Registered Number: NI055207Diaceutics Annual Report 2020Diaceutics PLC Annual Report 2020 Diaceutics PLC Annual Report 2020 For the year ended 31 December 2020 Registered Number: NI055207 Diaceutics PLC Annual Report 2020 Contents Corporate Information Strategic Reports Summary Highlights Statement of the Chair Chief Executive Review Section 172 Statement Financial Review Our Market Opportunity Our People Principal Risks and Uncertainties Corporate Governance The Board of Directors Corporate Governance Report Remuneration Committee Report Audit Committee Report Directors’ Report Statement of Directors’ Responsibilities in relation to the Financial Statements Group Financial Statements Independent Auditors’ Report to the members of Diaceutics PLC Group Profit & Loss Account Group Statement of Comprehensive Income Group Balance Sheet Group Statement of Changes in Equity Group Statement of Cash Flows Notes to the Group Financial Statements Company Financial Statements Company Balance Sheet Company Statement of Changes in Equity Notes to the Company Financial Statements 3 6 8 10 18 22 26 30 32 38 40 50 56 58 60 64 74 74 75 76 78 79 109 110 112 1 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Corporate Information Directors Company Secretary Ms D Davis Mr P Keeling Mr R Keeling Mr P White Mr C Hindson Mr M Wort Miss C Mullan Mrs S Craig (Appointed 4 January 2021) (Resigned 11 September 2020) (Appointed 11 September 2020) Registered Number NI055207 Registered Office 55-59 Adelaide Street Belfast BT2 8FE Independent Auditor PricewaterhouseCoopers LLP Bankers Solicitors Waterfront Plaza 8 Laganbank Road Belfast BT1 3LR Silicon Valley Bank Alphabeta 14-18 Finsbury Square London EC2A 1BR Arthur Cox Victoria House 15-17 Gloucester Street BT1 4LS Nominated Advisor & Broker Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS 2 3 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Strategic Reports Summary Highlights Diaceutics PLC (the “Company” or the “Group”), a diagnostic commercialisation company for precision testing, is pleased to report its audited results for the year-ended 31 December 2020. The previous 12 months reflect a challenging year in light of the COVID-19 pandemic. The Group continued on its mission to become the leading provider of precision testing data and commercialisation services for the global Pharma industry. Financial Highlights Operational Highlights • Revenue decreased by 6% to £12.7m (2019: • Strengthened the balance sheet in June with £13.4m) an equity placing of £20.5m (before costs) • Gross profit decreased by 8% to £9.4m (2019: • Successfully launched the DXRX platform in £10.3m) October 2020 within budget • Gross margin of 75% (2019: 77%) • Completion of restructuring exercise by the • Adjusted loss before tax* (£0.3m) (2019: year-end, resulting in a £1.9m annual reduction adjusted profit before tax £1.8m) in cost base but resulted in exceptional costs • Loss before tax £0.7m (2019: profit before tax of £0.4m £0.5m) • Provided data and services to 53 therapy • Adjusted EBITDA* of £0.5m (2019: £2.4m) brands in 29 countries serving 39 clients - • EBITDA £0.2m (2019: £1.0m) maintaining our brand engagement through a • Net assets of £40.2m (2019: £20.1m) difficult COVID-19 year • Net cash inflow of £13.6m reflecting a gross • Strong client repeat business at 92% of raise of £20.5m (2019: inflow of £9.7m revenue (2019: 87%) reflecting a gross raise of £17.0m) • Added seven new clients to our customer list - • Strong balance sheet with net cash of £25.3m now servicing 39 clients (2019: 36 clients) (2019: net cash of £11.7m) • Integration and online access to all our *Adjusted for exceptional costs of £0.4m in Diagnostic Deductive Pathways TM (DDPs) relation to a restructuring event. • Added 138 million new patient testing records 365 million patient testing records and 49 to our data lake (2019: 112m) Peter Keeling, Chief Executive Officer, commented: “Recent Market data indicates that US Pharma pipeline position. The Group is well placed to commercial activity had returned to 95% of pre- respond to these opportunities, and feedback COVID-19 levels by the end of December 2020. from our clients has been positive. That said, we This has a direct link to Pharma commercial recognise that we are not immune to ongoing investment and consequently we observe challenges within the global market, particularly greater predictability returning to Pharma as we emerge from the COVID-19 pandemic. budgeting. This combines with the on-track adoption of our DXRX platform by clients in On balance, given the positive and cautious the first three months of being on market. approach to H1 2021, the board have As a result, we have seen an increased level of for 2021. I am pleased with this decision and engagement from clients in the past quarter my management team remain focused on and our business development team continue to accelerating adoption of our DXRX platform.” see positive steps towards a more predictable approved the re-instatement of guidance “we have seen an increased level of engagement from clients in the past quarter” 6 (1) Pharma Precision Medicine Readiness Report 2019 7 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Statement of the Chair Introduction Welcome to our 2020 Annual Report and my first statement as Chair of Diaceutics having taken on this role in January 2021. I am delighted to be a part of this market-leading business and look forward to helping the Company realise its full potential. Having worked in global technology-led platform and software businesses and served on the board of listed entities for the last eight years I am looking forward to leveraging this experience together with my personal interest in using technology and data to improve patient outcomes for those suffering from some of the most challenging diseases experienced today. 2020 was an extraordinary year like no other with a number of external factors impacting our global partners for collaboration on Precision Medicine business and presenting a challenging year for diagnostics in a secure, standardised way. We Diaceutics, along with many other businesses. have a world-leading global flow of diagnostic That said, we produced a satisfactory performance testing data supported by a 2,500+ laboratory for the full year 2020, we have restructured network. Within the platform, our lab-derived our business to reposition it for the future and data is enhanced with diagnostic, claims and we have successfully launched our diagnostic demographic data, building the complete network platform DXRX - The Diagnostic Network® picture of a patient’s diagnostic journey. (DXRX). The board of directors (‘the Board’) wants to thank the full Diaceutics team, for navigating COVID-19 has accelerated the uptake of digital the challenges and uncertainties of the year technologies within the Pharma and Diagnostic and repositioning the business for growth. industries. We believe DXRX is the right technology Performance at the right time to meet the evolving needs of our stakeholders and provides a scalable, During the year, we reported a successful H1 secure platform for increased collaborations. with growth in revenue. During H2 the impact of COVID-19 on our clients’ drug launches resulted Our People in a downward revision to market expectations Reflective of its global reach, Diaceutics has a for the full year. Our revenue, adjusted EBITDA diverse employee workforce. Remote working has and adjusted PBT for the financial year, albeit always been a central part of day-to-day work below 2019, were in excess of the revised at Diaceutics so the COVID-19 transition to full market expectations provided in September remote working was seamless. It was important to 2020, and reflected continued signs of improved provide additional support to our colleagues during activity towards the end of the year. this time and, led by our CEO, a comprehensive Our Technology internal COVID-19 response was implemented. In our most recent employee survey 98% of Diaceutics occupies a position at the convergence colleagues said that they were treated fairly and of healthcare data, Precision Medicine therapy with respect, and 96% said they would recommend pipeline and global test commercialisation, Diaceutics as a place of employment to a friend. which we are optimally placed to host and commercialise on our DXRX platform, and within The Board recognises that all our colleagues an industry experiencing multiple growth drivers. have been touched by COVID-19 in some DXRX has been purpose built to create a vibrant ones to the virus. We extend our sincere platform and marketplace where all stakeholders condolences to those colleagues and their in Precision Medicine come to find trusted family and friends during this difficult time. way and several have lost family and loved- Board Matters Outlook The Board has supported management throughout Peter Keeling, CEO and the entire team have the COVID-19 pandemic and during the fundraising shown excellent leadership, resilience, and which was announced on 11 June 2020. agility as we moved through the year to end it ahead of revised market expectations. At the year-end, Julie Goonewardene stood down as Non-Executive Chair and we thank There is a need for real-world data and Julie for her long-term service and wish her well implementation services to support the growth in in her new endeavours. I was very pleased to pre- and post-launch precision therapy brands, assume the role of Chair from 4 January 2021. I and we are now positioned to deliver to our am excited to be involved with Diaceutics at this clients on our newly launched DXRX platform. pivotal point in its journey with the launch of our DXRX platform and the transition of the business Overall, the business is in good financial health from its classic model into a platform business. and is well positioned to take advantage of the anticipated market growth as we manage During Q2 the Board oversaw a fundraising through COVID-19, and on this basis the Board that resulted in a placing of 14,137,931 ordinary have reinstated guidance to the market. shares at 145p per share raising £20.5m (before expenses). The Board was pleased with the Thank you to all our clients, partners, suppliers, support from both existing and new shareholders. investors and employees and we look forward The proceeds will support the Company’s role in to interacting with you all during 2021. the accelerated digital opportunity that our clients see as becoming the new way of doing business. During the year, we conducted an internal Board effectiveness review as part of our strive for continuous improvement. As our new Chair, I want to build on this sound base and continue to Ms Deborah Davis leverage the skills and experience around the table. Chair 13 March 2021 As a Board, we continue to monitor employee engagement and satisfaction through town hall and employee feedback surveys. The feedback shows the support and dedication of our people and as a Board we have responded to meet the needs of our people through the COVID-19 pandemic. The Board is cognisant of the importance of Environmental, Social and Corporate Governance (ESG) factors in a successful and responsible business. It is my intention to set long term goals around ESG and to track and report against key indicators. The Board supports all aspects of diversity and our Company is global and diverse by nature of the geographies in which we operate. In addition to this, diversity of gender, sexuality, ethnic background and religion or any other form of diversity is supported by the Board. “...the business is in good financial health...” 8 9 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Chief Executive Review Overview Like many organisations in global healthcare, Diaceutics was subject to the business uncertainties triggered by COVID-19. Despite this, my team navigated the challenges across 2020, achieving key business milestones whilst responding to budget reductions and delays by many of our key clients also triggered by COVID-19. We reported H1 revenue growth of 20% to £5.3m, compared with £4.4m in the same period for 2019, reflecting the underlying growth in clients and therapy brands. In addition, we carried out a second share placing in June 2020, raising £20.5m of additional cash (before costs), further strengthening the balance sheet and supporting us in planning for further growth opportunities and investments. In mid-August, it had become apparent that COVID-19 had resulted in an unprecedented downturn in the number of cancer and immune-compromised patients attending their doctors. As a result, Pharma moved mid-year to reprioritise their budgets, and delay spend on several on-market and near-market therapy brands. As a result of this, we determined that the revenue for the year was expected to be below that of the 2019 financial year and issued a revision downward of the guidance in place for 2020 followed by immediate action to reduce the operating cost-base accordingly. By year-end we reported revenue of £12.7m (2019: £13.4m) ahead of revised guidance by 5.8%, with Gross Margin remaining strong at 75% (2019: 77%). Furthermore, we reported a positive EBITDA of £0.2m (2019: £1.0m) against guidance of (£0.6m) EBITDA and an adjusted EBITDA of £0.5m (2019: £2.4m). The cash reserves at 31 December 2020 were £25.3m (2019: £11.7m). In support of the above and to ensure a more robust operational base for 2021, we undertook a complete cost review and a restructure in Q4, triggering an exceptional cost of £0.4m, and expected to provide an annual cost saving of £1.9m and a reallocation of a material amount of this cost saving towards platform business development and marketing for 2021. Our restructuring activity 10 included a full external and internal review and reorganisation of our resources in support of our current and future business operations. Of key importance to the business in 2020 was the on-time launch of the DXRX platform in October within the original planned budget. By year-end we had presented the DXRX platform to 19 client teams and formed several collaborative partnerships to support moving our lab network online. Overall, as a business we had supported 39 Pharmaceutical companies 53 therapy brands, broadly in line with prior year. I am proud of how the team responded to the global disruption of COVID-19 significantly increasing touch points and ensuring client relationships remained strong and robust, in particular, for post COVID-19 growth. DXRX Launched October 2020 In October 2020, Diaceutics officially launched DXRX, its diagnostic network platform dedicated to Precision Medicine. The DXRX platform launch was a key milestone in the evolution of our business, which was needed to provide a fully integrated solution to our Pharma clients and other stakeholders working to address a broken diagnostic ecosystem denying patients access to Precision Medicines. This enables Diaceutics to serve Pharma’s precision testing needs over the years ahead and as Precision Medicine becomes the predominant business model for the Pharmaceutical industry. In 2020, progress was therefore seen across all three strategic drivers of our business as described below. “I am proud of how the team responded to the global disruption of COVID-19 significantly increasing touch points” 1. Right Business Model for Pharma’s A goal for us as a company is to serve the Precision Testing Needs needs of therapy brands over multiple years specifically to “live longer with the therapy Precision Medicine is fully recognised today by brand”. We now have 18 therapy brands where the world’s leading Pharmaceutical companies as we have assisted our clients for three years and a predominant driver of future growth, with half eight therapy brands for at least five years. of the top 10 predicted therapy brands by 2025 being interdependent upon better patient testing. Additionally, a key USP for Diaceutics is our ability ‘Super brands’ like Merck’s “Keytruda” (enabled to provide a global service to our clients and 11 by better PD-L1 testing) are likely to break annual of our clients worked with us in all three regions records projecting the greatest revenue of any simultaneously in 2020 - US, EU and Asia (11 in therapy brand, at $22bn annually by 2025. 2019). With the arrival of DXRX, we anticipate Oncology pipelines are dominated by therapies scaling up this global solution, bringing a total of likely to be interdependent upon efficient patient 16 products of which seven are enhancements of testing. Notably large Pharma, including GSK current product offerings. Nine are new of which and AstraZeneca made key acquisitions for new five were launched at the year-end and four in Precision Medicine therapies from the growing development through 2021. In July 2020, before number of biotech companies dedicated to the arrival of DXRX, we announced our largest developing integrated test and drug combinations. single order of $1.27m with a top Pharma client to provide a multi-country, multi-year solution in the Over the past 15 years, Diaceutics has dedicated commercialisation of a complex testing strategy its business model to serving the complex and for non-small cell lung carcinoma (NSCLC). evolving precision testing needs of a growing number of Pharmaceutical companies bringing precision therapies to market. Despite the backdrop of a marketplace interrupted by COVID-19 (see below) across 2020, we increased our global client base to 39 (2019: 36). 11 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Across the year we worked on the top data sources and disease coverage in line with biomarkers driving Precision Medicine today the needs of the Precision Medicine market. including PD-L1, EGFR, HER2 and BRCA deepening our experience in removing the To derive real value for our Pharma clients hurdles holding back seamless testing in key and laboratory partners we leverage our data cancers enabled by these biomarkers. scientists and machine learning to expertly label the raw data and allow us to map patient journeys Our domain experts continued to project their at a disease level. These complex DDPs form a thought leadership in precision testing in 2020, core part of our Intellectual Property portfolio. In and in October we published our 7th landmark 2020 we added 13 new DDPs to the 36 already Pharma Precision Medicine Readiness report existing. This forms the foundation for developing describing the broken ecosystem in NSCLC as our services into the non-oncology space, a disease-level lens into the systemic barriers including cardiology and autoimmune disease. impeding precision testing. For the first time we had four key clinical abstract studies and one In addition to the disease level insights from poster presentation accepted at the industry’s our DDPs, our data repository provides an key oncology meeting of the year (ASCO) understanding of the testing patterns in all the key (2019: nil). Across the year we also published cancer testing labs across 35 countries, as well four other peer reviewed publications. as for 670,000 precision therapy prescribers. Key to further unlocking the significant clinical and As we reported in September, COVID-19 commercial value resident in our data repository, caused disruption to expected new therapy is the ability to provide online access to our clients launches in 2020, as budgets were reallocated and laboratory partners. This took a huge leap and reshaped to support on-market brands. forward with the launch of DXRX, the third and last Our analysis of this disruption with our clients piece of the strategic infrastructure essential to indicated that a number of new drug launches provide a global, scalable solution to the broken were pushed back at least six months into precision testing ecosystem and integrate our data 2021. Nonetheless, COVID-19 has not materially and business model via the platform through 2023. impacted the mid- to long-term march of our clients towards a Precision Medicine future. 3. The Right Platform to Unlock a More Efficient Diagnostic Marketplace 2. Right Data Insights to Support Better Testing DXRX was launched on target in October following A prerequisite to eliminating access hurdles three years of development and a further £6m to precision therapy caused by testing is to of investment in platform and data in 2020. At understand the real-world clinical testing its core lies the ability to enable our Pharma ecosystem. Evidence over the years has shown clients and laboratory network to collaborate that having patients routinely tested in cancer in solving the real-world issues holding back and other areas with a novel test or biomarker precision testing and integrate the development takes years of planning and significant levels of and commercialisation of new precision tests in investment. Too often launch planning for a new step with therapy launches. This first-generation test is late and investment far short of what is platform enhanced our current offering and required to support a multi-million dollar therapy. expanded our technology-enabled services (TES), To truly shine a spotlight on the real-world with the remaining four TES and data services difficulties which patients have travelling their own to be introduced sequentially over the next four diagnostic journey to receive the right precision quarters. Service capabilities at year-end include: data services and network access to 12 modules drug, in 2011 we began investing in gathering and analysing everyday testing patterns for cancer and other diseases. Today, this data repository represents a world-leading diagnostic data lake, combining multiple sources of information to build a complete picture of a patient’s diagnostic journey. In 2020 we further enhanced our data insights by adding 138 million patient testing records to the 227 million we had at the end of 2019 (2019: 112m). We continue to invest in adding 12 “as many as 50% of patients are missing out on treatment as a result of the broken diagnostic ecosystem” • Data Subscription • Lab Mapping • Physician Mapping • Testing Dashboard • Test Quality Assessment • Test Educational Awareness • Test Report Optimisation • Lab Training • Lab Support • Lab Standardisation • Test Regulation • Network Access Fee pursue more of the investment in removing test access hurdles to precision therapy and provide real value to our laboratory partners. Key features of DXRX at launch included: • Integration and online access to all our 365 million patient testing data records and 49 DDPs • Access to data from all 2,500+ laboratories in the network • Commencement of six key collaborations with important diagnostic partners and quality assessment organisations • By the end of 2020 conversion of 61 laboratories directly online to work on client projects, successfully engaging the first wave of key oncology laboratories We fully recognise that the introduction of a new disruptive platform in healthcare takes time to diffuse into the market. Nonetheless, one of the indirect consequences of COVID-19 has been an accelerated adoption of digital platforms by Pharma commercial teams where their legacy commercial model has struggled. Whilst it was important to have a minimum viable platform to introduce first time to our Pharma clients, we took the decision to accelerate our client outreach with DXRX and over November and December 2020 we introduced the platform to 19 different Pharma client teams and commenced platform-enabled delivery to eight key projects. Client reception to the platform has been positive, and we believe this pattern of early traction will continue across 2021 as we seek to bring this transformative digital platform into the precision testing arena. DXRX will facilitate the Diaceutics business model and data repository in important ways, primarily in enabling us to scale more easily across markets and within clients, over time increasing the number of products and services to support our clients’ circa $10m investment for each therapy brand. Importantly, we have introduced a flexible and multi-tier pricing structure to our clients including a network access fee, data subscriptions and technology-enabled services bundling, which, combined, will provide greater transparency and predictability to our future revenue flows as we move gradually to full platform adoption. These additional platform offerings enable our end-to-end commercialisation offering to clients allowing us to encourage and Business Operations Aside from our progress with the business model, data repository and DXRX platform 13 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 “in addition to the more than 150 Precision Medicines on the market today, there are over 450 progressing through to market.” launch, we advanced our balance sheet and business operations in four important ways: Fundraising Q2 At the end of Q1 we reported the COVID-19 led digital accelerated evolution of our clients’ internal programmes from drug development to full commercialisation. The speed of the disruption to our clients’ traditional business models, and in particular the client field-force and the doctor relationship interactions, were most impacted. Moreover, we could see a trend in some of our clients expressly favouring tech-enabled services as a way to continue the launch and adoption of drugs which are key to maintaining their own growth trajectory. As a Board we launched a fundraising round in Q2 with the objective of being adequately funded for the increasing favouring of, and client demand for, digital solutions to bridge the COVID-19 disruption but also as an acceleration to their own internal digital KPIs. I am pleased to report we concluded the raise in June 2020 with a raise of £20.5m (before expenses) with continued support from our existing shareholders and a cohort of new shareholders added to the register. Management are progressing a plan for application of these funds. Our Team Our people are key to our business and as such we supported them through COVID-19 disruption via an employee assistance programme to support staff and their families and continue to do so. Transitioning to 100% homeworking was seamless as 70% worked virtually pre-COVID-19 and our years of investment in digital communications served to minimise the impact to our client work. Net of restructuring we increased our overall headcount by 15, gearing our operations towards our platform business model by the end of the year. This restructuring has allowed us to remove £1.9m annualised costs by further leveraging the efficiencies brought internally by DXRX. To support our Executive Committee (“EXCO”) we formalised and mentored an operations leadership team (“OPCO”) to assume greater control of the day-to-day operations of the Company. This is critical to underpin a scalable organisation and further contributes to our agility as a business. We have continued to invest heavily in team training via our online Percipio platform and dedicated training staff. This facility allows us to remain highly agile as a business as our client needs from precision testing rapidly evolve. committed to understanding the challenges facing By the year-end we had provided on average each drug brand team and, in conjunction with one week of training to every team member. our specialist scientists, providing a “5-mile-deep” understanding and solution matrix for our clients. Our culture is an important asset that we have invested in over many years. Supported by A further aspect for our strategy is to achieve our internal cultural ambassador, I personally global access to the platform engaging with monitor the health of our culture so that at our client “global” and “country” teams. difficult times such as COVID-19 I know we As key stakeholders, we see country team have a dedicated, resilient and collaborative engagement as key in the consistent rollout workforce to meet any challenge. of the commercialisation strategy. We expect to see further growth in the Asia-Pacific Partners and Stakeholders Economic Cooperation (APEC) region as we We have continued to extend our stakeholder and work with government agencies to identify supplier engagement, increasing the data supply and pitch to local APEC companies with a and signing on new labs to support our current commercialisation drug-launch need. We have offering. The introduction of DXRX supports planned to invest in headcount to support our a deeper and digitally-enabled engagement regional business development and further invest with our laboratory network supporting data- in our data supply and laboratory network. supply and Pharma sponsored activities. This level of engagement and commitment presents Key Challenges Ahead our clients with a commercial-ready network of COVID-19 and the severity of the lockdowns are laboratories to support the full DXRX offering. a challenge for our business. We do see how our Growth Drivers clients, under the highest level of lockdown, can delay budget-release. We continue to engage Diaceutics operates within a convergence of with our clients and monitor spend activity healthcare data, Precision Medicine and the to better understand budget and spending migration of the testing ecosystem to a platform. patterns and safeguard our business. Our DXRX Ultimately our core growth driver is our clients’ platform is built to support data subscription need to seek adoption of test and drug into and as such requires a commitment to bring the market thereby achieving an increased it outside of client discretionary budget. return on investment. Underpinning this client demand we see an increase in the volume of As the healthcare sector continues to grow, staff Precision Medicine drugs moving to market retention will be critical as the sector funding and an enhanced awareness, via the real-world and growth can see increasing demand for data, of the need to increase investment in what is a relatively fixed pool of scientific and the area of diagnostic testing. Winning new healthcare commercial talent in the short-term. clients in addition to servicing existing clients, We continue to monitor and adjust our corporate and also expanding our offering will be key to staff packages to support retention and attract our growth in the immediate term. The breadth best-in-class individuals to our Diaceutics family. and depth of our data, client and stakeholder platform activity at a critical mass, has the Precision Testing Outlook Remains Strong potential, with future investment, to create Despite the investments being made by Pharma upside blocks of revenue into the future. in Precision Medicine and precision testing there remains a very high level of unmet need. Our Our strategy is to provide our clients with own estimates based on a specific subset of an end-to-end platform for the launch and our testing data suggest that as many as 50% commercialisation of precision drugs, in addition to of patients are missing out on treatment as a selling more to our existing 39 clients and winning result of the broken diagnostic ecosystem. The new clients. Within our client cohort multiple brand outcome of this can be measured in patient teams exist. We currently engage with 53 brands lives and loss of revenue to the Pharmaceutical and we see a further 300 Precision Medicine and Healthcare industry. As the realities of brands moving to market in the next three years. the broken testing ecosystem become better DXRX provides a platform where we can offer understood, and investments increasingly pivot additional modules enabling a deeper relationship towards better testing, we believe Diaceutics with our clients. We continue to invest in platform is in the right place at the right time. business development account managers who are 14 15 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 As a result, we have seen an increased level of engagement from clients in the past quarter and our business development team continue to see positive steps towards a more predictable pipeline position. The Company is well placed to respond to these opportunities, and feedback from our clients has been positive. That said, we recognise that we are not immune to ongoing challenges within the global market, particularly as we emerge from the COVID-19 pandemic. On balance, given the positive and cautious approach to H1 2021, the board have approved the re-instatement of guidance at revenue of £13.6m and EBITDA of £2m for 2021. Mr Peter Keeling Director 13 March 2021 Our data tells us that in addition to the more than 150 Precision Medicines on the market today, there are over 450 progressing through to market, representing a percentage of current and future opportunity for our business. To support these new therapies will require the launch of novel biomarkers not currently used in mainstream clinical testing. Much work needs to be done pre-therapy and test-launch to avoid the issues and mistakes made by years of under investment in precision testing. Armed with DXRX and the most extensive data repository, Diaceutics ends 2020 in pole position to provide a one-stop global solution to the leading therapy brands driving Precision Medicine today. We remain realistic about the time and investment it takes to introduce a new commercial paradigm and develop a new lab-to-clinician channel and pragmatic about the operational prerequisites to service a demanding Pharmaceutical client base. Our primary objective in 2021 is to continue to drive adoption of DXRX across our clients, laboratories and diagnostic partners. To enable this, the business has created a number of KPIs with a focus on business development and client engagement, and operational process and efficiency. KPIs for January and February 2021 indicate that we delivered six client projects enabled by DXRX integrated data. In addition, we have won DXRX contracts with a combined value of $1.22m, supporting an increase in average proposal price of 30%+ and supporting our 2021 objective of delivering a minimum of 20% of our revenue through DXRX products. Furthermore, we continue to increase the number of laboratories and diagnostic partners engaged on our platform, now 101 and six respectively. We continue to use the KPIs developed to monitor efficiency as we transition our business to the DXRX platform and operating model through 2023. These efficiencies will be supported by the DXRX revenue product suite and revenue streams. Outlook Recent Market data indicates that US Pharma commercial activity had returned to 95% of pre- COVID-19 levels by the end of December 2020. This has a direct link to Pharma commercial investment and consequently we observe greater predictability returning to Pharma budgeting. This combines with the on-track adoption of our DXRX platform by clients in the first three months of being on market. “Recent Market data indicates that US Pharma commercial activity had returned to 95% of pre- COVID-19 levels by the end of December 2020.” 16 17 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Section 172 Statement Stakeholder and Section 172 Considerations Who engaged Employees Board/EXCO The directors are aware of their duty under section 172(1) of the Companies Act 2006, to act in the way which they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to: • The likely consequences of any decision in the long term • The interests of the Company’s employees • The need to foster the Company’s business relationships with suppliers, customers and others • The desirability of the Company maintaining a reputation for high standards of business conduct, and • The need to act fairly as between members of the Company. Throughout the year, the directors have Customers, Suppliers EXCO/ Business recognised their duty to promote the success of and reputation Development, Sales the Company and their responsibilities outlined above (the “Section 172 Considerations”) and have had regard to these in their decision making, whilst also considering the impact of decisions on the Company’s wider stakeholders. The directors believe that the following groups are the Company’s stakeholders and have set out below the key decisions made and Company engagements undertaken during the year with full consideration of the Company’s stakeholders and the Section 172 Considerations, all of which have long term implications for the ultimate success of the Company. and Procurement teams Partners and Laboratories EXCO/ Global Laboratories and Innovations teams Mr Peter Keeling Director 13 March 2021 Patients and the EXCO Community How we engaged Outcomes The Executive Directors and EXCO attended key business This enabled us to communicate meetings including weekly trading/sales meetings, monthly regularly with employees on relevant capex/working capital meetings and presentation of updates pertaining to operational and financial results. strategic initiatives. We launched an “Employee Assistance Programme” Flexible working has enabled us to to promote employee wellbeing and work-life balance continuously adapt to new working promoting flexibility within the workforce. Employee environments, accelerated by the engagement surveys were also introduced, to proactively need for remote working as a result of identify and respond to feedback. COVID-19. We have set up subgroups to garner employee engagement feedback In response to the COVID-19 pandemic, a “COVID-Toolkit” and proactively manage the wellbeing was launched online which contained amongst other things, a set of resources for line managers to encourage support for sustaining remote working, home-schooling, virtual engagement and communication. of our workforce. We have continuous touchpoints with our customers and We continue to adapt to ensure that suppliers to ensure that our products serve their purpose we are working with our customers and in informing and solving the problems of the end user. suppliers to provide products to best During COVID-19, we recognised the need to maintain solve their problems. communication with our customers and suppliers, albeit virtually, for example we attended the virtual ASCO Feedback allows us to improve our conference in Q3. products and practices and to enhance customer satisfaction always seeking to In Q3 we launched our DXRX Platform. We have engaged provide the best service for our clients. with our customers and suppliers virtually to promote this product by delivering demos and facilitating Q&A sessions On the launch of DXRX in Q3, we engaged with a number By 31 December 2020, we had enrolled of our existing partners and laboratories to enrol them 61 of our partners and laboratories on onto the platform. We created a demonstration plan the DXRX platform. and dedicated our DXRX relationship team to deliver demonstrations to those partners and laboratories. Increasing our partnerships in 2020 supported and enhanced our current We entered into six partnerships in 2020 including with and future product offering. a number of external quality assurance organisations, test coverage and reimbursement experts and with test standardisation and laboratory training and support providers. We undertook several initiatives to support our ethos of Engaging in activities which support support for patients and the community, these included: patients and community are consistent • Investing in a partnership with the Union for with our strategic purpose. Engaging International Cancer Control to contribute to their in these activities helps to promote an programmes on early and accurate diagnosis and on awareness of these initiatives to the World Cancer Day. benefit of the patients and community • Sponsorship of a small breast screening camp in India. as well as Diaceutics. The effort was supported by the Ministry of Public Health and Family Welfare, Government of Karnataka, Bangalore, Karnataka. 18 19 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Stakeholder and Section 172 Considerations Who engaged Regulators and EXCO/ Legal reputation Compliance team Investors/ Shareholders CEO/CFO/ Board How we engaged Outcomes We recruited a dedicated Data Compliance Officer. This We continue to review and improve individual was employed in order to further strengthen our our Data Compliance policies and policies and procedures regarding GDPR and HIPAA. procedures to ensure that we are striving for best-in-class. During the year, the CEO and the CFO regularly held one- Formal and informal feedback was to-one meetings, calls and roadshows with institutional received from investors and welcomed investors. During 2020 we have engaged investors on a by the Board in order to support future range of topics including: • COVID-19 decision making for the benefit of all members. • Precision Medicines tipping point • The power of real-world healthcare data • The impact of a platform business model on a broken diagnostic ecosystem • Company performance (operational and financial) • Social and Governance matters • In addition, the Board received and responded to investors Q&A’s via a number of channels which included: • Corporate broker communication • Regular interaction with the Company’s corporate analyst and brokers. “Throughout the year, the directors have recognised their duty to promote the success of the Company and their responsibilities” 20 21 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Financial Review The 2020 financial year was an unprecedented In mid-August, due to the ongoing disruption year for the Group. The trading update of the COVID-19 pandemic, it became apparent announcement in September 2020 outlined how that Pharma had reprioritised their budgets, and the financial performance of the Group should be delayed their spend on several of the therapy viewed in two parts. brands which the Group was working on. The reported revenue for the year was expected to The 2020 financial year ended with a revenue be materially below that of the 2019 financial of £12.7m (2019: £13.4m) with Gross Margin year which resulted in a revision downward of the remaining strong at 75% (2019: 77%). Despite guidance in place for 2020, and the Group took the challenges of COVID-19 in H2, the Group immediate action to reduce the operating cost- successfully ended the 2020 financial year with base accordingly. a positive EBITDA of £0.2m against guidance of EBITDA loss of less than £1m (2019: EBITDA £1m) Despite the continued disruption of the pandemic, and an adjusted EBITDA of £0.5m (2019: £2.4m). the Directors were pleased to announce the The income statement reflects a research and launch of the DXRX platform in October 2020 development tax credit of £0.9m (2019: (£0.1m)) within the original planned budget. With the resulting in profit after tax of £0.3m (2019: £0.4m). launch of the platform, the Group undertook a The cash reserves at 31 December 2020 were restructuring exercise, with the aim to reduce £25.3m (2019: £11.7m). the cost base, reorganise resources and improve operational efficiency for the Group in 2021 and The year started strongly, with the Group onwards. The restructure event resulted in an reporting H1 revenue growth of 21% to £5.3m, exceptional cost as of 31 December 2020 of compared with £4.4m in the same period for £0.4m and cost savings of £1.9m annually, with 2019 reflecting growth in numbers of clients and the view to redeploying a material amount of the therapy brand cohorts. In addition, the Group cost saving towards business development and carried out a second share placing in June marketing of the platform. 2020, raising £20.5m of additional cash (before costs), further strengthening the balance sheet The Group’s Key Financial Performance indicators and supporting the Group in further growth have been summarised below opportunities and investments. Revenue Gross Profit Gross Profit (%) EBITDA Adjusted EBITDA* (Loss)/Profit before tax 2020 £000’s 12,696 9,463 75% 151 539 (682) 2019 £000’s 13,442 10,311 77% 1,024 2,372 497 * After exceptional costs of £0.4m relating to a restructuring event Revenue Gross Margin The Group generated revenue of £12.7m (2019: Despite the reduction in revenue and challenging £13.4m) which was ahead of the revised market of COVID-19, Gross Margin remained strong at guidance issued in September 2020. Despite the year-end at 75% (2019: 77%). Our continued the 6% year-on-year reduction in revenue, the investment in artificial intelligence through Group continued to expand its global outreach the build and launch of the DXRX platform with Pharma clients, increasing the number of contributed to the continued strong performance clients serviced to 39 (2019: 36) and maintaining on Gross Margin through standardisation and engagement with 53 drug brands (2019: 53) over improved data integration. It is worth noting that 29 countries (2019: 41 countries). The Group the launch of DXRX in October 2020 resulted continues to manage the spread of revenue in the commencement of amortisation of the such that only three clients attributed greater platform which has been, and will continue than 10% of revenue for the year (2019: two to be, absorbed within the Gross Margin. clients), and no client attributed more than 11%. Administration Expenses COVID-19 undoubtedly impacted how the Group’s Administration expenses, which consists of 2020 revenue was constructed during the operational support, marketing and sales expenses year. During H1, revenue generated from Data and administration expenses including non- Analytics represented 90% of total revenue (H1 platform and share-based payment charges, totals 2019: 62%) reflecting an increase in demand for £10.0m for the 2020 financial year (2019: £8.4m). Data Services and decline in Implementation During 2020, the COVID-19 pandemic had a direct Services, a reaction to the COVID-19 lockdowns. impact on travel costs which reduced by £1.0m However, as we progressed through H2, we to £0.2m (2019: £1.2m), but increased business began to see the demand for Implementation support costs for example computer/telecoms Services return with access to laboratories and IT as the Group pivoted to supporting a fully resuming. At the year-end, Data Services functionally remote based working environment represented 76% of total revenue (2019: 72%). contributing to an overall increase in operational costs by 18%. In September, immediate steps were US-regional sales increased by 7% for the year taken by the directors to reduce the operating in comparison to 2019 (2019: 15% in comparison cost base of the Group in response to the updated to 2018). This contrasted with a reduction in trading announcement, for example a freeze on revenues in Europe (including UK) of 17% (2019: recruitment and a delay on other discretionary Increase of 29%) and a reduction of revenues in project spend not related to DXRX launch. Asia and Rest of World of 8% (2019: Increase of 105%). Despite the reduction of revenue in Asia for Whilst the Group’s presentational currency the 2020 financial year, we saw an increase in the is pounds sterling, the Group operates in a number of therapy brands in which we engaged, number of global territories and as such is highlighting future opportunity in this region. subject to fluctuation in foreign exchange. At A key performance indicator for the Group is the foreign exchange of £0.1m (2019: £0.2m loss). the year-end, the Group reported a gain on level of repeat business we see from customers and the number of new clients we do business Exceptional Costs with particularly as the business pivots towards In December 2020, the Group carried out a a platform based operating model. While we restructure with the aim of reducing operating do see some client churn within the smaller cost-base and re-positioning staff to support Biotech’s, this is largely due to acquisitions by the future operations and revised performance large Pharma and changes in their drug-to-market of the business. Exceptional costs of £0.4m runway. During 2020, we engaged with seven new were reflected in the profit & loss account, clients (2019: 10) and the proportion of revenue with an associated provision recognised within attributable to repeat business was 92% (2019: current liabilities on the balance sheet of £0.4m 87%). This demonstrates that we have continued which will be utilised by 31 March 2021. The to broaden our market outreach and continued to exceptional costs relate to redundancy costs increase the level of engagement we have with and professional fees which were wholly and our current customer base, thus improving the exclusively attributable to the restructure event. level of stickiness within our own Group brand. Exceptional costs of £1.3m were recognised in the previous year in relation to the IPO. 22 23 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Tax The Group income tax credit for the year was £0.9m (2019 Charge: £0.1m) which represents the provision for corporate income taxes due in the Republic of Ireland of £0.3m, the US of £0.5m, and credits in the UK of £1.7m, net of adjustments with respect to prior periods of £0.3m. Corporate income tax charges are calculated after R&D tax incentives which are available and have been reclaimed within the UK and the Republic of Ireland. The adjustments in respect of prior year arose due to prudent assumptions relating to the deductibility of certain costs being taken in the year and the Group completing calculations of R&D tax incentives after the financial statements were finalised. Deferred tax assets and liabilities have been recognised as they arise, with the exception of potential asset of £0.2m (2019 £0.1m) which has not been recognised in certain subsidiary companies. The Group estimates that losses of £6.3m will be available for future utilisation in the UK resulting in a deferred tax asset of £1.3m, (2019: £0.6m). A deferred tax liability of £0.7m (2019: £0.5m) arises due to the Group capitalising certain R&D costs, and £0.6m relating to other temporary differences, including capital allowances on property, plant and equipment which remain deductible in the current year for corporate income tax purposes. EBITDA, Adjusted EBITDA & Loss Before Tax The Group generated an EBITDA of £0.2m (2019: £1.0m) which was ahead of the revised guidance of an EBITDA loss of less than £1m. The adjusted EBITDA for the year was £0.5m (2019: £2.4m) which excluded exceptional costs. EBITDA and Adjusted EBITDA EBIT Depreciation & Amortisation EBITDA Exceptional Items Adjusted EBITDA 24 “During the 2020 financial year we invested £6.4m” 2020 £000’s (658) 809 151 388 539 2019 £000’s 740 284 1,024 1,348 2,372 The Group had a Loss before tax of £0.7m Profit/(loss) Per Share (2019: Profit £0.5m) and an adjusted Basic earnings per share is Loss before tax excluding exceptional 0.34pence (2019: 0.62pence). costs of £0.3m (2019: Profit £1.8m). Diluted earnings per share 0.34pence (2019: 0.62pence). Balance Sheet At 31 December 2020, the Group reported Dividends a strong net asset position of £40.2m In line with the Company’s current dividend policy, (2019: £20.1m). Some of the key items have no dividend has been proposed for the year been noted within the sections below. (2019: £nil). This policy has not needed to be reviewed in the light of this year’s performance. Intangibles Investment in development continues to be significant to the Group. During the 2020 financial year we invested £6.4m (2019: £2.8m) in our intangible asset base which includes platform, data, patents and software. Of particular note, the Group’s investment in the Director DXRX platform through capitalised development 13 March 2021 Mr Philip White costs amounted to £4.6m in total (2019: £1.7m), represented by £2.6m internal labour hour costs and £2.0 external fees. This represented the largest contribution to the Group’s development investment in the year. We launched our DXRX Platform in October 2020 within budget and on plan, and this represents a significant milestone in our strategic plans for the Group. Data accounted for £1.5m of total intangible investment for the 2020 financial year (2019: £0.9m) as we continue to expand the breadth and depth of the data lake. Cash Operating cash inflows for 31 December 2020 increased to £0.3m (2019: outflow of £0.6m) which was a result of improvements in working capital between 2019 and 2020 year-ends. Cash flow generated from financing activities increased to £19.6m (2019: £13.3m) which resulted from the additional share placing proceeds (net of costs) received in June 2020. Cash outflow from investing activities increased to £6.3m (2019: £2.9m) which was a result of increased investment in intangible assets, primarily associated with development costs relating to DXRX. Overall, cash inflows for 2020 were £13.6m (2019: £9.7m). The cash position as at 31 December 2020 increased to £25.3m (2019: £11.7m). Other than a convertible loan note of £0.1m (2019: £0.1m) the Group had £nil debt as at 31 December 2020. 25 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Our Market Opportunity Diaceutics is a diagnostic commercialisation Why is Diagnostic Commercialisation platform company which serves the global Important in Precision Medicine? Pharma industry. It has integrated a suite of When Pharma companies launch a new Precision real-world data-driven products and technology- Medicine drug, they require patients to be tested enabled services into a subscription and tech- first to identify if they carry the specific genetic enabled services based platform. Its data and characteristics (biomarker) to determine if they will technology-enabled services are focused on respond to that therapy. These companion tests removing the diagnostic testing hurdles for the are mandatory and are part of the licence granted biomarkers and companion tests that are required by the FDA or other drug licencing authority. to guide selection of Precision Medicines. This test-first-then-treat interdependency is Diaceutics’ services result in more effective what is broadly known today as precision testing patient diagnoses for treatments which in turn and precision treatment. As of the end of 2020 lead to better patient healthcare outcomes. there were more than 150 Precision Medicines This is manifested through faster testing, better on the market. In 2020 the FDA’s Center for Drug turnaround times, quicker positive identification Evaluation and Research (CDER) gave fast- and a higher number of patients treated. track designation to 32% (17 out of 53) of novel drugs, many of which were test dependant. What is Precision Medicine? Precision Medicine is the ability to treat Companion diagnostics are typically based on individual patients with a common disease specific biomarkers (genes, proteins etc.) which differently, depending on measurable biomarkers stratify those patients who will either benefit which either predicts a patient’s response (or from a drug or who might otherwise experience otherwise) to a drug or their susceptibility to adverse effects. In some circumstances, certain treatment-limiting side effects. The use of these tests are mandated by regulatory authorities. For companion diagnostic tests, which can identify example, clinicians are required to test breast the right sub-population of patients for the right cancer patients for over amplification of the HER-2 treatment, economically and early in their disease biomarker before initiating treatment with the progression, defines Precision Medicine. Precision Medicine Herceptin (Trastuzumab). Precision Medicine also provides an essential The need for diagnostic commercialisation services means of alleviating the higher costs of treatment arises because, whilst Pharma companies are adept by reducing costly inefficiencies in medicine at launching new therapies, they are historically including false positives/negatives; unnecessary less familiar with the diagnostic commercial treatment; over and under medication and costly ecosystem which operates differently. To avoid acute care admissions/readmissions resulting delays to patients accessing the precision therapy, from medication errors. However, such Precision Pharma usually chooses to outsource core parts Medicine is not widely prevalent: the top 10 of the diagnostic commercialisation to companies highest-grossing drugs in the U.S. are still effective more familiar with the complex challenges. in only 4% to 25% of those patients who take them. Included in the diagnostic commercialisation What Disease Areas is Precision services Pharma often outsources, are laboratory Medicine Relevant to? education modules to drive adoption of the new Precision therapies and tests are being test; development of new testing standards to developed in multiple disease areas, including ensure patients are receiving the same type of test HIV, Alzheimer’s, Cystic Fibrosis, Irritable Bowel regardless of where they live; and anonymised Disease; however, it is in oncology (cancer) where testing data to track and monitor physician test the greatest penetration of Precision Medicine ordering behaviour and the number of patients has occurred to date. Almost all the new cancer who test positive or negative with a particular therapies being launched today will have the biomarker. Historically Pharma has typically spent need for a companion diagnostic. It is estimated on average $1-$2m per therapy brand to ensure that 42% of all therapies (73% oncology) in the the patients are tested at the right time to access pipeline are dependent upon precision testing. their therapy. By 2025 we believe this investment could increase to an average of $8m-$10m per oncology and rapid growth for companies who therapy brand as Pharma companies seek to are increasingly harnessing Precision Medicine. remove test access hurdles to high value therapies. Taken together, these factors have doubled the overall market return, measured in net present As the value of Precision Medicine to Pharma value, compared with one-size-fits-all therapies. pipelines increases, so too does their willingness to invest further and faster in eliminating any access How Will the Increasing Complexity of Diagnostic barriers caused by a complex diagnostic ecosystem Commercialisation Change the Opportunity? denying patients treatment. We estimate that for It is important to understand how and where the every dollar Pharma invests in removing or lowering precision testing market is increasing in complexity diagnostic barriers to treatment delivers 30 to 60 since this highlights the need for Pharma to work dollars back in treatment revenues otherwise lost. alongside a specialised organisation such as Diaceutics. Specifically, the broadening use of For Pharma, the business case for Precision diagnostic testing and an increase in the variety Medicine in cancer is now compelling. We see of precision diagnostic tests is contributing to new Precision Medicines being the biggest an already complex diagnostic environment of contributor to revenue growth. AstraZeneca in multiple and recurring tests. In particular Pharma their Q3 earnings call, made reference to new is making increasing use of complementary and medicines adding $2.6bn of additional year-to-date conduit testing to supplement the traditional revenue, with Tagrisso, Imfinzi and Lynparza the companion diagnostic testing. The number of biggest contributors. These are all test-dependant testing events on a typical patient journey is therapies. For such therapies the adoption of the rising significantly. Against the backdrop of the drug and test is key to maintaining revenue growth. introduction of panel testing we continue to see Clinical trials designed with patient selection criteria the introduction of 200-300 novel biomarkers and based on Pharmacogenomics/Pharmacogenetics the evolving science as increasing the complexity (PGX) biomarkers are “smaller, quicker, and and volume of novel tests. Our research shows smarter” and “four times as likely” to yield positive that broader testing in conjunction with multiple outcomes, and those using biomarkers in another therapy treatments is set to radically increase manner are three times as likely1. The combination the number of testing events per patient. This of faster clinical trials, higher success rates, increase is expected to be further amplified by and accelerated approvals results in lower drug greater testing for resistance and monitoring. As an development costs and superior outcomes for all example, the number of testing events per patient stakeholders, especially patients. These factors with NSCLC are set to increase exponentially: have all worked to deliver billion-dollar brands in Average number of testing events per NSCLC patient 2010 2014 2018 2022E 2026E Average number of testing events 0.6 0.8 1.2 4.0 17.0 per NSCLC patients Source: Diaceutics estimates 26 27 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Diaceutics strategy has focused on collating large amounts of laboratory, patient (on an anonymised and aggregated basis), claims and payor data which it uses to direct and deliver, via a laboratory liaison team, improved testing with over 2,500 labs globally on behalf of leading Pharma companies. From the Pharma company’s perspective, it is essential that from launch, it has optimised the practical process for testing of potential patients by labs to ensure the ability to serve the highest number of patients from the outset. On the Pharma company’s side this leads to maximised impact through earlier take-up and reduced time to peak adoption. The Directors believe that the addressable market for their specific services today has been enhanced by the launch of the DXRX platform. The addressable market prior to launch was approximately $0.23 bn. With expected market growth in the number of test dependent therapies to be 300 with revenue increasing per brand alongside increased investment by Pharma to remove testing hurdles to seamless treatment, Diaceutics forecast the overall market will increase to $3 bn by 2023. As other therapies enter the precision testing market, we see potential growth in the subsequent five years growing to a potential $25 bn market opportunity. Total Available Market Our in-depth analysis of Pharma clinical trials indicates that there are currently over 450 therapies which fit the description of therapy brands likely to require a companion diagnostic if and when they come to market. This well- defined therapy brand list forms a key part of Diaceutics business development focus. Global Precision Medicine Market Pipelines Clinical Trials Pipeline by Therapeutic Area (assets requiring a Biomarker test only) Oncology 646 Central Nervous System 41 Autoimmune/Inflammation 29 Cardiovascular 10 Opthalmology Metabolic/Endocrinology 9 9 0 200 400 600 800 Source: Diaceutics analysis of Informa clinical trials database February 2021 Whilst today Precision Medicine is narrowly defined By the end of 2020 Diaceutics had over 130 around the companion diagnostic concept as requests for DXRX demonstrations from both represented by the pipeline of therapy brands Pharma clients and laboratories, having positioned highlighted above, eventually we believe that all it as the optimal way to fully manage and control patient pathways to treatment will benefit from their diagnostic dependency. Our focus for the improving the patient’s diagnostic journey and next 24 months will be to embed DXRX as the consequently the focus on improving diagnostic right market-based platform to meet the needs commercialisation will become an integrated of Pharma, labs and ultimately patients. “The goals of DXRX are to ultimately reduce the hurdles for patient testing” part of the Pharma marketing model. Of our 49 DDPs, 43 are oncology related to support the current oncology-dominated pipeline of Precision Medicines coming to market. We can see evidence of this diagnostic pathway management for improved treatment happening in diseases outside oncology, for example Alzheimer’s, non-Alcoholic Fatty Liver Disease (NASH) and Retinitis Pigmentosa. Our growing range of non-oncology DDPs will be further developed to support Pharma’s commercialisation of non- oncology therapies as Precision Medicine becomes more prevalent in these therapeutic areas. The Need for Scale With the estimated 50 new global drug/test launches anticipated annually during the next five years, the need for a scalable solution to streamline diagnostic diffusion of tests on behalf of the Pharmaceutical industry post-launch is clear. To fully capture this rapidly evolving market opportunity Diaceutics introduced in October 2020 a subscription and tech-enabled services platform called DXRX, which for the first time allows the online integration of its global laboratory network, its significant patient testing data repository and the partnerships and collaborations necessary to redress the broken diagnostic ecosystem holding back Precision Medicine. Platform business models are a way of enabling key stakeholders to collaborate more efficiently to address stakeholder needs. It is anticipated that as DXRX is solely dedicated to diagnostic commercialisation it will synchronise commercialisation of precision testing and treatment from launch onwards in order to ensure the right patients are given the right test in order to receive the right treatment. The goals of DXRX are to ultimately reduce the hurdles for patient testing and accelerate the identification of the path to the appropriate precision treatment. DXRX is designed to manage multiple diagnostic commercialisation programmes in parallel, providing Diaceutics with the ability to accelerate patient access and scale in line with the market. 28 29 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Our People “120 employees, in 16 countries including US, EU, China and Japan.” Stefan McDonald Role: Head of EU Labs Location: UK Bethany Slifko Role: Senior Director, Knowledge & Implementation Location: US Dave Zack Marianna Sciortino Role: Director of Engineering, DXRX Role: Senior Director, Business Development Location: UK Location: Italy As Head of our laboratory network in the EU, I work with our specialised Knowledge & Insights I am responsible for evolving DXRX into a team to extract, analyse and distil our data into bedrock for business growth and a key asset actionable insights for our customers. As a team for Diaceutics which delivers best-in-class it is our role to ensure our customers can access operational efficiencies for our stakeholders. best-in-class real-world data from our global laboratory network so that they have their pulse I lead a global laboratory team whose focus is to on what tests are being utilised and by which engage with labs on the DXRX platform. What is laboratories for their Precision Medicines. Through particularly rewarding in my role is seeing the real- the recent integration of our global pipeline of world solutions we are delivering for our network of diagnostic testing data into DXRX, we are now laboratories which is very much unprecedented in able to deliver our data insights with a level of the Precision Medicine space. The global laboratory acceleration, standardisation and sophistication team are themselves experienced laboratory experts for our customers which is hugely exciting. and pathologists who understand the challenges faced by labs every day. DXRX enables the delivery My role demands an appetite for constant research of digital and in-lab solutions via a global network and learning in my domain - from discovering new of service providers in 51 countries, specialising indications to understanding new technologies being in areas such as lab training, test standardisation developed and adopted in laboratories. Working and EQA support. DXRX places laboratories at the with Diaceutics also consistently challenges you to centre of a Precision Medicine network allowing think innovatively about creative solutions for each them to collaborate with Pharma companies client based on the real-world data. As a creative at on a much deeper level than ever before. heart with almost a decade of hands on experience in the clinical laboratory setting, I get a huge amount of satisfaction from the specific focus of my role. I bring 35 years of tech-focused experience from My role within the Business Development Fortune 500 companies and early start-ups to Team is focused on building long-term Pharma my role as Director of Engineering at Diaceutics. customer engagements through the continuous My focus is leading the world-class software delivery of best-in-class commercialisation engineering team who just recently brought solutions. The challenge I most enjoy in my role the DXRX platform to life. The most enjoyable is stepping into the shoes, hearts and minds of challenge of my role since starting with the our customers to understand their specific needs company in January 2020 has been the challenge and working with our cross-functional teams to of transforming Diaceutics from a traditional find creative solutions to seamlessly integrate service provider to a “platform” business. diagnostic testing for Precision Medicines. Prior I am fascinated by the process of building setting in the cancer research field, obtaining and delivering software in a tech landscape a PhD in Molecular Medicine with a focus on which is rapidly changing. After what has been new biomarkers in solid tumour progression. to joining Diaceutics, I worked in an academic a challenging and rewarding year bringing the platform to market, I am hugely excited My core focus today lies in collaborating with our for the next steps in our DevOps, Continuous global teams of domain experts and partners to Integration and Continuous Delivery Pipeline. embed a global implementation model into our customer delivery using the DXRX platform. The most exciting development this enables for our customers is their ability to accelerate their global market share through access to a broad network of local partnership opportunities while staying agile and informed using intuitive digital dashboards. 30 31 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Principal Risks and Uncertainties The risk factors that are most significant to the Group’s operations, and where applicable an explanation of how these are managed or mitigated, are outlined below. The risks described do not necessarily comprise all those associated with the Group and are not set out in any particular order of priority. Additional risks and uncertainties that are currently not known by the Directors, or that are currently deemed immaterial, may also have an adverse effect on the Group. Operational, Commercial and Financial Risks Risk Mitigation Certainty of contracts and pipeline The Group has visibility over a proportion of its Any cancellations, material amendments, delays in adoption of DXRX and uncertainty around the revenues through signed up service agreements, contracted work, or high-probability tenders. Group’s Order Book could have an impact on the The pipeline of the business is continually revenues of the Group. reviewed by senior management with both leading (proposal generation) and lagging (order intake) indicators. Using the CRM system, key account management team and client plans, this provides foresight and momentum for project closure and creates the ability to assess the products and capacity required going forward. We operate in a number of global Precision Medicine markets with the aim of increasing our access to market opportunity, and diversifying risk across a number of geographical territories. Dependence on key executives and personnel The Executive continues to review the business The Directors believe that the future success of the Group will depend in part upon the expertise and continued service of key executives and technical personnel. The loss of the services of any of the key management personnel or the failure to retain key employees could adversely affect the Group’s ability to maintain and/or structure to ensure it is appropriate to support the business model and strategic growth. Succession and retention planning are in place for senior management posts and OPCO has been put in place to add a management level below the EXCO team and provide a succession and mentoring platform for this management layer. improve its operating and financial performance. The Group remains committed to the recruitment, engagement, retention, continuing development and reward of experienced management, and highly skilled scientific, marketing and sales personnel. Furthermore, it has implemented a number of remuneration schemes to incentivise and retain key personnel. Risk Mitigation Loss of a major customer The Group’s customer base is well diversified due A small number of customers, with which the Group has a long-term historical relationship, contribute over 10% of annual revenue. The loss of any such major customer would have a direct impact on the earnings potential of the business. The relationship for a major contract usually takes time to establish and the responsibility to deliver a significant project is typically developed over a number of years. to the number of brand teams, both global and in-country, that we engage within each client, all having individual budget allocation and control. The number of brands supported by the growth has been maintained and there has been growth in the number of clients that the Group services, including contracting with new clients. The senior management team regularly review the revenue generated by key clients to ensure that the Group does not become reliant on a small number of key customers. The Group has a very good working relationship with all its major customers, and regularly seeks feedback to improve and maintain a high level of client service. The Group has a significant dependency on its Diaceutics has made a significant investment in ongoing access to patient diagnostic data our data lake over recent years and has 2,500+ Diaceutics acquires data from multiple sources including government, laboratory collaborators, key bodies and public domain sources. The failure of a significant data supplier may be disruptive to the Group’s operations, although is not expected to provide a long-term issue to the Group in relation to the supply of data. global laboratories in our network. We have amalgamated over 365m real-world patient records from multiple sources and key precision testing markets into this data lake. We have laboratory liaison teams supporting “first launch” markets for the Pharma industry and, with an extensive network of data sources, the failure of any one data source would not have a lasting impact on operations. The Group’s growth strategy is subject to Patient data is held by the Group on an compliance with information security and data anonymised and aggregated basis. privacy laws and requirements The Group’s executive and legal counsel reviews The rules on data protection afforded to patient the impact of changes to information security data in different countries varies widely and and data privacy regulations in countries that the there can be no assurance that the Group will be Group operates in. able to secure such datasets or that the basis of acquisition will be commensurate with the agreements in place to date. Furthermore, data protection laws are highly heterogeneous around the world and subject to evolution as privacy issues come to the fore. Systems and processes are in place to ensure compliance with these regulations and protect against data loss. Strong IT measures have been implemented and are reviewed regularly to ensure adequate protection is in place. A Global Privacy and Compliance officer was hired in 2020 and staff are made aware of the potential impact of changing regulations and targeted training is provided. 32 33 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Risk Mitigation Risk Mitigation The increasing instances and sophistication of A security framework is in place, combining cyber-attacks globally bring increased risk to prevention technology with continuous threat operations, reputation, staff and finances monitoring. Two-factor identification controls The launch of DXRX and Software as a Service, brings increased stakeholder connectivity and an have been implemented and organisational-wide training on identification of threats has been increased exposure to such risk. implemented. An incident management and breach response plan is in place if security controls were to be bypassed. Mitigation has been improved with the adoption of industry best practice such as Security Guideline v 4.0 and OWASP 10 and the use of specialist software such as SonarCloud to eliminate bugs and vulnerabilities in the development process. Best-in-class penetration testing was undertaken prior to the launch of DXRX and remains a core component of our security strategy. Market risks and economic conditions The Group’s business model includes flexibility The Group may be affected by general market trends which are unrelated to the performance of in both service offering and cost structure which can react to downturns in the market to lessen the the Group itself. immediate effect. Any economic downturn either globally or locally in any area in which the Group operates may have an adverse effect on the demand for the Group’s revenue, profit, growth and cash flow over a Ongoing engagement with stakeholders, regular dialogue with customers, research and marketing activities and regular strategic reviews of the overall business assist in maintaining a sustainable sustained period. business. Events beyond the control of the Group may The Directors have considered the financial have adverse effects on the business impact of the spread of COVID-19 globally. Based The possible threat of natural disasters affecting the ability to trade. The Group faces risks in relation to the political and economic instability associated with the UK leaving the European Union, as well as potential changes to the legal framework applicable to its business. The possible threat of natural disasters affecting the ability to trade. on current information, we believe the impact on proposals conversion, new client product launches and deferral of spend on client brands is temporary. A COVID-19 strategy has been implemented around client engagement and data ingestion which will continue to be reviewed and developed as additional information is provided. The overall impact of Brexit on the Group’s business is expected to be low risk and to-date the Directors have not witnessed any material adverse impact. Executive continue to monitor the situation and a Brexit strategy has been implemented, which includes the ability to attract talent from outside the UK and the use of the corporate structure to hold assets in Ireland as part of the EU regional activity. Foreign exchange rate fluctuations may A working capital model and cash flow projections adversely affect the Group’s results are used to plan for business transacted into The Group prepares its financial statements in pounds sterling, but a substantial proportion of the Group’s income and costs are and will continue to be in foreign currencies. To the different currencies so that exchange rate risk is minimised. The Group seeks to match foreign currency costs and flex cash flows to align with corresponding foreign currency receivables. extent that the Group’s foreign currency assets The Group operates current bank accounts in and liabilities are not matched or hedged, multiple currencies. It aims to ensure that the fluctuations in exchange rates between pounds receipts and payments in a particular currency are sterling and other currencies may result in made through the bank account in that currency realised or unrealised exchange gains and losses to reduce the amount of translation exposure. on translation of the underlying currency into pounds sterling. In addition, the Group maintains a revolving credit facility which can be drawn in US dollars, pounds sterling or euro. “The overall impact of Brexit on the Group’s business is expected to be low risk and to- date the Directors have not witnessed any material adverse impact.” 34 35 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Corporate Governance The Board of Directors Deborah Davis (Age 57), for Wellcome’s antiviral franchise. Wellcome Non-Executive Chair (Remuneration was merged with Glaxo in 1995. Subsequently Committee, Audit Committee) he founded and was chief executive officer of Diagnology Inc, a US/Irish based diagnostics Deborah became Non-Executive Chair of the company which specialised in the development and Company on 4 January 2021. She has extensive commercialisation of tests for sexually transmitted global experience in platform business models, diseases. Peter has led Diaceutics from its software, fintech, telecoms and e-commerce inception in 2005 to become a leader in precision businesses. After completing her undergraduate testing commercialisation which currently supports studies in Australia, Deborah spent 25 years in the principal market biomarker programmes CEO and executive roles including 14 years in for the world’s largest Pharma companies. European and global senior leadership roles at internet platform businesses PayPal and eBay, and Peter holds a degree in business administration technology companies Symantec and Verizon. from Queens University Belfast, a Master’s degree in European Marketing from Buckingham University She currently holds a number of Non-Executive Business School and spent an academic year as Director and board committee positions, including a Visiting Fellow at MIT’s Sloan business school at International Personal Finance plc, IDEX in 1994 where he led a multi-corporation US Biometrics ASA, Norway, The Institute of Directors think tank designed to look at disruptive models UK and, until December 2020, Which? Ltd. Her in future patient health for the Pharma industry. previous board experience also includes private Peter has published several peer reviewed papers equity based ieDigital. Deborah is a trustee of on Precision Medicine and is a respected speaker the Southern African Conservation Trust. at Precision Medicine events around the world. Deborah is a Chartered Director and a Fellow of the Institute of Directors. She holds a Bachelor Ryan Keeling (age 38) of Applied Science (Electronics) Honours Chief Innovation Officer degree from the University of Melbourne and a Sloan Masters in Science (Management) with Ryan is an expert in the commercialisation distinction from London Business School. of diagnostics and associated technology, Peter Keeling (age 60) Chief Executive Officer with over 12 years’ experience in the field. Ryan has led the development and commercialisation of the Group’s technology, including its proprietary data lake. Ryan has Peter has over 33 years’ experience as a leader, played a pivotal role in the Group’s technological entrepreneur and strategist in the Pharma and strategic development, previously acting industry. He has led international companies as its Chief Operating Officer until June 2018. and teams with a focus on novel business As CIO, Ryan is responsible for driving the models and product launches, including Company’s product innovation, with a near therapies, diagnostics and FMCG products. term focus on the development of DXRX. Prior to joining Diaceutics in 2009, Ryan spent eight Peter started his career as distribution manager at years as a software engineer for Aepona Limited, American Monitor Corporation, where he oversaw providing network infrastructure and related the distribution of reagents and equipment globally. services to telecommunications operators. He subsequently spent a total of 11 years leading projects in both operational and strategic roles at Ryan holds a software engineering degree from the therapy division of the Wellcome Foundation, Queens University Belfast. He is seen as a thought including as sales manager for the Pharma business leader in the field of diagnostic commercialisation in North and West Africa, commercial director and data integration, speaking at Precision for a joint venture with Wellcome Indonesia, Medicine and healthcare data conferences globally. and as brand director at global product level Philip White FCA (age 46), roles with British Gas plc and British Telecom plc Chief Financial Officer (Insider Committee) before becoming finance director with Eutelsat SA, based in Paris, France. He also serves as Philip has over 16 years’ commercial and technical a trustee and chair of the audit committee of experience in leading positions within export Trinity College London, the international exam led growth companies and has been Chief board for performing arts and English language Financial Officer of Diaceutics since 2011. qualifications. He is also a trustee of UCO, a He is a fellow member of the Institute of Chartered specialist higher education provider in osteopathy. Accountants in Ireland having trained in audit and tax in both UK and Republic of Ireland companies. Philip gained a degree in Law and Accountancy Mike Wort (age 70), and a diploma in accounting from Queens Non-Executive Director (Remuneration Committee, University Belfast, and has completed the Senior Audit Committee, Insider Committee) Executive programme at London Business School. Prior to joining Diaceutics, Philip was involved in Having trained as a microbiologist, Mike brings developing Asian supply chains, export expansion over 40 years’ experience working with life science into EU and growth by acquisition, successfully companies across the healthcare sector. Initially integrating two key corporate acquisitions. working with three of the top ten global Pharma Philip has in the past been a long-term board companies in a variety of sales, marketing and member of a UK charity. He is responsible for research positions, he was appointed investor the global financial architecture of the Group relations manager of Wellcome Plc and was and has ongoing responsibility for all financial actively involved in the global communications and risk management operations and works with programme for the £2.4 bn secondary offering of the executive management team to develop and Wellcome Plc shares by the Wellcome Trust, which implement strategies across the organisation. enabled him to develop working relationships with key figures in the life sciences industry. After leaving Wellcome, Mike was a founding Charles Hindson (age 61) partner in the first specialist communications Non-Executive Director (Remuneration agency in the UK, for the emerging biotechnology Committee (Chair), Audit Committee industry. Apart from a period when he was (Chair), Insider Committee) involved as CEO during the privatisation of the Charles joined the board as a Non-Executive devoted to working with start-up and growing Director in March 2019 and chairs the audit SMEs to maximise their potential for growth. Bulgarian Pharma industry, his career has been and remuneration committees. He brings 16 years’ experience of FTSE listed company board membership, having served in executive director roles with Filtronic plc, first as group finance director and subsequently chief executive, and then with e2v technologies plc as group finance director. He has experience supporting business leaders to develop technology businesses internationally, through organic growth and successful acquisitions, which has been reflected in creating meaningful shareholder value with these listed companies. His early career was with 3i and PwC, and then in HQ and international divisional finance 38 39 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Corporate Governance Report Chair’s Introduction Principle 1 I am pleased to introduce the Corporate Governance Establish a strategy and business Report for the year ended 31 December 2020. model which promote long-term As an AIM quoted company, we recognise the importance of sound corporate governance value for shareholders principles in supporting and delivering the strategy The Group has established a strategy and business of the Company and its subsidiaries (the “Group”) model which aims to promote long-term shareholder and embedding these within, and as an integral value. The Group’s strategy is reviewed each year. part of, the operations of the Group. The board of directors (the “Board”) adopted the Quoted Business Overview Companies Alliance Corporate Governance Diaceutics is a diagnostic commercialisation Code (the “QCA Code”) on the Company’s IPO company which serves the global Pharma industry. in March 2019. This has been reviewed and the It has combined a suite of real-world data- Corporate Governance Statement, as updated driven products and laboratory implementation on 26 February 2021, is available to view on the services into a business model. Its data-enabled Company’s website at www.diaceutics.com. products, model and services are focused on removing the diagnostic testing hurdles for the The Board has responsibility for ensuring that biomarkers and companion tests required to appropriate corporate governance principles are guide the selection of Precision Medicines. The in place and that these requirements are followed Company provides services to 39 Pharma clients and applied across the Group. The corporate and their precision therapy brands in 29 markets. governance arrangements are designed, inter- Diaceutics has amassed a suite of proprietary alia, to protect and respect the interests of all intellectual property that provides long-term value stakeholders, to ensure that the Company is to shareholders and stakeholders. managed for the long-term benefit of the Group’s shareholders and other stakeholders and to Diaceutics has established a global network of provide shareholders and other stakeholders the testing laboratories that contribute data to the opportunity to express their views and expectations Group. The Group has developed a series of for the Group in a manner that encourages open and ongoing dialogue with the Board. COVID-19 has impacted on the means of sophisticated and proprietary data-mining tools to make sense of that raw data and present it to Pharma companies in a meaningful way. In addition, the Company has a team of disease communication with the Group’s stakeholders experts that overlay their scientific knowledge but wherever possible communication which onto the data to create insights and patient would otherwise have taken place face- to-face has been undertaken virtually. outcome analysis that informs our Pharmaceutical clients. Further, the Company has established a proprietary therapeutic launch-playbook to This section of the Report from pages 40 to 49 derive from its experience on over 500 projects. sets out our approach to governance, provides The Company has established over eight years further information on the operation of the Board of proprietary data which informs the clinical and its committees and how the Group seeks to pathway and creates a deep disease-level comply with the ten principles of the QCA Code. understanding which the Company describes as a DDP. Through this, Diaceutics’ key value to Pharma companies is in providing products and services which enable insight into where, when and how the necessary precision testing procedures take place. The data generated by Diaceutics enables Pharma companies to identify the patients suitable for their therapeutic, allowing them to reach peak sales sooner than would otherwise be possible. Ms Deborah Davis Chair 13 March 2021 40 Diaceutics provides an end-to-end solution for the The Group has identified multiple growth drivers development and commercialisation of Precision over the years ahead. In the near term, the Group Medicine diagnostics, from biomarker discovery to intends to continue with the organic growth in-market test availability. With the launch of DXRX, within its core data analytics and implementation the Company has a scalable, efficient platform as services business by offering end-to-end projects its core delivery mechanism, allowing Diaceutics to and selling an ever-wider range of services to its operate effectively across markets to meet client clients. The Group won its first end-to-end, fully demand. The Company can maintain efficiency outsourced diagnostic commercialisation solution and create better quality of forward earnings via a project in June 2020 with a leading Pharma client. product suite underpinned with data subscription, The Group expects to derive growth from the tech-enabled services and platform fees. greater number of Precision Medicines progressing through clinical development as well as expanding Diaceutics’ services result in more effective patient its addressable market through the following areas: diagnoses for treatments which, in turn, lead • Additional Indications: Most of the Group’s to better patient healthcare outcomes. This is operations are presently focussed on manifested through faster testing, better turnaround oncology, but additional datasets from testing times, quicker positive identification and higher in cardiovascular, central nervous system, numbers of patients treated. The social impact of autoimmune and infectious disease will open better testing is of importance to global healthcare companion diagnostic opportunities in these systems. If patients can receive the right treatment large therapeutic areas. Diaceutics has 49 DDPs, at the right time, it allows for efficient use of time six are now in non-oncology diseases. and resources and leads to better patient outcomes. • Geographic Scope: In 2019 the Group expanded its geographic reach, initially by extending its Diaceutics’ strategy has focused on collating large footprint in China, Japan and South Korea. 2020 amounts of real-world laboratory data, patient data saw the addition of five new clients in Asia and (on an anonymised and aggregated basis), claims an increase in the number of brands serviced and payor data which it uses to direct and deliver, to 18 (from 10 in 2019). These developing via its laboratory liaison team, improved testing markets continue to represent key new growth with over 2,500 labs globally on behalf of leading opportunities for Pharma companies which Pharma companies. Business Strategy have hereto depended on western markets for the bulk of their business, but now see these regions as one of the principal sources of The Group seeks to have a balanced business volume growth going forward. The increased model with revenues derived from three areas: global connectivity possible through DXRX will • Data Provision - applying its extensive be an enabler in reaching and servicing these dataset and analysis of real-world evidence markets. supplemented with proprietary algorithms, to • Subscription and Value Sharing: The Group provide new insights which fully align precision is expected to derive additional value as DXRX testing with the corresponding Precision becomes more embedded with our Pharma Medicines; clients and other stakeholders including • Implementation Services - providing test gradually transitioning clients to a subscriptions commercialisation services centred on the and value-sharing business model. This is driven “Diaceutics Method” and leveraging its global by the Group’s ability to provide an end-to- laboratory database and laboratory liaison team end outsourced diagnostic commercialisation to implement rapid improvements to clinical service to its clients whereby it can be rewarded testing with laboratory partners in key Pharma for the delivery of key milestones, allowing us markets; and to support brands over a longer period and • DXRX Tools - using transformative technology delivering a predictable and recurring revenue developed inhouse to provide data and tools stream. via our proprietary platform DXRX, Diaceutics rapidly ingests global flows of diagnostic testing data and provides a digital platform for collaboration and service delivery. DXRX will accelerate the uptake of the Group’s services and make Diaceutics the partner of choice for Pharma companies seeking access to precision testing in the global Pharma markets. 41 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Principle 2 Seek to understand and meet shareholder needs and expectations com The Company’s contact details, email and correspondence address are listed on the website and the website offers a facility to sign up for email alert notifications of the Company’s news and regulatory announcements. The Board is committed to maintaining good communications and constructive dialogue with both its institutional and private investors and the interests of shareholders are considered paramount to the decision-making process and strategic direction of the Group. The Board actively seeks dialogue with its shareholders via investor roadshows, capital market days, one-to-one meetings and regular reporting. The Board believes that appropriate open communication with investors and the The Company has in place a process for answering communications made to the Board in a timely manner. Principle 3 Take into account wider stakeholder and social responsibilities and their implications for long-term success Company’s analysts is the best way to ensure The Group has strong regard for the importance of that shareholders understand the Group’s business, strategy and performance and, in turn, what is expected of the Group to enable its business to be driven forward. its shareholders, customers and suppliers, partners and laboratories, patients, the community and employees, many of whom are also shareholders. Employees The COVID-19 pandemic has largely prevented The Group recognises that central to its success face-to-face communication during 2020 is the recruitment, retention, development and but throughout the year the Chief Executive motivation of its workforce. The Group operates Officer and Chief Financial Officer have held multiple human resources projects to recruit and virtual meetings with those shareholders who retain talented individuals to support its strategic hold the majority of institution-held shares. goals. These include a global healthcare and benefits programme, a multi-faceted recruitment They regularly present at conferences attended process, a residential onboarding programme to by many potential and current retail investors and integrate new employees, which in 2020 has been meet with specialist private client fund managers. conducted virtually, and a robust Group-wide The Board is provided with feedback from all Performance Management Framework (“PMF”) meetings and communications with shareholders. linking each employee’s daily activity to overall corporate goals. These initiatives are enhanced by The Company communicates with shareholders bespoke developmental opportunities such as our through the Annual Report and financial internal mentoring programme and the accredited statements, the announcement of its full-year Diaceutics EFFECTive Leaders programme. This and half-year results, the Annual General Meeting is in addition to overall training and development (“AGM”) and the release of news via the London plans that promote and support personalised Stock Exchange Regulatory News Service career development, leadership skills and learning. (“RNS”). The COVID-19 pandemic unfortunately prevented shareholders from attending the AGM The Group strives to achieve a supportive and in 2020 in person. Ordinarily all shareholders have inclusive work environment which promotes well- an opportunity to ask questions or represent being and welfare, equality, respect and human their views formally to the Board during the rights together with engagement with the Group’s AGM, or with directors after the meeting. The performance, its strategic directions and goals. Company releases the voting results for the The Group has several engagement initiatives to AGM and other General Meetings by RNS. support its workforce including quarterly Town Hall presentations and updates from the Executive Corporate information, including Company Directors and other key senior management. announcements and presentations, are The Chief Executive Officer regularly publishes available to shareholders, investors and the podcasts and news articles aimed at keeping public on the Group’s website www.diaceutics. staff up to date with the direction of the Group. 42 Employee engagement surveys are undertaken Throughout the year, the Board was appraised periodically and actions taken to address key of major contract negotiations and relations with themes via sub-groups. key suppliers. Diaceutics aims to balance the During 2020, Diaceutics launched an “Employee suppliers with the need to maintain value for money requirement for strong business relationships with Assistance Programme” to foster employee for our investors. wellbeing and work-life balance promoting flexibility within the workplace. Partners and Laboratories The Group has engaged with a range of partners In response to the COVID-19 pandemic, Diaceutics and laboratories over several years and the recent launched an online “COVID-Toolkit” which included launch of DXRX will support and enhance these resources for line managers to assist staff to relationships. DXRX has been purpose built to solve sustain remote working, home-schooling, virtual the real-world challenges faced by laboratories. engagement and communication. Diaceutics’ It provides a secure online platform within which “Culture” programme provided a platform for laboratories can enhance and promote their employees to interact with colleagues in online services, showcase their abilities, gain accreditation gym classes, indoor cycling events and online quiz and access benchmarking and analytics and evenings, whilst also providing ongoing wellness support services. Our Partners gain access to the support if needed. laboratory, diagnostic and Pharmaceutical industry participants on a global level. Our partnerships are In the year to 31 December 2020, the Remuneration designed to foster business growth and strong, Committee of the Board recommended the long lasting collaborations. We partner with introduction of a Share Incentive Plan (“SIP”) organisations specialising in Precision Medicine in which all Group employees are entitled to diagnostics including areas such as test access participate. To allow all Group employees to and reimbursement, pathology training, health participate two SIPs were recommended, a UK SIP economics, reference standards and External which is HMRC approved to provide the optimum Quality Assessment (EQA). tax treatment for UK employees, and a Global SIP. In each case, the SIP enables employees to Patients purchase shares in the Company which are initially The Group’s mantra is “Better Testing, Better matched on a two for one basis for the first year Treatment”. The Group has demonstrated its and thereafter on a one for one basis. The SIP will commitment to patients by establishing a formal be launched on 1 April 2021. 501(c)(6), non-profit organisation called the Precision Medicine Connective (“The Connective”). Customers and Suppliers The Connective’s mission is to increase awareness The Group’s customer base consists of Pharma about testing so that every patient is empowered to companies across several geographical markets make the best possible decisions in their treatment including the UK and Ireland, Europe, Asia, and journey. It has partnered with international patient the US who require our products to help with the advocacy groups such as Inspire to Live, the planning, commercialising and implementation of European Cancer Patient Coalition (“ECPC”), Precision Medicine. We regularly liaise with our Myeloma Patients Europe and Lungevity to customers to ensure that our products serve their disseminate valuable information about diagnostic purpose in informing and solving the problems of testing to patients. the end user. Diaceutics launched its DXRX platform in October 2020 and will transition its business A formal partnership with the Union for International model through 2023. This will be transformative Cancer Control (“UICC”) and sponsorship of World for the Precision Medicine market and will provide Cancer Day has also provided a significant platform our customers with access to real-time data, to elevate awareness of early detection and analytics and enhanced educational services and diagnosis of cancer, which is directly related to the support which will further support our customers Group’s mantra. in achieving their end goal. Customer feedback is gathered across the Group and collated by project Charities and Communities managers to ensure consideration of customers’ In 2020, the Diaceutics’ #JUnity programme expectations and project delivery to the highest encouraged all colleagues to participate in using quality. a £50 Company donation to perform an individual act of kindness or goodwill gesture for a local community initiative, and sharing this with the rest 43 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 of the workforce. Participation took many forms, There are comprehensive procedures for budgeting from donations or assistance to neighbourhood and planning, for monitoring and reporting to the individuals and families, COVID-19 related causes Board business performance against those budgets or organisations and broader charities including the and for forecasting expected performance over disability assistance dogs charity Support Dogs, the financial year. These cover profits, cash flows, the children’s’ mental health charity, Young Minds capital expenditure and the balance sheet. and a support charity in South Africa, the Sports Academy George RSA. The Company sponsored The principal business and financial risks have been a small breast screening camp in India, which identified and control procedures implemented. was supported by the Ministry of Public Health These are monitored using a structured approach and Family Welfare, Government of Karnataka, in the format of a Board-Corporate risk register Bangalore. Regulators which is colour-coded to prioritise the most significant risks for ongoing Board attention. The risk management approach has been designed to Diaceutics produces many of its products using identify the major risks identified within operational data obtained from various channels and is activity as well as Group-wide risks and those risks committed to the security, protection and lawful of a corporate nature covering strategy, markets treatment of personal data. We acknowledge and financial performance. that protecting the confidentiality and integrity of personal data is a critical responsibility that we The Audit Committee of the Board ensures the must always take seriously. maintenance of internal controls. It assists the Diaceutics has a data protection regime in place, financial statements, accounting policies and which ensures that all personnel are sufficiently the maintenance of proper internal business and trained to handle any personal data in accordance operational and financial controls, including the with internal policies and standard operating review of results of work performed by the Group Board in discharging its duties regarding the procedures. This regime continues to evolve to controls function. keep abreast of regulatory developments across the globe. Further to the Board, the Company has an executive committee (EXCO) comprising Peter Diaceutics’ Legal and Compliance department Keeling, Ryan Keeling, Philip White, Dr Jordan Clark plays a key role in administering the data protection (Chief Technical Officer), Damian Thornton (Chief regime and ensuring Diaceutics’ activities (including Operating Officer) and Susanne Munksted (Chief its data lake) are fully compliant with relevant Precision Officer). EXCO has a weekly operations regulatory requirements across the globe, including call and monthly strategy call to review the financial GDPR in the UK and HIPAA in the US. position of Group and current risks, alongside Principle 4 Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board acknowledges its responsibility for reviewing the effectiveness of the systems that are in place to manage risk and to provide reasonable assurance with regard to the safeguarding of the Group’s assets, operations, people and reputation. The Board is responsible for reviewing and approving overall Group strategy and determining the financial structure of the Group including treasury, tax and dividend policies. future strategy for the business. A reporting pack is provided in advance of the meetings and is used to direct discussions on performance, position, cash flow and prospects of the business. An operations leadership team (OPCO) comprising members of senior management, was implemented in 2020 to add an additional layer of control over the day to day business operations. The Company employs a General Counsel to assist and advise on all legal aspects of the business. The legal department provides legal support, has developed and promotes a risk and audit programme, aimed at protecting the interests of Diaceutics from a compliance, contractual risk and intellectual property perspective. The department takes an active role in ensuring that compliance is at the core of all aspects of the business. The effectiveness of the established framework of business and internal financial controls is regularly reviewed by the executive management, the Audit critically challenge proposed strategies Committee and the Board. Previously this review and current operational performance. identified that the Group would benefit from a new ERP system. This was commissioned with further The Board considers that it has an appropriate modules implemented in 2020 to bring enhanced balance between independence, knowledge of operational and control benefits to the business. the Company’s technology, sector experience and The Board considers that the internal controls in professional standing to allow it to discharge its place are appropriate for the size, complexity and duties and responsibilities; pursue the Company’s strategic goals and address anticipated issues in the foreseeable future. However, the composition of the Board remains constantly under review and consideration will be given to any potential additions to the Board, to further broaden the experience and effectiveness of the Board as the Group develops. At this stage in the Company’s development the Board does not support the nomination of a senior Non-Executive Director, but this will also remain under review. Board Operation There is a formal schedule of matters reserved for the Board, which may only be amended by the Board. These include approval of overall Group strategy, budgets, major contracts and investments, legal and regulatory compliance and key policy implementation, operational and management performance, risk and control processes, corporate and shareholder matters including corporate capital structure, annual reports and financial statements and dividends. The Board holds monthly meetings supplemented by additional meetings where required for the proper management of the business. In addition, the Board holds at least one strategy meeting each year to formulate, evaluate and interrogate the Group’s near and long-term strategy. All directors of the Company (the “Directors”) are provided with regular and timely information regarding the Group’s operational and financial performance with a monthly reporting pack being received, as a minimum. Relevant information is circulated to the Directors in advance of meetings to allow adequate time for discussion or consideration. The Board met 22 times during the financial year ended 31 December 2020. risk profile of the Group. Principle 5 Maintain the board as a well- functioning, balanced team led by the Chair Composition, Roles and Responsibilities The Board is responsible for the long- term success of the Company. Deborah Davis was appointed Chair on 4 January 2021, following the departure of Julie Goonewardene on 31 December 2020. The Board currently comprises the Chair, Deborah Davis, two Non-Executive Directors, Charles Hindson and Mike Wort and three Executive Directors, Peter Keeling (Chief Executive Officer), Ryan Keeling (Chief Innovation Officer) and Philip White (Chief Financial Officer). The Directors’ biographies, together with their respective Board Committee memberships, are set out on pages 38 to 39. The Chair is responsible, inter-alia, for the proper functioning of the Board and the Chief Executive Officer has executive responsibility for running the Group’s business and the development and implementation of the Group’s strategy. The Chief Innovation Officer is responsible for the development and commercialisation of the Group’s technology, including DXRX and the Group’s proprietary data lake. The Chief Financial Officer is responsible for all of the Group’s financial and risk management operations and developing the global financial architecture that underpins Group strategy. The Board considers that the Non-Executive Directors are independent notwithstanding the varying lengths of service. The Non-Executive Directors have a particular responsibility for bringing objective challenge, judgement and scrutiny to all matters of the Board. They 44 45 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 The following table shows the Directors’ attendance at Board and Committee meetings during the year ended 31 December 2020: Board Audit Remuneration Insider Julie Goonewardene (Resigned 31 December 2020) 22/22 2/2 4/5 Peter Keeling Ryan Keeling Philip White Charles Hindson Mike Wort 22/22 21/22 20/22 22/22 22/22 n/a n/a n/a 2/2 2/2 n/a n/a n/a 5/5 5/5 n/a n/a n/a 1/1 1/1 1/1 Each of the Executive Directors are required stand for re-election at the AGM to be held in 2021 to commit at least five days per week to and Ryan Keeling will retire by rotation and stand their roles. The Non-Executive Directors are for re-election at the AGM. Directors are required required to provide such time as is required to seek re-election at least once every three years. to fully and diligently perform their duties. All Board members are expected to attend all meetings of the Board and the committees on which they sit, wherever possible. All Directors are encouraged to debate and use independent judgement, based on their respective knowledge and experience, to challenge all matters affecting the business, whether strategic or operational. All Directors have direct access to the advice and services of the Company Secretary and are able to take independent professional advice in the furtherance of the duties, if necessary, at the Group’s expense. The Company has effective procedures in place to monitor and deal with conflicts of interest. The Board is aware of the other commitments and interests of its Directors, and changes to these commitments and interests are reported to and, where appropriate, agreed with the rest of the Board. Board Rotation The Company’s Articles of Association (the “Articles”) require that one-third of the Directors must stand for re-election by shareholders annually in rotation and that any new directors appointed during the year must stand for re-election at the AGM immediately following their appointment. In accordance with the Articles, Deborah Davis will 46 Principle 6 Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities The biographies of the Board are set out on pages 38 to 39. The Board retains a range of industry, technology and finance experience and there is a good balance of skills, independence, diversity and knowledge of both the Group and the arena in which it operates including Pharma, platform technology, innovation, marketing, finance and public markets. The Non-Executive Directors have been appointed on merit and for their specific areas of expertise and knowledge. This enables them to bring independence of judgement on issues of strategy and performance and to debate matters constructively. The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills, knowledge, experience and time committed to enable it to deliver the strategy of the Group, it is nevertheless mindful of the need to continually review the needs of the business to ensure that this remains true. Directors receive regular and timely information on the Group’s operational and financial performance with information being circulated to the directors in advance of meetings. The business reports monthly on its performance against its agreed budget. Operational skills are maintained through an Principle 7 Evaluate board performance active day to day involvement with leading global based on clear and relevant objectives, seeking continuous improvement Since the Company’s IPO in March 2019, the Board has sought to improve the ways in which it interacts and the manner in which information is presented to it. The processes that have been put in place allow for a consistent approach to reporting, thus aiding analysis by the Board of all matters at hand. A formal Board effectiveness review was undertaken following the first year of establishment of the current Board and will be repeated in the year-ending 31 December 2021. This review was in the form of a structured questionnaire circulated to all Directors, asking them to rate the Board’s performance in several strategically important areas and provide a rationale for their view. Results and outcomes were analysed by the Company Secretary and any key themes were reported and discussed with the Board, with appropriate recommendations arising from this review being implemented by the Board. In addition to the formal appraisal process for Board members, the Chair and Chief Executive Officer regularly discuss the performance of the Board and the information provided by the executive team. Diaceutics succession planning module was developed to focus on the individual employee and their development, as well as the longer-term strategy of the Company. It uses a Performance Management platform which allows us to nurture via a structured employee engagement a talent pool in a manner which is aligned with Diaceutics’ immediate and future business strategy. The process is driven by creating an individual development plan for each employee taking account of their future aspirations in collaboration with senior management thus identifying individuals who would like to progress within the Company. This operates for all employees apart from EXCO, where succession planning is managed by the Chief Executive Officer with the support of the Board. experts from the laboratory, diagnostic and Pharma industries. Peter Keeling is a member of the COVID-19 Testing Industry Consortium group which is a group of 19 leading healthcare companies which aims to inform, improve, innovate and accelerate aspects of COVID-19 testing and highlight the wider effects of COVID-19. The Group gains important insight and support through its DXRX Network Advisory Panel, an external advisory panel comprising a recruited group of scientific advisors, typically in the field of oncology and pathology who are key industry opinion leaders well recognised in their fields. They support the Company’s collaborations with industry bodies, assist with abstract submissions for the likes of ASCO, and client engagement. The panel meets monthly and is led by Ryan Keeling. Board members may attend such courses or training, as they feel appropriate, to keep up to date. Involvement with a variety of other boards allows the members to witness alternative approaches to similar business issues and to benefit from the advice of more than just the Group’s advisors. During 2020, external advice was sought on the following occasions. The Board formed a subcommittee to appoint a new Chair, with its members being the Chief Executive Officer, Peter Keeling and the two Non-Executive Directors, Charles Hindson and Mike Wort. The subcommittee appointed an experienced recruitment adviser and ran a selection process resulting in the appointment of the new Chair being announced on 22 December 2020. Legal advice was sought in connection with the preparation for and implementation of, the restructure event and repositioning of the business undertaken in the second half of the year. All Directors may take independent professional advice in the furtherance of their duties, if necessary, at the Group’s expense. In addition, the Directors have direct access to the advice and services of the Company Secretary and Chief Financial Officer. The Chair, together with the Company Secretary, ensure that the Directors’ knowledge is kept up to date on key issues and developments pertaining to the Group, its operational environment and to the Directors’ responsibilities as members of the Board. 47 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Principle 8 Principle 9 Promote a corporate culture that Maintain governance structures is based on ethical values and and processes that are fit for behaviours purpose and support good decision-making by the Board The Board believes that an organisation is defined by its people. In 2018, the Group established a The Group’s governance structures have been formal working group, known as “The Culture Club” reviewed in the light of the QCA Code. The Board to formulate Diaceutics’ values. believes them to be in accordance with best practice as adapted to best comply with the These values continue to provide the core structure Group’s circumstances and stage of development. of our culture and are based on the key values of Empowerment, Foresight, Fun, Entrepreneurship, The Board has overall responsibility for Communication and Trust, together known as implementing the Group’s strategy and promoting the Diaceutics EFFECT values. Diaceutics has a the long-term success of the Group. The Executive dedicated senior manager, its ‘Culture Ninja’, who Directors have overall responsibility for managing ensures that the corporate culture which was the day-to-day operational, commercial and embedded in our policy and processes remains financial activities. The Non-Executive Directors at the forefront of leadership thinking within are responsible for bringing independent and EXCO and OPCO, Diaceutics’ principal executive objective judgement to Board decisions. operational committees. The Board seeks to meet regularly, but in any The EFFECT values are core to both our recruitment event to hold no fewer than 12 board meetings and annual Performance Management Framework. in each year, which are scheduled prior to the It is also the cornerstone on which our mandatory commencement of each financial year. These onboarding programme is based. Examples of how meetings are scheduled to coincide with the this culture was evident in 2020 include our #JUnity announcement of the Company’s annual and programme where all colleagues participated in half yearly results and throughout the remainder using a £50 company donation to perform an act of of the year at regular monthly intervals. These kindness or goodwill gesture for a local community are supplemented with additional meetings initiative, hosting a virtual All Company Meeting to and informal discussions between members of replace our annual in-person version which was the Board, the Executive Directors and senior cancelled due to the COVID-19 lockdown and also operational managers of the Company, in relation through the hosting of regular, virtual water-cooler to strategic business development and other chats and online COVID-19 chit-chat channels topics which are key to the Company’s progress. to encourage ongoing collaboration and support channels for colleagues. The Board is supported by the Audit Committee, Remuneration committee and Insider Committee, The Board is committed to maintaining appropriate all of which have formally delegated duties and standards for all the Company’s business activities responsibilities and written terms of reference. The and ensuring that these standards are set out in terms of reference of each committee are available written policies. Key examples of such standards from the Group’s website at www.diaceutics.com include the Equality, Diversity and Inclusion policy, the Anti-Bribery and Anti-Corruption Policy and the The Audit Committee is chaired by Charles Hindson Whistleblowing policy. 2020 saw the introduction and the other members of the Committee are of additional policies such as a Human Rights policy Deborah Davis and Mike Wort. It meets at least and Anti-Slavery and Human Trafficking Statement. twice a year at appropriate times in the reporting Further, we have drafted our vendor assessment and audit cycle and otherwise as required. policy to ensure that alignment of culture with our core suppliers has become part of our policy. The Committee’s responsibilities are set out in its terms of reference and include amongst other things, reviewing the adequacy of the Group’s accounting and operating controls, reviewing the proposed financial statements of the Group prior to 48 publication and recommending the appointment of the auditor and review of the scope and results of its audit. It is also responsible for ensuring that an Principle 10 Communicate how the Company effective system of internal control is maintained. is governed and is performing The Remuneration Committee is chaired by Charles Hindson and the other members of the Committee are Deborah Davis and Mike Wort. It also meets at least twice a year at appropriate times in the accounting cycle and otherwise as required. The Committee’s responsibilities include amongst other things, responsibility for determining the remuneration for the Group’s Executive Directors and senior management and reviewing the design of share incentive plans and setting of performance related pay schemes and total annual performance related payments. The Insider Committee comprises Philip White, Charles Hindson and Michael Wort. It is responsible for assisting and informing the decisions of the Board concerning the identification of inside information and/or price sensitive information and to make recommendations about how and when the Company should disclose that information in accordance with the Company’s disclosure manual, the Disclosure Guidance and Transparency Rules, the AIM Rules and the Market Abuse Regulations (“MAR”). It meets on an ad hoc basis as required. In 2020, the Board formed a subcommittee to appoint a new Chair, with its members being the Chief Executive Officer, Peter Keeling and the two Non-Executive Directors, Charles Hindson and Mike Wort. The subcommittee appointed an experienced recruitment adviser and ran a selection process resulting in the appointment of the new Chair being announced on 22 December 2020. The Board and its committees are provided with information ahead of meetings to give time for review and analysis. Each committee has access to such resources, information and advice as it deems necessary, at the cost of the Company, to enable each committee to discharge its duties. For each Board meeting an agenda is prepared and approved by the Chair and followed. The Board is confident that its governance structures and processes are consistent with its current size and complexity of the business. The appropriateness of the Group’s governance structures will be reviewed annually to take account of further developments of accepted best practice and the development of the Company. by maintaining a dialogue with shareholders and other relevant stakeholders The Company communicates with shareholders through the Annual Report and financial statements, the announcement of its full-year and half-year results, the AGM and the release of news via RNS channels and by regular one-to-one meetings with large existing or potential new shareholders and by open events with private shareholders. The Group encourages two-way communication with both its institutional and private investors and responds promptly to all queries received. The Chief Executive Officer talks regularly with the Group’s major shareholders and ensures that their views are communicated fully to the Board. Investor roadshows are held following the release of half and full-year results; and the Chief Executive Officer and Chief Finance Officer attend several investor and sector specific conferences which give smaller investors the opportunity to speak with the executive. Corporate information, including Group announcements, financial reports and presentations, are also available to shareholders, investors and the public on the Group’s corporate website www.diaceutics.com The Group’s workforce are regularly updated as appropriate, with the development of the Group and its performance. A group intranet system, Jostle, is frequently updated for news on Group developments and events, industry related press releases, internal discussions and a regular update from the CEO. An all-company Town Hall webinar is held quarterly during the year updating staff and consultants on past performance and future plans for the Group along with employee related matters. The Company aims to hold an annual four-day Group meeting, to which all employees are invited, in order to communicate, disseminate and discuss the Group’s plans and goals. This aims to engage and align the entire workforce with the culture and strategic goals of the Group in an environment which is effective and conducive to their attainment. In 2020 this meeting was held virtually and in a condensed format due to COVID-19. Additional Town Hall meetings were held in 2020 to compensate. 49 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Remuneration Committee Report On behalf of the Board, I am pleased to and role. The remuneration policy takes into present the Remuneration Committee Report consideration the Group’s appetite for risk for the year-ended 31 December 2020. and is aligned to the long-term strategic goals of the Group. In remunerating the Executive Remuneration Committee Directors’ and Senior Management, a proportion During the year-ended 31 December 2020, the of the remuneration is structured to link rewards Committee consisted of three Non-Executive to corporate and individual performance to Directors: me (as Chairman), Julie Goonewardene drive long-term success for the Group. (who resigned on 31 December 2020) and Mike Wort. Deborah Davis was appointed Basic Salary as Non-Executive Chair on 4 January 2021 The basic salaries of the Executive Directors and joined the Committee in place of Julie are reflective of competitive rates, taking into Goonewardene with effect from that date. consideration the level of experience and The Remuneration Committee met five times skills which the individual has relevant to the during the year-ended 31 December 2020. sector and the level of compensation within comparable AIM Companies. All Executive Role of the Remuneration Committee Director’s salaries are reviewed annually by the The Remuneration Committee has responsibility Committee. Executive Director pay rises are for determining and agreeing with the Board the considered annually, in line with employees. Company’s broad remuneration policy, for the Chair Changes in basic salaries are considered in and the executive directors, including pension the light of changes in responsibilities, roles, rights and compensation payments, together and external changes such as inflation. with recommending the level and structure of remuneration for senior management. The Pension Remuneration Committee also has responsibility All employees in UK and Ireland can participate for determining (within the terms of the agreed in the Group pension scheme within which the policy) the total individual remuneration package employer makes pension contributions of between of the Chair, the executive directors, the Company 2 and 5% for employees. Enhanced rates can Secretary, and senior executives including bonuses, be agreed for a number of senior management incentive payments, and share options. The on an individual basis. For all other employees, Committee is responsible for the design, setting the senior management team are currently of targets and approval of total annual payments reviewing the pension benefits available. under the Company’s performance related pay schemes together with the design of all share The pension arrangements in place for the incentive plans and annual awards thereunder. In Executive Directors are that the Company performing its duties, the Remuneration Committee contributes 10% of salary for Peter Keeling, 3% of takes consideration of the pay and employment salary for Philip White and 4% for Ryan Keeling. conditions across the Group, in determining These arrangements were reviewed in 2019 salary increases. The Board is responsible for the and were considered within the range of the remuneration of the Non-Executive Directors. Company’s pension contribution for other staff, reflecting the individual Directors’ salary levels. Policy on Executive Directors and Senior Management Remuneration Private Healthcare Diaceutics prioritises recruiting and retaining All employees including the Executive highly skilled and experienced staff to support the Directors are offered private healthcare. success of the Group. The remuneration policy seeks to deliver a fair and balanced remuneration Bonus and Equity package for each of the Executive Directors and All Executive Directors and Senior and Middle Senior Management team, reflecting experience Management are eligible for discretionary annual bonuses. Annual cash bonuses are paid upon the achievement of pre-set strategic objectives which relate to both Group and individual performance targets. The Committee, in conjunction with the Board reviews these targets and sets the objectives at the commencement of each financial year. No bonuses were paid in relation to the 2020 financial year. In addition to cash bonuses, equity-based awards are made to Executive Directors and Senior and Middle Management. This scheme is intended to provide a long-term incentive plan for eligible employees and the first grant was made in June 2020, in the form of market value share option awards. The second grant within the plan is scheduled for April 2021 and will be by way of a Performance share plan with performance based on absolute shareholder return. Activity During the Year Share Incentive Plan In the year to 31 December 2020, the Remuneration Committee supported the introduction of a Share Incentive Plan (“SIP”) in which all Group employees are entitled to participate. The UK employees participate though an HRMC approved share matching scheme and non-UK employees though a share option structure. The SIP enables employees to purchase shares up to a value of £1,600 in the Company which are initially matched by the Company on a two for one basis for the first year and thereafter on a one for one basis. The SIP will be launched on 1 April 2021. Sales Commission Incentive Plan In the year to 31 December 2020, the Remuneration Committee approved the introduction of a Sales Commission Incentive Plan for all sales employees. The commission structure has been designed to incentivise sales staff to focus on client relationships and to support the organisation’s targets for sales growth and reducing revenue seasonality, with a commission received based on achievement of their individual sales targets. The Sales Commission Incentive Plan commenced on 1 January 2021. 50 51 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Directors’ Remuneration The remuneration of the Board of Directors of Diaceutics PLC for the year-ended 31 December 2020 is set out below: Basic Salary £ Bonus Taxable Pension 2020 £ Benefits £ £ Total £ 2019 Total £ Executive Peter Keeling Ryan Keeling Philip White Non-Executive 246,876 215,375 215,375 677,626 Julie Goonewardene 55,000 Mike Wort Charles Hindson 30,000 35,000 120,000 - - - - - - - - 1,527 24,900 273,303 283,941 1,332 8,610 225,317 235,813 1,332 6,416 223,123 261,164 4,191 39,926 721,743 780,918 - - - - - - - - 55,000 41,250 30,000 22,500 35,000 26,250 120,000 90,000 Total 797,626 - 4,191 39,926 841,743 870,918 Taxable benefits consist of life insurance and group income protection. Remuneration is fixed except for bonus of Nil (2019: £161,000). Julie Goonewardene’s remuneration reflects all payments made up until her resignation in December 2020. Directors’ interests in share options for the year-ended 31 December 2020 As at 31 December 2020, the following directors held the following share awards over ordinary shares of £0.002 per share under the Company’s long-term incentive plan (LTIP) award scheme. For details of the share option schemes see Note 9. Type of Award Number of Exercise Vesting Number of Award Date shares at 31 Price Date shares at 31 December £ 2020 December 2019 Executive Peter Keeling LTIP 17th April 180,000 1.265 17th April - 2020 2023 Ryan Keeling LTIP 17th April 180,000 1.265 17th April - 2020 17th April 2020 180,000 1.265 2023 17th April 2023 - - - - - - - - - - - - - - - - Philip White LTIP Non-Executive Julie Goonewardene * Charles Hindson Mike Wort - - - * Resigned 31 December 2020 Additional information with respect to the share options is disclosed in note 9 share based payments. 52 53 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 “Diaceutics’ services result in more effective patient diagnoses for treatments, which in turn lead to better patient healthcare outcomes.” Directors’ interests in shares for the year-ended 31 December 2020 The Directors who held office at 31 December 2020 had the following interests in the ordinary shares of £0.002 in the capital of the Company Number of share Number of Ordinary Shares Number of options held at 31 Ordinary Shares as a % of issued Ordinary Shares December 2020 held at 31 share capital held at 31 December 2020 December 2019 Executive Peter Keeling 180,000 17,502,049 * 20.82% 17,526,049 Ryan Keeling 180,000 2,890,643 3.44% 2,890,643 Philip White 180,000 3,026,330 ** 3.60% 3,026,330 Non-Executive Julie Goonewardene *** Charles Hindson Mike Wort - - - 1,614,127 1.92% 1,614,127 43,500 144,737 0.05% 0.17% 43,500 144,737 Total 540,000 25,221,386 30.00% 25,245,386 * includes 8,861,975 shares held by Delia Keeling, Peter’s wife ** includes 1,009,800 shares held by the Philip White Tyres Pension Trust 81810 *** Resigned 31 December 2020 There were no changes in the shareholdings of the directors between 31 December 2020 and the date of this report. Service Contracts and Non-Executive Directors’ The Committee intends to undertake a formal Letters of Appointment performance evaluation procedure during the The executive directors have rolling contracts that coming year. are terminable on 12 months’ notice. The Chair and each of the Non-Executive Directors have entered Shareholder Approval of the Directors’ into a letter of appointment which is terminable on Remuneration Report three months’ notice. Shareholders are asked to approve this directors’ Remuneration Report (excluding the directors’ Committee Performance and Evaluation Remuneration Policy) for the year-ended 31 During the year the Committee has supported the December 2020 at the forthcoming Annual General introduction of the all employee share matching Meeting. This resolution is advisory in nature. plan, the arrangements to move to a PSP for the second year of the LTIP scheme, the annual pay review and the setting of performance targets for 2021’s bonus scheme. Mr Charles Hindson Remuneration Committee Chairman 13 March 2021 54 55 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Audit Committee Report On behalf of the Board, I am pleased to has a particular role, acting independently of present the Audit Committee Report for management, to ensure that the interests of the year-ended 31 December 2020. shareholders are properly protected in relation to Audit Committee During the year, the Committee consisted of three financial reporting and the effectiveness of the Group’s systems of financial internal controls. Non-Executive Directors: me (as Chairman), Julie The key responsibilities of the Committee are to: Goonewardene and Mike Wort. Deborah Davis was • Monitor the integrity of the Group’s appointed as Non-Executive Chair on 4 January financial statements and other statements 2021 and joined the Committee in place of Julie and announcements relating to its Goonewardene with effect from that date. financial performance, reviewing and challenging the methodology and The Audit Committee is convened as required assumptions used where necessary and met two times during the year (March • Consider the Group’s accounting 2020 and September 2020) to discharge its policies and practices along with its responsibilities inter alia in connection with the application of accounting standards Group’s Financial Statements for the year-ended and significant judgements 31 December 2019 and the Interim Financial • Review the effectiveness of the Group’s system Statements for the six months ended 30 June of internal controls, including financial reporting 2020. A further planning meeting took place and controls and risk management systems with the external auditor in December 2020. • Review the adequacy and security of Role of the Audit Committee the Group’s procedures and controls for whistleblowing; the detection of The Audit Committee is responsible for ensuring fraud and the prevention of bribery that the financial performance of the Group is • Consider and make recommendations properly reported on and reviewed, and its role to the board on the appointment, includes monitoring the integrity of the financial reappointment, removal or resignation and statements of the Group (including annual remuneration of the external auditor and interim financial statements and results • Oversee the relationship with the Group’s announcements), reviewing internal control external auditor including consideration of the and risk management systems, reviewing any objectivity and independence of the external changes to accounting policies, reviewing and audit process. The full terms of reference monitoring the extent of the non-audit services for the Committee can be found on the undertaken by external auditors, reviewing Company’s website at www.diaceutics.com findings of an audit with the auditors, meeting regularly with the auditors and advising on External Auditor the appointment of external auditors. PricewaterhouseCoopers LLP was appointed by the board as the Company’s external auditor on The Chief Financial Officer, Group Financial 19 May 2020 for the 2020 reporting year and it is Controller and the external auditor normally their intention to put themselves forward at the attend Committee meetings. The Committee met AGM to stand as auditors for the next financial with the external auditor without management year. There are no contractual obligations that present during the year. The board is satisfied restrict the Committee’s choice of external auditor. that I, as the Chairman of the Committee, have recent and relevant financial experience, being The Group paid £92,000 to PwC for audit services a Chartered Accountant with prior executive in 2020, relating to the statutory audit of the director experience over 16 years with two FTSE Group and Company financial statements, the listed international technology companies, as audit of Group subsidiaries. In addition, the Group chief executive officer and chief financial officer. paid PwC £11,000 in relation to non-audit related Whilst the Board as a whole has a duty to act in assurance services for the interim review. the best interests of the Company, the Committee “The Audit Committee is responsible for ensuring that the financial performance of the Group is properly reported on and reviewed.” In addition to audit and interim fees disclosed Committee performance and effectiveness above, the Group paid £65,000 to PwC in During the year, the Committee: relation to other non-audit related services. • Reviewed the changes in application of the accounting policies for the introduction of the DRDX platform • Provided support for the preparation of the trading update made in September 2020 • Supported recruitment of one senior finance manager during the year • Reviewed the status of the systems of internal control, and approved establishing the approach for Internal Audit for the current year • Liaised with the eternal auditors, including on their reappointment, and considered their non- audit work to support the Group’s reorganisation • Reviewed the exceptional costs and their associated accounting treatment, in relation to the Group’s reorganisation The Committee intends to undertake a formal performance evaluation procedure during the coming year. This Audit Committee Report was reviewed and approved by the board on 12 March 2021. Mr Charles Hindson Audit Committee Chairman 13 March 2021 56 57 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Directors’ Report The Directors present their annual report and the December 2022 and therefore the Directors have audited Group financial statements for the year- satisfied themselves that the Group has adequate ended 31 December 2020. These will be laid before funds in place to continue in operational existence for the shareholders of the Company at the next Annual the foreseeable future. General Meeting (AGM). Diaceutics PLC is incorporated in Northern Ireland, Management intends to further develop the DXRX registration number NI055207, and its registered platform to meet future market demand as outlined in office is 55-59 Adelaide Street, Belfast, BT2 8FE. the Market Opportunity section of this report (pages Research & Development and Future Developments The Company is listed on the Alternative Investment 26 to 29). Market of the London Stock Exchange (AIM: DXRX). Outlook & Financial Risk Principal Activity Details of market outlook are disclosed in our market The principal activity of the Group during the opportunity section on page 26, and financial risks year continued to be data, data analytics and are outlined within principal risks and uncertainties implementation services. The Group has established on page 32. a core suite of products and outsourced advisory services which help its Pharma clients to optimise Directors and deliver their marketing and implementation The Directors who served during the year, and up to strategies for companion diagnostics. Their mission the date the financial statements were signed, were: is to design, create and implement innovative • Ms J Goonewardene (resigned 31 December solutions that enhance speed to market and increase 2020) the effectiveness of all the stakeholders in the • Ms D Davis (appointed 4 January 2021), personalised medicine industry. The Group engage • Mr C Hindson, in research and development activities in the area of • Mr M Wort, drug development science, testing data and software • Mr P Keeling, platform development. Results and Dividends • Mr R Keeling, • Mr P White The profit for the year, after taxation, amounted to Directors’ Interests and Indemnity Arrangements £0.3m (2019: £0.4m). The Directors’ interests in the shares of the Company No dividends were paid during the year. The Directors 50 to 54. The Directors and officers of the Group do not recommend the payment of a dividend. have the benefit of a Directors’ and Officers’ liability are disclosed in the Remuneration Report on pages Going Concern insurance. The financial statements have been prepared on the No Director had, during or at the end of the year, a going concern basis which assumes that the Group material interest in any contract which was significant will be able to continue in operational existence for in relation to the Group’s business except in respect the foreseeable future and to meet its liabilities as of service agreements and share options and as they fall due. In preparing the financial statements, disclosed in the Directors’ Remuneration Report. the directors have taken into account the Group’s future trading and cash flows and believe that it is Share Capital appropriate to prepare the financial statements on Details of the Company’s issued share capital are the going concern basis. shown in Note 24 to the consolidated financial The financial performance and balance sheet statements. position at 31 December 2020 along with a range The share capital of the Company comprises one of scenario plans to 31 December 2022 has been class of ordinary shares and these are listed on considered, applying different sensitives to revenue. AIM. At 31 December 2020 there were in issue Across these scenarios, including at the lower end 84,068,923 fully paid ordinary shares. All shares are of the range, there remains significant headroom freely transferable and rank pari passu for voting and in the minimum cash balance over the period to 31 dividend rights. Substantial shareholdings At 31 December 2020, shareholders holding more than 3% of the share capital in Diaceutics PLC were: Ordinary Shares Percentage of that Class Mr Peter Keeling * 17,502,049 20.82% Gresham House Asset Management Limited 9,443,000 11.23% Canaccord Genuity Group Inc 7,808,750 9.29% Elizabeth Considine 5,512,169 6.86% Berenberg Bank Philip White ** 5,069,500 6.03% 3,026,330 3.60% Herald Investment Management 3,011,000 3.58% Ryan Keeling 2,890,643 3.44% * includes 9,585,659 shares held by Delia Keeling, Peter’s wife prior to admission, and 8,837,975 following admission ** includes 1,009,800 shares held by the Philip White Tyres Pension Trust 81810 Save as referred to above, the Directors are not aware of any persons as at 31 December 2020 who were interested in 3% or more of the voting rights of the Company or could directly or indirectly, jointly or severally, exercise control over the Company. Political Donations • so far as the Director is aware, there is no The Group has not made any political donations relevant audit information of which the Group’s during the year (2019: £Nil). auditor is unaware; and Financial Instruments • the Director has taken all the steps that ought to have been taken as a director in order to be Information on the Groups’ financial instruments, aware of any relevant audit information and to together with the Groups’ assessment on financial establish that the Group’s auditor is aware of risk is disclosed in note 23 and is included in this that information. report by cross reference. Independent Auditors Corporate Governance The auditors, PricewaterhouseCoopers LLP, will The Board has responsibility for ensuring that be proposed for reappointment in accordance with appropriate corporate governance principles are in section 485 of the Companies Act 2006. place and that these requirements are followed and applied across the Group. Details of the Groups’ This report was approved by the board and signed adherence to these principles are disclosed on on its behalf. pages 40 to 49 and are included in this report by cross reference. Disclosure of Information to Auditors Each of the persons who are Directors at the Mr Philip White time when this Directors’ Report is approved has Director confirmed that: 13 March 2021 58 59 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 “The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.” Statement of Directors’ Responsibilities in relation to the Financial Statements The Directors are responsible for preparing the The Directors are also responsible for safeguarding Annual Report and the financial statements in the assets of the group and company and hence accordance with applicable law and regulation. for taking reasonable steps for the prevention and detection of fraud and other irregularities. Company law requires the directors to prepare financial statements for each financial year. The Directors are responsible for keeping adequate Under that law the Directors have prepared the accounting records that are sufficient to show and group financial statements in accordance with explain the Group and Company’s transactions and international accounting standards in conformity disclose with reasonable accuracy at any time the with the requirements of the Companies Act 2006 financial position of the group and company and and company financial statements in accordance enable them to ensure that the financial statements with United Kingdom Generally Accepted comply with the Companies Act 2006. Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced The directors are responsible for the maintenance Disclosure Framework”, and applicable law). Under and integrity of the Company’s website. Legislation company law the Directors must not approve the in the United Kingdom governing the preparation financial statements unless they are satisfied that and dissemination of financial statements may they give a true and fair view of the state of affairs differ from legislation in other jurisdictions. of the group and company and of the profit or loss of the group and company for that period. In preparing the financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business. 60 61 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Group Financial Statements Independent auditors’ Report to the members of Diaceutics PLC Report on the audit of the financial statements Opinion In our opinion: standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. • Diaceutics PLC’s group financial statements and company financial statements (the In our opinion, the group financial statements “financial statements”) give a true and fair have been properly prepared in accordance view of the state of the group’s and of the with international financial reporting standards company’s affairs as at 31 December 2020 adopted pursuant to Regulation (EC) No and of the group’s profit and the group’s 1606/2002 as it applies in the European Union. cash flows for the year then ended; • the group financial statements have Basis for Opinion been properly prepared in accordance We conducted our audit in accordance with with international accounting standards International Standards on Auditing (UK) (“ISAs in conformity with the requirements (UK)”) and applicable law. Our responsibilities under of the Companies Act 2006; ISAs (UK) are further described in the Auditors’ • the company financial statements have been responsibilities for the audit of the financial properly prepared in accordance with United statements section of our report. We believe that Kingdom Generally Accepted Accounting the audit evidence we have obtained is sufficient Practice (United Kingdom Accounting and appropriate to provide a basis for our opinion. Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and Independence • the financial statements have been prepared We remained independent of the group in in accordance with the requirements accordance with the ethical requirements that are of the Companies Act 2006. relevant to our audit of the financial statements We have audited the financial statements, included Standard, as applicable to listed entities, and we within the Annual Report, which comprise: the have fulfilled our other ethical responsibilities Group and Company Balance Sheets as at 31 in accordance with these requirements. in the UK, which includes the FRC’s Ethical December 2020; the Group Profit and Loss Account and Group Statement of Comprehensive Income, the Group Statement of Cash Flows and the Group and Company Statements of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union As explained in note 1 to the group financial statements, the group, in addition to applying international accounting standards in conformity with the requirements of the Companies Act 2006, has also applied international financial reporting Our audit approach Overview Audit scope • We focused our work over the Group’s reporting packs for the key trading entities • We performed procedures over four Group companies, including Diaceutics Plc (the parent company of the Group), and the consolidation adjustments • The components where we performed our audit work, together with procedures over the consolidation adjustments, accounted for 100% of Group revenue and 99% of profit before tax and exceptional costs. Key Audit Matters capitalised development costs. Audit procedures • Accounting for capitalised development performed by the engagement team included: costs (group and parent) • Recoverability of intangible assets (group and parent) • Discussions with management, including consideration of known or suspected instances of non-compliance with • Accounting for revenue recognition including laws and regulations and fraud; accrued and deferred income (group and parent) • Evaluation of the effectiveness of • Impact of COVID-19 (group and parent) management’s controls designed to Materiality prevent and detect irregularities; • Identification and testing of significant • Overall group materiality: £53,655 (2019: manual journal entries; and. £92,247) based on 5% of average profit before • Testing of assumptions and judgements tax and exceptional costs for the past 3 years. made by management in making • Overall company materiality: £48,289 (2019: significant accounting estimates. £86,865) based on 5% of average profit before tax and exceptional costs for the past 3 years. There are inherent limitations in the audit • Performance materiality: £40,241 procedures described above. We are less likely to (group) and £35,408 (company). become aware of instances of non-compliance The scope of our Audit with laws and regulations that are not closely related to events and transactions reflected in As part of designing our audit, we determined the financial statements. Also, the risk of not materiality and assessed the risks of material detecting a material misstatement due to fraud is misstatement in the financial statements. higher than the risk of not detecting one resulting from error, as fraud may involve deliberate Capability of the Audit in Detecting concealment by, for example, forgery or intentional Irregularities, Including Fraud misrepresentations, or through collusion. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We Key Audit Matters design procedures in line with our responsibilities, Key audit matters are those matters that, in the outlined in the Auditors’ responsibilities for auditors’ professional judgement, were of most the audit of the financial statements section, significance in the audit of the financial statements to detect material misstatements in respect of the current period and include the most of irregularities, including fraud. The extent to significant assessed risks of material misstatement which our procedures are capable of detecting (whether or not due to fraud) identified by the irregularities, including fraud, is detailed below. auditors, including those which had the greatest effect on: the overall audit strategy; the allocation Based on our understanding of the group and of resources in the audit; and directing the efforts industry, we identified that the principal risks of the engagement team. These matters, and of non-compliance with laws and regulations any comments we make on the results of our related to those laws and regulations that have a procedures thereon, were addressed in the context direct impact on the preparation of the financial of our audit of the financial statements as a whole, statements such as the Companies Act 2006, and in forming our opinion thereon, and we do not and we considered the extent to which non- provide a separate opinion on these matters. compliance might have a material effect on the financial statements. We also considered This is not a complete list of all those laws and regulations that have a direct risks identified by our audit. impact on the preparation of the financial statements such as the Companies Act 2006. Recoverability of intangible assets and impact We evaluated management’s incentives and this year. Otherwise, the key audit matters opportunities for fraudulent manipulation of below are consistent with last year. of COVID-19 are new key audit matters the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries and management bias in accounting for estimates including estimates relating to revenue recognition and estimates for 64 65 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter Accounting for capitalised development costs To test the capitalised development costs: Recoverability of intangible assets (group and To test the recoverability of the intangible assets: (group and parent) The Group and the Company capitalises costs of the internal labour costs and tested the inputs associated with the development of DXRX, a to this schedule and tested the mathematical Software as a Service (SaaS) platform which has accuracy of the workings; • We obtained the workings for the capitalisation parent) The Group and Company have intangible assets and tested the mathematical accuracy of the held at a NBV of £9.4m (2019: £3.8m) and £6.2m model; (2019: £1.9m) respectively at the year end. The • We tested and challenged the various • We obtained the discounted cash flow model been developed internally. The costs associated with the time spent on this development project are capitalised onto the balance sheet at the year end and represent the hours spent on this project by the dedicated team who work on the data collection or the development of the software platform. • We agreed a sample of employees’ base salaries to the payroll records; • We reperformed the calculation for the estimate of the cost of employers’ tax and benefits that are capitalised; • We agreed a sample of the individuals hours charged to the timesheets for those individuals; • We obtained independent confirmations from a sample of employees on the time charged to the project as detailed in the schedule provided to us; • We held a number of discussions with non- finance related employees and project managers who work on the project to corroborate the status of the project outside the finance function; and • We have also assessed management’s assessment of the economic benefits and ensured the capitalised costs met the criteria of IAS 38. Based on the audit procedures performed, we noted no material issues arising from our audit work. carrying value of intangible assets are dependent on estimates of future cash flows of the Group and there is a risk that if management does not achieve these cash flow estimates it could give rise to an impairment charge. This risk increases in periods when the Group’s trading performance and projections do not meet expectations. The impairment review performed by management include a number of significant judgements and estimates and changes in these assumptions can result in an impairment charge or a material difference in available headroom. assumptions and inputs to the model such as revenue growth rates by comparing this to historic growth rates and assessing if it reflected the impact of COVID-19; • We obtained a listing of current projects in place and also pipeline projects to verify the revenue projections; • We obtained the CAPEX budget approved by the board and assessed whether it was aligned to what was shown in the model; • We obtained the detailed workings on the discount rate and confirmed the mathematical accuracy; • We verified the discount rate detailed workings to relevant sources and performed an independent recalculation of it; • We performed our own independent sensitivity analyses on the model including sensitising the revenue growth rate, discount rate and assessing what would be the relative breakeven point in the model; and • We held a number of discussions with management, we challenged assumptions in the model and we carried out a walkthrough of the DxRx platform. Based on the audit procedures performed, we noted no material issues arising from our audit work. 66 67 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter Accounting for revenue recognition including To test the revenue recognition: Impact of COVID-19 (group and parent) In assessing management’s consideration accrued and deferred income (group and parent) The Group and the Company recognises project revenue over time, based on the stage at which a particular project is in terms of completion. This is measured by comparing the actual hours to budget on any given project. The Project Manager is responsible for updating the budget based on actual hours charged and comparing this to estimated cost to completion. • We updated our understanding around revenue streams and respective recognition policies across the group, specifically for those that were live around the year end; • Our approach to testing revenue recognition involved identifying the substance of the contracts, identifying the performance obligations included, determining the transaction price of the contract and subsequently identifying the allocation of the transactional price against the performance obligation milestones; • We obtained evidence of final deliverables provided to the customer for projects that were completed during the year; • We obtained budgets for a sample of projects ongoing at year end and assessed the reasonableness of the percentage of completion calculation at the year end based on forecast hours to actual hours recorded on timesheets; • We reviewed completed contracts post year end to confirm that they were delivered within the budgeted hours; • We held discussions with project managers to ensure that the percentage of completion at the year end based on hours charged to date was a fair representation of the stage of the project; • We performed look back procedures on open projects at the previous year end to assess if the budgeting of project hours in FY19 when compared to actual hours was reasonable and whether or not we could rely on management’s ability to budget in FY20; and • We traced any adjustments to deferred and accrued revenue to the financial statements, to ensure that this accurately reflected the timing difference. Based on the audit procedures performed, we noted no material issues arising from our audit work. The ongoing COVID-19 pandemic is having a significant impact on both the UK economy and the global economy in which the Group and Company operates. There is significant uncertainty as to the duration of the pandemic and what its lasting impact will be on the global economy. The Directors have considered the impact to the Group and Company of the ongoing COVID-19 pandemic across the business. As a diagnostic commercialisation business for precision testing to the global healthcare market, the results for the year ended 31 December 2020 reflected the impact of COVID-19. In relation to the going concern assessment, the Directors have prepared cash flow forecasts with a range of scenarios to 31 December 2022 considered and different sensitivities applied to revenue. of the impact of COVID-19 on the Group and Company, we have undertaken the following audit procedures: • We obtained the latest cash flow forecasts that support the Director’s assessment and conclusions in relation to the going concern basis of preparation of the financial statements; • We challenged the appropriateness of the underlying assumptions in the forecasts, including the different scenarios presented; • We obtained the latest management accounts for the financial year to date and checked they were consistent with the forecasts; and • We reviewed the disclosures within the financial statements and consider them to be reasonable. These forecasts reflect the expected future Based on the audit procedures performed, we impact of the COVID-19 pandemic on the Group and Company. These forecasts indicate that the Group and Company will have sufficient cash resources to continue in operation for a period of at least 12 months from the date these financial statements were approved. The Group had cash of £25.3m as at 31 December 2020 and has no external debt other than convertible loan notes of £0.1m. noted no material issues arising from our audit work and our conclusion in respect of going concern is included in the “Conclusions relating to going concern” section below. How we Tailored the Audit Scope Materiality We tailored the scope of our audit to ensure that The scope of our audit was influenced by we performed enough work to be able to give an our application of materiality. We set certain opinion on the financial statements as a whole, quantitative thresholds for materiality. These, taking into account the structure of the group together with qualitative considerations, helped and the company, the accounting processes and us to determine the scope of our audit and the controls, and the industry in which they operate. nature, timing and extent of our audit procedures on the individual financial statement line items We performed full scope audits in respect of all and disclosures and in evaluating the effect of entities within the group excluding the newly misstatements, both individually and in aggregate incorporated subsidiary, Diaceutics Precision on the financial statements as a whole. Medicine Technology (Guangzhou) Limited. This ensured that sufficient and appropriate audit Based on our professional judgement, we procedures were performed to achieve sufficient determined materiality for the financial statements coverage over the financial statement line items. as a whole as follows: We performed analytical procedures over the out of scope component, Diaceutics Precision Medicine Technology (Guangzhou) Limited, to confirm there were no significant risks of material misstatement. 68 69 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Financial statements - group Financial statements - company Overall materiality £53,655 (2019: £92,247). £48,289 (2019: £86,865). How we determined it 5% of average profit before tax and 5% of average profit before tax and exceptional costs for the past 3 years exceptional costs for the past 3 years Rationale for Average profit before tax and Average profit before tax and benchmark applied exceptional costs for the past 3 exceptional costs for the past 3 years is the primary measure used years is the primary measure used by the Board and the shareholders by the Board and the shareholders in evaluating the performance of the in evaluating the performance of Group and is a generally accepted the Company and is a generally auditing benchmark. This measure accepted auditing benchmark. This excludes exceptional costs which are measure excludes exceptional costs non-recurring due to their nature. which are non-recurring due to their nature. For each component in the scope of our group Conclusions Relating to Going Concern audit, we allocated a materiality that is less Our evaluation of the directors’ assessment than our overall group materiality. The range of of the group’s and the company’s ability materiality allocated across components was to continue to adopt the going concern £1,226 to £48,289. Certain components were basis of accounting included: audited to a local statutory audit materiality that • We obtained cash flow forecasts and financial was also less than our overall group materiality. projections for the Group that included a base case and severe but plausible We use performance materiality to reduce downside scenario that could arise. to an appropriately low level the probability • We assessed the assumptions used by that the aggregate of uncorrected and management and compared the forecasts undetected misstatements exceeds overall against historical performance, factoring in materiality. Specifically, we use performance knowledge of the entity’s plans and the impact materiality in determining the scope of our of COVID-19, as well as our knowledge of the audit and the nature and extent of our testing entity and the sector in which it operates. of account balances, classes of transactions • We considered whether the going concern and disclosures, for example in determining disclosure in note 1 to the financial statements sample sizes. Our performance materiality gives a full and accurate description of the was 75% of overall materiality, amounting to Directors’ assessment of going concern. £40,241 for the group financial statements and £36,217 for the company financial statements. Based on the work we have performed, we have not identified any material uncertainties In determining the performance materiality, we relating to events or conditions that, individually considered a number of factors - the history of or collectively, may cast significant doubt misstatements, risk assessment and aggregation on the group’s and the company’s ability to risk and the effectiveness of controls - and continue as a going concern for a period of at concluded that an amount at the upper end least twelve months from when the financial of our normal range was appropriate. statements are authorised for issue. We agreed with those charged with governance In auditing the financial statements, we have that we would report to them misstatements concluded that the directors’ use of the going identified during our audit above £2,683 (group concern basis of accounting in the preparation audit) (2019: £4,612) and £2,414 (company of the financial statements is appropriate. audit) (2019: £4,343) as well as misstatements below those amounts that, in our view, However, because not all future events or warranted reporting for qualitative reasons. conditions can be predicted, this conclusion is not a guarantee as to the group’s and the company’s ability to continue as a going concern. Our responsibilities and the responsibilities of Directors’ Remuneration the directors with respect to going concern are In our opinion, the part of the Remuneration described in the relevant sections of this report. Committee Report to be audited has been properly prepared in accordance Reporting on Other Information with the Companies Act 2006. The other information comprises all of the information in the Annual Report other than Responsibilities for the Financial the financial statements and our auditors’ Statements and the Audit report thereon. The directors are responsible for the other information. Our opinion on Responsibilities of the Directors the financial statements does not cover the for the Financial Statements other information and, accordingly, we do As explained more fully in the Statement of not express an audit opinion or, except to Directors’ Responsibilities in relation to the the extent otherwise explicitly stated in this Financial Statements, the directors are responsible report, any form of assurance thereon. for the preparation of the financial statements in accordance with the applicable framework In connection with our audit of the financial and for being satisfied that they give a true and statements, our responsibility is to read the fair view. The directors are also responsible other information and, in doing so, consider for such internal control as they determine whether the other information is materially is necessary to enable the preparation of inconsistent with the financial statements financial statements that are free from material or our knowledge obtained in the audit, or misstatement, whether due to fraud or error. otherwise appears to be materially misstated. If we identify an apparent material inconsistency In preparing the financial statements, the or material misstatement, we are required to directors are responsible for assessing the perform procedures to conclude whether there group’s and the company’s ability to continue is a material misstatement of the financial as a going concern, disclosing, as applicable, statements or a material misstatement of the matters related to going concern and using other information. If, based on the work we have the going concern basis of accounting unless performed, we conclude that there is a material the directors either intend to liquidate the misstatement of this other information, we are group or the company or to cease operations, required to report that fact. We have nothing or have no realistic alternative but to do so. to report based on these responsibilities. Auditors’ Responsibilities for the With respect to the Strategic report and Audit of the Financial Statements Directors’ report, we also considered Our objectives are to obtain reasonable assurance whether the disclosures required by the UK about whether the financial statements as a whole Companies Act 2006 have been included. are free from material misstatement, whether due to fraud or error, and to issue an auditors’ Based on our work undertaken in the course report that includes our opinion. Reasonable of the audit, the Companies Act 2006 assurance is a high level of assurance, but requires us also to report certain opinions is not a guarantee that an audit conducted and matters as described below. in accordance with ISAs (UK) will always detect a material misstatement when it exists. Strategic Report and Directors’ Report Misstatements can arise from fraud or error and In our opinion, based on the work undertaken in are considered material if, individually or in the the course of the audit, the information given in aggregate, they could reasonably be expected the Strategic report and Directors’ report for the to influence the economic decisions of users year ended 31 December 2020 is consistent with taken on the basis of these financial statements. the financial statements and has been prepared in accordance with applicable legal requirements. Our audit testing might include testing complete populations of certain transactions and balances, In light of the knowledge and understanding of possibly using data auditing techniques. However, the group and company and their environment it typically involves selecting a limited number of obtained in the course of the audit, we did items for testing, rather than testing complete not identify any material misstatements in populations. We will often seek to target particular the Strategic report and Directors’ report. items for testing based on their size or risk 70 71 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org. uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of This Report This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other Required Reporting Companies Act 2006 Exception Reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not obtained all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of directors’ remuneration specified by law are not made; or • the company financial statements and the part of the Remuneration Committee Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Kevin MacAllister (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Belfast 13 March 2021 72 73 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 (10,015) (8,388) Group Profit and Loss Account for the year ended 31 December 2020 Note 2020 Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating (loss)/ profit before exceptional items Exceptional items Operating (loss)/profit Finance income Finance costs (Loss)/profit before tax 4 5 5 10 11 5 12 13 £000’s 12,696 (3,233) 9,463 282 (270) (388) (658) 27 (51) (682) Income tax credit/(expense) 14 945 Profit for the financial year 263 All results relate to continuing operations. Group Statement of Comprehensive Income for the year ended 31 December 2020 Profit for the financial year 2020 £000’s 263 Items that may be reclassified subsequently to profit or loss: (5) Exchange differences on translation of foreign operations 2019 £000’s 13,442 (3,131) 10,311 165 2,088 (1,348) 740 3 (246) 497 (99) 398 2019 £000’s 398 (159) Total comprehensive income for the year, net of tax 258 239 Earnings per Share for the year ended 31 December 2020 Note 2020 (Pence) 2019 (Pence) 15 15 15 15 0.34 0.34 0.74 0.74 0.62 0.62 2.46 2.45 Basic Diluted Basic adjusted Diluted adjusted 74 Group Balance Sheet as at 31 December 2020 Assets Non-current assets Intangible assets Property, plant and equipment Deferred tax asset Current assets Note 2020 £000’s 16 17 14 9,361 238 301 9,900 Trade and other receivables 19 6,107 Cash and cash equivalents Income tax receivable 25,255 14 2,257 33,619 2019 £000’s 3,761 133 56 3,950 6,635 11,720 66 18,421 Total Assets 43,519 22,371 Equity And Liabilities Equity share capital Share premium Translation reserve Profit and loss account Total Equity Non-Current liabilities Deferred tax liability Current liabilities Trade and other payables Financial liabilities Income tax payable 24 168 36,864 15 3,191 40,238 139 17,335 20 2,638 20,132 14 366 - 20 21 14 2,346 118 451 2,915 2,131 108 - 2,239 Total Liabilities 3,281 2,239 Total Equity and Liabilities 43,519 22,371 The Group financial statements were approved and authorised for issue by the board and were signed on its behalf on 12 March 2021. The notes on pages 75 to 101 form an integral part of the Group financial statements. Mr Philip White Director 13 March 2021 75 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Group Statement of Changes in Equity for the year-ended 31 December 2019 Group Statement of Changes in Equity for the year-ended 31 December 2020 Equity share capital £000’s Share Capital Translation Profit premium redemption reserve £000’s reserve £000’s £000’s and loss account £000’s Total equity £000’s Equity share capital £000’s Share Translation Profit premium reserve £000’s £000’s and loss account £000’s Total equity £000’s 100 109 179 2,242 2,630 At 1 January 2020 139 17,335 20 2,638 20,132 At 1 January 2019 Profit for the year Other comprehensive expense - - - Total comprehensive - income for the year Transactions with owners, recorded directly in equity - - - Reorganisation of 2 (2) shares Bonus issue of shares 88 (88) Conversion of loan 4 1,225 notes Issue of shares on 45 16,100 (109) Placing Share based payment - - - Total transactions 139 17,235 (109) with owners - - - - - - - 398 398 (159) - (159) (159) 398 239 - - - - - - - - - - (26) 1,203 - 24 (2) 16,036 24 17,263 Profit for the year Other comprehensive expense Total comprehensive (expenses)/ income for the year Transactions with owners, recorded directly in equity Exercise of warrant Share based payment Issue of shares on Placing Total transactions with owners - - - 1 - 28 29 - - - 264 - 19,265 19,529 - (5) (5) - - - - 263 - 263 - 290 - 263 (5) 258 265 290 19,293 290 19,848 At 31 December 2020 168 36,864 15 3,191 40,238 At 31 December 2019 139 17,335 - 20 2,638 20,132 76 77 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Group Statement of Cash Flows for the year ended 31 December 2019 Notes to the Group Financial Statements for the year ended 31 December 2020 Operating activities Profit before tax Note 2020 £000’s 2019 £000’s (682) 497 Adjustments to reconcile profit before tax to net cash flows from operating activities Net finance costs Amortisation of intangible assets Depreciation of property, plant and equipment Research and development tax credits Decrease/(Increase) in trade and other receivables (Decrease)/Increase in trade and other payables 16 17 Share based payments Cash used in operations Tax paid Net cash outflow from operating activities Investing activities Interest received Purchase of intangible assets Purchase of property, plant and equipment 24 776 33 (247) 549 (63) 290 680 (427) 253 - (6,157) (137) 243 246 38 (157) (2,324) 825 24 (608) (22) (630) 3 (2,828) (99) Net cash outflow from investing activities (6,294) (2,924) Financing activities Borrowing costs Repayment of borrowings Draw down of funds Issuance of convertible loan notes Issue of shares Net cash inflow from financing activities - - - - 19,614 19,614 Net increase/(decrease) in cash and cash equivalents 13,573 Net foreign exchange (losses)/gains Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December (38) 11,720 25,255 (248) (3,451) 106 850 16,036 13,293 9,739 (93) 2,074 11,720 1. General Information The principal accounting policies adopted in the preparation of these consolidated financial Diaceutics PLC (the “Company”) is a public statements are set out below. These policies company limited by shares, incorporated, have been consistently applied to all the years domiciled and registered in Northern Ireland. The presented, unless otherwise stated. Company’s registration number is NI055207 and the registered office is 55-59 Adelaide Street, Going Concern Belfast, BT2 8FE. The financial performance and balance sheet The consolidated financial statements consolidate position at 31 December 2020 along with a range those of the Company and its subsidiaries of scenario plans to 31 December 2022 has (together referred to as the Group). The Company been considered, applying different sensitives to financial statements present information about the revenue. Across these scenarios, including at the Company as a separate entity and not about the lower end of the range, there remains significant Group. headroom in the minimum cash balance over the period to 31 December 2022 and therefore The principal activity of Diaceutics PLC (“the the Directors have satisfied themselves that the Company”) and its subsidiaries (together “the Group has adequate funds in place to continue in Group”) is data, data analytics and implementation operational existence for the foreseeable future. services. The Group has established a core suite of products and outsourced advisory services Basis of Consolidation which help its Pharma clients to optimise and deliver their marketing and implementation The consolidated financial statements incorporate strategies for companion diagnostics. Their the financial statements of the Company mission is to design, create and implement and entities controlled by the Company (its innovative solutions that enhance speed to subsidiaries) made up to 31 December each year. market and increase the effectiveness of all Control is achieved when the Company: the stakeholders in the personalised medicine - Has power over the subsidiary; industry. - Is exposed, or has rights, to return from its involvement with the subsidiary; and The financial statements are presented in pound - Has the ability to use its power to affect its sterling. returns. Basis of Accounting The Company considers all relevant facts and circumstances in assessing whether or not it has These consolidated financial statements have sufficient influence and control over a subsidiary, been prepared on a going concern basis and including the ability to direct the relevant activities in accordance with international accounting at the time that decisions need to be made. standards in conformity with the Companies Act 2006 applicable to companies reporting under Intra-group balances and transactions, and any IFRS. These financial statements have been unrealised income and expenses (except for prepared under the historical cost convention. foreign currency transaction gains or losses) arising from intra-group transactions, are The preparation of financial statements in eliminated. conformity with IFRS requires the use of certain critical accounting estimates. It also requires The financial statements of subsidiaries are management to exercise its judgement in the included in the consolidated financial statements process of applying the Group’s accounting from the date on which control commences until policies. Judgements in applying accounting the date on which control ceases. policies and key sources of estimates and uncertainty are disclosed in the notes. 78 79 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 2. Accounting Policies The Group has two revenue streams, Foreign Currency Translation understand better the elements of financial Implementation services and Data. The Group’s New and Amended Accounting Standards performance obligations for both revenue Adopted by the Group streams are deemed to be the provision of specific deliverables to the customer. Revenue The Group has applied the following standards billed to the customer is allocated to the various and amendments for the first time for their annual performance obligations, based on the relative reporting year commencing 1 January 2020: fair value of those obligations, and is then • Amendments to references to conceptual recognised as follows: framework in IFRS standards • Where a contractual right to receive payment • Definition of a business (Amendment to IFRS 3) exists, revenue is recognised as over the • Interest rate benchmark reform (Amendment to period services are provided using the IFRS 9, IAS 39 and IFRS 7) percentage of completion method, based on the input method using time spent; and The above amendments did not have any impact • Where no contractual right to receive payment on the amounts recognised in prior years. The exists, revenue is recognised upon completion impact of applying IFRS16 is not material and of each separate performance obligation, thus no adjustment has been made. The other which is typically when implementation amendments listed above are not expected to services are complete or data has been significantly affect the current or future years. provided to the customer. New Accounting Standards and Interpretations Segment Reporting not yet Adopted by the Group The Group currently has one operating segment. The following new accounting standards, amendments and/or interpretations have been Government Grants published but not yet endorsed by the EU and are not mandatory for 31 December 2020 reporting Grants, which include research and development year. They have not been early adopted by the tax credits where the recovery of those credits is group and these standards are not expected to not restricted, are recognised at their fair value have a material impact on the entity in the current where there is a reasonable assurance that the or future reporting periods and on foreseeable grant will be received, and the Group will comply future transactions: • IFRS 17 insurance contracts with all attached conditions. • Classification of liabilities as current or non- Grants that compensate the Group for expenses current (amendments to IAS 1) incurred are recognised in profit or loss as other • Sale or contribution of assets between an income on a systematic basis in the periods in investor and its associate or joint venture which the expenses are recognised, unless the (amendments to IFRS10 and IAS 28) conditions for receiving the grant are met after • COVID-19 related rent concessions the related expenses have been recognised. In (Amendment to IFRS16) this case the grant is recognised when it becomes Revenue Recognition receivable. Grants relating to development projects are Revenue comprises the fair value of the included in non-current liabilities as deferred consideration received or receivable for the income and are credited to the profit and loss provision of services in the ordinary course of the account on a straight-line basis over the expected Group’s activities. Revenue is shown net of value- useful economic lives of the related assets. added tax and after eliminating sales within the Group. 80 (a) Functional and presentation currency comparison with prior periods and to better Items included in the financial statements of each assess trends in the financial performance. performance in the year, so as to facilitate of the Group’s entities are measured using the currency of the primary economic environment Employee Benefits in which the entity operates (“the functional currency”). The consolidated financial statements The Group operates a defined contribution are presented in Sterling, which is the Group’s pension scheme which is open to employees and presentation currency. directors. The assets of the scheme are held by investment managers separately from those of the (b) Transactions and balances Group. The contributions payable to the scheme Foreign currency transactions are translated is recorded in the profit and loss account in the into the functional currency using the exchange accounting period to which they relate. rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from The Group also operates a long-term incentive the settlement of such transactions and from plan (LTIP), an element of which is the ability for the translation at year-end exchange rates of eligible employees to be awarded a discretionary monetary assets and liabilities denominated in cash bonus based on Group performance. These foreign currencies are recognised in the profit and short-term employee benefits are expensed as the loss account. related service is provided. A liability is recognised for the amount expected to be paid if the Group (c) Group companies has a present legal or constructive obligation The results and financial position of all the Group to pay this amount as a result of past service entities (none of which has the currency of a provided by the employee and the obligation can hyperinflationary economy) that have a functional be estimated reliably. currency different from the presentation currency are translated into the presentation currency as Share Based Payments follows: • assets and liabilities for each balance sheet The company has a number of classes of shares in presented are translated at the closing rate at issue. Where shares are issued to employees that the date of that balance sheet; contain restrictions that mean they have obtained • income and expenses for each profit and loss those shares by virtue of their employment, account are translated at average exchange those shares are accounted for as share based rates (unless this average is not a reasonable payments. When the shares are issued a approximation of the cumulative effect of determination is made, based on the rights of the rates prevailing on the transaction dates, those shares, as to whether there is a contractual in which case income and expenses are liability for the Company to reacquire the shares at translated at the rate on the dates of the some point (cash settled) or not (equity settled). transactions); and For equity settled shares, a fair value of those • all resulting currency translation differences are shares is established at the date the shares recognised in other comprehensive income and are granted and, if the employee is required to disclosed as a separate component of equity in complete a period of service before the shares a foreign currency translation reserve. vest, this fair value is spread over that period (vesting period). Exceptional Items The Group presents as exceptional items those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation on the face of the profit and loss account in order to allow shareholders to 81 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Taxation liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by The tax expense for the year comprises current the same taxation authority on either the taxable and deferred tax. Tax is recognised in the income entity of different taxable entities where there is statement, except to the extent that it relates to an intention to settle the balances on a net basis items recognised in other comprehensive income or directly in equity. In this case the tax is also Intangible Assets recognised in other comprehensive income or directly in equity respectively. Research and Development The current income tax charge is calculated Expenditure on research activities and patents is on the basis of the tax laws enacted or recognised in the profit and loss account as an substantively enacted at the balance sheet date expense as incurred. in the countries where the group’s subsidiaries operate and generate taxable income. Expenditure on development activities is Management periodically evaluates positions capitalised if the product or process is technically taken in tax returns with respect to situations and commercially feasible and the Group intends in which applicable tax regulation is subject to and has the technical ability and sufficient interpretation. It establishes provisions where resources to complete development, future appropriate on the basis of amounts expected to economic benefits are probable and if the Group be paid to the tax authorities. can measure reliably the expenditure attributable to the intangible asset during its development. Deferred income tax is recognised, using the Development activities involve design for, liability method, on temporary differences arising construction or testing of the production of new between the tax bases of assets and liabilities or substantially improved products or processes. and their carrying amounts in the consolidated The expenditure capitalised includes the cost financial statements. However, the deferred of infrastructure and direct labour including income tax is not accounted for if it arises from employer national insurance. Other development initial recognition of an asset or liability in a expenditure is recognised in the profit and loss transaction other than a business combination account as an expense as incurred. Capitalised that at the time of the transaction affects neither development expenditure is stated at cost until it accounting nor taxable profit or loss. Deferred is brought into use. income tax is determined using tax rates and laws that have been enacted or substantially enacted Other Intangible Assets by the balance sheet date and are expected to apply when the related deferred income tax asset Other intangible assets that are acquired by is realised or the deferred income tax liability is the Group are stated at cost less accumulated settled. amortisation and less accumulated impairment Deferred income tax assets are recognised only to the extent that it is probable that future taxable Amortisation profit will be available against which the temporary losses. differences can be utilised. Deferred income tax Amortisation is charged to the profit or loss on is provided on temporary differences arising on a straight-line basis over the estimated useful investments in subsidiaries and associates, except lives of intangible assets. Intangible assets are where the timing of the reversal of the temporary amortised from the date they are available for use. difference is controlled by the group and it is The estimated useful lives are as follows: probable that the temporary difference will not • Patents and trademarks - 3 years (33.3% reverse in the foreseeable future. straight line) from date of registration Deferred income tax assets and liabilities are • Software - 5 years (20% straight line) offset when there is a legally enforceable right • Platform - 10 years (10% straight line) to offset current tax assets against current tax • Datasets - 4 years (25% straight line) 82 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 The Group reviews the amortisation period and The classification depends on the Group’s method when events and circumstances indicate business model for managing the financial assets that the useful life may have changed since the and the contractual terms of the cash flows. The last reporting date (refer to note 16). Group reclassifies its financial assets when and only when its business model for managing those Property, Plant & Equipment assets changes. Property, plant & equipment is stated at cost (b) Recognition and Measurement less accumulated depreciation and accumulated impairment losses. At initial recognition, the group measures a financial asset at its fair value plus transaction The Group assesses at each reporting date costs that are directly attributable to the whether there are indicators of impairment. acquisition of the financial asset. A trade receivable without a significant financing Depreciation is charged to the profit and loss component is initially measured at the transaction account on a straight-line basis over the estimated price. useful lives of each part of an item of tangible fixed assets. The estimated useful lives are as Subsequent measurement of financial assets follows: depends on the Group’s business model for • Office equipment - 5 years (20% straight line) managing those financial assets and the cash flow characteristics of those financial assets. Depreciation methods, useful lives and residual The Group only has financial assets classified at values are reviewed if there is an indication of a amortised cost. These assets are subsequently significant change since the last annual reporting measured at amortised cost using the effective date in the pattern by which the Group expects to interest method. The amortised cost is reduced by consume an asset’s future economic benefits. impairment losses. Lease Liabilities Interest income, foreign exchange gains and losses and impairment are recognised in profit Payments associated with short-term leases of or loss. Any gain or loss on derecognition is equipment and vehicles and all leases of low-value recognised in profit or loss. assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases (c) Impairment are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and The Group assesses on a forward-looking basis, small items of office furniture. the expected credit losses associated with its Financial Assets (a) Classification debt instruments carried at amortised cost. For trade receivables the Group applies the simplified approach permitted by IFRS9, which requires expected lifetime losses to be recognised from the initial recognition of the receivables. For other The Group classifies its financial assets in the receivables the Group applies the three-stage following measurement categories: model as prescribed in IFRS 9, to determine • Those to be measured at amortised cost; and expected credit losses. • Those to be measured subsequently at fair value (either through Other Comprehensive Financial Liabilities Income or through profit and loss). Financial liabilities comprise trade and other payables and borrowings due within one year and after one year, which are recognised initially at fair value and subsequently carried at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses 83 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 are recognised in profit or loss. Any gain or loss on Related Party Transactions derecognition is also recognised in profit or loss. The Group does sometimes make use of derivative The Group discloses transactions with related financial instruments or hedge accounting for parties which are not wholly owned within the foreign currency transactions. Trade payables same group. Where appropriate, transactions represent obligations to pay for goods or services of a similar nature are aggregated unless, in the that have been acquired in the ordinary course opinion of the directors, separate disclosure of business from suppliers. Trade payables are is necessary to understand the effect of the classified as current liabilities if payment is due transactions on the Group financial statements. within one year. If not, they are presented as non- current liabilities. Cash and Cash Equivalents 3. Judgements in Applying Accounting Policies and Key Sources of Estimation Uncertainty The preparation of the financial statements Cash and cash equivalents includes cash in hand, requires management to make judgements, deposits held on call with banks, other short term estimates and assumptions that affect the highly liquid investments with original maturities of amounts reported for assets and liabilities as three months or less and bank overdrafts. at the balance sheet date and the amounts Equity reported for income and expenditure during the year. However, the nature of estimation means that actual outcomes could differ from those Ordinary shares are classified as equity. estimates. The Group’s only assets/liabilities Incremental costs directly attributable for the that are significantly impacted by key sources of issue of new shares are shown in equity as a estimation uncertainty are the Group’s intangible deduction from the proceeds. assets. The assessment of useful life of data purchases and platform require estimation over The share premium reserve represents the the period in which that data will be utilised. excess over the nominal value of the fair value of Further details on the estimation uncertainty has consideration received for equity shares, net of been disclosed in note 16. expenses on the share issue. The capital redemption reserve records the estimation uncertainty are reviewed annually using nominal value of shares repurchased by the the discount cash flow method. Further details are Company. disclosed in note 16 intangibles. Impairment of intangibles and key sources of Distributions to Equity Holders With respect to revenue recognition, as described Dividends and other distributions to the method is used to determine recognition over Company’s shareholders are recognised as a time, a key source of estimation will be the actual liability in the financial statements in the period hours spent vs the total budgeted hours to in note two accounting policies, where the input in which the dividends and other distributions completion. are approved by the Company’s shareholders. These amounts are recognised in the statement of Estimates and judgements are continually changes in equity. evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 4. Revenue Operating Segments The Group currently operates under one reporting segment but revenue is analysed under two separate revenue streams. Revenue represents the amounts derived from the provision of services which fall within the Group’s ordinary activities, stated net of value added tax. Revenue is principally generated from implementation services and data. The following tables present revenue of the Group for the years ended 31 December 2020 and 2019. Revenue stream Implementation services Data Geographical Area USA UK Europe Asia and the Rest of the World In 2020 three customers each had sales which exceeded 10% of total revenue with the largest customer accounting for £1,398,000 (11%); the second accounting for £1,395,000 (11%) and the third accounting for £1,332,000 (10.5%) of revenue. In 2019 two customers each had sales which exceeded 10% of total revenue with the largest customer accounting for £1,595,000 (11.9%) and the second accounting for £1,557,000 (11.6%) of revenue. 2020 £000’s 3,110 9,586 12,696 2020 £000’s 6,035 543 4,243 1,875 12,696 2019 £000’s 3,707 9,735 13,442 2019 £000’s 5,631 744 5,031 2,036 13,442 84 85 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 5. Operating (loss)/Profit: 7. Staff Numbers Employee benefit costs Wages and salaries Social security costs Pension costs Benefits Share based payments Capitalised development costs Amortisation of intangible fixed assets Depreciation of tangible fixed assets Subcontractor costs Travel costs Legal and professional Loss/(profit) on foreign exchanges Other expenses 2020 £000’s 9,794 1,236 366 285 290 (3,388) 8,583 776 33 546 205 1,465 (58) 1,698 4,665 2019 £000’s 7,908 744 248 165 24 (2,160) 6,929 246 38 684 1,159 815 198 1,451 4,591 Total cost of sales and administrative expenses (excluding exceptional items which are disclosed in note 11) 13,248 11,520 6. Auditor’s Remuneration 2020 £000’s 2019 £000’s Included within administrative expenses (legal and professional): Audit of parent and subsidiary financial information Other assurance related services Included within exceptional items: Fees in respect of IPO services Fees relating to restructuring services Fees relating to tax services Fees relating to legal services Included within equity: Fees in respect of IPO services 86 92 11 - - - 65 - 168 68 9 80 65 69 58 80 429 The average monthly number of employees, excluding directors, during the year was made up as follows: Administration Technical Business development Finance 8. Directors Emoluments Directors Aggregate emoluments Pension contributions Highest paid director The highest paid director received the following emoluments: Aggregate emoluments Pension contributions Key senior management Key senior management received total compensation as follows: Aggregate emoluments Pension contributions Share based payments 2020 Number 2019 Number 30 81 9 8 128 25 55 6 5 91 2020 £000’s 2019 £000’s 802 40 842 248 25 273 834 37 871 265 19 284 1,207 1,346 84 102 64 1 1,393 1,411 87 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 9. Share Based Payments schemes, employees are granted options which LTIP: The Company currently has an Employee share met. For the ESOP and LTIP options that are Option Plans (“ESOP”) for employees and a Long- outstanding as at 31 December 2020, the only Term Incentive Plan (“LTIP”) for key management. performance obligations attached are continued only vest if certain performance standards are employment to date of vesting, with no more than The ESOP and LTIP are designed to provide two unsatisfactory performance reviews. The long term incentives for senior management and total expense recognised in the year in relation to above, and certain employees (including executive share based payment charges is £290,000 (2019: directors) to deliver long-term shareholder 24,000). Set out below are summaries of options returns and promote staff retention. Under these granted under the plans: ESOP: 2020 2019 Average exercise Number of Average exercise Number price per share option options price per share option of options As at 1 January £0.0002 151,240 £0.0002 - Granted during the year £0.0002 231,000 £0.0002 197,400 Exercised during the year - - - Forfeited during the year £0.0002 26,576 £0.0002 As at 31 December £0.0002 355,664 £0.0002 - 46,160 151,240 LTIP: 2020 2019 Average exercise Number of Average exercise Number price per share option options price per share option of options As at 1 January - - Granted during the year £1.265 1,430,244 Exercised during the year - - Forfeited during the year £1.265 As at 31 December £1.265 178,570 1,251,674 - - - - - - - - - - Share options outstanding at the year-end have the following expiry dates and exercise prices: ESOP: Grant Date Expiry Date Exercise Price Share options at 31 Share options at 31 December 2020 December 2019 June 2019 June 2022 £0.0002 151,240 197,400 June 2020 June 2023 £0.0002 204,424 - Grant Date Expiry Date Exercise Price Share options at 31 Share options at 31 December 2020 December 2019 April 2020 April 2023 £1.265 1,251,674 - The weighted average remaining contractual life December 2020 was £0.72 per option. The fair of options outstanding at the end of the year was value at grant date is independently determined 2.24 years. No options expired during the year. using an adjusted Black-Scholes model which Fair value of options granted: the option, the impact of dilution, the share price takes into account the exercise price, the term of at grant date and the expected price volatility of The weighted average fair value at grant date the underlying share, and the risk-free interest of options granted during the year-ended 31 rate for the term of the options. ESOP LTIP 2020 2019 2020 2019 Ex Price Grant date Expiry Date £0.0002 £0.0002 £1.265 June June April June 2023 June 2022 April 2023 Share price at Grant date £1.52 £0.85 £1.265 Volatility 57.88% 57.88% 57.88% Risk-free rate Fair Value 0.53% £1.49 0.53% 0.53% £0.85 £1.25 - - - - - - - The expected price volatility is based on the historical volatility & companies within similar industries. 10. Other Operating Income 2020 £000’s 2019 £000’s Government grants 35 Research and developments credits 247 282 8 157 165 88 89 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 2020 £000’s 2019 £000’s External loans - 180 Revolving credit 41 facilities Change in fair value of 10 embedded derivatives 40 23 3 246 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 11. Exceptional Items 13. Finance Costs 2020 £000’s IPO related costs - Restructuring 388 388 2019 £000’s 1,348 - 1,348 In December 2020, the Group carried out a (convertible loan restructure with the aim of reducing operating notes) Directors’ loans - 51 cost base and re-positioning staff to support the future operations as a platform business. Exceptional costs of £388,000 were reflected in the profit & loss account, with an associated provision recognised within current liabilities on the balance sheet of £360,000 which will be utilised by 31 March 2021. The exceptional costs relate to redundancy costs and professional fees which were wholly and exclusively attributable to the restructure event. In 2019 the Group incurred £2,597,000 of transaction costs and other IPO related costs as a result of the application made to the London Stock Exchange for all the issued and to be issued Ordinary share capital to be admitted to trading on AIM. £1,348,000 was included within operating profit and £1,044,000 was offset against the Share Premium account in accordance with IAS 32 ‘Financial Instruments’. 12. Finance Income 2020 £000’s 2019 £000’s Bank interest received 27 3 and receivable Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 14. Income Tax Expense (a) Tax on (loss)/profit 2020 £000’s 2019 £000’s Current income tax: UK corporation tax on (loss)/profit for the year (1,427) Adjustments in respect of previous years (348) Foreign tax: ROI corporation tax on profits for the year US corporation tax on profits for the year Adjustments in respect of previous years (1,775) 330 467 (88) 709 - (161) (161) 234 60 (41) 253 Total current tax Deferred tax: (1,066) 92 Origination and reversal of temporary differences 85 Adjustments in respect of previous years Impact of change in tax rates Total deferred tax 66 (30) 121 (60) 67 - 7 Total tax (credit)/expense (945) 99 90 91 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 (b) Factors Affecting the Tax Charge for the Year Group - Deferred Tax (liabilities)/Assets The tax assessed for the year differs from the effective standard rate of corporation tax in the UK of 19.00% (2019: 19.00%). The differences are reconciled below: (Loss)/Profit before tax 2020 2019 £000’s £000’s (682) 497 Tax using the UK corporation tax rate of 19.00% (2019: 19.00%) (130) 94 Effects of: Tax rates in foreign jurisdictions Non-deductible expenses Share based payments Foreign tax suffered Impact of change in tax rates Research and development Deferred tax not recognised Adjustments in respect of previous years Total tax (credit)/expense (c) Deferred Tax The deferred tax included in the balance sheet is as follows: Deferred Tax Balance Tax losses carried forward Other temporary differences Research & Development (18) 46 47 12 (30) (5) 140 (12) - 42 (614) (27) 112 2 (370) (135) (945) 99 2020 £000’s 2019 £000’s 1,270 578 (597) (522) (738) (65) - 56 Tax losses Other temporary Research & Total £000’s differences Development £000’s £000’s £000’s At 1 January 2019 Credited/(charged) to the income statement At 1 January 2020 Credited/(charged) to the income statement 56 522 578 692 7 (529) (522) (75) - - - 63 (7) 56 (738) (121) At 31 December 2020 1,270 (597) (738) (65) The deferred tax balance consists of a deferred tax asset amounting to £301,000 (2019: £371,000) and a deferred tax liability of £366,000 (2019: £315,000), netting to a Liability of £65,000 (2019: an asset of £56,000). The deferred tax asset is recognised on the basis that the Group has forecasted sufficient profits on which the deferred tax asset can be utilised. The deferred tax asset includes amounts receivable after more than one year amounting to £Nil (2019: £Nil). Tax losses carried forward amount to £6,684,000 (2019: £3,400,000) within Diaceutics PLC. In addition, the Group has tax losses arising in subsidiary undertakings. Due to the uncertainty of the recoverability of the tax losses within these subsidiaries, a potential deferred tax asset of £186,000 (2019: £66,000) has not been recognised. Deferred tax assets and liabilities have otherwise been recognised as they arise. 92 93 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 15. Earnings Per Share Adjusted earnings per share are calculated based 16. Intangible Assets on the (loss)/profit for the financial year adjusted Basic earnings per share are calculated based on for exceptional items as disclosed in Note 11. the (loss)/profit for the financial year attributable Diluted earnings per share is calculated on the to equity holders divided by the weighted basic earnings per share adjusted to allow for average number of shares in issue during the the issue of ordinary shares on the assumed year. The weighted average number of shares conversion of the convertible loan notes and for all periods presented has been adjusted for employee share options. the reorganisation and bonus issue of shares undertaken on 13 March 2019 prior to the admission of the company to the AIM market of the London Stock Exchange. Profit attributable to shareholders Profit for the financial year Exceptional costs Tax impact of exceptional costs Adjusted profit for the financial year 2020 £000’s 263 388 (74) 577 2019 £000’s 398 1,348 (171) 1,575 Weighted average number of shares to shareholders Number Number Shares in issue at the end of the year 84,068,923 69,583,077 Weighted average number of shares in issue 77,532,897 64,069,906 Weighted average number of treasury shares - (49) Weighted average number of shares for basic and adjusted earnings per share 77,532,897 64,069,857 Effect of dilution of Convertible Loan Notes 754 Effect of dilution of Share Options 297,146 1,773 97,650 Weighted average number of shares for diluted earnings per share 77,830,797 64,169,280 Earnings per share Pence Pence 0.34 0.34 0.74 0.74 0.62 0.62 2.46 2.45 Basic Diluted Adjusted Diluted adjusted 94 Patents and Datasets Development Platform Software Total trademarks £000’s expenditure* £000’s £000’s £000’s £000’s £000’s Cost At 1 January 2019 1,017 Foreign exchange (52) translation 436 (1) 812 (26) Additions 89 851 1,675 At 31 December 2019 1,054 1,286 2,461 - - - - - - - 210 210 - - 2,265 (79) 2,825 5,011 29 - Foreign exchange 42 translation Transfer from Development expenditure to Platform - 7 - (20) (6,577) 6,577 Additions 94 1,462 4,558 - 275 6,389 At 31 December 2020 1,190 2,755 422 6,577 485 11,429 Amortisation: At 1 January 2019 Foreign exchange translation 975 (52) Charge for the year 53 At 31 December 2019 976 43 - Foreign exchange Transfer from Development expenditure to Datasets 80 - 113 193 (1) 78 - - 78 78 - (78) - - - - - - - - 3 3 - - 1,055 (52) 247 1,250 42 - Charge for the year 57 At 31 December 2020 1,076 605 875 - - 40 40 74 77 776 2,068 Net book value At 31 December 2020 114 1,880 422 6,537 408 9,361 At 31 December 2019 78 1,093 2,383 - 207 3,761 *Development expenditure relates to an asset under construction and as such no amortisation has been charged. 95 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Intangible assets relate to patents, trademarks, The recoverable value of intangible assets is software and datasets which are recorded at cost measured using discounted cash flow forecasts and amortised over their useful economic life and the valuation model at 31 December 2020 which has been assessed as two to five years. indicated no impairment on these assets. Whilst there is no indication of impairment, the discounted On 1 December 2020 the Group’s platform - cash flow model uses prospective information DXRX was commissioned and brought into use. on revenues which is subject to estimation. On this date £6,577,000 was transferred out of Within the model, sensitivity analysis shows a 7% development expenditure and into platform. reduction in the compound annual growth rate of revenues over the term would still leave sufficient The Group assesses the useful life of all assets headroom with no indication of impairment. on an annual basis. On reviewing the useful life of the data sets it was determined that Amortisation in respect of Patents and based on latest information on commercial and trademarks and Software is expensed to the technical use, four years represented the best Profit and Loss Account as Administrative estimate of the useful life of such assets. expenses. Platform and Datasets amortisation is included within Cost of sales. The Group has determined that the useful life of data and the useful life of platform is a significant area of estimation. The platform has been assessed to have a useful life of 10 years based on information on the estimated technical obsolescence of such assets. However, the actual asset useful life may be shorter or longer than 10 years depending on technical innovations and other external factors. If the useful life were eight years, the carrying amount of the asset would reduce by £10,000 to £6,527,000. If the useful life of the asset were 12 years, the carrying amount of the asset would increase by £7,000 to £6,544,000. Data sets have been assessed to have a useful life of four years based on information on the estimated commercial and technical use of such assets. However, the actual asset useful life may be shorter or longer than 4 years depending on technical innovations and other external factors. If the useful life were 3 years, the carrying amount of the asset would reduce by £26,000 to £1,854,000. If the useful life of the asset were 5 years, the carrying amount of the asset would increase by £15,000 to £1,895,000. The change in estimated useful life from two years to four years has resulted in £64,000 less in amortisation charges in 2020. Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 17. Property, plant and equipment Office equipment £000’s Cost At 1 January 2019 Foreign exchange translation Additions At 31 December 2019 Foreign exchange translation Additions At 31 December 2020 Depreciation At 1 January 2019 Foreign exchange translation Charge for the year At 31 December 2019 Charge for the year At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 161 (3) 99 257 1 137 395 87 (1) 38 124 33 157 238 133 96 97 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 18. Investments Group Undertakings The following were subsidiaries of the Company at 31 December 2020: Country of incorporation Percentage of shares held Diaceutics Ireland Limited Republic of Ireland 100% Labceutics Limited Northern Ireland 100% Diaceutics Inc Diaceutics Pte Limited USA Singapore Diaceutics Precision Medicine Technology China (Guangzhou) Limited* 100% 100% 100% The principal business of all the subsidiary undertakings is data and implementation services. All entities were incorporated before 1 January 2020 with the exception of Diaceutics Precision Medicine Technology (Guangzhou) limited which was incorporated during the year ended 31 December 2020. *The holding in Diaceutics Precision Medicine Technology (Guangzhou) Limited is held indirectly through the subsidiary of Diaceutics PLC, Diaceutics PTE Ltd. 19. Trade and Other Receivables Trade receivables Other receivables Prepayments 2020 £000’s 5,343 177 587 6,107 2019 £000’s 6,134 171 330 6,635 Trade receivables are non-interest bearing, are generally on 90-day terms and are shown net of a provision for impairment. The amount of the provision netted against the trade receivables balance was £20,000 (2019: £20,000). The default percentage used in the expected credit loss calculation was 0.16% (2019: 0.16%) for debt up to 30 days old; 0.20% (2019:0.20%) for debt between 31 and 60 days old; 0.31% (2019:0.31%) for debt between 61 and 90 days old; 0.84% (2019:0.84%) for debt between 91 and 180 days old and 8.09% (2019: 8.09%) for debt over 180 days old. Bad debts amounting to £Nil (2019: £Nil) were realised. Other receivables are considered to have low credit risk and the loss allowance recognised during the year was therefore limited to 12 months expected credit losses. The amounts were not material. The age profile of the trade receivables are as follows: Total £000’s 0-30 days 31-60 days 61-90 days >90 days £000’s £000’s £000’s £000’s 5,343 3,116 1,500 449 6,134 4,143 1,179 614 278 198 2020 2019 98 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Included within trade receivables are contract assets of £1,265,000 (2019: £796,000). The Group’s contracts with customers are typically less than one year in duration and any contract assets as at the balance sheet date would be expected to be invoiced and received in the following year. The increase in value of contract assets from £796,000 to £1,265,000 is driven by an increase in the average value of contracts with customers. The following table shows the movement in contract assets: 2020 £000’s 2019 £000’s Contract assets recognised at start of the year 796 289 Revenue recognised in prior year that was invoiced in the current year (796) (289) Amounts recognised in revenue in the current year that will be invoiced 1,265 796 in future years Balance at the end of the year 1,265 796 The carrying amount of trade and other receivables are denominated in the following currencies: UK sterling Euro US dollar Swiss Franc Singapore dollars 2020 £000’s 2019 £000’s 770 625 496 476 4,708 5,307 - 4 356 - 6,107 6,635 The maximum exposure to credit risk is the carrying value of each class of receivables. The Group does not hold any collateral as security. 99 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 20. Trade and Other Payables 22. Interest Bearing Loans and Borrowings Convertible loan notes (b) 2020 £000’s 2019 £000’s 118 118 108 108 The fair value of the Group’s loans and borrowings is £118,000 (2019: £108,000). The fair value of current borrowings equals their carrying amounts as the impact of discounting is not significant. The following table shows the changes in liabilities arising from financing activities: Balance at 1 January Repayment of borrowings Draw down of funds Issuance of convertible loan notes Conversion of convertible loan notes Interest on convertible loan notes Foreign exchange losses Balance at 31 December 2020 £000’s 2019 £000’s 108 3,747 - - - - 10 - 118 (3,451) 106 850 (1,225) (23) 104 108 Creditors: falling due within one year Trade payables Accruals Other tax and social security Contract liabilities 2020 £000’s 2019 £000’s 466 291 1,259 1,266 318 303 187 387 2,346 2,131 Contract liabilities of £303,000 (2019: £387,000) which arise in respect of amounts invoiced during the year for which revenue recognition criteria have not been met by the year-end. The Group’s contracts with customers are typically less than one year in duration and any contract liabilities would be expected to be recognised as revenue in the following year. The following table shows the movement in contract liabilities: 2020 £000’s 2019 £000’s Contract liabilities recognised at start of the year 387 220 Amounts invoiced in prior year recognised as revenue in the current (387) (220) year Amounts invoiced in the current year which will be recognised as 303 387 revenue in the later years Balance at the end of the year 303 387 The Group and Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 23. 21. Financial Liabilities Creditors: falling due within one year Convertible loan notes 2020 £000’s 2019 £000’s 118 118 108 108 100 101 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 The interest on convertible loan notes and foreign exchange losses are non-cash items, all other items are The Group’s financial instruments are classified as follows: cash related movements. Bank loans Directors’ Convertible Subtotal Cash Total £000’s loans £000’s loan notes £000’s £000’s £000’s £000’s Net debt at 1 January (1,616) (493) - (2,109) 3,069 960 2018 Cashflows (1,345) 143 (398) (1,600) (1,014) (2,614) Other Changes (12) 5 (65) (72) 19 (53) Measured at amortised cost Assets Trade receivables Other receivables Cash at bank and in hand Net debt as at 31 (2,973) (345) (463) (3,781) 2,074 (1,707) Other financial liabilities at amortised cost December 2018 Cashflows 3,010 335 (850) 2,495 9,724 12,219 Other changes (37) 10 1,205 1,178 (78) 1,100 Net debt as at 31 December 2019 Cashflows Other changes Net debt as at 31 December 2020 - - - - - - - - (108) (108) 11,720 11,612 - (10) - (10) 13,475 13,475 60 50 (118) (118) 25,255 25,137 (a) Revolving Credit Facility In line with IFRS 9, Financial Instruments, the total In July 2020 the Group entered into a revolving finance cost of the convertible loan notes was credit facility with Silicon Valley Bank who provided spread over the maturity period using an effective a credit facility for £4,000,000. This facility is interest rate. Consequently, an interest charge of available to be drawn in US dollars, Sterling or £10,000 (2019: £23,000) has been recognised in Euro and was unused at 31 December 2020. The the profit and loss account using an effective rate Maturity Date of the facility is 16 July 2023. of 10%. (b) Convertible Loan Notes 23. Financial Instruments On 15 October 2018, the Company issued £454,000 of unsecured convertible loan notes (“Loan Notes”) Classification of financial instruments and on 15 February 2019, the Company issued a The principal financial instruments used by the further £850,000 of Loan Notes. £1,204,000 of the Group from which financial instrument risk arises Loan Notes were converted into Ordinary Shares in are trade receivables, cash and cash equivalents the Company immediately prior to Admission. and trade and other payables, loans, the revolving £100,000 of the Loan Notes issued on 15 February credit facility and convertible loan notes. The 2019 remain in place (10% interest rate payable impact of the discounting of financial instruments is annually from 1 April 2019). These loan notes can not material. be converted into Ordinary Shares in the Company on or after 31 March 2022. 2020 £000’s 5,343 177 25,255 2020 £000’s 466 1,259 118 2019 £000’s 6,134 171 11,720 2019 £000’s 291 1,266 108 Liabilities Trade payables Accruals Convertible loan notes Credit Risk to meet its obligations as they fall due. Credit risk is the risk that the counterparty fails The Group had a revolving credit facility for up to to discharge their obligation in respect of the £4,000,000. instrument. The Group trades only with recognised, creditworthy third parties. Receivable balances are Foreign Currency Risk monitored on an on-going basis with the result that exposure to bad debts is normally not significant. Foreign currency risk is the risk that the fair value As the Group trades only with recognised third of future cash flows of a financial instrument will parties there is no requirement for collateral. fluctuate because of changes in foreign exchange Other financial assets comprise of cash and cash rates. equivalents which are therefore subject to minimal credit risk. Liquidity Risk The Group seeks to transact the majority of its business in its reporting currency (£Sterling). However, many customers and suppliers are outside the UK and a proportion of these transact Liquidity risk arises from the Group’s management with the company in US dollars and euro. For this of working capital and is the risk that the Group reason, the Group operates current bank accounts will encounter difficulty in meeting its financial in US dollars and euro as well as in its reporting obligations as they fall due. currency and has a revolving credit facility available which can be drawn in US dollars, pounds sterling Group policy is that funding is reviewed in line with or euro. operational cash flow requirements and investment strategy. Repayment terms and conditions are To the maximum extent possible receipts and approved by the Board in advance of acceptance payments in a particular currency are made through of any facility. At each board meeting, and at the bank account in that currency to reduce the the reporting date, the cash flow projections are amount of funds translated to or from the reporting considered by the Board to confirm that the Group currency. has sufficient funds and available funding facilities 102 103 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 Cash flow projections are used to plan for those been 10% higher/lower at the reporting date the occasion when funds will need to be translated into effect on equity would have been approximately different currencies so that exchange rate risk is (£434,000)/£531,000 respectively (2019: minimised. In addition, the Group has entered into (£195,000)/£238,000). a revolving credit facility which can be drawn in US dollars, pounds sterling or euro. Interest Rate Risk If the exchange rate between sterling and the Cash flow interest risk arises from the Group’s US dollar had been 10% higher/lower at the external loans and revolving credit facilities, which reporting date, the effect on profit would have carry interest based on underlying base rates in been approximately (£35,000)/£4,000 respectively the UK, US and the EU. These loans were fully (2019:(£120,000)/147,000). If the exchange rate repaid in 2019 from the funds raised from the between sterling and euro had been 10% higher/ Company’s listing on the London Stock Exchange. lower at the reporting date the effect on profit The revolving credit facility remains unused at 31 would have been approximately (£27,000)/£15,000 December 2020. respectively (2019: (£195,000)/£239,000). If the exchange rate between sterling and the Maturity US dollar had been 10% higher/lower at the reporting date, the effect on equity would have The Group’s financial liabilities measured as a been approximately (£268,000)/£327,000 contractual undiscounted cash flow mature as respectively (2019: (£374,000)/£457,000). If the follows exchange rate between sterling and euro had Less than one Between one Between two year£000’s and two years and five years £000’s £000’s As at 31 December 2020 Trade payables and other payables 1,725 1,725 As at 31 December 2019 Trade payables and other payables 1,557 1,557 - - - - - - - - At each year-end there are no financial liabilities due after five years. 24. Equity Share Capital Allotted, called up and fully paid 84,068,923 (2019: 69,583,077) Ordinary shares of £0.002 each 2020 £000’s 2019 £000’s 168 168 139 139 Notes to the Group Financial Statements (continued) for the year ended 31 December 2020 On 11 June 2020, the Company undertook a Group. The remuneration of key management and Placing of 14,137,931 new ordinary shares to raise, personnel and details of directors’ emoluments are in aggregate £20.5m (before expenses of £0.9m). shown in note 8. On 12 June 2020 the Company issued 347,915 Ordinary Shares pursuant to the exercise of No related party transactions occurred during the warrants at an exercise price of 76p per Ordinary year. Share. The issued share capital of the Company immediately following completion of the Placing 27. Ultimate Controlling Party and the exercise of warrants and at 31 December 2020, was 84,068,923 Ordinary Shares of £0.002 The Company is controlled by its shareholders. each (December 2019: 69,583,077 Ordinary There is no one party which is the ultimate Shares of £0.002 each). controlling party of the Group and Company. All Ordinary Shares rank pari passu in all respects 28. Capital Risk Management including voting rights and the right to receive all dividends and other distributions, if any, declared The group’s objectives when managing capital or made or paid in respect of Ordinary Shares. are to safeguard the group’s ability to continue Reserves as a going concern in order to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to Share premium account: This reserve records reduce the cost of capital. In order to maintain or the amount above the nominal value received for adjust the capital structure, the group may adjust shares sold, less transaction costs. the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or Capital redemption reserve: This reserve records sell assets to reduce debt. the nominal value of shares repurchased by the Company. The group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt/ 25. Commitments and Contingencies net funds divided by total equity. There are no material capital commitments, Net debt is calculated as total borrowings (current financial commitments or contingent liabilities at and non-current) as shown in the group balance the balance sheet date not provided for in these sheet less cash and cash equivalents. financial statements. 26. Related Parties At 31 December 2020 amounts owed to/from related parties was £Nil (2019: £Nil) by the The gearing ratios at 31 December were as follows: Total borrowings 22 118 Note 2020 £000’s 2019 £000’s 108 Less: cash and cash equivalents (25,255) (11,720) Net debt/(funds) (25,137) (11,612) Total equity Gearing ratio 40,238 0.00 20,132 0.00 104 105 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Company Financial Statements Company Balance Sheet as at 31 December 2020 Assets Fixed assets Intangible assets Property, plant and equipment Deferred tax asset Investments Current assets Trade and other receivables Income tax receivable Cash at bank and in hand Note 2020 £000’s 2019 £000’s 6 7 8 9 10 11 6,229 1,903 217 296 125 117 347 58 6,867 2,425 4,670 2,215 22,764 29,649 6,528 293 9,706 16,527 Total assets 36,516 18,952 Equity and liabilities Equity share capital Share premium account Profit and loss account - including loss for the year of (£3,315,000) (2019: £1,160,000) Total equity Current liabilities Trade and other payables Financial liabilities 15 168 36,864 (3,019) 34,013 12 13 2,385 118 2,503 139 17,335 6 17,480 1,365 107 1,472 Total liabilities 2,503 1,472 Total equity and liabilities 36,516 18,952 The financial statements were approved and authorised for issue by the board and were signed on its behalf on 12 March 2021. The notes on pages 112 to 124 form an integral part of these financial statements. Mr Philip White Director 13 March 2021 108 109 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Company Statement of Changes in Equity for the year-ended 31 December 2019 Company Statement of Changes in Equity for the year-ended 31 December 2020 Called up Share Capital Profit Total equity share capital premium redemption and loss £000’s £000’s account reserve £000’s £000’s account £000’s 100 109 1,141 1,350 At 1 January 2019 Loss for the year Other comprehensive income - - - Total comprehensive expense - for the year Transactions with owners, recorded directly in equity Reorganisation of shares Bonus issue of shares Conversion of loan notes Share based payments 2 88 4 - - - - (2) (88) 1,225 - - - - - - - - Issue of shares on Placing 45 16,100 (109) Total transactions with 139 17,235 (109) owners (1,160) (1,160) - - (1,160) (1,160) - - - 25 - 25 - - 1,229 25 16,036 17,290 Called up Share premium Profit and loss Total equity share capital account £000’s £000’s account £000’s £000’s At 1 January 2020 139 17,335 6 17,480 Loss for the year Total comprehensive expense for the year Transactions with owners, recorded directly in equity Exercise of warrant Share based payment - - 1 - - - 264 - Issue of shares on Placing 28 19,265 Total transactions with owners 29 19,529 (3,315) (3,315) (3,315) (3,315) - 290 - 290 265 290 19,293 19,848 At 31 December 2020 168 36,864 (3,019) 34,013 At 31 December 2019 139 17,335 - 6 17,480 110 111 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Company Financial Statements for the year ended 31 December 2020 1. General Information • the requirements of paragraph 17 of IAS 24 Related Party Disclosures; and the Diaceutics PLC is incorporated and domiciled requirements in IAS 24 Related Party in Northern Ireland. These financial statements Disclosures to disclose related party were prepared in accordance with Financial transactions entered into between two or Reporting Standard 101 Reduced Disclosure more members of a group, provided that any Framework (FRS 101). The Company’s financial subsidiary which is a party to the transaction statements are presented in Sterling. is wholly owned by such a member. Parent Company Profit and Loss Account Going Concern The directors’ have taken advantage of the The financial performance and balance sheet exemption available under Section 408 of the position at 31 December 2020 along with Companies Act 2006 and have not presented a range of scenario plans to 31 December an income statement for the company alone. 2022 has been considered, applying different The results of Diaceutics PLC are included including at the lower end of the range, there in the consolidated financial statements remains significant headroom in the minimum of Diaceutics PLC which are available cash balance over the period to 31 December from 55-59 Adelaide Street, Belfast. 2022 and therefore the Directors have satisfied sensitives to revenue. Across these scenarios, themselves that the Company & Group has Basis of Accounting adequate funds in place to continue in operational These financial statements have been prepared on a going concern basis. The financial statements New and Amended Accounting are prepared under the historical cost convention, Standards Adopted by the Company in accordance with Financial Reporting Standard existence for the foreseeable future. 101 Reduced Disclosure Framework and in The Company has applied the following standards accordance with The Companies Act 2006 and amendments for the first time for their annual as applicable to companies using FRS 101. reporting year commencing 1 January 2020: The accounting policies which follow set out framework in IFRS standards those policies which apply in preparing the • Definition of a business (Amendment to IFRS 3) financial statements for the year-ended 31 • Interest rate benchmark reform (Amendment December 2020. The accounting policies to IFRS 9, IAS 39 and IFRS 7) • Amendments to references to conceptual have been applied consistently to all the years presented, unless otherwise stated. The The above amendments did not have any impact Company has taken advantage of the following on the amounts recognised in prior years. The disclosure exemptions under FRS 101: impact of applying IFRS16 is not material and • the requirements of paragraphs 45(b) and thus no adjustment has been made. The other 46-52 of IFRS 2 Share Based Payments; amendments listed above are not expected to • the requirements of paragraphs 10(d), 10(f), 16, significantly affect the current or future years. 38(a)-(d), 39(c), 40(a)-(d), 111 and 134-136 of IAS 1 Presentation of Financial Statements; New Accounting Standards and Interpretations • the requirements of IAS 7 Statement of Cash Flows; not yet Adopted by the Company • the requirements of paragraphs 30 and 31 The following new accounting standards, of IAS 8 Accounting Policies, Changes in amendments and/or interpretations have Accounting Estimates and Errors; and been published but not yet endorsed by the EU and are not mandatory for 31 December 2020 reporting year. They have not been early adopted by the company and these standards are not expected to have a material impact Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 on the entity in the current or future reporting they are intended to compensate. Grants periods and on foreseeable future transactions: relating to development projects are included • IFRS 17 insurance contracts in non-current liabilities as deferred income • Classification of liabilities as current or and are credited to the profit and loss account non-current (amendments to IAS 1) on a straight-line basis over the expected • Sale or contribution of assets between an useful economic lives of the related assets. investor and its associate or joint venture (amendments to IFRS10 and IAS 28) Foreign Currencies • COVID-19 related rent concessions (Amendment to IFRS16) Transactions in foreign currencies are translated to the Company’s functional currency at the foreign 2. Accounting Policies exchange rate ruling at the date of the transaction. Revenue Recognition Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at Revenue comprises the fair value of the the foreign exchange rate ruling at that date. consideration received or receivable for Non-monetary assets and liabilities that are the provision of services in the ordinary measured in terms of historical cost in a foreign course of the Company’s activities. Revenue currency are translated using the exchange is shown net of value-added tax and after rate at the date of the transaction. Foreign eliminating sales within the Company. exchange differences arising on translation are recognised in the profit and loss account. The Company has two revenue streams, Implementation services and Data. The Company’s Investments performance obligations for both revenue streams are deemed to be the provision of specific Investments in subsidiaries are held at historical deliverables to the customer. Revenue billed to the cost less any provisions for impairment in customer is allocated to the various performance value. The carrying values of investments obligations, based on the relative fair value of those are reviewed for impairment when events obligations, and is then recognised as follows: or changes in circumstances indicate the • Where a contractual right to receive payment carrying value may not be recoverable. exists, revenue is recognised as over the period services are provided using the Intangible Assets percentage of completion method, based on the input method using time spent; and Research and development • Where no contractual right to receive payment exists, revenue is recognised upon Expenditure on research activities completion of each separate performance is recognised in the profit and loss obligation, which is typically when account as an expense as incurred. implementation services are complete or data has been provided to the customer. Expenditure on development activities is Government Grants capitalised if the product or process is technically and commercially feasible and the Company intends and has the technical Grants, which include research and development ability and sufficient resources to complete tax credits where the recovery of those credits development, future economic benefits are is not restricted, are recognised at their fair probable and if the Company can measure value where there is a reasonable assurance reliably the expenditure attributable to the that the grant will be received and the Company intangible asset during its development. will comply with all attached conditions. Grants Development activities involve design for, relating to costs are deferred and recognised construction or testing of the production of in the profit and loss account over the period new or substantially improved products or necessary to match them with the costs that processes. The expenditure capitalised includes 112 113 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 the cost of materials and direct labour. Other Taxation development expenditure is recognised in the profit and loss account as an expense as The tax expense for the year comprises current incurred. Capitalised development expenditure and deferred tax. Tax is recognised in the income is stated at cost until it is brought into use. statement, except to the extent that it relates Other Intangible Assets to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive Other intangible assets that are acquired income or directly in equity respectively. by the Company are stated at cost less accumulated amortisation and less The current income tax charge is calculated accumulated impairment losses. on the basis of the tax laws enacted or Amortisation substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries operate and generate taxable Amortisation is charged to the profit or loss on income. Management periodically evaluates a straight-line basis over the estimated useful positions taken in tax returns with respect to lives of intangible assets. Intangible assets are situations in which applicable tax regulation is amortised from the date they are available for subject to interpretation. It establishes provisions use. The estimated useful lives are as follows: where appropriate on the basis of amounts • Patents and trademarks - 3 years (33.3% expected to be paid to the tax authorities. straight line) from date of registration • Datasets - 4 years (25% straight line) Deferred income tax is recognised, using the • Software - 5 years (20% straight line) liability method, on temporary differences • Platform - 10 years (10% straight line) arising between the tax bases of assets and liabilities and their carrying amounts in the The Company reviews the amortisation period consolidated financial statements. However, and method when events and circumstances the deferred income tax is not accounted for if indicate that the useful life may have it arises from initial recognition of an asset or changed since the last reporting date. liability in a transaction other than a business Property, Plant & Equipment affects neither accounting nor taxable profit or combination that at the time of the transaction loss. Deferred income tax is determined using Property, plant & equipment is stated at tax rates and laws that have been enacted or cost less accumulated depreciation and substantially enacted by the balance sheet accumulated impairment losses. date and are expected to apply when the The Company assesses at each reporting date or the deferred income tax liability is settled. related deferred income tax asset is realised whether there are indicators of impairment. Deferred income tax assets are recognised only Depreciation is charged to the profit and to the extent that it is probable that future taxable loss account on a straight-line basis over profit will be available against which the temporary the estimated useful lives of each part differences can be utilised. Deferred income of an item of tangible fixed assets. The tax is provided on temporary differences arising estimated useful lives are as follows: on investments in subsidiaries and associates, • Office equipment - 5 years (20% straight line) except where the timing of the reversal of the temporary difference is controlled by the group Depreciation methods, useful lives and residual and it is probable that the temporary difference values are reviewed if there is an indication of a will not reverse in the foreseeable future. significant change since the last annual reporting date in the pattern by which the Company expects Deferred income tax assets and liabilities are to consume an asset’s future economic benefits. offset when there is a legally enforceable right to offset current tax assets against current tax 114 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 liabilities and when the deferred income tax assets (b) Recognition and measurement and liabilities relate to income taxes levied by the At initial recognition, the Company measures a same taxation authority on either, the taxable financial assets at its fair value plus transaction entity of different taxable entities where there is costs that are directly attributable to the an intention to settle the balances on a net basis. acquisition of the financial asset. Subsequent Employee Benefits measurement of financial assets depends on the Company’s business model for managing those financial assets and the cash flow characteristics The Company operates a defined contribution of those financial assets. The Company only has pension scheme which is open to employees and financial assets classified at amortised cost. These directors. The assets of the scheme are held by assets are those held for contractual collection investment managers separately from those of of cash flows, where those cash flows represent the Company. The contributions payable to the solely payments of principal and interest and scheme is recorded in the profit and loss account are held at amortised cost. Any gains or losses in the accounting period to which they relate. arising on derecognition is recognised directly in Share Based Payments as a separate line in the profit and loss account. profit or loss. Impairment losses are presented The Company has a number of classes of (c) Impairment shares in issue. Where shares are issued to The Company assesses on a forward-looking employees that contain restrictions that mean basis, the expected credit losses associated with they have obtained those shares by virtue of its debt instruments carried at amortised cost. their employment, those shares are accounted For trade receivables the Company applies the for as share based payments. When the shares simplified approach permitted by IFRS9, which are issued a determination is made, based on requires expected lifetime losses to be recognised the rights of those shares, as to whether there from the initial recognition of the receivables. For is a contractual liability for the Company to other receivables the Company applies the three- reacquire the shares at some point (cash settled) stage model to determine expected credit losses. or not (equity settled). For equity settled shares, a fair value of those shares is established at Financial Liabilities the date the shares are granted and, if the employee is required to complete a period of Financial liabilities comprise trade and other service before the shares vest, this fair value payables and borrowings due within one year- is spread over that period (vesting period). end after one year, which are recognised Financial Assets (a) Classification initially at fair value and subsequently carried at amortised cost using the effective interest method. The Company does not use derivative financial instruments or hedge account for any The Company classifies its financial assets transactions. Trade payables represent obligations in the following measurement categories: to pay for goods or services that have been • Those to be measured at amortised costs; and acquired in the ordinary course of business from • Those to be measured subsequently at fair suppliers. Trade payables are classified as current value (either through Other Comprehensive liabilities if payment is due within one year. If not, Income of through profit and loss). they are presented as non-current liabilities. The classification depends on the Company’s The Company had issued convertible loan notes business model for managing the financial to employees, which include a conversion feature assets and the contractual terms of the cash on change of control or IPO. This conversion flows. The Company reclassifies its financial feature is treated as an equity settled share- assets when and only when its business based payment that vest immediately as there model for managing those assets changes. are no future service conditions, with the fair value being assessed on the date the convertible loan notes are issued. The underlying loan 115 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 proceeds were recognised initially at fair value the period in which that data will be utilised. and subsequently carried at amortised cost. Further information has been provided in note 6. Impairment of intangibles and key sources of Cash and Cash Equivalents estimation uncertainty are reviewed annually using the discount cash flow method. Further Cash and cash equivalents includes cash in hand, details are disclosed in note 6 intangibles. deposits held on call with banks, other short term highly liquid investments with original maturities With respect to revenue recognition, as described of three months or less and bank overdrafts. in note two accounting policies, where the input Equity Ordinary shares are classified as equity. method is used to determine recognition over time, a key source of estimation will be the actual hours spent vs the total budgeted hours to completion. Incremental costs directly attributable for Estimates and judgements are continually the issue of new shares are shown in equity evaluated and are based on historical experience as a deduction from the proceeds. and other factors, including expectations The share premium reserve represents the reasonable under the circumstances. of future events that are believed to be excess over the nominal value of the fair value of consideration received for equity 4. Employee Costs shares, net of expenses on the share issue. The capital redemption reserve records the nominal value of shares repurchased by the Company. 2020 £000’s 2019 £000’s Wages and salaries 4,359 3,113 Distributions to Equity Holders Social Security costs 796 Dividends and other distributions to Company’s Other Pension costs 242 489 133 shareholders are recognised as a liability in the financial statements in the period in which the dividends and other distributions are approved by the Company’s shareholders. These amounts are 5. Staff numbers recognised in the statement of changes in equity. 3. Judgements in Applying Accounting Policies excluding directors, during the year was as follows: The average monthly number of employees, and Key Sources of Estimation Uncertainty The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for income and expenditure during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The Company’s only assets/liabilities that are significantly impacted by key sources of estimation uncertainty are the Company’s intangible assets. The assessment of useful life of data purchases required estimation over Administration Technical Business development Finance 2020 2019 Number Number 23 49 2 8 82 18 33 1 5 57 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 6. Intangible Assets Patents and Datasets Development Platform Software Total trademarks £000’s expenditure* £000’s £000’s £000’s £000’s £000’s Cost At 1 January 2019 Additions At 31 December 2019 Transfer from Development expenditure to Platform Additions At 31 December 2020 Amortisation At 1 January 2019 Charge for the year At 31 December 2019 Transfer from Development expenditure to Datasets Charge for the year At 31 December 2020 Net book value 84 27 111 - 68 179 48 15 63 - 24 87 436 520 956 218 731 949 - - - - 210 210 738 1,488 2,226 - (4,142) 4,142 - - 967 3,530 - 1,923 337 4,142 276 486 4,841 7,067 66 113 179 - 78 78 78 (78) 393 650 - - - - - - 24 24 - 3 3 - 74 77 114 209 323 - 515 838 At 31 December 2019 48 777 871 - 207 1,903 *Development expenditure relates to an that based on latest information on commercial asset under construction and as such and technical use, four years represented the no amortisation has been charged. best estimate of the useful life of such assets. Intangible assets relate to patents, trademarks, The Company has determined that the useful software and datasets which are recorded at cost life of data and the useful life of platform and amortised over their useful economic life is a significant area of estimation. which has been assessed as two to five years. On 1st December 2020 the Group’s platform – The platform has been assessed to have a DXRX was commissioned and brought into use. useful life of 10 years based on information on On this date £4,142,000 was transferred out of the estimated technical obsolescence of such development expenditure and into platform. assets. However, the actual asset useful life may The Company assesses the useful life of all on technical innovations and other external assets on an annual basis. On reviewing the factors. If the useful life were eight years, the useful life of the data sets it was determined carrying amount of the asset would reduce by be shorter or longer than 10 years depending £6,000 to £4,112,000. If the useful life of the 5,397 3,735 At 31 December 2020 92 1,273 337 4,118 409 6,229 116 117 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 asset were 12 years, the carrying amount of the The recoverable value of intangible assets asset would increase by £4,000 to £4,122,000. is measured using discounted cash flow forecasts and the valuation model at 31 Data sets have been assessed to have a useful December 2020 indicated no impairment on life of four years based on information on the these assets. Whilst there is no indication of estimated commercial and technical use of impairment, the discounted cash flow model such assets. However, the actual asset useful uses prospective information on revenues which life may be shorter or longer than 4 years is subject to estimation. Within the model, depending on technical innovations and other sensitivity analysis shows a 7% reduction in external factors. If the useful life were 3 years, the compound annual growth rate of revenues the carrying amount of the asset would reduce over the term would still leave sufficient by £18,000 to £1,255,000. If the useful life of headroom with no indication of impairment. the asset were 5 years, the carrying amount of the asset would increase by £9,000 to Amortisation in respect of Patents and £1,282,000. The change in estimated useful trademarks and Software is expensed to the life from two years to four years has resulted in Profit and Loss Account as Administrative £41,000 less in amortisation charges in 2020. expenses. Platform and Datasets amortisation is included within Cost of sales. 7. Property, Plant and Equipment Office equipment £000’s Cost At I January 2019 Additions At 31 December 2019 Additions At 31 December 2020 Depreciation At 1 January 2019 Charge for the year At 31 December 2019 Charge for the year At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 118 125 88 213 132 345 67 29 96 32 128 217 117 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 8. Deferred Tax Asset Tax losses carried forward amount to £6,358,000 (2019: £3,048,000). The deferred tax asset includes amounts receivable after more than one year amounting to £Nil (2019: £Nil). The deferred tax asset is recognised on the basis that the Company has forecasted sufficient profits on which the deferred tax asset can be utilised. Tax losses Other temporary Research & Total £000’s differences Development £000’s £000’s £000’s At 1 January 2019 - - Credited/(charged) to the 518 (171) income statement At 1 January 2020 518 Credited/(charged) to the 690 income statement (171) (76) - - - (665) - 347 347 (51) At 31 December 2020 1,208 (247) (665) 296 9. Investments Investment in subsidiaries £000’s At 1 January 2019 Additions At 31 December 2019 Additions 1 57 58 67 At 31 December 2020 125 The principal business of all the subsidiary undertakings is data and implementation services. All entities were incorporated before 1 January 2019, with the exception of Diaceutics Precision Medicine Technology (Guangzhou) Limited which is a wholly owned foreign enterprise of Diaceutics PTE Limited and was incorporated during the year-ended 31 December 2020. During the year ended 31 December 2020, the Company made capital contributions amounting to £67,000 to certain subsidiaries in respect of share-based payment awards. 119 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 The following were subsidiaries of the Company at 31 December 2020: Registered office Country of incorporation Percentage of shares held Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 The Company applies the practical expedient in IFRS 9 (which allows the group to measure impairment using the 12 month Expected Credit For those balances where there is a higher risk of default the group follows the 3 stage approach within IFRS 9 to determine lifetime expected credit Loss model) in respect of amounts owed by group losses. undertakings, for those balances that meet the Diaceutics Ireland Limited Unit 3, Creative Spark, Republic of Ireland 100% following requirements: Clontygora Ct, Muirhevnamon, Dundalk, County Louth Labceutics Limited 727 Antrim Road, Northern Ireland 100% Belfast, BT15 4EJ Diaceutics Inc 2001 Route 46 US 100% Waterview Plaza Suite 310, Parsippany, New Jersey, 07054 Diaceutics Pte Limited 6 Temesak Boulevard, Singapore 100% #20-00 Suntec Tower Four, Singapore The principal business of all the subsidiary undertakings is data and implementation services. All entities were incorporated before 1 January 2019, with the exception of Diaceutics Precision Medicine Technology (Guangzhou) Limited which is a wholly owned foreign enterprise of Diaceutics PTE Limited and was incorporated during the year-ended 31 December 2020. 10. Trade and Other Receivables Trade receivables Amounts owed by group undertakings Other debtors Prepayments 2020 £000’s 980 3,092 175 423 4,670 2019 £000’s 2,241 3,819 175 293 6,528 All amounts are due within one year. The default percentage used in the expected credit loss calculation was 0.16% (2019: 0.16%) for debt up to 30 days old; 0.20% (2019:0.20%) for debt between 31 and 60 days old; 0.31% (2019:0.31%) for debt between 61 and 90 days old; 0.84% (2019:0.84%) for debt between 91 and 180 days old and 8.09% (2019: 8.09%) for debt over 180 days old. • it has a low risk of default; • the counterparty is considered, in the short term, to have a strong capacity to meet its obligations in the near term; and • the group expects, in the longer term, that adverse changes in economic and business conditions might, but will not necessarily, reduce the ability of the counterparty to fulfil its obligations. Other receivables are considered to have low credit risk and the loss allowance recognised during the year was therefore limited to 12 months expected credit losses. Included within trade receivables are contract assets of £104,000 (2019: £416,000). The Company’s contracts with customers are typically less than one year in duration and any contract assets as at the balance sheet date would be expected to be invoiced and received in the following year. The following table shows the movement in contract assets: 2020 £000’s Contract assets recognised at start of the year 416 Revenue recognised in prior year that was invoiced (416) in the current year Amounts recognised in revenue in the current year 104 that will be invoiced in future years Balance at the end of the year 104 11. Income Tax Receivable Balance at 1 January Credited to the profit and loss account Balance at 31 December 2020 £000’s 293 1,922 2,215 2019 £000’s 289 (289) 416 416 2019 £000’s 22 271 293 The credit to the profit and loss account relates to a credit on losses for the year amounting to £1,792,000 (2019: credit of £114,000) plus credits relating to research and development tax credits amounting to £147,000 (2019: £157,000). 120 121 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 12. Trade and Other Payables 14. Interest Bearing Loans and Borrowings 2020 £000’s 2019 £000’s Creditors: amounts falling due within one year Trade payables Amounts owed to group undertakings Accruals Contract liabilities Other creditors Other tax and social security 394 947 807 31 - 206 2,385 267 - 798 148 27 125 1,365 Contract liabilities of £31,000 (2019: £148,000) which arise in respect of amounts invoiced during the year for which revenue recognition criteria have not been met by the year-end. The Company’s contracts with customers are typically less than one year in duration and any contract liabilities would be expected to be recognised as revenue in the following year. The following table shows the movement in contract liabilities: 2020 £000’s Contract liabilities recognised at start of the year 148 Amounts invoiced in prior year recognised as (148) revenue in the current year Amounts invoiced in the current year which will be 31 recognised as revenue in the later years Balance at the end of the year 31 13. Financial Liabilities Creditors: falling due within one year Convertible loan notes 2020 £000’s 118 118 2019 £000’s 38 (38) 148 148 2019 £000’s 107 107 Convertible loan notes (b) 2020 £000’s 118 118 2019 £000’s 107 107 (a) Revolving Credit Facility £100,000 of the Loan Notes issued on 15 February 2019 remain in place. Interest is charged at 10% In July 2020 the Group entered into a revolving and payable annually. These loan notes can be credit facility with Silicon Valley Bank who provided a converted into Ordinary Shares in the Company on credit facility for £4,000,000. This facility is available or after 31 March 2022. to be drawn in US dollars, Sterling or Euro and was unused at 31 December 2020. The Maturity Date of Under IFRS 9, Financial Instruments, the total the facility is 16 July 2023. finance cost of the convertible loan notes is (b) Convertible Loan Notes using an effective interest rate. Consequently, an On 15 October 2018, the Company issued £454,000 been recognised in the profit and loss account of unsecured convertible loan notes (“Loan Notes”) using an effective rate of 10%. interest charge of £11,000 (2019: £23,000) has required to be spread over the maturity period and on 15 February 2019, the Company issued a further £750,000 of Loan Notes. £1,104,000 of the Loan Notes were converted into Ordinary Shares in the Company immediately prior to Admission. 15. Equity Share Capital Allotted, called up and fully paid 84,063,923 (2019:69,583,077) Ordinary shares of £0.002 each 2020 £000’s 168 2019 £000’s 139 168 139 On 11 June 2020, the Company undertook a All Ordinary Shares rank pari passu in all respects Placing of 14,137,931 new ordinary shares to including voting rights and the right to receive all raise, in aggregate £20.5m (before expenses of dividends and other distributions, if any, declared £0.9m). On 12 June 2020 the Company issued or made or paid in respect of Ordinary Shares. 347,915 Ordinary Shares pursuant to the exercise of warrants at an exercise price of 76p per Ordinary Share. The issued share capital of the Company immediately following completion of the Placing and the exercise of warrants and at 31 December 2020, was 84,068,923 Ordinary Shares of £0.002 each (31 December 2019: 69,583,077 Ordinary Shares of £0.002 each). 122 123 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Notes to the Company Financial Statements (continued) for the year ended 31 December 2020 Reserves (v) It is intended the obligation arising with the above shares will be met within Share premium account: This reserve records the existing employee benefit trust. the amount above the nominal value received (vi) The options with performance conditions for shares sold, less transaction costs. attached will only be exercisable provided Capital redemption reserve: This the employee has received no more than two “unsatisfactory” individual records the nominal value of shares performance ratings in all of their individual repurchased by the Company Dividends performance reviews in the three- year period from the date of grant. 17. Commitments and Contingencies During the year dividends amounting to £Nil (2019: £Nil) were paid. No dividends were proposed There are no material capital commitments, by the directors after the balance sheet date. financial commitments or contingent liabilities 16. Share Based Payments for in these financial statements. at the balance sheet date not provided (i) Employee share option plan 18. Related Party Transactions (ii) The Company currently has an Employee Share Option Plan (“ESOP”) for employees. As outlined in note 1 the Company has taken In June 2019, 197,400 options were granted advantage of the exemption in IAS 24 “Related to certain employees to satisfy contractual Party Disclosures” from disclosing transactions obligations. These options, which have an between two or more members of a group, exercise price of £0.002, are payable in provided that any subsidiary which is party shares at the end of three years to the extent to the transaction is wholly owned by such a that performance criteria are met. At the member. There were no other transactions which end of June 2020, a further 231,000 options fall to be disclosed under the terms of IAS 24. were granted under the share scheme. (iii) In the first half of 2020 the Company launched a long‐term incentive plan (LTIP), under which an initial award of 1,430,244 options were granted to certain employees on 17 April 2020. These options which have an exercise price of £1.265, are exercisable at the end of three years with no performance obligations attached other than being employed in the Company at the end of the vesting period. (iv) Granted awards under the Company’s ESOP & LTIP schemes that were outstanding at 31 December 2020 had a weighted average fair value at grant date of £0.72 per option. The fair value of the awards is recognised over the three‐year vesting period from the grant date, with £221,000 being charged through the profit and loss account in the year- ended 31 December 2020 (2019: £24,000). 124 125 Diaceutics PLC Annual Report 2020Diaceutics PLC Annual Report 2020 Better Testing, Better Treatment