Today, SourceBio International (SBI ) announced that it has acquired a London-based digital pathology testing service provider, LDPath, for an initial consideration of £18.5 million in cash.
SourceBio, which provides integrated laboratory services and products, said the acquisition of LDPath will strengthen the firm’s position, allowing it to become ‘a leading outsourced partner providing cellular pathology testing to NHS Trusts and private healthcare providers in the UK.’
LDPath’s proprietary solution transmits complex images of human tissue samples between the healthcare provider, the pathology testing partner and its individual pathology consultants.
Together, the enlarged group will target the conversion of both NHS and private clients to the digital pathology offering, including the use of AI to further streamline the reporting of more routine pathology cases and to ensure the highest quality of reporting, SourceBio outlined.
It noted that cellular pathology, which enables shorter turnaround and reporting times and greater throughput, at lower cost, is now undergoing ‘a structural shift away from physically transporting patient tissue samples to instead transmitting digital images of patient samples.’
In particular, the successful rollout of LDPath’s Digital Pathology platform is expected to reduce turnaround times for results from five to seven days, to approximately 24 hours.
LDPath’s revenues are currently concentrated in the UK market, with both NHS and private healthcare provider clients. It currently employs 40 staff and additionally has a network of approximately 80 active consultant pathologists providing reporting and diagnostic services.
The acquisition, which is for an initial consideration of £18.5 million in cash, with further performance-based consideration payable dependent on revenue growth achieved up to 31 December 2024, is expected to be immediately earnings enhancing for the company.
It is also in line with the Group’s stated acquisition strategy to accelerate growth of its core business units, utilising the substantial cash resources generated over the past 18 months.
The terms of the acquisition are based on a ‘locked box’ completion mechanism whereby SourceBio will adopt the balance sheet on the completion date, which is estimated to show net working capital of £0.3m and total net assets of £0.6m, and to include net debt of £0.9m.
The acquisition, which is expected to be immediately earnings enhancing (excluding one-off transaction related costs of approximately £0.6m), is expected to complement SourceBio’s existing Cellular Pathology business within the group’s Healthcare Diagnostics business unit.
SourceBio noted that the acquisition of LDPath follows ‘a year of strong growth in 2021’ for the company’s Cellular Pathology revenues, which grew by 78% compared to 2020 levels.
In particular, this growth was fuelled by increased volumes from the strong early inroads into the long-term national backlog of pathology testing work, caused by both the pathologist shortage and the significant delays to elective surgeries seen during the COVID-19 pandemic.
‘While the national backlog of pathology testing work provides a substantial short to medium term growth opportunity, the continuing shortage of pathologists also offers a significant opportunity for future long-term growth in outsourced pathology testing work,’ it said. It added that market demand is moving with increasing pace towards a digital pathology solution.
Commenting this morning, Jay LeCoque, Executive Chairman of SourceBio International told investors: “This transformational acquisition elevates us to a dominant position in the marketplace and provides the Group with a proprietary Digital Pathology platform.”
He commented: “The market opportunity is huge, with the long-term backlog of pathology testing work caused by the lack of pathologists in the UK being further exacerbated by the delays in elective surgeries caused by the COVID-19 pandemic. The UK Government has prioritised addressing this and the Acquisition will provide significant further momentum to the Group’s roll-out strategy initially in the UK, but then ultimately to the rest of the world.”
LeCoque added that the company is focused on utilising the additional cash generated from the acquisition “to deliver strong growth from the three core business units - Healthcare Diagnostics, Genomics and Stability Storage, both organically and through acquisition.”
Dr Alistair Robson, founder and principal shareholder of LDPath added: “Continued technical and software investments will bring NHS and private pathology into the 21st century, revolutionise the way pathology services are delivered, and significantly contribute to greater efficiency in managing workload across the UK, at a period of unparalleled NHS strain.”
In terms of trading, SourceBio noted that since May 2020, the group has provided COVID-19 PCR testing services as part of its newly formed Infectious Disease Testing business unit.
Since inception, it says these services have generated revenues exceeding £100 million from delivering more than two million test results, ‘with substantial earnings and cash generation.’
Whilst future demand for testing remains uncertain, with the lifting of all COVID-19 restrictions in the UK, it said testing volumes continue to reduce, with average daily testing volumes for the Group of approximately 1,000 tests in March compared to approximately 2,700 in January.
SourceBio highlighted that the Board’s approach is to maintain ‘an appropriate level of capacity and to continue to offer COVID-19 PCR services where opportunities exist at attractive economics.’
In the meantime, the Group has already materially downsized its cost base in this area and will continue to monitor this in relation to revenues generated.
Reflecting the cash generated by the Company and the continued strength of its balance sheet, the Board said it is considering the implementation of a share buyback programme, which would require approval at its 2022 AGM, which is scheduled for 15 June 2022.
The Company said it also remains committed to maintaining a prudent balance sheet after taking into account capital required for any buyback and potential strategic opportunities and, taking into account the purchase of LDPath, including potential earn-out payments.
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