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Instem sets up as consolidator with The Edge deal

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What the company does

Instem PLC (LON:INS) develops and sells software that aids data collection and the regulatory submission process for drugmakers.

In short, its tech helps its customers to bring their products to market faster.

The AIM firm owns more than a dozen software applications, including its flagship SEND technology. SEND stands for Standard for the Exchange of Nonclinical Data and is a protocol set up by the US Food and Drug Administration. It ensures that companies present data in a consistent format.

Among Instem’s other top products is Samarind – a software-as-a-service (SaaS) platform that enables companies to register and track their regulated products worldwide by maintaining a single integrated database, which is then used to update drugs watchdogs as products change over time.

Leadscope, which has developed a suite of products that use sophisticated artificial intelligence and machine-learning algorithms to predict potentially harmful drug side effects, was acquired in November.

 

How it is doing

Revenue increased by 10% to £28.2mln in 2020, or by 3% on a like-for-like basis, from £25.7mln in 2019, the company told investors in April.

Software-as-a-service (SaaS) revenues were 25% higher at £8.0mln (2019: £6.4mln) while recurring revenues, which include support fees, jumped 13% to £16.9mln from £14.9mln in 2019.

Adjusted EBITDA improved to £5.9mln in 2020 from £4.9mln the year before while the reported profit before tax was positive at £2.5mln versus a loss the previous year of £0.9mln. Adjusted profit before tax, which excludes one-off items and adjusts for foreign currency fluctuations, leapt to £4.0mln from £3.2mln the year before.

The cash balance at the end of 2020 stood at £26.7mln, up from £6.0mln in 2019, after the company raised £15.7mln in June of last year through a share placing.

In March, Instem acquired software group The Edge for up to £8.5mln.

The acquisition is expected to be earnings enhancing in 2021, Instem said, adding that it will also broaden its presence in the discovery study management market.

The Edge’s expertise is to make sure data from experiments is efficiently captured, stored and shared between scientists and technicians helping to reduce the time required to market a drug.

 

What the boss says: Phil Reason, chief executive

“Our proven model continues to generate strong cash flows while the combination of increasing demand for regulatory-backed solutions and a growing demand for artificial intelligence and in silico solutions in the drug discovery process underpins our confidence in further leveraging our product base. Importantly, we already have good visibility for the current year with growing SaaS revenues and a strong pipeline.” 

“We are primed to build on this momentum, having strengthened our proposition post period end. The recent acquisitions of d-wise and The Edge highlight our ability to add scale and leverage existing customer relationships with a view to further enhancing earnings and profitability, while providing a strong platform for continued growth. In addition, we are continuing discussions with a number of other potential acquisition targets.

“Given the structural backdrop and opportunities within our existing client base, we are confident that we are well placed to continue growing recurring revenues, margins, and cash generation, and look forward to augmenting organic growth via our ongoing acquisition strategy.”

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What the broker says 

N+1 Singer said The Edge is a highly complementary bolt-on, further extending Instem’s offering into a closely adjacent market and offering substantial potential revenue synergies over time.

“There are a number of opportunities to drive revenue by leveraging Instem’s global infrastructure and sales and marketing capabilities,” said the broker, which has raised its 2021 and 2022 forecasts by 8% and 15% respectively.

“Instem is one of our Best Ideas for 2021 and we see the acquisition as adding to an already positive organic growth outlook.”

 

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