the attractive CNS clinical trials space.

Financial Review

1Order book is contracted but not yet recognised revenue adjusted down to reflect the Company's best estimate of delivery.

Revenue

· The Company reports revenue of £3.2 million (H1 2022: £3.9m) representing an 18.3% decrease on the prior period.

· This reduction was caused by the final tail effects of large client trials being cancelled during 2021 and 2022. The contract cycle typical of the clinical trials market leads to a recovery in the contracted order book before it is seen in revenue.

· The Company anticipates a stronger second half of the financial year as the trials relating to contracts won over the last 12 months commence and progress beyond start-up phases.

Gross profit and margin

· Gross profit of £1.5 million (H1 2022: £2.3m) with a gross margin of 46.1% (H1 2022: 59.8%). 

· The year-on-year change is reflective of reduced revenue, and a greater proportion of this revenue consisting of services to smaller-scale early-phase clinical trials. These earlier phase trials tend to be more labour intensive and therefore lower margin.

· The Company has been impacted by high market-driven inflation, both in relation to its employee and non-employee cost base. These cost increases are seen within the Company's margins when it has not been possible to pass these onto clients.

Operating expenses and capital expenditure

· Operating expenditure of £2.6 million (H1 2022: £2.6m)

· Careful management of operating expenditure has been offset by the impact of inflation plus increased expenditure within sales and marketing as the Company continues to rebuild its commercial team.

· Capitalised R&D expenditure in the period totalled £0.8 million (H1 2022: £1.0m), predominantly in the Company's next generation image capture and analysis platform and also in new image analysis capabilities.

EBITDA and operating profit / (loss)

· EBITDA loss of £0.6 million (H1 2022: £0.5m profit) and operating loss of £0.9m (H1 2022: £0.2m profit). Both reflecting the reduced revenues across the period whilst the Company's cost base has remained largely flat (with cost management actions largely offset by inflation and increased sales and marketing expenditure).

Order book

· Order book of £13.3m at 31 March 2023 (H1 2022: £12.6m). Across the last twelve months the order book has increased by £0.7m reflecting £11.6m of new contract wins, offset by £7.9m revenues recognised and £2.9m of contract value reductions reflecting the cancellation or descope of a small number of clinical trials, the most significant resulting in a descope of £0.6m from the order book (as announced on 8 December 2022).

· The order book has also seen a relatively minor (£0.1m) negative foreign exchange impact driven by the strengthening of GBP relative to USD across the past twelve months.

Cash

· Cash of £5.0 million at 31 March 2023 (H1 2022: £5.8m). This reflects operating cash inflows of £0.2m (H1 2022: £0.2m) offset by capital investment of £0.9m (H1 2022: £1.1m).

Net Assets

· Reported net assets at 31 March 2023 of £11.9m (H1 2022: £11.8m). This reflects the increase of the Company's non-current asset position to £6.0m (H1 2022: £4.5m) partially offset by a reduction in its working capital to £6.3m (H1 2022: £7.7m).

Consolidated Statement of Comprehensive IncomeFor the six months ended 31 March 2023 - unaudited

Consolidated Statement of Financial PositionAs at 31 March 2023 - unaudited

Consolidated Statement of Changes in EquityFor the six months ended 31 March 2023 - unaudited

Consolidated Statement of CashflowsFor the six months ended 31 March 2023 - unaudited

Notes to the financial statements

1. Presentation of the financial statements

a. General information

IXICO plc (the 'Company') is a public limited company incorporated in England and Wales and is admitted to trading on the AIM market of the London Stock Exchange under the symbol IXI. The address of its registered office is 4th Floor, Griffin Court, 15 Long Lane, London EC1A 9PN.

The Company is a parent of a number of subsidiaries, together referred to throughout as 'the Group'. The Group is an established provider of technology-enabled imaging services to the global biopharmaceutical industry. The Group's services are used to select patients for clinical trials and assess the safety and efficacy of new drugs in development within the field of neurological disease.

b. Basis of preparation

The condensed consolidated interim financial statements were approved by the Board of Directors for issue on 23rd May 2023. The condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The condensed consolidated interim financial statements for the six months ended 31 March 2023, together with the comparative information for the six months ended 31 March 2022, are unaudited.

The statutory accounts of the Company for the year ended 30 September 2022 were approved by the Board of Directors on 6 December 2022 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The condensed consolidated interim financial statements comprise a Statement of Comprehensive Income, a Statement of Financial Position, a Statement of Changes in Equity, a Statement of Cash Flows, and accompanying notes. These financial statements have been prepared under the historical cost convention modified by the revaluation of certain financial instruments.

The condensed consolidated interim financial statements are presented in Great British Pounds ('£' or 'GBP') and are rounded to the nearest thousand unless otherwise stated. This is the functional currency of the Group, and is the currency of the primary economic environment in which it operates. Foreign currency transactions are accounted for in accordance with the policies set out below.

c. Basis of consolidation

The condensed consolidated interim financial statements incorporate the accounts of the Company and its subsidiary companies adjusted to eliminate intra-Group balances and any unrealised gains and losses or income and expenses arising from intra-Group transactions. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.

The Group controls a subsidiary when the Group is exposed to, or has rights to, variable returns from its involvement with a subsidiary and has the ability to affect those returns through its power over a subsidiary. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.

The results of subsidiary companies are included in the condensed consolidated financial statements from the date that control commences until the date that control ceases. The assets and liabilities of foreign operations are translated into GBP at exchange rates prevailing at the end of the reporting period. Income statements and cash flows of foreign operations are translated into GBP at average monthly exchange rates which approximate foreign exchange rates at the date of the transaction. Foreign exchange differences arising on retranslation are recognised directly in a separate translation reserve.

d. Going concern

At the time of approving the condensed consolidated financial statements, the Directors have considered the expected future performance together with the Group's estimated future cash inflows from existing long-term contracts and sales pipeline.

In assessing going concern, management prepare forecasts which are updated monthly that consider different scenarios throughout the course of the financial year, as well as ad-hoc forecasts that extend into future years. The Directors have considered these forecasts, alongside the Group's strong balance sheet and cash balance as well as the ability for the Group to mitigate costs if necessary.

After due consideration of these forecasts, the Directors concluded with confidence that the Group has adequate financial resources to continue in operation for the foreseeable future.

2. Significant accounting policies, judgements, and estimation uncertainty

The unaudited condensed consolidated interim financial statements have been prepared using the accounting policies as described in the 30 September 2022 audited year end Annual Report and have been consistently applied.

When preparing the condensed consolidated interim financial statements, the Directors make a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses.

Significant management judgements

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the consolidated financial statements.

Determination of acting as agent or principal

The scope of the project or contract terms are reviewed to determine whether the Group is acting as principal or agent. This determination depends on the facts and circumstances of each individual project or contract and requires judgement, which are made in accordance with the applicable standards. The primary indicator used to determine whether the Group is acting as a principal is whether control of the good or service is gained prior to the good or service transferring to the client. If control is gained, revenue is recognised on a gross basis. If no control is achieved, then revenue is recognised on a net basis. The Group has entered into a contract with a client to arrange the delivery of products from a third party to various client trial sites. The Group determined this was an agency relationship. If this judgement was incorrect and the Group was acting as principal, it would result in a material increase in revenue and cost of sales recognised in the period and a decrease in profit margins achieved.

Capitalisation of internally developed software

Distinguishing the research and development phases of a new software product and determining whether the requirements for the capitalisation of development costs are met requires judgement. Management will assess whether a project meets the recognition criteria as set out in IAS 38 based on an individual project basis. Where the criteria are not met, the research and development expenditure will be expensed in the Consolidated Statement of Comprehensive Income. Where the recognition criteria are met, the items will be capitalised as an intangible asset.

During the period ended 31 March 2023, research and development expenses totalled £1,035,000 (H1 2022: £1,678,000). Of this amount, £571,000 (H1 2022: £1,027,000) was capitalised as an intangible asset relating to employee costs. The balance of expenditure being £464,000 (H1 2022: £631,000) is recognised in the Consolidated Statement of Comprehensive Income as an expense.

Recovery of deferred tax assets

Deferred tax assets have not been recognised for deductible temporary differences and tax losses. The Directors consider that there is not sufficient certainty that future taxable profits will be available to utilise those temporary differences and tax losses.

Estimation uncertainty

Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Changes to these estimations may result in substantially different results for the period.

Determination of transaction prices in revenue recognition

Client contracts include an agreed work order so the transaction price for a contract is allocated against each distinct performance obligations for each service, based on their relative stand-alone selling prices. For legacy contracts prior to the adoption of IFRS 15, management were required to estimate the standalone price allocated to each distinct service that were previously grouped in a single price. For new contracts, the fair value of individual components is based on actual amounts charged by the Group on a stand-alone basis. Management have determined that for items recognised on a straight-line basis, including project, site and data management, the demands of this on the company are spread evenly over the life of the revenue stream. This was determined through an understanding of the work required to deliver the various revenue streams and the obligations within the contract needing to be met.

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted.

Useful lives of depreciable assets

The useful lives of depreciable assets are determined by management at the date of purchase based on the expected useful lives of the assets. These are subsequently monitored and reviewed annually and where there is objective evidence of changes in the useful economic lives, these estimates are adjusted. Any changes to these estimates may result in significantly different results for the period. 

Commission assets

The Group capitalises incremental costs incurred through contracts in line with IFRS 15. These costs are spread over 3 years which is the average length of a contract, as opposed to using a tailored time period for each project. Management annually reviews this assessment to determine that there are no material variances.

3. Earnings per share

The calculation of basic and diluted earnings per share ('EPS') of the Group is based on the following data:

Basic earnings per share is calculated by dividing earnings attributable to the owners of the Company by the weighted average number of shares in issue during the period. The diluted EPS is calculated by dividing earnings attributable to the owners of the Company by the weighted average number of shares in issue taking into account the share options outstanding during the period. For the 6 months to 31 March 2023, there was no dilutive effect as the share options in issue would have decreased the loss per share.

The basic and diluted earnings per share for the Group and Company is:

4. Issued capital and reserves

Ordinary shares and share premium

The Company has one class of ordinary shares. The share capital issued has a nominal value of £0.01 and all carry the right to one vote at shareholders' meetings and are eligible to receive dividends. Share premium is recognised when the amount paid for a share is in excess of the nominal value.

The Group and Company's opening and closing share capital and share premium reserves are:

Exercise of share options

During the period, the following share options were exercised:

5. Share-based payments

Certain Directors and employees of the Group hold options to subscribe for shares in the Company under share option schemes. There are 2 distinct structures to the share options in operation in the Group (H1 2022: 2). Both structures relate to a single scheme outlined in the EMI Share Option Plan 2014.

The scheme is open, by invitation, to both Executive Directors and employees. Participants are granted share options in the Company which contain vesting conditions. These are subject to the achievement of individual employee and Group performance criteria as determined by the Board. The vesting period varies by award and the conditions approved by the Board. Options are usually forfeited if the employee leaves the Group before the options vest.

Total share options outstanding have a range of exercise prices from £0.01 to £0.70 per option and the weighted average contractual life is 7.2 years (H1 2022: 7.3 years). The total charge for the period relating to employee share-based payment plans for continuing operations is £30,000 (H1 2022: £104,000).

Details of the share options under the scheme outstanding during the period are as follows:

6. Prior period adjustment

The Company restated its financials in the year ended 30 September 2022. This related to the capitalisation of commission and the subsequent amortisation of this, as outlined in IFRS 15. This restatement is required for our interim statements for prior period comparative information.

The full extent of the restatement is to increase net assets by £210,000 for the six months ending 31 March 2022:

Please see the published full year accounts for the year ended 30 September 2022 for more details on this.