Company Announcements

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Yourgene Health plc

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

Half-year Report

Manchester, UK - 2 December 2019: Yourgene Health plc (AIM: YGEN), the international molecular diagnostics group which commercialises genetic products and services, announces its unaudited half year report for the six months ended 30 September 2019, in line with expectations.

The results reflect strong organic growth as well as a first contribution from Elucigene Diagnostics, the trading name of Delta Diagnostics (UK) Ltd ("Elucigene"), acquired in April 2019, with the Group's first profits at an adjusted EBITDA level demonstrating significant progress towards profitability. Yourgene remains on track to hit ambitious growth targets for the full year in line with consensus expectations.

Financial highlights

·    Revenues increased by 97% to £7.8m (H1 2018-19: £3.9m)

-        Organic growth of 56%, excluding contributions from the Elucigene acquisition

·    Gross profit up 141% to £4.7m (H1 2018-19: £2.0m)

·    Adjusted EBITDA* of £0.3m (H1 2018-19: loss of £2.5m)

·    General administrative expenses up 22% to £5.5m (H1 2018-19: £4.5m) including Elucigene expenses

·    Operating loss reduced by 50% to £1.3m (H1 2018-19: £2.5m)

-        Loss was £0.7m before one-off acquisition and fundraising costs

·    Oversubscribed £11.8m gross fundraise, of which £6.3m was used for acquisition cash consideration

·    Cash used by operations halved to £1.6m (H1 2018-19: £3.2m)

·    Cash and cash equivalents at 30 September 2019 of £4.1m (30 September 2018: £0.2m)

·    Net cash (cash less borrowings) significantly improved to £3.6m (H1 2018-19: net debt of £12.8m)

* Adjusted EBITDA is the operating profit/(loss) before interest, tax, depreciation, amortisation and acquisition-related expenses shown separately disclosed on the face of the Income Statement

Operational highlights

·    Acquisition of Elucigene and associated £11.8m (gross) equity fundraise in April 2019

·    Launch of first oncology product, the Elucigene DPYD assay, a new chemotoxicity diagnostic assay

·    First US revenues and opening of Yourgene Health Inc in the US

·    Development of the Illumina-based IONA® test progressing well and on schedule

·    European quality accreditation transferred to BSI Netherlands to offset Brexit risks and prepare for the roll-out of Illumina-based NIPT test in 2020

·    Non-Executive Appointments Dr John Brown, CBE and Jonathan Seaton

·    Post-period end launch of Yourgene Flex™ Analysis Software to support product diversification

Lyn Rees, Chief Executive Officer of Yourgene, commented:

"I am delighted to announce our first EBITDA profit as a demonstration of the transformation that is underway at Yourgene and resultant organic growth, supported by the contribution from Elucigene and the smooth integration process that is almost complete. 

"The reorientation of the business to focus on our key four strategic growth drivers is starting to bear fruit, and I remain convinced we have a very significant opportunity ahead of us. We are confident in our outlook for the year end and very excited about the prospects for further growth over the following years."

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About Yourgene Health

Yourgene Health is an international molecular diagnostics group which develops and commercialises genetic products and services. The group works in partnership with global leaders in DNA technology to advance diagnostic science. 

Yourgene develops and commercialises simple and accurate molecular diagnostic solutions, primarily for reproductive health. The Group's products include non-invasive prenatal tests (NIPT) for Down's Syndrome and other genetic disorders, Cystic Fibrosis screening tests, invasive rapid aneuploidy tests, male infertility tests and genetic disease tests. Yourgene's commercial footprint is already established in the UK, Europe, the Middle East, Africa and Asia.

Our product development, research service and commercial capabilities extend across the lifecycle of genetic test development including regulatory submissions. Through our technical expertise and partnerships, Yourgene Health is also extending its genetic testing offering into oncology.

Yourgene Health is headquartered in Manchester, UK with offices in Taipei, Singapore and Miami, and is listed on the London Stock Exchange's AIM market under the ticker "YGEN". For more information, visit www.yourgene-health.com and follow us on twitter @Yourgene_Health.

BUSINESS REVIEW

I am delighted with the positive transformation shown in our results for the six months to 30 September 2019, which demonstrate our strong commercial momentum and substantial progress towards profitability. Revenues nearly doubled in the first half, gross profits were up by more than 140% and operating losses were significantly reduced.  As a result, we are reporting our first ever positive adjusted EBITDA of £0.3m, a major milestone for the Group, and we remain on track to deliver significant growth for the full year.

As I outlined in our full year results in July 2019 and at our recent Capital Markets Day, the Company is focused on four strategic priorities to deliver growth and, ultimately, shareholder value:

I am very pleased to report that we have made significant progress with all of these priorities.

Product penetration

Pure organic growth during the first half was 56%, with non-Elucigene revenues of £6.1m, up from £3.9m in the first half of last year. This growth represents increased product penetration for the Company's flagship non-invasive prenatal tests (NIPT) for Down's syndrome and other genetic disorders, and an expansion of our oncology and research services activity. Sales from NIPT products and services through our existing direct and key distribution channels grew globally at 35% despite the UK and Europe being in a period of transition to a product format which is compatible with Illumina's next-generation sequencing technology. Whilst growth in the UK and Europe for NIPT has been steady, our existing customer base and potential new customers are eagerly awaiting the launch of the IONA® test on the Illumina platform and we would expect to see stronger revenue growth once launched. During the period we signed up an additional five new distributors.

We continued to expand our NIPT footprint in India and we now have more than 20 laboratory customers in this region. The Middle East showed further solid growth, with additional contracts secured in Saudi Arabia, and we have seen the benefits of clinical marketing events held locally in partnership with our distributors and customers which has driven clinical education for NIPT and increased adoption. Strong growth has also been seen across Asia, and in particular in South East Asia and Japan, an area where we hope to secure further technology partnerships to drive sales in this region.

Geographic expansion

We have made very good progress in expanding our commercial footprint directly, and through distributors, into new territories, as well as increasing geographic coverage via the Elucigene acquisition - as a result we now sell products into over 60 countries worldwide, compared to 30 countries last year. During the period we secured our first US revenues and have established a direct sales presence in the US through the establishment of Yourgene Health Inc. The commercial team have attended several key US industry events including our first Expo in the US to raise brand awareness and creating business development opportunities. We are leveraging the experience of the expanded Board to create a substantial medium-term presence in a market that is now opening up to us, and we expect to update shareholders on further progress in this key market in the coming months.

The development of the Illumina-based IONA® test is progressing well and remains on schedule. Our internal trials have already shown that the product works as expected and with the market leading accuracy that the IONA® test has become well-known for. The technical development of the test is well advanced and the product is going through the final stages of validation and verification testing to produce the data required for regulatory submission and we expect to make regulatory submissions early in the new year. As soon as regulatory approvals are received we will roll the product out in affected existing markets (mainly in Europe) and in newly addressable markets in Asia Pacific and North America throughout 2020 and beyond. In preparation for the European part of the product launch, and in part to reduce the risk of potential disruption as a result of Brexit, we have transferred our European quality accreditation to BSI Netherlands.

We have entered new markets with contract wins for NIPT in South East Asia, Eastern Europe and the Middle East, we have appointed a new distributor in Oman and new customers in Turkey have been driving NIPT sample revenues through our Manchester service laboratory. In China we continue to look for long term opportunities across our whole product range and are evaluating potential partners.

The result of our geographic expansion, including new territories brought to us through the Elucigene acquisition, can be seen below:

Product expansion

The third growth driver for the business is to offer more customers new product lines and content and it was our strategic goal to broaden our portfolio beyond NIPT. The Elucigene acquisition has brought a range of additional reproductive health products to the Group. As well as contributing existing revenues from these products we are also beginning to see the early benefits of range-selling opportunities with existing NIPT customers placing orders for additional reproductive health assays and vice versa.

In addition, we launched our first oncology product, the Elucigene DPYD assay, a new chemotoxicity diagnostic assay at the end of September 2019. Elucigene DPYD is a simple-to-use genotyping test that can identify cancer patients with Dihydropyrimidine Dehydrogenase (DPD) deficiency, which can cause severe and sometimes lethal side effects in patients being treated with chemotherapeutic drug 5-Fluorouracil (5-FU), commonly used in the treatment of colon, oesophageal, stomach, pancreatic, breast and cervical cancers. Whilst it is too early to comment on revenue pick-up from this product, initial feedback from potential customers has been positive and we have already secured our first UK contract with an NHS Trust.

To further support our product diversification ambitions we launched our Yourgene Flex™ Analysis Software following the period end. The Software allows us to work in close collaboration with product development partners to customise our analysis platform for their NGS applications beyond NIPT, therefore opening up opportunities to develop products such as in vitro diagnostic tests, or in reproductive health, oncology or other clinical diagnostic fields. The Yourgene Flex^TM Analysis Software will also be deployed in-house to support our own internal product development pipeline across the reproductive health and oncology portfolio.

Our Oncology service franchise from Taipei has seen a significant step up in revenues and we are entering the oncology market through a key partnership which is revenue and profit generating without the normal development costs associated with this market.

The greater diversity of our revenue base can be seen in the table below:

Acquisitive growth

In April 2019, we undertook an equity fundraise, raising gross proceeds of £11.8m and completed the acquisition of Elucigene for an enterprise value of £8.9m, represented by £5.9m net cash and £3.0m equity.

The acquisition was highly complementary and immediately accretive to earnings, with additional synergies of over £0.5m per annum now starting to bear fruit. The successful integration of the business has helped to accelerate our overall pathway to profitability and free cash flow generation, and importantly has helped deliver on the strategic priorities above by adding a business with strong organic sales growth that brings with it a wider portfolio of complementary products and a sales network reaching into a wider range of geographic territories.

We are now building a strong track record of successfully integrating acquisitions as demonstrated by the successful integration of Elucigene, but also the previous purchase of Yourgene Bioscience Taiwan in 2017. We continue to consider additional selective synergistic M&A opportunities, where we can identify both earnings enhancement opportunities, but also the opportunity to acquire complementary technologies to ensure we remain at the forefront of the molecular diagnostics industry with market-leading products across reproductive health and oncology. The market is fragmented with few medium-sized entities, this presents an exciting opportunity for market consolidation.

Board changes

During the period we appointed two Non-executive Directors who both bring exceptional experience to the Board.

Dr John Brown CBE joined in July 2019 and acts as the Senior Independent Director. He has over 20 years' capital markets experience in the healthcare and life sciences sector and is currently a Senior Independent Director of BioCity and Acacia Pharma and is Chairman of Cell Therapy Catapult and Synpromics. Additionally, he has previous significant board experience with roles including Chairman of Axis-Shield, Chairman of BTG, Non-executive Director of Vectura and Chief Executive Officer of Acambis.

Jonathan Seaton was appointed as a Non-executive Director in August 2019. Jonathan also has considerable experience working for leading global life sciences and diagnostic companies and has worked on more than 40 M&A transactions as well as strategic and commercial development activities. Jonathan was previously Head of Corporate and Business Development and Government Affairs at Illumina and is currently based in the US.

Financial position

The Group's results for the six months to 30 September 2019 are presented in the enclosed financial statements and show gross profits having increased by 141% to £4.7m (H1 2018-19: £2.0m). The acquisition of Elucigene on 26 April 2019 led to a 22% increase in general administrative expenses to £5.5m (H1 2018-19: £4.5m), with identified annualised synergy savings of over £0.5m starting to crystallise.  

The Group achieved its first ever positive adjusted EBITDA, before acquisition-related expenses, of £0.3m (H1 2018-19: loss of £2.5m). The Group's operating loss was also 50% lower at £1.3m (H1 2018-19: loss of £2.5m) despite acquisition and fundraising costs of £0.5m (H1 2018-19: £nil).

Net financing expenses were significantly lower at £0.1m (H1 2018-19: £0.9m) reflecting the debt cancellation announced in February 2019.  The total comprehensive loss for the period reduced to £1.4m (H1 2018-19: £3.4m). Earnings per share were £nil (H1 2018-19: loss per share of £0.01).

In the reporting period, the Group used £1.6m cash for operating activities (H1 2018-19: £3.2m) almost all of which was consumed by working capital movements and an increased tax asset arising from R&D tax credits. Net investing cash outflows were £6.0m, principally on the Elucigene acquisition (H1 2018-19: £0.3m inflow). The associated equity fundraise was the prime reason for net proceeds from financing activities of £10.4m (H1 2018-19: £2.8m). Cash at the end of the period was £4.1m (31 March 2019: £1.3m; 30 September 2018: £0.2m). The Group remains focused on driving revenues, improving margins, containing costs and effectively managing working capital in order to achieve sustainable positive cashflows.

Outlook

I am delighted with the transformation of the business and that the strong foundation we've established for delivering rapid growth is already delivering results. At this interim stage we are firmly on target to deliver full year results in-line with market expectations, with consensus analyst forecasts looking for revenues of nearly £17m for the year ending 31 March 2020, a considerable jump from last year's £8.9m.

I am very excited about the significant opportunity ahead of us. We have first-class products that are leading the way in the growing genetic testing market. Our IONA® test has strong reputation for reliability and accuracy and was the first CE marked NIPT product for the European Market. We are also in a position to offer our test across all sequencing platforms and we believe that the launch of the IONA® test on the Illumina platform will be a strong driver of growth next year.

We have established a significant commercial footprint and now sell into 60 territories and we are certain that we will quickly benefit from selling a wider range of products into a wider range of markets, and this in turn will be reflected in further shareholder value creation. We also expect to leverage our strong technical capabilities to develop more content, offering additional products and services to more customers as the adoption of genetic testing becomes more widespread.

We remain confident in our outlook for the year end and very excited about the prospects for further growth over the following years.

Lyn Rees

Chief Executive Officer

2 December 2019