TIDMMGP
RNS Number : 0897T
Medica Group PLC
22 March 2021
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED
UNDER THE MARKET ABUSE REGULATION (EU NO. 596/2014) AS IT FORMS
PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION
(WITHDRAWAL) ACT 2018 ("MAR").
22 March 2021
Medica Group plc
Medica diversifies offering into clinical trials with proposed
acquisition of US-based RadMD
Enables entry into USD 1 billion global market of clinical trial
imaging
Able to leverage core teleradiology skills to broaden
capabilities in new geography
Initial consideration of USD 16.3 million (c. GBP11.7 m
illion)
Medica expects the acquisition to be accretive to earnings for
the first full year of trading
Provides trading update: NightHawk growing, Elective resilient;
hopeful of return to growth as lockdowns ease and health systems
address patient backlog
Medica Group PLC (LSE: MGP, "Medica" or the "Company"), the UK
and Ireland market leader in the provision of teleradiology
services, today announces that it has conditionally agreed to
acquire RadMD LLC (the "Acquisition"), a leading Imaging Contract
Research Organisation ("iCRO") providing services to the
fast-growing clinical trials market for a total cash consideration
of up to USD 21.7 million (c. GBP15.6 million), subject to
customary working capital and other adjustments at completion. The
Acquisition is on a cash-free and debt-free basis.
The Company has today separately announced its intention to
launch a 9.9% non-pre-emptive placing of new ordinary shares (the
"Placing"), the proceeds of which will fund the initial cash
consideration for the Acquisition. Completion of the Acquisition is
conditional on admission to trading of the new ordinary shares
being issued pursuant to the Placing and a further announcement
will be made in due course.
The Company is also providing an update on current trading ahead
of announcing its full year results for the year ended 31 December
2020 on 11 May 2021.
Transaction highlights: executing on strategy with acquisition
of profitable business; able to leverage core skills to broaden
capabilities
-- Delivers on strategy to create upside revenue from new
services/customers/international expansion; Accelerates Medica's
entry into the fast-growing iCRO market providing high quality
reading and interpretation of clinical trial images for
pharmaceutical and biotech clients and opens up opportunity to
enter a fast-growing, sizeable international market in
telemedicine
-- RadMD shares substantial similarities with Medica's business
model in that it deploys a wide network of radiologists to read
images for clinical trials within a highly regulated teleradiology
service with strong clinical governance
-- RadMD has a highly experienced management team with expertise
in early phase imaging trial design across a range of therapeutic
areas, particularly oncology, but with the full capability to
support larger studies for market approval. RadMD has a network of
over 250 expert US and internationally located radiologists. Medica
can support growth in reader capacity for clinical trials with
access to its expanding network of radiologists in UK, Ireland,
across Europe, as well as in Australia and New Zealand.
-- For the financial year ended 31 December 2020, RadMD had
unaudited revenues of USD 8.9 million, an increase of 20% on the
prior year, and an adjusted EBITDA of USD 1.2 million.
-- Current annual run rate EBITDA is c. USD 1.5 million on
revenues of c. USD 10 million representing an initial consideration
of c.13x adjusted 2020A EBITDA and c.11x run-rate EBITDA
-- Expected to be earnings enhancing in the first full year,
after taking account of the Placing, and return on invested capital
expected to be well above Medica's cost of capital
Dr. Stuart Quin, CEO of Medica Group stated:
"In line with our strategy, Medica has been exploring ways in
which we can harness our leading expertise in teleradiology to
underpin diversification in other areas. We are pleased to deliver
this with the acquisition of RadMD, which accelerates our ambition
to provide radiological image reading for pharmaceutical and
biotech companies. This acquisition provides entry into a new and
exciting market for Medica with opportunities for growth and
penetration of new geographies and customers. Whilst RadMD serves
different customers to Medica, the need to provide a highly
specialised network of radiologists reading cases remotely, using
excellent systems and supported by high quality clinical governance
is akin to our existing core strengths and expertise. RadMD is a
high-quality business strongly rooted in a passion for radiology
and, as a result, many clients now trust the RadMD team to design
and deliver important clinical trials to the highest quality
standards."
Dr. Richard Patt and Dr. Kohkan Shamsi, Managing Directors,
RadMD, jointly stated:
"RadMD has been our focus for many years and we are confident
that in Medica, we have found a partner to help the company to move
to the next level and accelerate growth. Medica will help to
support the operations and business strategy allowing us to devote
more time to supporting clients and driving new opportunities for
the combined company. Medica shares the same ethos in terms of
delivering high quality services and we have been impressed by the
commitment of the Medica team to help accelerate the growth and
evolution of our company and very much look forward to working
together."
1. Introduction and overview of RadMD
RadMD, based in Conshohocken, Pennsylvania was established in
2006 by two leading experts in imaging clinical trial design and
execution, Dr Richard Patt and Dr Kohkan Shamsi, who will remain
with the business at completion. Medica will support the team at
RadMD to build on their success to date by providing more
operational and strategic support. RadMD offers a broad spectrum of
imaging clinical research services including the full management of
all imaging aspects of clinical trials, expert image review and
consulting services with expertise particularly in design of
early-stage trials with imaging. Medica and RadMD both focus on
providing specialist interpretation of CT, MRI and X-ray images.
However, whereas Medica focuses often on highly time sensitive
diagnostic reporting of images from patients in hospital, RadMD's
radiologists and medical experts read images under strict
regulatory protocols as part of multi-phase clinical trial studies.
The business also includes an institute focused on the training of
clinical trial sites and sponsors. The company has grown rapidly
and now counts a wide range of pharmaceutical, biotech, medical
device and contract research organisations (CROs) among its
clients, with an excellent reputation in the market. The business
employs a team of 16 full-time employees, a full-time consultant
and 1 part-time employee in the US working alongside more than 250
radiologists specialised in reading scans for clinical trial
purposes who are contracted to provide these services as required.
Whilst the business covers a range of therapeutic areas including
CNS, cardiovascular and medical devices, its particular expertise
is in the rapidly expanding market for oncology clinical
trials.
The global clinical trials market size was reported to be
approximately USD 44 billion in 2020 and is expected to expand at a
compound annual growth rate (CAGR) of 5.7% from 2021 to 2028
(source: Grandview Research). Within the total clinical trial
market, the iCRO segment is c. USD 1 billion in 2021 and is
expected to rise in line with the overall CRO market to c. USD 1.3
billion over the next 5 years. The majority of pharmaceutical
companies do not have in-house imaging expertise and most CROs also
outsource their imaging to iCROs such as RadMD. The reasons for
this are two-fold: the first is operational; to collect digital
images from research sites, to carry out quality checks, to
construct a database and to create a systematic way to review the
images. The second is for their expertise in designing the clinical
trial, developing regulatory strategies, and having the experts to
analyse and interpret the images and results.
The iCRO market is fragmented with a few large international
players and many smaller, specialised expert organisations with
therapeutic area focus. RadMD has expertise in the design and
delivery of early stage imaging clinical trials with a particular
focus on oncology, but also cardiovascular, CNS and medical device
studies. RadMD's high value imaging expertise reduces costs and
improves efficiency in drug and device development.
For the financial year ended 31 December 2020, RadMD had
unaudited revenues of USD 8.9million, an increase of 20% on the
prior year; adjusted EBITDA of USD 1.2 million; and profit before
tax of USD 1.2 million (based on unaudited management accounts).
This was a resilient performance despite the impact of Covid-19 in
early 2020 which delayed site selection and patient recruitment for
some trials and demonstrated the benefit of focusing in particular
on oncology studies.
RadMD has a strong underpin of future earnings with an orderbook
backlog of USD 40 million at the end of 2020 and a historical book
to bill ratio for the following year of 25%. The company has strong
visibility of revenue, with the orderbook extending out to
2024.
Since the year end, the business has continued to perform
strongly, reflecting the positive impact of contracts won during
the prior year, extensions to the scope of existing contracts,
conversion of pipeline projects to contracted backlog and new
contracts which have started this year. Current run rate revenues
and adjusted EBITDA are c. USD 10 million and USD 1.5 million
respectively. As at 31 December 2020, RadMD had total assets of USD
2.6m.
2. Background to and reasons for the Acquisition
The Acquisition furthers Medica's ambition to leverage its
existing expertise as a leader in teleradiology to broaden its
capabilities and expand into new geographies. The imaging for
clinical trials market is such an area that has been part of the
Board's stated strategy. The US represents a new market for Medica
and provides the Company with an exciting platform upon which to
grow a diversified international clinical trials business focused
on imaging services.
Significant similarities with Medica's core business model:
- Acquisition in line with stated strategy announced in March
2020 to expand the range of allied telemedicine services and to
enter new geographies
- RadMD's success, like Medica's, has been driven by building a
network of highly experienced international radiologists and
medical experts. Designing imaging studies and reading images for
clinical trials is highly regulated and so the RadMD business model
shares the same need for high quality clinical governance of its
radiologist network as Medica's core teleradiology reporting
business
Customer and geographic diversification:
- Entry into a new market with large, blue chip pharmaceutical,
biotech and medical device customers
- Entry into the US market; the focal point for global clinical trials
- Builds on the recent acquisition of Global Diagnostics Ireland
in November 2020 and the MedX joint venture with Integral
Diagnostics in Australia and New Zealand announced last month
- Following the acquisition of RadMD, over 25% of Medica's pro
forma 2020 revenues would be derived from outside the UK
Good revenue visibility:
- Clinical trial studies are by their nature long term. RadMD
supports clients from study design and site selection all the way
through to completion. Therefore, as studies progress, a backlog of
work builds that provides multi-year earnings visibility with the
current backlog extending to 2024
- Significant repeat business so as clients grow, the company
expands its pipeline of opportunities and conversion to backlog
Growth synergies:
- RadMD will benefit from Medica's support to grow and develop
the business as well as know-how and expertise in delivering
radiology reporting systems including Artificial Intelligence.
Medica plans to expand the senior management team to enable the
founders to transition to focus more on 'high value' consulting and
client engagement activities
- In time, Medica can support international expansion and offer
to train its current network of well over 500 radiologists to boost
capacity for clinical trial reading, as well as expand client and
radiologist reach into other parts of Europe, Australia and New
Zealand
Strong financial metrics:
- Expected to be earnings enhancing for the first full year of trading
- Return on invested capital (ROIC) well above the Group's cost of capital
- The orderbook of USD 40 million together with a strong
pipeline of new opportunities strongly underpins future earnings
and provides good revenue visibility
3. Principal terms of the Acquisition and financial impact
The total consideration for the Acquisition of USD 21.7 million
(circa GBP15.6 million) comprises the following elements:
-- USD 16.3 million initial consideration payable in cash at
completion for 100% of the members' interests in RadMD together
with customary adjustments for acquired cash, debt and normalised
working capital at completion;
-- A maximum of USD 5.4 million deferred consideration based on 2021 EBITDA performance;
Costs of approximately GBP0.5 million will be charged to the
income statement in the current financial year in respect of the
Acquisition.
Completion of the Acquisition is conditional on the successful
conclusion of the Placing which was also announced today. The
Placing is expected to provide sufficient capital for the initial
consideration with any deferred consideration paid out of the
balance of the net proceeds of the Placing and group cash
resources.
4. Medica Trading and Debt Refinancing Update
The Company reconfirms that as stated in the trading update on
21 January 2021, it expects revenue for the year ended 31 December
2020 to be GBP36.8 million. Gross margins remained strong at 47.4%,
with adjusted net operating profit margins of c.14%. Profits were
in line with the Board's expectations. Gross cash as at 31 December
2020 was GBP13.9 million and net debt was GBP4.0 million.
As a result of active recruitment during 2020, Medica reports
that it has increased its metric for reporter capacity (% increase
in rostered reporting hours) in the UK by 13% year-on-year. This
will provide significant additional capacity to support clients
with the growing backlog of Elective procedures. Additionally,
through our recruitment efforts in Australia and New Zealand, aided
by the recent MedX JV, we have also increased our capacity of
reporters for NightHawk thereby underpinning the capacity required
for continued growth.
In January, Medica noted that whilst the lockdown would likely
inhibit the recovery of Elective activity in the NHS, it was
expecting NightHawk activity to remain resilient and continue to
grow. This proved to be the case although there are early signs of
improvement in Elective volumes as hospital admissions for Covid-19
have fallen significantly, allowing the NHS to start to focus on
the next public health challenge of managing the millions of
patients on elective waiting lists. Encouragingly, both NightHawk
and Elective activity has continued to grow month-on-month so far
in 2021.
In Ireland, we have also seen softening in activity from the
Health Service Executive in early 2021 as a result of the latest
lockdown, but a resumption in scanning following easing of
restrictions, new contract wins and strong performance in our
diabetic retinopathy (ophthalmology) screening service, provide
confidence in the outlook for the remainder of FY 2021 and beyond
with growth expected from Q2 2021 onwards.
In the UK, discussions with our clients indicate that radiology
departments are planning now to start to focus on elective activity
including trying to tackle the significant backlog that has built
up, however it is too early to estimate the exact profile of the
recovery except to note that as vaccinations are rolled out, this
will continue to reduce the number of beds that are utilised for
Covid-19. This will in turn allow hospitals to establish pathways
to manage elective procedures and commence extended hours for
imaging services, as well as potentially outsourcing to private
hospitals and imaging companies to assist in processing the backlog
of cases. Whilst the path to recovery is still taking shape and
therefore the impact on H1 2021 is still uncertain, management are
cautiously optimistic that the headwinds are abating and Elective
activity is improving which should result in a strong performance
in H2 2021.
Medica also announces that it is in advanced discussions with
lenders for a new fully flexible revolving credit facility on
competitive terms. This should provide significant headroom to
support the Company's growth strategy. No material change to
interest costs is expected. At 31 December 2020 the Company had net
debt of c. GBP4.0 million representing 0.5x gearing.
S
No statement in this announcement is intended to be a profit
forecast and no statement in this announcement should be
interpreted to mean that earnings per share of the Company for the
current or future financial years would necessarily match or exceed
the historical published earnings per share of the Company.
The person responsible for arranging for the release of this
announcement on behalf of the Company is Richard Jones, Chief
Financial Officer.
For further information, please contact:
Medica Group PLC
Dr. Stuart Quin, Chief Executive
Officer
Richard Jones, Chief Financial
Officer +44 (0)33 33 111 222
Investec Bank plc (Joint Broker)
Sara Hale
Daniel Adams
Virginia Bull
Ben Farrow +44 (0)20 7597 5970
Liberum (Joint Broker)
Bidhi Bhoma
Richard Lindley
Euan Brown +44 (0)20 3100 2000
FTI Consulting +44 (0)20 3727 1000
Victoria Foster Mitchell medicagroupplc@fticonsulting.com
Robert Winder
About Medica Group PLC
Medica intends to lead the way in telemedicine and is the market
leader in the UK and Ireland for the provision of teleradiology
services, providing outsourced interpretation and reporting of MRI
(magnetic resonance imaging), CT (computerised tomography),
ultrasound and plain film (x-ray) images. In addition, Medica is
the market leader for the provision of retinal diagnostic screening
in Ireland where it also provides selective managed services in
diagnostics to the public and private sectors
In the UK, Medica currently offers two primary services to
hospital radiology departments:
- NightHawk, urgent reporting service, and
- Elective which includes routine cross-sectional reporting on
MRI and CT scans, and routine plain film reporting on x-ray
images.
Medica contracts with the largest pool of consultant
radiologists in the UK and Ireland, performing remote access
teleradiology across its customer base of more than 100 NHS Trusts
in the UK, the Irish HSE, private hospital groups and diagnostic
imaging companies. This enables the Company to offer a fast,
responsive service both during the day and importantly supporting
urgent out-of-hours reporting.
Medica has developed a bespoke, secure IT platform that provides
market-leading linkage between a hospital's Radiology Information
System (RIS) and consultant radiologists who contract with the
Company. Direct RIS access ensures that where the wider patient
medical history is available, it can be reviewed by the consultant
as part of every report. For more information please visit
www.medica.co.uk
About teleradiology
Teleradiology is the remote electronic transmission of
radiological patient images, including plain film (x-rays), CT
scans and MRI scans, from one location to another for the purposes
of diagnostic interpretation and reporting.
About imaging Contract Research Organisations ("iCROs")
iCROs are experts in providing specific knowledge about medical
imaging and its application in clinical trials. This includes
expertise in imaging protocols, state-of-the-art image acquisition
and analysis, data management and quality control.
Access to this knowledge is critical as medical imaging is a
vital component of many clinical trials. It can be used to stratify
patients to the most appropriate treatments and can allow early
measurement of treatment efficacy. Standardisation of image
acquisition across sites and a focus on quality control (QC) of
images ensures that the required data can be obtained from the
images. A central read (a process by which the image interpretation
is not done by the local study site) minimises bias and
subjectivity that might otherwise arise from the sponsor or study
monitor's familiarity with patients.
The reliability and reproducibility of image data interpretation
is realised through consistent data review (using standardised
grading protocols) and the use of two readers. High quality data
means faster, more efficient trials that reach completion
sooner.
Trials are typically managed by a CRO on behalf of a
pharmaceutical or biotech sponsor and are often global.
Radiologists, known as readers, have to be specially trained to be
able to report imaging studies for clinical trials as this is
conducted under Good Clinical Practice protocols.
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