Novacyt S.A. (NVYTF) Q2 2023 Earnings Call Transcript

Novacyt S.A. (OTC:NVYTF) Q2 2023 Earnings Conference Call September 28, 2023 7:30 AM ET

Company Participants

James McCarthy – Acting CEO

Steve Gibson – Group Finance Director

Lyn Rees – Executive Director

Conference Call Participants

Operator

[Starts Abruptly] Investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself, however, the company will review all questions submitted today and publish responses where it’s appropriate to do so.

Before we begin, I’d like to submit the following poll and for the benefit of those joining us from France [Foreign Language]

I’d now like to hand you over to James McCarthy. Good afternoon.

James McCarthy

Thank you, Alessandro. Good afternoon, everybody. Welcome to the Novacyt Half-Year Results. And I should just start by showing the disclaimer, and I’ll just take that as read by everybody before we proceed.

Okay. So my name is James McCarthy. I’m the Acting CEO of Novacyt. I have been since November last year. Prior to that, I had almost two years as the CEO of the Group. Delighted to say, if you joined by Steve Gibson, who is the Finance Director; and Lyn Rees, who has recently joined us from Yourgene acquisition.

So perhaps, if I ask those two gentlemen to introduce themselves before we proceed.

Steve Gibson

Perfect. Good afternoon, everyone. Steve Gibson, Group Finance Director. I’ve been with Novacyt for around six and half years and prior to that I spent around 12 years at a bluechip IT company working a variety of different commercial finance roles.

Lyn Rees

Thank you, Steve. Good afternoon, everyone. Real pleasure to be able to present to you today. My name is Lyn. I’m the ex-CEO of Yourgene Health and I’ve been in this diagnostic market space for about 27 years now. So a real pleasure to be with you today.

James McCarthy

Thank you guys. So running order today, I will take you through some of the kind of key highlights of the business, performance for the first six months of the year; and Steve will dive into the numbers in a little bit more detail. And we’ve added a section in for Lyn to really explain and talk about the Yourgene business. I mean, some people might know it, but we’re assuming there’s a lot of investors and oversight that may not know the business very well.

So we thought it would be a great idea to share some insights into the business we’ve just acquired. And I come back and talk about how we’re thinking about integrating the businesses, our thoughts on that, obviously very early days, but just not even three weeks into this, and in the end, just do a wrap up for everybody, okay?

So just a quick run through our strategic pillars, Just to update everybody against how we perform against the strategic pillars in the first six months of the year. I mean, if I start with Instrumentation. I mean, the Instrumentation business has struggled a bit for sales over the last 18 months to two years.

We’ve definitely seen a market that was fairly saturated post-COVID and we’re beginning to see that change. So we’re beginning to see the market opening up again. We were delighted with the progress we made in Q2. Instrumentation sales will continue to be lumpy. They tend to come in kind of infrequent but large orders. But I think we were getting some decent momentum there.

And the second thing really to call out is the whole product development. And we had a very intense six months in product development and deliberately so, we’ve been really working hard to build the non-COVID portfolio and we’ve nine new non-COVID products, which we’ve developed in the first half of the year.

And this is really important to us, as we go forward. We still have a lot of work to do to commercialize those products. We mentioned in our trading update in July that we’re looking at going down UKCA route instead of the full IVDR for some of those products because it’s the quickest route to commercialization, and that’s a real imperative for us.

And we’re actually taking our Winterplex product, which is CE-IVD marked through the IVDR process, that will be a clinical trial which should complete largely towards the back end of this year. And then, we’ll submit that for submission and [Technical Difficulty] want to impede the sale of the product in any way, the product would be available on the market.

In terms of commercialization, the focus has been on the RUO business, as well as instrumentation and really trying to rebuild our RUO business. I mean neglected during COVID — neglected by the market and sometimes neglected a little bit by us, as we focus on other things. And I think we’re busy trying to re-engage with customers, build customer solutions in specific verticals.

We’ve talked to you before about global fisheries in North America. We’re really pleased we’ve brought some of that progress closer to home. We’re working with oyster farms in the UK. So we really feel we can offer solutions and actually build sustainable, repeatable revenues in some of those spaces. And similarly, we’re having success in Latin America, again, looking at solving problems for livestock testing, across groups of farmers and again trying to build those reasonable sustainable revenues.

And maybe, finally, commercialization just to remind everybody of our NGO business and we still have good connections to NGO and really had a really successful first half in terms of thing in particular. So it continues to be an important business for us. I think we’re very proud of the products we develop for that market.

And maybe finally on the strategic pillars on the business development. We’ve talked to you over the last year of 18 months of putting our balance sheet to work, looking for acquisitions, and clearly Yourgene is a big step in that process. It’s a fantastic opportunity, I think, to put these two businesses together. I’ll come back and talk more about the integrations. But I think it’s a very big step in the journey, but we will continue to look for acquisitions that make sense as we go forward and I’ll also come back to that later on.

So maybe for now, if I just hand over to Steve to talk you through the numbers in more detail and I’ll come back to some of the Yourgene integration questions later on. Steve?

Steve Gibson

Thank you, James. Good afternoon, everyone. It’s great to be here with you today to chat through the Novacyt interim financial results. This sort of obviously covers the period January through to June 2023, so it doesn’t include the financial performance of Yourgene Health, but instead Lyn will touch upon the sales of that group in this presentation shortly.

If we kick-off from a revenue perspective, the H1 revenue totaled GBP3.3 million compared with GBP16.5 million for the prior period. Now this decline was driven by reduction in COVID-19 sales as the pandemic has eased. If we look at revenue from a product mix perspective, our non-COVID portfolio has delivered over 80% of our revenue in H1 and it’s also grown now for the third quarter in a row, since Q4 2022 by around 10%.

If we look at revenue from a geographic perspective, we remain well balanced in an internationally diverse (ph) business. And if you look at our H1 sales, our top four regions all generated around GBP70,000 to GBP800,000 of revenue. And those four regions were the UK, Europe, Americas and the Asia-Pacific region. Finally on revenue, from a business unit perspective, Primer design continues to be the main revenue generating business and that delivered in excess of 80% of group revenue.

If we turn to gross margin, the gross margin has doubled since the prior period from 24% up to 50%. However, it is still impacted by further stock write-offs as a result of lower than anticipated COVID-19 sales.

If we move on to OpEx costs, we continue on this journey of right-sizing the cost base of our business, and we’re making really good progress. So from the prior period, we’ve reduced our OpEx costs by around 35% or GBP4.1 million, taking our H1 OpEx costs down to around GBP7 million. Now the main driver for that was our group-wide restructuring program, where we reduced headcount from around 210 people in June 2022 down to around 120 staff at the end of June 2023.

Our pre-acquisition headcount was around 120 staff. We do though continue to invest heavily in R&D and we spent over GBP1.2 million within that function to support pretty new products to the market. From a profitability perspective, the group produced its EBITDA loss to around GBP5.4 million, down from GBP7.1 million in the prior period. Now this reduction was driven by GBP4.1 million reduced OpEx costs, as we reduce the cost base of our business, offset by a GBP2.3 million reduction in the gross profit contribution of the business due to lower sales.

Now in addition to the EBITDA loss, the group also incurred exceptional costs, holding around GBP1.9 million and that was made up of three key buckets. The largest one was GBP0.8 million, an acquisition related costs in relation to the Yourgene deal. Now this is the cost that’s been incurring until the end of June, it’s not the full advisory cost of the deal.

The second big chunk was around GBP600,000 of costs in relation to the ongoing DHSC commercial dispute. And then, the final bucket was around GBP0.5 million of restructuring expenses that predominantly COVID redundancy payments. So all of that culminated in the group reporting a loss after tax attributed to the owners of the business of GBP8.3 million which is slightly ahead of the prior year results.

If we turn to the balance sheet, there’s no real material changes since the end of the year, other than a reduction in cash, and cash has reduced broadly in line with our EBITDA performance. So what it meant is that we closed June 2023 with a cash balance of around GBP81.7 million, that allowed us to fund the Yourgene acquisition from our cash reserves.

Importantly, we remain debt-free as a business too. Now that was a quick run through of the financial results of Novacyt, which have now been published on our website. If you would like to look at them for further details.

And I’ll now hand over to Lyn, who will walk you through the Yourgene business.

Lyn Rees

Thank you very much, Steve. We can go to the next slide, please, and the next one, please. So really, really excited to be here today. James just mentioned that this is a fantastic opportunity, I absolutely believe that as well. So really excited in sharing a little bit more about Yourgene, who we are, what we do, and what you can expect from us as shareholders moving forward.

So Yourgene is an integrated technologies and services for genomic medicine. What does that mean? It means we develop, we manufacture, and we take to market molecular diagnostic tests and screening solutions predominantly in the reproductive healthcare and oncology market segments. So, moms and dads looking to have new babies and anyone that’s, with a cancer diagnosis, those are the two markets that we fundamentally address. Two of the fastest growing markets in the molecular space at the moment.

I believe we have a complementary portfolio of in-vitro diagnostic products, which includes our flagship NIPT non-invasive prenatal screening, which checks babies around Down’s syndrome and other genetic disorders. When the baby is born then, we check for Cystic Fibrosis, we’re either market leader or second in the main markets that we serve. We offer a follow-up product, an invasive rapid aneuploidy test, so if you do have a high-risk result, that is the confirmatory test. And in recent years, I’ll talk a bit about this later on, and we’ve ventured into oncology and other market adjacencies to [indiscernible] the assets and the technology that we have within Yourgene Group.

We were first established in 2013. We are headquartered in Manchester, UK, with offices and facilities in Singapore, in Florida and in Vancouver. Our revenues in ‘22 were just sharp higher than GBP37 million, but that did include some COVID. And as Steve said, I’ll give you a bit more flavor on where we are currently, a bit later on in the deck. We employ about 150 people, and we take over 100 products and services to a global marketplace. And when I say global marketplace, that is about 65 countries, where we’re either selling direct or indirect through a distribution network. So that’s a bit of a snapshot from Yourgene.

If we flip the slide and look at the sort of timeline, the organization was set up in 2014, so very much at the forefront of next generation sequencing, that was when the first platform started to appear in the market. So really early adopters of this, unbelievable technology in terms of advancing, kind of medical diagnosis.

In 2016, we acquired a business in Taiwan called Yourgene Bioscience that we actually turned into the full name of the organization in 2018. Premaitha was pretty much just around the reproductive healthcare market. We wanted a wider appeal as an organization, so Yourgene’s and Yourgene’s to manage your health is where we sort of come up with the name there.

After back of that sort of rebranding, we started to go on an M&A journey. So we acquired a company called Elucigene Diagnostics in 2019. They brought to the table Cystic Fibrosis testing. So up until that point, we were pure play as an organization. We only really had an NIPT test. Unless the market develops and becomes more mature, it’s very common place that the customers want to buy more than one product of you.

The cost of running a relationship with a single product supplier is quite high when you consider the regulatory hurdles and just the management were looking after that relationship. So the more products you can provide to the customer base, I think the better off you’ll do in the long run. And Elucigene brought Cystic Fibrosis to go alongside NIPT test. It also brought the confirmatory test to the NIPT test. So we sell the diagnostic and if you get a high-risk result, we sell a confirmatory test. So we were always looking to broaden the range of products and services that we took to market.

And also very important from the Elucigene team and their brilliant R&D capabilities was launching our first DPYD assay, which was our first sort of move into the oncology space and anyone that’s unfortunately been touched by cancer, either themselves or through loved ones, we realized the earlier diagnosis you get, and the better chance of a positive outcome. And this test really does support that journey, and I’ll explain a little bit about that later on.

In 2020, we were continuing to acquire. We bought Coastal Genomics, Ex5 Genomics and Adgenix, so a mixture of technologies, customers, and markets, which allowed us to really springboard in 2021 into the U.S., where we put a lot more capability. We’d license some of that technology we bought in 2020, specifically around the range of technology. And I guess over that period of eight years, Yourgene grew from sort of one product, a couple of people, no revenue, to GBP37.6 million worth of revenue and over 100 products. And even the core growth, taking away that COVID was about GBP15 million. So fast growing organization with a lot of ambition to put more products and services into the market.

Next slide, please. To bring that a little bit more to light and look at the split of the organization on the right hand side of your screen you’ll see a circle. The green part of that circle is our services. This is where we receive samples into our own labs. So we have a lab in Manchester, until recently we had a lab in Taiwan, where we would routinely receive samples and give results to patients. Now predominantly around our reproductive healthcare options, we’re using our own products in our own labs to give our customers results. But we’ve broadened that offering into pharmacogenomics, clinical oncology and we also do a lot of research work now in whole genome sequencing and whole exome sequencing. Again, really at the cutting edge of molecular technology and giving almost personalized diagnosis to patients.

The services side of our business is about 10% to 20% of our revenue in any given year. So what’s not the biggest revenue part of our business, but it creates an amazing structure to be able to try new technologies to look at our own products and validate them and verify them, to be able to work on clinical trials to build a big sample banks that allow us to bring you content and continually looking at product improvements within our portfolio.

So it’s a very important part of our business and everything that’s sort of come from that right-hand side ends up being products that we take to market. So genomic technologies are where we send our customers a test and they run the test in their own labs and that’s normally about 80% of the revenue of the business. You’ll see similar product categories within there, reproductive healthcare, NIPT, precision medicine, and ranger. So everything you see on the right pretty much gets replicated on the left and taken out into the customer base.

To bring some of those products a bit more to life, if I look at our in-vitro diagnostics product in the little box you see in the top left-hand corner of your screen is a DPYD assay. DPYD is given to patients who are usually Stage 3 or 4 of cancer treatment. So serious diagnosis, they’re about to receive something called 5-FU, which is the most widely prescribed chemotherapy agent used globally. There’s a couple of million scripts written for this each year throughout the world.

Unfortunately, up until us launching this DPYD product, about 1% of patients that would take that drug would die because they lack a gene which stops that drug from attacking every organ in their body. So normally a patient would receive this, probably a few, but in 24 hours if they lack this gene they’d have serious sepsis and as I said 1% of that patient population would die.

We launched this DPYD product a couple of years ago, and from a very low base, it’s now mandated in Wales, in England, in Scotland, in France, in Italy, and Belgium. We’ve just taken the product out into the U.S. We’ve got some initial sales. I think we’re in two of the five main hospitals in Canada. And I’m proud to say that it’s a product that saves, one in every 100 patients’ lives. And for the other 99, it gives them comfort that the difficult treatment that they’re going to have is going to be risk-free.

The little box underneath is our range of technology. That’s a light bench box. A blue and white box is really becoming quite a pivotal bit of technology in our portfolio. If you can imagine having a mom to be in a healthcare setting kind of at about eight or nine weeks, and she wants to give her a sample of blood to understand if there’s any genetic risk to the fetus that she’s carrying around with her. So we’ve got to get rid of mum’s bloods, we’ve got to get rid of all the interfering substances and find a tiny, tiny little bit of cell-free DNA that has come from the fetus and has travelled down through the, into mum’s bloodstream. This range of technology basically in Layman’s terms allows you to clean up that sample really, really quickly.

And it allows you to do it with automated machinery so you can feed the sample in and then a bit of time later you get yourself free DNA out which is the stuff that you sequence to be able to give your patient a result. So it increases the speed of which you can give a patient result. And in our market space, time to result is everything. And it reduces the cost, because it’s a fully automated system. You don’t need people sitting around waiting for the results to come through or adding bits of gel or adding reagents into the process as it goes along. So we were an early adopter of that technology.

Gosh, when we developed the last NIPT test about four years ago, and we thought it was so good, we bought it, and we’re seeing significant market opportunities from that coming through now. And as well as those sort of key products, as I said, we do a lot from a genomic services perspective. We’re constantly increasing our product range and our service width there. And we’re now looking at, not just reproductive healthcare, but oncology, genomic medicine, hereditary risks, and really supporting some big pharma companies with their clinical trial works and the like.

Our next slide covers a sort of geographic region as you can see from this map. We’re pretty much everywhere. We spent the last four years heavily invested in the commercial team. We rely on a fantastic set of distributors in Southeast Asia, often sharing those distributors with Thermo Fisher. In Europe and America and South America, we’ve got dedicated sales organizations and experienced sales leaders that help us go direct in those markets.

And as you see from the pie chart on the right-hand side. We’ve pretty good split there. So we’re not relying on one market or one territory. And we’ve got good diversification within our customer mix to manage the ups and downs of the international markets and the reality that we operate under derived demand where we can sell our products but we need our customers to be able to find patients and test patients to make it work. So hopefully, the map shows truly global with a lot of commercial opportunity to bring in more products and more services.

Excuse me, I think for, in terms of my last slide, just a bit of an update, as Steve said, with regard to where we are for figures. We finished last year’s unordered at the moment at around about GBP19.1 million worth of revenue and within that we had the sort of that the final hangover of the COVID markets, about GBP2 million with the business, so a core revenue of around about GBP17 million. Within that mix, we had our Ranger product, that little special box I told you about earlier that cleans up samples, that had doubled its growth by 100% and is now a GBP2 million product range. Our NIPT service, which is the flagship product within our Ranger, was the first product we brought to market. That’s got a CAGR of now 20% year-on-year, so back to the high double-digit CAGRs that we were experiencing pre-COVID, and is now generating close to GBP9 million with the revenue.

Our international businesses, again, really kick-started, and we saw the fantastic recovery in APAC and North America specifically where we see sales revenues increased by a minimum of 50% in those territories. And when we look at the period this year, obviously, as Steve will explain, we’re not a calendar year business, so we were sort of April to March as a financial year. But if we look at the first half of this year, so from January to June, we’re sat at about GBP9.1 million worth of product with an even smaller amount of COVID in there, and they are just GBP0.5 million now.

So hopefully that gives you a nice update on Yourgene, and I’m going to hand back to James to discuss the integration further.

James McCarthy

Thank you, Lyn. Let’s move on more. So look, I think we’ve got a fantastic opportunity here to build a combined global diagnostics business. I think we’ve got a real business of quality in Yourgene. And I think putting the businesses together will give us more scale, which is very important. We’re both smallish businesses, so putting us together builds strength.

I think you can look at that strength through a few different pillars. One is obviously commercial. I think we both have a kind of global sales force. I think putting that together would be really beneficial. It would give us more reach on the ground and probably mean we can penetrate more markets more quickly.

Two, fairly extensive R&D and product development, departments we can put together. Yes, there’s some new technologies in Yourgene that an oversight doesn’t have, but there’s also a molecular overlap. So we’re quite excited about putting those two businesses together. And I think that will really support longer term growth and we’ve got more products, more services off for customers and we feel that we just build a more sustainable business going forward.

If we just talk about Integration for a second, I mean we’re very early days, I think we’re kind of two and a half weeks in, and we’re really just starting to do the work on Integration. But I think the principles or the objectives of what we’re trying to do on Integration are quite important. And the first one for me is that, Yourgene core business has been growing very nicely as it came out of the COVID period. There’s a really, really good business in that.

And kind of my first rule of Integration is do no harm. So we want to be sure we do not distract that team. We do not lose momentum. And in fact, everywhere we can support that growth effort, we will do to keep that momentum going. I think the Yourgene business is a more mature selling operation than Novacyt, so I think Novacyt can benefit and learn from the journey Yourgene has been on.

And if you look at the commercial performance of Novacyt, it has been challenged over the last period. So, what we’re hoping to be able to leverage Yourgene’s expertise into Novacyt and we won’t get anywhere unless we can build one organization. So that will be really important that we put the organizations together as quickly as we can and that it works fairly seamlessly. And on the painting all of that will be really good communication. I think we have two, put different systems together, different ways of communicating and try and run this as one business.

And all of that together has to build a compelling investment case. So clearly there’s growth opportunities here, we’ll definitely try and accelerate the top line of both businesses and there will be cost synergies as we put the business together we expect duplication, back office and a lot of parts of the business, which we will address and we also see there’ll be an economy of skills as well as an economies of scale, right, where we can eliminate duplicate functions, et cetera. So we definitely see a compelling business case coming out of that.

And so maybe just to recap, the acquisition is a really significant step. It’s a step change for our business. The integration plans, we’re just beginning that journey and — but this will start to gather momentum now at Ernest. And we normally come back to the market around the end of January to give an update on our full year of revenue trading. I think it’s a good milestone to come back and give the market a more detailed update on where we are in integration. We think it’s around a six month project to do most of the heavy lifting, and it probably won’t be all, but we should have made substantial progress in about six months. So by the end of January, we should be able to give everybody a pretty good update of where we are.

And I also just wanted to mention the Taiwan divestment, which I think was mentioned last probably in maybe some of the acquisition documents. We still expect to complete that by the end of the year. It’s not entirely within our gift. I mean there are some permits et cetera. We’ve got to get from governments but we’re relatively confident all of that will happen before the end of the year. So that’s still the plan. So we’re basically following through on the plan that Yourgene started.

We’ve put guidance out there just for revenue at this stage. We will have a slightly strange year in that we’ll have three and a bit months, or three and maybe three quarter months of Yourgene revenue, because we will consolidate from the day to the acquisition and plus nine months of, sorry, 12 months of Novacyt revenue. So it’s like the odd year, but you’ll have seen from what Lyn said, you get a feel for the underlying run rate of the business.

And I think just to recap, I think for Novacyt, the first half of this year was really about building out that product portfolio and very, very strong quarter in R&D, which will be really important for us. We have to really focus on building this non-COVID portfolio. I mean, I think that’s clearly been the strategy for us and clearly what we’ve been busy with all the last period of time. And look, I think we remain focused on building out this global diagnostics business. Again, Yourgene is a big step towards that and yeah, I think we’re very, very confident that this accelerates us and puts us on a faster track to achieving that.

And so I think with that we are going to now open for questions I believe.

Question-and-Answer Session

Operator

Perfect. James, Steve, Lyn, thank you very much for your presentation. We have had a significant number of questions for today’s meeting, so the company have grouped these questions together to try and address as many of those as possible. The first one reads as follows.

What was the rationale for the acquisition of Yourgene? What are the synergies?

James McCarthy

Okay. Thanks a lot. I’ll take that one. Look, as you may expect, some of the questions will have been covered in the content of the presentation. So I think we’ll still try and repeat myself a bit here. It’s probably worth repeating some of this, but just bear with us. I mean clearly questions come in before people have seen the content so you will get a little bit of repetition here.

And I think the rationale for the deal, as we’ve stated publicly, we’ve been on a trend track of organic development, in other words, building our own internal in-house solutions for post-COVID, but also looking at acquisitions and using our balance sheet. And we’ve been scanning the market for at least 12 months to 18 months looking for the right partner, the right fit. And Yourgene as an established revenue generating global diagnostics business was really perfect. I mean there isn’t that many of those businesses around, which would have been with in our sphere. So I think that really was a fantastic acquisition for us. I think that really sets us off in building this kind of stronger global diagnostics business and with the benefits of combined selling force, geographic reach, products, R&D, et cetera., as I’ve covered.

And I think in synergies, I think I mentioned that yes, there will be opportunities for synergies, but synergies isn’t all just about cost. Cost will be important. That’s something definitely we will chase down, but I’m not as excited about the bringing skills together, getting that synergy of putting different minds together as well as very, very bright people and more businesses and I think we can do something really special with those two groups.

Operator

Perfect. Thank you very much. The next question here is follows. How do Yourgene products fit into Novacyt’s diagnostic portfolio?

Lyn Rees

Yeah. It’s probably easier for me to take this one, James. I think the fact that we both work in the molecular space is first of all really, really important. So we’re working on the same sort of platforms, PCR, and next-gen sequencing. Then effectively, what we brought to Novacyt is a reproductive healthcare pillar and an oncology pillar to add to a very strong infectious disease pillar. So I think there’s really good synergy there. And specifically in some of the more democratized lab settings, thinking about, Europe, LATAM and APAC. It’s quite common to go into one hospital or one customer and be able to speak to one person that looks after all three areas, oncology, reproductive health care, and infectious diseases. So I think it’s a good complementary fit there.

I think when you look at the capabilities of the organizations, we’ve got good instrumentation skills in both parts of the organization. So I’m sure those teams are going to get on really, really well and get some great ideas and working practices together. So really, really confident about that. And then, if you look at the product ranges, this range of technology that I spoke about in my presentation and being able to find a really clean sample, I think that’s critical. I think that is critical for both sets of customers and both organizations. From a services perspective, we will obviously be looking, and as James said, we’re only two and a half, three weeks into this process. So as part of that, we’ll be looking to see if there’s any products or services that we can take from another site and run them in our own labs and start generating data and revenues from that.

And I think ultimately it kind of makes, this enlarged organization kind of platform agnostic. As I said, we work on PCRs. We work in a range of embedded hardware that you’ll find in most of the labs throughout the world, be it Thermo Fisher, be it our own systems. Our NGS runs on both Illumina and Thermo Fisher sequencing platforms and for those of you not so or fair with the next-gen sequencing market.

If you kind of think about it like a mobile phone market, then you’ve got Apple and Android is basically Illumina and Thermo Fisher. They’ve got about 90% of the hardware that exists in the global marketplace. And if you think of Yourgene or now Novacyt as a company that makes apps or content to sit on that machinery, then we’re the only organization in the world that runs NIPT on both Thermo Fisher and Illumina, which captures about 90% of the addressable sequencing market out there. So, yeah, I think they fit very well in my summary.

Operator

Perfect. Thank you very much. And I think you just touched on this, but just to highlight again. The next question is, what is the market opportunity for Yourgene products?

James McCarthy

Yeah. I mean, I mentioned it in my deck, NIPT is a fast growing market, predominantly driven by the moms and the midwives. I mean, if you get asked, if you can come in and do a test at nine weeks as opposed to 12, 13, you’re always going to take that opportunity because you get your results and can lead to a less stressful pregnancy.

I remember when my wife was having our three daughters and I’ve been in healthcare for a long, long time. I couldn’t quite work out if it was a higher risk to have the test, or a higher risk for my wife to have a needle in her belly to take a bit of the fetus’s blood. So I think the fact that next-gen sequencing allows NIPT testing to be 99% specific, means it’s just getting adopted year on year on year on our growth rate and that space is 20%.

We spoke about the need to have real good clarity on the samples and the quicker you can get that cell free DNA, the bit of the DNA that you want to sequence and get your result from. You can clean that up quickly, then that’s a massive market opening up there and our range of technology does that. As I mentioned earlier, it’s got 100% year-on-year growth.

DPYD saves lives. The average cost of 5-FU treatment is about GBP50,000 for a full course of chemotherapy treatment and a DPYD test costs GBP50. So I think any patient or any healthcare professional that’s administering 5-FU and is aware of this DPYD assay, which will save the life in one in every 100 patients that they put through the chemotherapy programs. It’s a bit of a no-brainer. So we’re seeing that growing like a weed as well.

I think from a services perspective, the market has changed. Everyone is aware now of molecular testing because of COVID. My mother knows what a PCR test is, but I started off spending 25 years of work in the market and not having a clue what I do. I think the market is changing and advancements in medicine, trying to make medicine more bespoke to individuals as opposed to sort of a hit and miss approach. We try on something if it works, we give you more. If it doesn’t, we’ll give you something else. Trying to get to this personalized medicine.

I think all of these factors, and the fact that from a genetic screening perspective, probably most of us have had our DNA read for Christmas presents with 21 and me or something in the last couple of years. I think it’s just making the market more accessible and we’ve got products and services that can certainly play a part in that, which give us confidence in the market opportunity ahead of us.

Operator

Perfect. Thank you very much. Does the acquisition of Yourgene indicate a change in strategy for Novacyt?

James McCarthy

I’ll take that one. No, I think it definitely changes the scope. So I think we’ve got a wider range of products now, but I think if the core strategy was about building organic products and accelerating attractive acquisition. I think it absolutely falls within that. And as Lyn said, there is some commonality even in the products we get. So I just see it as — it definitely changes the footprint and the shape of the group, but absolutely moves us along that road of building global diagnostics business. So I don’t see it as a major change.

Operator

Perfect. Thank you very much. The next question, how much investment will Yourgene require before the business reaches sustainable profitability?

Steve Gibson

I can take that one, then there’s no answers. So I think hopefully not too much cash, right, but in all seriousness, this is something that we’ll look at as part of the integration planning process. And as James mentioned earlier on, we’re going to come back in the January earnings release and give you a progress update on how the integration is progressing. And we’ll also give a strategic update as well to set out some goals and targets then. But for me, the key takeaway of the Yourgene acquisition is it’s a really exciting acquisition. It’s great to have them as part of the Novacyt group and family. And I think they’re going to be a key driver for accelerating the sustainable growth within the client business in the future.

Operator

Perfect. Thank you very much. Next question here asks, if there will be any changes within the Novacyt senior leadership team?

James McCarthy

I think as we’ve said there are two new board members, who join us in Yourgene, which is John Brown and Lyn Rees himself, and they’re obviously subject to being ratified at the next shareholders meeting. But look for now, as far as we’ve gone, as we walk through integration, we will figure out how we want to run the business. But look, on those two appointments, I’m delighted. And we’ve got two very experienced board members joining the group and its super important that we’re getting that knowledge in onto our board of the Yourgene business. So I’m delighted we’ve got — we’ve started there and I think we will come back to everybody when the integration is a bit more advanced about how we’re running the business beneath that.

Operator

Perfect. What milestones can we expect in the next 12 months?

James McCarthy

I think the one I called out earlier is that we’ll come back to you at the end of January. At that point, I think, yes, give you an update on how we’re trading, how the revenue of all businesses is trading, that’s important. And I think I’ll also come back to you with how we’re progressing on the integration, because we should be fairly advanced by then. But I was talking to the employees in the business, I guess what I would say in terms of milestones is let’s not get distracted. I mean acquisitions can be new shiny things sometimes.

We both have customers, the customers don’t care about the acquisition, they want us to continue and improve our service. So we need to keep focused on that. We have lots of deals in motion, there’s good pipelines and businesses, we need to keep focused on that. Don’t distract anybody. So that’s really would be my message, certainly the message internally and something to share with you. We want to remain focused, keep the momentum we have in the business, build on that momentum, and do the integration without distracting people. That really is going to be the focus for the next few months.

Operator

Perfect. Thank you very much. Could you provide an update on the progress of your RUO strategy? When will your new multiplex test be commercially available?

James McCarthy

Yeah. So look, as I said, we’ve developed quite a few products in the first six months of the year and I mentioned about going down a UKCA route as opposed to full IVDR and the first two of those products is scheduled to complete towards the back end of this year. So then they’re ready for commercialization effectively from early 2024. And unfortunately in the regulated market we are in, there is a long lead time between developing a product, I’d like to say that’s the easy bit, I mean it’s not an easy bit, but there’s a long lead time if we’re developing the product and getting it out into customers’ hands.

And I think the other thing I would say on RUO is, and I mentioned in the main presentation, is we have a very, very broad portfolio, a substantial portfolio. I think the reputation of Primer Design was a custom-assay business. It really could turn assets around really quickly and solve customers’ problems very quickly. And we don’t want to lose any of that. We want to keep that reputation. But I think we also need to build some more category expertise. I think we are going to have to try and accelerate growth in the business. We have to become better in certain categories where we can build more sustainable solutions for customers, attract bigger customers, and build sustainable revenues. And that’s really how we’re thinking about how you want it.

Operator

Perfect. Thank you very much. I think you mentioned this in your last response, but what’s the difference between UKCA and IVDR, and how does the regulatory process differ?

James McCarthy

Yeah. So I think, for those who are familiar with this, the old IVDD process was replaced by an IVDR process. And IVDD is an in-vitro diagnostics directive, and it’s now been replaced by the vitro diagnostics regulation. But what that means to companies, which is the only thing you’re interested in, what does it mean to businesses like us? In the old regime, you could effectively build a product, validate it yourself, and say, roughly, that was a six month journey to market.

And the difference now, and I’m speaking very broadly here, is of course more complex than that. The difference now is that you need independent clinical data to validate your product. So instead of it being a six month program from development to commercialization, that’s more like an 18 month process, right and that’s a big deal, that’s a big deal for small businesses. Because I said, the difference between putting energy into launching a product or trying to solve a market need and actually getting that product out into the market, it’s long, that’s the difference.

What the UKCA mark does, is the UKCA Mark does effectively keeps the old IVDD type regime for the UK for a period of time, but it’s for mixed, I think it’s four or five years depending on your products. So, as I said, it gives us a shorter route to market, which for us matters. I mean, that’s important for us, that we can get the revenues quicker. So that’s the difference.

Operator

Perfect. Thank you very much. The next question is really around M&A and asks, if you’re still looking or actively looking for M&A targets?

James McCarthy

Yes, we are. I mean, we have, I think it’s a favorable market at the moment. I think we still have a strong balance sheet. And, I think we will still remain active in the market. If we see something that makes sense, that accelerates our strategy and fits. I’d like to think we will pursue that, maybe not something quite as big as Yourgene, but there’s a lot out there. So absolutely, we’ve got to remain focused on M&A.

Operator

Perfect. Thank you very much, James. And the final question we’ve got here is, could you provide an update on the situation with the DHSC?

James McCarthy

Yeah. Look as ever I can’t really say all that on the DHSC. I mean this is a claim that’s going through the courts and there hasn’t really been any material updates since I updated everybody the full year results. The trial date is still the same, it’s June 2024, which is in the public domain. And both sides in these processes are busy building their case and going through the various steps that the court puts you through. And to be fair, there’s not a lot more I can say at this stage, that’s where we are, no real change.

Operator

Perfect. James, Steve, Lyn, thank you very much for that. I think you’ve addressed those questions you can for investors. And of course, the company will review all the questions submitted today and we’ll publish those responses on the Investor Meet Company platform. Just before we direct investors, provide you with their feedback, which is particularly important to the company. James, could I just ask you for a few closing comments?

James McCarthy

Yeah. Look, I think if Yourgene was the big news, I guess I mean in the last month, I hope what Lyn was able to share with you a bit more insight into what this business is, what this business means and you get a sense of the opportunity. I think we’re all really, really looking forward to putting the businesses together. I think it’s a really, really exciting opportunity. I’ve spent quite a bit of time with as many of the teams I can over the last couple of weeks. I think the cultures are aligned. I think there are similar businesses. So I’m really optimistic, really excited. I think it’s a great deal.

And look, I kind of thank shareholders really for their patience, because you’ve been waiting for this for a while and it’s been a difficult journey. I mean, it wasn’t the quickest deal we’ve ever done. So I thank you for your patience and I think we can really deliver. So that would really be my closing comment on that. Thanks.

Operator

Perfect. James, Steve, Lyn, thank you once again for updating us today. Could I please ask Investors not to close this session, as you’ll now be automatically redirected. Provide your feedback in order that the management team can better understand your views and expectations. This will only take a few minutes to complete and I’m sure will be greatly valued by the company. On behalf of the Management Team of Novacyt, we’d like to thank you for attending today’s presentation and good afternoon to you all.