Diaceutics PLC
Annual Report 2021

Plain-text annual report

Annual Report 2021 Annual Report 2021 7 0 2 5 5 0 N I : r e b m u N d e r e t s g e R i Contents Corporate Information Strategic Reports Summary Highlights Statement of the Chair Chief Executive Review Financial Review Diaceutics and Market Opportunity Snapshot Our Market Opportunity Our People and Our Head Office Environmental, Social and Governance Principal Risks and Uncertainties Investment Case Case Study: Diaceutics in Action Corporate Governance The Board of Directors Corporate Governance Report Section 172 Statement 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 and Loss Account Group Statement of Comprehensive Income Group Statement of Financial Position Group Statement of Changes in Equity Group Statement of Cash Flows Notes to the Group Financial Statements Company Financial Statements Company Statement of Financial Position Company Statement of Changes in Equity Notes to the Company Financial Statements 3 4 6 10 12 20 26 28 34 35 41 45 48 50 52 55 66 70 76 78 81 82 84 92 92 93 94 96 97 128 130 131 132 Corporate Information Directors Ms D Davis (Appointed 4 January 2021) Mr P Keeling Mr R Keeling Mr N Roberts (Appointed 18 March 2022) Mr C Hindson Mr M Wort Company Secretary Mrs S Craig Registered Number NI055207 Registered Office Solicitors First Floor, Building Two, DAC Beachcroft LLP Dataworks at Kings Hall Health The Wallbrook Building and Wellbeing Park Belfast County Antrim BT9 6GW 25 Wallbrook London EC4N 8AF Independent Auditors Nominated Advisor and Broker PricewaterhouseCoopers LLP Stifel Nicolaus Europe Limited Merchant Square 150 Cheapside London EC2V 6ET 20–22 Wellington Place Belfast BT1 6GE Bankers Silicon Valley Bank Alphabeta 14–18 Finsbury Square London EC2A 1BR Strategic Reports We are delighted with the significant progress we have made in 2021. Alongside a solid financial performance, we have successfully transitioned Diaceutics to supporting a recurring revenue model and have progressed both faster and further than we anticipated at the beginning of the year, laying the foundations for significant revenue growth. Peter Keeling Chief Executive Officer and Founder Better Testing, Better Treatment Diaceutics PLC (the ‘Company’ or the ‘Group’), the diagnostic commercialisation company for precision testing, is pleased to report its audited results for the year-ended 31 December 2021. Financial Highlights Revenue Gross Profit Gross Margin £13.9m £10.7m 10% 2020: £12.7m An 18% increase on a constant currency basis 13.4% 2020: £9.5m 77% 2020: 75% Benefiting from the shift to platform revenues Adjusted EBITDA* Profit Before Tax Strong Balance Sheet £2.3m 2020: £0.5m £0.5m 2020: Loss Before Tax £0.7m £19.7m Net Cash 2020: £25.3m Net Cash * Adjusted for exceptional costs of £0.4m during 2020 in relation to a restructuring event 6 7 Strategic ReportsDiaceutics Annual Report 2021Operational Highlights DXRX Platform DXRX Strong adoption of the DXRX platform in first full year since launch Total Revenue 60% Total revenue generated by the platform in the period, significantly ahead of the 20% target for the period Management Clients Appointments New contract Expansion of the management team Secured a five-year contract with Vice President of Sales and Marketing Chief Growth Officer Business Development Chief Financial Officer Chief Operating Officer a leading life sciences company for direct data feed from the DXRX platform, worth more than US$1m over the contracted period Platform-based Data Revenue Platform Development Ongoing Investment Recruitment 53% DDP pipeline New products 485 new labs Significant shift towards Within the platform development Growth of product offering with the Recruited 485 laboratories onto the platform-based data revenues, programme we expanded our DDP launch of four new platform-based DXRX platform taking the total to (53% of the total revenues) pipeline from 49 to 77, with 78% products taking the total platform 546 in 33 countries, significantly supporting the transition to a focused on oncology and 22% offering to 16 recurring revenue model non-oncology increasing the DXRX platform global footprint and customer offering 8 9 Strategic ReportsDiaceutics Annual Report 2021Statement of the Chair I am proud of the passion and drive I see across Diaceutics as we strive to achieve our vision. Introduction I am delighted to reflect on what has been a transformational year for Diaceutics in which we have delivered robust financial performance, while exceeding our operational goals set at the end of the previous financial year. The impact of the COVID-19 pandemic on the timely diagnosis and access to treatment for patients around the world has brought our purpose, to ensure the right treatment is provided to patients at the right time, sharply into focus. I am proud of the passion and drive I see across Diaceutics as we strive to achieve our vision. The team has been tireless in its commitment to innovation, as we are still very much just at the start of the evolution of the platform. As part of DXRX’s second phase launch towards the end of the year, we established four new service offerings, adding further routes to increase platform revenue growth. In the summer of 2021, we were delighted to establish our new company headquarters at Dataworks at Kings Hall Health and Wellbeing Park in Belfast, a new green building, with an ‘A’ rated energy certificate. These offices position us in direct proximity to Belfast’s major hospitals, universities, and innovative medical research facilities, and we are already seeing the benefits of the location as In October 2020, we launched DXRX, our diagnostic a thriving data hub enabling data analytics companies, commercialisation platform, bringing together all medical professionals and patient centric groups to stakeholders in Precision Medicine to improve collaborate in this shared space. efficiency across the diagnostics market. In 2021, our core strategic aim was to drive the adoption Performance of our platform alongside increased partner The progress in widening the customer base, increasing engagement, providing the foundation for future our activity levels, and driving the adoption of the platform growth acceleration. The strong adoption in can be seen in the successful financial performance in this regard demonstrates the willingness of the the year, delivering 18% revenue growth on a constant diagnostic market and wider pharmaceutical industry currency basis, ahead of market expectations. While we to embrace a digital platform. We now count over are investing in the business, the board of directors (the 540 laboratories across multiple geographies signed ‘Board’) is cognisant of the need to carefully manage up to DXRX and ready to participate in projects and resources, and we are pleased to have delivered Adjusted importantly, 60% of Group revenue in the year was EBITDA of £2.3m and Profit before tax growth to £0.5m. delivered via the platform, considerably ahead of our initial 20% target. We also increased the total revenue from our top five Pharma customers from £5.7m (2020) to £7.4m (2021) and serviced the needs of these same top five customers in a total As the adoption of the platform accelerates, and our service portfolio grows, we anticipate larger customer contracting values and the continued migration to a recurring revenue model into 2022 and beyond. of 23 markets, both metrics are indicative of our Cash balances remain strong, providing the business with increased relevance to our leading customers. the funds to continue to execute on its growth strategy. Our People Board Changes The COVID-19 pandemic continued to be the dominant Post the year end, in January 2022, we were delighted external factor impacting the business, our staff, and to announce the appointment of Nick Roberts as Chief customers, and I am incredibly proud of all of the team for Financial Officer who took over duties from Philip White persevering through another year characterised by such on 18 March 2022. Nick’s wealth of experience derived significant disruption and uncertainty. On behalf of the from his time with AIM quoted healthcare and technology Board, I would like to extend my thanks and gratitude to companies with global customer bases, will prove key as all of the Diaceutics team for their vital contribution during we progress to the next stage of our growth. We welcome the year. Nick to Diaceutics and look forward to working with him. Despite the challenges posed by the pandemic, our On behalf of the Board, I would like to wholeheartedly thank teams have responded with fortitude, embracing the Philip for his vital contribution to Diaceutics in the build-up transformation taking place at Diaceutics, while remaining and throughout the IPO and our first few years as a listed passionate in our purpose. As part of our evolution business and wish him the very best in his future role. to a platform business model, we have undertaken considerable organisational transformation during the Outlook period, which has seen the reorganisation of our executive We are seeing diagnostics growing in importance to the committee and the expansion of our sales team to nine pharmaceutical industry, as an increasing number of Key Account Managers. We entered 2021 with a well- precision medicines are brought to market, and we are established remote working culture, and we have ensured our teams remain supported and as connected as ever, confident that Diaceutics is positioned to maximise the advantage it has as the market-first digital diagnostics despite social distancing and lockdown restrictions. commercialisation platform. With a blue-chip customer We are a global company with employees operating across 16 countries and, as a result, we recognise the immense value people from all cultures, religions and backgrounds base, compelling and expanding offering, experienced management team and a clear strategy, the Board is confident in the Group’s long-term prospects. can contribute to our success. We remain fully committed I would like to thank all our customers, partners, suppliers, to supporting our colleagues and fostering a diverse and investors, and employees for their ongoing support during inclusive workplace. the year. As a responsible employer we communicate and engage with our employees regularly via Town Halls and monitor and support employees across multiple areas such as mental health and work life balance. As a result, 96% of employees surveyed responded that people are treated Ms Deborah Davis fairly and with respect, and 96% of employees surveyed Chair have great confidence in the future of Diaceutics. 22 March 2022 10 11 Diaceutics Annual Report 2021Strategic ReportsChief Executive Review Overview The year to 31 December 2021 was one of significant are tested at the right time. We are already seeing positive progress for Diaceutics. Alongside a that this new and unique platform network is assisting solid financial performance, we have successfully us both in attracting new customers, but importantly transitioned the Company to supporting a recurring increase our share of our existing customers’ budget, revenue model, underpinned by repeat annual licence supporting a wider range of their diagnostics and subscription contracts, and have progressed commercialisation needs. both faster and further than we anticipated at the beginning of the year, laying the foundations for significant revenue growth. The market relevance for our platform is made clear by the activity generated on the platform from our partners directly feeding weekly, monthly or quarterly With the number of new Precision Medicine therapies data into the platform. increasing strongly, the diagnostic commercialisation market segment is becoming a key part of the Pharma business model. Through the timely launch of our DXRX platform, we have advanced our first mover advantage to service this need, increasing both our breadth of offering and ability to meet the industry’s needs at scale. Our Pharma customer base has been aided by the worldwide vaccine rollout at the beginning of H2 2021, resulting in pharmaceutical teams re-engaging at pre-COVID levels, led by North America which represented 61% of revenue in 2021, compared to 48% in 2020. We have engaged at a global level with 39 customers with an increase in number of customer DXRX is a unique diagnostics commercialisation therapy brands serviced to 56 in 2021. platform tailored for Precision Medicine, whose technology enabled services and real-world data insights directly address the issues in the diagnostics ecosystem which result in patients missing access to treatment, such as the inconsistency of testing by laboratories or unavailability of diagnostics in certain geographies. DXRX repositions Diaceutics in the eyes of our customers, showing our ability to offer the most comprehensive product range available in the market, designed to service their total diagnostic commercialisation needs and ensure the right patients At the end of 2020 and into 2021 we made the key organisational changes required to prepare the business to migrate to a platform-centric and scalable diagnostics commercialisation company, and in 2021 we made that transition. We have delivered above expectations on this strategic transition in 2021 and these achievements are summarised below. Strategic Transition Achievements Impact Commenced migrating existing and new 60% of customer revenue is generated customer agreements to the platform through the platform (2020: nil) Increased platform product offerings 4 new products launched taking total to 16 Increased platform collaborations 30 new collaborations on the platform Migrated laboratory partners onto the 546 laboratories migrated to the platform platform (21.8% of target network) As part of DXRX platform investment we DDP pipeline expanded from 49 to 77 with have expanded data insights through 17 now focused outside oncology Diagnostic Deductive Pathway (‘DDP’) development Expanded customer base 3 non-Pharma companies added including a top five diagnostic company Expanded client engagement outside 15% of revenue now emanated from oncology outside of oncology projects Reshaped and expanded sales and Increased the Key account managers from marketing team 3 to 9 supported by 4 sales operations executives and new CRM system. Reshaped and expanded the leadership team By the end of period added two new executives to the EXCO team and four to the OPCO team We are now focused on marketing our suite of products to our core Pharma customers and new companies investing in diagnostic commercialisation such as Biotech and Diagnostic companies. We will continue to expand our service offering, partner network and data repository, with the ambition to service our customers’ entire diagnostic commercialisation needs in the key international markets, both within and outside oncology. 12 13 Diaceutics Annual Report 2021Strategic ReportsFinancial Performance Demonstrates Ongoing investment in the platform resulted in the is significant for our customers as some of these Our increased product offering allows us to growth of DXRX and the launch of four new products by treatments have annual revenue in excess of a extend our services to customers in all of the the end of the year: billion dollars. Transition of Diaceutics The success of the launch of DXRX can be seen in its contribution to Group revenues, with 60% of • Patient Journey DXRX patient journey enables total revenues derived from the platform in the first Pharma customers to complete a longitudinal analysis operational year. We increased the total revenue from our top five customers by 31% from £5.7m to £7.4m in 2021 and serviced the needs of these same top five customers in a total of 23 markets, both metrics are indicative of our increased relevance to our leading customers. of biomarker testing journeys of individual patients which identifies opportunities for earlier testing and treatment; • Lab Benchmark DXRX lab benchmarking enables laboratories to gain competitive edge and compare key criteria to others in the industry providing metrics such as disease, testing and methodology, market Within the platform revenue is the successful share, turnaround time and laboratory leadership in conversion of 53% of our business to platform-based these areas; data revenue representing £7.4m of total Group revenue in 2021 (2020: nil). We anticipate this to be a precursor to further recurring revenue, improving the quality and visibility of future revenues. • Test Reimbursement DXRX test reimbursement enables Pharma customers to rapidly engage with laboratories to fund the introduction of novel companion diagnostics, reducing the lag time in test Moving forward, we anticipate an evolution towards adoption; and larger customer contracting value, multi technology enabled services proposals and multi brand enterprise licenses. We have a strong track record in expanding our customer engagements over time moving to additional therapy teams within each customer alongside expanding our geographic reach. The • Test Signal DXRX test signal delivers a real-time alert of a testing event that allows Pharma customers to identify therapeutically actionable patients in the previous weeks, as shown in the profile below. Test Signal in Profile DXRX platform allows us to span geographies with • The launch of our Test Signal product provides customers in the US, Europe, and Asia Pacific, supporting the growth of the Company. Delivering on our Strategy a perfect example of how DXRX is enabling an expansion of our data capabilities. The introduction of our Test Signal product in the US market now allows us to use the efficiencies of the DXRX We have developed a scalable, high margin business platform network to identify patients who could with a best-in-class product offering, tailored for benefit immediately from better treatment by zip Precision Medicine. This strategy is centred around code. the proprietary and market leading DXRX platform and our dedicated and highly skilled employees and has three distinct and vertically integrated value blocks, which form divisions within the business. These are: • Test Signal notifies a Pharma customer when a patient tests positive for a biomarker linked to the profile of a therapeutic linked to the pharmaceutical company. This information can now 1. The right products to service total diagnostic be supplied within days of the test result being commercialisation needs; recorded by laboratories linked to this new service. 2. A diverse partner network that spans numerous • Test Signal allows the opportunity for real-time geographies; and 3. An unrivalled depth of data that delivers impactful insights at the patient level. Our strategy is focused on enhancing these three aspects of embedded value in order to increase our customer numbers and average contract size: identification of patients eligible for treatment and follow up by the pharmaceutical company’s marketing organisation. This will allow quicker and better support to biomarker testing, allowing treatment with the most appropriate drug treatment sooner. • Our mantra is ‘’Better Testing, Better Treatment’ 1. The Right Products to Service Total and this product gets us right to the fore of Diagnostic Commercialisation Needs delivering on this as it is used by the front-line In the post COVID-19 era of virtually augmented drug development and commercialisation, the DXRX platform provides a digital testing infrastructure which can meet the market’s growing need for efficient patient testing. 14 sales teams within the Pharma industry. After only one month on the market our Test Signal product had identified 1,971 patients who had the potential to be treated with a Precision Medicine and who may have otherwise been lost to treatment. This • Signal is one of the five specialist data products developed as a result of our ongoing investment in DDPs, since it depends upon automation integration, standardisation and expert labelling of large data sets weekly, to ensure our customers can act quickly. key geographies, accessing larger budgets from Pharma per therapy brand. The launch of these products within DXRX has increased Total Contract Value (‘TCV’) and total revenue per customer, supporting continued growth in the future. We can now offer 16 bespoke products across the spectrum of diagnostic commercialisation for the first time. Data Tech Enabled Service Professional Services Clinical Development Prelaunch and Launch Lifecycle Management Identify patients for clinical trial Signal Understand test behaviours in the market Physician Mapping Testing Rate Dashboard Track test quality continuously in real time Patient Journey Lab Mapping Use data to understand the current landscape Market Landscape Lab Mapping Build your CDx influence/advisory programme Professional Services Provide lab trouble-shooting service Lab Monitor Lab Report Optimisation Build a Dx commercialisation strategy Professional Services Develop reference materials for use in test validation Lab Validation Track changes in test behaviours and utilisation — continuously in real time Physician Mapping Testing Rate Dashboard Select appropriate commercialisation partners Professional Services Standardise assay with LDT options Lab Validation Use data to define LCM planning Market Landscape Lab Mapping Support regulatory approvals in all markets Professional Services Set up pay for testing programmes where needed Pay for Testing Build clinical value story for Dx Professional Services Establish reimbursement model in all markets Pay for Testing Build global EQA initiatives Lab Quality Assurance Launch standardised test in all lab partners Lab Quality Assurance Lab Harmonization Provide training to labs Lab Education Lab Monitor Announce availability of new test to all stake holders Lab Talks Lab Alerts Identify patients for treatment Signal Remind key stakeholders of when they should be testing Lab Advisory Signal Outreach Track changes in test behaviours and utilisation — continuously in real time Physician Mapping Testing Rate Dashboard All steps in the PM development and commercialization process are supported by Professional Services Key Capabilities Strategy and Planning Education and Content Insights Impact Assessment Market Access Consulting 15 Diaceutics Annual Report 2021Strategic Reports2. Diverse Partner Network Service Partners 3. Unrivalled Depth of Data that Delivers Customer and Disease Area Expansion The DXRX platform vertically integrates a network 13 service partners have been announced as joining of laboratory and service partners relevant to the platform since DXRX launch in October 2020. commercialising diagnostics. These best-in-class laboratory and service partners allow us to service Examples include: the diversity of our customer needs including: • UKNEQAS ICC & ISH; • Supporting physicians by ensuring all the key • European Society of Pathology (ESP); laboratories have the right test at the right time in step with prescribing demands; • Supporting those same laboratories to optimise the quality of testing and identify more patients for treatment; and • Supplying timely real-world data and insights to help target our customers’ investments and • Nordic Immunohistochemical Quality Control (NordiQC); • European Molecular Genetics Quality Network (EMQN CIC); • Canadian Pathology Quality Assurance — Assurance Qualité Canadienne en Pathologie (CPQA-AQCP); benchmark laboratories in all the leading markets. • Targos and HistoCyte Laboratories; and Laboratory Partners • LGC SeraCare Partnership The DXRX laboratory universe is a key part of our platform network and active participants in our customer sponsored collaborations (see below) using the DXRX platform. In respect of laboratory onboarding, in its first full year we have moved 21.8% (546 laboratories) of our target network onto the platform, transitioning from an offline to an online relationship and enabling automation of data supply and our first technology enabled services. Armed with the platform partners above, our strategy uses expertly customised sponsored collaborations to integrate the needs of all the platform partners with the needs of our pharmaceutical and diagnostic customers and deliver faster change to testing at the front line. During 2021, this platform network supported 30 collaboration programmes. In total, our platform network allows us to leverage the capabilities of our, data, service partners and laboratories, in turn expanding the commercialisation products and features offered to our customers. As more partners join and the platform continues to scale, our strategy will be to consolidate our position, ultimately enabling an embedded solution for our customers. Tech Enabled Services Topic Country Disease Number of Participating Labs Test Announcement BRAF testing in colorectal cancer EU+Canada CRC Test Announcement Molecular pathology of breast cancer Germany Breast Test Announcement Her2 testing for breast cancer in clinical UK/ EU Breast practice including current need to identify Her2 low tumours 22 15 77 Test Quality Assessment Global gastric cancer testing EQA Study US-EU APAC Gastric 30 Cancer Lab Standardisation Breast cancer proficiency testing US-EU APAC Breast 65 Impactful Insights at the Patient Level Our investment in the platform has further strengthened our position as the world’s richest repository of real-world diagnostic testing data. We have an unparalleled depth of data, which combined with our unique data mining tools and algorithms, provide rich real-world testing data insights at disease level. This repository unlocks unrivalled access to deep analysis of the world’s richest source of de-identified patient testing with an expansion of disease specific testing pathways (Diagnostic Deductive Pathways — DDPs), allowing us to generate recurring data revenue across more cancer and non-cancer diseases. With each new platform partner that engages and every collaboration we form, the wealth of exhaust data grows and the service we deliver becomes more useful and valuable. In addition to increasing the speed of data delivery to our Pharma customers, we have expanded our customer base and provided data licenses to three non-Pharma companies, including a top five diagnostic company. Our goal is the expansion beyond our traditional Pharma customer leveraging our data insights which support diagnostic commercialisation regardless of sponsor. Year on year we are witnessing the expansion of Precision Medicine outside oncology, where diagnostic commercialisation needs are varied and complex. Here too we have remained in step with the needs of our Pharma customers and have worked on diagnostic commercialisation relevant to Inherited Retinopathy Disease, Alzheimer’s, Tuberculosis, COVID-19 and Dengue amongst others across the year. As we ended the year, 15% of our revenue emanated from projects outside oncology versus 9% in 2020. This has been enabled by the development Our Diagnostic Deductive Pathway — DDP Pipeline of new non-oncology DDPs, 22% of which are now DDPs which forms part of our platform development, non-oncology. are a series of AI enabled algorithms that map the Our goal outside oncology will be to remain in step patient journey in a particular disease area. The with the needs of our customers as they develop DDPs, transform the raw data into product insights in precision therapies dependent upon unique and real time via the platform, thus generating recurring complex patient testing needs. revenue streams and scalability for the business. As we ended the year, we had expanded our DDP pipeline from 49 to 77, with 78% focused on oncology and 22% non-oncology. The development of each DDP is complex with the need to integrate and standardise raw data, then expertly label it to allow machine learning proprietary algorithms to automate the analysis and insights across patients’ diagnostic journeys in a specific disease. Often the DDP can represent up to eight years of patient level insight Market Opportunity Experts forecast that the future Pharma focus will be predominantly Precision Medicine and Pharma teams launching drugs in more prevalent diseases outside cancer where a different mix of diagnostic hurdles will be faced as the annual volumes of patients needing to be tested are in their millions, versus 200k to 500k as they are in cancer. and we slice through each DDP to provide our unique Despite the increasing importance of effective data insights/products for our customers. Our DDPs support our existing data products as well as aiding future product development by allowing us insight for example into previous patients’ diagnostics journeys, project likely future diagnostics issues, identify therapeutically actionable patients and guide at what point a new drug is best introduced into the diagnostic journey. As we serve multiple customers and multiple therapies by reusing DDPs across a number of years, the lifetime revenue of each DDP accumulates. For example, the accumulated multiyear revenue enabled by our top five DDPs ranges from US$4.3–US$16.9m. An example of how DDPs work is represented by the Test Signal product described on page 14. diagnostic testing across cancer and other diseases, the testing market itself remains highly fragmented and the pharmaceutical industry has varied insight into it. Today the current addressable market for Diaceutics’ specific services is approximately US$0.25 billion annually based on our current forecast and visibility of Pharma pipelines. As the diagnostic interdependency of Precision Medicine becomes more complex and as other diseases outside cancer follow the success of precision cancer therapy, we expect this to increase to $0.45billion annually by 2026. 16 17 Diaceutics Annual Report 2021Strategic ReportsOur mission is to ensure that every patient has access to the right treatment at the right time. Our Team I would like to take this opportunity to personally In 2005 when Diaceutics was formed, there were thank our people across the Group for their continued only six drugs on the market recognised by Pharma hard work, determination, and commitment through as precision drugs, namely drugs which the FDA had what has been a challenging time for many of them mandated that patients had to be tested in advance of and their families. It is thanks to them we have been the treatment being offered. Furthermore, the market able to continue the growth of the DXRX platform and which we now call ‘Precision Testing commercialisation’ make vital steps towards fundamentally changing was not recognised as a segment and Pharma the diagnostics marketplace for the better by commercial teams in particular were highly resistant helping physicians deliver the right medicine to each to being involved in a diagnostic business model they individual patient in relation to their own personal believed was functioning normally. pathology. In the absence of a clear ‘business role model’, Our people are essential to our business, and as such, or qualified business segment, Diaceutics acted we supported them through the COVID-19 disruption. as a category former and developed its business The transition to homeworking during the pandemic model through innovative prototyping and fail-fast was seamless, as 73% worked virtually pre-COVID-19 approaches, ultimately resulting in the transformation and our years of investment in digital communications of its business onto the DXRX platform. On the served to minimise the impact to our customer work. assumption that patient testing for all therapies will be During the year we have invested significantly in our people. We have transformed the skillset within the business so that we are in a better position to take advantage of the market opportunity and scale the high growth DXRX platform. In doing so, we delivered almost 6,500 hours of internal training and reskilling to transition to a platform business model more fully re-integrated into the Pharma business model in the next five to ten years, the system-level changes across Pharma’s investment in Precision Medicine will require significant diagnostic commercialisation scale. Diaceutics focused on this opportunity and with the success of DXRX, now has the scale required to meet the ongoing evolution of Precision Medicine. efficiently. We started the year with three business Outlook development salespeople and have grown this team to nine full time employees, with three expected to be added in early 2022, alongside our newly appointed Vice President of Sales and Marketing. By the end of period, we had expanded the executive committee (EXCO) team to six executives through the appointment of a new Chief Growth Officer to support the expansion of products, and since the year end, the appointment of a new Chief Operating Officer has brought the total EXCO team to seven. The EXCO team has also been reorganised around our Our mission is to ensure that every patient has access to the right treatment at the right time by leveraging our best-in-class data, global experts, laboratory relationships, experience and technical excellence to provide services that reduce barriers to prescribing life changing therapies. With the current business momentum, we see improved revenue growth in 2022. Alongside our investment in platform, product, data innovation and people we expect continued modest growth in our EBITDA. key product suites of data, tech enabled services and We are seeing diagnostics growing in importance to professional services. On behalf of the Group, I would like to wholeheartedly thank Philip White who stepped down as Chief Financial Officer on 18 March 2022. Philip has had an incredible influence on Diaceutics, having led us the pharmaceutical industry, as an increasing number of Precision Medicines are brought to market, and we are confident that Diaceutics is positioned to maximise the advantage it has in DXRX as the market-first digital diagnostics commercialisation platform. through a successful IPO and playing a key role in the I join our Chair and the rest of the EXCO team in first few years as a public company. We would like thanking all our staff, platform partners and customers to thank him for all his hard work and look forward to around the world for their support throughout 2021 continuing to benefit from his counsel until April 2022. and we look forward to enabling more patients’ access I am also delighted to welcome Nick Roberts to Diaceutics as Chief Financial Officer and director of the Board. Nick is a highly experienced senior finance professional with a background working with high- growth, platform-oriented businesses across tech and Pharma makes him an excellent fit, and his experience leading finance functions to accommodate significant year-on-year revenue growth will serve as a real asset to us. Welcome Nick to the team as we look to take Diaceutics to its next level of growth and accelerate the transformation of our business model. to the right therapy through better testing in 2022. Mr Peter Keeling Director 22 March 2022 18 19 Diaceutics Annual Report 2021Strategic ReportsFinancial Review 2021 has been a pivotal year and one whereby costs and replaced this cost with operational the business has built solid foundations to support expenditure supportive of our platform business future growth. At the top line, revenue increased model. This has resulted in added operational 10% to £13.9m (18% on a constant currency leverage to our business and the additional basis) and profitability grew as the gross margin business development hires have allowed for improved to 77% (£10.7m) and Adjusted EBITDA more focus on developing customer relationships. increased to £2.3m. The performance was driven by solid growth in both the first and second halves of the year and was particularly pleasing when set against the continued challenges of the COVID-19 pandemic. The adoption of the DXRX platform post roll- The combined business development expansion and successful launch of four additional products into the platform during Q4 2021 supported larger total contract values as we combine higher value products together and transition towards a subscription led revenue model. out exceeded our expectations with 60% of We closed the year with a strong balance sheet revenue now generated through the platform, and a net cash position of £19.7m, providing the demonstrating the value of the data insights and business with sufficient funds to execute on its value-add service offerings to our customers. growth strategy. The restructuring effected in late December 2020 removed £1.4m of legacy operational consulting The Group’s Key Financial Performance indicators are summarised below: Revenue Gross Profit Gross Profit Margin (%) EBITDA Adjusted EBITDA* Profit/(Loss) Before Tax Net Cash 2021 £000’s 13,943 10,732 77% 2,349 2,349 462 19,675 2020 £000’s 12,696 9,463 75% 151 539 (682) 25,255 * After exceptional costs of £0.4m relating to a restructuring event during 2020. Revenue The table below sets out the revenue stream between the recently launched DXRX Platform revenue and Professional Services. Revenue — DXRX Platform • Data Revenue • Tech Enabled Services Revenue — Professional Services Total Revenue 2021 £000’s 8,298 7,411 887 5,645 13,943 2020 £000’s – – – 12,696 12,696 Group revenue increased by 10% in 2021 to 13.9m three diagnostic Pharma customers, meaning (2020: £12.7m) and by 18% on a constant currency 8% of customers are classified as non-Pharma, basis. The currency headwind is a direct result of representing a new revenue stream and 83% of revenue being contracted with our customers addressable market for the Group. in US dollars. The growth in revenue is underpinned by an increase in customer brand engagement to 56 (2020: 53) and an increase in the volume of contracts. The launch of our additional four products in Q4 2021 and successful uptake of existing products during the year, resulted in an increase in total contract value secured during November and December 2021 of 22% compared with November and December 2020. Our sales strategy continues to strive to embed Diaceutics further within our customers diagnostic commercialisation strategy, and during the first year since the launch of DXRX, we have secured more than £2.5m of revenue from a single customer in a year. We supported this customer across 17 countries integrating their systems with the DXRX platform such that key protocols are aligned for As noted in our half year results and seen in the table future engagements. Prior to this the largest annual above, we have continued to see a material shift in revenue secured from a single customer was £1.5m. revenue from Professional Services to DXRX platform revenue. DXRX platform revenue now represents £8.3m (60% of revenue) (2020: Nil) with Professional Services revenue representing £5.6m or 40% of revenue (2020: £12.7m and 100% of revenue). While the growth in revenue from this customer increased our customer concentration to 19% of total revenue for the year, that customer revenue is diversified through multiple customer brand teams and a recurring reliance on data. We anticipate The transition of customers to the DXRX platform and customer concentration decreasing in future contract terms supports the continued introduction years as we continue to increase our customer of additional products in the future, higher quality and engagements across wider addressable markets. higher value revenue and represents a 2022 renewal contract opportunity. During 2021, we engaged with seven new customers The Group continued to support customers in 26 key global markets (2020: 29). The largest being North America where regional sales increased by (2020: 7) and, although total customers engaged 40% to £8.5m (2020: £6m). North America remains remained at 39 (2020: 39), we increased our offering the largest healthcare market for both Diaceutics within our larger customer cohort increasing our and the pharmaceutical industry globally. Revenues revenue by 31% within this group. We expected and in Europe (including UK) and Asia and Rest of World experienced some customer churn within the smaller decreased 13% and 30% respectively, however, cohort, typically smaller Biotechs, which was largely despite the reduction in revenue in Europe we due to acquisitions by large Pharma and changes in supported 24 customers through 2021, highlighting their drug launch timetable. In spite of this, the number of brands supported increased from 53 to 56, demonstrating increased engagement with customers, and the proportion of revenue attributable to repeat business increased to 94% (2020: 92%). During the year we added future opportunities in this region which we see recovering during 2022. We continue to support customer global drug brands in Asia and the profiling of patient data in that region is something we are building towards in 2023. We have no client contractual exposure in Russia or Ukraine. 20 21 Diaceutics Annual Report 2021Strategic ReportsGross Margin As noted in our half year report, gross profit margin improved to 77% (2020: 75%) due to the migration of business to the DXRX platform, which leverages a more efficient use of labour resources in delivering on customer contracts and generating revenue. Cost of sales, excluding amortisation, reduced from 19% of revenue in 2020 to 11% of revenue in 2021, resulting in a gross margin excluding amortisation of 89% (2020: 81%). Gross Margin and Gross Margin excluding Amortisation 2021 £000’s 13,943 (3,211) 10,732 77% 1,665 12,397 89% 2020 £000’s 12,696 (3,233) 9,463 75% 776 10,239 81% Revenue Cost of Sales inc. Amortisation Gross Profit inc. Amortisation Gross Margin Amortisation Gross Profit exc. Amortisation Gross Margin exc. Amortisation Administration Expenses Administration expenses, which consists of Total cost growth for the year was 3% against revenue operational support, marketing and sales expenses growth of 10%, resulting in an operating profit before and administration expenses including non-platform exceptional items of £0.55m (2020: loss £0.3m). The and share based payment charges, totalled £10.4m increase in margin reflects the constraints placed on (2020: £10.0m). As a result of the COVID-19 pandemic operations of the business due to the pandemic, but and the resulting rationalisation of the business in also the additional costs associated with building 2020, the Group entered 2021 better organised operational leverage to support future growth. to grow the platform and business and with a streamlined cost base. Through 2021, progress with the rollout of DXRX provided us with the confidence to further invest in platform aligned support costs in the areas of business development, sales operations and commission structure and legal and professional expertise, with a focus on UK based talent. Whilst the Group’s presentational currency is pounds sterling, the Group operates in several global territories and, as such, is subject to fluctuation in foreign exchange. The Group has a policy of hedging downside foreign exchange risk and, at the year end, reported a gain on foreign exchange of £0.03m (2020: £0.06m). Tax The Group operates over four key regions; US, The Group estimates that tax losses of £6.9m will be Europe, UK and Asia, with the majority of intellectual available for utilisation against future taxable profits property registered in UK. Corporate income tax in the UK and has resulted in a deferred tax asset of charges are calculated after R&D tax incentives, which £1.7m (2020: £1.3m). A deferred tax liability of £0.4m are available, and have been claimed in the UK and (2020: £0.7m) arises due to the capitalising of certain Republic of Ireland. The Group’s corporate income tax credit for the year was £0.4m (2020: £1.1m) which represents the net provision for corporate income tax credits in the UK of £0.5m and corporate income tax charges of £0.1m in the Republic of Ireland and the US. Minor adjustments in respect of the prior year arose due to prudent assumptions relating to the deductibility of certain costs being taken and completing Group calculations of R&D tax credit R&D costs, and £1.8m (2020: £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 and Profit Before Tax The Group generated an EBITDA of £2.3m (2020: £0.2m) and adjusted EBITDA of £2.3m (2020: £0.5m). There were no exceptional costs in 2021 (2020: incentives after the financial statements were finalised. £0.4m in relation to restructuring costs incurred at the Deferred tax assets and liabilities have been recognised as they arise, and for assets, to the extent at which they can be utilised in the future Deferred tax has been recognised at the rate at which it is expected to unwind, which, for the UK, is predominantly expected to be at the enacted rate of 25%. end of 2020). The Group had an EBIT of £0.6m (2020: Loss £0.7m) and the move back into a profitable position reflected in a 16% EBITDA position and a strong balance sheet, provides a stable base for continued investment and expansion of the market growth opportunity. EBITDA and Adjusted EBITDA Operating Profit/(Loss) Depreciation and Amortisation EBITDA Exceptional Items Adjusted EBITDA 2021 £000’s 550 1,799 2,349 – 2,349 2020 £000’s (658) 809 151 388 539 The Group had a Profit before tax of £462k (2020: Loss £682k). 22 23 Diaceutics Annual Report 2021Strategic Reports Balance Sheet At 31 December 2021, the Group reported a strong Cashflow net asset position of £40.6m (2020: £40.2m), with net cash of £19.7m (2020: £25.3m). Some of the key items have been noted within the sections below. Intangibles Operating cash inflows for 31 December 2021 remained broadly in line at £0.6m (2020: £0.3m) Post year end in January 2022, an R&D tax receipt relating to the 2020 year of £1.6m was received. During the financial year ended 31 December 2021 Investment activities amounted to £5.0m for the year we invested £5.2m (2020: £6.4m) in our intangible relating to investment in intangible asset, primarily asset base which includes platform, data, patents and in the development costs relating to DXRX (2020: software. The Group’s investment in the DXRX platform £6.2m) and £0.6m of tangible asset spend relating to the fit out of the new office (2020: £0.1m). continued through 2021. Capitalised development The equity free cash flow for the year (net increase in costs reduced to £3.2m in total (2020: £4.6m) and cash and equivalents less proceeds from the issue of resulted in the launch of four key products in Q4 shares) continue to improve with an outflow of £5.3m 2021 and development expenditure in relation to in the year (2020: outflow £6.0m). 77 DDPs. Within the total investment of £3.2m, £3.0m has moved from development expenditure to Outlook commercialisation, triggering amortisation and £0.2m 2021 was a transformative year for Diaceutics, one remains in development. Data accounted for £2.1m of total intangible investment for the 2021 financial year (2020: £1.5m) as we continued to expand the depth and more timely receipt of data. Cash that saw the business embrace the transition from an advisory services business to a market-first digital diagnostics commercialisation platform. I am delighted to be joining the Company at such an exciting time in its growth journey and would like to thank Philip White for the significant contribution he has made to Diaceutics and wish him the best for the future. The cash position as at 31 December 2021 decreased to £19.7m (2020: £25.3m) due to ongoing investment activities in the year and working capital timing differences. Other than a convertible loan note of £0.1m (2020: £0.1m) the Group had no debt as at 31 December 2021. Mr Nick Roberts Director 22 March 2022 2021 was a transformative year for Diaceutics, one that saw the business embrace the transition from an advisory services business to a market- first digital diagnostics commercialisation platform. 24 25 Diaceutics Annual Report 2021Strategic ReportsDiaceutics and Market Opportunity Snapshot Engagement Global Platform Network 56 brands Blue-chip customers: 56 pharma therapy brands. All top 10 pharma are customers. 3 diagnostic companies 546 labs online 546 labs online (end 2021) 20% of mid-term target Investment $15m Sales and Marketing Expansion Pharma will invest up to $15m per therapy on data and services to fix diagnostic testing within Precision 12 Client Managers 4 Operational Support 3 Product Verticals led by ExCo Medicine based on customer New Head of Sales and Marketing ordering patterns New CRM fully integrated Unique Data Estimates Resolving Challenges Resolving Challenges 490m+ $3bn market 490m+ real world patient A company estimated $3bn market data. AI enabled algorithms: for Diaceutics by 2030 78% oncology 22% non oncology 50% 30% 26 27 Up to 50% of eligible patients 30% of all FDA approvals between don’t get access to our customers drugs due to testing hurdles 2018–2021 were for therapies dependent upon patients being pretested to determine their eligibility Strategic ReportsDiaceutics Annual Report 2021Our Market Opportunity Diaceutics is a diagnostic commercialisation platform company which serves the global Pharma industry. It has integrated a suite of real-world data-driven products and technology enabled services into a subscription and tech-enabled services-based platform called DXRX. Its data and technology enabled services are focused on first identifying and then removing the diagnostic testing hurdles for the biomarkers and companion tests that are required to guide selection of Precision Medicines. Diaceutics’ services result in more effective patient diagnoses for treatments which in turn lead to better patient healthcare outcomes. This is manifested through faster testing, better turnaround times, quicker positive identification and a higher number of patients treated. What is Precision Medicine? Why is Diagnostic Commercialisation Precision Medicine is a way of using biomarkers on Important in Precision Medicine? the individual patient’s cancer to identify a therapy that would most likely lead to the best treatment success. Precision Medicine also provides an essential means of alleviating the higher costs of treatment by reducing costly inefficiencies in medicine including false positives/negatives; unnecessary treatment; over and under medication and costly acute care admissions/readmissions resulting from medication errors. However, such Precision Medicine is not widely prevalent: cancer drugs are still effective in to 25% of those patients who take them. When Pharma companies launch a new Precision Medicine drug, they require patients to be tested first to identify if they carry the specific genetic characteristics (biomarker) to determine if they will respond to that therapy. These companion tests are mandatory and are part of the licence granted by the FDA or other drug licencing authority. This test-first-then-treat interdependency is what is broadly known today as precision testing and precision treatment. In 2021, approximately 35% of all therapy FDA approvals were for therapies dependent upon specific biomarkers. This does not include extended indications for existing What Disease Areas is Precision therapies already aided by companion diagnostics. Medicine Relevant to? Companion diagnostics are typically based on Precision therapies and tests are being developed specific biomarkers (genes, proteins etc.) which in multiple disease areas, including HIV, Alzheimer’s, stratify those patients who will either benefit Cystic Fibrosis, Irritable Bowel Disease; however, it is from a drug or who might otherwise experience in oncology (cancer) where the greatest penetration adverse effects. In some circumstances, certain of Precision Medicine has occurred to date. Almost tests are mandated by regulatory authorities. For all the new cancer therapies being launched today example, clinicians are required to test breast will have the need for a companion diagnostic. It is cancer patients for over amplification of the HER-2 estimated that 42% of all therapies (73% oncology) biomarker before initiating treatment with the in the pipeline are dependent upon precision testing. Precision Medicine Herceptin (Trastuzumab). The need for diagnostic commercialisation services Clinical trials designed with patient selection criteria arises because, whilst Pharma companies are adept based on Pharmacogenomics/Pharmacogenetics at launching new therapies, they are historically less (PGX) biomarkers are ‘smaller, quicker, and smarter’ familiar with the diagnostic commercial ecosystem and ‘four times as likely’ to yield positive outcomes, which operates differently. To avoid delays to patients and those using biomarkers in another manner are accessing the precision therapy, Pharma usually three times as likely1. The combination of faster chooses to outsource core parts of the diagnostic clinical trials, higher success rates, and accelerated commercialisation to companies more familiar with the approvals results in lower drug development costs complex challenges. Included in the diagnostic commercialisation services Pharma often outsources, are laboratory education modules to drive adoption of the new test; development of new testing standards to ensure patients are receiving the same type of test regardless of where they live; and anonymised testing data to and superior outcomes for all stakeholders, especially patients. These factors have all worked to deliver billion-dollar brands in oncology and rapid growth for companies who are increasingly harnessing Precision Medicine. Taken together, these factors have doubled the overall market return, measured in net present value, compared with one-size-fits-all therapies. track and monitor physician test ordering behaviour For Pharma, the business case for Precision Medicine and the number of patients who test positive or in cancer is now compelling. Merck’s Keytruda which negative with a particular biomarker. Initially Pharma is dependent upon a biomarker called PD-L1 was has typically spent on average US$1–US$2m per the second largest branded treatment in terms of therapy brand to ensure the patients are tested at the revenues in 2020 with annual revenues greater than right time to access their therapy, based on historical US$14bn. Precision Medicine alone slated to double revenues. By 2025 we believe this investment could by 2028 to US$128bn. increase to an average of US$8m–US$10m per therapy brand as Pharma companies seek to remove test access hurdles to high value therapies. As the value of Precision Medicine to Pharma pipelines increases, so too does their willingness to invest further and faster in eliminating any access barriers caused by a complex diagnostic ecosystem denying patients treatment. We estimate that for every dollar Pharma invests in removing or lowering diagnostic barriers to treatment delivers 30 to 60 dollars back in treatment revenues otherwise lost. 28 29 Diaceutics Annual Report 2021Strategic ReportsHow Will the Increasing Complexity of Diagnostic Commercialisation Grow the Opportunity? It is important to understand how and where the patient journey is rising significantly. Against the precision testing market is increasing in complexity backdrop of the introduction of panel testing we since this highlights the need for Pharma to work continue to see the introduction of 200–300 novel alongside a specialised organisation such as biomarkers and the evolving science as increasing Diaceutics. Specifically, the broadening use of the complexity and volume of novel tests. Our diagnostic testing and an increase in the variety research shows that broader testing in conjunction of precision diagnostic tests is contributing to an with multiple therapy treatments is set to radically already complex diagnostic environment of multiple increase the number of testing events per patient. and recurring tests. In particular Pharma is making This increase is expected to be further amplified by increasing use of complementary and conduit testing greater testing for resistance and monitoring. As an to supplement the traditional companion diagnostic example, the number of testing events per patient testing. The number of testing events on a typical with NSCLC are set to increase over time: Average Number of Testing Events per NSCLC Patient Average number of testing events 0.6 0.8 1.2 4.0 17.0 2010 2014 2018 2022E 2026E per NSCLC patients Source: Diaceutics estimates Market demand for better testing will also come from The Directors believe that the addressable market another direction, since a further trend by Pharma R&D for their specific services today has been enhanced is to move oncology drugs (the vanguard of Precision by the launch of the DXRX platform. The addressable Medicine) into earlier stages of cancer which can only market prior to launch was approximately US$0.23 be identified with more efficient testing. bn. With expected market growth in the number of test dependent therapies on the market from 150 to 300 by 2025 and an increased willingness to invest on better diagnostic commercialisation across their entire drug portfolio, Diaceutics forecast the overall diagnostic commercialisation market will continue to grow in step with the growth of Precision Medicine. Diaceutics strategy has focused on collating large amounts of laboratory, patient (on a de-identified 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 diagram below depicts a past and future potential trajectory of Pharma’s dependency on diagnostics. Pharma’s Precision Medicine Trajectory Over 40 Years 1990 2010 2020 2025 2030 Pharma exits diagnostics Initial precision medicine Precision medicine As Pharma R&D focuses on As Payors put pressure selling off diagnostic drugs in cancer begin to recognized as a significant earlier disease management on Pharma to reduce divisions e.g. SK sells show blockbuster capability. driver of Pharma ROI, leading and large diseases outside of prices, Pharma will take testing division after merger Whilst Pharma R&D more Pharma (AZ/ROCHE/Novartis) cancer, managed diagnostic greater involvement in with Beechams. rapidly transforming their including biomarkers in pathways likely to become capturing value in the GSK sells 20% stake in Quest Diagnostics pipelines most Pharma all drug trials. Pharma a key focus area of Pharma diagnostic pathway and commercial teams slowly increasing their involvement/ commercial investing in test adoption out of existing commercial to understand and control. Budgets will offering combined test and drug value propositions. investment in driving budget categories. likely be centralized. Diagnostic partnering will companion test adoption. become a core competence for Pharma. From companion diagnostics to companion therapeutics Total Available Market Our in-depth analysis of clinical trials indicates that there are currently over 584 late-stage clinical trials which fit the description of therapy brands likely to require a companion diagnostic if and when they come to market. The vast majority of these remain focused on oncology but 12% of trials are now focused on larger chronic diseases. This well-defined clinical trial list forms a key part of Diaceutics business development focus. 30 31 Diaceutics Annual Report 2021Strategic ReportsGlobal Precision Medicine Market Pipelines Global Precision Medicine Market Pipelines With 50 estimated new global drug/test launches Clinical Trials Pipeline by Therapeutic Area The Need for Scale (assets requiring a Biomarker test only) and new indications 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 launched its Diagnostic Commercialisation platform tailored for the precision medicine market. The platform integrates three key dynamics, a product suite of data and services designed to support faster diagnostic commercialisation globally, a platform network of Labs and service partners to support rapid change management of testing at the front line and integrated the world’s most comprehensive diagnostic testing database to help direct our customers investment to the diagnostic bottlenecks holding back treatment. Since launch, DXRX has enabled 56% of all our diagnostic commercialisation projects in 2021 and brought 546 of our offline labs, directly online to the platform. Across 2021 some 30 key collaborations were launched each focused on lowering one or more hurdles to better testing for patients. DXRX is proving its ability to synchronise commercialisation of precision testing and treatment from launch onwards to ensure the right patients are given the right test to receive the right treatment. Platform business models are a way of enabling key stakeholders to collaborate more efficiently to address stakeholder needs and improve the quality of earnings as you migrate customers onto licensed and recurring revenue streams. Our focus for the next 24 months will be to embed DXRX as the right tailored platform to meet the needs of Pharma, labs and ultimately patients and support our high growth high margin business model. Oncology 646 Central Nervous System 41 Autoimmune/Inflammation 29 Cardiovascular 10 Ophthalmology Metabolic/Endocrinology 9 9 0 200 400 600 800 Source: Diaceutics analysis of Zymewire clinical trials database February 2022 Whilst today Precision Medicine is narrowly Historically Diaceutics focused solely on the needs of defined around the companion diagnostic concept the pharmaceutical industry. However, more recently, as represented by the pipeline of clinical trials a number of well-funded global diagnostic companies highlighted above, eventually we believe that all have shown their willingness to invest in testing data patient pathways to treatment will benefit from to guide the commercialisation of their products. improving the patient’s diagnostic journey and Diagnostic company commercialisation budgets have consequently the focus on improving diagnostic traditionally been small in comparison to their Pharma commercialisation will become an integrated part peers, however over the past decade investors have of the Pharma marketing model. Our expanded DDP supported a number of diagnostic and laboratory pipeline (77 DDPs in 2021) remains broadly in step companies launch highly novel diagnostics like liquid with the future opportunities we see emerging from biopsy (which removes a lot of the hurdles today Pharma’s product development with 78% focused with Labs handling solid tumour samples) and multi on oncology and 22% non-oncology. We can see cancer early detection tests. As part of our DXRX evidence of this diagnostic pathway management for introduction in 2020 we approached a number of non- improved treatment happening in diseases outside Pharma clients to explore their testing data needs. oncology, for example Diaceutics worked in 2021 on By the end of 2021 three non-Pharma companies treatment for Alzheimer’s, TB, Dengue and Inherited had been added to our client list. We will continue to Retinopathy. Our growing range of non-oncology expand this new market opportunity for the company DDPs will continue to expand to support Pharma’s in 2022 with a focus initially on data only where we commercialisation of non-oncology therapies as can service client needs without significant increased Precision Medicine becomes more prevalent in these cost via DXRX. therapeutic areas. 32 33 Diaceutics Annual Report 2021Strategic ReportsOur People and Head Office Environmental, Social The Executive Committee (‘EXCO’) Our Buildings The Group’s executive committee, EXCO, is the In the summer of 2021, we were delighted to principal operating committee responsible for establish our new Company headquarters at delivering the corporate strategy of the business. Dataworks in the King Hall Health and Wellbeing Within this team we have the Chief Executive Officer, Park in Belfast, a new green building, with an ‘A’ rated Chief Innovation Officer, Chief Financial Officer, energy certificate. Dataworks consists of smart Chief Precision Medicine Officer, Chief Commercial office, laboratory, and shared space adjacent to the Officer, Chief Operating Officer, and we have added iconic Kings Hall building. These offices position the Chief Growth Officer (CGO) during 2021. The us in direct proximity to Belfast’s major hospitals, creation of the CGO position is to drive significant universities and innovative medical research facilities, upselling growth within the current customer base. and we are already seeing the benefits of the Within EXCO Peter Keeling (Chief Executive Officer), location as a thriving data hub enabling data analytics Ryan Keeling (Chief Innovation Officer) and Nick companies, medical professionals and patient centric Roberts (Chief Financial Officer) act as Executive groups to collaborate in this shared space. Directors on the Board. An operations leadership team (‘OPCO’) comprising members of senior management, provides an additional layer of control over the day-to-day business operations. Research groups, companies and healthcare organisations can choose to co-locate alongside Diaceutics or to work alongside our team of highly qualified experts and to gain access to our Global Data Repository through a joint Data Collaboration Agreement. Amassed over the last decade, Diaceutics’ Precision Medicine diagnostic testing data repository unlocks unrivalled access to deep analysis of the world’s richest source of de-identified patient testing records incorporating over 490 million patient records and with 77 disease-specific treatment pathways (Diagnostic Deductive Pathways DDPs) under development from this via accelerated algorithmic applications which are enabled by the Company’s platform technology — DXRX. and Governance Diaceutics is committed, through its culture, environmental air pollution and will continue post processes and business activities, to ensuring that the COVID-19 pandemic, being reflected in our it has a positive impact on all of its stakeholders. These include our customers and customer partners, our shareholders, patients and communities, the environment, our employees and the wider Diaceutics network. Diaceutics is at an early stage in its ESG journey, and this is our first Environmental, Social and Governance travel policy, which encourages essential travel only, for environmental reasons. The use of airlines which provide carbon offset will be encouraged wherever possible. • Diaceutics is not a significant consumer of water in its business activities. (‘ESG’) Statement, which is aimed at encompassing all • Diaceutics took up occupation of its new Belfast aspects of ESG and ensuring that we set a strategy that sees our business contributing to society in an ethical, sustainable, and well governed manner for the benefit of all stakeholders. headquarters at Dataworks at Kings Hall Health and Wellbeing Park in August 2021, a new green building, with an ‘A’ rated energy certificate. We are engaging with an energy performance assessor It outlines the actions taken and business practices in Northern Ireland to undertake a scenario adopted to address this overriding purpose, along with our policies, which go hand in hand, providing the foundation for our ESG journey. This statement will be reviewed throughout 2022 and in each analysis for a programme to provide further energy efficiencies, with the aim of reducing energy and carbon usage on this site. subsequent year, to measure progress and to scope • There are several recycling initiatives which are further objectives and outcomes to improve our facilitated and encouraged wherever possible performance in these three important areas. within the building, including the provision of DXRX Environment and Sustainability Climate change is one of the defining issues of our time and we at Diaceutics are conscious of our role within this. We have appraised our environmental impact and our aim is to provide effective environmental awareness and controls, seeking to drinking flasks, boiling hot water taps, and low flush toilets. Diaceutics’ facilities management partner CBRE arranges regular confidential wastepaper recycling with secure recycle bins housed externally for all recyclable items apart from confidential wastepaper. continually improve all aspects of our environmental • The four other Group sites worldwide in the performance, as far as economically feasible. This statement forms the basis for setting environmental objectives and outcomes that will continually improve the manner in which we operate. Actions and Business Practices Republic of Ireland, the USA, China and Singapore are all small, low occupancy offices used for data and implementation services. Environmental Policy • Diaceutics’ operational model has been founded on working from home for our employees and was further embedded during the COVID-19 pandemic, Senior management have recently adopted an operational Environmental Policy statement with a set of clear objectives encompassing the areas outlined above aimed at reducing the Group’s environmental with projects and presentations being undertaken impact and engaging with suppliers who share online and the use of remote systems to manage our vision and ambitions. This will be monitored customer and internal relationships. Whilst the at quarterly management meetings to ensure the occupation of the new Belfast headquarters has seen a return to the office for some employees, the majority of the workforce continues to work from home. This impacts on our travel related ongoing application of these objectives throughout the Group’s operational activities and strategic plans wherever practicable. 34 35 Diaceutics Annual Report 2021Strategic ReportsEnvironmental, Social and Governance Social We are cognisant of our social responsibilities, both • Diaceutics’ annual mentoring programme and City in the promotion of inclusivity and diversity, equality and Guilds accredited Diaceutics EFFECTive Leaders of pay and opportunity, the health and safety and programme both support and encourage employees in wellbeing of our workforce and in supporting and benefitting the wider community. We are committed to building on our existing policies and developing further policies and procedures that enhance and improve the social outcomes for these important stakeholders. Diaceutics’ goal, working alongside other healthcare stakeholders, is ultimately aimed at providing earlier and more accurate diagnosis for patients, accelerating patients’ reach to precision medicines their personal and career development within the Group. The recently introduced EXCO sponsorship scheme provides the Group’s account managers with individual EXCO support to help maximise the opportunities and success at the highest levels within the Group’s customers. A further job shadowing/rotation initiative is also underway to provide employees with a broader experience of other roles within the Group. • In 2021 the Company launched a Share Incentive Plan which, in turn, leads to better patient healthcare (SIP) in which Group employees are entitled to participate. outcomes. This is manifested through faster UK employees participate though an HMRC approved testing, better turnaround times, quicker positive share matching scheme and non-UK employees though identification and a higher number of patients treated, benefitting individual patients and the patient community, as a whole. The DXRX Test Signal product introduced in 2021 exemplifies the direct link to patients and improved patient outcomes. Employees Actions and Business Practices a share option structure. The SIP enables employees to purchase shares up to a value of £1,800 in the Company which are initially matched by the Company on a two for one basis for the first year, until April 2022 and thereafter on a one for one basis. As at 31 December 2021, 54 UK and 19 global employees had participated in the scheme representing 55% of total Group employees. • Diaceutics is global and diverse by virtue of the geographies in which it operates. We have introduced a diversity training programme, the ‘Global Diversity Module’ into our compliance training for 2022 and are investigating the attainment of the Northern Ireland ‘Diversity Mark’ accreditation. An equality and diversity module are • In addition to this, the Performance Management Framework (‘PMF’) process has been enhanced to include Succession Planning which is driven by the Individual Development Plan (‘IPD’) element of the PMF discussions between the employee and line manager which will empower employees to take control of their professional development. included in our leadership training programme, and • We have several engagement initiatives to communicate the Group’s Equality, Inclusion and Diversity Policy and support our workforce, including Town Hall forms part of the onboarding process for new employees on induction. • Northern Ireland Fair Employment legislation requires the Company to monitor and report annually to the Equality Commission for Northern Ireland, the gender and community background of all current employees, applicants and new appointees in Northern Ireland. The Diaceutics’ Inclusion and Diversity Strategy will also monitor and report on these metrics Group wide. presentations which are held at least quarterly, where employee feedback and interaction is encouraged, and updates are presented by the executive directors and other key senior management. The Group’s annual employee survey was completed in 2021 with 96% of respondents reporting that people are treated fairly and with respect and 96% again reporting that they have great confidence in the future of Diaceutics. The HR department holds regular check-ins with employees, during which open and honest conversations are encouraged. • Optional ‘Flex days’ were introduced in 2021 to allow those employees who have completed their two weeks’ contracted hours in the prior nine days, to take the first and third Fridays off work. This operates throughout the year and is extremely popular, with 92% of the workforce currently opted into Flex days. These Flex days allow employees the option of using this day to enhance their own work life synergy to suit their individual needs. • The Diaceutics’ ‘Employee Assistance Programme’, launched in 2020 to foster employee wellbeing in the workplace continued to operate through 2021. This provides support for all employees in many areas including counselling, legal information and services, bereavement support and medical and health risk assessments. Line managers have also been given guidance on how to support staff wellbeing in the workplace via the Return to Office training and COVID-19 Toolkit for Managers which provide links to other external and internal sources. • In the Belfast office, COVID-19 risk assessments are updated at least every three months, in co- ordination with the COVID-19 work group, with weekly reviews of the COVID-19 standards set by the risk assessments recorded and signed off by the office team. The COVID-19 work group also assesses and monitors the ongoing impact of the COVID-19 pandemic within the Group’s wider geographic regions, developing, implementing, and revising procedures to ensure a safe working environment for all our employees. We are cognisant of our social responsibilities, both in the promotion of inclusivity and diversity, equality of pay and opportunity, the health and safety and wellbeing of our workforce and in supporting and benefitting the wider community. 36 37 Diaceutics Annual Report 2021Strategic ReportsCommunities, Charity Support and Social, Cultural and Ethical Policies the Wider Patient Community • The Company sees a strong ethical culture as an • Diaceutics has developed a Training Academy for student placements and graduates. We are continuing to grow this by developing new and building upon existing relationships with local universities via lunch and learn sessions, presenting to students, aiming to support the local community and affording the opportunity of careers advice. There is also a dedicated section on the Diaceutics website for graduate and placement opportunities which will be further important asset and has invested in this aspect over many years. Diaceutics’ core values of Empowerment, Foresight, Fun, Entrepreneurship, Communication and Trust, together known as the Diaceutics EFFECT are core to our culture. Diaceutics has a dedicated working group of 19 Culture Ambassadors, who ensure that the corporate culture which was embedded in its policy and processes remains at the forefront of leadership thinking within its principal executive enhanced with interview skills and CV and and operating groups. application form tips. • Five students from Queen’s University, Belfast participated in a 12-week student placement programme in Q4 2021 as part of the above • An Equality, Inclusion and Diversity Policy has been in place for some time and a Diversity and Inclusion Strategy is currently being developed to further enhance, promote and celebrate the various initiative with three of them currently participating initiatives that are currently taking place within the in our Training Academy for Student Placements company. and Graduates on a year-long graduate placement. Further intakes are planned for 2022. • Diaceutics supported a colleague’s running team in Spain which raised funds for cancer research. They took part in Trail Solidari Alcoi (Alicante, • At Diaceutics we are committed to maintaining high ethical standards throughout our business and ensuring that these are reflected in policies and procedures to support this commitment. These include an Equality, Inclusion and Diversity Spain), where the proceeds go to the Scholarship policy; Human Rights Policy; Anti-Bribery and created by + QUEUNTRAIL and ASIECA (Spanish Association of Researchers in Cancer) for young Spanish researchers, who also hold an annual international Meeting of Young Researchers in Cancer of the Valencian Community. £500 was raised in 2021 by one executive for the Belfast based Children’s Cancer Unit Charity. • A Charity Working Group has been formed for Anti-Corruption Policy; Whistleblowing policy and, an Anti-Slavery and Human Trafficking Statement. Our critical vendor assessment policy for new core suppliers, includes a request for information as to their code of ethics, thereby seeking to ensure alignment of their culture with ours, and assessments of existing suppliers is carried out as part of the regular risk review process. 2022 with fortnightly meetings, with the aim of targeting local and global charities and providing • A Code of Conduct for Employees, which will also include ethics and ethical behaviour, is currently a structured means for the Group to support being developed. those charitable causes most closely linked to the Company and its employees. • Diaceutics’ mantra is ‘Better Testing, Better Treatment’ and this is manifested in the products and services we offer, accelerating patients’ reach to Precision Medicine which, in turn, leads to better patient healthcare outcomes. 38 Governance Diaceutics is dedicated to having robust governance • Diaceutics has a dedicated legal department protocols and procedures throughout all aspects of which monitors regulatory development and has our business to manage risk, operate high standards of conduct and to protect and grow the business for the benefit of shareholders and other stakeholders. A vital part of Diaceutics’ business is the development and evolution of its DXRX platform. We are excited to be part of a growing digital and data driven sector which is critical to the growth of the Company, but are equally committed to the safeguarding, access, privacy, ethical use, and security of all data. Actions and Business Practices recently formed a new department for Quality and Compliance to formulate and implement changes required to Diaceutics’ systems and processes. The Quality and Compliance department has implemented a set of mandatory compliance training modules for Diaceutics Group companies which include, amongst other things, data protection, anti-bribery, cyber security, and remote working concerns. Further department-specific and other appropriate Group wide training sessions • Our Diaceutics board is well balanced on all aspects pertaining to various aspects of the Group’s of independence, knowledge of the Company’s technology, sector and public company experience and professional standing to allow it to discharge its duties and responsibilities; pursue the Company’s strategic goals and address anticipated issues in the foreseeable future. The Diaceutics business is managed for the benefit of shareholders as a whole, with no individual or individuals overreaching in the decision-making process. • Diaceutics’ financial statements are prepared on a going concern basis and in accordance with international accounting standards in conformity with the Companies Act 2006 applicable to companies reporting under IFRS. The company adopts IFRS accounting standards wherever appropriate. • There are comprehensive procedures for budgeting and planning, for monitoring and reporting to the board of directors on business performance business and infrastructures are being developed and rolled out on an ongoing basis. The department is also in the process of implementing an ISO 9001 Framework (Quality Management System) (QMS). • Systems and processes are in place to ensure compliance with applicable data regulations and to protect against data loss. Recently, the Company has recruited a Cyber Security Officer to assist the Quality and Compliance and IT departments with their information security projects (including personnel training sessions), which will further strengthen the group companies’ IT measures and attain the company vision of information security. • Diaceutics is working towards robust practice models to minimise risk, combining prevention technology with the continuous monitoring of the security framework. Diaceutics is also in the process of attaining ISO27001 (Information Security Management System) and CSA Star (Cloud against those budgets and for forecasting expected Security) certifications. performance over the financial year. • Regular risk review meetings take place at OPCO level, to assess various aspects of risk to the business, with material findings reported to EXCO management on a monthly basis, by way of a risk register. 39 Diaceutics Annual Report 2021Strategic ReportsGovernance and Business Policies and Procedures We have in place several policies and procedures which support the operation of our business, with further policies in development to support Diaceutics as we evolve. • IT Security, Resources and Communication Policy • Access Control Policy • Incident Response Plan • Vendor Assessment Procedure • Data Protection Impact Assessment Procedure • Social Media Policy • Matters reserved to the Board Further information about how the directors are fulfilling their duties to promote the success of the Company including the interests of our key stakeholders is set out within the Section 172 section of the Annual Report, the Company’s Corporate Governance Statement and the Directors’ Report on pages 55–80. 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, Financial and Legal Risks Risk Mitigation Certainty of contracts and pipeline The Group has visibility over a proportion of its Any cancellations, material amendments, delays revenues through committed sales agreements, in adoption of DXRX and uncertainty around the contracted work, or high-probability tenders. Group’s Order Book could have an impact on the revenues of the Group. The pipeline of the business is continually reviewed by senior management with both leading (proposal generation) and lagging (order intake) indicators. Using Salesforce, key account management team and customer plans provide foresight and momentum for project closure and create the ability to assess the products and capacity required going forward. The Group operates in a number of global precision medicine territories with the aim of increasing its access to market opportunity, and diversifying risk across a number of geographical territories. Dependence on key executives and personnel EXCO works together with the Board to review the The Directors believe that the future success business structure to ensure it continues to support the of the Group will depend in part upon the business model and strategic growth. Succession and expertise and continued service of key executives retention planning are in place for senior management and technical personnel. The loss of any key posts, for example, through the continued expansion management personnel or failure to retain key of the operational committee (OPCO) to ensure future employees could adversely affect the Group’s leaders of the Group are mentored and brought along in ability to maintain and/or improve its operating the journey. and financial performance. The HR department has also taken steps to further enhance succession planning by implementing a program to identify pool of existing employees who wish to undertake job shadowing or job rotation. The Group remains committed to the recruitment, engagement, retention, continuing development and reward of experienced management, and highly skilled scientific, marketing and sales personnel. The Group continues to improve its remuneration schemes to incentivise and retain key personnel. 40 41 Diaceutics Annual Report 2021Strategic ReportsRisk Mitigation Risk Mitigation Loss of a major customer The Group’s customer base is well diversified due A small number of customers, with which the to the number of brand teams, both global and Group has a long-term historical relationship, in-country that Diaceutics engages within each The increasing instances and sophistication of A security framework is in place, combining prevention Cyber-Attacks globally bring increased risk to technology with continuous threat monitoring. Two- operations, reputation, staff and finances factor identification controls have been implemented contribute over 10% of annual revenue. The loss customer, all having individual budget allocation and The launch of DXRX platform brings increased and organisation wide training on identification of of any such major customer would have a direct control. The number of brands supported by the impact on the earnings potential of the business. growth has been maintained and there has been The relationship for a major contract usually takes growth in the number of customers that the Group time to establish and the responsibility to deliver services, including contracting with new customers. a significant project is typically developed over a The senior management team regularly review the number of years. revenue generated by key customers to ensure that the Group does not become reliant on a small number of key customers. With the appointment of the new Vice President Sales and Marketing, the sales teams will be further expanded, and relevant customer account structure improved to drive higher volumes of sales with a broader account base. 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 customer service. Further, the QMS upon its full implementation will enhance the customer complaint process handling. The Group has a significant dependency on its Diaceutics has made a significant investment in its ongoing access to patient diagnostic data data lake and has over 2,500 global laboratories in stakeholder connectivity and an increased threats has been implemented. exposure to such risk. An incident management and breach response plan are 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. Robust penetration testing was undertaken prior to the launch of DXRX and remains a core component of our security strategy. Further, a cybersecurity officer was hired in 2021 to assist the IT department in ensuring robust IT measures have been implemented and are reviewed regularly. Further, the Quality and Compliance department formally launched the relevant workstreams (in conjunction with IT) for the Group to complete the relevant risk and gap assessments in order to achieve ISO 27001 and CSA Star certifications. Diaceutics acquires data from multiple sources its network. The Group has amalgamated over 500m Market risks and economic conditions The Group’s business model includes flexibility in both including government, laboratory collaborators, real-world patient (de-identified) records from multiple The Group may be affected by general market service offering and cost structure which can react to commercial providers and public domain sources. sources and key precision testing markets into the data trends which are unrelated to the performance of downturns in the market to lessen the immediate effect. The failure of a significant data supplier may be lake. The Group has laboratory liaison teams supporting the Group itself. disruptive to the Group’s operations. ‘first launch’ markets for the Pharma industry and, with an extensive network of data sources, however, the Group is reliant on several laboratories and data aggregators in key markets for data supply. Moving laboratories onto the DXRX platform helps to mitigate this risk over time. At the year end the Group had moved 546 laboratories onto the DXRX platform, 21.8% of our target network. Further, the Group continues to actively build on its business continuity plan for its key data suppliers and take steps to expand its sources of data throughout the healthcare system to manage and mitigate risk. The Group’s growth strategy is subject to Patient data is held by the Group on a de-identified compliance with information security and data basis. The Group’s Legal department monitors changes protection laws and requirements in data protection laws, assesses and advises on the Data protection laws in different countries are impact of regulations to the Group. The newly formed evolving quickly and compliance standards can Quality and Compliance department ensures that any vary resulting in an emergence of discrepancy in required changes are implemented across the Group’s such standards. This affects the way the Group systems and processes to ensure the Group remains collects and uses certain patient datasets to compliant in its activities. achieve its ultimate objective of ensuring such patients are able to access timely diagnosis and treatment. Ongoing engagement with stakeholders, regular Any economic downturn either globally or locally dialogue with customers, research and marketing in any area in which the Group operates may have activities and regular strategic reviews of the overall an adverse effect on the demand for the Group’s business assist in maintaining a sustainable business. revenue, profit, growth and cash flow over a sustained period. Events beyond the control of the Group may The Directors have considered the financial impact have adverse effects on the business of the spread of COVID-19 globally. Based on current The possible threat of natural disasters affecting information, we believe the impact on proposals the ability to trade. The Group faces continued 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. Sustained increase conversion, new customer product launches and deferral of spend on customer brands is temporary and represents less risk. A COVID-19 strategy has been implemented around customer engagement and data ingestion which will continue to be reviewed and developed as additional information is provided. in global inflation presents a further risk to the Brexit in terms of the Northern Ireland Protocol remains operations of the business. a risk. This risk is more political and disruptive to the The possible threat of natural disasters affecting the ability to trade. movement of goods. In terms of inflation the Directors consider the global footprint of the Group as having the ability to find talent in lower cost regions alongside the ability to pass on customer price increases as mitigating factors against sustained rising inflationary prices. 42 43 Diaceutics Annual Report 2021Strategic ReportsRisk Mitigation 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 different The Group prepares its financial statements in currencies so that exchange rate risk is minimised. pounds sterling, but a substantial proportion of the The Group seeks to match foreign currency costs and Group’s income and costs are and will continue flex cash flows to align with corresponding foreign to be in foreign currencies. To the extent that currency receivables. the Group’s foreign currency assets and liabilities are not matched or hedged, fluctuations in exchange rates between pounds sterling and other currencies may result in realised or unrealised exchange gains and losses on translation of the underlying currency into pounds sterling. The Group operates current bank accounts in multiple currencies. It aims to ensure that the receipts and payments in a particular currency are made through the bank account in that currency to reduce the amount of translation exposure. In addition, the Group maintains a revolving credit facility which can be drawn in US dollars, pounds sterling or euros. Investment Case Why Invest in DXRX? Precision Medicine has arrived, with each requiring companion diagnostics. DXRX helps connect diagnostics to treatment — to get patients the medicine they need. 1. Growth in the Precision Medicine market Ultimately, we help physicians deliver the right is evident. Precision Medicine has arrived, with each requiring medicine to each individual patient in relation to their own personal pathology. companion diagnostics. Major Pharma companies such The world’s richest repository of real-world as AstraZeneca are confirming that approximately 90% diagnostic testing data of their clinical development pipeline is currently driven by precision therapeutics. Through the delivery of our consulting services to overcome the hurdles to successful Precision In 2021 it was estimated that the Precision Medicine Medicine diagnostics, we have gathered the industry was valued at US$67billion. It has been world’s largest repository of real-world testing predicted that the Precision Medicine industry will grow data and developed insights into the successful by 9.8% CAGR by 2028 to over US$128billion. Leading commercialisation of Precision Medicine diagnostics, Pharma companies working in Precision Medicine to create a comprehensive and unique offering, include Novartis, Roche/Genentech, Astra Zeneca, accessible via the subscription model. Pfizer, BMS, Merck and Amgen. 2. Patients should receive the medicine they need. The more projects we complete the more exhaust data we have to differentiate our platform and generate revenue. It currently takes over three years for more than 70% 4. We are confident we have built a of laboratories to be able to offer a new diagnostic. We estimate that even after a Precision Medicine has been launched, up to 50% of eligible patients do not get access to the medicine, due to testing hurdles. This ‘leakage’ of patients is an issue that Pharma companies are increasingly recognising and seeking to resolve. considerable level of competitive advantage and competitive moat. We are experts in diagnostic commercialisation, having been involved in some form in the launch of every Precision Medicine currently brought to market. This problem affects all test dependent therapies — We have the only digital platform bringing together all regardless of disease and can run into the US$bns for the stakeholders required to resolve the inefficiencies a drug. in the Precision Medicine diagnostics market. 3. DXRX — A data-enabled, digital platform, connecting labs, Pharma and service providers — globally. First to Market We have unparalleled depth of data, which combined with our unique data mining tools and algorithms provide rich real world testing data insights at disease level. We are focused on Precision Medicine across all key DXRX is a unique diagnostics commercialisation platform for Precision Medicine that addresses the diseases. issues. It allows stakeholders in the Precision Medicine diagnostics market to collaborate and shape the marketplace, in real time. It reduces the diagnostic hurdles ensuring that laboratories globally are test ready for each new Precision Medicine at launch. This significantly increases Pharma’s Return on Investment on developing new drugs. We have a global network of laboratories and service partners in Precision Medicine diagnostics, not limited by geography. With each new customer or laboratory that joins our DXRX platform and every collaboration we form, the wealth of exhaust data grows and the service we deliver becomes more useful and valuable. 44 45 Diaceutics Annual Report 2021Strategic Reports5. Proven Track Record We are an established, proved provider of services to the pharmaceutical industry. We have many of the world’s leading pharmaceutical businesses as customers, including 20 of the top 30 We have worked on almost all oncology Precision Medicine drugs brought to market. 6. A Large and Growing Opportunity Despite the increasing importance of effective diagnostic testing, the testing market itself is currently highly fragmented and the pharmaceutical industry has varied insight into it. The addressable market for Diaceutics specific services today is approximately US$0.25 billion annually based on our current forecast. We expect this to increase to US$0.45 billion annually by 2026, due to an increasing number of brands being brought to market and more budget being spent by pharma on eliminating the testing hurdles. A compelling investment case based on strong fundamentals • Truly scalable SaaS platform • High margin digital solutions revenue will grow over time • Well-funded business • High gross margins Outlook The year to 31 December 2021 was one of significant positive progress for Diaceutics. Alongside a strong financial performance, we have successfully transitioned the Company to supporting a recurring revenue model, underpinned by repeat annual licence and subscription contracts, and have progressed both faster and further than we anticipated at the beginning of the year, laying the foundations for significant revenue growth. With the current business momentum, we see improved revenue growth in 2022. Alongside our investment in platform, product, data innovation and people we expect continued modest growth in our EBITDA. I n v e s t m e n t C a s e Precision Medicine has arrived, with each requiring companion diagnostics. 46 47 Diaceutics Annual Report 2021Strategic Reports Case Study: Diaceutics in Action Case Study The Solution and Outcome Elevation Oncology quickly identified Diaceutics as a key solution partner. By utilizing DXRX — The Diagnostic Network®, Diaceutics provides Elevation Oncology with a solid foundation for strategy development and implementation for their clinical trial. Leveraging DXRX real-world evidence data, Diaceutics started by using its Lab Mapping solution to provide Elevation Oncology with robust insights and deliver a list of the top labs in the United States that receive the highest volume of samples utilizing an NGS panel (including whether they included NRG1 or not) for non-small cell lung cancer (NSCLC) and pancreatic cancers which are documented to be the most enriched and most likely tumors for possible enrolment into CRESTONE. Building on their success with Diaceutics DXRX Lab Mapping solution, the team at Elevation Oncology then turned to Diaceutics’ latest innovative data service, DXRX Signal, to identify in near real time those ‘needle in a haystack’ patients eligible for inclusion in their clinical trials. DXRX Signal, powered by the largest data repository for diagnostics and precision medicine in the United States, enables patients to be identified or ‘signalled’ following the receipt of genomic testing results in as little as 24 hours, thus Working with Diaceutics is a true partnership. They share our passion to leave no stone unturned when it comes to overcoming barriers in a patient’s treatment journey and enable the rapid identification of patients that may be eligible for one of our clinical trials. By partnering with Diaceutics, we have been able to integrate genomic testing data on a patient’s tumor from the laboratory to the physicians, and ultimately into a clinical trial. The insights from Diaceutics into the extensive genomic data being generated has been invaluable in helping to ensure that every suitable patient gets the treatment they deserve. allowing Elevation Oncology’s team to Amy C. Cavers VP Medical Affairs, Elevation Oncology engage in a timely manner. This broad coverage – which includes direct from lab data – is critical for providing the earliest identification of physicians with eligible patients and overseeing the treatment of patients that could potentially be eligible for the CRESTONE study. The Client The Challenge Elevation Oncology is founded on the In partnership with academic and Due to the rarity of NRG1 fusions, the belief that every patient living with cancer clinical collaborators, patient advocacy, identification of eligible patients for deserves to know what is driving the medical education providers, diagnostic enrolment in the CRESTONE study growth of their disease and how best to labs, and precision medicine experts was anticipated to potentially pose a treat it. They aim to make genomic tests such as Diaceutics, Elevation Oncology challenge. To address this, it was critical actionable by selectively developing drugs is building an approach to biomarker for Elevation Oncology to collaborate to inhibit the specific alterations that have led development and leaving no stone with a solution partner that could been identified as drivers of tumor growth. unturned to search for rare, novel driver provide real world data to gain a deeper Elevation Oncology is working towards alterations that can provide a druggable understanding of the biomarker testing a future in which each tumors unique pathway. Elevation Oncology applies landscape, next generation sequencing genomic test result can be matched with its insights towards the development (NGS) testing labs for non-small cell lung a purpose-built precision medicine to of targeted therapies for novel driver cancer (NSCLC) and pancreatic cancer enable an individualized treatment plan alterations with high unmet patient needs. patients in the US, and the volumes and for each patient. The company is united by a shared passion for identifying true precision therapies that will illuminate a clear treatment pathway for patients. At the time of engagement with types of tests being performed. Diaceutics, Elevation Oncology was Furthermore, having the real-time lab evaluating seribantumab in the potentially data that can identify patients and pivotal Phase 2 CRESTONE study in create a call-to-action could address the patients with tumors of any origin that key challenge of patient identification have an NRG1 fusion. and facilitating the potential for increased enrollment in the tumor- agnostic CRESTONE clinical trial that is underway for all solid tumors which harbor the NRG1 gene fusion. 48 49 Diaceutics Annual Report 2021Strategic ReportsCorporate Governance The Board of Directors Deborah Davis Non-Executive Chair (Remuneration Committee, Audit Committee) Peter Keeling Chief Executive Officer Ryan Keeling Chief Innovation Officer Nick Roberts Chief Financial Officer (Insider Committee) Deborah has extensive global experience in platform Peter has over 34 years’ experience as a leader, Ryan is an expert in the commercialisation of Nick is a highly experienced senior finance business models, software, fintech, telecoms and entrepreneur and strategist in the Pharma industry. diagnostics and associated technology, with over professional with a track record of managing and e-commerce businesses. After completing her He has led international companies and teams with a 13 years’ experience in the field. developing finance functions and governance undergraduate studies in Australia, Deborah spent focus on novel business models and product launches, 25 years in CEO and executive roles including 14 including therapies, diagnostics and FMCG products. years in European and global senior leadership roles at internet platform businesses PayPal and eBay, and technology companies Symantec and Verizon. Peter started his career as distribution manager at American Monitor Corporation, where he oversaw the distribution of reagents and equipment globally. He Ryan has led the development and commercialisation of the Group’s technology, structures in high growth AIM-listed healthcare and technology companies with global customer bases. including its proprietary data lake. Ryan has played Prior to his appointment to Diaceutics PLC, he was a pivotal role in the Group’s technological and Head of Group Reporting at AIM-quoted Ergomed strategic development, previously acting as its plc, a full-service pharmacovigilance and specialist She currently holds a number of Non-Executive subsequently spent a total of 11 years leading projects chief operating officer until June 2018. As CIO, clinical trial service provider to the pharmaceutical Director and board committee positions, including at in both operational and strategic roles at the therapy Ryan is responsible for driving the Company’s and biotechnology industries. During his tenure, Lloyds Banking Group Insurance Board, International division of the Wellcome Foundation, including as sales product innovation, with a near term focus Nick developed and managed the day-to-day group Personal Finance plc, IDEX Biometrics ASA, Norway manager for the Pharma business in North and West on the development of DXRX. Prior to joining finance reporting requirements for Ergomed plc and, until April 2022, The Institute of Directors UK. Africa, commercial director for a joint venture with Diaceutics in 2009, Ryan spent eight years as a and oversaw the roll-out of several governance Her previous board experience includes Which? Wellcome Indonesia, and as brand director at global software engineer for Aepona Limited, providing framework and reporting projects, including the Ltd and private equity based ieDigital. Deborah is a product level for Wellcome’s antiviral franchise. Wellcome network infrastructure and related services to financial integration of two US business acquisitions. trustee of the Southern African Conservation Trust. was merged with Glaxo in 1995. Subsequently he telecommunications operators. Prior to this, he was Group Financial Controller Deborah is a Chartered Director and a Fellow of the Institute of Directors. She holds a Bachelor of Applied Science (Electronics) Honours degree from the University of Melbourne and a Sloan Masters in Science (Management) with distinction from London Business School. founded and was chief executive officer of Diagnology Inc, a US/Irish based diagnostics company which specialised in the development and commercialisation of tests for sexually transmitted diseases. Peter has led Diaceutics from its inception in 2005 to become a leader in precision testing commercialisation which currently supports the principal market biomarker programmes for the world’s largest Pharma companies. Peter holds a degree in business administration from Queens University Belfast, a Master’s degree in European Marketing from Buckingham University Business School and spent an academic year as a Visiting Fellow at MIT’s Sloan business school in 1994 where he led a multi- corporation US think tank designed to look at disruptive models in future patient health for the Pharma industry. Peter has published several peer reviewed papers on precision medicine and is a respected speaker at Precision Medicine events around the world. Ryan holds a software engineering degree from Queens University Belfast. He is seen as a thought leader in the field of diagnostic commercialisation and data integration, speaking at Precision Medicine and healthcare data conferences globally. at AIM-quoted Ceres Power Holdings plc, a fuel cell and electrochemical technology development company, leading the development of the finance function to accommodate a period of considerable commercial and financial growth over four years. Nick is a Fellow Chartered Accountant with the Institute of Chartered Accountants in England and Wales (ICAEW) and holds a bachelor’s degree in Accounting and Finance from the University of Southampton. 52 53 Diaceutics Annual Report 2021Corporate GovernanceT h e B o a r d o f D i r e c t o r s Corporate Governance Report The COVID-19 pandemic continued to impact on the means of communication with the Group’s stakeholders in 2021 but wherever possible communication which would otherwise have taken place face-to-face has been undertaken virtually. This section of the Report from pages 55–65 sets out our approach to governance, provides further information on the operation of the Board and its committees and how the Group seeks to comply with the ten principles of the QCA Code. Ms Deborah Davis Chair 22 March 2022 Chair’s Introduction I am pleased to introduce the Corporate Governance Report for the year ended 31 December 2021. As an AIM quoted company, we recognise the importance of sound corporate governance principles in supporting and delivering the strategy of the Company and its subsidiaries (the ‘Group’) and embedding these within, and as an integral part of, the operations of the Group. The board of directors (the ‘Board’) adopted the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’) on the Company’s IPO in March 2019. The Company’s Corporate Governance Statement is available to view on the Company’s website at www.diaceutics.com. The Board has responsibility for ensuring that appropriate corporate governance principles are in place and that these requirements are followed and applied across the Group. The corporate governance arrangements are designed, inter-alia, to protect and respect the interests of all stakeholders, to ensure that the Company is managed for the long-term benefit of the Group’s shareholders and other stakeholders and to provide shareholders and other stakeholders the opportunity to express their views and expectations for the Group in a manner that encourages open and ongoing dialogue with the Board. 55 Charles Hindson Non-Executive Director (Remuneration Committee (Chair), Audit Committee (Chair), Insider Committee) Mike Wort Non-Executive Director (Remuneration Committee, Audit Committee, Insider Committee) Charles joined the board as a Non-Executive Having trained as a microbiologist, Mike brings Director in March 2019 and chairs the audit over 45 years’ experience working with life science and remuneration committees. He brings 16 companies across the healthcare sector. Initially years’ experience of FTSE listed company board working with three of the top ten global Pharma membership, having served in executive director companies in a variety of sales, marketing and roles with Filtronic plc, first as group finance research positions, he was appointed investor director and subsequently chief executive, and then relations manager of Wellcome Plc and was actively with e2v technologies plc as group finance director. involved in the global communications programme He has experience supporting business leaders to develop technology businesses internationally, through organic growth and successful acquisitions, which has been reflected in creating meaningful for the £2.4 bn secondary offering of Wellcome Plc shares by the Wellcome Trust, which enabled him to develop working relationships with leading City stakeholder groups in the life sciences industry. shareholder value with these listed companies. Mike was a founding partner in the first specialist His early career was with 3i and PwC, and then in HQ and international divisional finance roles with British Gas plc and British Telecom plc before becoming finance director with Eutelsat SA, based in Paris, France. He also serves as a trustee and chair of the audit committee of Trinity College London, the international exam board for performing arts and English language qualifications. He is also a trustee of UCO, a specialist higher education provider in osteopathy, and chairs its audit and risk committee. communications agency to support the emerging biotechnology industry with City communications. Apart from a period when he was involved as CEO during the privatisation of the Bulgarian Pharma industry, his career has been devoted to working with start-up and growing SMEs to maximise their potential for growth. 54 Diaceutics Annual Report 2021Corporate Governance Principle 1 Establish a strategy and business model which promote long-term value for shareholders The Group has established a strategy and business effectively across markets to meet customer demand. The Company can maintain efficiency and create better quality of forward earnings via a product suite underpinned with data subscription, tech-enabled services and professional services. model which aims to promote long-term shareholder Diaceutics’ services result in more effective patient value. The Group’s strategy is reviewed each year. diagnoses for treatments which, in turn, lead to better Business Overview Diaceutics is a diagnostic commercialisation company which serves the global Pharma industry. It has combined a suite of real-world data-driven products and laboratory implementation services into a business model. Its data-enabled products, model patient healthcare outcomes. This is manifested through faster testing, better turnaround times, quicker positive identification and higher numbers of patients treated. The social impact of better testing is of importance to global healthcare systems. If patients can receive the right treatment at the right time, it allows for efficient use of time and resources and services are focused on removing the diagnostic and leads to better patient outcomes. testing hurdles for the biomarkers and companion tests required to guide the selection of precision medicines. The Company provides services to 39 Pharma customers and their precision therapy brands in 28 markets. Diaceutics has amassed a suite of proprietary intellectual property that provides long- term value to shareholders and stakeholders. Diaceutics has established a global network of testing laboratories that contribute data to the Group. The Diaceutics’ strategy has focused on collating large amounts of real-world laboratory data, patient data (on a de-identified basis), claims and payor data which it uses to direct and deliver, via its laboratory liaison team, improved testing with over 2,500 laboratories globally on behalf of leading Pharma companies. Business Strategy Group has developed a series of sophisticated and The Group seeks to have a balanced business model proprietary data-mining tools to make sense of with revenues derived from three areas: that raw data and present it to Pharma companies in a meaningful way. In addition, the Company has a team of disease experts that overlay their scientific knowledge onto the data to create insights and patient outcome analysis that informs our pharmaceutical customers. Further, the Company has established a proprietary therapeutic launch-playbook • Data Provision Delivered via the DXRX platform and applying its extensive dataset and analysis of real-world evidence supplemented with proprietary algorithms, to provide new insights which fully align precision testing with the corresponding Precision Medicines; to derive from its experience on over 500 projects. • Implementation Services Delivered via the DXRX The Company has established over eight years of platform as Tech enabled services this service proprietary data which informs the clinical pathway provides test commercialisation services centred and creates a deep disease-level understanding, on the ‘Diaceutics Method’ and leveraging its global and algorithms, which the Company describes as laboratory database and laboratory liaison team to a diagnostic deductive pathway (‘DDP’). Through implement rapid improvements to clinical testing this, Diaceutics’ key value to Pharma companies is in with laboratory partners in key Pharma markets; providing products and services which enable insight and 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. Diaceutics provides an end-to-end solution for the development and commercialisation of Precision Medicine diagnostics, from biomarker discovery to in-market test availability. Having launched the DXRX platform in October 2020, and with 60% of revenues delivered via the platform in 2021, the Company has a scalable, efficient platform as its core delivery mechanism, allowing Diaceutics to operate • Professional Services Delivered via traditional consulting routes with our customers. This service provides both data insights and implementation services which are off platform. This high-end service allows for a tailored scope and delivery in the form and content requested by the customer. The Group has identified multiple growth drivers over the years ahead. In the near term, the Group intends to continue with the organic growth within its core data analytics and implementation services business by offering, additional products and services and end-to-end projects and selling an ever-wider range of services to its customers. The Group expects to derive growth from the greater number of precision place with investors in 2021, virtual presentations medicines progressing through clinical development and investor meetings were also utilised, and will as well as expanding its addressable market through continue to be so for the foreseeable future alongside the following areas: • Additional Indications Most of the Group’s operations are presently focused on oncology, but additional datasets from testing in cardiovascular, central nervous system, autoimmune and infectious disease will open companion diagnostic opportunities in these large therapeutic areas. face-to-face meetings. This forum is an important tool in allowing the Company to be agile and flexible in communications with investors enabling greater investor interaction. In 2021, the Chief Executive Officer and Chief Financial Officer have held virtual meetings with those shareholders who hold the majority of institution-held shares. Diaceutics has 77 DDPs, six are now in non- The Company also held one Capital Markets Day in oncology diseases; • Non-Pharma It is the Groups intention to leverage its extensive data lake and open new revenue streams in the areas of data aggregators and diagnostic providers. During 2021 the Group transacted with three diagnostic providers providing data and insights to these providers; and 2021 allowing shareholder to have a look and feel of the platform and also learn from Pharma executives how the DXRX platform benefits their business. The Chief Executive Officer and Chief Financial Officer regularly present at conferences attended by many potential and current retail investors and meet with specialist private customer fund managers. The Board is provided with feedback from all meetings and • Subscription and Value Sharing The Group is communications with shareholders. expected to derive additional value as DXRX becomes more embedded with our Pharma customers and other stakeholders including gradually transitioning customers to a subscriptions and value-sharing business model. This is driven by the Group’s ability to provide an end-to-end outsourced diagnostic commercialisation service to its customers whereby it can be rewarded for the delivery of key milestones, allowing us to support brands over a longer period and delivering a predictable and recurring revenue stream. Principle 2 Seek to understand and meet shareholder needs and expectations 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 Company communicates with all shareholders through the Annual Report and financial statements, the announcement of its full-year and half-year results, the Annual General Meeting (AGM) and the release of news via the London Stock Exchange Regulatory News Service (RNS). The AGM in 2021 is proposed to be held in person, allowing all shareholders an opportunity to ask questions or represent their views formally to the Board during the AGM, or with directors after the meeting. The Company releases the voting results for the AGM and other General Meetings by RNS. Corporate information, including Company announcements and presentations, are available to shareholders, investors and the public on the Group’s website www.diaceutics.com The Company’s contact details and email address for investor queries, 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 The Board actively seeks dialogue with its regulatory announcements. The Company has in place a process for answering communications made to the Board in a timely manner. 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 Company’s analysts is the best way to ensure 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. The COVID-19 pandemic prevented face-to-face communication with shareholders in 2020. This meant that all communication was necessarily held virtually and has continued to impact on communications in 2021. Whilst some face-to-face interaction took 56 57 Diaceutics Annual Report 2021Corporate GovernancePrinciple 3 Take into account wider stakeholder and social responsibilities and their implications for long-term success The Group has strong regard for the importance of its shareholders, customers and suppliers, partners and laboratories, patients, the community and employees, many of whom are also shareholders. Employees The Group recognises that central to its success is the recruitment, retention, development and motivation of its workforce. The Group operates multiple human resources projects to recruit and retain talented individuals to support its strategic goals. These include a global healthcare and benefits programme, a multi-faceted recruitment process, a residential onboarding programme to integrate new employees, which since 2020 has been conducted virtually, and a robust Group- wide Performance Management Framework (PMF) linking each employee’s daily activity to overall corporate goals. These initiatives are enhanced by bespoke developmental opportunities such as our internal mentoring programme and the City and Guilds accredited Diaceutics EFFECTive Leaders programme support and encourage employees at least quarterly where employee feedback and interaction is encouraged, and updates from the executive directors and other key senior management. The Chief Executive Officer regularly publishes podcasts and news articles aimed at keeping staff up to date with the direction of the Group. Employee engagement surveys are undertaken periodically, and actions taken to address key themes via sub-groups. The Diaceutics’ ‘Employee Assistance Programme’, launched in 2020 to foster employee wellbeing in the workplace continued to operate through 2021. This provides support for all employees in many areas including counselling, legal information and services, bereavement support and medical and health risk assessments. Line managers have also been given guidance on how to support staff wellbeing in the workplace via the Return to Office training and COVID-19 Toolkit for Managers which provide links to other external and internal sources. In response to the COVID-19 pandemic, Diaceutics launched an online ‘COVID-Toolkit’ which included resources for line managers to assist staff to sustain remote working, home-schooling, virtual engagement and communication and the Diaceutics’ ‘Culture’ programme provided a platform for employees to interact with colleagues. in their personal and career development within Following the staged return to work, in the Belfast the Group. This is in addition to overall training office, COVID-19 risk assessments are updated at and development plans that promote and support least every three months, in co-ordination with the personalised career development, leadership skills COVID-19 work group, which also assesses and and learning. In January 2022, the Company introduced the EXCO sponsorship scheme which provides the Group’s account managers with individual EXCO support to monitors the ongoing impact of COVID-19 within the Group’s wider geographic regions, developing, implementing, and revising procedures to ensure a safe working environment for all Group employees. help maximise the opportunities and success at the In April 2021, the Company launched a Share highest levels within the Group’s customers. A further Incentive Plan (SIP) in which Group employees are job shadowing/rotation initiative is also underway entitled to participate. UK employees participate to provide employees with a broader experience of though an HMRC approved share matching scheme other roles within the Group. In addition to this, the PMF process has been enhanced to include Succession Planning which is driven by the Individual Development Plan (IPD) element of the PMF discussions between the employee and line manager which will empower employees to take control of their professional development. and non-UK employees though a share option structure. The SIP enables employees to purchase shares up to a value of £1,800 in the Company which are initially matched by the Company on a two for one basis for the first year, until April 2022 and thereafter on a one for one basis. As at 31 December 2021, 54 UK and 19 global employees had participated in the scheme representing 55% of total Group employees. The Group strives to achieve a supportive and Customers and Suppliers inclusive work environment which promotes well- The Group’s customer base consists of Pharma being and welfare, equality, respect and human companies across several geographical markets rights together with engagement with the Group’s including Europe, Asia, and the US who require our performance, its strategic directions and goals. The products to help with the planning, commercialising Group has several engagement initiatives to support and implementation of Precision Medicine. We its workforce including Town Hall presentations held regularly liaise with our customers to ensure that our products serve their purpose in informing and Communities and Charities solving the problems of the end user. Building on the launch of the DXRX platform in October 2020 Diaceutics continued to transition its business model in 2021 and will continue this journey through 2023. This will be transformative for the Precision Medicine market and will provide our customers with access to real-time data, analytics and enhanced educational services and support which will further support our customers in achieving their end goal. Customer feedback is gathered across the Group and collated by project managers to ensure consideration of customers’ expectations and project delivery to the highest quality. Throughout the year, the Board was appraised of major contract negotiations and relations with key suppliers. Diaceutics aims to balance the requirement for strong business relationships with suppliers with the need to maintain value for money for our investors. Diaceutics’ goal, working alongside other healthcare stakeholders, is ultimately aimed at providing earlier and more accurate diagnosis for patients, accelerating patients’ reach to precision medicines which, in turn, leads to better patient healthcare outcomes. This is manifested through faster testing, better turnaround times, quicker positive identification and a higher number of patients treated, benefitting individual patients and the patient community, as a whole. The DXRX Test Signal product introduced in 2021 exemplifies the direct link to patients and improved patient outcomes. Diaceutics supported a colleague’s running team in Spain which raised funds for cancer research. They took part in Trail Solidari Alcoi (Alicante, Spain), where the proceeds go to the Scholarship created by + QUEUNTRAIL and ASIECA (Spanish Association of Researchers in Cancer) for young Spanish researchers, who also hold an annual international Partners and Laboratories Meeting of Young Researchers in Cancer of the The Group has engaged with a range of partners and laboratories over several years and the DXRX platform has been purpose built to solve the real-world challenges faced by laboratories. It provides a secure online platform within which laboratories can enhance and promote their services, showcase their abilities, gain accreditation and access benchmarking and analytics and Valencian Community. In 2021, £500 was raised by one executive for the Belfast based Children’s Cancer Unit Charity. A Charity Working Group has been formed for 2022 with fortnightly meetings, with the aim of targeting local and global charities and providing a structured means for the Group of supporting the charitable causes most closely linked to the Company and its employees. support services. Our Partners gain access to the Regulators laboratory, diagnostic and Pharmaceutical industry participants on a global level. Our partnerships are designed to foster business growth and strong, long lasting collaborations. We partner with organisations specialising in Precision Medicine diagnostics including areas such as test access and reimbursement, pathology training, health economics, reference standards and External Quality Assessment (EQA). Patients Diaceutics produces many of its products using data obtained from various channels and is committed to the security, protection and lawful treatment of personal data. We acknowledge that protecting the confidentiality and integrity of personal data is a critical responsibility that we must always take seriously. Diaceutics has a data protection regime in place, which ensures that all personnel are sufficiently trained to handle any personal data in accordance The Group’s mantra is ‘Better Testing, Better with internal policies and standard operating Treatment’. The Group has demonstrated its procedures. This regime continues to evolve to keep commitment to patients by establishing a formal abreast of regulatory developments across the globe. 501(c)(6), non-profit organisation called the Precision Medicine Connective (‘The Connective’). The Connective’s mission is to increase awareness about testing so that every patient is empowered to make the best possible decisions in their treatment journey. It has partnered with international patient advocacy groups such as Inspire to Live, the European Cancer Patient Coalition (ECPC), Myeloma Patients Europe and Lungevity to disseminate valuable information about diagnostic testing to patients. Diaceutics’ Legal and Quality and Compliance departments play a key role in administering the data protection regime and ensuring Diaceutics’ activities (including its data lake) are fully compliant with relevant regulatory requirements across the globe, including GDPR in the UK and HIPAA in the US. 58 59 Diaceutics Annual Report 2021Corporate Governance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. There are comprehensive procedures for budgeting and planning, for monitoring and reporting to the Board business performance against those budgets and for forecasting expected performance over the financial year. These cover profits, cash flows, capital expenditure and the balance sheet. The Company employs a General Counsel to assist and advise on all legal aspects of the business, including leading the Legal and Quality and Compliance departments. The Legal department provides legal support, while its Quality and Compliance department promotes a risk and audit programme, aimed at protecting the interests of Diaceutics from a data protection 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 Committee and the Board. Previously this review identified that the Group would benefit from an internal audit process and during 2021 key areas of the business have been progressed through this process and recommendations reviewed by the The principal business and financial risks have been board. identified and control procedures implemented. These are monitored using a structured approach in the format of a consolidated risk register which is colour-coded to prioritise the most significant risks for ongoing EXCO and OPCO attention and mitigation. The risk management approach has been designed to identify the major risks identified within operational activity as well as Group-wide risks and those risks of a corporate nature covering strategy, markets and financial performance. The Audit Committee of the Board ensures the maintenance of internal controls. It assists the Board in discharging its duties regarding the financial statements, accounting policies and the maintenance of proper internal business and operational and financial controls, including the review of results of work performed by the Group controls department. Further to the Board, the Company has an executive committee (‘EXCO’) comprising Peter Keeling, Ryan Keeling, Nick Roberts, Julie Browne (Chief Operating The Board considers that the internal controls in place are appropriate for the size, complexity and 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. Nick Roberts was appointed as Chief Financial Officer on 18 March 2022 in place of Philip White who resigned from the Board on that date. 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 Nick Roberts (Chief Financial Officer), Susanne Munksted (Chief Precision Officer). Medicine Officer), Stefan McDonald (Chief Growth The Directors’ biographies, together with their Officer) and Jordan Clark (Chief Commercial Officer). respective Board Committee memberships, are set EXCO has a weekly operations call and monthly out on pages 52–54. strategy call to review the financial position of Group and current risks, alongside 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 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 Board Operation and developing the global financial architecture that underpins Group strategy. There is a formal schedule of matters reserved for the Board, which may only be amended by the Board. The non-executive directors have a particular These include approval of overall Group strategy, responsibility for bringing objective challenge, budgets, major contracts and investments, legal and judgement and scrutiny to all matters of the Board. regulatory compliance and key policy implementation, They critically challenge proposed strategies operational and management performance, risk and and current operational performance. The Board control processes, corporate and shareholder matters considers that the non-executive directors are including corporate capital structure, annual reports independent. The Board considers that it has an appropriate balance between independence, knowledge of the Company’s technology, sector experience and professional standing to allow it to discharge its 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. and financial statements and dividends. The Board holds monthly meetings, which are 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. For 2022 a programme is being developed to ensure that one board meeting in each quarter will be held face to face and be devoted to a more in-depth review of themes including people, safety and security, strategy updates, Board evaluation, marketing; and environmental, social and governance matters. 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 20 times during the financial year ended 31 December 2021. The following table shows the Directors’ attendance at Board and Committee meetings during the year ended 31 December 2021: Board Audit Remuneration Insider Deborah Davis (Appointed 4 January 2021) 20/20 3/3 2/2 Peter Keeling Ryan Keeling Philip White (Resigned 18 March 2022) 20/20 20/20 20/20 – – – – – – Charles Hindson 20/20 3/3 2/2 Mike Wort 19/20 3/3 – – – – None None None 60 61 Diaceutics Annual Report 2021Corporate GovernanceEach of the executive directors are required to The Board is satisfied that, between the Directors, commit at least five days per week to their roles. The it has an effective and appropriate balance of non-executive directors are required to provide such skills, knowledge, experience and time committed time as is required to fully and diligently perform to enable it to deliver the strategy of the Group, it their duties. All Board members are expected to is nevertheless mindful of the need to continually attend all meetings of the Board and the committees review the needs of the business to ensure that this on which they sit, wherever possible. remains true. The directors of the Company (the’ Directors’) Directors receive regular and timely information on are encouraged to debate and use independent the Group’s operational and financial performance judgement, based on their respective knowledge with information being circulated to the directors in and experience, to challenge all matters affecting advance of meetings. The business reports monthly the business, whether strategic or operational. on its performance against its agreed budget. The Directors have direct access to the advice Operational skills are maintained through an and services of the Company Secretary and are active day to day involvement with leading global able to take independent professional advice in experts from the laboratory, diagnostic and Pharma the furtherance of the duties, if necessary, at the industries. Peter Keeling is a member of 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 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. commitments and interests are reported to and, The Group gains important insight and support where appropriate, agreed with the rest of the through its DXRX Network Advisory Panel, an external Board. Board Rotation advisory panel comprising a recruited group of scientific advisors, typically in the field of oncology and pathology who are key industry opinion leaders The Company’s Articles of Association (the ‘Articles’) well recognised in their fields. They support the require that one-third of the Directors must stand for Company’s collaborations with industry bodies, assist re-election by shareholders annually in rotation and with abstract submissions for the likes of ASCO, and that any new directors appointed during the year customer engagement. The panel meets monthly and must stand for re-election at the AGM immediately is led by Ryan Keeling. following their appointment. In accordance with the Articles, Nick Roberts will stand for re-election at the AGM to be held in 2022 and Charles Hindson will retire by rotation and stand for re-election at the AGM. Directors are required to seek re-election at least once every three years. 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 52–54. 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. 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 2021, external accounting advice was sought to support the setting of the Long Term Incentive Plan (‘LTIP’) target framework to support the vesting of the share options and the absolute shareholder return underpinning the performance of the share option. 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. Principle 7 Evaluate board performance based on clear and relevant objectives, seeking continuous improvement Principle 8 Promote a corporate culture that is based on ethical values and behaviours The Board believes that an organisation is defined Since the Company’s IPO in March 2019, the Board by its people. In 2018, the Group established a has sought to improve the ways in which it interacts formal working group, known as ‘The Culture Club’ to and the manner in which information is presented to it. formulate Diaceutics’ values. 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. These values continue to provide the core structure of our culture and are based on the key values of Empowerment, Foresight, Fun, Entrepreneurship, A formal Board effectiveness review was undertaken Communication and Trust, together known as following the first year of establishment of the the Diaceutics EFFECT values. Diaceutics has a current board and was repeated in the year-ended dedicated working group of 19 Culture Ambassadors, 31 December 2021. This review was in the form of a who ensure that the corporate culture which was structured questionnaire circulated to all directors, embedded in its policy and processes remains at the asking them to rate the Board’s performance in several forefront of leadership thinking within its principal strategically important areas and provide a rationale executive and operating groups. These EFFECT for their view. Results and outcomes were analysed values are core to both our recruitment and annual by the Company Secretary and reported to the Board. Performance Management Framework and are the The Chair reported and discussed the key themes cornerstone on which our mandatory onboarding with the Board, with appropriate recommendations programme is based. arising from this review being implemented by the Board. These include a plan for the consideration of key topics such as ESG, marketing, people, strategy, safety and security at quarterly face to face board A Code of Conduct for Employees, which will also include ethics and ethical behaviour, is currently being developed. meetings, the development of Committee reporting The Board is committed to maintaining appropriate and a review of board training. 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. standards for all the Company’s business activities and ensuring that these standards are set out in written policies and procedures to support these standards. These include our Equality, Diversity and Inclusion policy, Anti-Bribery and Anti-Corruption Policy, Human Rights policy, Whistleblowing policy Diaceutics’ succession planning module was and Anti-Slavery and Human Trafficking Statement. developed to focus on the individual employee and Our critical vendor assessment policy for new core their development, as well as the longer-term strategy suppliers, includes a request for information as to their of the Company. It uses a Performance Management code of ethics thereby seeking to ensure alignment Framework (‘PMF’) which allows us to nurture via a of their culture with our own and assessments of structured employee engagement a talent pool in a existing suppliers are carried out as part of the regular manner which is aligned with Diaceutics’ immediate risk review process. and future business strategy. The process is driven by creating an Individual Development Plan (‘IDP’) 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. The PMF process has been enhanced to include succession planning which is driven by the IDP element of the PMF discussions between the employee and line manager which will empower employees to take control of their professional development. In addition, a job Principle 9 Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board The Group’s governance structures have been reviewed in the light of the QCA Code. The Board believes them to be in accordance with best practice as adapted to best comply with the Group’s circumstances and stage of development. shadowing/rotation initiative is underway to provide The Board has overall responsibility for implementing employees with a broader experience of other roles the Group’s strategy and promoting the long-term within the Group. These initiatives operate for all success of the Group. The executive directors have employees apart from EXCO, where succession overall responsibility for managing the day-to-day planning is managed by the Chief Executive Officer operational, commercial and financial activities, with the support of the Board. 62 63 Diaceutics Annual Report 2021Corporate Governancesupported by EXCO. The non-executive Directors are Operational inside or price sensitive information, responsible for bringing independent and objective relating for example to a significant contract, is judgement to Board decisions. typically identified initially by EXCO (all members The Board seeks to meet regularly, but in any event to hold no fewer than 12 board meetings in each year, which are scheduled prior to the commencement of each financial year. These meetings are scheduled to coincide with the announcement of the Company’s annual and half yearly results and throughout the remainder of the year at regular monthly intervals. Of these monthly meetings, those that are held each quarter are held face to face wherever practicable, which enhances communication between board members and facilitates more in-depth engagement on key areas. These scheduled board meetings are supplemented with additional meetings and informal discussions between members of the Board, the executive Directors and senior operational managers of the Company, in relation to strategic business development and other topics which are key to the Company’s progress, The Board is supported by the Audit Committee, Remuneration committee and Insider Committee, all of which have formally delegated duties and responsibilities and written terms of reference. The terms of reference of each committee are available from the Group’s website at www.diaceutics.com of whom are listed on the Company’s Insider List). There is an internal procedure for the assessment and announcement of such information, in discussion with the Company’s advisors, where necessary, and the Board is included on all such announcements. Other, one off or non-operational price sensitive events, would be considered by the Insider Committee, which comprises Nick Roberts, Charles Hindson and Mike Wort and meets on an ad hoc basis as required. It is responsible for assisting and informing the decisions of the Board concerning the identification of non-operational 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’). In 2021, the Board formed a subcommittee to appoint a new CFO, 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 CFO being The Audit Committee is chaired by Charles Hindson announced on 11 January 2022 and the other members of the Committee are Deborah Davis and Mike Wort. It meets at least twice a year at appropriate times in the reporting and audit cycle and otherwise as required. 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 The Committee’s responsibilities are set out in its necessary, at the cost of the Company, to enable terms of reference and include amongst other things, each committee to discharge its duties. For each reviewing the adequacy of the Group’s accounting Board meeting an agenda is prepared and approved and operating controls, reviewing the proposed by the Chair and followed. Conflict of interest is financial statements of the Group prior to publication an agenda item at every meeting of the Board and and recommending the appointment of the auditor Related Party transactions is a standard agenda item and review of the scope and results of its audit. It is at each monthly or other scheduled meeting. also responsible for ensuring that an effective system of internal control is maintained. The Board is confident that its governance structures and processes are consistent with its current size and The Remuneration Committee is chaired by Charles complexity of the business. The appropriateness of Hindson and the other members of the Committee the Group’s governance structures will be reviewed are Deborah Davis and Mike Wort. It also meets at least twice a year at appropriate times in the annually to take account of further developments of accepted best practice and the development of the accounting cycle and otherwise as required. The Company. 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. Principle 10 Communicate how the Company is governed and is performing 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. The Group’s workforce is regularly updated as appropriate, with the development of the Group and its performance. A group information platform entitled DXHub contains Company communications including Town Hall recordings, Employee spotlights, DXRX updates, health and wellness information, press releases and news, culture initiatives and best practice and resource information together with links to all of our internal systems and training and performance management platforms. An all-company Town Hall webinar is held quarterly during the year (sometimes more often) 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 All Company Meeting (ACM), 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. 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 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. 64 65 Diaceutics Annual Report 2021Corporate GovernanceSection 172 Statement Section 172 Statement The directors of the Company (the ‘Directors’) are Throughout the year, the Directors have recognised aware of their duty under section 172(1) of the their duty to promote the success of the Company Companies Act 2006, to act in the way which they and their responsibilities outlined above (the ‘Section consider, in good faith, would be most likely to 172 Considerations’) and have had regard to these promote the success of the Company for the benefit in their decision making, whilst also considering of its members as a whole, and in doing so have the impact of decisions on the Company’s wider regard (amongst other matters) to: stakeholders. • The likely consequences of any decision in the The Directors believe that the following groups are long term; • The interests of the Company’s employees; the Company’s stakeholders and have set out below the key decisions made and Company engagements undertaken during the year with full consideration • The need to foster the Company’s business of the Company’s stakeholders and the Section relationships with suppliers, customers and others; 172 Considerations, all of which have long term • The desirability of the Company maintaining a reputation for high standards of business conduct; and • The need to act fairly between members of the Company. implications for the ultimate success of the Company. Stakeholder and Section 172 Considerations Who Engaged How We Engaged Outcomes Employees Board/EXCO The Group has several engagement initiatives to This enabled us to communicate communicate and support its workforce, including regularly with employees on Town Hall presentations held at least quarterly, where relevant updates pertaining employee feedback and interaction is encouraged. to operational and strategic Regular updates and training sessions on various initiatives. aspects of the business are provided by the executive directors and other key senior management. Optional ‘Flex days’ were introduced in 2021 to allow Flex days allow employees the those employees who have completed their two option of using this day to enhance weeks’ contracted hours in the prior nine days, to their own work-life synergy to suit take the first and third Fridays off work. their individual needs. During the year we implemented the Diaceutics share The share incentive plan allows incentive plan allowing employees who participate employees to own shares and and buy shares to have those shares matched by the benefit from the Company Company, subject to limits. As at the year end, 54 UK matching the shares and upside and 19 global employees participated in the scheme potential in the movement in the which represents 55% of total Group employees. share price over time. The Diaceutics’ ‘Employee Assistance Programme’, These programmes ensure that launched in 2020 to foster employee wellbeing and the Group provides support for work-life synergy and promoting flexibility within the the health, and wellbeing of our workplace, has continued to operate through 2021. employees in these important This provides support for all employees in many areas areas. including counselling, legal information and services, bereavement support and medical and health risk assessments. Line managers have also been given guidance on how to support staff wellbeing in the workplace via the Return to Office training and COVID-19 Toolkit for Managers, which provide links to other external and internal sources. In the Belfast office, COVID-19 risk assessments are Whilst working from home continues updated at least every three months, in co-ordination post COVID-19 for the majority with the COVID-19 work group, which also assesses of our work force and flexibility is and monitors the ongoing impact of the COVID-19 encouraged, the support and safety pandemic within the Group’s wider geographic regions, developing, implementing, and revising for our employees returning to work is vital and this allows us to monitor procedures to ensure a safe working environment for and maintain the appropriate all our employees. safeguards. 66 67 Diaceutics Annual Report 2021Corporate GovernanceStakeholder and Section 172 Stakeholder and Section 172 Considerations Who Engaged How We Engaged Outcomes Considerations Who Engaged How We Engaged Outcomes Customers, EXCO/Business We have continuous touchpoints with our customers We continue to adapt to ensure that Regulators and EXCO/Legal/ In 2021, a new department for Quality & Compliance We continue to review and improve Suppliers and Development, and suppliers to ensure that our products serve their we are working with our customers Reputation Quality & was created. The Group’s Compliance Officer leads our policies and procedures to Reputation Sales and purpose in informing and solving the problems of the and suppliers to provide products to Compliance this department (in consultation with the General ensure that we are striving for best- Procurement end user. Through 2021, we have maintained regular best solve their problems. Counsel) and continues to make improvements in-class. Teams communication with our customers and suppliers, albeit mostly virtually due to the continued COVID-19 restrictions, through quarterly business reviews, online meetings and attendance at online conferences. We have continued to engage our customers and Feedback allows us to refine our suppliers virtually to promote our DXRX Platform by products and practices and to delivering demos and facilitating Q&A sessions. enhance customer satisfaction always seeking to provide the best service for our customers. Partners and EXCO/Global On the launch of DXRX in 2020, we engaged with By 31 December 2021, we had Laboratories Laboratories a number of our existing partners and laboratories enrolled 546 of our partners and and Innovations to enrol them onto the platform. We created a laboratories on the DXRX platform. Teams demonstration plan and dedicated our DXRX relationship team to deliver demonstrations to those Increasing our partnerships in 2021 supported and enhanced our partners and laboratories. current and future product offering. Patients and the EXCO We undertook several initiatives to enhance our ethos of Engaging in activities which Community support for patients and the community, these included: support patients and community • Application for access to CMS data with the scope are consistent with our strategic to increase the understanding of government of the purpose. Engaging in these impact on patient cancer diagnosis as a result of the activities helps to promote an COVID-19 pandemic; awareness of these initiatives to • In 2021, sponsorship support was provided for the benefit of the patients and the Children’s Cancer Unit in Belfast as part of a community as well as Diaceutics. community programme; • We supported a colleague’s running team in Spain which raised funds for cancer research. They took part in Trail Solidari Alcoi (Alicante, Spain), where the proceeds go to the Scholarship created by + QUEUNTRAIL and ASIECA (Spanish Association of Researchers in Cancer) for young Spanish researchers, who also hold an annual international Meeting of Young Researchers in Cancer of the Valencian Community; and • In 2021, we developed a Training Academy for student placements and graduates and are continuing to grow this by developing new, and building upon existing relationships with, local universities. As part of this initiative, five students from Queen’s University, Belfast participated in a 12-week student placement programme in Q4 2021, with three currently participating in a year long placement under our Training Academy for Student Placements and Graduates. to further strengthen Diaceutics’ policies and procedures, in particular in relation to the Group’s data collection activities globally and due diligence on data vendors. In addition, the Quality & Compliance department is in the process of implementing a new Quality Management System (QMS). This will further improve the Group’s document management, vendor assessment and risk Assessment, and implement a formal Corrective And Preventive Action (CAPA) process on customer feedback and complaints and plan an internal audit process. Investors/ Shareholders CEO/CFO/Board During the year, the CEO and the CFO regularly held Formal and informal feedback was one-to-one meetings, calls and roadshows with received from investors and is institutional investors. During 2021 we have engaged investors on a range of topics including: welcomed by the Board in order to support future decision making for the benefit of all members. • COVID-19 • Precision Medicines tipping point • The power of real-world healthcare data and DXRX platform by hosting a capital markets day allowing investors to see the DXRX platform in action and hear from a leading Pharma customer on how Diaceutics enables the commercialisation of PM drugs • 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. Corporate broker communication was maintained and the CEO and CFO had regular interaction with the Company’s corporate analyst and brokers. In 2021 Capital Access Group (‘CAG’) were also engaged to provide and encourage access to a broader range of investors, with roadshows facilitated by CAG held in 2021 and Q1 2022. Mr Peter Keeling Director 22 March 2022 68 69 Diaceutics Annual Report 2021Corporate GovernanceRemuneration Committee Report On behalf of the Board, I am pleased to present the Management team, reflecting experience and role. Remuneration Committee Report for the year-ended The remuneration policy takes into consideration the 31 December 2021. Remuneration Committee During the year-ended 31 December 2021, the Committee consisted of three Non-Executive Directors: myself (as Chairman), Deborah Davis (who was appointed as Non-Executive Chair on 4 January 2021) and Mike Wort. The Remuneration Committee Group’s appetite for risk and is aligned to the long- term strategic goals of the Group. In remunerating the Executive Directors and Senior Management, a proportion of the remuneration is structured to link rewards to corporate and individual performance to drive long-term success for the Group. Basic Salary met two times during the year-ended 31 December The basic salaries of the Executive Directors 2021. Role of the Remuneration Committee The Remuneration Committee has responsibility for determining and agreeing with the Board the Company’s broad remuneration policy, for the Chair and the executive directors, including pension rights and compensation payments, together with recommending the level and structure of remuneration for senior management. The Remuneration Committee also has responsibility for determining (within the terms of the agreed policy) the total individual remuneration package are reflective of competitive rates, taking into consideration the level of experience and skills which the individual has relevant to the sector and the level of compensation within comparable AIM Companies. All Executive Directors’ salaries are determined on appointment, as part of the individual remuneration package (within the terms of the agreed policy) and are reviewed annually by the Committee. Executive Director pay rises are considered annually, in line with employees. Changes in basic salaries are considered in the light of changes in responsibilities, roles, and external changes such as inflation. of the Chair, the executive directors, the Company Pension Secretary, and senior executives including bonuses, All employees in the UK and Ireland can participate in incentive payments, and share options. The the Group pension scheme within which the employer Committee is responsible for the design, setting of makes pension contributions of between 2% and targets and approval of total annual payments under 5% for employees. Enhanced rates can be agreed the Company’s performance related pay schemes for particular members of senior management on an together with the design of all share incentive individual basis. plans and annual awards thereunder. In performing its duties, the Remuneration Committee takes consideration of the pay and employment conditions across the Group, in determining salary increases. The Board is responsible for the remuneration of the Non-Executive Directors. Policy on Executive Directors and Senior Management Remuneration Diaceutics prioritises recruiting and retaining highly skilled and experienced staff to support the success of the Group. The remuneration policy seeks to deliver a fair and balanced remuneration package for each of the Executive Directors and Senior The pension arrangements in place during the financial year for the Executive Directors are that the Company contributed 10% of salary for Peter Keeling, 5% of salary for Philip White and 5% for Ryan Keeling. These arrangements were reviewed in 2019 and were considered within the range of the Company’s pension contribution for other staff, reflecting the individual Directors’ salary levels. The pension arrangements for Nick Roberts (who was appointed on 18 March 2022) are that the Company contributes 4% of salary. Private Healthcare Activity During the Year All employees including the Executive Directors are Share Incentive Plan offered private healthcare, apart from employees in Japan and China where this cannot be facilitated. Bonus and Equity All Executive Directors and Senior and Middle Management are eligible for discretionary annual bonuses. Annual cash bonuses are paid upon the achievement of pre-set strategic objectives which relate to Group performance targets. The Committee, in conjunction with the Board, reviews these targets and sets the objectives at the commencement of each financial year. On 1 April 2021, the Company launched a Share Incentive Plan (SIP) in which all Group employees (apart from those in China) are entitled to participate, which was originally supported and recommended by the Remuneration Committee in the year to 31 December 2020. UK employees participate through an HMRC approved share matching scheme and non-UK employees through a share option structure. The SIP enables employees to purchase shares up to a value of £1,800 in the Company which are initially matched by the Company on a two for one basis for the first year, until 31 March 2022 and thereafter on a In addition to cash bonuses, equity-based awards are one for one basis. made to Executive Directors and Senior and Middle Management. This scheme is intended to provide a long-term incentive plan for eligible employees. The first grant was made in June 2020, in the form of market value share option awards, with the second grant in April 2021 in the form of a performance share options with performance criteria based on absolute shareholder return. The third grant is expected to be made in April 2022 with a further grant of performance-based share options conditional on absolute shareholder return. Sales Commission Incentive Plan In the year to 31 December 2021, the Remuneration Committee reviewed the Sales Commission Incentive Plan for all sales employees, which had been introduced on 1 January 2021. The commission structure is designed to incentivise sales staff to focus on customer 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 revised Sales Commission Incentive Plan commenced on 1 January 2022. 70 71 Diaceutics Annual Report 2021Corporate GovernanceDirectors’ Remuneration The remuneration of the board of directors of Diaceutics PLC for the year-ended 31 December 2021 is set out below Directors’ interests in share options for the year-ended 31 December 2021 As at 31 December 2021, 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. Basic Salary Bonus Taxable Benefits Pension 2021 2020 £ £ £ £ £ £ Type of Award Number of Shares at Exercise Number of Shares at Award Date 31 December 2021 Price £ Vesting Date 31 December 2020 Executive Peter Keeling Ryan Keeling Philip White Non-Executive Deborah Davis Mike Wort Charles Hindson LTIP LTIP LTIP LTIP LTIP LTIP – – – 17 April 2020 180,000 1 April 2021 73,542 17 April 2020 180,000 1 April 2021 64,154 17 April 2020 180,000 1 April 2021 64,154 – – – – – – 1.265 0.002 1.265 0.002 1.265 0.002 – – – 17 April 2023 180,000 1 April 2024 – 17 April 2023 180,000 1 April 2024 – 17 April 2023 180,000 1 April 2024 – – – – – – – Additional information with respect to the share options is disclosed in note 9 share based payments. Executive Peter Keeling Ryan Keeling Philip White Non-Executive Deborah Davis Mike Wort Charles Hindson 251,685 219,555 219,555 690,795 69,551 30,000 35,000 Julie Goonewardene – (Resigned 31 December 2020) Total 134,551 825,346 – – – – – – – – – – 660 – 639 24,000 276,345 273,303 10,978 230,533 225,317 10,978 231,172 223,123 1,299 45,956 738,050 721,743 – – – – – – – – – – 69,551 – 30,000 30,000 35,000 35,000 – 55,000 134,551 120,000 1,299 45,956 872,601 841,743 Taxable benefits consist of reimbursed home internet costs during the period. Remuneration is fixed except for bonus of £nil (2020: £nil). Deborah Davis’s remuneration reflects all payments made since her appointment on 4 January 2021 until the year ended 31 December 2021. Philip White resigned from the board of directors on 18 March 2022. Director Pension Contribution During the year the committee carried out a review of Executive Director pension contributions and sought advice from Deloitte in relation to benchmarking and market trends. As a result, the CEO pension contribution reduced from 10% of salary to 5% of salary, in line with the other Executive Directors pension contribution. A salary uplift was effected to offset the reduction in pension contribution such that the net impact of the change in CEO package was zero. 72 73 Diaceutics Annual Report 2021Corporate GovernanceDirectors’ interests in shares for the year-ended 31 December 2021 The Directors who held office at 31 December 2021 had the following interests in the ordinary shares of £0.002 in the capital of the Company Number of Share Number of Ordinary Ordinary Shares as Number of Ordinary Options held at 31 Shares held at 31 a % of Issued Share Shares held at 31 December 2021 December 2021 Capital December 2020 Executive Peter Keeling 253,542 17,252,049* 20.52% 17,502,049 Ryan Keeling 244,154 2,990,643** Philip White 244,154 1,606,389*** Non-Executive Deborah Davis Charles Hindson Mike Wort – – – 44,800 43,500 144,737 3.56% 1.91% 0.05% 0.05% 0.17% 2,890,643 3,026,330 – 43,500 144,737 Total 741,850 22,082,118 26.27% 23,607,259 *includes 8,587,975 shares held by Delia Keeling, Peter’s wife **includes 100,000 shares held by Robyn Keeling, Ryan’s wife ***includes 504,900 shares held by the Philip White Tyres Pension Trust 81810 There were no changes in the shareholdings of the directors between 31 December 2021 and the date of this report. Service Contracts and Non-Executive Directors’ Letters of Appointment The executive directors have rolling contracts that are terminable on 12 months’ notice. The Chair and each of the Non-Executive Directors have entered into a letter of appointment which is terminable on three months’ notice. Committee Evaluation The Committee underwent a formal performance evaluation as part of the Board’s effectiveness review, which identified one suggestion for more reporting to directors not involved in the Committee. Shareholder Approval of the Directors’ Remuneration Report Shareholders are asked to approve this directors’ Remuneration Report (excluding the directors’ Remuneration Policy) for the year-ended 31 December 2021 at the forthcoming Annual General Meeting. This resolution is advisory in nature. Mr Charles Hindson Remuneration Committee Chairman 22 March 2022 74 75 Diaceutics Annual Report 2021Corporate GovernanceAudit Committee Report Audit Committee Report On behalf of the Board, I am pleased to present executive director experience over 17 years with two the Audit Committee Report for the year-ended 31 FTSE listed international technology companies, as December 2021. Audit Committee During the year, the Committee consisted of three Non-Executive Directors: me (as Chairman), Deborah Davis and Mike Wort. Deborah Davis was appointed as Non-Executive Chair on 4 January 2021 and joined the Committee in place of Julie Goonewardene with effect from that date. The Audit Committee is convened as required and met three times during the year (March and September 2021) to discharge its responsibilities inter alia in connection with the Group’s Financial Statements for the year-ended 31 December 2021 and the Interim Financial Statements for the six chief executive officer and chief financial officer. Whilst the Board as a whole has a duty to act in the best interests of the Company, the Committee has a particular role, acting independently of management, to ensure that the interests of shareholders are properly protected in relation to financial reporting and the effectiveness of the Group’s systems of financial internal controls. The key responsibilities of the Committee are to: • Monitor the integrity of the Group’s financial statements and other statements and announcements relating to its financial performance, reviewing and challenging the methodology and assumptions used where months ended 30 June 2021 and, in August 2021, to necessary consider the Company’s EIS/VCT investment status. I held two further planning meetings which took place with the external auditors in preparation for the interim and final results. Role of the Audit Committee • Consider the Group’s accounting policies and practices along with its application of accounting standards and significant judgements • Review the effectiveness of the Group’s system of internal controls, including financial reporting and The Audit Committee is responsible for ensuring that controls and risk management systems the financial performance of the Group is properly reported on and reviewed, and its role includes monitoring the integrity of the financial statements of the Group (including annual and interim financial • Review the adequacy and security of the Group’s procedures and controls for whistleblowing; the detection of fraud and the prevention of bribery statements and results announcements), reviewing • Consider and make recommendations to the board internal control and risk management systems, reviewing any changes to accounting policies, on the appointment, reappointment, removal or resignation and remuneration of the external reviewing and monitoring the extent of the non-audit auditors services undertaken by external auditors, reviewing findings of an audit with the auditors, meeting regularly with the auditors and advising on the appointment of external auditors. • Oversee the relationship with the Group’s external auditors including consideration of the objectivity and independence of the external audit process. The full terms of reference for the Committee can The Chief Financial Officer, the senior director of be found on the Company’s website at Finance and the external auditors normally attend www.diaceutics.com Committee meetings. The Committee met with the external auditors without management present during the year. The board is satisfied that I, as the Chairman of the Committee, have recent and relevant financial experience, being a Chartered Accountant with prior External Auditors PricewaterhouseCoopers LLP was appointed by the board as the Company’s external auditor on 19 May 2021 for the 2021 reporting year and it is their intention to put themselves forward at the AGM to stand as auditors for The Audit Committee is responsible for the next financial year. There are no contractual obligations that restrict the Committee’s choice of external auditors. ensuring that the The Group paid £136k to PwC for audit services in 2021, relating to the statutory audit of the Group and Company financial statements, the audit of Group subsidiaries. In addition, the Group paid PwC £9k in relation to other non- audit services. financial performance of the Group is Committee Performance and Effectiveness During the year, the Committee: properly reported • Reviewed the EIS/VCT investment status of the Company, supported by external advice from Philip Hare on and reviewed. & Associates • Provided support for the preparation of the trading update made in September 2021 • Reviewed the status of the systems of internal control and establishing an Internal Audit programme for the current year. • Reviewed the Annual Report and Accounts • Liaised with the external auditors, including on their reappointment, and considered their non-audit work The Committee underwent a formal performance evaluation as part of the Board’s effectiveness review, which confirmed the committee was discharging its responsibilities and supported the anticipated further development of internal audit activities and identified one suggestion for more reporting to directors not involved in the Committee. This Audit Committee Report was reviewed and approved by the board on 18 March 2022. Mr Charles Hindson Audit Committee Chairman 22 March 2022 76 77 Diaceutics Annual Report 2021Corporate GovernanceDirectors’ Report Directors’ Report The Directors present their annual report and the The financial performance and balance sheet position audited Group financial statements for the year- at 31 December 2021 along with a range of scenario ended 31 December 2021. These will be laid before plans to 31 December 2023 has been considered, the shareholders of the Company at the next Annual applying different sensitives to revenue. Across these General Meeting (AGM). scenarios, including at the lower end of the range, Diaceutics PLC is incorporated in Northern Ireland, registration number NI055207, and its registered office is First Floor, Building Two, Dataworks at Kings Hall Health and Wellbeing Park, Belfast, County Antrim BT9 6GW. The Company is listed on the Alternative Investment Market of the London Stock Exchange (AIM: DXRX). Principal Activity there remains significant headroom in the minimum cash balance over the period to 31 December 2023 and therefore the Directors have satisfied themselves that the Group has adequate funds in place to continue in operational existence for the foreseeable future. Research & Development and Future Developments The principal activity of the Group during the year continued to be data, data analytics and implementation services. The Group has established a core suite of products and outsourced advisory Management intends to further develop the DXRX platform to meet future market demand as outlined in the Market Opportunity section of this report (pages 28–33). services which help its Pharma customers to optimise Outlook and Financial Risk and deliver their marketing and implementation strategies for companion diagnostics. Their mission is to design, create and implement innovative solutions Details of the Company outlook are disclosed in the Chief Executive Review section on pages 12–19, and financial risks are outlined within principal risks and that enhance speed to market and increase the uncertainties on page 41. effectiveness of all the stakeholders in the Precision Medicine industry. The Group engage in research Directors and development activities in the area of drug The Directors who served during the year, and up to development science, testing data and software the date the financial statements were signed, were: platform development. Results and Dividends The profit for the year, after taxation, amounted to £0.6m (2020: £0.3m). • Ms D Davis (appointed 4 January 2021) • Mr P Keeling • Mr R Keeling No dividends were paid during the year. The Directors • Mr P White (resigned on 18th March 2022) do not recommend the payment of a dividend. • Mr C Hindson Going Concern • Mr M Wort The financial statements have been prepared on the • Mr N Roberts (appointed on 18 March 2022) going concern basis which assumes that the Group will be able to continue in operational existence for the foreseeable future and to meet its liabilities as they fall due. In preparing the financial statements, the directors have taken into account the Group’s future trading and cash flows and believe that it is appropriate to prepare the financial statements on the going concern basis. Directors’ Interests and Indemnity Arrangements Share Capital Details of the Company’s issued share capital are The Directors’ interests in the shares of the Company shown in Note 25 to the consolidated financial are disclosed in the Remuneration Report on pages statements. 70–75. The share capital of the Company comprises one The Directors and officers of the Group have the class of ordinary shares and these are listed on benefit of a Directors’ and Officers’ liability insurance. AIM. At 31 December 2021 there were in issue No Director had, during or at the end of the year, a material interest in any contract which was significant in relation to the Group’s business except in respect of service agreements and share options and as disclosed in the Directors’ Remuneration Report. 84,068,923 fully paid ordinary shares. All shares are freely transferable and rank pari passu for voting and dividend rights. Substantial Shareholdings At 31 December 2021, shareholders holding more than 3% of the share capital in Diaceutics PLC were: Ordinary Shares Percentage of that Class Peter Keeling* 17,252,049 20.52% Gresham House Asset Management Limited 9,443,000 11.23% Canaccord Genuity Group Inc 7,808,750 9.29% Berenberg Bank Danske Bank AS 5,069,500 6.03% 4,738,796 5.64% Elizabeth Considine 3,112,169 3.70% Herald Investment Management 3,011,000 3.58% Ryan Keeling** 2,990,643 3.56% * Includes 8,587,975 shares held by Delia Keeling, Peter’s wife ** includes 100,000 shares held by Robyn Keeling, Ryan’s wife Save as referred to above, the Directors are not aware of any persons as at 31 December 2021 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. 78 79 Diaceutics Annual Report 2021Corporate GovernancePolitical Donations Disclosure of Information to Auditors The Group has not made any political donations Each of the persons who are Directors at the during the year (2020: £Nil). time when this Directors’ Report is approved Financial Instruments has confirmed that: Information on the Groups’ financial instruments, together with the Groups’ assessment on financial risk is disclosed in Note 24 and is included in this • So far as the Director is aware, there is no relevant audit information of which the Group’s auditors are unaware; and report by cross reference. Corporate Governance The Board has responsibility for ensuring that appropriate corporate governance principles are in place and that these requirements are followed and • The Director has taken all the steps that ought to have been taken as a director in order to be aware of any relevant audit information and to establish that the Group’s auditors are aware of that information. applied across the Group. Details of the Groups’ Independent Auditors adherence to these principles are disclosed on pages 55–65 and are included in this report by cross reference. The auditors, PricewaterhouseCoopers LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006. This report was approved by the board and signed on its behalf. Mr Peter Keeling Director 22 March 2022 Statement of Directors’ Responsibilities in Relation to the Financial Statements The directors are responsible for preparing the Annual The directors are responsible for safeguarding the Report and the financial statements in accordance assets of the group and company and hence for with applicable law and regulation. taking reasonable steps for the prevention and Company law requires the directors to prepare detection of fraud and other irregularities. financial statements for each financial year. Under The directors are also responsible for keeping that law the directors have prepared the group adequate accounting records that are sufficient financial statements in accordance with UK-adopted to show and explain the group’s and company’s international accounting standards and the company transactions and disclose with reasonable accuracy financial statements in accordance with United at any time the financial position of the group and Kingdom Generally Accepted Accounting Practice company and enable them to ensure that the financial (United Kingdom Accounting Standards, comprising statements comply with the Companies Act 2006. FRS 101 ‘ Reduced Disclosure Framework’ , and applicable law). The directors are responsible for the maintenance and integrity of the company’s website. Legislation in Under company law, directors must not approve the the United Kingdom governing the preparation and financial statements unless they are satisfied that dissemination of financial statements may differ from they give a true and fair view of the state of affairs legislation in other jurisdictions. Mr Peter Keeling Director 22 March 2022 of the group and company and of the profit or loss of the group 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 UK-adopted international accounting standards 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. 80 81 Diaceutics Annual Report 2021Corporate GovernanceGroup Financial Statements Independent Auditors’ Report to the Members of Diaceutics PLC Report on the Audit of the Financial Statements Opinion In our opinion: • Diaceutics PLC’s group financial statements and company financial statements (the ‘ financial statements’ ) give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2021 and of the group’s profit and the group’s cash flows for the year then ended; • the group financial statements have been properly prepared in accordance with UK- adopted international accounting standards; • the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘ Reduced Disclosure Framework’ , and applicable law); and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘ ISAs (UK)’ ) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our Audit Approach Overview Audit Scope We have audited the financial statements, included • We focused our work over the Group’s reporting within the Annual Report, which comprise: the packs for the key trading entities Group and Company Statements of Financial Position as at 31 December 2021; the Group Profit and Loss Account and Group Statement of Comprehensive Income, the Group Statement of Cash Flows and the Group and Company • We performed procedures over all Group companies, including Diaceutics Plc (the parent company of the Group), and the consolidation adjustments Statements of Changes in Equity for the year then • The components where we performed our ended; and the notes to the financial statements, audit work, together with procedures over the which include a description of the significant consolidation adjustments, accounted for 100% of accounting policies. Group revenue and 99% of Profit before tax. Key Audit Matters • Accounting for capitalised development costs (group and parent) • Recoverability of intangible assets (group and parent) • Accounting for revenue recognition including accrued and deferred income (group and parent) • Impact of COVID-19 (group and parent) Materiality • Overall group materiality: £43,337 (2020: £53,655) based on 5% of average profit before tax and exceptional costs for the past 3 years. • Overall company materiality: £39,003 (2020: £48,289) based on 5% of average profit before tax and exceptional costs for the past 3 years. • Performance materiality: £32,503 (2020: £40,241) (group) and £29,252 (2020: £36,217) (company). The Scope of our Audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Key Audit Matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. The key audit matters below are consistent with last year. 84 85 Diaceutics Annual Report 2021Group Financial Statements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: (group and parent) • We obtained the workings for the capitalisation of The Group and the Company capitalises costs the internal labour costs and tested the inputs to this associated with the development of the DXRX schedule and tested the mathematical accuracy of platform, which has been developed internally. the workings; The costs associated with the time spent on • We agreed a sample of employees’ base salaries to this development project are capitalised onto the payroll records; the balance sheet at the year end and represent • We reperformed the calculation for the estimate the hours spent on this project by the dedicated of the cost of employers tax and benefits that are team who work on the data collection or the capitalised; development of the software platform. • 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. Recoverability of intangible assets To test the recoverability of the intangible assets: (group and parent) • We obtained the discounted cash flow model and The Group and Company have intangible assets tested the mathematical accuracy of the model; held at a NBV of £12.8m (2020: £9.4m) and £8.9m • We tested and challenged the various assumptions (2020: £6.2m) respectively at the year end. The and inputs to the model such as revenue growth carrying value of intangible assets are dependent rates by comparing this to historic growth rates and on estimates of future cash flows of the Group assessing if it reflected the impact of COVID-19; and there is a risk that if management does not • We obtained a listing of current projects in place and achieve these cash flow estimates it could give also pipeline projects to verify the revenue projections; rise to an impairment charge. This risk increases • We obtained the CAPEX budget approved by the in periods when the Group’s trading performance board and assessed whether it was aligned to what and projections do not meet expectations. Given was shown in the model; that these assets are amortised, management • We obtained the detailed workings on the discount is required to undertake impairment trigger rate and confirmed the mathematical accuracy; assessments at least annually or when • We verified the discount rate detailed workings to triggering events occur. As a result of COVID-19, relevant sources and performed an independent management has undertaken a formal impairment recalculation of it; review. The impairment review performed by • We performed our own independent sensitivity management include a number of significant analyses on the model including sensitising the judgements and estimates and changes in these revenue growth rate, discount rate and assessing assumptions can result in an impairment charge what would be the relative breakeven point in the or a material difference in available headroom. 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. Accounting for revenue recognition To test the revenue recognition: including accrued and deferred income • We updated our understanding around revenue streams and (group and parent) respective recognition policies across the group, specifically The Group and the Company recognises project revenue for those that were live around the year end; over time, based on the stage at which a particular project • Our approach to testing revenue recognition involved is in terms of completion. This is measured by comparing identifying the substance of the contracts, identifying the actual hours to budget on any given project. The the performance obligations included, determining the Project Manager is responsible for updating the budget transaction price of the contract and subsequently based on actual hours charged and comparing this to identifying the allocation of the transactional price against estimated cost to completion. 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 FY20 when compared to actual hours was reasonable and whether or not we could rely on management’s ability to budget in FY21; 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. Impact of COVID-19 (group and parent) In assessing management’s consideration of the impact of The ongoing COVID-19 pandemic is having a significant COVID-19 on the Group and Company, we have undertaken impact on both the UK economy and the global economy in the following audit procedures: which the Group and Company operates. There is significant • We obtained the latest cash flow forecasts that support uncertainty as to the duration of the pandemic and what its the Director’s assessment and conclusions in relation to lasting impact will be on the global economy. The Directors the going concern basis of preparation of the financial have considered the impact to the Group and Company of statements; the ongoing COVID-19 pandemic across the business. As a • We challenged the appropriateness of the underlying diagnostic commercialisation business for precision testing assumptions in the forecasts, including the different to the global healthcare market, the results for the year scenarios presented; ended 31 December 2021 reflected the impact of COVID-19. • We obtained the latest management accounts for the In relation to the going concern assessment, the Directors financial year to date and reviewed they were in line with have prepared cash flow forecasts with a range of scenarios the forecasts; and to 31 December 2023 considered and different sensitivities • We reviewed the disclosures within the financial statements applied to revenue. These forecasts reflect the expected and consider them to be reasonable. future impact of the COVID-19 pandemic on the Group and Company. These forecasts indicate that the Group and Based on the audit procedures performed, we noted no Company will have sufficient cash resources to continue in material issues arising from our audit work and our conclusion operation for a period of at least 12 months from the date in respect of going concern is included in the ‘Conclusions these financial statements were approved. The Group had relating to going concern’ section below. cash of £19.7m as at 31 December 2021 and has external debt consisting of convertible loan notes of £0.1m. 86 87 Diaceutics Annual Report 2021Group Financial StatementsHow we Tailored the Audit Scope Materiality We tailored the scope of our audit to ensure that we The scope of our audit was influenced by our performed enough work to be able to give an opinion application of materiality. We set certain quantitative on the financial statements as a whole, taking into thresholds for materiality. These, together with account the structure of the group and the company, qualitative considerations, helped us to determine the the accounting processes and controls, and the scope of our audit and the nature, timing and extent industry in which they operate. of our audit procedures on the individual financial We performed full scope audits in respect of all entities within the group. This ensured that sufficient and appropriate audit procedures were performed statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. to achieve sufficient coverage over the financial Based on our professional judgement, we determined statement line items. materiality for the financial statements as a whole as follows: Financial Statements — Group Financial Statements — Company Overall materiality £43,337 (2020: £53,655) £39,003 (2020: £48,289) 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 years is the primary measure used the primary measure used by the Board by the Board and the shareholders and the shareholders in evaluating the in evaluating the performance of the performance of the Company and is a Group and is a generally accepted generally accepted auditing benchmark. auditing benchmark. This measure This measure excludes exceptional excludes exceptional costs which are costs which are non-recurring due to non-recurring due to their nature. their nature. For each component in the scope of our group audit, In determining the performance materiality, we we allocated a materiality that is less than our overall considered a number of factors — the history of group materiality. The range of materiality allocated misstatements, risk assessment and aggregation across components was £20,000 to £39,003. Certain risk and the effectiveness of controls — and components were audited to a local statutory audit concluded that an amount at the upper end of our materiality that was also less than our overall group normal range was appropriate. materiality. We agreed with those charged with governance We use performance materiality to reduce to that we would report to them misstatements an appropriately low level the probability that identified during our audit above £2,167 (group the aggregate of uncorrected and undetected audit) (2020: £2,683) and £1,950 (company misstatements exceeds overall materiality. audit) (2020: £2,414) as well as misstatements Specifically, we use performance materiality in below those amounts that, in our view, warranted determining the scope of our audit and the nature reporting for qualitative reasons. and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2020: 75%) of overall materiality, amounting to £32,503 (2020: £40,241) for the group financial statements and £29,252 (2020: £36,217) for the company financial statements. Conclusions Relating to Going Concern misstated. If we identify an apparent material Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern basis of accounting included: • We obtained cash flow forecasts and financial projections for the Group that included a base case and severe but plausible downside scenario that could arise. inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these • We assessed the assumptions used by responsibilities. management and compared the forecasts against historical performance, factoring in knowledge of the entity’s plans and the impact of COVID-19, as With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act 2006 have been well as our knowledge of the entity and the sector included. in which it operates. • We considered whether the going concern disclosure in note 1 to the financial statements gives a full and accurate description of the Directors’ assessment of going concern. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or 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 the directors with respect to going concern are described in the relevant sections of this report. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report for the year ended 31 December 2021 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ report. Responsibilities for the Financial Statements and the Audit Responsibilities of the Directors for the Financial Statements As explained more fully in the Statement of Directors’ Responsibilities in relation to the Financial Statements, the directors are responsible for the Reporting on Other Information preparation of the financial statements in accordance The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to in the audit, or otherwise appears to be materially do so. 88 89 Diaceutics Annual Report 2021Group Financial StatementsOther Matter In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS. Kevin MacAllister (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Belfast 22 March 2022 Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non- compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the of irregularities, including fraud. The extent to which sample is selected. our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to those laws and regulations that have a direct impact on the preparation of the financial statements such as local tax regulations, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and 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. determined that the principal risks were related to Other Required Reporting posting inappropriate journal entries and management Companies Act 2006 Exception Reporting bias in accounting for estimates including estimates relating to revenue recognition and estimates for capitalised development costs. Audit procedures Under the Companies Act 2006 we are required to report to you if, in our opinion: performed by the engagement team included: • we have not obtained all the information and • Discussions with management, including explanations we require for our audit; or consideration of known or suspected instances of • adequate accounting records have not been kept non-compliance with laws and regulations and fraud; by the company, or returns adequate for our audit • Evaluation of the effectiveness of management’s controls designed to prevent and detect have not been received from branches not visited by us; or irregularities; • certain disclosures of directors’ remuneration • Identification and testing of significant journal entries; and • Testing of assumptions and judgements made specified by law are not made; or • the company financial statements are not in agreement with the accounting records and returns. by management in making significant accounting We have no exceptions to report arising from this estimates. responsibility. 90 91 Diaceutics Annual Report 2021Group Financial StatementsGroup Profit and Loss Account for the year-ended 31 December 2021 Revenue Cost of Sales Gross Profit Administrative Expenses Other Operating Income Operating Profit/(Loss) Before Exceptional Items Exceptional Items Operating Profit/(Loss) Finance Income Finance Costs Profit/(Loss) Before Tax Income Tax Credit Profit for the Financial Year Note 2021 4 5 5 10 11 5 12 13 £000’s 13,943 (3,211) 10,732 (10,377) 195 550 – 550 – (88) 462 14 99 561 All results relate to continuing operations. Group Statement of Comprehensive Income for the year-ended 31 December 2021 Profit for the Financial Year 2021 £000’s 561 Items that may be reclassified subsequently to profit or loss: (317) Exchange differences on translation of foreign operations Total Comprehensive Income for the Year, Net of Tax 244 Earnings per Share for the year-ended 31 December 2021 Note 2021 Pence 15 15 15 15 0.67 0.66 0.67 0.66 Basic Diluted Basic Adjusted Diluted Adjusted 92 2020 £000’s 12,696 (3,233) 9,463 (10,015) 282 (270) (388) (658) 27 (51) (682) 945 263 2020 £000’s 263 (5) 258 2020 Pence 0.34 0.34 0.74 0.74 Group Statement of Financial Position as at 31 December 2021 Non-current Assets Intangible Assets Property, Plant and Equipment Right of Use Asset Deferred Tax Asset Current Assets Cash and Cash Equivalents Trade and Other Receivables Income Tax Receivable Total Assets Equity and Liabilities Equity Share Capital Share Premium Treasury Shares Translation Reserve Profit and Loss Account Total Equity Non-current Liabilities Deferred Tax Liability Leasehold Liability Current Liabilities Trade and Other Payables Leasehold Liability Financial Liabilities Income Tax Payable Total Liabilities Note 2021 £000’s 16 17 18 14 20 14 12,821 718 1,411 1 14,951 19,675 7,615 2,772 30,062 45,013 25 168 36,864 25 (165) (302) 4,084 40,649 14 22 21 22 23 14 445 1,285 1,730 2,358 146 130 – 2,634 4,364 2020 £000’s 9,361 238 – 301 9,900 25,255 6,107 2,257 33,619 43,519 168 36,864 – 15 3,191 40,238 366 – 366 2,346 – 118 451 2,915 3,281 Total Equity and Liabilities 45,013 43,519 The Group financial statements were approved and authorised for issue by the board and were signed on its behalf on 22 March 2022. The notes on pages 97–127 form an integral part of the Group financial statements. Mr Nick Roberts Director 22 March 2022 93 Diaceutics Annual Report 2021Group Financial StatementsGroup Statement of Changes in Equity for the year-ended 31 December 2020 Group Statement of Changes in Equity for the year-ended 31 December 2021 Equity Share Capital £000’s Share Treasury Translation and Loss Total Premium £000’s Shares £000’s Reserve £000’s Account £000’s Equity £000’s Profit Equity Share Capital £000’s Share Treasury Translation and Loss Total Premium £000’s Shares £000’s Reserve £000’s Account £000’s Equity £000’s Profit At 1 January 2020 139 17,335 Profit for the Year Other Comprehensive Expense Total Comprehensive Income for the Year Transactions with Owners, Recorded Directly in Equity Exercise of Warrant Share Based Payment – – – 1 – Issue of Shares on Placing 28 Total Transactions with Owners 29 – – – 264 – 19,265 19,529 At 31 December 2020 168 36,864 – – – – – – – – – 20 – (5) (5) – – – – 2,638 20,132 At 1 January 2021 168 36,864 263 – 263 – 290 – 290 263 (5) 258 265 290 19,293 19,848 Profit for the Year Other Comprehensive Expense Total Comprehensive Income for the Year Transactions with Owners, Recorded Directly in Equity Share Based Payment Treasury Shares – – – – – Total Transactions with Owners – – – – – – – – – – – – (165) (165) 15 – (317) (317) – – – 3,191 40,238 561 – 561 561 (317) 244 332 332 – (165) 332 167 15 3,191 40,238 At 31 December 2021 168 36,864 (165) (302) 4,084 40,649 94 95 Diaceutics Annual Report 2021Group Financial StatementsGroup Statement of Cash Flows for the year-ended 31 December 2021 Notes to the Group Financial Statements for the year-ended 31 December 2021 Note 2021 £000’s 2020 £000’s 462 (682) 16 18 17 88 1,665 49 85 (169) (1,499) (159) 373 895 (325) 570 (5,036) (565) (5,601) (56) (49) (165) – (270) 24 776 – 33 (247) 549 (63) 290 680 (427) 253 (6,157) (137) (6,294) – – – 19,614 19,614 (5,301) 13,573 (279) 25,255 19,675 (38) 11,720 25,255 Operating Activities Profit/(Loss) Before Tax Adjustments to Reconcile Profit/(Loss) Before Tax to Net Cash Flows from Operating Activities Net Finance Costs Amortisation of Intangible Assets Depreciation of Right to Use Asset Depreciation of Property, Plant and Equipment Research and Development Tax Credits (Increase)/Decrease in Trade and Other Receivables Decrease in Trade and Other Payables Share Based Payments Cash Received in Operations Tax Paid Net Cash Inflow from Operating Activities Investing Activities Purchase of Intangible Assets Purchase of Property, Plant and Equipment Net Cash Outflow from Investing Activities Financing Activities Borrowing Costs Leasehold Repayments Purchase of Treasury Shares Issue of Shares Net Cash (Outflow)/Inflow from Financing Activities Net (Decrease)/Increase in Cash and Cash Equivalents Net Foreign Exchange Losses Cash and Cash Equivalents at 1 January Cash and Cash Equivalents at 31 December 96 1. General Information Going Concern Diaceutics PLC (the ‘Company’) is a public company The financial performance and balance sheet position limited by shares, incorporated, domiciled and at 31 December 2021 along with a range of scenario registered in Northern Ireland. The Company’s plans to 31 December 2023 has been considered, registration number is NI055207, and the registered applying different sensitives to revenue and gross office is First Floor, Building Two, Dataworks at King’s profit margin. Across these scenarios, including at Hall Life Sciences Park, Belfast, County Antrim, the lower end of the range, there remains significant Northern Ireland, BT9 6GW. The consolidated financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group). The Company financial statements present information about the Company as a separate entity and not about the Group. headroom in the minimum cash balance over the period to 31 December 2023. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for at least 12 months from the date of this report. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated The principal activity of Diaceutics PLC (‘the Company’) and its subsidiaries (together ‘the Group’) is data, data analytics and implementation financial statements. Basis of Consolidation services. The Group has established a core suite of The consolidated financial statements incorporate products and outsourced advisory services which the financial statements of the Company and entities help its Pharma customers to optimise and deliver controlled by the Company (its subsidiaries) made up their marketing and implementation strategies to 31 December each year. Control is achieved when for companion diagnostics. Their mission is to the Company: design, create and implement innovative solutions that enhance speed to market and increase • Has power over the subsidiary; the effectiveness of all the stakeholders in the • Is exposed, or has rights, to return from its personalised medicine industry. involvement with the subsidiary; and The financial statements are presented in pound • Has the ability to use its power to affect its returns. sterling. Basis of Accounting These consolidated financial statements have been prepared on a going concern basis and in accordance with international accounting standards in conformity The Company considers all relevant facts and circumstances in assessing whether or not it has control over a subsidiary, including the ability to direct the relevant activities at the time that decisions need to be made. with the Companies Act 2006 applicable to Intra-group balances and transactions, and any companies reporting under UK adopted international unrealised income and expenses (except for foreign accounting standards. These financial statements currency transaction gains or losses) arising from have been prepared under the historical cost intra-group transactions, are eliminated. convention unless otherwise specified within these accounting policies. The financial statements of subsidiaries are included in the consolidated financial statements from the date The preparation of financial statements in conformity on which control commences until the date on which with IFRS requires the use of certain critical control ceases. accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Judgements in applying accounting policies and key sources of estimates and uncertainty are disclosed in the notes. The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 97 Diaceutics Annual Report 2021Group Financial Statements2. Accounting Policies • Amendments to IAS 12 – Deferred Tax related to Assets Government Grants • all resulting currency translation differences are New and amended IFRS Standards that are effective and Liabilities arising from a Single Transaction for the current year • Amendments to IAS 8 – Definition of accounting The Group has applied the following standards estimates and amendments for the first time for their annual We are still assessing the implications of the new reporting year commencing 1 January 2021: standards and interpretations however it is not expected Grants, which include research and development tax credits where the recovery of those credits is not restricted, are recognised at their fair value where there recognised in other comprehensive income and disclosed as a separate component of equity in a foreign currency translation reserve. is a reasonable assurance that the grant will be received, Exceptional Items and the Group will comply with all attached conditions. The Group presents as exceptional items those • Interest rate benchmark phase 2 reform to have a material impact on the Group. Grants that compensate the Group for expenses material items of income and expense which, (Amendment to IFRS 9, IAS 39, IFRS 7, IFRS 4 and Revenue Recognition IFRS 16) Revenue comprises the fair value of the consideration • Impact of the initial application of COVID-19- received or receivable for the provision of services in Related Rent Concessions beyond 30 June 2021— the ordinary course of the Group’s activities. Revenue is (Amendment to IFRS 16) shown net of value-added tax and after eliminating sales Impact of the initial application of Interest Rate within the Group. Benchmark Reform amendments to IFRS 9, IAS 39, The Group has three revenue streams, DXRX platform IFRS 7, IFRS 4 and IFRS 16 There has been no material impact on our financial statements as a result of these changes. Impact of the initial application of COVID-19- Related Rent Concessions beyond 30 June 2021— Amendment to IFRS 16 There has been no material impact on our financial statements as a result of these changes. New accounting standards and interpretations not yet adopted by the Group The following new accounting standards, amendments and/or interpretations have been published but not yet endorsed by the UK and are not mandatory for 31 December 2021 reporting year. They have not been early adopted by the group and these standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions: • IFRS 17 insurance contracts data revenue, DXRX platform technology enabled services revenue and Professional services revenue. The Group’s performance obligations for these revenue streams are deemed to either be the provision of specific deliverables to the customer or a subscription-based service. Revenue billed to the customer is allocated to the various performance obligations, based on the relative fair value of those obligations, and is then recognised when it transfers control of a deliverable to a customer as follows: The platform data revenue and the platform technology enabled services revenue are recognised at a point in time when milestone based or overtime when subscription based. The professional services revenue is recognised over time based on the number of input hours. With all other professional services recognised at a point in time where milestones are specified within client contract, otherwise input hours recognition applies. Contract assets arise on contracts with customers that would be expected to be invoiced and received in the following year. The Group’s contracts with customers are • Classification of liabilities as current or non-current typically less than one year in duration. (amendments to IAS 1) Contract liabilities arise in respect of amounts invoiced • Sale or contribution of assets between an investor during the year for which revenue recognition criteria and its associate or joint venture (amendments to have not been met by the year-end. The Group’s IFRS 10 and IAS 28) • Reference to the Conceptual Framework (IFRS 3) 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. • Proceeds before Intended Use (IAS 16) • Onerous Contracts (IAS 37) Segment Reporting The Group currently has one operating segment. • Annual Improvements to IFRS Standards 2018–2020 This is consistent with the internal organisational and (IFRS1, IFRS9, IFRS16 and IFRS41) management structure and the internal reporting • Amendments to IFRS 4 – extension of the Temporary Exemption from Applying IFRS 9 information provided to the Chief Operating Decision Maker, the Board, who is responsible for allocating resources and assessing performance of the operating • Amendments to IAS 1 and IFRS Practice Statement segment. 2 – disclosure of accounting policies incurred are recognised in profit or loss as other because of the nature and expected infrequency income on a systematic basis in the periods in which of the events giving rise to them, merit separate the expenses are recognised, unless the conditions for presentation on the face of the profit and receiving the grant are met after the related expenses loss account in order to allow shareholders to have been recognised. In this case the grant is understand better the elements of financial recognised when it becomes receivable. performance in the year, so as to facilitate Grants relating to development projects are included in non-current liabilities as deferred income and are comparison with prior periods and to better assess trends in the financial performance. credited to the profit and loss account on a straight-line Employee Benefits basis over the expected useful economic lives of the related assets. The Group operates a defined contribution pension scheme which is open to employees and directors. Foreign Currency Translation The assets of the scheme are held by investment (a) Functional and presentation currency managers separately from those of the Group. The contributions payable to the scheme is recorded in Items included in the financial statements of each of the profit and loss account in the accounting period the Group’s entities are measured using the currency of to which they relate. the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Sterling, which is the Group’s presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year- The Group also operates a long-term incentive plan (LTIP), an element of which is the ability for eligible employees to be awarded a discretionary cash bonus based on Group performance. These short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated end exchange rates of monetary assets and liabilities reliably. denominated in foreign currencies are recognised in the Share Based Payments profit and loss account. (c) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each profit and loss account The company has one class of shares in issue. Where shares are issued to employees that contain restrictions that mean they have obtained those shares by virtue of their employment, those shares are accounted for as share based payments. The company’s share based payments are classified as equity settled share based payments as the employees will receive the shares after the required service period. For equity settled shares, a fair value of those shares is established at the date the shares are granted and, if the employee is required to complete a period of service before the shares are translated at average exchange rates (unless vest, this fair value is spread over that period this average is not a reasonable approximation of (vesting period). the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and 98 99 Diaceutics Annual Report 2021Group Financial StatementsTaxation Intangible Assets The tax expense for the year comprises current Research and Development and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in Expenditure on research activities and patents is recognised in the profit and loss account as an expense as incurred. other comprehensive income or directly in equity Expenditure on development activities is capitalised respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. if the product or process is technically and commercially feasible and the Group intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable and if the Group can measure reliably the expenditure attributable to the intangible asset during its development. Development activities involve design for, construction or testing of the production of new or substantially improved products or processes. The expenditure capitalised includes the cost of infrastructure and direct labour including employer national insurance. Other development expenditure Deferred income tax is recognised, using the is recognised in the profit and loss account as an liability method, on temporary differences arising expense as incurred. Capitalised development between the tax bases of assets and liabilities and expenditure is stated at cost until it is brought into their carrying amounts in the consolidated financial use. statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an Other Intangible Assets asset or liability in a transaction other than a business Other intangible assets that are acquired by combination that at the time of the transaction affects the Group are stated at cost less accumulated neither accounting nor taxable profit or loss. Deferred amortisation and accumulated impairment losses. income tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary Amortisation Amortisation is charged to the profit or loss on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: • Patents and Trademarks — 3 years (33.3% straight line) from date of registration • Datasets — 4 years (25% straight line) • Software — 5 years (20% straight line) difference is controlled by the group and it is probable • Platform — 10 years (10% straight line) that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities • Platform Algorithms — 6 years (16.7% straight line) The Group reviews the amortisation period and method when events and circumstances indicate that the useful life may have changed since the last reporting date. relate to income taxes levied by the same taxation Property, Plant & Equipment authority on either the taxable entity of different taxable entities where there is an intention to settle the balances on a net basis. Property, plant & equipment is stated at cost less accumulated depreciation and accumulated impairment losses. The Group assesses at each reporting date whether there are indicators of impairment. Depreciation is charged to the profit and loss account received and any initial direct costs. They are on a straight-line basis over the estimated useful subsequently measured at cost less accumulated lives of each part of an item of property, plant and depreciation and impairment losses. equipment. The estimated useful lives are as follows: Right-of-use assets are depreciated over the shorter • Office Equipment — 5 years (20% straight line) period of lease term and useful life of the right-of-use • Leasehold Improvements — 10 years (10% straight line) asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, Depreciation methods, useful lives and residual values the related right-of-use asset is depreciated over the are reviewed if there is an indication of a significant useful life of the underlying asset. The depreciation change since the last annual reporting date in the starts at the commencement date of the lease. pattern by which the Group expects to consume an asset’s future economic benefits. The right-of-use assets are presented as a separate line in the consolidated statement of financial Leases position. During the year, the Group entered into a new lease The Group applies IAS 36 to determine whether for its Belfast Headquarters building at Building two, a right-of-use asset is impaired and accounts for Dataworks at King’s Hall Life Sciences Park, Belfast, any identified impairment loss as described in the Antrim, BT9 6GW. ‘Property, Plant and Equipment’ policy. The Group assesses whether a contract is or contains Financial Assets a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding (a) Classification lease liability with respect to all lease arrangements The Group classifies its financial assets in the in which it is the lessee, except for short-term leases following measurement categories: (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as • Those to be measured at amortised cost; and tablets and personal computers, small items of office • Those to be measured subsequently at fair value furniture and telephones). Payments associated (either through Other Comprehensive Income or with short-term leases of equipment and vehicles through profit and loss). and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the Group incremental borrowing rate. Lease payments included in the measurement of the lease liability only consist of fixed lease payments (including in-substance fixed payments), less any lease incentives receivable. The lease liability is presented as a separate line in the consolidated statement of financial position. The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. The Group reclassifies its financial assets when and only when its business model for managing those assets changes. (b) Recognition and Measurement At initial recognition, the group measures a financial asset at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. A trade receivable without a significant financing component is initially measured at the transaction price. Subsequent measurement of financial assets depends on the Group’s business model for managing those financial assets and the cash flow characteristics of The lease liability is subsequently measured by those financial assets. The Group only has financial increasing the carrying amount to reflect interest on assets classified at amortised cost. These assets the lease liability (using the effective interest method) are subsequently measured at amortised cost using and by reducing the carrying amount to reflect the the effective interest method. The amortised cost is lease payments made. reduced by expected credit losses. The right-of-use assets comprise the initial measurement of the corresponding lease Interest income, foreign exchange gains and losses and expected credit losses are recognised in profit or liability, lease payments made at or before the loss. Any gain or loss on derecognition is recognised commencement day, less any lease incentives in profit or loss. 100 101 Diaceutics Annual Report 2021Group Financial Statements(c) Expected Credit Losses Related Party Transactions The Group assesses on a forward-looking basis, The Group discloses transactions with related parties the expected credit losses associated with its debt which are not wholly owned within the same group. instruments carried at amortised cost. For trade Where appropriate, transactions of a similar nature receivables the Group applies the simplified approach are aggregated unless, in the opinion of the directors, permitted by IFRS9, which requires expected lifetime separate disclosure is necessary to understand the the estimated technical obsolescence of such • In the calculation of Share Based Payments and assets and latest information on commercial and related costs charge an assessment of expected technical use. Further details on the estimation employee attrition is used based on expected uncertainty have been disclosed in note 16. employee attrition and where possible actual • Assessment of the recoverable amount, being the higher of value in use and the fair value less employee turnover from the inception of the share option plan. losses to be recognised from the initial recognition effect of the transactions on the Group financial cost to sell, of property plant and equipment, Estimates and judgements are continually evaluated of the receivables. For other receivables the Group statements. applies the three-stage model as prescribed in IFRS 9, to determine expected credit losses. Financial Liabilities 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 are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. The Group does sometimes make use of derivative financial instruments or hedge accounting for foreign currency transactions. Trade payables represent obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and Other payables are classified as current liabilities if payment is due within one year. If not, they are presented as non-current liabilities. Cash and Cash Equivalents Cash and cash equivalents includes cash in hand, deposits held on call with banks, other short term highly liquid investments with original maturities of three months or less and bank overdrafts. Equity 3. Judgements in applying accounting policies 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. Such estimates and judgements are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances and are subject to continual re-evaluation. It should be noted that the impact of variation in some assumptions and estimates can have a particularly material impact on the reported results. The key judgements in applying the accounting policies include: • The Group capitalises costs associated with the development of the DXRX platform and data lake. These costs are assessed against IAS 38 Intangible Assets to ensure they meet the criteria for capitalisation. • In assessing the requirement to recognise a Ordinary shares are classified as equity. Incremental deferred tax asset, management carried out a costs directly attributable for the issue of new forecasting exercise in order to assess whether the shares are shown in equity as a deduction from the Group will have sufficient future profits on which proceeds. The share premium reserve represents the excess over the nominal value of the fair value of the deferred tax asset can be utilised. This forecast required management’s judgment as to the future performance of the Group. consideration received for equity shares, net of • With respect to revenue recognition, as described expenses on the share issue. The capital redemption reserve records the nominal value of shares repurchased by the Company. in note two accounting policies, where the input method is used to determine recognition over time, a key source of estimation will be the total budgeted hours to completion for comparison with Distributions to Equity Holders the actual hours spent. Dividends and other distributions to the Company’s Key sources of estimation uncertainty are as follows: 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 recognised in the statement of changes in equity. • The Group’s estimation of the useful economic lives of intangible assets. The assessment of useful life of data purchases and platform require estimation over the period in which these assets will be utilised and is based on information on intangible assets and right-of-use assets in and are based on historical experience and other accordance with IAS 36 Impairment of Assets. factors, including expectations of future events The Group carry’s out an annual review in that are believed to be reasonable under the respect of indicators of impairment, and if any circumstances. Changes in accounting estimates such indication exists, the Group is required to may be necessary if there are changes in the estimate the recoverable amount of the asset. circumstances or experiences on which the estimate Following this assessment, no impairment was based or as a result of new information. indicators were present at 31 December 2021. Further details are disclosed in note 16 intangibles. 4. Revenue Operating Segments • With respect to the impairment considerations of an intangible asset, significant estimates are considered within the value in use calculation. The Group currently operates under one reporting segment, but revenue is analysed under three separate revenue streams. The most significant estimate would be Revenue represents the amounts derived from the the revenue growth rate. Refer to note 16 – provision of services which fall within the Group’s Intangible assets for details of the impairment ordinary activities, stated net of value added tax. review and sensitivity analysis. • Application of IFRS 16 requires the Group to make significant estimates in assessing the rate used to discount the lease payments in order to calculate the lease liability. The incremental borrowing rate depends on the term, currency and start date of the lease and is determined Revenue is principally generated from DXRX platform data revenue, DXRX technology enabled services revenue and professional services revenue. Revenue is disaggregated by primary geographic market and by principal activities and products. Geography is primary basis on which management reviews the business. based on a series of inputs including the Group The following tables present revenue of the Group commercial borrowing rate. for the years ended 31 December 2021 and 2020 Revenue by Major Product/Service Line Platform — Data Platform — TES Professional Services 2021 £000’s 7,411 887 5,645 13,943 Revenue by timing of Recognition Point in Time Revenue Recognition 6,994 Over Time and Input Method Revenue Recognition 6,949 13,943 2020 £000’s – – 12,696 12,696 – 12,696 12,696 102 103 Diaceutics Annual Report 2021Group Financial StatementsGeographical Area North America UK Europe Asia and Rest of World 2021 £000’s 8,457 555 3,623 1,308 2020 £000’s 6,035 543 4,243 1,875 13,943 12,696 In 2021 three customers each had sales which exceeded 10% of total revenue with the largest customer accounting for £2,647,000 (19%) the second accounting for £1,768,000 (13%) of revenue and the third accounting for £1,439,000 (10%) of revenue. 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. 5. Operating Profit/(Loss) Employee Benefit Costs Wages and Salaries Social Security Costs Pension Costs Benefits Share Based Payments and Related Costs Capitalised Development Costs 2021 £000’s 9,258 1,167 362 136 372 (2,645) 8,650 Amortisation of Intangible Fixed Assets 1,665 Depreciation of Tangible Fixed Assets Right of Use Depreciation Subcontractor Costs Travel Costs Legal and Professional Gain on Foreign Exchanges Other Expenses 85 49 318 80 1,190 (42) 1,593 4,938 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 Total Cost of Sales and Administrative Expenses 13,588 13,248 (Excluding exceptional items which are disclosed in note 11) 104 6. Auditors’ Remuneration Included within Administrative Expenses (Legal and Professional) Audit of Parent and Subsidiary Financial Information Other Assurance Related and Other Services Included within Exceptional Items Fees Relating to Other Services 2021 £000’s 2020 £000’s 136 19 – 155 92 11 65 168 7. Staff Numbers The average monthly number of employees during the year was as follows: 2021 2020 Administration Technical Business Development Finance 8. Directors’ Emoluments Directors Aggregate Emoluments Pension Contributions 30 80 13 10 133 2021 £000’s 825 41 866 30 81 9 8 128 2020 £000’s 802 40 842 Pension contributions were made for three Directors during the period. 105 Diaceutics Annual Report 2021Group Financial Statements2021 £000’s 2020 £000’s Set out below are summaries of options granted under the plans: ESOP: Highest Paid Director Aggregate Emoluments Pension Contributions The highest paid director did not exercise any share options. Key Senior Management Aggregate Emoluments Pension Contributions Share Based Payments and Related cCosts 252 24 276 2021 £000’s 1,241 85 173 1,499 248 25 273 2020 £000’s 1,207 84 102 1,393 9. Share Based Payments The Company currently has an Employee share These same conditions apply to the LTIP options Option Plans (‘ESOP’) for employees, a Long-Term issued in 2020. The 2021 LTIP options are Incentive Plan (‘LTIP’) for key management and a underpinned by a Total Shareholder Return (TSR) Share Incentive Plan (‘SIP’) open to all employees target, with the percentage of shares vesting (apart from those in China). increasing from nil at a TSR of less than £1.1885 The ESOP and LTIP plans are designed to provide long term incentives for senior management and above, and certain employees (including executive directors) to deliver long-term shareholder returns and promote staff retention. The SIP plan is designed to encourage employee participation in the ownership of the Company and as a means to promote staff retention. Under these schemes, employees are granted options which only vest if certain performance standards are met. For the ESOP options, that are outstanding as at 31 December 2021, the only performance obligations attached are continued employment to date of vesting, with no more than two unsatisfactory performance reviews. rising to 100% at a TSR of £1.9105. TSR is measured by the aggregate of dividends declared and paid, and average share price over the applicable period. SIP options are issued to employees on a 2-for-1 matching basis for the first year of the plan with the only performance obligation attached being continued employment to date of vesting. The total expense recognised in the year in relation to share based payment charges and related costs is £428,000 (£372,000 share based payments and £56,000 social security) (2020: £290,000 (£254,000 share based payments and £36,000 social security)). 2021 2020 Weighted Average Exercise Price per Weighted Average Exercise Price per Share Option Number of Options Share Option Number of Options £0.002 £0.002 £0.002 £0.002 £0.002 355,664 155,400 8,447 82,617 420,000 £0.002 £0.002 – £0.002 £0.002 151,240 231,000 – 26,576 355,664 2021 2020 Weighted Average Exercise Price per Weighted Average Exercise Price per Share Option Number of Options Share Option Number of Options £1.265 £0.002 – £0.735 £0.741 1,251,674 – – 891,969 £1.265 1,430,244 – 393,524 1,750,119 – £1.265 £1.265 – 178,570 1,251,674 As at 1 January Granted during the Year Exercised during the Year Forfeited during the Year As at 31 December LTIP: As at 1 January Granted during the Year Exercised during the Year Forfeited during the Year As at 31 December SIP: 2021 2020 Weighted Average Exercise Price per Weighted Average Exercise Price per Share Option Number of Options Share Option Number of Options As at 1 January Granted during the Year Exercised during the Year Forfeited during the Year As at 31 December – £0.002 £0.002 £0.002 £0.002 – 115,392 – 10,120 105,272 – – – – – – – – – – 106 107 Diaceutics Annual Report 2021Group Financial StatementsESOP: Grant Date June 2019 June 2020 June 2021 LTIP: Grant Date April 2020 April 2021 LTIP: Grant Date May 2021 June 2021 July 2021 August 2021 Share options outstanding at the year-end have the following expiry dates and exercise prices The weighted average remaining contractual life of options outstanding at the end of the year was 1.73 years (2020: 2.24 years). Share Options at Share Options at The weighted average fair value at grant date of options granted during the year-ended 31 December 2021 was £0.776 per Expiry Date Exercise Price 31 December 2021 31 December 2020 June 2022 June 2023 June 2024 £0.002 £0.002 £0.002 117,600 163,800 138,600 151,240 204,424 – option. The fair value at grant date is independently determined using an adjusted Black-Scholes model for ESOP and SIP options and a Monte-Carlo model for LTIP options. These models take into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and the expected price volatility of the underlying share, and the risk-free interest rate for the term of the options. No options expired during the year. Fair Value of Options Granted ESOP 2021 2020 LTIP 2021 SIP 2020 2021 2020 Share Options at Share Options at Exercise Price £0.002 £0.002 £0.002 £1.265 £0.002 Expiry Date Exercise Price 31 December 2021 31 December 2020 April 2023 April 2024 £1.265 £0.002 1,023,433 1,251,674 726,686 – Expiry Date Exercise Price 31 December 2021 31 December 2020 Share Options at Share Options at May 2024 June 2024 July 2024 £0.002 £0.002 £0.002 August 2024 £0.002 September 2021 September 2024 £0.002 October 2021 November 2021 December 2021 October 2024 £0.002 November 2024 £0.002 December 2024 £0.002 6,848 9,148 14,808 14,554 14,518 14,488 15,172 15,736 – – – – – – – – – – – – – – – Grant Date Expiry Date June June April April May–Dec June 2024 June 2023 April 2024 April 2023 May–Dec Share Price at Grant Date Volatility Risk-free Rate Fair Value £1.26 97% 0.51% £1.26 £1.52 58% 0.53% £1.49 £1.03 70% 0.41% £0.65 2024 £1.265 £1.26* 58% 97%* 0.53% 0.81%* £1.25 £1.11* *Average share-price, volatility, risk-free rate and fair value for options issued monthly during 2021. The expected price volatility is based on the historical volatility and companies within similar industries. 10. Other Operating Income Government Grants Research and Developments Credits 2021 £000’s 2020 £000’s 26 169 195 35 247 282 108 109 Diaceutics Annual Report 2021Group Financial Statements11. Exceptional Items Restructuring 2021 £000’s – – 2020 £000’s 388 388 In December 2020, the Group carried out a restructure with the aim of reducing operating 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 was utilised by 31 March 2021. The exceptional costs related to redundancy costs and professional fees which were wholly and exclusively attributable to the restructure event. 12. Finance Income Bank Interest Received and Receivable 13. Finance Costs Revolving Credit Facilities Interest on Convertible Loan Notes Lease Interest 2021 £000’s – – 2020 £000’s 27 27 2021 £000’s 2020 £000’s 56 12 20 88 41 10 – 51 14. Income Tax Credit (a) Tax on Profit/(Loss) 2021 £000’s Current Income Tax UK Corporation Tax on Profit/(Loss) for the Year (530) Adjustments in Respect of Previous Years Foreign Tax ROI Corporation Tax on Profits for the Year US Corporation Tax on Profits for the Year Adjustments in Respect of Previous Years Total Current Tax Deferred Tax (5) (535) 47 78 (42) 83 (452) Origination and Reversal of Temporary Differences 342 Adjustments in Respect of Previous Years Impact of Change in Tax Rates Total Deferred Tax Total Tax Credit (10) 21 353 (99) 2020 £000’s (1,427) (348) (1,775) 330 467 (88) 709 (1,066) 85 66 (30) 121 (945) 110 111 Diaceutics Annual Report 2021Group Financial Statements(b) Factors Affecting the Tax Credit for the Year (c) Deferred Tax The tax assessed for the year differs from the effective standard rate of corporation tax in the UK The deferred tax included in the balance sheet is as follows: of 19.00% (2020: 19.00%). The differences are reconciled below: Profit/(Loss) Before Tax Tax using the UK Corporation Tax Rate of 19.00% (2020: 19.00%) 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 Research and Development Rate Difference Deferred Tax not Recognised Adjustments in Respect of Previous Years Total Tax Credit 2021 £000’s 462 2020 £000’s (682) 88 (130) (22) 92 9 1 21 (453) 152 70 (57) (99) (18) 46 47 12 (30) (614) – 112 (370) (945) Non-deductible expenses are made up of various non-deductible expenses including legal and professional fees, convertible loan note interest expense and depreciation on non-qualifying asset. Deferred Tax Balance Tax Losses Carried Forward Other Temporary Differences Property, Plant and Equipment Transitional Adjustment Share Based Payment Research and Development 2021 £000’s 1,722 26 (1,839) 1 26 (380) (444) 2020 £000’s 1,270 (597) – – – (738) (65) The amount of the deferred tax balance expected to be used within one year is £236,000 (2020: £232,000). The deferred tax balance consists of a deferred tax asset amounting to £1,000 (2020: £301,000) and a deferred tax liability of £445,000 (2020: £366,000), netting to a liability of £444,000 (2020: a liability of £65,000). 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. Tax losses carried forward amount to £6,888,000 (2020: £6,684,000) 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 £288,000 (2020: £186,000) has not been recognised. Deferred tax assets and liabilities have otherwise been recognised as they arise. 15. Earnings per Share Basic earnings per share are calculated based on the profit/(loss) for the financial year attributable to equity holders divided by the weighted average number of shares in issue during the year. The weighted average number of shares for all periods presented has been adjusted for 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. Adjusted earnings per share are calculated based on the profit/(loss) for the financial year adjusted for exceptional items as disclosed in Note 11. Diluted earnings per share is calculated on the basic earnings per share adjusted to allow for the issue of ordinary shares on the assumed conversion of the convertible loan notes and employee share options. In the current year there are no exceptional items and therefore there is no adjustment required to basic earnings per share or to diluted earnings per share. 112 113 Diaceutics Annual Report 2021Group Financial StatementsProfit Attributable to Shareholders 16. Intangible Assets Profit for the Financial Year Exceptional Costs Tax Impact of Exceptional Costs Adjusted Profit for the Financial Year 2021 £000’s 561 – – 561 2020 £000’s 263 388 (74) 577 Weighted Average Number of Shares to Shareholders 2021 Number 2020 Number Shares in Issue at the End of the Year 84,068,923 84,068,923 Weighted Average Number of Shares in Issue 84,068,923 77,532,897 Less Treasury Shares (133,000) – Weighted Average Number of Shares for 83,935,923 77,532,897 Basic and Adjusted Earnings per Share Effect of Dilution of Convertible Loan Notes 754 Effect of Dilution of Share Options 1,005,478 754 297,146 Weighted Average Number of Shares 84,942,155 77,830,797 for Diluted Earnings per Share Earnings per Share Basic Diluted Adjusted Diluted Adjusted 2021 Pence 0.67 0.66 0.67 0.66 2020 Pence 0.34 0.34 0.74 0.74 Patents and Development Trademarks Datasets Expenditure* Platform Software £000’s £000’s £000’s £000’s £000’s Total £000’s Cost At 1 January 2020 1,054 1,286 2,461 – 210 5,011 Transfer from Development – Expenditure to Platform Foreign Exchange Translation Additions 42 94 At 31 December 2020 1,190 Foreign Exchange Translation (55) Transfer from Development Expenditure to Platform Additions – 9 – 7 1,462 2,755 (3) – (6,577) 6,577 (20) 4,558 422 (4) – – 6,577 (44) (3,187) 3,187 2,097 2,985 7 At 31 December 2021 1,144 4,849 216 9,727 Amortisation At 1 January 2020 Foreign Exchange Translation Transfer from Development Expenditure to Datasets Charge for the Year At 31 December 2020 Foreign Exchange Charge for the Year 976 43 – 57 1,076 (55) 64 193 (1) 78 605 875 (1) 818 At 31 December 2021 1,085 1,692 78 – (78) – – – – – – – – 40 40 – 681 721 – – 275 485 – – 77 562 3 – – 74 77 – 102 179 – 29 6,389 11,429 (106) – 5,175 16,498 1,250 42 – 776 2,068 (56) 1,665 3,677 Net Book Value At 31 December 2021 At 31 December 2020 59 114 3,157 1,851 216 422 9,006 6,537 383 408 12,821 9,361 *Development expenditure relates to an asset under construction and as such no amortisation has been charged. 114 115 Diaceutics Annual Report 2021Group Financial Statements17. Property, Plant and Equipment Leasehold Improvements Office Equipment Total £000’s £000’s £000’s Cost At 1 January 2020 Foreign Exchange Translation Additions At 31 December 2020 Reclassification Additions At 31 December 2021 Accumulated Depreciation At 1 January 2020 Charge for the Year At 31 December 2020 Charge for the Year At 31 December 2021 Net Book Value At 31 December 2021 At 31 December 2020 – – – – 59 419 478 – – – 16 16 462 – 257 1 137 395 (59) 146 482 124 33 157 69 226 256 238 257 1 137 395 – 565 960 124 33 157 85 242 718 238 16. Intangible Assets (continued) Intangible assets relate to patents, trademarks, software, DXRX platform and datasets which are recorded at cost and amortised over their useful The key assumptions used in the impairment review are as follows, and were determined with consideration to past performance and management’s expectations of future development: economic life which has been assessed as four to • The rate of forecast revenue growth which is on ten years. average 25%; On 1 December 2020 the Group’s platform – DXRX • Average gross margin assumption of c74%; was commissioned and brought into use. On this date £6,577,000 was transferred out of development • Long term growth rate of 2%; expenditure and into platform. In 2021 an additional • An applied pre-tax discount rate of 9%; £3,187,000 was transferred to platform intangible • No operational cost reduction; and asset. The Group assesses the useful life of all assets on an annual basis. The Group has determined that the useful life of data and 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 • Average annual capital expenditure is unchanged. Management has determined the values assigned to each of the above key assumptions as follows: Assumption Approach to Determining Values Revenue Growth Average annual growth rate over the five-year forecast period; based on pre- Covid performance and management’s expectations of market development. and other external factors. If the useful life were Gross Margin Based on past performance and reduced by 2 years, the carrying amount of the asset management’s expectation for the future. at 31 December 2021 would reduce by £166,000 to £8,840,000. If the useful life of the asset were increased by 2 years, the carrying amount of the asset at 31 December 2021 would increase by £120,000 to £9,126,000. On reviewing the useful life of the data sets it was determined that based on latest information on Long-term Growth Rate This is the weighted average growth rate used to extrapolate cash flows beyond the budget period. The rates are consistent with forecasts included in industry reports. Pre-tax Discount Rate Reflects specific risks relating to the Group and the countries in which we operate. commercial and technical use, four years represented Operational Cost For the purpose of this review, a reduction in the best estimate of the useful life of such assets as this reflects the period over which this data can provide meaningful insights to support client projects. However, the actual asset useful life may be shorter or longer than four years depending on technical innovations and other external factors. If the useful life were three years, the carrying amount of the asset at 31 December 2021 would reduce by £106,000 to £3,051,000. If the useful life of the asset were five years, the carrying amount of the asset at administrative expenses was not considered. Average Capital Expenditure For the purpose of this review, a reduction in capital expenditure was not considered. Our modelling shows that forecast revenue can fall short by approximately 6.5% in each year before an impairment would be required. Should forecast revenue drop by 7% in each year an impairment of £7m would be required. 31 December 2021 would increase by £64,000 to In a separate scenario, our modelling shows that £3,221,000. These are all definite life intangible assets. There were no impairment indicators identified at 31 December 2021 and therefore no impairment. The combined recoverable value of intangible assets is determined based on a value-in-use calculation which incorporates cash flow projections based on forecast gross margins can drop by approximately 17% before an impairment would be required. Should forecast gross margins reduce by 20% an impairment of £15m would be required. The directors believe that the carrying value of their remaining investments are supported by their underlying net assets. financial budgets approved by management covering Amortisation in respect of Patents and trademarks a five-year period. Cash flows beyond the five-year and Software is expensed to the Profit and Loss period are extrapolated using an estimated long-term Account as Administrative expenses. Platform and growth rate. 116 Datasets amortisation is included within Cost of sales. 117 Diaceutics Annual Report 2021Group Financial Statements18. Right of Use Assets Cost Additions At 31 December 2021 Accumulated Depreciation Charge for the Year At 31 December 2021 Carrying Amount At 31 December 2021 Buildings £000’s 1,460 1,460 49 49 1,411 During the year, the group entered into a new lease for its property at Dataworks, Kings Hall Life Sciences Park, Belfast, BT9 6GW for a term of 10 years. The average lease term is 10 years. This resulted in additions to right-of-use assets of £1,460K in 2021. The Group’s obligations are secured by the lessors’ title to the leased assets for such leases. The maturity analysis of lease liabilities is presented in note 22. Amounts Recognised in Profit and Loss Depreciation Expense on Right-of-use Assets Interest Expense on Lease Liabilities 2021 £000’s 49 20 2020 £000’s – – 19. Investments Group Undertakings The following were subsidiaries of the Company at 31 December 2021: Country of Incorporation Percentage of Shares Held Diaceutics Ireland Limited Republic of Ireland 100% Labceutics Limited Diaceutics Inc Diaceutics Pte Ltd Northern Ireland USA Singapore Diaceutics Precision Medicine Technology China (Guangzhou) Limited* 100% 100% 100% 100% The principal business of all the subsidiary undertakings is data and implementation services. All entities were incorporated before 1 January 2021. *The holding in Diaceutics Precision Medicine Technology (Guangzhou) Limited is held indirectly through Diaceutics Pte Ltd. 20. Trade and Other Receivables Trade Receivables Contract Assets Other Receivables Prepayments Derivative Financial Instruments (Note 24) 2021 £000’s 5,999 1,003 146 430 37 7,615 2020 £000’s 4,078 1,265 177 587 – 6,107 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 (2020: £20,000). The default percentage used in the expected credit loss calculation was 0.002% (2020: 0.16%) for debt up to 30 days old; 0.002% (2020:0.20%) for debt between 31 and 60 days old; 0.004% (2020:0.31%) for debt between 61 and 90 days old; 0.01% (2020:0.84%) for debt between 91 and 180 days old and 5.71% (2020: 8.09%) for debt over 180 days old. Bad debts amounting to £Nil (2020: £Nil) were realised. 118 119 Diaceutics Annual Report 2021Group Financial Statements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. Most of our customers are large-Pharma, we do not foresee any credit difficulties within our customer base and the markets they operate in are recovering well from the impact of the COVID pandemic. The age profile of the trade receivables and contract assets are as follows: 2021 2020 Total £000’s 7,002 5,343 0–30 days 31–60 days 61–90 days £000’s 3,623 3,116 £000’s 2,278 1,500 £000’s 709 449 >90 days £000’s 392 278 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 following table shows the movement in contract assets: 2021 £000’s Contract Assets Recognised at Start of the Year 1,265 Revenue Recognised in Prior Year that was Invoiced in the Current Year (1,265) Amounts Recognised in Revenue in the Current 1,003 Year that will be Invoiced in Future Years Balance at the End of the Year 1,003 2020 £000’s 796 (796) 1,265 1,265 The carrying amount of trade and other receivables are denominated in the following currencies: UK Sterling Euro US Dollar Canadian Dollars Singapore Dollars 2021 £000’s 402 562 6,622 12 17 2020 £000’s 770 625 4,708 – 4 7,615 6,107 The maximum exposure to credit risk is the carrying value of each class of receivables. The Group does not hold any collateral as security. 21. Trade and Other Payables Creditors: Falling Due within One Year Trade Payables Accruals Other Tax and Social Security Contract Liabilities 2021 £000’s 513 1,310 327 208 2,358 2020 £000’s 466 1,259 318 303 2,346 Contract liabilities of £208,000 (2020: £303,000) 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: 2021 £000’s Contract Liabilities Recognised at Start of the Year 303 Amounts Invoiced in Prior Year Recognised (303) as Revenue in the Current Year Amounts Invoiced in the Current Year which will be 208 Recognised as Revenue in the Later Years Balance at the End of the Year 208 2020 £000’s 387 (387) 303 303 The Group and Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24. 120 121 Diaceutics Annual Report 2021Group Financial Statements22. Leasehold Liability The following table shows the changes in liabilities arising from financing activities: Maturity Analysis: Year 1 Year 2–5 +5 Year Analysed as: Non-current Current 23. Financial Liabilities Creditors: Falling Due within One Year Convertible Loan Notes Interest Bearing Loans and Borrowings Convertible Loan Notes (b) 2021 Discounted £000’s 2021 Undiscounted £000’s 146 436 849 1,431 1,285 146 1,431 146 585 1,040 1,771 1,625 146 1,771 2021 £000’s 2020 £000’s 130 130 130 130 118 118 118 118 Balance at 1 January Interest on Convertible Loan Notes Balance at 31 December 2021 £000’s 118 12 130 2020 £000’s 108 10 118 The interest on convertible loan notes and foreign exchange losses are non-cash items, all other items are cash related movements. The following table shows the net (debt)funds: Convertible Leasehold Loan Notes £000’s Liability £000’s Net Debt as at 1 January 2020 (108) Cashflows Other Changes – (10) Net Debt as at 31 December 2020 (118) Cashflows – – – – – Other Changes (12) Net Funds as at 31 December 2021 (130) (1,431) (1,431) Subtotal £000’s (108) – (10) (118) – (1,443) (1,561) Cash £000’s 11,720 13,475 60 25,255 (5,438) (142) 19,675 Total £000’s 11,612 13,475 50 25,137 (5,438) (1,585) 18,114 (a) Revolving Credit Facility In July 2020 the Group entered into a revolving credit facility with Silicon Valley Bank who provided a credit facility for £4,000,000. This facility is available to be drawn in US dollars, Sterling or Euro and was unused at 31 December 2021. The Maturity Date of the facility is 16 July 2023. The fair value of the Group’s loans and borrowings is £130,000 (2020: £118,000). The fair value of current borrowings equals their carrying amounts as the impact of discounting is not significant. (b) Convertible Loan Notes £100,000 of the Loan Notes issued on 15 February 2019 remain in place (10% interest rate payable annually from 1 April 2019). These loan notes can be converted into Ordinary Shares in the Company on or after 31 March 2022. In line with IFRS 9, Financial Instruments, the total finance cost of the convertible loan notes was spread over the maturity period using an effective interest rate. Consequently, an interest charge of £12,000 (2020: £10,000) has been recognised in the profit and loss account using an effective rate of 10%. 122 123 Diaceutics Annual Report 2021Group Financial StatementsLiquidity Risk Liquidity risk arises from the Group’s management Cash flow projections are used to plan for those of working capital and is the risk that the Group will encounter difficulty in meeting its financial occasion when funds will need to be translated into different currencies so that exchange rate risk is obligations as they fall due. minimised. Group policy is that funding is reviewed in line with If the exchange rate between sterling and the operational cash flow requirements and investment US dollar had been 10% higher/lower at the strategy. Repayment terms and conditions are reporting date, the effect on profit would have approved by the Board in advance of acceptance been approximately (£15,000)/£18,000 respectively of any facility. At each board meeting, and at (2020:(£35,000)/4,000). If the exchange rate between the reporting date, the cash flow projections are sterling and euro had been 10% higher/lower at the considered by the Board to confirm that the Group reporting date the effect on profit would have been has sufficient funds and available funding facilities approximately (£26,000)/£32,000 respectively (2020: to meet its obligations as they fall due. The Group had a revolving credit facility for up to £4,000,000. Foreign Currency Risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group seeks to transact the majority of its business in its reporting currency (Sterling). (£27,000)/£15,000). If the exchange rate between sterling and the US dollar had been 10% higher/lower at the reporting date, the effect on equity would have been approximately (£235,000)/£288,000 respectively (2020:(£268,000)/£327,000). If the exchange rate between sterling and euro had been 10% higher/lower at the reporting date the effect on equity would have been approximately (£423,000)/£512,000 respectively (2020: (£434,000)/£531,000). Interest Rate Risk However, many customers and suppliers are outside Cash flow interest risk arises from the Group’s the UK and a proportion of these transact with the external loans and revolving credit facilities, which company in US dollars and euro. For this reason, the carry interest based on underlying base rates in Group operates current bank accounts in US dollars the UK, US and the EU. The revolving credit facility and euro as well as in its reporting currency and remains unused at 31 December 2021. has a revolving credit facility available which can be drawn in US dollars, pounds sterling or euro. To the maximum extent possible receipts and payments in a particular currency are made through the bank account in that currency to reduce the amount of funds translated to or from the reporting currency. 24. Financial Instruments Classification of Financial Instruments The principal financial instruments used by the Group from which financial instrument risk arises are trade and other receivables (excluding contract assets which are not yet invoiced), cash and cash equivalents and trade and other payables, loans, the revolving credit facility and convertible loan notes. The impact of the discounting of financial instruments is not material. The Group’s financial instruments are classified as follows: Assets Measured at Amortised Cost Trade Receivables Other Receivables Cash at Bank and in Hand Measured at Fair Value 2021 £000’s 5,999 146 19,675 2020 £000’s 4,078 177 25,255 Derivative Financial Instrument 37 – Liabilities Trade Payables Accruals Convertible Loan Notes Leasehold Liability 2021 £000’s 513 1,310 130 1,431 2020 £000’s 466 1,259 118 – Convertible Loan Notes Credit Risk £100,000 of the Loan Notes issued on 15 February Credit risk is the risk that the counterparty fails to 2019 remain in place (10% interest rate payable discharge their obligation in respect of the instrument. annually from 1 April 2019). These loan notes can be The Group trades only with recognised, creditworthy converted into Ordinary Shares in the Company on or third parties. Receivable balances are monitored on after 22st March 2022 Derivative Financial Instruments — Forward Contracts and Options The group has entered into a number of foreign currency derivative contracts during the year. The nominal value of the Group’s forward contracts is £3,735,525 (2020: £nil) principally to sell US Dollars. an on-going basis with the result that exposure to bad debts is normally not significant. As the Group trades only with recognised third parties there is no requirement for collateral. Other financial assets comprise of cash and cash equivalents which are therefore subject to minimal credit risk. The Group operates bank accounts domiciled in the UK, Ireland, Denmark, Turkey, USA, China and Singapore. 124 125 Diaceutics Annual Report 2021Group Financial Statements25. Equity Share Capital Allotted, Called Up and Fully Paid 84,068,923 (2020: 84,068,923) Ordinary shares of £0.002 each 2021 £000’s 168 168 2020 £000’s 168 168 Treasury Shares Treasury shares are shares in Diaceutics Plc that are held by the Diaceutics Employee Share Trust for the purpose of issuing shares under the Diaceutics Plc SIP scheme (see note 9 for further information). Shares issued to employees are recognised on a first in, first out basis. There were no treasury shares in place at 31 December 2020. Acquisition of Shares by the Trust Balance 31 December 2021 Number of Shares £000’s 133,000 133,000 165 165 All Ordinary Shares rank pari passu in all respects including voting rights and the right to receive all dividends and other distributions, if any, declared or made or paid in respect of Ordinary Shares. Reserves Share premium account: This reserve records the amount above the nominal value received for shares sold, less transaction costs. Capital redemption reserve: This reserve records the nominal value of shares repurchased by the Company. 26. Commitments and Contingencies 29. Capital Risk Management There are no material capital commitments, financial commitments or contingent liabilities at the balance sheet date not provided for in these financial statements. 27. Related Parties The remuneration of key management and personnel and details of directors’ emoluments are shown in note 8. The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to During the year the Group entered into a 10-year reduce debt. lease for its new Belfast offices at a commercial business rate. The lessor is O’Connor & McCann Ltd, a private limited company in which Peter Keeling The group monitors capital on the basis of the gearing ratio. is a director and Ryan Keeling is a shareholder. A Net funds is calculated as total borrowings (current £49,000 lease payment was made in the year (2020: and non-current) as shown in the group balance £nil). The balance owed to O’Connor & McCann Ltd sheet less cash and cash equivalents. Gearing ratio is at 31 December 2021 is £24,500 (2020: £nil) calculated as total borrowings divided by total equity. 28. Ultimate Controlling Party The gearing ratios at 31 December were as follows: The Company is controlled by its shareholders. There is no one party which is the ultimate controlling party of the Group and Company. Total Borrowings Note 2021 £000’s 23 1,561 2020 £000’s 118 Less: Cash and Cash Equivalents (19,675) (25,255) Net Funds Total Equity Gearing Ratio (18,114) 40,649 3.8% (25,137) 40,238 0.3% 126 127 Diaceutics Annual Report 2021Group Financial StatementsCompany Financial Statements Company Statement of Financial Position as at 31 December 2021 Company Statement of Changes in Equity for the year-ended 31 December 2021 Called Share Profit Up Share Premium Treasury and Loss Total Capital £000’s Account £000’s Shares £000’s Account £000’s Equity £000’s At 1 January 2020 139 17,335 Loss for the Year Total Comprehensive Expense for the Year Transactions with Owners, Recorded Directly in Equity Exercise of Warrant Share Based Payments Issue of Shares on Placing Total Transactions with Owners – – 1 – 28 29 – – 264 – 19,265 19,529 At 31 December 2020 168 36,864 At 1 January 2021 168 36,864 Profit for the Year Total Comprehensive income for the Year Transactional with Owners, Recorded Directly in Equity Share Based Payments Treasury Shares Total Transactions with Owners – – – – – – – – – – – – – – – – – – – – – – 6 17,480 (3,315) (3,315) (3,315) (3,315) – 290 – 290 265 290 19,293 19,848 (3,019) 34,013 (3,019) 34,013 580 580 580 580 342 (165) – (165) 177 342 (165) 177 At 31 December 2021 168 36,864 (165) (2,097) 34,770 Assets Fixed Assets Intangible Assets Right of Use Asset Property, Plant and Equipment Deferred Tax Asset Investments Current Assets Cash at Bank and in Hand Trade and Other Receivables Income Tax Receivable Total Assets Equity and Liabilities Equity Share Capital Note 2021 £000’s 6 8 7 9 8,902 1,411 704 – 10 226 2020 £000’s 6,229 – 217 296 125 11,243 6,867 11 12 18,085 7,128 2,256 27,469 38,712 168 22,764 4,670 2,215 29,649 36,516 168 36,864 – (3,019) Share Premium Account 17 36,864 Treasury Shares (165) Profit and Loss Account — Including Profit for 17 (2,097) the Year of £580,000 (2020: Loss of £3,315,000) Total Equity 34,770 34,013 Non-current Liabilities Leasehold Liability Deferred Tax Liability Current Liabilities Trade and Other Payables Leasehold Liability Financial Liabilities Total Liabilities 14 9 13 14 15 1,285 87 1,372 2,294 146 130 2,570 3,942 – – – 2,385 – 118 2,503 2,503 Total Equity and Liabilities 38,712 36,516 The financial statements were approved and authorised for issue by the board and were signed on its behalf on 22 March 2022. The notes on pages 132–146 form an integral part of these financial statements. Mr Nick Roberts Director 22 March 2022 130 131 Diaceutics Annual Report 2021Company Financial StatementsNotes to the Company Financial Statements for the year-ended 31 December 2021 1. General Information Going Concern Diaceutics PLC is incorporated and domiciled in Northern The financial performance and balance sheet position Ireland. These financial statements were prepared at 31 December 2021 along with a range of scenario in accordance with Financial Reporting Standard plans to 31 December 2023 has been considered, 101 Reduced Disclosure Framework (FRS 101). The applying different sensitives to revenue. Across these Company’s financial statements are presented in Sterling. scenarios, including at the lower end of the range, Parent Company Profit and Loss Account The directors’ have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and have not presented an income statement for the company alone. there remains significant headroom in the minimum cash balance over the period to 31 December 2023 and therefore the Directors have satisfied themselves that the Company and Group has adequate funds in place to continue in operational existence for the foreseeable future. The results of Diaceutics PLC are included in the New and Amended Accounting Standards Adopted consolidated financial statements of Diaceutics PLC by the Company which are available from Building Two, Dataworks at King’s Hall Life Sciences Park, Belfast, County Antrim, Northern Ireland, BT9 6GW. Basis of Accounting These financial statements have been prepared on a going concern basis. The financial statements are prepared under the historical cost convention unless otherwise specified within these accounting policies, in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework and in accordance with The Companies Act 2006 as applicable to companies using FRS 101. The accounting policies which follow set out those policies which apply in preparing the financial statements for the year-ended 31 December 2021. The accounting The following new accounting standards, amendments and/or interpretations have been published but not yet endorsed by the UK and are not mandatory for 31 December 2021 reporting year. They have not been early adopted by the Company and these standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions: • IFRS 17 insurance contracts • Classification of liabilities as current or non-current (amendments to IAS 1) • Sale or contribution of assets between an investor and its associate or joint venture (amendments to IFRS 10 and IAS 28) policies have been applied consistently to all the years Reference to the Conceptual Framework (IFRS 3) presented, unless otherwise stated. The Company has taken advantage of the following disclosure exemptions • Proceeds before Intended Use (IAS 16) under FRS 101: • Onerous Contracts (IAS 37) • the requirements of paragraphs 45(b) and 46–52 of • Annual Improvements to IFRS Standards 2018–2020 IFRS 2 Share Based Payments; (IFRS1, IFRS9, IFRS16 and IFRS41) • the requirements of paragraphs 10(d), 10(f), 16, • Amendments to IFRS–4 – extension of the 38(a)–(d), 39(c), 40(a)–(d), 111 and 134–136 of IAS 1 Temporary Exemption from Applying IFRS 9 Presentation of Financial Statements; • Amendments to IAS 1 and IFRS Practice • the requirements of IAS 7 Statement of Cash Flows; Statement–2 – disclosure of accounting policies • the requirements of paragraphs 30 and 31 of IAS 8 • Amendments to IAS –2 – deferred Tax related Accounting Policies, Changes in Accounting Estimates to Assets and Liabilities arising from a Single and Errors; and Transaction • the requirements of paragraph 17 of IAS 24 Related • Amendments to IAS–8 – definition of accounting Party Disclosures; and the requirements in IAS 24 estimates Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member. We are still assessing the implications of the new standards and interpretations however it is not expected to have a material impact on the Company. 2. Accounting Policies Revenue Recognition Revenue comprises the fair value of the consideration received or receivable for the provision of services exchange rate at the date of the transaction. Foreign exchange differences arising on translation are recognised in the profit and loss account. in the ordinary course of the Company’s activities. Investments Revenue is shown net of value-added tax and after eliminating sales within the Company. Investments in subsidiaries are held at historical cost less any provisions for impairment in value. The Company has three revenue streams, DXRX The carrying values of investments are reviewed for platform data revenue, DXRX platform technology impairment when events or changes in circumstances enabled services revenue and Professional services indicate the carrying value may not be recoverable. revenue. The Company’s performance obligations for these revenue streams are deemed to either be the Intangible Assets provision of specific deliverables to the customer or Research and Development a subscription-based service. Revenue billed to the customer is allocated to the various performance obligations, based on the relative fair value of those obligations, and is then recognised when it transfers control of a deliverable to a customer as follows: The platform data revenue and the platform technology enabled services revenue are recognised at a point in time when milestone based or overtime when subscription based. The professional services revenue is recognised over time based on the number of input hours. With all other professional services recognised at a point in time where milestones are specified within client contract, otherwise input hours recognition applies. Government Grants Grants, which include research and development tax credits where the recovery of those credits is not restricted, are recognised at their fair value where Expenditure on research activities is recognised in the profit and loss account as an expense as incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Company intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable and if the Company can measure reliably the expenditure attributable to the intangible asset during its development. Development activities involve design for, construction or testing of the production of new or substantially improved products or processes. The expenditure capitalised includes the cost of materials and direct labour. Other development expenditure is recognised in the profit and loss account as an expense as incurred. Capitalised development expenditure is stated at cost until it is brought into use. there is a reasonable assurance that the grant will Other Intangible Assets be received, and the Company will comply with all attached conditions. Grants relating to costs are deferred and recognised in the profit and loss account over the period necessary to match them Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and less accumulated impairment losses. with the costs that they are intended to compensate. Amortisation Grants relating to development projects are included in non-current liabilities as deferred income and are credited to the profit and loss account on a straight- line basis over the expected useful economic lives of the related assets. Foreign Currencies Amortisation is charged to the profit or loss on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: • Patents and Trademarks — 3 years (33.3% straight Transactions in foreign currencies are translated to line) from date of registration the Company’s functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign • Datasets — 4 years (25% straight line) • Software — 5 years (20% straight line) currencies at the balance sheet date are retranslated • Platform — 10 years (10% straight line) to the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the • Platform Algorithms — 6 years (16.7% straight line) 132 133 Diaceutics Annual Report 2021Company Financial StatementsThe Company reviews the amortisation period and the balance sheet date and are expected to apply (either through Other Comprehensive Income of highly liquid investments with original maturities of method when events and circumstances indicate when the related deferred income tax asset is realised through profit and loss). three months or less and bank overdrafts. that the useful life may have changed since the last or the deferred income tax liability is settled. reporting date. Deferred income tax assets are recognised only Property, Plant & Equipment to the extent that it is probable that future taxable Property, plant & equipment is stated at cost less accumulated depreciation and accumulated impairment losses. profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except The Company assesses at each reporting date where the timing of the reversal of the temporary whether there are indicators of impairment. difference is controlled by the group and it is probable Depreciation is charged to the profit and loss account on a straight-line basis over the estimated useful that the temporary difference will not reverse in the foreseeable future. lives of each part of an item of property, plant & Deferred income tax assets and liabilities are offset equipment. The estimated useful lives are as follows: when there is a legally enforceable right to offset • Office Equipment — 5 years (20% straight line) • Leasehold Improvements — 10 years (10% straight line) current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either, the taxable entity of different Depreciation methods, useful lives and residual values taxable entities where there is an intention to settle are reviewed if there is an indication of a significant the balances on a net basis. change since the last annual reporting date in the pattern by which the Company expects to consume Employee Benefits an asset’s future economic benefits. Taxation The tax expense for the year comprises current and deferred tax. Tax is recognised in the income The Company operates a defined contribution pension scheme which is open to employees and directors. The assets of the scheme are held by investment managers separately from those of the Company. The contributions payable to the scheme statement, except to the extent that it relates to items is recorded in the profit and loss account in the recognised in other comprehensive income or directly accounting period to which they relate. in equity. In this case the tax is also recognised in other comprehensive income or directly in equity Share Based Payments respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising The Company has a number of classes of shares in issue. Where shares are issued to employees that contain restrictions that mean they have obtained those shares by virtue of their employment, those shares are accounted for as share based payments. When the shares are issued a determination is made, based on the rights of those shares, as to whether there is a contractual liability for the Company to reacquire the shares at some point (cash settled) or not (equity settled). For equity settled shares, a fair value of those shares is established at the date the shares are granted and, if the employee is required to complete a period of service before the shares vest, this fair value is spread over that period (vesting between the tax bases of assets and liabilities and period). their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an Financial Assets (a) Classification asset or liability in a transaction other than a business The Company classifies its financial assets in the combination that at the time of the transaction affects following measurement categories: neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws • Those to be measured at amortised costs; and that have been enacted or substantially enacted by • Those to be measured subsequently at fair value The classification depends on the Company’s Equity business model for managing the financial assets and the contractual terms of the cash flows. The Company reclassifies its financial assets when and only when its business model for managing those assets change. b) Recognition and Measurement Ordinary shares are classified as equity. Incremental costs directly attributable for the issue of new shares are shown in equity as a deduction from the proceeds. The share premium reserve represents the excess over the nominal value of the fair value of At initial recognition, the Company measures financial consideration received for equity shares, net of assets at its fair value plus transaction costs that expenses on the share issue. are directly attributable to the acquisition of the financial asset. Subsequent measurement of financial assets depends on the Company’s business model The capital redemption reserve records the nominal value of shares repurchased by the Company. for managing those financial assets and the cash Distributions to Equity Holders flow characteristics of those financial assets. The Company only has financial assets classified at amortised cost. These assets are those held for contractual collection of cash flows, where those cash flows represent solely payments of principal and interest and are held at amortised cost. Any gains or losses arising on derecognition is recognised directly in profit or loss. c) Expected Credit Losses Dividends and other distributions to Company’s 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 recognised in the statement of changes in equity. 3. Judgements in applying accounting policies and key sources of estimation uncertainty The Company assesses on a forward-looking basis, The preparation of the financial statements requires the expected credit losses associated with its debt management to make judgements, estimates and instruments carried at amortised cost. For trade assumptions that affect the amounts reported for receivables the Company applies the simplified assets and liabilities as at the balance sheet date and approach permitted by IFRS9, which requires the amounts reported for income and expenditure expected lifetime losses to be recognised from during the year. However, the nature of estimation the initial recognition of the receivables. For other means that actual outcomes could differ from those receivables the Company applies the three-stage estimates. Such estimates and judgements are based model to determine expected credit losses. on historical experience and other factors, including Financial Liabilities 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. The Company does sometimes make use of derivative financial instruments or hedge accounting for foreign currency transactions. Trade payables represent obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables, and financial liabilities are classified as current liabilities if payment is due within expectations of future events that are believed to be reasonable under the circumstances and are subject to continual re-evaluation. It should be noted that the impact of variation in some assumptions and estimates can have a particularly material impact on the reported results. The key judgements in applying the accounting policies include but are not limited to: • The Company capitalises costs associated with the development of the DXRX platform and data lake. These costs are assessed against IAS 38 Intangible Assets to ensure they meet the criteria for capitalisation. one year. If not, they are presented as non-current • Assessment of the recoverable amount, being the liabilities. Cash and Cash Equivalents Cash and cash equivalents includes cash in hand, deposits held on call with banks, other short term higher of value in use and the fair value less cost to sell, of property plant and equipment, intangible assets and right-of-use assets in accordance with IAS 36 Impairment of Assets. The Company carries out an annual review in respect of indicators of 134 135 Diaceutics Annual Report 2021Company Financial Statementsimpairment, and if any such indication exists, the • With respect to revenue recognition, as described Company is required to estimate the recoverable in note two accounting policies, where the input amount of the asset. Following this assessment, no method is used to determine recognition over impairment indicators were present at 31 December time, a key source of estimation will be the total 2021. Further details are disclosed in note 6 budgeted hours to completion for comparison with intangible assets. the actual hours spent. • Application of IFRS 16 requires the Company to Key sources of estimation uncertainty are as follows: make significant judgements in assessing the rate used to discount the lease payments in order to calculate the lease liability. The incremental borrowing rate depends on the term, currency and start date of the lease and is determined based on a series of inputs including the Company commercial borrowing rate. • The Company’s estimation of the useful economic lives of intangible assets. The assessment of useful life of data purchases and platform require estimation over the period in which these assets will be utilised and is based on information on the estimated technical obsolescence of such assets and latest information on commercial and technical • In assessing the requirement to recognise a use. Further details on the estimation uncertainty deferred tax asset, management carried out a has been disclosed in note 6. forecasting exercise in order to assess whether the Company will have sufficient future profits on which the deferred tax asset can be utilised. This forecast required management’s judgment as to the future performance of the Company. • Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Changes in accounting • In the calculation of Share Based Payments charge estimates may be necessary if there are changes an assessment of expected employee attrition is in the circumstances or experiences on which used based on actual employee turnover from the the estimate was based or as a result of new inception of the share option plan. information. 4. Employee Costs Wages and Salaries Social Security Costs Other Pension Costs 5. Staff Numbers 2021 £000’s 7,162 954 294 8,410 2020 £000’s 4,359 796 242 5,397 The average monthly number of employees during the year was as follows: 2021 2020 29 62 10 10 111 23 49 2 8 82 Administration Technical Business Development Finance 136 6. Intangible Assets Patents and Development Trademarks Datasets Expenditure* Platform Software £000’s £000’s £000’s £000’s £000’s Cost At 1 January 2020 Transfer from Development Expenditure to Platform Additions At 31 December 2020 Transfer from Development Expenditure to Platform Additions 111 – 68 179 – 9 At 31 December 2021 188 Amortisation At 1 January 2020 Transfer from Development Expenditure to Datasets Charge for the Year At 31 December 2020 Charge for the Year 63 – 24 87 42 956 – 967 1,923 – 1,242 3,165 179 78 393 650 533 At 31 December 2021 129 1,183 949 – (4,142) 4,142 3,530 337 – 4,142 210 – 276 486 (2,633) 2,633 – 2,463 7 167 6,782 78 (78) – – – – – – 24 24 437 461 65 551 3 – 74 77 101 178 Total £000’s 2,226 – 4,841 7,067 – 3,786 10,853 323 – 515 838 1,113 1,951 Net Book Value At 31 December 2021 At 31 December 2020 59 92 1,982 1,273 167 337 6,321 4,118 373 409 8,902 6,229 * Development expenditure relates to an asset under construction and as such no amortisation has been charged. 137 Diaceutics Annual Report 2021Company Financial StatementsIntangible assets relate to patents, trademarks, by £101,000 to £6,220,000. If the useful life of the asset software, DXRX platform and datasets which are were increased by 2 years, the carrying amount of the recorded at cost and amortised over their useful asset would increase by £79,000 to £6,400,000. economic life which has been assessed as four to ten years. On 1 December 2020 the DXRX platform was commissioned and brought into use. On this date £4,142,000 was transferred out of development expenditure and into platform. In 2021 an additional £2,633,000 was transferred to platform intangible asset. 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 The Company assesses the useful life of all assets on carrying amount of the asset would reduce by £64,000 an annual basis. On reviewing the useful life of the data to £1,917,000. If the useful life of the asset were 5 years, sets it was determined that based on latest information the carrying amount of the asset would increase by on commercial and technical use, four years represented £38,000 to £2,019,000. the best estimate of the useful life of such assets. Amortisation in respect of Patents and trademarks and The Company has determined that the useful life of data Software is expensed to the Profit and Loss Account and the platform is a significant area of estimation. as Administrative expenses. Platform and Datasets The platform has been assessed to have a useful life amortisation is included within Cost of sales. of 6–10 years based on information on the estimated These are all definite life intangible assets. While these technical obsolescence of such assets. However, the assets are owned by entities across the Group, they actual asset useful life may be shorter or longer than this are operated a single asset. Refer to Group note 16 – period depending on technical innovations and other Intangible assets for details of impairment review and external factors. If the useful life were reduced by two sensitivity analysis. years, the carrying amount of the asset would reduce 7. Property, Plant and Equipment Leasehold Improvements Office Equipment Total £000’s £000’s £000’s Cost At 1 January 2020 Additions At 31 December 2020 Reclassification Additions At 31 December 2021 Accumulated Depreciation At 1 January 2020 Charge for the Year At 31 December 2020 Charge for the Year At 31 December 2021 Net Book Value At 31 December 2021 At 31 December 2020 – – – 59 419 478 – – – 16 16 462 – 213 132 345 (59) 145 431 96 32 128 61 189 242 217 213 132 345 – 564 909 96 32 128 77 205 704 217 138 139 Diaceutics Annual Report 2021Company Financial Statements8. Right of Use Assets 9. Deferred Tax Liability Cost Additions At 31 December 2021 Accumulated Depreciation Charge for the Year At 31 December 2021 Carrying Amount At 31 December 2021 Buildings £000’s 1,460 1,460 49 49 1,411 During the year, the group entered into a new lease for its property at Dataworks, Kings Hall Life Sciences Park, Belfast, BT9 6GW for a term of 10 years The average lease term is 10 years (2020: 0 years) This resulted in additions to right-of-use assets of £1,460K in 2021 (2020: £Nil) The Company’s obligations are secured by the lessors’ title to the leased assets for such leases. The maturity analysis of lease liabilities is presented in note 14. Amounts Recognised in Profit and Loss Depreciation Expense on Right-of-use Assets Interest Expense on Lease Liabilities 2021 £000’s 49 20 2020 £000’s – – Tax losses carried forward amount to £6,687,000 (2020: £6,358,000). Property, Other Plant and Temporary Research & Share Based Tax Losses Equipment Differences Development Payments £000’s £000’s £000’s £000’s £000’s Asset/(Liability) at 1 January 2020 Credited/(Charged) to the Income Statement 518 690 Asset/(Liability) at 31 December 2020 1,208 – – – (171) (76) (247) Credited/(Charged) to the Income Statement 515 (1,838) 249 – (665) (665) 665 Asset/(Liability) at 31 December 2021 1,723 (1,838) 2 – – – – 26 26 Total £000’s 347 (51) 296 (383) (87) 10. Investments At 1 January 2020 Additions At 31 December 2020 Additions At 31 December 2021 Investment in Subsidiaries £000’s 58 67 125 101 226 During the year ended 31 December 2021, the Company made capital contributions amounting to £101,000 to certain subsidiaries in respect of share based payment awards. The following were subsidiaries of the Company at 31 December 2021: Registered Office Country of Incorporation Percentage of Shares Held Diaceutics Ireland Limited Unit 3, Creative Spark, Clongtara Drive, Republic of Ireland 100% Muirhevnamon, Dundalk, County Louth Labceutics Limited 727 Antrim Road, Belfast, BT15 4EJ Northern Ireland Diaceutics Inc 2001 Route 46, Waterview Plaza Suite USA 310, Parsippany, New Jersey, 07054 Diaceutics Pte Limited 6 Temesak Boulevard, #20–00 Suntec Singapore Tower Four, Singapore 100% 100% 100% The principal business of all the subsidiary undertakings is data and implementation services. All entities were incorporated before 1 January 2021. 140 141 Diaceutics Annual Report 2021Company Financial Statements 11. Trade and Other Receivables 12. Income Tax Receivable Trade Receivables Contract Assets 2021 £000’s 743 43 Amounts Owed by Group Undertakings 5,839 Other Debtors Prepayments Derivative Financial Instruments 123 343 37 7,128 2020 £000’s 876 104 3,092 175 423 – 4,670 All amounts are due within one year. Amounts owed to Group undertakings are unsecured, interest free and repayable on demand. The default percentage used in the expected credit loss calculation was 0.002% (2020: 0.16%) for debt up to 30 days old; 0.002% (2020:0.20%) for debt between 31 and 60 days old; 0.004% (2020:0.31%) for debt between 61 and 90 days old; 0.01% (2020:0.84%) for debt between 91 and 180 days old and 5.71% (2020: 8.09%) for debt over 180 days old. The Company applies the practical expedient in IFRS For those balances where there is a higher risk of 9 (which allows the group to measure impairment default the group follows the 3 stage approach within using the 12 month Expected Credit Loss model) in IFRS 9 to determine lifetime expected credit losses. respect of amounts owed by group undertakings, for those balances that meet the following requirements: Other receivables are considered to have low credit risk and the loss allowance recognised during the • it has a low risk of default; year was therefore limited to 12 months expected • the counterparty is considered, in the short term, to credit losses. have a strong capacity to meet its obligations in the The Company’s contracts with customers are typically 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. 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: 2021 £000’s Contract Assets Recognised at Start of the Year 104 Revenue Recognised in Prior Year that (104) was Invoiced in the Current Year Amounts Recognised in Revenue in the Current 43 Year that will be Invoiced in Future Years Balance at the End of the Year 43 2020 £000’s 416 (416) 104 104 Amounts owed by Group undertakings are unsecured, interest free and repayable on demand. Balance at 1 January Credited to the Profit and Loss Account Balance at 31 December 2021 £000’s 2,215 41 2,256 2020 £000’s 293 1,922 2,215 Included in the movement is a credit to the P&L account relates to a credit on losses for the year amounting to £530,000 (2020: £1,792,000) plus credits relating to RDEC amounting to £123,000 (2020: £147,000). 13. Trade and Other Payables Creditors: Amounts Falling Due within One Year Trade Payables Amounts Owed to Group Undertakings Accruals Contract Liabilities Other Tax and Social Security 2021 £000’s 374 515 1,129 35 241 2,294 2020 £000’s 394 947 807 31 206 2,385 Contract liabilities of £35,000 (2020: £31,000) 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: 2021 £000’s Contract Liabilities Recognised at Start of the Year 31 Amounts Invoiced in Prior Year Recognised (31) as Revenue in the Current Year Amounts Invoiced in the Current Year which will 35 be Recognised as Revenue in the Later Years Balance at the End of the Year 35 2020 £000’s 148 (148) 31 31 142 143 Diaceutics Annual Report 2021Company Financial Statements14. Leasehold Liability 17. Equity Share Capital Allotted, Called Up and Fully Paid 84,068,923 (2020: 84,068,923) Ordinary Shares of £0.002 each 2021 £000’s 168 168 2020 £000’s 168 168 In the prior year the Company undertook a Placing of 14,137,931 new ordinary shares to raise, in aggregate £20.5m (before expenses of £0.9m) the Company issued 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. There was no change to the share capital of the Company in the current year. All Ordinary Shares rank pari passu in all respects including voting rights and the right to receive all dividends and other distributions, if any, declared or made or paid in respect of Ordinary Shares. Treasury Shares Refer to Group note 25 for details for details of treasury shares are held by the Diaceutics Employee Share Trust for the purpose of issuing shares under the Diaceutics Plc SIP scheme. Reserves Share premium account: This reserve records the amount above the nominal value received for shares sold, less transaction costs. Dividends During the year dividends amounting to £Nil (2020: £Nil) were paid. No dividends were proposed by the directors after the balance sheet date. 2021 Discounted £000’s 2021 Undiscounted £000’s Maturity Analysis: Year 1 Year 2–5 +5 Year Analysed as: Non-current Current 15. Financial Liabilities Creditors: Falling Due within One Year Convertible Loan Notes 16. Interest Bearing Loans and Borrowings Convertible Loan Notes (b) (a) Revolving Credit Facility 146 436 849 1,431 1,285 146 1,431 2021 £000’s 130 130 2021 £000’s 130 130 146 585 1,040 1,771 1,625 146 1,771 2020 £000’s 118 118 2020 £000’s 118 118 In July 2020 the Company entered into a revolving credit facility with Silicon Valley Bank who provided a credit facility for £4,000,000. This facility is available to be drawn in US dollars, Sterling or Euro and was unused at 31 December 2021. The Maturity Date of the facility is 16 July 2023. (b) Convertible Loan Notes £100,000 of the Loan Notes issued on 15 February 2019 remain in place. Interest is charged at 10% and payable annually. These loan notes can be converted into Ordinary Shares in the Company on or after 22nd March 2022. Under IFRS 9, Financial Instruments, the total finance cost of the convertible loan notes is required to be spread over the maturity period using an effective interest rate. Consequently, an interest charge of £12,000 (2020: £10,000) has been recognised in the profit and loss account using an effective rate of 10%. 144 145 Diaceutics Annual Report 2021Company Financial Statements18. Share Based Payments 19. Commitments and Contingencies Employee Share Option Plan There are no material capital commitments, financial The Company currently has an Employee Share Option Plan (‘ESOP’) for employees. In June 2019, 197,400 options were granted to certain employees to satisfy commitments or contingent liabilities at the balance sheet date not provided for in these financial statements. contractual obligations. These options, which have 20. Related Party Transactions As outlined in note 1 the Company has taken advantage of the exemption in IAS 24 ‘Related Party Disclosures’ from disclosing transactions between two or more members of a group, provided that any subsidiary which is party to the transaction is wholly owned by such a member. During the year the Company entered into a 10-year lease for its new Belfast offices. The lessor is O’Connor & McCann Ltd, a private limited company in which Peter Keeling is a director and Ryan Keeling is a shareholder. A £49,000 rental charge was incurred in the year (2020: £Nil). The balance owed to O’Connor & McCann Ltd at 31 December 2021 is £Nil (2020: £Nil). There were no other transactions which fall to be disclosed under the terms of IAS 24. an exercise price of £0.002, are payable in shares at the end of three years to the extent that performance criteria are met. At the end of June 2020, a further 231,000 options were granted under the share scheme and at the end of June 2021 155,400 further options were granted with an exercise price of £0.002 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. In April 2021 a further 891,969 options were granted with an exercise price of £0.002, the 2021 LTIP options are underpinned by a Total Shareholder Return (TSR) target, with the percentage of shares vesting increasing from nil at a TSR of less than £1.1885 rising to 100% at a TSR of £1.9105. TSR is measured by the aggregate of dividends declared and paid, and average share price over the applicable period. In April 2021 the Company launched a Share Incentive Plan (SIP). SIP options are issued to employees on a 2-for-1 matching basis for the first year of the plan with the only performance obligation attached being continued employment to date of vesting. 115,392 options were granted under the plan in 2021 with an exercise price of £0.002. Granted awards under the Company’s ESOP, LTIP and SIP schemes that were outstanding at 31 December 2021 had a weighted average fair value at grant date of £1.24 per option (2020: £0.72). The fair value of the awards is recognised over the three‐year vesting period from the grant date, with share based payments and related costs of £312,000 being charged through the profit and loss account in the year-ended 31 December 2021 (2020: £221,000). It is intended the obligation arising with the above shares will be met within the existing employee benefit trust. The options with performance conditions attached will only be exercisable provided the employee has received no more than two ‘unsatisfactory’ individual performance ratings in all of their individual performance reviews in the three-year period from the date of grant. The 2021 LTIP options have the further TSR performance condition to meet before being exercisable. 146 Diaceutics Annual Report 20217 0 2 5 5 0 N I : r e b m u N d e r e t s g e R i 

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