F-1/A 1 d930102df1a.htm F-1/A F-1/A
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As filed with the Securities and Exchange Commission on October 19, 2020.

Registration No. 333-249263

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1 to

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Abcam plc

(Exact Name of Registrant as Specified in its Charter)

 

 

 

United Kingdom   2836   Not Applicable

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

Discovery Drive

Cambridge Biomedical Campus

Cambridge, CB2 0AX

United Kingdom

+44 (0) 1223 696000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Abcam Inc.

1 Kendall Square

Suite B2304

Cambridge, Massachusetts

02139-1517

(888) 772-2226

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Ian D. Schuman

Nathan Ajiashvili

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

(212) 906-1200

 

Robbie McLaren

Latham & Watkins (London) LLP

99 Bishopsgate

London EC2M 3XF

United Kingdom

+44 20 7710-1000

 

Marcel R. Fausten

Yasin Keshvargar

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered(1)

 

Proposed

Maximum

Aggregate
Offering Price(2)(3)

  Amount of
Registration Fee(4)

Ordinary shares, nominal value of £0.002

  $169,941,240   $18,541

 

 

(1)

American depositary shares (“ADSs”) issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6. Each ADS represents one ordinary share.

(2)

Includes the aggregate offering price of additional ordinary shares, represented by ADSs, that the underwriters have the option to purchase.

(3)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(4)

Of this amount, $10,910 has been previously paid.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS (Subject to Completion)

DATED OCTOBER 19, 2020

8,945,218 American Depositary Shares

Representing 8,945,218 ordinary shares

 

 

LOGO

Abcam plc

 

 

This is the initial public offering of Abcam plc in the United States. We are offering 8,945,218 American Depositary Shares, or ADSs, with each ADS representing the right to receive 8,945,218 ordinary shares. We have applied to have our ADSs listed on the The Nasdaq Global Select Market (“Nasdaq”) under the symbol “ABCM.”

Our ordinary shares trade on AIM, a market of the London Stock Exchange, under the symbol “ABC.” On October 15, 2020, the last reported sale price of our ordinary shares on AIM was £12.80 per ordinary share (equivalent to $16.52 per ADS based on an assumed exchange rate of £1.00 to $1.2909).

 

 

Investing in our ADSs involves a high degree of risk. Before buying any ADSs, you should carefully read the discussion of material risks of investing in our ADSs. See “Risk Factors” beginning on page 23.

 

 

We are both an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”

 

 

 

      

Price to

public

      

Underwriting
discounts

and
commissions(1)

      

Proceeds,
before
expenses,

to us

 

Per ADS

       $                              $                              $                      

Total

       $                              $                              $                      

 

(1)

We refer you to “Underwriters” for additional information regarding underwriting compensation.

To the extent that the underwriters sell more than 8,945,218 ADSs, the underwriters have the option to purchase up to an additional 1,341,782 ADSs from us at the initial public offering price. The underwriters may exercise this option at any time within 30 days after the date of the final prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs to purchasers on or about                  , 2020.

 

 

 

MORGAN STANLEY    BOFA SECURITIES
SVB LEERINK
LAZARD    WILLIAM BLAIR

Prospectus dated                  , 2020


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For investors outside the United States: neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus outside the United States.

Neither we nor the underwriters have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus, any amendment or supplement to this prospectus, or in any free writing prospectus we have prepared, and neither we nor the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information others may give you. Neither we nor the underwriters are making an offer to sell, or seeking offers to buy, these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date on the cover page of this prospectus, regardless of the time of delivery of this prospectus or the sale of ADSs. Our business, financial condition, results of operations and prospects may have changed since the date on the cover page of this prospectus.

We are incorporated under the laws of England and Wales. Under the rules of the U.S. Securities and Exchange Commission (the “SEC”), we are currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

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ABOUT THIS PROSPECTUS

Except where the context otherwise requires or where otherwise indicated, the terms “Abcam,” the “Company,” the “Group,” “we,” “us,” “our company” and “our business” refer to Abcam plc, together with its consolidated subsidiaries as a consolidated entity.

MARKET AND INDUSTRY DATA

We obtained the industry, market and competitive position data in this prospectus from our own internal estimates, surveys and research as well as from publicly available information, industry and general publications and research, surveys and studies conducted by third parties, such as reports by CiteAb, a compiler and provider of citation data to the life science industry that uses its proprietary text mining technology and extensive human validation to search millions of scientific publications, EvaluatePharma, Pharmaprojects, Centers for Medicare and Medicaid Services and Pivotal Scientific.

Our estimates of our addressable market include several key assumptions based on our industry knowledge, industry publications, and third-party research, as well as other surveys. Moreover, these estimates of our addressable market are based on analyzing five specific markets, their current market size value and their estimated growth rates. These markets include: (1) Immunohistochemistry (a type of tissue diagnostic), (2) Tissue Diagnostic, (3) Diagnostic Specialty Antibody Market, (4) Research Antibodies and (5) Therapeutic Antibodies. The information and data we have relied on in determining our estimates is obtained from: (i) MarketsandMarkets; (ii) Grand View Research; (iii) Market Data Forecast; (iv) Market Study Report; (v) Future Market Insight; (vi) Transparency Market Research; (vii) Mordor Intelligence; (viii) Nova One Advisor; (ix) Research and Markets; (x) Biospace; and (xi) Polaris Market Research. While we believe that our internal assumptions are reasonable, the sources we have relied on may be based on a small sample size and may fail to accurately reflect market opportunities. Moreover, no independent source has verified such assumptions, and we did not commission any of the market and industry data presented in this prospectus. Industry publications, research, surveys, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this prospectus. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the forecasts or estimates from independent third parties and us.

TRADEMARKS

We have proprietary rights to trademarks used in this prospectus that are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the “®” or “” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name or service mark of any other company appearing in this prospectus is the property of its respective holder.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

This prospectus includes our audited consolidated financial statements as of and for the fiscal years ended June 30, 2019 and 2020 prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). We refer to these consolidated financial statements collectively as our “annual consolidated financial statements.” None of our financial statements were prepared in accordance with U.S. GAAP.

Our financial information is presented in pounds sterling. For the convenience of the reader, in this prospectus, unless otherwise indicated, translations from pounds sterling into U.S. dollars were made at the rate of £1.00 to $1.2369, which was the noon buying rate of the Federal Reserve Bank of New York on June 30, 2020. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of pounds sterling at the dates indicated. All references in this prospectus to “$” mean U.S. dollars and all references to “£” and “GBP” mean pounds sterling.

Our fiscal year begins on July 1 and ends on June 30 of the following year. All references to fiscal year 2019 relate to the year ended June 30, 2019 and fiscal year 2020 relate to the year ended June 30, 2020.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before deciding to invest in our ADSs. You should read the entire prospectus carefully, including the “Risk Factors,” “Business,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and notes to those consolidated financial statements before making an investment decision.

Overview

We are a global life science company focused on identifying, developing and distributing high-quality reagents and tools for our customers at the forefront of life science research. Our products are used by researchers to study biological pathways, which is critical for scientific research, diagnostics and drug discovery. Our mission is to provide life science researchers with highly validated products and services to advance biological research and achieve their goals faster. We do this by continuously innovating and providing our customers with high-quality tools, together with expert customer support. Our product offering includes an extensive portfolio of antibodies and related protein research tools that are fundamental to our customers’ research and experimental workflow. Our customers are primarily scientists and researchers in academic institutions, research institutes and pharmaceutical, biotechnology and diagnostics companies. Headquartered in Cambridge, United Kingdom, we operate across 15 locations around the world, supported by our world-class team of approximately 1,500 employees, including over 200 with PhDs, and have served customers in over 130 countries.

Our addressable market can be broadly classified into two categories, based on the application of our products and type of customer they serve:

 

   

Research use only (“RUO”) proteomic tools. We believe the global market for RUO antibodies and reagents is valued at approximately $3 billion as of 2019 and, as of 2019, was expected to grow at around 4% per annum (excluding any impact from COVID). These products include protein binding reagents, such as antibodies and immunoassays, and related reagents. Our research products are used to detect, quantify, visualize and modify proteins in scientific research experiments, which we believe serve as mission critical tools, to enable our customers to develop insights about targets and pathways of interest. Our customers include academic labs for scientific research and clinical labs in pharmaceutical and biotechnology companies. Our catalogue revenue, the substantial majority of which is purchased for RUO, accounted for 93.5% of our total revenue for the fiscal year ended June 30, 2020.

 

   

Antibody development for clinical application. Antibodies are a critical component in many in vitro diagnostic (“IVD”) assays and can also be used as therapeutic agents for the treatment of diseases, including cancers and immune-related diseases. In recent years, through the custom development of new antibodies and the out-licensing of our existing antibodies to biopharmaceutical and diagnostic companies, we have extended the commercial potential of our products into these markets. The substantial majority of our custom products and licensing revenue (“Custom Products and Licensing revenue”), which includes custom development services, IVD sales and royalty and license income, is generated from these activities, and accounted for 6.5% of our total revenue for the fiscal year ended June 30, 2020.

Life science researchers are increasingly seeking higher quality tools and reagents, which deliver consistent, reproducible results, save time, uncover deeper biological insights and advance their research. We believe customers place their trust in Abcam because of our reputation for providing reliable, highly validated products



 

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with market leading specificity and high sensitivity, comprehensive and transparent product data, fast delivery and exceptional customer support. According to CiteAb, our products were cited in approximately half of all life science publications in 2019, and we were the most cited company in approximately 40% of the top 2,000 most studied protein targets as of June 30, 2020.

 

LOGO

Figure 1, Information as of June 30, 2020, except as otherwise stated

1)  In the fiscal year ended June 30, 2019

2)  CiteAb, for 2019

We have developed an industry leading innovation platform that is informed by data analytics, research area specialists and the relationships we have built with our customers, all of which enable us to anticipate and align our innovation efforts with our customers’ research priorities. Today, approximately two-thirds of our primary antibody innovation pipeline is driven by our proprietary algorithms that interrogate a wide variety of internal and external data sources, including research literature and our web data, to predict product and market demand, which inform our development efforts. We leverage this data to anticipate which tools researchers will need in the future in order to help advance their research, as well as to identify breakthrough opportunities in areas where there is a lack of high-quality products or where we identify custom opportunities in collaboration with our customers. We believe this capability and, in particular, our unique ability to leverage our extensive proprietary data, provides us with strategic advantage and helps us sustain and extend our position as a market leader within the life science tools market.

We offer a large and differentiated portfolio of approximately 100,000 products with over 300,000 SKUs as of June 30, 2020. Our flexible sourcing model enables us to grow our product offering in line with researchers’ needs. This is achieved by developing and manufacturing in-house products, as well as sourcing products from our original equipment manufacturer (“OEM”) suppliers. We demand high product quality standards from our suppliers, and we enhance the utility of these products for our customers by providing additional data and product validation as well as by making them available through our global distribution platform and customer service. Over the last five years, we have increased focus on the development of in-house products for research areas we expect to have high demand. This focus has seen our proprietary product portfolio grow to represent 51% of our total revenue for the fiscal year ended June 30, 2020, compared to 28% of our total revenue in the fiscal year ended June 30, 2012.



 

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We are continuously expanding our portfolio to provide our customers with additional solutions and further expand within our addressable markets. Utilizing the foundations laid by our innovation platform and strategic acquisitions, our strategy is to leverage our capabilities to continue expansion into adjacencies and more comprehensive product offerings, including primary conjugated antibodies, singleplex and multiplex immunoassays, proteins and edited cell lines. In addition, through partnerships with biopharmaceutical and diagnostic companies, the potential application of our products is being extended into diagnostic and therapeutic markets.

We make our extensive product characterization and validation data available to our customers across our portfolio. This data is sourced by our in-house laboratories, our network of collaborators and independent consumer product reviews. Researchers use this to be able to select the right product for their highly specific needs. Stringent quality control and validation processes are carried out by our global laboratories to check the activity, stability and performance of our products. We are continuing to invest in product validation in order to raise quality standards and differentiate ourselves in the marketplace. For example, our award winning knockout CRISPR gene editing program is one of the most accepted and trusted validation processes for antibody specificity, and we have been recognized for carrying out the largest number of knockout validations for antibodies in the industry, according to CiteAb, who presented us with the award in 2020. Our investment in product validation helps us meet our customers’ increasing demand for higher quality research tools.

Having established one of the first digital platforms in our industry over 20 years ago, our website, search engine optimization and data remain a strategic advantage. As a part of our core strategy, we now aim to build on our position by establishing a highly personalized, cross-platform digital relationship with our customers, wherein we are able to uniquely understand and anticipate their needs. Coupled with greater personalization of the user experience and the creation of a more dynamic and agile content management system, our goal is to provide customers with more relevant products and services to help them achieve their research goals, improve online conversion rates, capture a greater share of business from existing customers and generate business from new customers.

Since 2001, we have sold our products and services to customers in over 130 countries through a variety of channels, including our ecommerce sites, a network of distributors and a targeted field sales team. In the fiscal year ended June 30, 2020, our worldwide customer base consisted of approximately 750,000 life science researchers. As of June 30, 2020, we had seven manufacturing facilities and a global distribution network that enables prompt delivery to our customers, with orders generally shipped within 24 to 48 hours of ordering.

We recorded revenue of £260.0 million, profit for the year of £12.5 million and Adjusted Operating Profit of £44.5 million for the fiscal year ended June 30, 2020. Revenue was broadly flat for the fiscal year ended June 30, 2020, as compared to the same period in the prior year. For the definition of Adjusted Operating Profit and reconciliation of Adjusted Operating Profit to profit for the year, please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Metrics.”

Large and Growing Addressable Markets

In 2019, we estimated that our capabilities served a total addressable market of approximately $8 billion, which we estimate was comprised of a total addressable market of the research antibody and reagents industry of approximately $3 billion and a total addressable market for the generation of third-party antibodies for diagnostic and therapeutic companies’ applications of approximately $5 billion.

The growing and fragmented proteomic research reagents market currently represents a majority of our sales and is a field where we believe we have established a strong position, with our revenue having grown at a compound annual growth rate (“CAGR”) of 13% over the last six years, compared to an estimated 4% per year



 

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long-term growth rate for the proteomics research reagents market. Even as a leader within this market, we believe there is significant headroom for growth, as highlighted by Figure 2 below.

 

 

LOGO

Figure 2

Our Growth Strategies

We aim to support those at the forefront of biological research, and we will continue to capitalize on our platform and competitive strengths as we pursue multiple growth strategies:

Extend Leadership in RUO Antibodies. We are committed to help advance our customers’ research and, in turn, support our market share gains. We seek to do this through the continual addition of product data, knowledge and information that demonstrates performance and increased utility in a broader range of experiments and applications.

This strategy is further enhanced through our focus on in-house proprietary products, including one of the world’s largest portfolios of recombinant rabbit monoclonal antibodies. We continuously innovate to ensure that our portfolio of antibodies is aligned with the targets, research areas and biological pathways in highest demand from our customers.

Remove Innovation Constraints and Launch New Lines. We are developing our innovation capabilities to meet our customers’ needs in adjacent product areas. This enables us to further grow within our addressable markets and at the same time provides us with in-house tools to develop high-quality validated antibodies thereby expanding our product portfolio. Specifically, we are focusing our efforts to expand our portfolio in:

 

   

Antibody-Derived Products for High Value, High Growth Markets. We intend to extend the range of products derived from our catalogue of in-house primary antibodies, including primary antibody conjugates, antibody pairs, our SimpleStep singleplex assays and our in-house Fireplex multiplex products.

 

   

Complementary Product Areas that Simultaneously Enable Faster Antibody Innovation. These product areas include launching a portfolio of highly validated bioactive proteins, as well as a portfolio of disease relevant edited cell lines and associated cell lysates.

 

   

Third-Party Instrumentation Platforms and Multiplex Partners. Our focus is to partner with third parties developing either novel platforms or upgrading their existing platforms to address novel biomarkers and help them develop the right content to offer their users (antibodies and other protein reagents).



 

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Be a Leading Discovery Partner for Biopharmaceutical Organizations. Our in-house proprietary product portfolio allows us to have greater flexibility in customizing products to our customers’ specification and needs. We believe this will continue to help us to bring innovative solutions to our global strategic customers in the diagnostic and biopharmaceutical markets, leading to increased opportunities for custom services, partnerships, and collaborations.

Be a Leading Digital Company. Our goal is to significantly enhance our digital channel by establishing a highly personalized digital relationship with our customers, which will be device agnostic, cloud based and driven by artificial intelligence. We believe this will help us to uniquely understand and anticipate researchers’ needs and therefore, capture greater market share from existing customers and generate business from new customers. Our web search position is influenced by a combination of organic web searches by users and some paid advertisements, which drive traffic into our website.

Remove Scalability Constraints and Sustain Value. Our objective is to strengthen our teams, systems and infrastructure while driving operational efficiency. We are focused on increasing our manufacturing capacity, increasing automation at process bottlenecks and optimizing our global network and procurement functions. We are also transforming our systems and processes by implementing Oracle Cloud enterprise resource planning (“ERP”) and other software solutions to replace legacy information technology (“IT”) systems. We also seek to expand our operations in multiple high growth regions, such as China. Additionally, in certain markets where we currently rely on distributors and see growth potential, we intend to explore direct distribution opportunities to enhance our offering and expand our customer base.

Selectively Pursue Acquisitions. We have a strong track record of successfully identifying, completing and integrating strategic acquisitions and investments. Our strong brand, broad platform, global infrastructure and diversified customer base has allowed us to generate growth and operating leverage through acquisitions. We intend to continue to pursue opportunistic acquisitions in our existing and adjacent customer segments to accelerate our growth, expand geographic coverage and augment our capabilities and workflow solutions.

Our Competitive Strengths

Our customer-centric business model, combined with our product innovation capabilities and deep understanding of our customers’ needs, allows us to differentiate ourselves in the marketplace and is at the core of our competitive advantage. We believe the following competitive strengths provide the foundation for our position as a partner of choice for mission critical products and services to our customers.



 

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Brand Leadership in Research Use Antibodies. We have established ourselves as a leading brand in research use antibodies, driven by high-quality, reliable products combined with extensive and transparent product data and excellent customer service. Our citations have shown consistent growth year over year since 2010 as demonstrated by Figure 3 below, which we believe demonstrates our influence within the research community. This is because the scientific community faces two key issues: the inability to reproduce experiments efficiently and wasted funds due to purchasing the wrong product. To combat these issues, life scientists rely on citations in peer-reviewed literature to find the most appropriate product for their research and to help reproduce their results. Our antibodies are increasingly cited in peer-reviewed literature, making us more visible to the life sciences research community and increasing the chances that researchers will choose our antibodies. Thus, we believe that as our products have been cited in an increasing number of research publications, our influence within the research community has grown. In addition, we believe that this increase in citations serves as an inherent recurring marketing tool to help sustain our leadership position within the antibodies market.

 

 

LOGO

Figure 3, Source: CiteAb, 2019

Customer-Centric, Data Driven Model

Leading Digital Presence. As one of the first companies to provide a digital platform for antibodies and reagents, we believe our first mover advantage combined with the provision of extensive and transparent product validation data and search engine optimization has led to leading global traffic on our website over time. In the last three fiscal years ended June 30, 2020, the total number of sessions on our website has grown by more than 30%, with over one million user interactions on our website per month for the fiscal year ended June 30, 2019. A “session” on our website includes page views, ecommerce transactions or other interactions, and we monitor “sessions” to measure the volume of traffic to our website, which is strongly correlated to sales. In June 2020, we maintained the leading web search position for 10,000 of the top primary antibody search terms, appearing on the first page and at the top of users’ search results in approximately one-third of searches, compared to less than 20% for our next closest competitor, according to our internal data. We believe that the significance of “appearing first” in search results means that we are likely to experience greater traffic to our website, which may lead to greater brand recognition and increased sales. Our web search position is influenced by a combination of organic web searches by users and some paid advertisements, which drive traffic into our website.

Data Driven. Our web traffic data, combined with our ability to collect, analyze and interpret customer data, provides us unique insight into the needs of our customers. This in turn enables us to customize our engagement with customers and deliver more relevant, targeted marketing media, with the goal of improving the customer experience.

Differentiated Product Innovation Platform. Today, approximately two-thirds of our primary antibody innovation pipeline is largely driven by data algorithms that are able to analyze market demand and interrogate research literature to help us anticipate which tools researchers will need in the future. The balance is focused on



 

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breakthrough innovation opportunities in areas where there are either few or no tools that currently exist for scientific research. We innovate by means of our in-house development efforts, we create new products for partners through our custom solutions teams, and through our channel we help to accelerate the market acceptance and growth of promising, high-quality third-party products to complement our own product offerings.

Product Quality and Customer Service Drives Customer Loyalty. The success of our customers’ work, from basic research to translational science, diagnostics and therapeutic clinical programs, requires rigorous product quality, performance and reliability. We continue to drive our quality standards through a variety of internal initiatives, including extensive product quality assurance programs, manufacturing processes that increase the reliability and consistency of our product performance, notably recombinant antibody production, and ongoing quality management of third-party products offered through our platform. While most of our products are sold as RUO reagents, the high quality of our products allows us to support antibody and assay development for use across the IVD sector, from laboratory-developed tests and rapid assay platforms through to companion diagnostics and clinical trials.

Large, Differentiated Product Offering. We offer an extensive portfolio of antibodies and related protein research reagents that enables us to serve life scientists studying a wide range of research areas. As of June 30, 2020, we offered approximately 100,000 products on our customer website, totaling over 300,000 SKUs. We also offer custom services to certain of our customers seeking access to novel, high-quality and personalized solutions to support the development of specific diagnostic and therapeutic applications. Since 2013, we have undertaken more than 2,000 custom projects with our pharmaceutical and diagnostic partners.

Global Scale, Strategic Locations and Specialized Infrastructure. Since 2001, we have sold our products and services to customers in over 130 countries. We have seven manufacturing facilities and seven distribution centers strategically located across four continents to serve many of the largest clusters of life science research hubs, which enhances supply chain efficiency. Additionally, we have a multi-channel commercial presence through our digital platform, on-ground global sales teams, industry conferences and other events. Our customer and scientific support teams provide highly specialized assistance to ensure that our customers are supported through their research.

Resilient and Growing End Markets and Attractive Financial Profile. We serve the life science research markets, which are supported by significant funding and capital investments from both public and private institutions. We expect the convergence of multiple industry trends to underlie continued growth in our sector, including an increasing global demand for healthcare and strong funding support for biomedical research. Furthermore, while our products are critical to basic research and development, our products often represent a small percentage of the overall cost of our customers’ workflow. Additionally, most of our products are consumable in nature and once established in the marketplace, the demand tends to be stable. We have an attractive business model due to our resilient revenue base (which grew at a CAGR of 13% from 2014 to 2020), high product margins and strong cash flow generation.

Strong Leadership and Global Team with Proven Ability to Execute. Our management team has a proven track record of delivering business growth, executing on investment plans, driving continuous and material improvement of our global enterprise and generating high returns on capital. Our management team is supported by approximately 1,500 employees around the world, including over 200 with PhDs, who have extensive scientific and commercial experience and enable us to provide our customers with tailored expertise and service.

Recent Developments

The COVID-19 pandemic has adversely affected, and is expected to continue to adversely affect, elements of our business (including elements of our operations, supply chains and distribution systems). We are continuing



 

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to monitor closely how the pandemic and related response measures are affecting our business. Our production and manufacturing facilities are located around the world, so while certain facilities were shut down or operating at reduced capacity, our other locations were able to continue operating as normal. The pandemic reduced demand during the second half of the fiscal year ended June 30, 2020 as research laboratories globally were temporarily shut down or operating at reduced capacity, resulting in a decline in revenue in the second half of the fiscal year of approximately 10% compared with the second half of the fiscal year ended June 30, 2019. Our monthly revenue compared to the same period in the prior year decreased by 37.6% in April, 26.2% in May and 0.2% in June 2020. Although we have seen a reduction in demand due to the ongoing COVID-19 pandemic, we have not observed any significant changes in our underlying customer base, and we have been and will continue to serve our customers even at a reduced level until their activities return to normal. In April 2020, we began to see the reopening of laboratories in certain countries in Europe, and we have continued to see a gradual increase in activity across all regions since then. The gradual recovery of revenue we have seen compared with previous levels reflects the underlying factors affecting demand, including the easing of lockdown restrictions and the partial or full reopening of academic and biopharmaceutical research laboratories around the world. While we see demand and revenue returning, there remains significant uncertainty and geographical variation with regards to our outlook, particularly across North America where the number of COVID-19 cases is rising. We expect that our fiscal year 2021 results will be impacted by the COVID-19 pandemic; however, it is not possible to predict the ultimate impact of the developments described above or the full duration and impact of the pandemic.

Our operating expenses increased from the fiscal year ended June 30, 2019 to the fiscal year ended June 30, 2020. Consistent with our previously announced growth strategy, we intend to continue to increase our rate of investment in growth projects and expect our operating expenses will continue to increase in the fiscal year ended June 30, 2021 and the medium term as a result. In particular, we expect such increases in operating expenses relative to prior periods as we (i) continue to increase our investment in research and development, digital marketing and e-commerce, (ii) continue to expand into adjacent markets and build scalability into our operational infrastructure, including through further investment in our IT systems, infrastructure and business processes and (iii) continue to invest in our people and increase our headcount. For the fiscal year ended June 30, 2020, our operating profit margin was 4.0% and our adjusted operating profit margin was 17.1%, and we expect our operating profit margins to continue to be lower as a result of the effects of COVID-19 and our investment plans in the short to medium-term.

Risk Factors

Investing in our ADSs involves risks. You should carefully consider the risks described in “Risk Factors” before making a decision to invest in our ADSs. If any of these risks actually occurs, our business, financial condition or results of operations could be materially and adversely affected. In such case, the trading price of our ADSs would likely decline, and you may lose all or part of your investment. The following is a summary of some of the principal risks we face:

 

   

a regional or global health pandemic, including the novel coronavirus (“COVID-19”), which has adversely affected elements of our business, could severely affect our business, including due to impacts on our operations and supply chains;

 

   

challenges in implementing our strategies for revenue growth in light of competitive challenges;

 

   

developing new products and enhancing existing products, adapting to significant technological change and responding to the introduction of new products by competitors to remain competitive;

 

   

failing to successfully identify or integrate acquired businesses or assets into our operations or fully recognize the anticipated benefits of businesses or assets that we acquire;

 

   

if our customers discontinue or spend less on research, development, production or other scientific endeavors;



 

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failing to successfully use, access and maintain information systems and implement new systems to handle our changing needs;

 

   

cyber security risks and any failure to maintain the confidentiality, integrity and availability of our computer hardware, software and internet applications and related tools and functions;

 

   

failing to successfully manage our current and potential future growth;

 

   

any significant interruptions in our operations;

 

   

if our products fail to satisfy applicable quality criteria, specifications and performance standards;

 

   

failing to maintain our brand and reputation;

 

   

our dependence upon management and highly skilled employees and our ability to attract and retain these highly skilled employees; and

 

   

as a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and Nasdaq corporate governance rules and are permitted to file less information with the SEC than U.S. companies, which may limit the information available to holders of our ADSs.



 

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Corporate Structure

The following diagram illustrates our corporate structure immediately following the consummation of this offering (assuming the underwriters do not exercise their option to purchase additional ADSs in full):

 

LOGO

Corporate Information

We were incorporated as a private limited company with the legal name Tayvin 103 Limited under the laws of England and Wales on February 12, 1998 with the company number 03509322. On March 26, 1998, we changed our company name to Abcam Limited, and on October 26, 2005, we re-registered as a public listed company with the name Abcam plc. Our principal office is located at Discovery Drive, Cambridge Biomedical Campus, Cambridge, United Kingdom, CB2 0AX, and our telephone number is +(44) 1223 696000. Since 2005, our ordinary shares have traded on the AIM market of the London Stock Exchange, under the symbol “ABC.” Our website address is www.abcam.com. The information contained on, or that can be accessed from, our website does not form part of this prospectus. Our agent for service of process in the United States is Abcam Inc., 1 Kendall Square, Suite B2304 Cambridge, Massachusetts 02139-1517, United States of America.



 

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Implications of Being an Emerging Growth Company and a Foreign Private Issuer

We qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to U.S. public companies. These provisions include:

 

   

an exemption to include in an initial public offering registration statement only two years of audited financial statements and selected financial data and only two years of related disclosure;

 

   

reduced executive compensation disclosure; and

 

   

an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) in the assessment of the emerging growth company’s internal control over financial reporting (which generally would otherwise be applicable for a non-emerging growth company commencing with its second annual report on Form 20-F following the completion of its initial public offering).

We may choose to take advantage of some but not all of these reduced reporting burdens.

We will remain an emerging growth company until the earliest of:

 

   

the last day of our fiscal year during which we have total annual revenue of at least $1.07 billion;

 

   

the last day of our fiscal year following the fifth anniversary of the closing of this offering;

 

   

the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or

 

   

the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of our ordinary shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.

In addition, upon the closing of this offering, we will report under the Exchange Act as a “foreign private issuer.” As a foreign private issuer, we may take advantage of certain provisions under the rules that allow us to follow the laws of the United Kingdom for certain corporate governance matters. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time;

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and

 

   

Regulation Fair Disclosure, which regulates selective disclosures of material information by issuers.

Foreign private issuers, like emerging growth companies, also are exempt from certain more stringent executive compensation disclosure rules. Thus, if we remain a foreign private issuer, even if we no longer qualify as an emerging growth company, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are neither an emerging growth company nor a foreign private issuer.



 

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We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer, and be required to transition on January 1 of the following year, at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies:

 

   

the majority of our executive officers or directors are U.S. citizens or residents;

 

   

more than 50% of our assets are located in the United States; or

 

   

our business is administered principally in the United States.



 

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THE OFFERING

 

ADSs offered by us

8,945,218 ADSs, each representing one ordinary share.

 

Option to purchase additional ADSs

We have granted the underwriters an option to purchase up to 1,341,782 additional ADSs from us within 30 days of the date of this prospectus.

 

Ordinary shares to be outstanding after this offering

225,171,370 ordinary shares (or 226,513,152 ordinary shares if the underwriters exercise their option to purchase additional ADSs from us in full).

 

American Depositary Shares

The underwriters will deliver ADSs representing our ordinary shares. Each ADS represents one of our ordinary shares.

 

  As an ADS holder, we will not treat you as one of our shareholders. The depositary, Citibank, N.A., will be the holder of the ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement among us, the depositary and all holders and beneficial owners of ADSs thereunder. You may surrender your ADSs to the depositary and withdraw the underlying ordinary shares pursuant to the limitations set forth in the deposit agreement. The depositary will charge you fees for, among other items, any such surrender for the purpose of withdrawal. As described in the deposit agreement, we and the depositary may amend or terminate the deposit agreement without your consent. Any amendment that imposes or increases fees or charges or which materially prejudices any substantial existing right you have as an ADS holder will not become effective as to outstanding ADSs until 30 days after notice of the amendment is given to ADS holders. If you continue to hold your ADSs, you agree to be bound by the terms of the deposit agreement then in effect. To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is an exhibit to the registration statement of which this prospectus forms a part.

 

Depositary

Citibank, N.A.

 

Custodian

Citibank, N.A. (London)

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $134.7 million (or approximately $155.3 million if the underwriters exercise their option to purchase additional ADSs from us in full, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed initial public offering price of $16.52 per ADS, the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909).


 

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  The principal purposes of this offering are to obtain additional working capital, to create a public market for our ADSs and to facilitate our future access to the public equity markets. We intend to use the net proceeds from this offering for working capital, general corporate purposes and to fund incremental growth, including for possible acquisitions. See “Use of Proceeds.”

 

Dividend policy

In the future, our board of directors may decide, in its discretion, whether dividends may be declared and paid. See “Dividend Policy.”

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ADSs.

 

Listing

We have applied to list our ADSs on Nasdaq under the symbol “ABCM.”

 

AIM trading symbol

“ABC”

The number of our ordinary shares to be outstanding after this offering is based on 216,226,152 ordinary shares outstanding as of September 30, 2020 and excludes:

 

   

3,326,399 ordinary shares issuable under our equity incentive plans as of September 30, 2020, consisting of:

 

   

2,155,444 ordinary shares issuable upon the vesting of conditional share awards outstanding under our equity incentive plans as of September 30, 2020; and

 

   

1,170,955 ordinary shares issuable upon exercise of share options outstanding under our equity incentive plans as of September 30, 2020, at a weighted average exercise price of $7.59; and

 

   

539,744 ordinary shares reserved for future issuance under our equity incentive plans as described in “Management—Equity Compensation Arrangements.”

Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

 

   

no exercise of the outstanding options described above after September 30, 2020; and

 

   

no exercise by the underwriters of their option to purchase up to 1,341,782 additional ADSs in this offering.



 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. The following summary historical consolidated financial data as of and for the years ended June 30, 2019 and 2020 have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results expected in any future period.

The financial data set forth below should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus.

We maintain our books and records in pounds sterling, and we prepare our financial statements in accordance with IFRS as issued by the IASB. We report our financial results in pounds sterling. For the convenience of the reader, we have translated pound sterling amounts in the tables below as of June 30, 2020 and for the year ended June 30, 2020 into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York on June 30, 2020, which was £1.00 to $1.2369. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date.

 

     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions, except per share data)  

Consolidated Income Statement:

      

Revenue

   £         259.9     £         260.0   $         321.6

Cost of sales

     (76.7     (79.8     (98.7
  

 

 

   

 

 

   

 

 

 

Gross profit

     183.2       180.2       222.9
  

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

      

Before exceptional items and amortization of acquisition intangibles

     (88.9     (118.3     (146.3

Exceptional items and amortization of acquisition intangibles

     (23.2     (13.1     (16.2

Research and development expenses

      

Before exceptional items and amortization of acquisition intangibles

     (10.7     (17.4     (21.5

Exceptional items and amortization of acquisition intangibles

     (4.3     (20.9     (25.9
  

 

 

   

 

 

   

 

 

 

Operating profit

     56.1       10.5       13.0

Finance income

     0.6       0.7       0.9

Finance costs

     (0.3     (2.8     (3.5
  

 

 

   

 

 

   

 

 

 

Profit before tax

     56.4       8.4       10.4  
  

 

 

   

 

 

   

 

 

 

Tax (charge) / credit

     (11.4     4.1       5.1
  

 

 

   

 

 

   

 

 

 

Profit for the year

   £ 45.0     £ 12.5     $ 15.5  
  

 

 

   

 

 

   

 

 

 

Basic earnings per share

   £ 0.220     £ 0.060     $ 0.074  

Diluted earnings per share

   £ 0.218     £ 0.060     $ 0.074  

Weighted average ordinary shares for the purposes of basic earnings per share

     204.9       207.6       207.6  

Weighted average ordinary shares for the purposes of diluted earnings per share

     206.7       209.6       209.6  


 

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     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions)  

Consolidated Cash Flow Statement:

                                                                     

Net cash inflow from operating activities

   £ 70.2     £ 63.0     $ 77.9  

Net cash outflow from investing activities

     (49.9     (148.1     (183.2

Net cash (outflow) / inflow from financing activities

     (24.7     184.6       228.3  

(Decrease)/increase in cash and cash equivalents

     (4.4     99.5       123.1  

 

     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions, except as otherwise stated)  

Other Data(1):

                                                                     

Total CER revenue growth(2)

           (1.4 )%      (1.4 )% 

Free Cash Flow(2)

   £ 34.3     £ 19.0     $ 23.5  

Adjusted Operating Profit(2)

   £ 83.6     £ 44.5     $ 55.0  

Adjusted Operating Profit Margin(2)

     32.2     17.1     17.1

Return on Capital Employed (“ROCE”)(2)

     20.8     6.8     6.8

Adjusted Diluted earnings per share(2)

   £ 0.326     £  0.166     $ 0.205  

 

     As of June 30, 2020  
     Actual     As Adjusted(3)  
     (in millions)  

Consolidated Balance Sheet items:

                                                  

Cash and cash equivalents

   £ 187.3     $ 231.7     £ 291.6     $ 366.4  

Total assets

     811.4       1,003.6       915.7       1,138.3  

Total liabilities

     (308.8     (382.0     (308.8     (382.0

Share capital and share premium account

     138.6     171.4       242.9       306.1  

Retained earnings

     255.7     316.3       255.7       316.3  

Total equity attributable to the equity shareholders of the parent

     502.6     621.7       606.9       756.4  

 

(1)

See the definitions of key operating and financial metrics in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Indicators of Performance and Financial Condition.”

(2)

Total CER revenue growth, Free Cash Flow, Adjusted Operating Profit, Adjusted Operating Profit Margin, ROCE and Adjusted Diluted earnings per share are supplemental measures of our performance that are not required by, or presented in accordance with, IFRS. These measures should not be considered as alternatives to profit for the year as measures of financial performance. See “—Non-IFRS Financial Measures” for more information.

(3)

As Adjusted to give effect to the sale by us of 8,945,218 ordinary shares at a public offering price of $16.52 per ADS, the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase or decrease in the assumed initial public offering price would increase or decrease the as adjusted amount of each of cash and cash equivalents, share premium account, total equity and total capitalization by approximately $8.3 million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. An increase or decrease of 1,000,000 shares in the number of ADSs offered by us, as set forth on the cover page of this prospectus, would increase or decrease the as adjusted amount of each of cash and cash equivalents, share premium account, total equity and total capitalization by approximately $15.4 million, assuming no change in the assumed initial public offering price per ADS and after deducting the estimated underwriting discounts and commissions.



 

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Non-IFRS Financial Measures

We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, profit before tax and other results under IFRS, we assess our performance using a number of financial measures that are not defined under IFRS. We use Total CER revenue growth, Free Cash Flow, Adjusted Operating Profit, Adjusted Operating Profit Margin, ROCE and Adjusted Diluted earnings per share, each of which is described below, to evaluate our business, and we have included these non-IFRS financial measures in this prospectus because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that these non-IFRS financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. These non-IFRS performance measures exclude certain cash and non-cash items that we believe are not reflective of the normal course of our business. Our calculation of these non-IFRS financial measures may differ from similarly titled non-IFRS measures, if any, reported by other companies. These non-IFRS financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with IFRS.

Total CER Revenue Growth

Total CER revenue growth is our total revenue growth from one fiscal year to the next on a constant exchange rate basis. We measure CER revenue growth by applying the prior fiscal year’s actual exchange rates for each month to the current fiscal year’s equivalent monthly results. We use this measure to identify the relative year-on-year performance of the business by removing the impact of currency movements that are outside of management’s control. Total CER revenue growth is included in this prospectus because it is a key metric used internally to assess our financial performance. We also believe that Total CER revenue growth is useful to investors, analysts and others in assessing our performance. Management believes that Total CER revenue growth is an appropriate measure of operating performance because it eliminates the impact of currency movements.

Total CER revenue growth is not an IFRS measure of our financial performance and should not be considered as an alternative to profit for the year as a measure of financial performance or as an alternative to any other performance measure derived in accordance with IFRS. Total CER revenue growth should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Total CER revenue growth as a supplemental measure. Our measure of Total CER revenue growth is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.

The following table presents a reconciliation of revenue, the most directly comparable IFRS financial measure, to Total CER revenue growth for the periods indicated:

 

     Fiscal Year Ended June 30,  
     2020     2020  
     (in millions)  

Fiscal year ended June 30, 2019 revenue

         £ 259.9           $ 321.5  

Fiscal year ended June 30, 2020 revenue at actual exchange rates

     260.0       321.6  

Effect of foreign exchange

     (3.7     (4.6

Fiscal year ended June 30, 2020 revenue at prior year’s exchange rates

     256.3       317.0  
  

 

 

   

 

 

 

Total CER revenue growth

     (1.4 )%      (1.4 )% 
  

 

 

   

 

 

 

Free Cash Flow

Free Cash Flow is net cash inflow from operating activities less net capital expenditure, transfer of cash from/(to) escrow in respect of future capital expenditure and the principal and interest elements of lease



 

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obligations. Free Cash Flow provides an indication of the amount of cash available for discretionary investing or financing after removing capital related items. Free Cash Flow is included in this prospectus because it is a key metric used internally to measure our liquidity. We also believe that Free Cash Flow is useful to investors, analysts and others in assessing our liquidity.

Free Cash Flow is not an IFRS measure of our financial performance and should not be considered as an alternative to net cash inflow from operations as a measure of liquidity, or as an alternative to any other performance measure derived in accordance with IFRS. Free Cash Flow should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Free Cash Flow as a supplemental measure. Our measure of Free Cash Flow is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.

The following table presents a reconciliation of net cash inflow from operating activities, the most directly comparable IFRS financial measure, to Free Cash Flow for the periods indicated:

 

     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions)  

Net cash inflow from operating activities

         £ 70.2           £ 63.0           $ 77.9  

Purchase of property, plant and equipment

     (17.7     (12.7     (15.7

Purchase of intangible assets

     (22.7     (23.0     (28.4

Transfer of cash from / (to) escrow in respect of future capital expenditure

     4.5       (0.6     (0.7

Principal element of lease obligations

           (6.8     (8.4

Interest element of lease obligations

           (0.9     (1.1
  

 

 

   

 

 

   

 

 

 

Free Cash Flow

   £ 34.3     £ 19.0     $ 23.5  
  

 

 

   

 

 

   

 

 

 

Adjusted Operating Profit

We define Adjusted Operating Profit as profit for the year before taking account of finance income, finance costs, tax, exceptional items and amortization of acquisition intangibles. Exceptional items consist of certain cash and non-cash items that we believe are not reflective of the normal course of our business. We identify and determine items to be exceptional based on their nature and incidence or by their significance. As a result, the composition of exceptional items may vary from year to year. Exceptional items currently consist of the impairment of intangible assets, systems and process improvement costs, acquisition costs, integration and reorganization costs and amortization of acquisition intangibles. Adjusted Operating Profit is included in this prospectus because it is a key metric used internally to assess our financial performance. We also believe that Adjusted Operating Profit is useful to investors, analysts and others in assessing our performance. We believe that disclosing Adjusted Operating Profit enables a reader to isolate and evaluate the impact of such items on results and allows for a fuller understanding of performance from year to year. Management believes that Adjusted Operating Profit is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business.

Adjusted Operating Profit is not an IFRS measure of our financial performance and should not be considered as an alternative to profit for the year, or as an alternative to any other performance measure derived in accordance with IFRS. Adjusted Operating Profit should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Adjusted Operating Profit as a supplemental measure. Our measure of Adjusted Operating Profit is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.



 

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The following table presents a reconciliation of profit for the year, the most directly comparable IFRS financial measure, to Adjusted Operating Profit for the periods indicated:

 

     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions)  

Profit for the year

   £          45.0     £          12.5     $          15.5  

Tax charge / (credit)

     11.4       (4.1     (5.2

Finance income

     (0.6     (0.7     (0.9

Finance costs

     0.3       2.8       3.5  

Impairment of intangible assets(a)

     12.8       14.9       18.4  

System and process improvement costs(b)

     4.5       4.3       5.3  

Acquisition costs(c)

           4.1       5.1  

Integration and reorganization costs(d)

     3.7       2.1       2.6  

Amortization of acquisition intangibles(e)

     6.5       8.6       10.6  
  

 

 

   

 

 

   

 

 

 

Adjusted Operating Profit

   £ 83.6     £ 44.5     $ 55.0  
  

 

 

   

 

 

   

 

 

 

 

(a)

For the fiscal year ended June 30, 2020, this consisted of the full impairment of the acquisition intangible in respect of an in vitro monoclonal antibody production technology that we acquired from AxioMX, Inc. in 2015 and subsequent post acquisition expenditure, which arose following an appraisal of the ability to utilize this technology at scale. Although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to pursue further active development and substantive utilization of this technology. For the fiscal year ended June 30, 2019, this consisted of an impairment of software assets under construction as a result of changes in the scope and nature of the ERP program and the corresponding usability of historical work performed on certain outstanding modules.

(b)

Consisted of costs of our ERP program implementation that do not qualify for capitalization.

(c)

Consisted of legal and other professional fees associated with our acquisition of the proteomics and immunology businesses of Expedeon AG (the “Expedeon Acquisition”), as well as agreed settlements of Expedeon employee share incentive schemes.

(d)

For the fiscal year ended June 30, 2020, this related partly to the integration of the acquired Expedeon business, which consisted mainly of retention and severance costs as well as employee backfill costs for those involved in the integration and consultancy costs, and reorganization costs in respect of alignment of our operational structure and geographical footprint to our strategic goals. For the fiscal year ended June 30, 2019, the reorganization costs consisted of those associated with our new headquarters, including depreciation of assets not yet brought into use prior to occupation of the building.

(e)

Consisted of amortization of acquisition intangibles included within research and development expenses of £6.0 million and £4.3 million for the fiscal years ended June 30, 2020 and 2019, respectively, with the remaining £2.6 million and £2.2 million over the same respective periods included within selling, general and administrative expenses.

Return On Capital Employed (“ROCE”)

We define ROCE as Adjusted Operating Profit divided by capital employed, which is defined as total assets less current liabilities. We believe that ROCE is a key tool in measuring our financial efficiency and ability to create future growth in value. We attempt to maintain ROCE at a level well above our estimated cost of capital. ROCE is included in this prospectus because it is a key metric used internally to assess our financial performance. We also believe that ROCE is useful to investors, analysts and others in assessing our performance.

ROCE is not an IFRS measure of our financial performance and should not be considered as an alternative to profit for the year or as an alternative to any other performance measure derived in accordance with IFRS.



 

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ROCE should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using ROCE as a supplemental measure. Our measure of ROCE is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.

The following table presents a reconciliation of profit for the year, the most directly comparable IFRS financial measure, to ROCE for the periods indicated:

 

     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions)  

Profit for the year

   £          45.0     £          12.5     $          15.5  

Tax charge / (credit)

     11.4       (4.1     (5.2

Finance income

     (0.6     (0.7     (0.9

Finance costs

     0.3       2.8       3.5  

Impairment of intangible assets(a)

     12.8       14.9       18.4  

System and process improvement costs(b)

     4.5       4.3       5.3  

Acquisition costs(c)

           4.1       5.1  

Integration and reorganization costs(d)

     3.7       2.1       2.6  

Amortization of acquisition intangibles(e)

     6.5       8.6       10.6  
  

 

 

   

 

 

   

 

 

 

Adjusted Operating Profit

   £ 83.6     £ 44.5     $ 55.0  
  

 

 

   

 

 

   

 

 

 

Total assets

     446.7       811.4       1,003.6  

Current liabilities

     (45.3     (159.6     (197.4
  

 

 

   

 

 

   

 

 

 

Capital employed

   £ 401.4     £ 651.8     $ 806.2  
  

 

 

   

 

 

   

 

 

 

ROCE

     20.8     6.8     6.8
  

 

 

   

 

 

   

 

 

 

 

(a)

For the fiscal year ended June 30, 2020, this consisted of the full impairment of the acquisition intangible in respect of an in vitro monoclonal antibody production technology that we acquired from AxioMX, Inc. in 2015 and subsequent post acquisition expenditure, which arose following an appraisal of the ability to utilize this technology at scale. Although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to pursue further active development and substantive utilization of this technology. For the fiscal year ended June 30, 2019, this consisted of an impairment of software assets under construction as a result of changes in the scope and nature of the ERP program and the corresponding usability of historical work performed on certain outstanding modules.

(b)

Consisted of costs of our ERP program implementation that do not qualify for capitalization.

(c)

Consisted of legal and other professional fees associated with the acquisition of Expedeon as well as agreed settlements of Expedeon employee share incentive schemes.

(d)

For the fiscal year ended June 30, 2020, this related partly to the integration of the acquired Expedeon business, which consisted mainly of retention and severance costs as well as employee backfill costs for those involved in the integration and consultancy costs, and reorganization costs in respect of alignment of our operational structure and geographical footprint to our strategic goals. For the fiscal year ended June 30, 2019, the reorganization costs consisted of those associated with our new headquarters, including depreciation of assets not yet brought into use prior to occupation of the building.

(e)

Consisted of amortization of acquisition intangibles included within research and development expenses of £6.0 million and £4.3 million for the fiscal years ended June 30, 2020 and 2019, respectively, with the remaining £2.6 million and £2.2 million over the same respective periods included within selling, general and administrative expenses.



 

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Adjusted Diluted earnings per share

We define Adjusted Diluted earnings per share as Adjusted profit for the year divided by the weighted average number of ordinary shares for the purposes of diluted earnings per share. Adjusted profit for the year used in this calculation is defined as profit for the year less system and process improvement costs, costs associated with our new headquarters including depreciation of assets not yet brought into use prior to occupation of the building, acquisition costs, integration and reorganization costs, impairment of software assets, amortization of acquisition intangibles, the tax effect of these items and the net tax effect of new U.S. tax legislation. Adjusted Diluted earnings per share is calculated with an adjustment to the weighted average number of shares outstanding to assume conversion of all potentially dilutive ordinary shares. We use Adjusted Diluted earnings per share to measure underlying profitability and to reflect the other adjusted performance measures used.

Adjusted Diluted earnings per share is included in this prospectus because it is a key metric used internally to assess our financial performance. We also believe that Adjusted Diluted earnings per share is useful to investors, analysts and others in assessing our performance. Management believes that Adjusted Diluted earnings per share is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business. Adjusted Diluted earnings per share has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for earnings per share measures prepared in accordance with IFRS. Adjusted Diluted earnings per share may not be comparable to other similarly titled metrics of others.

The following table presents a reconciliation of profit for the year, the most directly comparable IFRS financial measure, to Adjusted profit for the year for the periods indicated, which is used in the calculation of Adjusted Diluted earnings per share:

 

     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions, except as otherwise stated)  

Profit for the year

   £         45.0     £         12.5   $         15.5  
  

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares for the purposes of diluted earnings per share

     206.7       209.6     209.6
  

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   £ 0.218     £ 0.060     $ 0.074  
  

 

 

   

 

 

   

 

 

 

Profit for the year

   £ 45.0     £ 12.5     $ 15.5  

Impairment of intangible assets(a)

     12.8       14.9       18.4  

System and process improvement costs(b)

     4.5       4.3       5.3  

Acquisition costs(c)

           4.1       5.1  

Integration and reorganization costs(d)

     3.7       2.1       2.6  

Amortization of acquisition intangibles(e)

     6.5       8.6       10.6  

Tax effect of items (a), (b), (c), (d) and (e)

     (5.3     (7.2     (8.9

Tax credit arising from “patent box” claims(f)

           (4.6     (5.7

Net tax effect of new U.S. tax legislation

     0.2              
  

 

 

   

 

 

   

 

 

 

Adjusted profit for the year

   £ 67.4     £ 34.7     $ 42.9  
  

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares for the purposes of diluted earnings per share

     206.7       209.6       209.6  
  

 

 

   

 

 

   

 

 

 

Adjusted Diluted earnings per share

   £ 0.326     £ 0.166     $ 0.205
  

 

 

   

 

 

   

 

 

 

 

(a)

For the fiscal year ended June 30, 2020, this consisted of the full impairment of the acquisition intangible in respect of an in vitro monoclonal antibody production technology that we acquired from AxioMX, Inc. in



 

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  2015 and subsequent post acquisition expenditure, which arose following an appraisal of the ability to utilize this technology at scale. Although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to pursue further active development and substantive utilization of this technology. For the fiscal year ended June 30, 2019, this consisted of an impairment of software assets under construction as a result of changes in the scope and nature of the ERP program and the corresponding usability of historical work performed on certain outstanding modules.
(b)

Consisted of costs of our ERP program implementation that do not qualify for capitalization.

(c)

Consisted of legal and other professional fees associated with the acquisition of Expedeon as well as agreed settlements of Expedeon employee share incentive schemes.

(d)

For the fiscal year ended June 30, 2020, this related partly to the integration of the acquired Expedeon business, which consisted mainly of retention and severance costs as well as employee backfill costs for those involved in the integration and consultancy costs, and reorganization costs in respect of alignment of our operational structure and geographical footprint to our strategic goals. For the fiscal year ended June 30, 2019, the reorganization costs consisted of those associated with our new headquarters, including depreciation of assets not yet brought into use prior to occupation of the building.

(e)

Consisted of amortization of acquisition intangibles included within research and development expenses of £6.0 million and £4.3 million for the fiscal years ended June 30, 2020 and 2019, respectively, with the remaining £2.6 million and £2.2 million over the same respective periods included within selling, general and administrative expenses.

(f)

Consisted of a credit for historical periods in respect of the initial recognition of benefit from the lower rate of tax applied to profits on patented income under HMRC’s “patent box” regime following successful registration of patents during the year.



 

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RISK FACTORS

An investment in our ADSs involves a high degree of risk. You should carefully consider the risks and uncertainty described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before deciding to invest in our ADSs. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our ADSs could decline due to any of these risks, and you may lose all or part of your investment.

Risks Relating to our Business and Industry

A regional or global health pandemic, including COVID-19, could severely affect our business, operating results and financial condition due to impacts on our operations and supply chains, as well as actions taken to contain the disease or treat its impact and the speed and extent of the recovery.

We engage in business globally, which subjects us to a number of unpredictable or unexpected risks and factors outside our control, including risks associated with public health crises such as epidemics and pandemics. In December 2019, a novel coronavirus (SARS-CoV-2) was reported and in March 2020, the World Health Organization (“WHO”) characterized the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has adversely affected global economies, financial markets and the overall environment in which we do business, and the extent to which it may impact our future results of operations and overall financial performance remains uncertain.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, elements of our business (including elements of our operations, supply chains and distribution systems) as a result of impacts associated with preventive and precautionary measures that we, other businesses, our communities and governments are taking. Many employers in our primary locations of business, including the United States, United Kingdom and China, temporarily closed sites and required their employees to work from home or not work at all. These site closures included some of our customers’ labs, which have caused and may continue to cause customers to delay or forego purchases of our products. During the pandemic, we have experienced significant and unpredictable reductions or increases in demand for certain of our products and may continue to experience such unpredictability in the future. Further, as the research community began to focus on COVID-19, other types of research were put on hold, which resulted in many of our customers’ research labs being forced to temporarily shut down or to operate at reduced capacity. As a substantial majority of our catalogue revenue is purchased for research use only, these shutdowns and reductions in capacity have negatively impacted the global demand for our products, which has resulted in a decrease in revenue. We also saw a reduction in demand due to the ongoing COVID-19 pandemic, particularly in North America where the number of COVID-19 cases is rising in several states with large research lab demand. While many of our customers’ labs have reopened, such labs may be required to continue to operate at reduced capacity, and there can be no assurance that our customers will not be subject to further shutdowns or reductions in capacity in the future, which could have a material adverse effect on our business and results of operations. As the impact of the COVID-19 pandemic remains uncertain, we may continue to experience decreased sales activity.

In an effort to halt the outbreak of COVID-19, many countries throughout the world have placed significant restrictions on travel, and many jurisdictions may continue to close borders, impose prolonged quarantines and further restrict travel and business activity, which could significantly impact our ability to support our operations and customers, the ability of our employees to get to their workplaces to produce products and provide services and the availability of materials for production of our products, as well as significantly hinder or increase the costs associated with our products from moving through the supply chain. Due to uncertainties that will be dictated by the length of time that the COVID-19 pandemic and related disruptions continue, there can be no assurance that our operations will not continue to be adversely impacted.

 

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During the COVID-19 pandemic, we asked that all employees who are able to do so work remotely, and it is possible that widespread remote work arrangements could have a negative impact on our operations, the execution of our business plans and productivity and availability of key personnel and other employees necessary to conduct our business, and of third-party service providers who perform critical services for us, or otherwise cause operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may also result in consumer privacy, IT security and fraud risks, and our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the COVID-19 pandemic, may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments.

Further, in connection with the global COVID-19 pandemic and in an effort to increase the wider availability of needed medical and other supplies and products, we may elect to, or governments may require us to (for example pursuant to the U.S. Defense Production Act), allocate our products in a way that adversely affects our regular operations and financial results, results in differential treatment of customers and/or adversely affects our reputation and customer relationships. Although we do not currently elect to, nor have we been required to, allocate our products in this way, there can be no assurance that we will not have to allocate our products in this way in the future. In addition, unpredictable increases in demand for certain of our products could exceed our capacity to meet such demand, which could adversely affect our financial results and customer relationships and result in negative publicity.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, suppliers and partners. Such impact on our business, cash flows and/or financial condition, and results of operations could be material.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

We may face challenges in implementing our strategies for revenue growth in light of competitive challenges.

We face significant competition from a diverse and fragmented base of competitors, many of whom focus on specific regions, customers and/or specific product segments. Competitors range from smaller, specialized companies, which may be able to more quickly respond to customers’ specific needs, to large multinational companies who provide a full suite of products to research labs, which may have greater financial, marketing, operational and research and development resources than we do. Such greater resources may allow our competitors to respond more effectively with new, alternative or emerging technologies. In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have created concentrated purchasing decisions for some customers, resulting in increased pricing pressure on us. Moreover, customers may believe that consolidated businesses are better able to compete as sole-source vendors and therefore, prefer to purchase from such businesses. New procurement channels, such as e-procurement and aggregators, may prove more attractive to customers through better delivery of products or blocking other channels where we have strength, and a failure by us to sufficiently engage and participate in these channels may lead to a loss of customer relationships. Failure to anticipate and respond to our competitors’ actions may impact our future sales and earnings, in particular failure to react to competitors strengthening their brand, marketing or customer experience may negatively impact our ability to attract and retain customers.

We are pursuing a number of strategies to maintain and improve our revenue growth, including:

 

   

increase usage of our RUO antibodies and grow sales over time;

 

   

grow our product portfolio and expand within adjacent markets;

 

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expand our product offering for diagnostic and biopharmaceutical companies;

 

   

enhance our digital platform and online presence;

 

   

strengthen our teams, systems and infrastructure to support our growth;

 

   

selectively pursue strategic acquisitions; and

 

   

continuing to produce high-quality innovative tools and solutions for our customers.

We may not be able to successfully implement these strategies, and these strategies may not result in the expected growth of our business. Failure to anticipate and respond to our competitors’ actions may adversely affect our business, financial condition and results of operations.

We must develop new products and enhance existing products, adapt to significant technological and innovative changes and respond to introductions of new products by competitors to remain competitive.

We sell our products in industries that are characterized by significant technological changes, frequent new product and technology introductions and enhancements and evolving industry standards. As a result, our customers’ needs continue to evolve. If we do not appropriately innovate and invest in new products or technologies, our product offerings may become less desirable in the markets we serve, and our customers could move to new technologies offered by our competitors or even choose to make products themselves. Though we believe customers in our markets display a significant amount of loyalty to a particular product, we also believe that because of the initial time investment required by many of our customers to reach a purchasing decision for a new product, it may be difficult to regain that customer once the customer purchases a product from a competitor. In order to maintain positive relationships with and maintain the trust of our customers, it is crucial that we are able to continue to innovate and create new products that directly support our customers’ research goals in a cost effective, timely and efficient manner. If our competitors are able react more directly and effectively to a customer’s specific demand, this could harm our ability to retain our customers, even if we manufacture a product that is responsive to their needs. There is also a risk that we may invest significant amounts of time and resources into a new product or product enhancement that fails to meet our high quality standards or does not perform in the way that was intended, which could adversely affect our business. Without the timely introduction of new products, services and enhancements to existing products or adequately meeting the changing demands of the industry, our offerings will likely become less competitive over time, in which case our competitive position, sales and operating results could suffer. Further, if a competitor were able to create a product or service that either eliminated or reduced the need for RUO antibodies and the related tools and solutions, or if there were an innovative development in the industry that made the use of antibodies no longer necessary for life science research, this could have a material adverse effect on our business and results of operations. Accordingly, we focus significant efforts and resources on the research, development and identification of new products and services that are attractive to our customers and gain acceptance in the markets we serve to further broaden our offerings. It can take significant time to identify an unmet customer need and develop a product to meet that need, and to the extent we fail to adequately anticipate or meet our customers’ needs or fail to obtain desired levels of market acceptance, our business, financial condition or results of operations could be adversely affected.

Our estimates of our addressable market include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions. Industry publications, research, surveys, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed. If any of our assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for our products may be smaller than we expect, and as a result, our product revenue may be limited and our business, financial condition or results of operations could be adversely affected.

 

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We may not successfully identify or integrate acquired businesses or assets into our operations or be able to fully recognize the anticipated benefits of businesses or assets that we acquire.

A key element of our business strategy is to complement our organic growth with acquisitions. We routinely explore acquiring other businesses and assets, and we have completed five acquisitions in the last two years, including: Marker Gene Technologies, Inc. in March 2020, the gene editing platform and oncology product portfolio of Applied StemCell, Inc. in January 2020, the proteomics and immunology businesses from Expedeon AG in January 2020, the entire live cell line and lysates portfolio of EdiGene Inc. in July 2019 and Calico Biolabs Inc. in January 2019. In addition, we have acquired minority interests in SomaServe Limited and BrickBio Inc.

However, we may be unable to identify or complete promising acquisitions for many reasons, including any misjudgment of the key elements of an acquisition, competition among buyers, the high valuations of businesses in our industry, the need for regulatory and other approvals, lack of internal resources to actively pursue all attractive opportunities and availability of capital. When we do identify and complete acquisitions, we may face financial, managerial and operational challenges, including diversion of management attention and resources needed for existing operations, difficulty with integrating acquired businesses, acquiring business that are not consistent with our long-term strategies, integration of different corporate cultures, increased expenses, potential dilution of our brand, assumption of unknown liabilities, indemnities, potential disputes with the sellers and the need to evaluate the financial systems of and establish internal controls for acquired entities. Further, we seek out acquisitions of companies that maintain the same high quality standards that we maintain, and if we misjudge or overestimate a company’s product quality standards, we may not be able to use these products or implement the strategies that were the primary reason for the acquisition, which would lead to a significant loss both financially and in time spent by our teams trying to integrate the product or implement the strategy. There can be no assurance that we will engage in any additional acquisitions or that we will be able to do so on terms that will result in any expected benefits.

In addition, our ability to realize the benefits we anticipate from our acquisition activities, including any anticipated sales growth, cost synergies and other anticipated benefits, will depend in large part upon whether we are able to integrate such businesses efficiently and effectively. Integration is an ongoing process, and we may not be able to fully integrate such businesses smoothly or successfully, and the process may take longer than expected. Further, the integration of certain operations and the differences in operational culture following such activity will continue to require the dedication of significant management resources, which may distract management’s attention from day-to-day business operations. There may also be unasserted claims or assessments that we failed or were unable to discover or identify in the course of performing due diligence investigations of target businesses. If we are unable to successfully integrate the operations of acquired businesses into our business, we may be unable to realize the sales growth, cost synergies and other anticipated benefits of such transactions, and our business, results of operations and cash flow could be adversely affected.

Our business may be harmed if our customers discontinue or spend less on research, development, production or other scientific endeavors.

A majority of our revenue is derived from consumers who are publicly funded through research grants. We have three primary categories of customers including: academic institutions, research institutions and pharmaceutical, biotechnology and diagnostic companies. Many factors, including public policy spending priorities, available resources and product and economic cycles, have a significant effect on the capital spending policies of these entities. For example, the United Kingdom’s withdrawal from the European Union has caused, and is likely to continue to cause, uncertainty in the European markets regarding the availability of public funding for research, which has had an indirect, but not significant, impact on our U.K. business. Fluctuations in the research and development budgets of our customers could have a significant effect on the demand for our products. Our customers determine their research and development budgets based on several factors, including the need to develop new products, continued availability of governmental and other funding, competition and the

 

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general availability of resources. If research and development budgets are reduced, or if any funding source were to influence customer selection toward another supplier, the impact could adversely affect our business, financial condition and results of operations.

Our business depends on our ability to use and access information systems, and any failure to successfully maintain these systems or implement new systems to handle our changing needs could materially harm our operations.

We depend on standardized procedures and multiple information systems, including our online platform and distribution and ERP systems, for our operations, customer service and quality and safety procedures. Furthermore, we rely on information technology systems to process, transmit, store and protect electronic information, including confidential customer, supplier, employee or other business information. Through our online platform, we collect and store confidential information that customers provide in order to, among other things, purchase products and services and register on our website.

We are currently updating our systems and processes by implementing Oracle Cloud ERP and other software solutions to replace our legacy IT systems on a scale reflecting the increased size, scope and complexity of our operations, and the process of migrating our legacy systems could disrupt our ability to timely and accurately process information. Further, any significant delay, failure, increase in costs of this project, or any issues in transitioning from our legacy systems to new information systems could have a negative impact on our ability to upgrade our information systems and may consequently adversely affect our business, financial condition and results of operations. We utilize commercially available third-party technology solutions, software and software systems with some proprietary configurations. We also store data using third-party cloud services. Our information systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, vandalism, catastrophic events, natural disasters, terrorist attacks, hackers and other security issues as well as human error. Given the age and lack of support of some of our legacy systems, these risks may be greater. If our information systems are damaged, fail to work properly or otherwise become unavailable, particularly in light of the COVID-19 pandemic, we may incur substantial costs to repair or replace them, and we may experience a loss of critical information, customer disruption and interruptions or delays in our ability to perform essential functions and implement new and innovative services. If the cloud service providers we use were to experience unplanned downtime, delays or other issues delivering data to our information technology systems, including due to increased usage during the COVID-19 pandemic, it could significantly and adversely impact business operations. A compromise of our information systems or those with which we interact could harm our reputation and expose us to regulatory actions and claims from customers and other persons, any of which could adversely affect our business, financial condition and results of operations.

In addition, we may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our increasing volume and/or our changing needs, and we may experience unanticipated delays, complications and expenses in implementing and integrating our systems. Any interruptions in operations would adversely affect our ability to properly allocate resources and timely deliver our products, which could result in customer dissatisfaction. We currently rely on certain legacy systems that are no longer supported by the manufacturers, with only a small number of current employees able to maintain these systems. Any failure of these systems could have a significant business impact. The failure to successfully implement and maintain information systems could have an adverse effect on our ability to obtain new business, retain existing business and maintain or increase our sales and profit margins, any of which could adversely affect our business, financial condition and results of operations.

 

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Cyber security risks and the failure to maintain the confidentiality, integrity and availability of our computer hardware, software and internet applications and related tools and functions, could result in damage to our reputation, data integrity and/or subject us to costs, fines or lawsuits under data privacy or other laws or contractual requirements.

The integrity and protection of our own data, and that of our customers and employees, is critical to our business. The regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. Implementing and maintaining compliance with applicable security and privacy regulations may increase our operating costs and/or adversely impact our ability to market our products and services to customers. Although our computer and communications hardware are protected through physical and software safeguards, they are still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses and similar events. These events could lead to the unauthorized access, disclosure and use of non-public information. We could be subject to risks caused by misappropriation, misuse, leakage, falsification, system malfunction or intentional or accidental release or loss of information maintained in our information systems and networks and those of our OEM suppliers. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. We are also reliant on the quality of our training of employees to allow them to spot and appropriately respond to cyber security threats. We have been subject to a number of phishing attempts and require employees to remain vigilant to ensure that such attempts are unsuccessful. If our computer systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, customers could curtail or cease using its applications, and we could lose trade secrets, the occurrence of which could harm our business.

If we are unable to maintain reliable information technology systems and appropriate controls with respect to global data privacy and security requirements and prevent data breaches, we may suffer regulatory consequences in addition to business consequences. As a global organization, we are subject to data privacy and security laws, regulations, and customer-imposed controls in numerous jurisdictions as a result of having access to and processing confidential, personal and/or sensitive data in the course of our business. There are numerous U.S. federal and state laws and regulations related to the privacy and security of personal information. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) establish privacy and security standards that limit the use and disclosure of individually identifiable health information (known as “protected health information”) and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical analyses and may be subject to changing interpretation. Although we take measures to protect sensitive data from unauthorized access, use or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other malicious or inadvertent disruptions. Any such breach or interruption could compromise our networks, and the information stored there could be accessed by unauthorized parties, manipulated, publicly disclosed, lost or stolen. Any such access, breach or other loss of information could result in legal claims or proceedings and liability under federal or state laws that protect the privacy of personal information, such as the HIPAA and the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and may result in regulatory penalties. Notice of breaches must be made to affected individuals, the United States Department of Health and Human Services (“HHS”), and for extensive breaches, notice may need to be made to the media or state Attorneys General. Such a notice could harm our brand and reputation and adversely affect our ability to compete.

Additionally, the Gramm-Leach-Bliley Act of 1999 (along with its implementing regulations) (the “GLBA”) restricts certain collection, processing, storage, use and disclosure by covered companies of certain personal information, requires notice to individuals of privacy practices and provides individuals with certain rights to

 

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prevent the use and disclosure of certain non-public or otherwise legally protected information. The GLBA also imposes requirements regarding the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines. In addition, many U.S. states in which we operate now or may operate in the future have laws that protect the privacy and security of sensitive and personal information. Certain U.S. state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts. For example, the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 1, 2020, imposes stringent data privacy and security requirements and obligations with respect to the personal information of California residents and households. Among other things, it requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information that may increase the likelihood of, and risks associated with, data breach litigation. The CCPA was amended in September 2018 and November 2019, and it is possible that further amendments will be enacted. It remains unclear how various provisions of the CCPA will be interpreted and enforced, and multiple states have enacted or are expected to enact similar laws. The effects of the CCPA and other similar state laws on our business are potentially significant and may require us to modify our data processing practices and policies and to incur costs and expenses in an effort to comply. State laws are changing rapidly, and there is discussion in U.S. Congress of a new federal data protection and privacy law to which we may be subject.

In Europe, laws, regulations and standards in many jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information. For example, in the European Economic Area (the “EEA”) and the United Kingdom, the collection and use of personal data is governed by the provisions of the General Data Protection Regulation (the “GDPR”). The GDPR came into effect in May 2018, superseding the European Union Data Protection Directive and imposing more stringent data privacy and security requirements on companies in relation to the processing of personal data of European Union data subjects. The GDPR, together with national legislation, regulations and guidelines of the European Union (the “EU”) member states and the United Kingdom govern the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning the consent and rights of individuals to whom the personal data relates, the transfer of personal data out of the EEA or the United Kingdom, security breach notifications and the security and confidentiality of personal data. The GDPR authorizes fines for certain violations of up to 4% of a company’s global annual revenue or €20 million, whichever is greater. Such fines are in addition to any civil litigation claims by customers and data subjects. European data protection authorities may interpret the GDPR and national laws differently and impose additional requirements, which contributes to the complexity of processing personal data in or from the EEA or United Kingdom. Guidance on implementation and compliance practices is often updated or otherwise revised. Further, while the United Kingdom enacted the Data Protection Act 2018 in May 2018 that supplements the GDPR and has publicly announced that it will continue to regulate the protection of personal data in the same way after the United Kingdom’s withdrawal from the European Union, the withdrawal has created uncertainty with regard to the future of regulation of data protection in the United Kingdom. Several other countries, such as China and Russia, have also passed laws that require personal data relating to their citizens to be maintained on local servers and impose additional data transfer restrictions, which could increase the cost and complexity of delivering our products and services.

We are also reliant on certain manual processes for collecting and processing data, and any failures in these processes or failure to handle the data collected in accordance with relevant regulations could lead to enforcement actions. Complying with all applicable laws, regulations, standards and obligations relating to data privacy, security and transfers may cause us to incur substantial operational costs or require us to modify our data processing practices and processes. Government enforcement actions can be costly and interrupt the regular operation of our business, and data breaches or violations of data privacy laws can result in significant fines,

 

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reputational damage and civil lawsuits, any of which may adversely affect our business, financial condition and results of operations. We may not be able to respond quickly or effectively to regulatory, legislative and other developments, and these changes may in turn impair our ability to commercialize our products or increase our cost of doing business. In addition, if our practices are not consistent or viewed as not consistent with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions or reputational damage. Any of the foregoing could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.

Our business may suffer if we do not successfully manage our current and potential future growth.

We have rapidly expanded our operations and anticipate expanding further as we pursue our growth strategies. Such expansion increases the complexity of our business and places a significant strain on our management, operations, technical systems, financial resources and internal control over financial reporting functions. Our current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage our future operations, especially as we employ personnel and maintain manufacturing facilities and distribution networks in several geographic locations. Across a range of business areas, we currently use systems and processes that are overly manual and reaching the limit of their scalability, and as we continue to grow and expand our business, these systems and processes will become outdated and will need to be replaced with more automated and up-to-date systems to maintain our growth. These systems and processes also interact with our inventory management and demand planning, and any failure in these systems or in the transition to updated systems may make it more likely we do not adequately anticipate and plan for business growth, potentially resulting in increased times for order fulfilment, order backlogs, reduced customer satisfaction and reduced order conversion. In addition, given the rapid growth of our business on these overly manual systems, there may be certain contractual terms, including royalties, that are not properly monitored. We may not be able to manage our expansion effectively, and failure to update and replace these systems and processes may adversely affect our reputation, business, financial condition and results of operations.

We are also continuously expanding our product portfolio, and establishing and developing these new products requires significant management time and attention. If these products do not achieve the anticipated success or require greater levels of time and investment to reach the expected levels, it could adversely affect our business, financial condition and results of operations. Failure to appropriately integrate new products and business lines into our existing operations and systems can also affect the success of these products, and failure to adequately anticipate and plan for this integration could affect the success of these products and may also negatively impact our existing product offerings.

Significant interruptions in our operations could harm our business, financial condition and results of operations.

Manufacturing, distribution, service and logistics problems can and do arise, particularly in light of the COVID-19 pandemic, and any such problems could have a significant impact on our business, financial condition and results of operations. Accordingly, any significant disruptions to the operations of our manufacturing or distribution centers or logistics providers for any reason, including labor relations issues, power interruptions, severe weather, fire or other circumstances beyond our control could cause our operating expenses to increase without coverage or compensation or seriously harm our ability to fulfill our customers’ orders or deliver products on a timely basis, or both. We must also maintain sufficient production capacity in order to meet anticipated customer demand, which carries fixed costs that we may not be able to offset if orders slow, which would adversely affect our operating margins. If we are unable to manufacture or source our products consistently, in sufficient quantities and on a timely basis, our sales, gross margins and our other operating results will be materially and adversely affected. Prompt shipment of our products is also very important to our business. We have experienced problems with or delays in our production, shipping and logistics capabilities, including as

 

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a result of the COVID-19 pandemic, that resulted in delays in our ability to ship finished products, and there can be no assurance that we will not encounter such problems in the future. If we experience significant delays in our manufacturing, shipping or logistics processes, this could cause disruption to our customers and damage our current and future customer relationships and may adversely affect our business. Such delays may also adversely impact our new product development. For example, if we were to lose one of our sites where new product development is undertaken, we may not be able to transfer or replicate that product development at another site, with the result of a loss of the time and financial costs of development of the new product. We also use small quantities of high-risk chemicals in the manufacture of certain of our products, which are subject to handling risks, and any disruption in our ability to source or appropriately store these chemicals could adversely affect our manufacturing operations.

In addition, as we are reliant on biological processes to manufacture many of our products, any loss or interruption to the systems that allow us to maintain optimal growth or storage conditions for our materials or products could lead to a loss of significant sections of our product portfolio, which may adversely affect our business, financial condition and results of operations. If a biological contaminant, such as bacteria, mold, yeasts, viruses or mycoplasma, were to affect our materials or our products, or if our materials or products were cross contaminated, it could affect the quality of our products, our inventory levels and disrupt our manufacturing and distribution processes, as well as those of our customers. We have quality control procedures in place to detect and correct such disruptions, but there can be no assurance that these procedures will always function properly. Any disruption to our manufacturing operations would disrupt our ability to serve our customers, which could have a material adverse effect on our reputation, business, financial condition and results of operations. Similarly, any contamination of our customers’ laboratories caused by our products could have a material adverse effect on our reputation, business, financial condition and results of operations.

Our offerings are highly complex, and, if our products do not satisfy applicable quality criteria, specifications and performance standards, we could experience lost sales, delayed or reduced market acceptance of our products, increased costs and damage to our reputation.

The products we offer are highly exacting and complex due to their biological nature and demanding customer specifications. Providing high-quality products in terms of specificity, sensitivity and consistency, together with extensive product validation data is a fundamental driver of customer loyalty and our reputation with life science researchers. Our operating results depend on our ability to execute and, when necessary, improve our global quality control systems, including our ability to effectively train and maintain our employees with respect to quality control. A failure of our global quality control systems could result in problems with facility operations or preparation or provision of defective or non-compliant products. In each case, such problems could arise for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with critical materials and components, or environmental factors and damage to, or loss of, manufacturing operations. Such problems could affect production of a particular batch or series of batches of products, requiring the destruction of such products or a halt of facility production altogether.

Our success depends on our customers’ confidence that we can provide reliable, consistently high-quality products, which includes our ability to provide validated data to support our customers’ use of our products. We believe that customers in our target markets are likely to be particularly sensitive to our products failing to meet the specifications shown on our data sheets. Our reputation and the public image of our products and technologies may be impaired if our products fail to perform as expected or fail to meet applicable quality criteria, specifications or performance standards. High-quality reagents, for example, are necessary for critical research progress; unreliable reagents may impede researchers’ ability to reproduce experiments and can lead to wasted time and money. If our products experience, or are perceived to experience, a material defect or error, this could result in loss or delay of sales, damaged reputation, diversion of development resources and increased insurance or warranty costs, any of which could harm our business. These risks are amplified in respect of our new product lines as we implement appropriate quality control criteria. We are reliant to an extent on customer feedback on the quality of our products, and it may take additional time for new products to meet the desired

 

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quality. Such defects or errors could also result in our inability to timely deliver products to our customers, which could in turn cause disruptions to our customers’ ability to obtain results, narrowing the scope of the use of our products and ultimately hindering our or their success in relevant markets. Even after any underlying concerns or problems are resolved, any lingering concerns in our target markets regarding our technology, product defects or performance standards could continue to result in lost sales, delayed market acceptance and damaged reputation, among other things. If problems in preparation or manufacture of a product or failures to meet required quality standards for that product or other product defects are not discovered before such product is released to our customers, we may be subject to adverse legal or regulatory actions, including halting of manufacture and distribution, restrictions on our operations, civil sanctions, including monetary sanctions, and criminal actions. In addition, such problems or failures subject us to other litigation claims, including claims from our customers for reimbursement for the cost of lost or damaged materials. Our customers also require specific information regarding our products and their uses, and any inaccuracies in this information could lead to products being sold for the wrong uses and may result in our having to refund or replace the products in question. Any of the above problems may adversely affect our reputation, business, financial condition and results of operations.    

If we fail to maintain and enhance our brand and reputation, our business, results of operations and prospects may be materially and adversely affected.

We believe that maintaining and enhancing our brand and reputation are of significant importance to the success of our business. We work to set a very high standard for the quality of our products and our ethical business practices, and we believe that this has been crucial to our success. We have employed and will continue to employ different types of consumer experience and interaction touchpoints designed to gauge consumer satisfaction with our products, including our customer website, e-sales and digital marketing, and we also engage in rigorous product validation in order to continue to improve our product quality. We cannot assure you, however, that these activities will be successful or that we will be able to continue to maintain our brand and reputation as we expect. If our brand strength deteriorates, or if our brand is no longer associated with high-quality products, it could lead to fewer publication citations for our products, which could in turn further weaken our brand recognition and reputation. Customers often choose the most-cited brand or product, and if another brand were to overtake ours in frequency of citations, our business could be adversely affected. In addition, our competitors may increase the intensity of their consumer interactions or customer feedback processes, which may force us to increase our advertising spend to engage with our customer base and maintain brand and reputational awareness. Our ability to attract and retain customers is also influenced by our prominence in search engines. Any changes to our prominence in search engines, whether as a result of revised algorithms, improved search engine optimization by our competitors or failure to respond to changes in online activity may negatively impact our brand and reputation or to convert customer interactions into sales.

In addition, any negative publicity relating to our products or services, regardless of its veracity, could harm our brand and the perception of our brand in the market. With an increasing global focus on ethical business practices and good corporate behavior, and with such issues directly influencing consumer behavior, any failure to achieve or maintain the levels of corporate governance, social and environmental impact and corporate behaviors expected of us, including demonstrating dedication to the benefits of diversity, could negatively impact our brand and reputation. If our brand is harmed, we may not be able to gain new customers or continue to maintain positive relationships with our customers, and our business, prospects, financial condition and results of operations could be materially and adversely affected.

Part of our growth strategy is to increase direct customer interactions in multiple countries. Failure to anticipate and react to particular geographic requirements and sensitivities may have a negative impact on our brand and reputation, which may result in a decrease in sales or sales growth in such countries, which may adversely affect our business, prospects, financial condition and results of operations.

 

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The loss of a significant number of customers or a reduction in orders from a significant number of customers could reduce our sales and harm our operating results.

Our operating results could be negatively affected by the loss of revenue from a significant number of our customers. Our sales are widely distributed, and many of our customers typically place smaller value orders in high volumes. We have other customers with whom we maintain close business relationships, working closely to build the specific custom tools they need, which will then become part of our product portfolio. These relationships often present larger commercial opportunities, and our operating results could be adversely affected by the loss of a significant number of these customers, particularly during the product development phase. For the year ended June 30, 2019, no single customer accounted for more than 5% of our revenue.

Though we often offer pricing and volume incentives, our customers are generally not obligated to purchase any fixed quantities of products, and they may stop placing orders with us at any time. If a significant number of customers purchase fewer of our products, defer orders or fail to place additional orders with us for any reason, our sales could decline, and our operating results may not meet our expectations. In addition, if those customers order our products, but fail to pay on time or at all, our liquidity and operating results could be adversely affected.

Our contracts generally do not contain minimum purchase requirements, and the majority of our sales are on a purchase order basis. Therefore, our sales are subject to changes in demand from our customers. The level and timing of orders placed by our customers vary for a number of reasons, including individual customer strategies, the introduction of new technologies, the desire of our customers to reduce their exposure to any single supplier and general economic conditions. If we are unable to anticipate and respond to the demands of our customers, if we have an inadequate supply of products, insufficient capacity in our sites or if we experience any disruptions to our supply chain or distribution network, we may lose customers. Alternatively, we may have excess inventory or excess capacity, and either of these factors may have a material adverse effect on our business, financial condition and results of operations.

Though we do generate a portion of our sales from long-term contracts, the majority of these contracts are non-exclusive and do not require a minimum purchase volume. This makes it difficult to estimate our customers’ demand for our products and our critical material and component needs. In addition, though we believe customers in our markets display a significant amount of loyalty to a particular product, we may not be able to renew a contract on favorable pricing terms if our competitors reduce their prices in order to procure business, or if a customer insists that we lower the price charged under the contract being renewed in order to retain the contract. In addition, if we enter into a contract with a customer on unfavorable terms, it may harm our ability to negotiate our future contracts with that customer or with other customers. The loss of sales obtained through long-term contracts or the reduced profitability of such sales could adversely affect our business, financial position and results of operations.

We are subject to risks associated with global operations.

We engage in business globally, with 63% and 61% of our catalogue revenue in the fiscal years ended June 30, 2020 and 2019, respectively, coming from outside the United States. Global operations subject us to a number of risks, many of which are exacerbated by the COVID-19 pandemic, including international economic, political and labor conditions; currency fluctuations; tax laws (including U.S. taxes on foreign subsidiaries); increased financial accounting and reporting burdens and complexities; unexpected changes in, or impositions of, legislative or regulatory requirements; failure of laws to protect intellectual property rights adequately; inadequate local infrastructure and difficulties in managing and staffing international operations; delays resulting from difficulty in obtaining import or export licenses; limitations on repatriation of funds; tariffs, quotas and other trade barriers and restrictions; transportation delays; operating in locations with a higher incidence of corruption and fraudulent business practices; limitations on our ability to enforce legal rights and remedies with third parties and other factors beyond our control, including terrorism, war, natural disasters, climate change and diseases.

 

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Overall demand for our products could be reduced as a result of a global economic recession or political unrest, especially in areas such as healthcare, education and research. Customers or suppliers may experience cash flow problems, particularly in light of the COVID-19 pandemic and related response measures, and as a result, customers have and may continue to modify, delay or cancel plans to purchase our products. Any inability of current and/or potential customers to purchase and/or pay for our products due to, among other things, declining economic conditions as a result of inflation, rising interest rates, changes in spending patterns and the effects of governmental initiatives to manage economic conditions may have a negative impact on our financial condition and results of operations.

The U.S. administration has indicated an intention to ask Congress to make significant changes, replacement or elimination of the Patient Protection and Affordable Care Act, and government negotiation/regulation of drug prices paid by government programs. Changes in U.S. social, political, regulatory and economic conditions or laws and policies governing the healthcare system and drug prices, foreign trade, manufacturing and development and investment in the territories and countries where we or our customers operate could adversely affect our business and our operating results.

The application of laws and regulations implicating global transactions is often unclear and may at times conflict. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. For example, we may be exposed to any changes in national or international regulations governing the transport of biological products across borders. Non-compliance could also result in fines, damages, criminal sanctions, prohibited business conduct and damage to our reputation. We incur additional legal compliance costs associated with our global operations and could become subject to legal penalties in foreign countries if we do not comply with local laws and regulations, which may be substantially different from those in the United Kingdom or United States. Any such non-compliance, even if prohibited by our internal policies, could have an adverse effect on our business and result in significant fines or penalties.

If relations between China and the United States deteriorate, our business in the United States and China could be materially and adversely affected.

The relationship between China and the United States is subject to periodic tension. Changes in political conditions in the United States and China and changes in the state of China-U.S. relations are difficult to predict and could adversely affect our business. Most recently, on August 6, 2020, the President of the United States signed an executive order that prohibited, beginning 45 days after the date of the order, to the extent permitted under applicable law: any transaction related to WeChat by any person, or with respect to any property, subject to the jurisdiction of the United States, with Tencent Holdings Ltd., Shenzhen, China or any subsidiary of that entity. Our subsidiary in China has historically used social media platforms like WeChat, and during the COVID-19 pandemic it increased its use of WeChat as a service channel to ensure that customer service levels were maintained. Moreover, the U.S. administration has called for substantial changes to trade agreements and is imposing significant increases on tariffs on goods imported into the United States, particularly from China. Other countries have responded similarly, with tariffs on goods entering their countries. We currently sell products in China and have invested, and will continue to invest, in providing localized product support, operations and technology to better serve customers in China, and if the Chinese government makes any changes to its laws or policy concerning foreign ownership of companies or assets located within China, or imposes any significant increases on tariffs on goods imported into or out of China, it could have a significant impact on our business and financial results.

In addition, because of our continuing focus on strategic investment into providing more products to the life science and academic research market in China, any deterioration in political or trade relations might cause a public perception in the United States or elsewhere that may cause our products to become less attractive. We cannot predict what effect any changes in China-U.S. relations may have on our ability to access capital or effectively operate in China, which could have a material adverse effect on our business and results of operations.

 

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The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.

We are a multinational company headquartered in the United Kingdom with worldwide operations, including significant business operations in Europe. Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex negotiations with the European Union relating to the future trading relationship between the parties. Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before withdrawal, as well as about the possibility that a so-called “no deal” separation will occur if negotiations are not completed by the end of the transition period. To prepare for the United Kingdom’s withdrawal, we set up a European distribution hub in The Netherlands to ensure consistent deliveries to our European customers, but there can be no assurance that the uncertainty regarding the United Kingdom’s withdrawal could continue to have an adverse effect on our business.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings have been and may continue to be subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which European Union laws to replace or replicate, including free trade agreements, tax and customs laws, intellectual property rights, environmental, health and safety laws and regulations, immigration laws, employment laws and transport laws could increase costs, disrupt supply chains, depress economic activity and restrict our access to capital. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

As a multinational corporation, we are exposed to fluctuations in currency exchange rates, which could adversely affect our cash flows and results of operations.

International markets contribute a substantial portion of our revenue, and we intend to continue expanding our presence in these regions. The exposure to fluctuations in currency exchange rates takes on different forms. International revenue and costs are subject to the risk that fluctuations in exchange rates could adversely affect our reported revenue and profitability when translated into pounds sterling for financial reporting purposes. The majority of our revenue is denominated in U.S. dollars, and our costs are primarily in British pounds sterling. These fluctuations could also adversely affect the demand for products and services provided by us. As a multinational corporation, our businesses occasionally invoice third-party customers in currencies other than the one in which they primarily do business (the “functional currency”). Movements in the invoiced currency relative to the functional currency could adversely impact our cash flows and our results of operations. As our international sales grow, exposure to fluctuations in currency exchange rates could have a larger effect on our financial results. In the fiscal year ended June 30, 2020, currency translation had a favorable effect of £3.7 million on revenue due to the strengthening of the pound sterling relative to other currencies in which we sell products and services. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosure about Market Risk—Currency Risk.”

We are subject to product liability and other claims in the ordinary course of business.

Our business involves risk of product liability, claims related to providing incorrect product information at the time of purchase and other claims in the ordinary course of business arising from the products that we source from various manufacturers or produce ourselves. Furthermore, there may be product liability risks that are unknown or which become known in the future. Substantial, complex or extended litigation on any claim could cause us to incur significant costs and distract our management. For example, lawsuits by governmental authorities, employees, shareholders, suppliers, collaborators, distributors, customers, competitors or others could

 

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be very costly and substantially disrupt our business. Our exposure to such claims may increase as we seek to increase the geographic scope of our sourcing and sales activities and to the extent that we expand our manufacturing operations. We maintain insurance policies and in some cases, our suppliers, customers and predecessors of acquired companies have indemnified us against certain claims. We cannot assure you that our insurance coverage or indemnification agreements will be available in all pending or any future cases brought against us. Furthermore, our ability to recover under any insurance or indemnification arrangements is subject to the terms and conditions of such insurance or indemnification agreement, as well as the financial viability of our and such third parties’ insurers, as well as legal enforcement under the local laws governing these arrangements. Insurance coverage in general or coverage for certain types of liabilities, such as product liability in developing markets, may not be readily available for purchase or cost-effective for us to purchase. Furthermore, many of our insurance policies are subject to deductibles and retentions. Accordingly, we could be subject to uninsured and unindemnified future liabilities requiring us to provide additional reserves to address such liabilities. An unfavorable result in a case for which adequate insurance or indemnification is not available could adversely affect our business, financial condition and results of operations.

We are also involved in various disputes, litigation and regulatory matters incidental to and in the ordinary course of our business, including employment matters, commercial disputes, government compliance matters, environmental matters, and other matters arising out of the normal conduct of our business. Where merited, we will vigorously defend ourselves in such matters. While the impact of this litigation has or may be immaterial, there can be no assurance that the impact of the pending and any future claims will not be material to our business, financial condition or results of operations in the future.

Our business, financial condition and results of operations depend upon the availability of critical materials and components.

Our operations depend upon our ability to obtain high-quality third-party products and materials meeting our specifications and other requirements at reasonable prices, including various components, storage and growth media and other materials. Our ability to maintain an adequate supply of such critical materials and components could be impacted by the availability and price of those materials and maintaining relationships with suppliers. While we may seek to minimize the impact of price increases and potential shortages by, among other things, entering into long-term supply agreements, increasing our own prices and implementing cost-saving measures, our earnings and cash flows could be adversely affected in the event these measures are insufficient to cover our costs. Moreover, while we aim to maintain a large network of product suppliers, we are unable to predict any interruption or disruption in service from our key suppliers, particularly in light of the COVID-19 pandemic. Any interruption or disruption in service from particular suppliers of components and materials means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers, to the extent any alternate suppliers acceptable to us and, if applicable, to our customers, even exist. If this occurs, we could expend substantial expense and time in re-establishing relationships with third-party suppliers that meet the appropriate quality, cost and regulatory requirements needed for commercially viable manufacture of our products or in re-designing our products to incorporate different components and materials that are available from third-party suppliers. If we are unable to obtain the materials we need at reasonable prices or at all, we may not be able to produce certain of our products at a marketable price or at all. If our supply of materials and components is adversely affected, including as a result of the COVID-19 pandemic, we could impact our customers’ ability to conduct their research, damage our relationship with current and prospective customers and our operating results and financial condition could be adversely affected.

Moreover, we are dependent upon the ability of our suppliers to provide materials and components that meet our specifications, quality standards, other applicable criteria and delivery schedules. Our suppliers’ failure to provide expected materials or components that meet such criteria could adversely affect production schedules and contract profitability.

 

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The continued supply of high-quality third-party products and materials from our suppliers is subject to a number of risks, including:

 

   

the destruction of or damage to our suppliers’ facilities or their distribution infrastructure;

 

   

work stoppages or strikes by our suppliers’ employees;

 

   

the failure of our suppliers to provide materials of the requisite quality or in compliance with strict specifications;

 

   

the failure of essential equipment at our suppliers’ plants;

 

   

the failure of our suppliers to satisfy import and export control laws for goods that we purchase from them;

 

   

the failure of our suppliers to meet regulatory standards where applicable;

 

   

the failure, shortage or delay in the delivery of materials to our suppliers;

 

   

contractual amendments and disputes with our suppliers; and

 

   

inability of our suppliers to perform as a result of the weakened global economy, the COVID-19 pandemic or otherwise.

If we experience problems with suppliers, we may not be able to find acceptable alternatives, and any such alternatives could result in increased costs for us and possible forward losses on certain contracts. Even if acceptable alternatives are found, the process of locating and securing such alternatives might be disruptive to our business, might lead to termination of our supply agreements with our customers and might disrupt the operations of our customers leading to potential claims, any of which could adversely affect our business, financial condition and results of operations.

Our business, financial condition and results of operations depend upon maintaining our relationships with suppliers.

Our ability to sustain our gross margins has been, and will continue to be, dependent in part upon our ability to obtain favorable terms from our suppliers. These terms may change from time to time, and such changes could adversely affect our gross margins over time. In addition, our results of operations and cash flows could be adversely impacted by the acceleration of payment terms to our suppliers and/or the imposition of more restrictive credit terms and other contractual requirements. Further, if for any reason we enter into a contract with a supplier on unfavorable terms, it may harm our ability to negotiate our future contracts with that supplier or with other supplier.

Some of our competitors are increasing their manufacturing operations both internally and through acquisitions of manufacturers, including manufacturers that supply products to us. In addition, we manufacture certain products that may compete directly with products we source from our suppliers. To date, we have not experienced an adverse impact on our ability to continue to source products from manufacturers that have been vertically integrated or otherwise compete with us, although there is no assurance that we will not experience such an impact in the future.

The loss of one or more of our large suppliers, including as a result of consolidation, a material reduction in their supply of products or provision of services to us, extended disruptions or interruptions in their operations or material changes in the terms we obtain from them, could have a material adverse effect on our business, financial condition and results of operations.

 

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We are highly dependent on our management and employees. Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees that we need to support our business and our intended future growth.

Our success largely depends on the skills, experience and continued efforts of our management, including our Chief Executive Officer and our senior leadership. The replacement of certain members of our global leadership team would likely involve the expenditure of significant time and financial resources, and the loss of any such individual may significantly delay or prevent the achievement of our business objectives. As we continue to grow, our success also depends on our ability to attract, motivate and retain highly qualified individuals who will also fit within the Abcam culture. Competition for senior management and other personnel in our industry is intense, and the pool of suitable candidates is limited. If qualified personnel become scarce or difficult to attract or retain in our industry for compensation-related or other reasons, we could experience higher labor, recruiting or training costs. Further, new hires may require significant training and time before they achieve full productivity and may not become as productive as we expect. The failure to attract, retain and properly motivate members of our senior management team and other employees, to find suitable replacements for them in the event of death, illness or their desire to pursue other professional opportunities, or to maintain our corporate culture as we continue to grow, could have a negative effect on our operating results.

We are also reliant on contractors in certain key operational and leadership roles. While we are seeking to replace such contractors with permanent employees, until such appointments are made, we are subject to the risk inherent in the use of contractors, including the risk that they accept an alternative engagement or that they are not sufficiently motivated, incentivized or aligned to our commercial objectives.

We may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets or other investments become impaired.

We are required under IFRS to test goodwill for impairment at least annually and to review our goodwill, amortizable intangible assets and other investments, including those acquired through acquisition activity, for impairment when events or changes in circumstance indicate the carrying value may not be recoverable.

Factors that could lead to impairment of goodwill, amortizable intangible assets and other investments, including those acquired through acquisitions, include significant adverse changes in the business climate and actual or projected operating results and declines in the financial condition of our business. For example, for the fiscal year ended June 30, 2020, we experienced an impairment charge of £14.9 million in respect of the full impairment of the acquisition intangible in respect of AxioMx in vitro monoclonal antibody production technology (AxioMx acquired technology) and subsequent post acquisition expenditure is capitalized. This arose following an appraisal of the ability to utilize at scale this technology, whereby, although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to further pursue active development and substantive utilization of this specific acquired technology. Additionally, in the fiscal year ended June 30, 2019, we experienced an impairment of software assets under construction of £12.8 million as a result of changes in the scope and nature of our ERP program and the corresponding usability of historical work performed on certain outstanding modules. We may be required in the future to record additional charges to earnings if our goodwill, amortizable intangible assets or other investments become impaired. Any such charge would adversely impact our financial results.

Our reputation, ability to do business and results of operations may be impaired by improper conduct by any of our employees, agents or business partners.

We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by employees, agents or business partners of ours (including third-party suppliers, distributors or of businesses we acquire or partner with) that would violate U.S. and/or other national laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, export and import compliance, money laundering and data privacy. In particular, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws

 

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in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced corruption to some degree. All of our employees are required to undertake regular training on topics like anti-bribery, corruption and GDPR legislation, among others. Additionally, we require our suppliers and distributors to sign up and abide by our Supplier and Distributor Codes of Conduct; however, there can be no assurance that our employees, suppliers and distributors will not engage in improper actions. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions, and any related shareholder lawsuits could lead to substantial civil and criminal, monetary and nonmonetary penalties and could cause us to incur significant legal and investigatory fees. In addition, a government may seek to hold us liable as a successor for violations committed by companies in which we invest or that we acquire. We also rely on our suppliers to adhere to our supplier standards of conduct, and material violations of such standards of conduct could occur that could have a material effect on our business, reputation, financial condition and results of operations.

The indemnification provisions of acquisition agreements by which we have acquired companies or businesses may not fully protect us, and we may face unexpected liabilities.

Certain of the acquisition agreements by which we have acquired companies or businesses require the former owners to indemnify us against certain liabilities related to the operation of the company or business before we acquired it. In most of these agreements, however, the liability of the former owners is limited, and certain former owners may be unable to meet their indemnification responsibilities. While we have limited escrow and retention agreements in place relating our acquisitions, these may not be enough to cover our exposure if a significant liability arose in connection with any acquisition agreement. We cannot assure you that these indemnification provisions, escrow agreements and retention agreements will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our business, financial condition and results of operations.

Certain aspects of our business rely on relationships with collaborative partners, distributors and other third parties for development, supply and marketing of certain products and potential products, and such collaborative partners or other third parties could fail to perform sufficiently.

We believe that success in penetrating certain geographic markets depends in part on our ability to develop and maintain relationships with key distributors. Relying on distribution relationships is risky because, among other things, our distributors may: not devote sufficient resources to the sales of our products; fail to obtain approvals necessary to distribute our products; be acquired by other companies and terminate our distribution agreements or become insolvent; or decline to renew existing agreements on acceptable terms. Because these and other factors may be beyond our control, the distribution of our products in certain jurisdictions may be delayed or otherwise adversely affected. If we or any of our distributors terminate a distribution agreement, we may be required to devote additional resources to commercialization and distribution, which could adversely affect our business, financial condition and results of operations.

Changes in our tax rates, unavailability of certain tax credits or reliefs or exposure to additional tax liabilities or assessments could affect our profitability, and audits by tax authorities could result in additional tax payments for prior periods.

We are affected by various U.S. and non-U.S. taxes, including direct and indirect taxes imposed on our global activities, such as corporate income, withholding, customs, excise, value-added, sales and other taxes. Significant judgment is required in determining our provisions for taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain.

The amount of income tax we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If audits result in payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities, and our financial statements could be adversely affected. Any further significant changes to the tax system in the United States or in other jurisdictions (including changes in the taxation of international income as further described below) could adversely affect our business, financial condition and results of operations.

 

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We carry out extensive research and development activities, and as a result, we benefit in the United Kingdom from HMRC’s research and development expenditure credit (“RDEC”), which provides relief against U.K. corporation tax. Broadly, RDECs provide a tax credit currently equal to 13% of “qualifying research and development expenditure” made from April 1, 2020 (the rate was previously 12% of qualifying research and development expenditure made from January 1, 2018 to March 31, 2020) by certain companies where certain criteria are met. Based on criteria established by HMRC, a portion of expenditures incurred in relation to our research and development and manufacturing development activities are eligible for RDEC relief. Our qualifying research and development expenditures largely consist of employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive revenue and are loss generating. To the extent a company cannot utilize the RDEC against U.K. corporation tax, then certain rules apply that allow the RDEC to reduce the tax liability of certain specified taxes, and to the extent it is not possible to utilize the RDEC in full, then the net tax credit is repaid to the company by HMRC.

We also benefit from the U.K.’s “patent box” regime, which allows certain profits attributable to revenues from patented products (and other qualifying income) to be taxed at an effective corporation tax rate of 10%.

If, however, there are unexpected adverse changes to the RDEC scheme or the “patent box” regime, or for any reason we are unable to qualify for such advantageous tax legislation, then our business, results of operations and financial condition may be adversely affected.

Changes in tax law relating to multinational corporations could adversely affect our tax position.

The U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do business, and the Organization for Economic Cooperation and Development (“OECD”) have recently focused on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” where profits are claimed to be earned for tax purposes in low-tax jurisdictions, or payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. The OECD has released several components of its comprehensive plan to create an agreed set of international rules for addressing base erosion and profit shifting.

As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, whether a permanent establishment exists in a particular jurisdiction, the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. For example, if the taxing authority in one country where we operate were to reallocate income from another country where we operate, and the taxing authority in the second country did not agree with the reallocation asserted by the first country, we could become subject to tax on the same income in both countries, resulting in double taxation. If taxing authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it could increase our tax liability, which could adversely affect our financial position and results of operations.

Due to the potential for changes to tax laws and regulations or changes to the interpretation thereof (including regulations and interpretations pertaining to recent tax reform in the United States), the ambiguity of tax laws and regulations, the subjectivity of factual interpretations, uncertainties regarding the geographic mix of earnings in any particular period, and other factors, our estimates of effective tax rate and income tax assets and liabilities may be incorrect and our financial statements could be adversely affected. The impact of the factors referenced in the first sentence of this paragraph may be substantially different from period-to-period.    

The application of indirect taxes could adversely affect our business and results of operations.

The application of indirect taxes, such as sales and use tax, value-added tax, provincial taxes, goods and services tax, business tax and gross receipt tax, to our business is a complex and evolving issue. Significant

 

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judgment is required to evaluate applicable tax obligations. As a result, amounts recorded may be subject to adjustments by the relevant tax authorities. In many cases, the ultimate tax determination is uncertain because it is not clear how new and existing statutes might apply to our business. A number of jurisdictions globally have introduced (or are looking to introduce) additional reporting, record-keeping or value-added tax (or similar taxes) calculation, collection and remittance obligations on businesses like ours that are engaged in ecommerce.

Further, in the United States, states are able to tax their residents on remote sales. Following the U.S. Supreme Court’s decision in 2018 in South Dakota v. Wayfair, a U.S. state may require by way of “economic nexus laws” an online seller to collect sales taxes imposed by that state, even if the seller has no physical presence in that state, thus permitting a wider enforcement of such sales tax collection requirements against non-U.S. companies that have historically not been responsible for state or local tax collection unless they had physical presence in the U.S. customer’s state. Such legislation could require us to incur substantial costs in order to comply, including costs associated with legal advice, tax calculation, collection, remittance and audit requirements, which could make selling in such markets less attractive and could adversely affect our business.

We are required to comply with a wide variety of laws and regulations and are subject to regulation by various federal, state and foreign agencies.

The vast majority of our products are marketed and sold as being for research use only, and as such, they are not generally subject to the extensive laws and regulations that would apply if our products were to marketed and sold for diagnostic or therapeutic use.

RUO products are regulated by the U.S. Food and Drug Administration (the “FDA”) as medical devices, and include in vitro diagnostic products in the laboratory research phase of development that are being shipped or delivered for an investigation that is not subject to the FDA’s investigational device exemption requirements. Although medical devices are subject to stringent FDA oversight, products that are intended for RUO and are labeled as RUO are exempt from compliance with most FDA requirements, including premarket clearance or approval, manufacturing requirements, and others. A product labeled RUO but which is actually intended for clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the Federal Food, Drug, and Cosmetic Act (“FDCA”), and subject to FDA enforcement action. The FDA has indicated that when determining the intended use of a product labeled RUO, the FDA will consider the totality of the circumstances surrounding distribution and use of the product, including how the product is marketed and to whom. The FDA could disagree with our assessment that our products are properly marketed as RUOs, or could conclude that products labeled as RUO are actually intended for clinical diagnostic use and could take enforcement action against us, including requiring us to stop distribution of our products until we are in compliance with applicable regulations, which would reduce our revenue, increase our costs and adversely affect our business, prospects, results of operations and financial condition. In the event that the FDA requires us to obtain marketing authorization of our RUO products in the future, there can be no assurance that the FDA will grant any clearance or approval requested by us in a timely manner, or at all.

In the event that the applicable laws and regulations were to change such that our products were subject to greater regulatory control, it could have a significant impact on our ability to market and sell our products and could require us to spend significant amounts to ensure and monitor compliance with such laws and regulations such that our business, financial condition and results of operations could be adversely affected. Similarly, if we fail to appropriately market and sell our products as being for research use only, we may be found to be selling products for diagnostic use and in breach of the appropriate laws and regulations. Though we are careful to ensure that our products are clearly identified as being for research use only and have processes in place to ensure we are not selling our products to customers who may intend to use our products other than for research, including for diagnostic use, we cannot be certain that our customers will not use our products for purposes other than those for which they are manufactured, identified and marketed.

Generally, we are subject to various local, state, federal, foreign and transnational laws and regulations, which include the requirements of the FDA, the U.S. Department of Health and Human Services (the “HHS”)

 

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and other comparable agencies and, in the future, any changes to such laws and regulations could adversely affect us. In particular, for a very small number of our products which are regulated as non-RUO medical devices, we are subject to laws and regulations concerning current good manufacturing practices and certain other requirements applicable to medical devices. We also maintain certain quality management systems accreditations at our facilities in Cambridge, United Kingdom, Hangzhou, China (ISO9001) and Burlingame, California (ISO13485). Our subsidiaries may be required to register for permits and/or licenses with, and may be required to comply with the laws and regulations of, the FDA, the HHS, foreign agencies and/or comparable state agencies as well as certain accrediting bodies depending upon the type of operations and location of product distribution, manufacturing and sale. The manufacture, distribution and marketing of certain of our products are subject to extensive ongoing regulation by the FDA and other equivalent local, state, federal and non-U.S. regulatory authorities. In addition, we are subject to inspections by these regulatory authorities. Failure by us or by our customers to comply with the requirements of these regulatory authorities or quality accreditation agencies, including without limitation, remediating any inspectional observations to the satisfaction of these regulatory authorities, could result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution, restrictions on our operations, civil or criminal sanctions or withdrawal of existing or denial of pending approvals, including those relating to products or facilities. In addition, such a failure could expose us to contractual or product liability claims, contractual claims from our customers, as well as ongoing remediation and increased compliance costs, any or all of which could be significant.

We are also subject to a variety of federal, state, local and international laws and regulations that govern, among other things, the importation and exportation of products, animal welfare, the handling, transportation and manufacture of substances that could be classified as hazardous, laws governing government contracts and our business practices such as anti-corruption and antitrust laws. Although we believe that we comply in all material respects with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion concerning the compliance of our operations with applicable laws and regulations. In addition, there can be no assurance that we will be able to maintain or renew existing permits, licenses or other regulatory approvals or obtain, without significant delay, future permits, licenses or other approvals needed for the operation of our businesses. Furthermore, loss of a permit, license or other approval in any one portion of our business may have indirect consequences in other portions of our business if regulators or customers, for example, cease doing business with such other portion due to fears that such loss is a sign of broader concerns about our ability to deliver products or services of sufficient quality.

Any noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could have an adverse effect on our business, financial condition and results of operations. Failure to comply with these laws and regulations can lead to agency action, including warning letters, product recalls, product seizures, monetary sanctions, injunctions to halt manufacturing or distribution, restrictions on our operations, withdrawal of existing or denial of future approvals, permits or registrations, including those relating to products or facilities and civil and criminal sanctions. To the extent these agencies were to take enforcement action, such action may be publicly available, and such publicity could harm our ability to sell these regulated products globally and may harm our reputation. In addition, such actions could limit the ability of our customers to obtain regulatory clearance or approval for their products in the United States or abroad and/or our customers may incur significant costs in obtaining or maintaining such regulatory clearances or approvals in the United States or abroad. In addition, any such failure relating to the products we provide exposes us to direct and third-party product liability claims as well as contractual claims from our customers, including claims for reimbursement for lost or damaged products, as well as potential recall liability, which could be significant. Customers may also claim loss of profits due to lost or delayed sales, although our direct contracts with end customers typically place limits on such claims. There can be no assurance that any such contractual limitation will be applicable or sufficient or fully enforced in any given situation.

 

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Risks Relating to our Intellectual Property

If we are unable to obtain and maintain patent protection for our technology, products and potential products, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

We rely, and will continue to rely, upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our proprietary technologies, products and potential product. Our success depends in part on our ability to secure and maintain patent protection in the United States and other countries with respect to our technology, current products and potential products, and any future potential products and technology we may develop. We seek to protect our proprietary position by filing or collaborating with our licensors to file patent applications in the United States and abroad related to our proprietary technologies, products and potential products.

The patent prosecution process is expensive, time consuming and complex, and we may not be able to file, prosecute, maintain, defend, enforce or license all necessary or desirable patents at a reasonable cost or in a timely manner in all desirable jurisdictions. As a result, we may not be able to prevent competitors or other third parties from developing and commercializing competitive products in all such fields and jurisdictions.

It is possible that we will fail to identify patentable aspects of our research and development output or fail to take the necessary steps to seek patent protection before it is too late to obtain patent protection. We may not have the right to control the preparation, filing, and prosecution of patent applications, or to maintain the rights to patents licensed from third parties. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our relevant proprietary products and technology, including current products, potential products, and any future potential products we may develop in the United States or in other foreign countries, in whole or in part. Our existing patents may have issued with claims that fail to cover our relevant proprietary products and technology, including current products, potential products and any future potential products we may develop in the United States or in other foreign countries, in whole or in part. Alternately, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technology or from developing competing products and technologies. Patents may not be granted for a number of reasons, including known or unknown prior art, deficiencies in the patent application or the lack of novelty of the underlying invention or technology. In addition, publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases, not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications or that we or our licensors were the first to file for patent protection of such inventions.

Even if patents do successfully issue and even if such patents cover our current products, current potential products and any future potential products we may develop, third parties may challenge their validity, ownership, enforceability or scope thereof, which may result in such patents being narrowed, invalidated, or held unenforceable or circumvented. We may become involved in proceedings challenging our owned or licensed patent rights, including, but not limited to, opposition, derivation, reexamination, inter partes review, post grant review or interference. Any successful challenge to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any of our products and may result in loss of patent rights or freedom to operate, loss of exclusivity, or patent claims being narrowed, invalidated or held unenforceable, any of which could limit our ability to stop others from using or commercializing similar or identical technology and products, or could limit the duration of the patent protection of our technology, products and potential products. Such proceedings also may result in substantial costs and require significant time from our management and employees, even if the eventual outcome is favorable to us. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that

 

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could prevent us from marketing our products, if approved, or practicing our own patented technology. Our competitors may also be able to circumvent our patents by developing similar or alternative potential products in a non-infringing manner.

The patent position of life sciences companies can be uncertain, involves complex legal, scientific and factual questions, and is characterized by the existence of large numbers of patents and litigation based on allegations of patent or other intellectual property infringement, misappropriation, violation or invalidity. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are uncertain. If the patent applications we hold or have in-licensed with respect to our technology products and potential products fail to issue, if the validity, breadth or strength of protection of our patents and patent applications with respect to our technology, products and potential products is threatened or if they fail to provide meaningful exclusivity for any of our current or future technology products and potential products, it could dissuade companies from collaborating with us, encourage competitors to develop competing products or technologies and threaten our ability to commercialize future potential products. Any such outcome could harm our business.

In addition, we may in the future be subject to claims by former employees, consultants or other third parties asserting an ownership right in our owned or licensed patents or patent applications. An adverse determination in any such submission or proceeding may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar products, potential products or technology, without payment to us, or could limit the duration of the patent protection covering our products, potential products and technology. Such challenges may also result in our inability to develop, manufacture or commercialize our products, potential products and technologies without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our owned or licensed patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future products, potential products or technologies. Any of the foregoing could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.

Variability and developments in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products and potential products.

As is the case with other companies in our industry, our success depends in part on obtaining, maintaining, enforcing and defending intellectual property, particularly patents. Obtaining and enforcing patents in the life science industry involves technological and legal complexity, and obtaining and enforcing life science patents is costly, time-consuming and inherently uncertain. Changes in either the patent laws or their interpretation in the United States or other jurisdictions may increase the uncertainties and costs surrounding the prosecution of our patents, diminish our ability to protect our inventions, obtain, maintain, defend, and enforce our intellectual property rights and, more generally, affect the value of our intellectual property or narrow the scope of our patent rights.

The Leahy-Smith America Invents Act (the “AIA”), which was passed in September 2011, resulted in significant changes to the U.S. patent system. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned from a “first-to-invent” to a “first-inventor-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. Under a “first-inventor-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. A third party that files a patent application in the United States Patent and Trademark Office (the “USPTO”), after March 16, 2013 but before us could therefore be awarded a patent covering an invention similar or indentical to one of ours even if we made our invention before the third party made theirs. This will require us to be cognizant going forward of the time from invention to filing of a patent application and be diligent in filing patent applications, but circumstances could prevent us from promptly filing patent applications on our inventions.

 

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Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and provide additional opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal district courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. It is not clear what, if any, impact the AIA will have on the operation of our business. However, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.

In addition, the United States federal government retains certain rights in inventions produced with its financial assistance under the Bayh-Dole Act. The federal government retains a “nonexclusive, nontransferable, irrevocable, paid-up license” for its own benefit. The Bayh-Dole Act also provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” If the patent owner refuses to do so, the government may grant the license itself. Some of our licensed patents are subject to the provisions of the Bayh-Dole Act. If our licensors fail to comply with the regulations of the Bayh-Dole Act, they could lose title to any patents subject to such regulations, which could affect our license rights under the patents and our ability to stop others from using or commercializing similar or identical technology and products, or limit patent protection for our technology and products.

The United States and many other countries have adopted a doctrine of “patent exhaustion,” which provides that once a patentee sells one of its products, it can no longer exercise control over the specific product. This could limit our ability to rely on our patents to prevent the import of products we have placed into the market in one jurisdiction into another jurisdiction.

Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations, and there are other open questions under patent law that courts have yet to decisively address. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways and could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. In addition, European patent laws can be complex and uncertain, and there could be similar changes in the laws of foreign jurisdictions that may impact the value of our patent rights or our other intellectual property rights. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business, and changes in such laws may have an adverse effect on our patent rights and our ability to protect, defend and enforce our patent rights in the future, as well as on our competitive position, business, financial condition, results of operations and prospects.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO, European Patent Office (“EPO”) and other patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO, EPO and other patent agencies over the lifetime of the patent. While an inadvertent failure to make timely payment of such

 

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fees or to comply with such provisions can in many cases within a reasonable timeframe be cured by additional payment of a late fee or by other means in accordance with the applicable rules, there are situations and time frames in which non-compliance with such provisions will result in the abandonment or lapse of the patent or patent application, and the partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents within prescribed time limits. If we or our licensors fail to maintain the patents and patent applications covering our products and potential products or if we or our licensors otherwise allow our patents or patent applications to be abandoned or lapse, it can create opportunities for competitors to enter the market, which would hurt our competitive position and could impair our ability to successfully commercialize our products.

We enjoy only limited geographical protection with respect to certain patents, and we may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents covering our technology, products and potential products in all countries throughout the world would be prohibitively expensive, and even in countries where we have sought protection for our intellectual property, such protection can be less extensive than those in the United States. The requirements for patentability may differ in certain countries, particularly developing countries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. In-licensing patents covering our products and potential products in all countries throughout the world may similarly be prohibitively expensive, if such opportunities are available at all. And in-licensing or filing, prosecuting and defending patents even in only those jurisdictions in which we develop or commercialize our products and potential products may be prohibitively expensive or impractical. Competitors may use our and our licensors’ technologies in jurisdictions where we have not obtained patent protection or licensed patents to develop their own products and, further, may export otherwise infringing products to territories where we and our licensors have patent protection, but where enforcement is not as strong as that in the United States or the European Union. These products may compete with our products, and our or our licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many jurisdictions have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many jurisdictions limit the enforceability of patents against government agencies or government contractors. In these jurisdictions, the patent owner may have limited remedies, which could materially diminish the value of such patents. If we or any of our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be adversely impacted, which could have a material adverse effect on our business.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal system in certain foreign jurisdictions, particularly those in certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection which could make it difficult for us to stop the infringement, misappropriation or other violation of our patents or other intellectual property rights, or the marketing of competing products in violation of our proprietary rights in these jurisdictions. Proceedings to enforce our patent and other intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents and other intellectual property rights at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a commercial advantage from the intellectual property that we develop or license. Any of the foregoing could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.

 

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Patent terms may be inadequate to protect our competitive position on our products and potential products for an adequate amount of time.

The term of any individual patent depends on applicable law in the country where the patent is granted. In the United States, provided all maintenance fees are timely paid, a patent generally has a term of 20 years from its application filing date or earliest claimed non-provisional filing date. Extensions and adjustments may be available under certain circumstances, but the life of a patent and, correspondingly, the protection it affords is limited. Even if we or our licensors obtain patents covering our products and potential products, when the terms of all patents covering a product or potential product expire, our business may become subject to competition with respect to that product. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours for an adequate amount of time.

We may not be able to rely on our patents to stop certain activities by third parties.

The United States and many other countries have provisions that exempt certain activities from patent infringement. For example, in the United States, “safe harbor” provisions shield infringement activities that are reasonably related to obtaining regulatory approval for certain medicinal products. This may limit our ability to stop others from using our technology, products and potential products. Third parties might use our patented technology, make and sell our patented products or otherwise perform an act that infringes one or more of our patents. We may not have sufficient financial or other resources to conduct appropriate litigation or other proceedings to stop such infringing acts. This could diminish the value of our patents.

We depend on proprietary technology licensed from others. If we lose our existing licenses or are unable to acquire or license additional proprietary rights from third parties, we may not be able to continue developing our potential products.

We are a party to certain license agreements for certain intellectual property and proprietary technology, and we may enter into additional agreements, including license agreements, with other parties in the future that impose diligence, development and commercialization timelines, milestone payments, royalties, insurance and other obligations on us. If we fail to comply with our obligations to our licensors or any of our other current or future collaborators, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product, potential product or other technology that is covered by these agreements, which could adversely affect the value of the potential product being developed under any such agreement, or we may face claims for monetary damages or other penalties under these agreements. Termination of these agreements or reduction or elimination of our rights under these agreements may result in us having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. In addition, such an event may cause us to experience significant delays in the development and commercialization of our products, potential products or technologies or incur liability for damages. If any such license is terminated, our competitors or other third parties could have the freedom to seek regulatory approval of, and to market, products and technologies identical or competitive to ours, and we may be required to cease our development and commercialization of certain of our products, potential products or technologies.

We may rely on third parties from whom we license proprietary technology to file and prosecute patent applications and maintain patents and otherwise protect the intellectual property we license from them. We may have limited control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We may have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that may be licensed to us. It is possible that the licensors’ infringement proceeding or defense activities may be less vigorous than if we conduct them ourselves.

 

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The growth of our business may depend in part on our ability to acquire or in-license additional proprietary rights. We may be unable to acquire or in-license any relevant third-party intellectual property rights that we identify as necessary or important to our business operations. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all, which would harm our business. In that event, we may be required to expend significant time and resources to redesign our products, potential products or technologies or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected products, potential products or technologies, which could adversely impact our business, financial condition, results of operations and prospects. Even if we are able to obtain a license under such intellectual property rights, any such license may be non-exclusive, which may allow our competitors access to the same technologies licensed to us.

Disputes may arise regarding intellectual property subject to a license agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

our or our licensors’ obligation to obtain, maintain and defend intellectual property and to enforce intellectual property rights against third parties;

 

   

the extent to which our technology, potential products and processes infringe, misappropriate or otherwise violate intellectual property of the licensor that is not subject to the license agreement;

 

   

the sublicensing of patent and other intellectual property rights under our license agreements;

 

   

our diligence, financial or other obligations under the license agreement and what activities satisfy those diligence obligations;

 

   

the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

   

the priority of invention of patented technology.

In addition, the agreements under which we license intellectual property or technology from third parties are, and any such future license agreements are likely to be, complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our diligence, financial or other obligations under the relevant agreement, or we may face claims for monetary damages or other penalties under these agreements, any of which could have an adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed or any other dispute described above related to our license agreements prevent or impair our ability to maintain our licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected products, potential products or technologies. Any of the foregoing could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and have an adverse effect on the success of our business.

Competitors or other third parties may infringe, misappropriate or otherwise violate our patents or other intellectual property. If we or one of our licensors were to initiate legal proceedings against a third party to enforce a patent covering one of our products or potential products, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States and in European countries, defendant counterclaims alleging invalidity or unenforceability are commonplace. Third parties may initiate invalidity proceedings even in the absence of infringement proceedings. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness, lack of

 

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written description, non-enablement or lack of entitlement. Third parties might allege unenforceability of our patents in the United States because during prosecution of the patent an individual connected with such prosecution withheld relevant information, or made a misleading statement. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable.

If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our products, potential products and other technology, which may allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or could require us to obtain license rights from the prevailing party in order to be able to manufacture or commercialize our products, potential products or technologies without infringing third-party patent rights. Even if a defendant does not prevail on a legal assertion of invalidity or unenforceability, our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. Furthermore, many of our current and potential competitors may have, or may gain, the ability to dedicate substantially greater resources to enforce and defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. Our patents and other intellectual property rights also will not protect our technology, products and potential products if competitors design around our protected technology, products and potential products without infringing our patents or other intellectual property rights.

Third parties may assert claims against us alleging infringement, misappropriations or other violations of their patents and proprietary rights, or we may need to become involved in lawsuits to defend or enforce our patents, either of which could result in substantial costs or loss of productivity, delay or prevent the development and commercialization of our products and potential products, or prohibit our use of proprietary technology or sale of products.

Our commercial success depends, in part, upon our ability to develop, manufacture, market and sell our products and other technologies without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe, misappropriate or otherwise violate patents or other intellectual property rights owned or controlled by third parties. Litigation relating to infringement or misappropriation of patent and other intellectual property rights in the life science industry is common, including patent infringement lawsuits, interferences, derivation and administrative law proceedings, inter partes review and post-grant review before the USPTO, as well as oppositions and similar processes in foreign jurisdictions. The various markets in which we plan to operate can be subject to litigation regarding patents and other intellectual property rights. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for or obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products. In addition, many companies in intellectual property-dependent industries, including the life science industry, have employed intellectual property litigation as a means to gain an advantage over their competitors. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us.

We may be subject to third-party claims including infringement, interference or derivation proceedings, post-grant review and inter partes review before the USPTO or similar adversarial proceedings or litigation in other jurisdictions. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders of any such patents may be

 

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able to block our ability to commercialize the applicable product or potential product unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our products, potential products or technologies may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies, products and potential products infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover aspects of our products, potential products or technologies, the holders of any such patents may be able to prohibit our commercialization of the applicable product, potential product or technology until such patent expires or is finally determined to be invalid or unenforceable or unless we obtained a license.

In addition, defending such claims would cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages if we are found to be infringing a third party’s patent rights. These damages potentially include royalties, increased damages (possibly treble damages) and attorneys’ fees if we are found to have infringed such rights willfully. Further, if a patent infringement suit is brought against us, our development, manufacturing or sales activities relating to the product, potential product or technology that is the subject of the suit may be delayed or terminated, as parties making claims against us may obtain injunctive or other equitable relief. As a result of patent infringement claims, or in order to avoid potential infringement claims, we may choose to seek, or be required to seek, a license from the third party, which may require payment of substantial royalties or fees, or require us to grant a cross-license under our intellectual property rights. These licenses may not be available on reasonable terms or at all. Even if a license can be obtained on reasonable terms, the rights may be nonexclusive, which would give our competitors access to the same intellectual property rights. If we are unable to enter into a license on acceptable terms, we could be prevented from commercializing one or more of our products, potential products or technologies, or forced to modify such products or potential products, or to cease some aspect of our business operations, which could harm our business significantly. We might also be forced to redesign or modify our products, potential products or technologies so that we no longer infringe the third-party intellectual property rights, which may result in significant cost or delay to us, or which redesign or modification could be impossible or technically infeasible.

Even if we were ultimately to prevail, any of these events could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. Intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays, or prohibit us from manufacturing, importing, marketing or otherwise commercializing our products, potential products, services and technology. In addition, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors view these announcements in a negative light, the price of our common stock could be adversely affected. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.

Our trade secrets may be misappropriated or disclosed, and confidentiality agreements with employees and third parties may not adequately prevent disclosure of trade secrets and protect other proprietary information.

We consider proprietary trade secrets, confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and confidential know-how are difficult to protect, and we have limited control over the protection of trade secrets and confidential know-how used by our licensors, collaborators and suppliers.

 

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To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with us prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. The need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our competitive position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business and results of operations. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable, and the enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Courts outside the United States are sometimes less willing to protect proprietary information, technology and know-how. Furthermore, if any of our trade secrets and confidential know-how were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us, and our competitive position would be harmed.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties, and we may be subject to claims asserting ownership of what we regard as our own intellectual property.

We do and may employ individuals who were previously employed at universities or other life science companies, including our licensors, competitors or potential competitors. Although we seek to protect our ownership of intellectual property rights by ensuring that our agreements with our employees, consultants, collaborators, independent contractors and other third parties with whom we do business include provisions requiring such parties to assign rights in inventions to us and to not use the know-how or confidential information of their former employer or other third parties, we may be subject to claims that we or our employees, consultants, collaborators or independent contractors have inadvertently or otherwise used or disclosed know-how or confidential information of their former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel or intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property, which could result in customers seeking other sources for the technology, or in ceasing from doing business with us. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or potential product. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful, litigation could result in substantial cost and reputational loss and be a distraction to our management and other employees. Moreover, any such litigation or the threat thereof may adversely affect our reputation, our ability to form strategic alliances, engage with scientific advisors or hire employees or consultants, each of which would have an adverse effect on our business, financial condition and results of operations.

In addition, while we typically require our employees, consultants and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. Furthermore, even when we obtain agreements assigning intellectual property to us, the assignment of intellectual property rights may not be self-executing, or

 

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the assignment agreements may be breached, each of which may result in claims by or against us related to the ownership of such intellectual property to determine the ownership of what we regard as our intellectual property. In addition, individuals executing agreements with us may have pre-existing or competing obligations to a third party, such as an academic institution, and thus an agreement with us may be ineffective in perfecting ownership of inventions developed by that individual. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending any of the foregoing claims, litigation could result in substantial costs and be a distraction to our management and employees.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected. We currently own issued trademark registrations and have trademark applications pending, any of which may be the subject of a governmental or third-party objection, which could prevent the registration or maintenance of the same. We cannot assure you that any currently pending trademark applications or any trademark applications we may file in the future will be approved. During trademark registration proceedings, we may receive rejections and although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in proceedings before the USPTO and in proceedings before comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unsuccessful in obtaining trademark protection for our primary brand, we may be required to change our brand name, which could adversely affect our business.

We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.

Intellectual property rights do not necessarily protect us from all potential threats.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

   

others may be able to make products that are similar to any products and potential products we may develop or utilize similar technology that are not covered by the claims of the patents that we own or license now or in the future;

 

   

we, our licensors or current or future collaboration partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or may own in the future;

 

   

we or our licensors or current or future collaboration partners, might not have been the first to file patent applications covering certain of our or their inventions;

 

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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating or otherwise violating our owned or licensed intellectual property rights;

 

   

it is possible that our pending owned or licensed patent applications or those that we may own or license in the future will not lead to issued patents;

 

   

issued patents that we hold rights to may not provide us with a competitive advantage, or may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties;

 

   

our competitors or other third parties might conduct research and development activities in jurisdictions where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

we may not develop additional proprietary technologies that are patentable;

 

   

the patents of others may harm our business; and

 

   

we may choose not to file a patent for certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, they could have an adverse effect on our competitive position, business, financial condition or results of operations.

Risks Relating to Our ADSs and this Offering

The price of our ADSs may be volatile and may fluctuate due to factors beyond our control.

The initial public offering price for the ADSs was determined through negotiations between the underwriters and us, and may vary from the market price of ADSs following this offering. If you purchase ADSs in this offering, you may not be able to resell those ADSs at or above the initial public offering price. The market price of our ADSs may fluctuate significantly due to a variety of factors, including:

 

   

operating results that vary from our financial guidance or the expectations of securities analysts and investors;

 

   

the financial performance of the major end markets that we target;

 

   

the operating and securities price performance of companies that investors consider to be comparable to us;

 

   

announcements of strategic developments, acquisitions and other material events by us or our competitors;

 

   

failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;

 

   

issuance of new or updated research or reports by securities analysts;

 

   

changes in government regulations;

 

   

financing or other corporate transactions;

 

   

the loss of any of our key personnel;

 

   

sales of our ADSs or ordinary shares by us, our executive officers and board members, holders of our ADSs or our shareholders in the future;

 

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price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; and

 

   

other events and factors, many of which are beyond our control.

These and other market and industry factors may cause the market price and demand for our ADSs to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their ADSs and may otherwise negatively affect the liquidity of our ADSs. In addition, the stock market in general, and pharmaceutical, biotechnology and diagnostics companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of the holders of our ADSs were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our senior management would be diverted from the operation of our business. Any adverse determination in litigation could also subject us to significant liabilities.

There has been no public market for our ADSs prior to this offering, and an active market may not develop in which investors can resell our ADSs.

Prior to this offering, there has been no public market for our ADSs, although our ordinary shares have traded on AIM. We cannot predict the extent to which an active market for our ADSs will develop or be sustained or how the development of such a market might affect the market price for our ADSs. The initial public offering price of our ADSs will be agreed upon between us and the underwriters based on a number of factors, including market conditions in effect at the time of the offering, which may not be indicative of the price at which our ADSs will trade following completion of the offering. Investors may not be able to sell their ADSs at or above the initial public offering price.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our ADSs and our trading volume could decline.

The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no or too few securities or industry analysts commence coverage on us, the trading price for our ADSs would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our ADSs or publish inaccurate or unfavorable research about our business, the price of our ADSs would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our ADSs could decrease, which might cause the price of our ADSs and trading volume to decline.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our ADSs. The failure by our management to apply these funds effectively could result in financial losses or cause the price of our ADSs to decline. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

The dual listing of our ordinary shares and our ADSs following this offering may adversely affect the liquidity and value of our ordinary shares and ADSs.

Following this offering and after our ADSs begin trading on Nasdaq, our ordinary shares will continue to be admitted to trading on AIM. We cannot predict the effect of this dual listing on the value of our ADSs and

 

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ordinary shares. However, the dual listing of our ADSs and ordinary shares may dilute the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for our ADSs in the United States. The price of our ADSs could also be adversely affected by trading in our ordinary shares on AIM. Although our ordinary shares are currently admitted to trading on AIM, we may decide to cancel the admission of our ordinary shares to trading on AIM. Cancellation of the admission of our ordinary shares to trading on AIM would require the requisite consent of shareholders in a general meeting prescribed by AIM Rules for Companies, unless the London Stock Exchange agrees otherwise. We cannot predict the effect such cancellation would have on the market price of our ADSs or ordinary shares.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our ADSs less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, we are required to report only two years of financial results and selected financial data in our initial public offering registration statement, as compared to three and five years, respectively, for comparable data reported by other public companies. We may take advantage of these exemptions until we are no longer an emerging growth company. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the aggregate market value of our ADSs and ordinary shares held by non-affiliates exceeds $700 million as of any December 31 (the end of our second fiscal quarter) before that time, in which case we would no longer be an emerging growth company as of the following June 30 (our fiscal year-end). We cannot predict if investors will find our ADSs less attractive because we may rely on these exemptions. If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs and the price of our ADSs may be more volatile.

We qualify as a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

Upon the closing of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers also are exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers, some investors may find the ADSs less attractive, and there may be a less active trading market for the ADSs.

 

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As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.

As a foreign private issuer listed on Nasdaq, we will be subject to corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country in lieu of certain Nasdaq corporate governance listing standards, provided that we disclose which requirements that we have not complied with in any year and confirm the U.K. corporate governance practices we have complied with. Certain corporate governance practices in the United Kingdom, which is our home country, may differ significantly from Nasdaq corporate governance listing standards. For example, neither the laws of the United Kingdom nor our articles of association (“Articles of Association”) have quorum requirements similar to Nasdaq Rule 5602(c). Although we voluntarily comply with the higher corporate governance standards of the U.K. Corporate Governance Code, we could include non-independent directors as members of our nomination and remuneration committee, and our independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. We may in the future elect to follow home country practices in the United Kingdom with regard to other matters. Therefore, our shareholders may be afforded less protection than they otherwise would have under Nasdaq corporate governance listing standards applicable to U.S. domestic issuers. See “Management—Corporate Governance Practices and Foreign Private Issuer Status.”

We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. We may no longer be a foreign private issuer as of December 31, 2020 (the end of our second fiscal quarter in the fiscal year after this offering), which would require us to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers as of July 1, 2021. In order to maintain our current status as a foreign private issuer, either (a) a majority of our ADSs must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our executive officers or directors cannot be U.S. citizens or residents, (ii) more than 50 percent of our assets must be located outside the United States and (iii) our business must be administered principally outside the United States. If we lose our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, including the requirement to prepare our financial statements in accordance with U.S. generally accepted accounting principles, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. If we lose foreign private issuer status and are unable to comply with the reporting requirements applicable to a U.S. domestic issuer by the applicable deadlines, we would not be in compliance with applicable SEC rules or the rules of the Nasdaq, which could cause investors could lose confidence in our public reports and could have a material adverse effect on the trading price of our ADSs. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

 

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Failure to comply with requirements to design, implement and maintain effective internal control over financial reporting could have a material adverse effect on our business. We have identified a material weakness in our internal control over financial reporting.

As a U.K. public company traded on AIM, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act.

As a public company in the United States, we must maintain effective internal control over financial reporting in order to report in an accurate and timely manner the results of our operations and financial condition. In addition, the Sarbanes-Oxley Act will require, among other things, that we assess the effectiveness of our internal control over financial reporting at the end of each fiscal year. The process of designing and implementing effective internal controls over financial reporting is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations. In addition, we will be required, pursuant to Section 404(a), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report following the completion of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. In addition, it is currently anticipated that our independent registered public accounting firm will be required to issue an audit report on the effectiveness of our internal control over financial reporting in the fifth annual report following the completion of this offering or the fiscal year following the date upon which we are no longer an emerging growth company, whichever is the sooner.

In connection with the implementation of the necessary procedures and practices related to our internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404(a). In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by our independent registered public accounting firm in connection with the issuance of their audit report.

For the fiscal year ended June 30, 2019, we identified a material weakness in our internal control over financial reporting relating to access to program and data controls within one of our key financial systems that we rely upon for certain figures within our consolidated financial statements. This material weakness remained in the fiscal year ended June 30, 2020. This system is a collection of internally built applications operated by different teams across the business. Access rights within these applications are managed via “Security Groups,” with a designated access owner in each team responsible for managing the users within these Security Groups. There are a number of Security Groups in relation to areas that impact the consolidated financial statements, but there is currently no overall formally documented policy prescribing how often the list of users within the Security Groups should be reviewed. As a result, for a number of the Security Groups, access change reviews were not performed sufficiently and regularly, and there was also no documented evidence that access change controls have been performed to ensure the appropriate individuals have the relevant access to this system.

The data from this system principally impacts two consolidated financial statement line items, namely inventory and Internally Developed Technology (“IDT”). Because the review controls that could act as compensating controls are not performed to the appropriate level of rigor and documented regularity, this has been assessed as a material weakness owing to the risk that unauthorized or inappropriate changes to underlying

 

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data in that system could be made, which are then relied upon and could then affect the two consolidated financial statement line items set out above. To date, we have not identified that this control weakness has led to any errors in our consolidated financial statements, however, there can be no assurance that we will not identify any such errors in the future. We are implementing measures designed to improve and remediate the deficiencies that are causing this material weakness through formal documentation of user access review. We expect the documentation for these measures to be in place and functioning soon, and we continue to invest in our IT systems and infrastructure to introduce further enhancements to our internal controls over financial reporting as relevant modules go live. There can be no assurance that such measures will be effective to remediate the material weakness.

Internal review of our internal controls over financial reporting or the subsequent testing of these by our independent registered public accounting firm may reveal other deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses that could result in a material misstatement of our consolidated financial statements or disclosures that may not be prevented or detected.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404(a) or our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified opinion, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our ADSs.

We will incur increased costs as a result of operating as a public company in the United States, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a U.S. public company, and particularly after we no longer qualify as an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur previously. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various requirements on non-U.S. reporting public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. For example, we expect that these rules and regulations may increase the cost of our director and officer liability insurance.

However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our senior management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To prepare for eventual compliance with Section 404, once we no longer qualify as an emerging growth company, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the

 

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prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

Future sales, or the possibility of future sales, of a substantial number of our ADSs could adversely affect the price of our ADSs.

Future sales of a substantial number of our ADSs, or the perception that such sales will occur, could cause a decline in the market price of our ADSs. Based upon the number of shares outstanding as of September 30, 2020, after giving effect to this offering, we will have 225,171,370 ordinary shares outstanding. ADSs sold in this offering may be resold in the public market immediately without restriction, unless purchased by our affiliates. Upon completion of this offering, we will have 225,171,370 ordinary shares outstanding, approximately 18,478,237 of which will be subject to 90-day, or in the case of Mr. Milner, 45-day, lock-up agreements entered into by our directors and officers and certain of our shareholders described in “Ordinary Shares and ADSs Eligible for Future Sale” and “Underwriters.” The representatives of the underwriters may, in their sole discretion, release all or any portion of the equity securities subject to the lock-up agreements prior to the expiration of the lock-up agreements. If, after the end of such lock-up agreements, these shareholders sell substantial amounts of ADSs in the public market, or the market perceives that such sales may occur, the market price of our ADSs and our ability to raise capital through an issue of equity securities in the future could be adversely affected.

If you purchase ADSs in this offering, you will suffer immediate dilution of your investment.

We expect the initial public offering price of our ADSs in this offering to be substantially higher than the net tangible book value per ADS prior to this offering. Therefore, if you purchase ADSs in this offering, you will pay a price per ADS that substantially exceeds our net tangible book value per ADS after this offering. To the extent outstanding options are exercised for ordinary shares, you may experience further dilution. Based on the assumed initial public offering price of $16.52 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909), you will experience immediate dilution of $15.07 per ADS, representing the difference between our net tangible book value per ADS and per ordinary share after giving effect to this and the assumed offering price. See “Dilution.”

If we issue shares in future financings, shareholders may experience dilution and, as a result, our ADS price may decline.

We may from time to time issue additional shares at a discount from the trading price of our shares. As a result, our shareholders would experience immediate dilution upon the issuance of any of our shares at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt or equity securities. If we issue shares or securities convertible into shares of our share capital, our shareholders would experience additional dilution and, as a result, our ADS price may decline.

Because we may not pay any cash dividends on our ADSs in the future, capital appreciation, if any, may be your sole source of gains and you may never receive a return on your investment.

Under current U.K. law, a company’s accumulated realized profits, so far as not previously utilized by distribution or capitalization, must exceed its accumulated realized losses so far as not previously written off in a reduction or reorganization of capital duly made (on a non-consolidated basis), before dividends can be paid. Therefore, we must have distributable profits before issuing a dividend. In the future, our board of directors may decide, in its discretion, whether dividends may be declared and paid. As a result, capital appreciation, if any, on our ADSs may be your sole source of gains, and you will suffer a loss on your investment if you are unable to sell your ADSs at or above the offering price. See “Dividend Policy.”

 

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Securities traded on AIM may carry a higher risk than securities traded on other exchanges, which may impact the value of your investment.

Our ordinary shares are currently traded on AIM. Investment in equities traded on AIM is sometimes perceived to carry a higher risk than an investment in equities quoted on exchanges with more stringent listing requirements, such as the main market of the London Stock Exchange, New York Stock Exchange or Nasdaq. This is because AIM imposes less stringent corporate governance and ongoing reporting requirements than those other exchanges. In addition, AIM requires only half-yearly, rather than quarterly, financial reporting. You should be aware that the value of our ordinary shares may be influenced by many factors, some of which may be specific to us and some of which may affect AIM-quoted companies generally, including the depth and liquidity of the market, our performance, a large or small volume of trading in our ordinary shares, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the market price of our ordinary shares, our ADSs, or of the ordinary shares underlying our ADSs, may not reflect the underlying value of our company.

You may not be able to exercise your right to vote the ordinary shares underlying your ADSs.

ADS holders may only exercise voting rights with respect to the ordinary shares underlying their respective ADSs in accordance with the provisions of the deposit agreement, which provides that a holder may vote the ordinary shares underlying any ADSs for any particular matter to be voted on by our shareholders either by withdrawing the ordinary shares underlying the ADSs or, to the extent permitted by applicable law and as permitted by the depositary, by requesting a temporary registration as shareholder and authorizing the depositary to act as proxy. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares, and after such a withdrawal you would no longer hold ADSs, but rather you would directly hold the underlying ordinary shares. You also may not know about the meeting far enough in advance to request a temporary registration.

The depositary will try, as far as practical, to vote the ordinary shares underlying the ADSs as instructed by the ADS holders. In such an instance, if we ask for your instructions, the depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot guarantee that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares or to withdraw your ordinary shares so that you can vote them yourself. If the depositary does not receive timely voting instructions from you, it may give a discretionary proxy to a person designated by us to vote the ordinary shares underlying your ADSs; provided, however, that no such discretionary proxy shall be given with respect to any matter to be voted upon as to which we inform the depositary that (i) we do not wish such proxy to be given, (ii) substantial opposition exists, or (iii) the rights of holders of ordinary shares may be adversely affected. Voting instructions may be given only in respect of a number of ADSs representing an integral number of ordinary shares or other deposited securities. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise any right to vote that you may have with respect to the underlying ordinary shares, and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested. In addition, the depositary is only required to notify you of any particular vote if it receives notice from us in advance of the scheduled meeting.

You will not be directly holding our ordinary shares. Holders of the ADSs will not be able to exercise the preemptive subscription rights related to the ordinary shares that they represent and may suffer dilution of their equity holding in the event of future issuances of our ordinary shares.

English law generally provides shareholders with preemptive rights when new shares are issued for cash. Shareholders’ preemptive subscription rights, in the event of issuances of ordinary shares against cash payment, may be disapplied by a special resolution of the shareholders at a general meeting of our shareholders. On November 13, 2019, our shareholders approved the exclusion of preemptive rights, with such authority expiring

 

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at the conclusion of our next annual general meeting or, if earlier, the date 15 months after the date of approval. Such exclusion will need to be renewed upon expiration (i.e., on the conclusion of our next annual general meeting or, if earlier, the date 15 months after November 13, 2019) to remain effective, but may be sought more frequently for additional five-year terms (or any shorter period). The absence of preemptive rights for existing equity holders may cause dilution to such holders.

Furthermore, the ADS holders would not be entitled, even if such rights accrued to our shareholders in any given instance, to receive such preemptive subscription rights related to the ordinary shares that they represent. Rather, the depositary is required to endeavor to sell any such subscription rights that may accrue to the ordinary shares underlying the ADSs and to remit the net proceeds therefrom to the ADS holders pro rata. In addition, if the depositary is unable to sell rights, the depositary will allow the rights to lapse, in which case you will receive no value for these rights. Further, if we offer holders of our ordinary shares the option to receive dividends in either cash or ordinary shares, under the deposit agreement, ADS holders will not be permitted to elect to receive dividends in ordinary shares or cash, but will receive whichever option we provide as a default to shareholders who fail to make such an election.

Purchasers of ADSs in this offering may not receive distributions on our ordinary shares in the form of ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

The depositary for our ADSs has agreed to pay to purchasers of ADSs in this offering the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. Purchasers of our ADSs will receive these distributions in proportion to the number of our ordinary shares their ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that purchasers of ADSs in this offering may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to them. These restrictions may have a material adverse effect on the value of a purchaser’s ADSs.

Purchasers of ADSs in this offering may be subject to limitations on transfer of their ADSs.

ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.

ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by applicable law, holders and beneficial owners of ADSs irrevocably waive the right to a jury trial of any claim that they may have against us or the depositary arising from or relating to our ordinary shares, our ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. The waiver continues to apply to claims that arise during the period when a holder holds the ADSs, even if the ADS holder subsequently withdraws the underlying ordinary shares.

However, you will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. In fact, you cannot waive our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. If we or the depositary opposed a demand for jury trial relying on

 

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above-mentioned jury trial waiver, it is up to the court to determine whether such waiver was enforceable considering the facts and circumstances of that case in accordance with the applicable state and federal law.

If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court or by the United States Supreme Court. Nonetheless, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York. In determining whether to enforce a jury trial waiver provision, New York courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim, none of which we believe are applicable in the case of the deposit agreement or the ADSs. If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary relating to the matters arising under the deposit agreement or our ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not have the right to a jury trial regarding such claims, which may limit and discourage lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary according to the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may have different outcomes compared to that of a jury trial, including results that could be less favorable to the plaintiff(s) in any such action.

Moreover, as the jury trial waiver relates to claims arising out of or relating to the ADSs or the deposit agreement, we believe that, as a matter of construction of the clause, the waiver would likely continue to apply to ADS holders who withdraw the ordinary shares from the ADS facility with respect to claims arising before the cancellation of the ADSs and the withdrawal of the ordinary shares, and the waiver would most likely not apply to ADS holders who subsequently withdraw the ordinary shares represented by ADSs from the ADS facility with respect to claims arising after the withdrawal. However, to our knowledge, there has been no case law on the applicability of the jury trial waiver to ADS holders who withdraw the ordinary shares represented by the ADSs from the ADS facility.

ADS holders have limited choice of forum, which could limit your ability to obtain a favorable judicial forum for complaints against us, the depositary or our respective directors, officers or employees.

The deposit agreement governing our ADSs provides that, (i) the deposit agreement and the ADSs will be interpreted in accordance with the laws of the State of New York, and (ii) as an owner of ADSs, you irrevocably agree that any legal action arising out of the deposit agreement and the ADSs involving us or the depositary may only be instituted in a state or federal court in the city of New York. Any person or entity purchasing or otherwise acquiring any our ADSs, whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to these provisions. This choice of forum provision may increase your cost and limit your ability to bring a claim in a judicial forum that you find favorable for disputes with us, the depositary or our and the depositary’s respective directors, officers or employees, which may discourage such lawsuits against us, the depositary and our and the depositary’s respective directors, officers or employees. However, it is possible that a court could find such choice of forum provisions to be inapplicable or unenforceable. The enforceability of similar choice of forum provisions has been challenged in legal proceedings. It is possible that a court could find this type of provisions to be inapplicable or unenforceable.

To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created

 

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by the Securities Act or the rules and regulations thereunder. Accordingly, actions by our ADS holders to enforce any duty or liability created by the Exchange Act, the Securities Act or the respective rules and regulations thereunder must be brought in a federal court in the city of New York. Our ADS holders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are incorporated under English law. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of ADSs, are governed by English law, including the provisions of the U.K. Companies Act 2006 (the “Companies Act 2006”), and by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. See “Description of Share Capital and Articles of Association—Differences in Corporate Law” in this prospectus for a description of the principal differences between the provisions of the Companies Act 2006 applicable to us and, for example, the Delaware General Corporation Law relating to shareholders’ rights and protections.

Claims of U.S. civil liabilities may not be enforceable against us.

We are incorporated under English law. Substantially all of our assets are located outside the United States. The majority of our management and board of directors reside outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce judgments obtained in U.S. courts against them or us, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws.

The United States and the United Kingdom do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in the United Kingdom. In addition, uncertainty exists as to whether U.K. courts would entertain original actions brought in the United Kingdom against us or our directors or senior management predicated upon the securities laws of the United States or any state in the United States. Any final and conclusive monetary judgment for a definite sum obtained against us in U.S. courts would be treated by the courts of the United Kingdom as a cause of action in itself and sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that certain requirements are met. Whether these requirements are met in respect of a judgment based upon the civil liability provisions of the U.S. securities laws, including whether the award of monetary damages under such laws would constitute a penalty, is an issue for the court making such decision. If an English court gives judgment for the sum payable under a U.S. judgment, the English judgment will be enforceable by methods generally available for this purpose. These methods generally permit the English court discretion to prescribe the manner of enforcement.

As a result, U.S. investors may not be able to enforce against us or our executive officers, board of directors or certain experts named herein who are residents of the United Kingdom or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

If we are classified as a passive foreign investment company for U.S. federal income tax purposes, U.S. Holders may incur adverse tax consequences.

Based on the nature and composition of our income, assets and operations and the income, assets and operations of our subsidiaries, we do not believe that we are currently a passive foreign investment company for U.S. federal income tax purposes (a “PFIC”), and we do not expect to be a PFIC in the foreseeable future. However, this is a factual determination that depends on, among other things, the nature and composition of our income and assets, and the market value of our shares and assets, including the nature and composition of income

 

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and assets and the market value of shares and assets of our subsidiaries, from time to time, and thus the determination can only be made annually after the close of each taxable year. Therefore, no assurance can be given that we will not be classified as a PFIC for the current taxable year or any future taxable year.

If we are considered a PFIC at any time that a U.S. Holder (as defined below under “Material Tax Considerations—Material United States Federal Income Tax Considerations”) holds the ordinary shares or ADSs, U.S. Holders may suffer material adverse tax consequences, including with respect to any “excess distribution” received from us and any gain from a sale or other taxable disposition of the ordinary shares or ADSs. U.S. Holders should consult their tax advisors about the potential application of the PFIC rules to an investment in the ordinary shares or ADSs and the potential consequences related thereto. See “Material Tax Considerations—Material United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.

If a United States person is treated as owning at least 10% of the ordinary shares or ADSs, such holder may be subject to adverse U.S. federal income tax consequences.

If a United States person (as defined in the Internal Revenue Code of 1986, as amended) is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of the ordinary shares or ADSs, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” (a “CFC”) in our group (if any). Under current law, if our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as CFCs regardless of whether or not we are treated as a CFC (although there is currently a pending legislative proposal to significantly limit the application of these rules). A United States shareholder of a CFC may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by CFCs, regardless of whether the Company makes any distributions. An individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such United States shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist holders of the ordinary shares or ADSs in determining whether we or any of our non-U.S. subsidiaries are treated as a CFC or whether any holder of the ordinary shares or ADSs is treated as a United States shareholder with respect to any such CFC or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. The United States Internal Revenue Service has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and taxpaying obligations with respect to foreign-controlled CFCs. A U.S. Holder should consult its advisors regarding the potential application of these rules to an investment in the ordinary shares or ADSs.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Some of the statements under “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and elsewhere in this prospectus contain forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this prospectus include, but are not limited to, statements about:

 

   

a regional or global health pandemic, including COVID-19, could severely affect our business, including due to impacts on our operations and supply chains;

 

   

challenges in implementing our strategies for revenue growth in light of competitive challenges;

 

   

developing new products and enhancing existing products, adapting to significant technological change and responding to the introduction of new products by competitors to remain competitive;

 

   

failing to successfully identify or integrate acquired businesses or assets into our operations or fully recognize the anticipated benefits of businesses or assets that we acquire;

 

   

if our customers discontinue or spend less on research, development, production or other scientific endeavors;

 

   

failing to successfully use, access and maintain information systems and implement new systems to handle our changing needs;

 

   

cyber security risks and any failure to maintain the confidentiality, integrity and availability of our computer hardware, software and internet applications and related tools and functions;

 

   

failing to successfully manage our current and potential future growth;

 

   

any significant interruptions in our operations;

 

   

if our products fail to satisfy applicable quality criteria, specifications and performance standards;

 

   

failing to maintain our brand and reputation;

 

   

any losses of a significant number of our customers or reduction in orders from a significant number of customers;

 

   

risks associated with our global operations;

 

   

failing to maintain and enhance our brand;

 

   

our dependence upon management and highly skilled employees and our ability to attract and retain these highly skilled employees; and

 

   

as a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and Nasdaq corporate governance rules and are permitted to file less information with the SEC than U.S. companies, which may limit the information available to holders of our ADSs.

 

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You should refer to the “Risk Factors” section of this prospectus for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $134.7 million (or approximately $155.3 million if the underwriters exercise their option to purchase additional ADSs from us in full), after deducting the underwriting commission and estimated offering expenses payable by us, based on an assumed initial public offering price of $16.52 per ADS, the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909).

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.52 per ADS would increase (decrease) the net proceeds to us from this offering by approximately $8.3 million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions. We may also increase or decrease the number of ADSs we are offering. Each increase (decrease) of 1,000,000 ADSs in the number of ADSs offered by us would increase (decrease) the net proceeds to us from this offering by approximately $15.4 million, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the initial public offering price or the number of ADSs by these amounts would have a material effect on our uses of the proceeds from this offering, although it may accelerate the time when we need to seek additional capital.

The principal purposes of this offering are to create a public market for our ADSs, facilitate greater access to the public equity markets, increase our visibility in the marketplace, as well as to obtain additional capital. We intend to use the net proceeds from this offering for working capital, general corporate purposes and to fund incremental growth, including for possible acquisitions. However, we do not currently have any definitive or preliminary plans with respect to the use of proceeds for such purposes.

The amount of what, and timing of when, we actually spend for these purposes may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations and the other factors described in “Risk Factors.” Accordingly, we will have broad discretion in deploying the net proceeds of this offering.

 

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DIVIDEND POLICY

In the future, our board of directors may decide, in its discretion, whether dividends may be proposed (in respect of final dividends) or declared and paid (in respect of interim dividends). Under English law, among other things, we may only pay dividends if we have sufficient distributable reserves (on a non-consolidated basis), which are our accumulated realized profits that have not been previously distributed or capitalized less our accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital.

In the years ended June 30, 2019 and 2020, we declared and paid dividends of an aggregate of £24.9 million and £25.0 million, respectively.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and total capitalization as of June 30, 2020, as follows:

 

   

on an actual basis; and

 

   

on an as adjusted basis to reflect the issuance and sale of ADSs in this offering at the assumed initial public offering price of $ 16.52 per ADS, the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and “Use of Proceeds,” “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained in this prospectus. For the convenience of the reader, we have translated pound sterling amounts in the table below as of June 30, 2020 into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York on June 30, 2020, which was £1.00 to $1.2369. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date.

 

     As of June 30, 2020  
     Actual     As Adjusted(1)  
     (in millions, except share and per share amounts)  

Cash and cash equivalents

   £ 187.3     $ 231.7     £ 291.6     $ 366.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Borrowings(2)

   £ 106.4     $ 131.6     £ 106.4     $ 131.6  

Lease liabilities, including current portion(3)

     127.8       158.0       127.8       158.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total debt, including current portion

   £ 234.2     $ 289.6     £ 234.2     $ 289.6  

Shareholders’ equity:

                                                                                            

Share capital

     0.4       0.5       0.4       0.5  

Share premium account

     138.2       170.9       242.5       305.6  

Merger reserve

     68.6       84.9       68.6       84.9  

Own shares

     (2.5     (3.1     (2.5     (3.1

Translation reserve

     42.9       53.1       42.9       53.1  

Hedging reserve

     (0.7     (0.9     (0.7     (0.9

Retained earnings

     255.7       316.3       255.7       316.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     502.6       621.7       606.9       756.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization

   £ 736.8     $ 911.3     £ 841.1     $ 1,046.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

A $1.00 increase or decrease in the assumed initial public offering price of $16.52 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909), would increase or decrease the as adjusted amount of each of cash and cash equivalents, share premium account, total equity and total capitalization by approximately $8.3 million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. An increase or decrease of 1,000,000 shares in the number of ADSs offered by us, as set forth on the cover page of this prospectus, would increase or decrease the as adjusted amount of each of cash and cash equivalents, share premium account, total equity and total capitalization by approximately $15.4 million, assuming no change in the assumed initial public offering price per ADS and after deducting the estimated underwriting discounts and commissions.

(2)

Borrowings are comprised of drawings on our revolving credit facility all of which are classified as current.

(3)

Comprises lease liabilities following the adoption of IFRS 16.

 

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As of June 30, 2020, we had 216,173,277 ordinary shares outstanding.

As adjusted equity amounts shown in the table above exclude the impact of:

 

   

3,326,399 ordinary shares issuable under our equity incentive plans as of September 30, 2020, consisting of:

 

   

2,155,444 ordinary shares issuable upon the vesting of conditional share awards outstanding under our equity incentive plans as of September 30, 2020; and

 

   

1,170,955 ordinary shares issuable upon exercise of share options outstanding under our equity incentive plans as of September 30, 2020, at a weighted average exercise price of $7.59; and

 

   

539,744 ordinary shares reserved for future issuance under our equity incentive plans as described in “Management—Equity Compensation Arrangements.”

 

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DILUTION

If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and the as adjusted net tangible book value per share immediately following the consummation of this offering. Unless otherwise stated, we translated pound sterling amounts into U.S. dollars in dilution calculations based on the noon buying rate of the Federal Reserve Bank of New York on June 30, 2020, which was £1.00 to $1.2369.

At June 30, 2020, we had a historical net tangible book value of $192.2 million, corresponding to a net tangible book value of $0.89 per share or $0.89 per ADS based on an ordinary share to ADS ratio of one to one. Net tangible book value per share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the total number of our ordinary shares outstanding.

After giving effect to the sale by us of 8,945,218 ADSs (representing an aggregate of 8,945,218 ordinary shares) in this offering at the assumed initial public offering price of $16.52 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value at June 30, 2020 would have been approximately $326.9 million, representing $1.45 per share or $1.45 per ADS. This represents an immediate increase in net tangible book value of $0.56 per share or $0.56 per ADS to existing shareholders and an immediate dilution in net tangible book value of $15.07 per share or $15.07 per ADS to new investors purchasing ADSs in this offering at the assumed initial public offering price. Dilution in net tangible book value per ADS to new investors is determined by subtracting as adjusted net tangible book value per ADS after this offering from the assumed initial public offering price per ADS paid by new investors.

The following table illustrates this dilution to new investors purchasing ADSs in the offering.

 

Assumed initial public offering price

      $ 16.52  

Historical net tangible book value per ADS as of June 30, 2020

   $ 0.89     

Increase in net tangible book value per ADS attributable to this offering

     0.56                          
  

 

 

    

As adjusted net tangible book value per ADS after this offering

        1.45  
     

 

 

 

Dilution per ADS to new investors in this offering

      $ 15.07  
     

 

 

 

If the underwriters exercise their option to purchase additional ADSs from us in full, our as adjusted net tangible book value per ADS after this offering would be $1.53 per ADS, representing an immediate increase in as adjusted net tangible book value per ADS of $0.65 per ADS to existing shareholders and immediate dilution of $14.99 per ADS in as adjusted net tangible book value per ADS to new investors purchasing ADSs in this offering, based on an assumed initial public offering price of $16.52 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909 ).

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.52 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on AIM of £12.80 on October 15, 2020 (based on an assumed exchange rate of £1.00 to $1.2909), respectively, would increase (decrease) the as adjusted net tangible book value after this offering by $0.05 per ADS and the dilution per share to new investors in the offering by $0.05 per ADS, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same.

 

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The following table summarizes, as of June 30, 2020, the total number of ordinary shares purchased from us, the total consideration paid to us and the average price per share paid by the existing shareholders and by new investors purchasing ADSs in this offering.

 

     Ordinary Shares
Purchased
(including those
represented by ADSs)
    Total
Consideration
    Average Price
Per Share
(including those
represented by
ADSs)
 
     Number      Percent     Amount      Percent  
                  (millions)               

Existing shareholders

     216,173,277        96   $ 171.4        54   $ 0.79  

New investors

     8,945,218        4       147.8        46       16.52  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     225,118,495        100   $ 319.2        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

To the extent any of our outstanding options is exercised, there will be further dilution to new investors.

If the underwriters exercise their option to purchase additional ADSs from us in full:

 

   

the percentage of ordinary shares held by existing shareholders will decrease to approximately 95.5% of the total number of our ordinary shares outstanding after this offering; and

 

   

the number of shares held by new investors will increase to approximately 4.5% of the total number of our ordinary shares outstanding after this offering.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. The selected historical consolidated financial data as of and for the years ended June 30, 2019 and 2020 have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results expected in any future period.

The financial data set forth below should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus.

We maintain our books and records in pounds sterling, and we prepare our financial statements in accordance with IFRS as issued by the IASB. We report our financial results in pounds sterling. For the convenience of the reader, we have translated pound sterling amounts in the tables below as of June 30, 2020 and for the year ended June 30, 2020 into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York on June 30, 2020, which was £1.00 to $1.2369. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date.

 

     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions, except per share data)  

Consolidated Income Statement:

      

Revenue

   £ 259.9     £ 260.0   $ 321.6

Cost of sales

     (76.7     (79.8     (98.7
  

 

 

   

 

 

   

 

 

 

Gross profit

     183.2       180.2       222.9
  

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

      

Before exceptional items and amortization of acquisition intangibles

     (88.9     (118.3     (146.3

Exceptional items and amortization of acquisition intangibles

     (23.2     (13.1     (16.2

Research and development expenses

      

Before amortization of acquisition intangibles

     (10.7     (17.4     (21.5

Amortization of acquisition intangibles

     (4.3     (20.9     (25.9
  

 

 

   

 

 

   

 

 

 

Operating profit

     56.1       10.5       13.0

Finance income

     0.6       0.7       0.9

Finance costs

     (0.3     (2.8     (3.5
  

 

 

   

 

 

   

 

 

 

Profit before tax

     56.4       8.4       10.4  
  

 

 

   

 

 

   

 

 

 

Tax (charge) / credit

     (11.4     4.1       5.1
  

 

 

   

 

 

   

 

 

 

Profit for the year

   £ 45.0     £ 12.5     $ 15.5  
  

 

 

   

 

 

   

 

 

 

Basic earnings per share

   £ 0.220     £ 0.060     $ 0.074  

Diluted earnings per share

   £  0.218     £ 0.60     $ 0.074  

Weighted average ordinary shares for the purposes of basic earnings per share

     204.9       207.6       207.6  

Weighted average ordinary shares for the purposes of diluted earnings per share

     206.7       209.6       209.6  

 

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     Fiscal Year Ended June 30,  
     2019     2020     2020  
     (in millions)  

Consolidated Cash Flow Statement:

      

Net cash inflow from operating activities

   £        70.2     £        63.0     $        77.9  

Net cash outflow from investing activities

     (49.9     (148.1     (183.2

Net cash (outflow) / inflow from financing activities

     (24.7     184.6       228.3

(Decrease)/increase in cash and cash equivalents

     (4.4     99.5       123.1  

 

     As of June 30,  
     2019     2020  
     (in millions)  

Consolidated Balance Sheet items:

      

Cash and cash equivalents

   £        87.1     £        187.3     $        231.7  

Total assets

     446.7       811.4       1,003.6  

Total liabilities

     (61.9     (308.8 )     (382.0

Share capital and share premium account

     27.4       138.6     171.4  

Retained earnings

     260.1       255.7     316.3  

Total equity attributable to the equity shareholders of the parent

     384.8       502.6     621.7  

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with “Selected Consolidated Financial and Other Data” and the consolidated financial statements and related notes included elsewhere in this prospectus. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

We are a global life science company focused on identifying, developing and distributing high-quality reagents and tools for our customers at the forefront of life science research. Our products are used by researchers to study biological pathways, which is critical for scientific research, diagnostics and drug discovery. Our mission is to provide life science researchers with highly validated products and services to advance biological research and achieve their goals faster. We do this by continuously innovating and providing our customers with high-quality tools, together with expert customer support. Our product offering includes an extensive portfolio of antibodies and related protein research tools that are fundamental to our customers’ research and experimental workflow. Our customers are primarily scientists and researchers in academic institutions, research institutes and pharmaceutical, biotechnology and diagnostics companies. Headquartered in Cambridge, United Kingdom, we operate across 15 locations around the world, supported by our world-class team of approximately 1,500 employees, including over 200 with PhDs, and have served customers in over 130 countries.

We offer a large and differentiated portfolio of approximately 100,000 products with over 300,000 SKUs as of June 30, 2020. Our flexible sourcing model enables us to grow our product offering in line with researchers’ needs. This is achieved by developing and manufacturing in-house products, as well as sourcing products from our OEM suppliers. We demand high product quality standards from our suppliers, and we enhance the utility of these products for our customers by providing additional data and product validation as well as by making them available through our global distribution platform and customer service. Over the last five years, we have increased focus on the development of in-house products for research areas we expect to have high demand. This focus has seen our proprietary product portfolio grow to represent 51% of our total revenue for the fiscal year ended June 30, 2020, compared to 28% of our total revenue in the fiscal year ended June 30, 2012.

We are continuously expanding our portfolio to provide our customers with additional solutions and further expand within our addressable markets. Utilizing the foundations laid by our innovation platform and strategic acquisitions, our strategy is to leverage our capabilities to continue expansion into adjacencies and more comprehensive product offerings, including primary conjugated antibodies, singleplex and multiplex immunoassays, proteins and edited cell lines. In addition, through partnerships with biopharmaceutical and diagnostic companies, the potential application of our products is being extended into diagnostic and therapeutic markets.

Since 2001, we have sold our products and services to customers in over 130 countries through a variety of channels, including our ecommerce sites, a network of distributors and a targeted field sales team. In the fiscal year ended June 30, 2020, our worldwide customer base consisted of approximately 750,000 life science researchers. As of June 30, 2020, we had seven manufacturing facilities and a global distribution network that enables prompt delivery to our customers, with orders generally shipped within 24 to 48 hours of ordering.

We recorded revenue of £260.0 million, profit for the year of £12.5 million and Adjusted Operating Profit of £44.5 million for the fiscal year ended June 30, 2020. Revenue was broadly flat for the fiscal year ended

 

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June 30, 2020, as compared to the same period in the prior year. For the definition of Adjusted Operating Profit and reconciliation of Adjusted Operating Profit to profit for the year, please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Measures.”

We present our results of operations in the same way that we manage our business, evaluate our performance and allocate our resources. We have determined that we only have one reportable segment, which is the sale of antibodies and related products.

Factors Affecting Our Performance

Our financial condition and results of operations have been, and will continue to be, affected by a number of important factors, including the following:

Strategic Acquisitions

We have made, and intend to continue to make, strategic acquisitions in our existing and adjacent customer markets to supplement our organic growth, solidify our current market presence and expand into new markets. We acquired the proteomics and immunology businesses of Expedeon AG (the “Expedeon Acquisition”) in January 2020 for £104.2 million, and we also made other acquisitions for a total consideration of £14.3 million in the fiscal years ended June 30, 2019 and 2020, comprising:

 

   

March 2020: Marker Gene Technologies, Inc., a company specializing in assay kits;

 

   

January 2020: Certain business assets of Applied StemCell, Inc., a gene editing platform and oncology product portfolio;

 

   

July 2019: the entire live cell line and lysates portfolio of EdiGene; and

 

   

January 2019: Calico Biolabs, Inc., a custom antibody company.

Our strategic acquisitions may affect our business growth and the comparability of our financial results. With the exception of the Expedeon Acquisition, the effects that these acquisitions had on our overall revenue and profitability in the fiscal years that they were acquired were relatively small. The Expedeon Acquisition contributed £5.9 million to revenue and £0.3 million to profit before tax for the period from acquisition to June 30, 2020. If the Expedeon Acquisition had been completed at the beginning of the fiscal year ended June 30, 2020, our revenue and profit before tax would have increased by £10.7 million and decreased by £0.3 million, respectively.

We intend to continue to selectively pursue strategic acquisitions to further strengthen our competitiveness. We will evaluate and execute opportunities that complement and scale our business, optimize our profitability, help us expand into adjacent markets and add new capabilities to our business.

Product Mix, Growth and Innovation

We offer a variety of products, and the products in our portfolio are sold at different prices and in different volumes. In any particular period, changes in the volume of particular products sold across our various markets and the prices of those products relative to other products will impact our cost of sales, our gross profit and our gross margin. We continue to increase our focus on our innovation platform to extend and improve our in-house proprietary product offering, which we believe will continue to expand our market share in research use markets and enable us to extend our product offering. Sales of in-house products generate a substantially higher gross margin than OEM product sales, and we also believe that in-house products will support continued market share expansion in research use markets while also enabling us to extend our product offering, through industry partners, to clinical applications. We expect to continue to devote significant resources to developing innovative new products, both as part of our existing portfolio and in complementary and adjacent markets. The acceptance and growth of such new products may vary. The volume of our products sold during a given period in any particular market will depend in part on our successfully introducing new products that generate additional demand as well as the extent to which new products may impact our sales of existing products.

 

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Seasonality

We experience modest seasonal customer demand, generally as a result of vacation and academic schedules of our worldwide customer base. We typically see minor slowdowns around the summer and winter holidays and a slight increase during the academic year. We believe that this is caused by factors unique to those particular product markets such as customer manufacturing schedules, inventory levels in the supply chain and government approval processes. As a result, we may see fluctuations across periods as the timing of our customers’ demand for certain products may change.

Currency Exchange Rates

We have substantial global operations whose financial condition and results of operations have been and will continue to be impacted by changes in the exchange rate of the pound sterling into other currencies. See “—Quantitative and Qualitative Disclosure about Market Risk—Currency Risk” below.

Impact of COVID-19 Pandemic

The COVID-19 pandemic has adversely affected, and is expected to continue to adversely affect, elements of our business (including elements of our operations, supply chains and distribution systems). We are continuing to monitor closely how the pandemic and related response measures are affecting our business. Our production and manufacturing facilities are located around the world, so while certain facilities were shut down or operating at reduced capacity, our other locations were able to continue operating as normal. The pandemic reduced demand during the second half of the fiscal year ended June 30, 2020 as research laboratories globally were temporarily shut down or operating at reduced capacity, resulting in a decline in revenue in the second half of the fiscal year of approximately 10% compared with the second half of the fiscal year ended June 30, 2019. Our monthly revenue compared to the same period in the prior year decreased by 37.6% in April, 26.2% in May and 0.2% in June 2020. Although we have seen a reduction in demand due to the ongoing COVID-19 pandemic, we have not observed any significant changes in our underlying customer base, and we have been and will continue to serve our customers even at a reduced level until their activities return to normal. In April 2020, we began to see the reopening of laboratories in certain countries in Europe, and we have continued to see a gradual increase in activity across all regions since then. The gradual recovery of revenue we have seen compared with previous levels reflects the underlying factors affecting demand, including the easing of lockdown restrictions and the partial or full reopening of academic and biopharmaceutical research laboratories around the world.

We have not furloughed any of our staff and have not elected to participate in any of the other COVID-19 related government assistance schemes that have been implemented globally. On March 17, 2020, we drew £25 million on our revolving credit facility to provide sufficient flexibility through the COVID-19 pandemic. We have not sought or obtained any other funding as a result of the COVID-19 pandemic.

While we see demand and revenue returning, there remains significant uncertainty and geographical variation with regards to our outlook, particularly in North America where the number of COVID-19 cases is rising in several states with large research lab demand. We expect that our fiscal year 2021 results will be impacted by the COVID-19 pandemic; however, it is not possible to predict the ultimate impact of the developments described above or the full duration and impact of the pandemic.

Operating Expenses

Our operating expenses increased from the fiscal year 2019 to the fiscal year ended June 30, 2020. Consistent with our previously announced growth strategy, we intend to continue to increase our rate of investment in growth projects and expect our operating expenses will continue to increase in the fiscal year ended June 30, 2021 and the medium term as a result. In particular, we expect such increases in operating expenses relative to prior periods as we (i) continue to increase our investment in research and development, digital marketing and e-commerce, (ii)

 

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continue to expand into adjacent markets and build scalability into our operational infrastructure, including through further investment in our IT systems, infrastructure and business processes, and (iii) continue to invest in our people and increase our headcount. For the fiscal year ended June 30, 2020, our operating profit margin was 4.0% and our adjusted operating profit margin was 17.1%, and we expect our operating profit margins to continue to be lower as a result of the effects of COVID-19 and our investment plans in the short to medium-term.

Key Indicators of Performance and Financial Condition

The key indicators of performance and financial condition we monitor are set forth below. The following table sets forth our key financial and operating performance indicators for the fiscal years ended June 30, 2019 and 2020.

 

     Fiscal Year Ended June 30,  
     2019     2020  
     (in millions, except as otherwise
stated)
 

Total CER revenue growth(1)

           (1.4 )% 

Net cash inflow from operating activities

   £ 70.2       £63.0  

Free Cash Flow(2)

   £ 34.3     £ 19.0  

Profit for the year

   £ 45.0     £ 12.5  

Adjusted Operating Profit(3)

   £ 83.6     £ 44.5  

Adjusted Operating Profit Margin(4)

     32.2     17.1

ROCE(5)

     20.8     6.8

Diluted earnings per share

   £ 0.218     £ 0.060  

Adjusted Diluted earnings per share(6)

   £ 0.326     £ 0.166  

 

(1)

Total Constant Exchange Rates (“CER”) revenue growth is our total revenue growth from one fiscal year to the next on a constant exchange rate basis. We measure CER revenue growth by applying the prior fiscal year’s actual exchange rates for each month to the current fiscal year’s equivalent monthly results. We use this measure to identify the relative year-on-year performance of the business by removing the impact of currency movements that are outside of management’s control. Please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Measures” for a reconciliation of Total CER revenue growth to the most directly comparable IFRS financial performance measure and why we consider it useful.

(2)

Free Cash Flow is defined as net cash inflow from operating activities less net capital expenditure, transfer of cash from/(to) escrow in respect of future capital expenditure and the principal and interest elements of lease obligations. Free Cash Flow provides an indication of the amount of cash available for discretionary investing or financing after removing capital related items. Free Cash Flow may not be comparable to other similarly titled metrics of others. Please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Measures” for a reconciliation of Free Cash Flow to the most directly comparable IFRS financial performance measure and why we consider it useful.

(3)

Adjusted Operating Profit is defined as profit for the year before taking account of finance income, finance costs, tax, exceptional items and amortization of acquisition intangibles. Exceptional items consist of certain cash and non-cash items that we believe are not reflective of the normal course of our business. We identify and determine items to be exceptional based on their nature and incidence or by their significance. As a result, the composition of exceptional items may vary from year to year. Exceptional items currently consist of the impairment of intangible assets, systems and process improvement costs, acquisition costs, integration and reorganization costs and amortization of acquisition intangibles. Adjusted Operating Profit may not be comparable to other similarly titled metrics of others. Please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Measures” for a reconciliation of Adjusted Operating Profit to the most directly comparable IFRS financial performance measure and why we consider it useful.

 

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(4)

Adjusted Operating Profit Margin is defined as Adjusted Operating Profit calculated as a percentage of revenue. Adjusted Operating Profit Margin may not be comparable to other similarly titled metrics of others. Please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Measures” for a reconciliation of Adjusted Operating Profit Margin to the most directly comparable IFRS financial performance measure and why we consider it useful.

(5)

Return On Capital Employed (“ROCE”) is defined as Adjusted Operating Profit divided by capital employed, which is defined as total assets less current liabilities. We believe that ROCE is a key tool in measuring our financial efficiency and ability to create future growth in value. We aim to maintain ROCE at a level above our estimated cost of capital. ROCE may not be comparable to other similarly titled metrics of others. Please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Measures” for a reconciliation of ROCE to the most directly comparable IFRS financial performance measure and why we consider it useful.

(6)

Adjusted Diluted earnings per share is defined as Adjusted profit for the year divided by the weighted average number of ordinary shares for the purposes of diluted earnings per share. Adjusted profit for the year used in this calculation is defined as profit for the year less system and process improvement costs, costs associated with our new headquarters including depreciation of assets not yet brought into use prior to occupation of the building, which were only applicable to the fiscal year ended June 30, 2019, acquisition costs, integration and reorganization costs, impairment of intangible assets, amortization of acquisition intangibles, the tax effect of these items, a tax credit arising from “patent box” claims and the net tax effect of new U.S. tax legislation. Adjusted Diluted earnings per share is calculated with an adjustment to the weighted average number of shares outstanding to assume conversion of all potentially dilutive ordinary shares. We use Adjusted Diluted earnings per share to measure underlying profitability and to reflect the other adjusted performance measures used. Adjusted Diluted earnings per share may not be comparable to other similarly titled metrics of others. Please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Measures” for a reconciliation of Adjusted Diluted earnings per share to the most directly comparable IFRS financial performance measure and why we consider it useful.

Components of Our Results of Operations

Revenue. Our revenue primarily consists of catalogue product sales. Revenue from sales of goods, including revenue generated from products sold from our catalogue and IVD, and which represents the significant majority of our revenue, is recognized upon the earlier of delivery to the customer or the point at which the customer takes control of the goods, if this is sooner. We also earn revenue from custom products and licensing, which we call our Custom Products and Licensing revenue. Custom product and service revenue, which can be the provision of a service or the development of products for customers, is recognized at the point at which a milestone, as defined in the contract, has been completed. Every milestone is typically aligned to a customer deliverable, for example, the amount of services provided, a deliverable arising from the services or the number of products successfully developed and provided to the customers, and accordingly is considered to be a performance obligation. Each milestone has a defined transaction price. If it is identified that the costs will be in excess of the contract revenue, the expected loss is recognized as an expense immediately. License fee income is recognized upon delivery of the licensed technology where our continued performance or future research and development services are not required. Royalty revenue is recognized on an accruals basis based on the contractual terms and the substance of the agreements with the counterparty, provided that the amount can be reliably measured and it is probable that the economic benefit will flow to us.

Cost of sales. Cost of sales primarily consists of:

 

   

product costs, which are the costs of inventory associated with a sale, including manufacture costs;

 

   

costs incurred in bringing goods into a position where they can be sold, for example: shipping costs that are necessarily incurred to bring the inventory to be ready for distribution to customers or distributors as well as those shipping costs incurred for onward distribution to customers; packaging

 

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costs incurred on sales; and expenses incurred in moving inventory from one of our locations to another one of our locations; and

 

   

other components, such as: inventory provisioning and write off expenses; free of charge replacements, which are provided to customers if any problems with the products they ordered were identified; service costs, which are incurred in the provision of custom products or services and are recognized in line with service revenue. Service costs vary depending on whether revenue is recognized at a point in time or over a period of time; if revenue is recognized over time, the costs are recognized as incurred, and when a performance obligation exists and any costs that were deferred have been fulfilled, then these are recognized in cost of sales; and royalty fees payable for products under license.

Gross profit and gross margin. Our gross profit and gross margin may fluctuate from period to period. Such fluctuations may be influenced by changes in product mix and changes in foreign currency exchange rates. Gross margin is impacted by the mix of our products growing at different rates or differing growth rates within different geographic territories, as well as future acquisitions and productivity improvements to our manufacturing sites as we introduce more automation.

Selling, general and administrative. Selling, general and administrative expenses primarily consist of salaries and related benefits, including share-based compensation for all functions other than research and development. Other general and administrative costs include marketing expenses, facility-related costs and professional services fees for auditing, tax and general legal services, as well as expenses associated with the requirements of being a listed public company on AIM. We expect that our general and administrative costs will increase in the future as our business expands and we increase our headcount to support the expected growth in our operating activities. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a U.S. public company, including expenses related to services associated with maintaining compliance with stock exchange rules and SEC requirements, director compensation, insurance and investor relations costs.

Research and development expenses. Research activities, which are the early stages of product development, are expensed as incurred up until products reach commercial feasibility, after which point such development costs are capitalized and amortized over the anticipated commercial life of the asset. Such research and development expenses, which are expected to increase in the future, consist of salary-related benefits, including share-based compensation for research and development staff, costs of related facilities, materials and equipment, costs associated with obtaining and maintaining patents and other intellectual property, depreciation of research and development specific assets and amortization of capitalized research, and development projects, and include an offset in respect of research and development tax credits as described further below. Development activities generally relate to creating new products, creating variations of existing products, modifying existing products to meet new applications or developing new technology platforms from which to derive new products, but these costs are only capitalized once commercial feasibility is attained whereby this category of capitalized cost is described as Internally Developed Technology (“IDT”).

We carry out extensive research and development activities, and as a result, we benefit in the United Kingdom from HMRC’s RDEC, which provides relief against U.K. corporation tax. Broadly, RDECs provide a tax credit currently equal to 13% of “qualifying research and development expenditure” made from April 1, 2020 (the rate was previously 12% of qualifying research and development expenditure made from January 1, 2018 to March 31, 2020) by certain companies where certain criteria are met. Based on criteria established by HMRC, a portion of expenditures incurred in relation to our research and development and manufacturing development activities are eligible for RDEC relief. Our qualifying research and development expenditures largely consist of employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive revenue and are loss generating. To the extent a company cannot utilize the RDEC against U.K. corporation tax, then certain rules apply that allow the RDEC to reduce the tax liability of certain specified taxes, and to the extent it is not possible to utilize the RDEC in full, then the net tax credit is repaid to the company by HMRC.

 

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Exceptional items and amortization of acquisition intangibles. Exceptional items and amortization of acquisition intangibles is comprised of certain cash and non-cash items that we believe are not reflective of the normal course of our business and where the separate disclosure of such items enables a reader to isolate and evaluate the impact of such items on results and allows for a fuller understanding of underlying performance of the business. We identify and determine items to be exceptional based on their nature and incidence or by their significance. As a result, the composition of exceptional items may vary from year to year. Current components consist of impairment of intangible assets, systems and process improvement costs associated with our strategic ERP implementation which commenced in 2016, acquisition costs and integration and reorganization costs. Amortization of acquisition intangibles relates to the amortization of intangible assets brought onto the balance sheet at a fair value in accordance with IFRS 3 and arising specifically from acquisition activity.

Finance income. Finance income is comprised of interest received or receivable on cash deposits.

Finance costs. Finance costs consist mainly of the amortization of upfront fees incurred in setting up our revolving credit facility and other related facility fees, such as those for non-utilization. Finance costs additionally include interest expense on our revolving credit facility that was drawn down during the fiscal year ended June 30, 2020 and is treated as short term debt. We have no other borrowings upon which interest could be incurred. Finance costs also include interest expense representing the unwinding of discounted lease liabilities in respect of assets now presented on our balance sheet in accordance with IFRS 16, which became effective for us on July 1, 2019.

Tax. Our tax credit or expense consists of income taxes, with U.K. income being taxed at the U.K. rate of tax and taxation for other jurisdictions calculated at the rates prevailing in each respective jurisdiction. Tax also includes the unwinding of temporary differences caused mainly by the manner in which intangible assets related to acquisitions are recognized, and therefore amortized, in our consolidated financial statements compared to the individual entity financial statements, which is the basis upon which taxation is calculated.

We also benefit from the U.K. “patent box” regime that allows profits attributable to revenue from patents registered in the United Kingdom or European Union or patented products to be taxed at effective rate of 10%, rather than the usual U.K. statutory rate of 19%.

Segment Reporting

We present our results of operations in the same way that we manage our business, evaluate our performance and allocate our resources. We have concluded that we have only one core business activity, and there are no separately identifiable business segments that provide individual products or services or a group of related products and services that would be subject to separate risks and returns. The financial information reported to our Chief Executive Officer, who is considered our chief operating decision maker, for the purposes of resource allocation and assessment of performance is based wholly on our overall activities. Therefore, we have determined that we only have one reportable segment, which is the sale of antibodies and related products.

 

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Results of Operations

Fiscal year ended June 30, 2019 compared to the fiscal year ended June 30, 2020

The following tables set forth our results of operations in pounds sterling and as a percentage of revenue for the fiscal years ended June 30, 2019 and 2020:

 

     Fiscal Year Ended June 30,  
     2019      2020  
     (in millions)  

Revenue

   £ 259.9      £ 260.0

Cost of sales

     (76.7      (79.8
  

 

 

    

 

 

 

Gross profit

             183.2                180.2  
  

 

 

    

 

 

 

Selling, general and administrative expenses:

     

Before exceptional items and amortization of acquisition intangibles

     (88.9      (118.3

Exceptional items and amortization of acquisition intangibles

     (23.2      (13.1

Research and development expenses

     

Before exceptional items and amortization of acquisition intangibles

     (10.7      (17.4

Exceptional items and amortization of acquisition intangibles

     (4.3      (20.9
  

 

 

    

 

 

 

Operating profit

     56.1        10.5  

Finance income

     0.6        0.7  

Finance costs

     (0.3      (2.8
  

 

 

    

 

 

 

Profit before tax

     56.4        8.4  
  

 

 

    

 

 

 

Tax (charge) / credit

     (11.4      4.1  
  

 

 

    

 

 

 

Profit for the year

   £ 45.0      £ 12.5  
  

 

 

    

 

 

 

 

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     Fiscal Year Ended June 30,  
     2019     2020  
     (as a % of revenue)  

Revenue

                       100.0                       100.0

Cost of sales

     (29.5     (30.7
  

 

 

   

 

 

 

Gross profit

     70.5       69.3  
  

 

 

   

 

 

 

Selling, general and administrative expenses:

    

Before exceptional items and amortization of acquisition intangibles

     (34.2     (45.6

Exceptional items and amortization of acquisition intangibles

     (8.9     (5.0

Research and development expenses

    

Before exceptional items and amortization of acquisition intangibles

     (4.1     (6.7

Exceptional items and amortization of acquisition intangibles

     (1.7     (8.0
  

 

 

   

 

 

 

Operating profit

     21.6       4.0  

Finance income

     0.2       0.3  

Finance costs

     (0.1     (1.1
  

 

 

   

 

 

 

Profit before tax

     21.7       3.2  
  

 

 

   

 

 

 

Tax (charge) / credit

     (4.4     1.6  
  

 

 

   

 

 

 

Profit for the year

     17.3     4.8
  

 

 

   

 

 

 

Revenue

Revenue increased by £0.1 million to £260.0 million for the fiscal year ended June 30, 2020 from £259.9 million for the fiscal year ended June 30, 2019. After delivering growth of 10.8% in the first half of the fiscal year ended June 30, 2020, revenue in the second half declined by 9.9%, impacted by the onset and spread of COVID-19, where we saw a reduction in demand as research laboratories globally temporarily shut down or reduced activity. We continued to serve the needs of laboratories that remained open, but due to the demand reduction, monthly reported revenue compared with the equivalent month in the prior fiscal year decreased by 7.2% in March, 37.6% in April, 26.2% in May and 0.2% in June, resulting in the overall second half decline of 9.9% compared to the prior year. The impact on revenue seen in the second half reflects the underlying factors affecting demand, including the easing of lockdown restrictions and the partial or full reopening of academic and biopharmaceutical research laboratories around the world. In addition, the pound sterling was weaker against the basket of foreign currencies in which we trade, which positively impacted our reported revenue.

Including Custom Products and Licensing revenue, discussed in more detail below, total revenue from in-house products and services increased by 6.3% to £131.3 million, compared to £123.5 million for the fiscal year ended June 30, 2019, representing 50.5% of our total revenue, with an equivalent reduction in OEM products of 5.6% to £128.7 million, compared to £136.4 million in the fiscal year ended June 30, 2019.

Our main source of revenue, catalogue product sales, increased by £0.3 million to £243.1 million for the fiscal year ended June 30, 2020 from £242.8 million for the fiscal year ended June 30, 2019 and comprised 93.5% of our total revenue. From a product perspective, our key growth drivers were recombinant antibodies, sales of which grew 7.0% to £63.2 million in the fiscal year ended June 30, 2020, and immunoassays, sales of which grew 23.7% to £22.9 million in the same period. Together, these categories contributed 35.4% of catalogue revenue for the fiscal year ended June 30, 2020 compared with 32.0% for the fiscal year ended June 30, 2019. Within catalogue revenue, in-house products delivered a strong relative performance, increasing by 7.5% to £114.4 million or 47.1% of total catalogue revenue in the fiscal year ended June 30, 2020, as

 

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compared to 43.8% in the fiscal year ended June 30, 2019. Regionally, in respect of catalogue revenue, all of our markets were adversely impacted by COVID-19 in the second half of the fiscal year ended June 30, 2020, with the Americas and China seeing the greatest impact, resulting in declines of 4.4% and 1.8% over the full year, respectively. EMEA, Japan and the Rest of Asia Pacific fared better, and overall, these regions delivered reported growth of 3.0%, 11.9% and 8.1% for the full year with these three regions collectively comprising 44.1% of our catalogue revenue in the fiscal year ended June 30, 2020.

Our revenue from Custom Products and Licensing, which accounted for 6.5% of our total revenue in the fiscal year ended June 30, 2020, and which comprises custom antibody development services, IVD sales and royalty and license income, decreased by £0.2 million to £16.9 million during the fiscal year ended June 30, 2020 compared with £17.1 million for the fiscal year ended June 30, 2019. Custom products and services revenue increased by 16.7% to £6.3 million for the fiscal year ended June 30, 2020, compared with £5.4 million for the fiscal year ended June 30, 2019. Our royalties and licensing revenue increased 22.9% to £5.9 million for the fiscal year ended June 30, 2020 compared with £4.8 million for the fiscal year ended June 30, 2019, part of which was a result of the Expedeon Acquisition. IVD sales declined to £4.7 million for the fiscal year ended June 30, 2020, compared with £6.9 million for the fiscal year ended June 30, 2019. IVD sales were lower than expected due to the certain purchasing delays of IVD products experienced in the first half of the year and that continued into the second half.

Our revenue is broken down into the following geographical components:

 

     Fiscal Year Ended June 30,  
     2019      2020  
     (in millions)  

The Americas

   £                 117.5      £                 112.4  

EMEA

     67.1        69.3  

China

     39.9        39.5  

Japan

     16.9        18.8  

Rest of Asia Pacific

     18.5        20.0  
  

 

 

    

 

 

 

Total revenue

   £ 259.9      £ 260.0  
  

 

 

    

 

 

 

Revenue by type can be further broken down as follows:

 

     Fiscal Year Ended June 30,  
     2019      2020  
     (in millions)  

Catalogue revenue

   £                 242.8      £                 243.1  

Custom products and services

     5.4        6.3  

IVD

     6.9        4.7  

Royalties and licenses

     4.8        5.9  
  

 

 

    

 

 

 

Custom Products and Licensing revenue sub-total

   £ 17.1      £ 16.9  
  

 

 

    

 

 

 

Total revenue

   £ 259.9      £ 260.0  
  

 

 

    

 

 

 

Catalogue revenue can be further broken down as follows:

 

     Fiscal Year Ended  
     2019      2020  
     (in millions)  

In-house products

   £ 106.4      £ 114.4  

OEM products

                     136.4                        128.7  
  

 

 

    

 

 

 

Catalogue revenue sub-total

   £ 242.8      £ 243.1  
  

 

 

    

 

 

 

 

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Cost of sales

Cost of sales increased by £3.1 million, or 4.0%, to £79.8 million for the fiscal year ended June 30, 2020 from £76.7 million for the fiscal year ended June 30, 2019, which was primarily driven by an increase of £2.2 million in costs of custom services provided, but also was influenced by the inclusion of the Expedeon Acquisition since January 2020 and £0.6 million in shipping costs, which was mainly a result of the increase in shipping costs that were not passed on to customers.

Gross profit and gross margin

Gross profit decreased by £3.0 million, or 1.6%, to £180.2 million for the fiscal year ended June 30, 2020 from £183.2 million for the fiscal year ended June 30, 2019, and gross margin decreased by 120 basis points to 69.3% for the fiscal year ended June 30, 2020 from 70.5% for the fiscal year ended June 30, 2019. The decrease was primarily a result of weaker revenue and margins within Custom Product and Licensing, where Custom Products and Services typically generate lower margins, as well as an increase in direct costs, such as packaging and shipping costs arising in part from lower shipping charges passed on to customers. Other impacts included foreign currency headwinds and geographic mix.

Selling, general and administrative expenses before exceptional items and amortization of acquisition intangibles

Selling, general and administrative expenses before exceptional items and amortization of acquisition intangibles increased by £29.4 million, or 33.1%, to £118.3 million for the fiscal year ended June 30, 2020 from £88.9 million for the fiscal year ended June 30, 2019. This increase was primarily driven by an increase of £13.7 million in salaries and related costs to £76.7 million, predominantly due to increased headcount as well as increased untaken vacation accrual arising from the impact of COVID-19. The figure also includes an increase in non-cash share-based compensation costs of £1.1 million. Other factors were an increase of £4.0 million in general administrative costs, with a key component being a full year’s software license costs relating to the ERP system, which went live in April 2019; an increase of £11.6 million in depreciation and amortization charges to £17.4 million, which consisted of £6.7 million in respect of the implementation of IFRS 16, £1.3 million in respect of the annualization of depreciation on assets brought into use in our new headquarters and £2.3 million owing to the increase in software amortization costs, reflecting a full years’ contribution from the ERP system modules mentioned above; and a £1.3 million year-on-year foreign exchange related increase owing to the relative weakness of the pound sterling.

Research and development expenses before exceptional items and amortization of acquisition intangibles

Research and development expenses before exceptional items and amortization of acquisition intangibles, net of a tax credit of £1.5 million, increased by £6.7 million, or 62.6%, to £17.4 million for the fiscal year ended June 30, 2020 from £10.7 million for the fiscal year ended June 30, 2019, net of a tax credit of £1.9 million. This increase was primarily due to a £4.3 million increase in salary and related costs, net of an offset for amounts allocated to intangible fixed assets and inventories, with the increase being partly to acquisition related activity during the year, in particular the Expedeon Acquisition, which was purchased in January 2020 and also £1.7 million of increased non-cash share-based compensation. The increase was also due to a £0.9 million increase in depreciation and amortization charges.

Exceptional items and amortization of acquisition intangibles

Exceptional items and amortization of acquisition intangibles increased by £6.5 million, or 23.6%, to £34.0 million for the fiscal year ended June 30, 2020 from £27.5 million for the fiscal year ended June 30, 2019, split into a decrease of £10.1 million in selling, general and administrative expenses, which was more than offset by an increase of £16.6 million in research and development expenses. These expenses consisted of impairment

 

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of intangible assets of £14.9 million in respect of AxioMx in vitro monoclonal antibody production technology, where, although technical feasibility had been proved, the scalability has since been determined to not be realistically viable at the current time, as compared to impairment of software assets of £12.8 million in the fiscal year ended June 30, 2019 in respect of the full impairment of certain modules of the ERP implementation; systems and process improvement costs of £4.3 million, compared with £4.5 million for the fiscal year ended June 30, 2019, which related to the work performed on the Oracle Cloud ERP project related to upgrading our IT systems and that do not qualify to be capitalized; acquisition costs of £4.1 million related to the Expedeon Acquisition; integration and reorganization costs of £2.1 million, which related partly to the integration of the Expedeon businesses and reorganization costs in respect of the alignment of our operational structure and geographical footprint to our strategic goals. In the fiscal year ended June 30, 2019, reorganization costs were £3.7 million and related to our new headquarters and consisted of costs such as dual rent incurred prior to moving in and depreciation of assets not yet brought into use prior to occupation of the building; and amortization of acquisition intangibles of £8.6 million, compared with £6.5 million in the fiscal year ended June 30, 2019, where the increase was mainly due to new acquired intangible assets arising from the Expedeon Acquisition, of which £2.6 million related to selling, general and administration expenses; and the balance of £6.0 million related to research and development expenses and where a significant portion related predominantly to intangible assets acquired with Epitomics Inc. in 2012.

Finance income

Finance income was £0.7 million in the fiscal year ended June 30, 2020 and £0.6 million in the fiscal year ended June 30, 2019, which consisted of interest receivable on cash deposits during the fiscal year. The benefit of higher overall cash balances during the fiscal year ended June 30, 2020 was offset by lower interest rates received on these balances.

Finance costs

Finance costs increased by £2.5 million to £2.8 million for the fiscal year ended June 30, 2020 from £0.3 million for the fiscal year ended June 30, 2019. This increase was primarily due to lease liability costs of £1.5 million, representing the unwinding of discounted lease liabilities, following the implementation of IFRS 16 as at July 1, 2019 and increased borrowing costs arising as a result of interest payable on drawings on our revolving credit facility, which were not present in the fiscal year ended June 30, 2019. Other costs that increased in the fiscal year ended June 30, 2020 were in respect of the amortization of upfront fees incurred in setting up our revolving credit facility and other related facility fees, such as those for non-utilization. In the fiscal year ended June 30, 2019, these costs were only incurred for five months since inception of the facility, whereas for the fiscal year ended June 30, 2020, these costs covered a full financial year.

Tax expense

Tax expense decreased by £15.5 million, to a credit of £4.1 million for the fiscal year ended June 30, 2020 from an expense of £11.4 million for the fiscal year ended June 30, 2019. This decrease was partially due to a reduction in profit before tax to £8.4 million from £56.4 million for the fiscal year ended June 30, 2019 and also from a credit of £6.0 million in respect of the initial recognition of benefit from a lower rate of tax applied to profits on patented income under HMRC’s “patent box” regime following successful registration of patents during the year where the credit consists of an element in respect of the fiscal year ended June 30, 2020 but also historical years going back to the fiscal year ended June 30, 2016. Exceptional items and the amortization of acquisition intangibles had a beneficial effect of £11.8 million in the fiscal year ended June 30, 2020, resulting in an effective tax rate on adjusted profits of 18.0%, compared to 19.7% in the fiscal year ended June 30, 2019.

In March 2020, the U.K. government announced that the U.K. corporate tax rate would remain at 19% until April 2022 rather than reduce to 17% as had previously been outlined. As a result, we now anticipate that our effective tax will remain around 18% in the medium term, subject to further changes to the corporate tax rate as a result of the remedial actions taken by the U.K. government to address the deficit caused by COVID-19, as well as equivalent changes that may occur in other in jurisdictions in which we operate.

 

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Operating Profit and Adjusted Operating Profit

Operating profit decreased by £45.6 million, or 81.3%, to £10.5 million for the fiscal year ended June 30, 2020 from £56.1 million for the fiscal year ended June 30, 2019. This decrease was primarily driven by a decrease in revenue in the second half of the year as a consequence of the COVID-19 pandemic but where there was no corresponding decrease in a number of our costs and where, in many cases, increases were incurred in line with what had previously been expected to be increases in revenue. We saw increases in the larger components of costs where significant increases were included within selling general and administrative expenses and consisted mainly of salaries and related expenses, premises costs, software costs and depreciation and amortization. These increased costs were partially offset by £12.8 million, representing the absence of an impairment charge incurred in the fiscal year ended June 30, 2019 in respect of the ERP system and which was treated as an exceptional item. Additional costs in respect of the Expedeon Acquisition and also integration and reorganization costs, both of which are classified as exceptional items, were also incurred. Additionally, we saw increases within research and development, which primarily consisted of salaries and related expenses and the impairment of the acquisition intangible asset of £14.9 million in respect of the AxioMx in vitro monoclonal antibody production technology, which is classified as an exceptional item.

Adjusted Operating Profit was £44.5 million for the fiscal year ended June 30, 2020, representing an Adjusted Operating Profit Margin of 17.1%, compared to Adjusted Operating Profit of £83.6 million for the fiscal year ended June 30, 2019, representing an Adjusted Operating Profit Margin of 32.2%, after planned strategic investments made during the fiscal year ended June 30, 2019. This decrease in Adjusted Operating Profit was primarily driven by the factors affecting operating profit, with the exception of exceptional items and amortization of acquisition intangible assets, which are excluded from Adjusted Operating Profit and consist of an increase of £2.1 million of impairment charges of intangible assets, which in the fiscal year ended June 30, 2020 consisted of £14.9 million in respect of an acquisition intangible asset and in the fiscal year ended June 30, 2019 consisted of £12.8 million in respect of software under construction; a decrease of £0.2 million related to system and process improvement costs of £4.3 million related to the ERP implementation that do not qualify for capitalization, which was consistent from the fiscal year ended June 30, 2019; an increase of £2.5 million across integration and reorganization costs and acquisition costs, with integration and reorganization costs down £1.6 million, to £2.1 million, where in the fiscal year ended June 30, 2019, costs consisted of £3.7 million in respect of our new headquarters and acquisition costs of £4.1 million, which were £nil in the fiscal year ended June 30, 2019; and an increase of £2.1 million in respect of the amortization of acquisition intangibles primarily due to the new Expedeon Acquisition assets acquired during the year.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through cash generated by our operating activities. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. We believe that our sources of liquidity and capital will be sufficient to meet our existing business needs for at least the next 12 months.

Our primary sources of liquidity are our cash and cash equivalents and our revolving credit facility. As of June 30, 2019 and 2020, we had cash and cash equivalents of £87.1 million and £187.3 million, respectively. In April 2020, we issued new ordinary shares in the aggregate amount of £110.0 million. Our cash and cash equivalents consist of cash in bank accounts and on deposit.

In February 2019, we entered into a revolving credit facility (“RCF”) with HSBC, NatWest, Santander and Royal Bank of Canada for £200 million, with an additional £100 million accordion option, providing us with additional financial flexibility for future acquisitions. We may at any time up to six months of the termination date of the RCF, give prior notice of the wish to exercise this accordion option with a minimum value of £10 million and a maximum of £100 million. During the fiscal year ended June 30, 2020, drawings on the RCF comprised an initial amount of €120.0 million (£103.4 million) to fund the Expedeon Acquisition. In February 2020, a partial repayment was made and the remaining borrowings redenominated into pounds sterling, leaving an outstanding balance of

 

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£82.0 million. In March 2020, a subsequent drawing of £25.0 million was made in order to provide us with operational flexibility in light of the COVID-19 pandemic. As of June 30, 2020, we had borrowings on this facility of £107.0 million, which is reflected as £106.4 million on our balance sheet as it is stated net of the unamortized amount of upfront fees incurred on set up of the RCF. The undrawn balance of the facility was £93.0 million as of June 30, 2020. The initial term of this RCF is three years with two extension options of one year each. The interest rate is the aggregate of: (i) a margin, which varies from 0.75% to 1.45%, that is dependent on a debt cover ratio, which for the fiscal year ended June 30, 2020, was at the minimum level of 0.75%; and (ii) London Inter-bank Offered Rate (“LIBOR”) or, in relation to any borrowing in Euro, Euro Inter-bank Offered Rate (“EURIBOR”) or in relation to any non-LIBOR currency, the benchmark rate for that currency. The benchmark rate is the applicable screen rate as of the specified time for the currency of the borrowing. Borrowings under this facility are unsecured but are guaranteed by certain of our material subsidiary companies.

Our capital expenditures consist primarily of property plant and equipment and intangible assets. Our capital expenditures during the fiscal year ended June 30, 2020 were £12.7 million for property plant and equipment, a £5.0 million decrease compared to the fiscal year ended June 30, 2019, which included net cash outflows of £5.1 million in respect of our new headquarters, which consisted of £9.6 million of cash outflow net of amounts held in escrow of £4.5 million from the previous fiscal year, but where the significant items were £7.0 million in respect of laboratory equipment, some of which related to new premises entered into during the year and £4.0 million of cell lines, the majority being related to the live cell line and lysates portfolio of EdiGene; and £23.0 million for intangible assets, which included £11.6 million in respect of our ERP implementation project and £9.0 million with respect to IDT.

We assess our liquidity, in part, through an analysis of our working capital together with our other sources of liquidity. As of June 30, 2020, our working capital balance, which is comprised of inventories, trade and other receivables and trade and other payables, was £41.3 million, an increase of £4.0 million from £37.3 million for the fiscal year ended June 30, 2019.

The following table presents the summary consolidated cash flow information for the periods presented.

 

     Fiscal Year Ended
June 30,
 
     2019      2020  
     (in millions)  

Net cash inflow from operating activities

   £ 70.2      £ 63.0  

Net cash outflow from investing activities

     (49.9      (148.1

Net cash (outflow)/inflow from financing activities

     (24.7      184.6  

(Decrease) / increase in cash and cash equivalents

     (4.4      99.5  

Net cash inflow from operating activities

Net cash inflow from operating activities decreased by £7.2 million, or 10.3%, to £63.0 million for the fiscal year ended June 30, 2020 from £70.2 million for the fiscal year ended June 30, 2019. This decrease resulted primarily from a decrease in operating profit for the period of £45.6 million, which predominantly consisted of the cash revenue generated from the sale of goods and services offset by cost of sales, selling, general and administrative costs and research and development expenditure, all of which are described in more detail above, which was partially offset by an increase in impairment of intangible assets of £2.1 million, where a £14.9 million impairment was incurred in respect of AxioMx in vitro monoclonal antibody production technology, as described above, compared with a £12.8 million impairment incurred in the fiscal year ended June 30, 2019 that related to certain modules in construction of the ERP system; a depreciation charge of £14.0 million, including of laboratory equipment of £3.4 million, office fixtures, fittings and other equipment of £2.6 million and £6.7 million in respect of right of use assets, which are those assets that have come on to our balance sheet for the first time in fiscal year ended June 30, 2020 following the implementation of IFRS 16 on July 1, 2019; an amortization charge of £15.9 million, comprised of acquired intangibles of £8.6 million,

 

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internally developed technology of £3.1 million and software of £4.2 million, where the increase was mainly due to £3.3 million of amortization of the finance and non-stock procurement ERP modules that went live in April 2019 but which resulted in only two months of charge in the fiscal year ended June 30, 2019; a share-based payment charge of £9.3 million, with the largest component being £5.7 million in respect of AbShare, our innovative employee share plan, which was launched in September 2018 (see “Management—Equity Compensation Arrangements—AbShare”); and working capital movements of £4.0 million that were comprised of an increase in inventories of £1.1 million, driven mainly by an increase of £1.0 million of finished goods as inventory was expanded in anticipation of future revenue growth, a decrease in receivables of £2.7 million consisting mainly of £2.1 million of trade receivables, which were driven by the addition of receivables from acquired businesses, primarily related to the Expedeon Acquisition offset by a slowing in collections leading up to the end of the fiscal year arising from COVID-19, and an increase in payables of £2.4 million made up mainly of accrued expenditures, which reflects the further investment in growing our business.

Net cash outflow from investing activities

Net cash outflow from investing activities increased by £98.2 million, or 196.8%, to £148.1 million for the fiscal year ended June 30, 2020 from £49.9 million for the fiscal year ended June 30, 2019, which primarily resulted from an outflow of £104.2 million in respect of the Expedeon Acquisition; £12.7 million outflow on purchase of property, plant and equipment, with the main cost being £7.0 million in respect of laboratory equipment, some of which related to new premises that were entered into during the year and £4.0 million of cell lines, the majority being in respect of the live cell line and lysates portfolio of EdiGene, which was purchased in July 2019, and £23.0 million outflow for intangible assets, which included £11.6 million in respect of our ERP implementation project and £9.0 million with respect to IDT.

Net cash (outflow)/inflow from financing activities

Net cash inflow from financing activities of £184.6 million for the fiscal year ended June 30, 2020 contrasted with an outflow of £24.7 million for the fiscal year ended June 30, 2019. This increase primarily resulted from inflows arising from drawings of £107.0 million on our RCF and £110.0 million received upon the issuance and sale of 10 million new ordinary shares to an investor. These significant inflows were partially offset by outflows of £25.0 million in dividends, which remained broadly consistent with the fiscal year ended June 30, 2019, £6.8 million of amounts classified as lease principal payments and £1.7 million of interest payments including £0.9 million of amounts classified as lease interest payments following the implementation of IFRS 16 that were classified as operating lease payments within cash flows from operating activities in the fiscal year ended June 30, 2019; and £2.2 million of investments that consisted mainly of the acquisition of a 13% stake in Brickbio, Inc.

Contractual Obligations and Commitments

Contractual commitments

Our significant contractual obligations as of June 30, 2020, which are included as liabilities on our balance sheet, are summarized in the following table:

 

     Payments Due by Period Ending June 30,  
     Within
1 year
     Between
1 to 5 years
     After
more than
5 years
     Total  
     (in millions)  

Lease payments

         9.4            31.9            101.9            143.2  

Finance charges

     (2.1      (5.0      (8.3      (15.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Present value of lease liability(1)

   £ 7.3      £ 26.9      £ 93.6      £ 127.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Comprised mainly of operating lease obligations for properties with rental renewal terms ranging between 1 and 19 years. See Note 15 of our consolidated financial statements included elsewhere in this prospectus.

 

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  Following the adoption of IFRS 16 “Leases” effective from July 1, 2019, the above commitments are reflected as liabilities on our balance sheet, whereas for the fiscal year ended June 30, 2019, the equivalent amounts were disclosed only as commitments.

Other commitments

Our significant contractual obligations as of June 30, 2020 consisted of capital commitments of £5.9 million mainly in respect of our ERP system. There were no equivalent capital commitments for the fiscal year ended June 30, 2019.

There are no other commitments, capital or otherwise, as of June 30, 2020.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recently Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, result of operations or cash flows is disclosed in Note 2 to our audited consolidated financial statements included elsewhere in this prospectus.

Application of Significant Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. In preparing our audited consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. See “Risk Factors” for a discussion of the possible risks that may affect these estimates. We regularly reevaluate our assumptions, judgments and estimates. Our critical accounting estimates and judgments are described in Note 4 to our audited consolidated financial statements included elsewhere in this prospectus. No critical accounting judgments were identified for the fiscal year ended June 30, 2020, but one critical accounting judgment was identified in the fiscal year ended June 30, 2019, which was in relation to the impairment of our ERP system. Despite this, other judgments exist that are considered to be key and in addition, two areas of estimation uncertainty have also been identified (although for the fiscal year ended June 30, 2019, only one was identified in respect of slow moving or defective inventory). All of these areas of judgment and estimation uncertainty are listed as follows:

Impairment of our ERP System

We have been capitalizing costs associated with our new ERP system since 2016. After an extensive review of business requirements and the current functionality of Oracle Cloud software as well as other best-in-class software providers, a decision was taken to make some changes to the approach and software used to address these areas. The opportunity was also taken to extend the scope of the program to integrate improvements in these functional areas with front-end system enhancements to improve customers’ end-to-end experience through logistics and ultimately into manufacturing.

Taking this into account, a review was undertaken of historical expenditure incurred to date and as part of the impairment review of assets under construction, two impairment indicators were identified: the first being modules that are no longer being utilized or which would require considerable re-work; and the second is the extended timeframe for certain modules resulting in potentially obsolete programming by the time the module goes live. Following the review and assessment of the impairment indicators identified, two modules were impaired in full.

 

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Identifying which modules may be impacted was judgmental and technically complex compounded by identifying and in particular, allocating the costs specifically related to each individual module in question. In this respect, we undertook an exercise to allocate historically incurred costs to each module. This exercise involved certain estimations and judgments to determine these allocations by apportioning those costs where there were allocations that were certain (for example, historical time records in respect of labor costs) to those where there was either less specific or no allocation to an individual module.

Capitalization of Intangible Assets

We capitalize internal software development costs, in particular internal staff costs, relating to the enhancement of our core IT systems architecture and developments. Judgment is required in applying the capitalization criteria of IAS 38, differentiating between enhancements and maintenance. Those costs which are not treated as capital but are directly attributable to our system and process improvement project are treated as adjusting items.

In establishing the principles on which costs are capitalized, consideration is given to the nature of work being performed, whether the costs and the activities are incremental and whether the associated deliverables meet the characteristics of an asset. Processes are in place to evaluate this and the same processes are used to confirm whether the expensed costs are related to the system and process improvement project so that classification as an adjusting item is appropriate.

We capitalize internal costs associated with IDT as intangible assets as described further in Notes 3, 4 and 13 to our audited consolidated financial statements. This requires judgment to determine that the characteristics of such assets meet the relevant criteria of IAS 38 for classification as an intangible asset.

IDT Capitalized

Internal costs are capitalized as IDT within intangible assets which are used to generate antibodies and kits. The point at which such internal costs are capitalized as well as their magnitude (whereby the amount capitalized comprises an element of overhead allocation) is a key area of judgment. A key area in respect of the stage of development of IDT is subject to judgment as to when a product’s future economic value justifies capitalization. Our management regularly reviews these factors in order to determine that the costs meet the criteria for capitalization as intangible assets.

Valuation of acquisition intangibles

During the fiscal year ended June 30, 2020, we completed a number of acquisitions. Accounting for these in line with IFRS 3 (Business Combinations) requires the use of a number of assumptions and estimates in relation to the future cash flows associated with acquisition intangibles and the use of valuation techniques in order to arrive at the fair value of the intangible assets acquired. The assumptions applied were based on the best information available to management, and valuation techniques were supported by third party valuation experts.

Nevertheless, the actual performance of these assets may differ from the valuations derived through this exercise.

In 2020, an assessment of the acquisition intangible in respect of in vitro monoclonal antibody production technology acquired with AxioMx, Inc. in 2015 was undertaken. This also included further smaller amounts in respect of this technology that have been capitalized since the acquisition as certain commercial feasibility milestones had been achieved.

An appraisal of the ability to utilize this technology at scale has been undertaken, and although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to pursue further active development and substantive utilization of this technology. As a result of this conclusion, the intangible asset in respect of this technology has been fully impaired.

 

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Provision for Slow-Moving or Defective Inventory

The provision for slow-moving inventory is based on our directors’ estimation of the future sales of each of our products over the period from the balance sheet date to the expiry date of the product. Estimated future sales are based on historical actual sales and a growth rate assumption, which is derived from the average annual growth over the product life to date.

If actual unit sales growth rates differ from those estimated by management, both the level of provision against existing inventory and the rates of provision applied to inventory in future periods would need to be revised.

Quantitative and Qualitative Disclosure about Market Risk

We are exposed to a variety of risks in the ordinary course of our business, including, but not limited to, currency risk, liquidity risk and credit risk, as discussed below. We regularly assess each of these risks to minimize any adverse effects on our business as a result of those factors. See Note 26 to our audited consolidated financial statements for further discussion of our exposure to these risks.

Currency risk

We have transactions denominated in various currencies, with the principal currency exposure being fluctuations in U.S. Dollars (“USD”), Euros, Japanese Yen and Chinese Renminbi (“RMB”). Collectively, these currencies make up approximately 90% of our revenue and cash inflows. While a large portion of our manufacturing and research and development costs are USD and RMB, giving a natural offset against the currency inflows, the majority of administration costs remain as pound sterling, leaving an overall net currency inflow in our cash flows.

This remaining currency exposure is centrally managed with the objective being to secure a level of certainty of pound sterling value for up to 90% of our future net exposure based on forecast cash flows expected to occur up to 18 months ahead. We use forward currency contracts to achieve this objective and apply hedge accounting where applicable. Foreign currency forward contracts are valued using quoted forward exchange rates and yield curves matching maturities of the contracts.

A decrease of 10% in the USD/pound sterling exchange rate would have decreased our other comprehensive income by £0.5 million for the fiscal year ended June 30, 2020. A decrease of 10% in the Euro/pound sterling exchange rate would have decreased our other comprehensive income by £1.2 million for the fiscal year ended June 30, 2020. If the pound sterling fluctuates significantly against the USD or Euro, it may have a negative impact on our results of operations.

Liquidity risk

We generate funds from operational activities in excess of our operational requirements and have substantial cash balances available for our current investment activities. The Board reviews our funding requirement as part of the budgeting and long-term planning processes and considers as necessary alternative possible sources of funding where the requirement is not satisfied by our forecast operational cash generation.

We manage liquidity risk by maintaining an adequate level of easily accessible cash reserves, in a currency profile representative of our cost base and matching customer and supplier terms where possible. We also have access to daily currency trading facilities, which provides the ability to convert currency within the agreed settlement limits as required.

Credit risk

We are exposed to credit risk on our financial assets; however, there is not deemed to be a significant exposure due to the nature of our customer base and the types of transaction that are undertaken.

 

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Trade receivables consist of a large number of customers spread globally with the majority being in economically strong geographies. Our customer base is predominantly government-funded institutions, pharmaceutical companies conducting research and local distributors. The perceived risk of default is deemed to be low.

Further information on our trade receivable ageing and impairment can be found in Note 17 to our audited consolidated financial statements.

We generate significant levels of operational cash. Cash in excess of local operational requirements is remitted and managed centrally. Exposure to counterparty default risk is managed by limiting the concentration of funds and contracts held with individual financial institutions and ensuring funds are only placed with institutions or in products rated BBB- or above by Standard & Poor’s.

Internal Control over Financial Reporting

For the fiscal year ended June 30, 2019, we identified a material weakness in our internal control over financial reporting relating to access to program and data controls within one of our key financial systems that we rely upon for certain figures within our consolidated financial statements. While this material weakness remained in the fiscal year ended June 30, 2020, we are implementing measures designed to improve and remediate the deficiencies that are causing this material weakness through formal documentation of user access review. We expect the documentation for these measures to be in place and functioning soon, and we continue to invest in our IT systems and infrastructure to introduce further enhancements to our internal controls over financial reporting as relevant modules of our ERP program go live. However, there can be no assurance that such measures will be effective to remediate the material weakness. See “Risk Factors—Risks Relating to Our ADSs and this Offering—Failure to comply with requirements to design, implement and maintain effective internal control over financial reporting could have a material adverse effect on our business. We have identified a material weakness in our internal control over financial reporting.”

JOBS Act Election

We are an emerging growth company, as defined in the JOBS Act. We intend to rely on certain of the exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging growth company, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).

 

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BUSINESS

We are a global life science company focused on identifying, developing and distributing high-quality reagents and tools for our customers at the forefront of life science research. Our products are used by researchers to study biological pathways, which is critical for scientific research, diagnostics and drug discovery. Our mission is to provide life science researchers with highly validated products and services to advance biological research and achieve their goals faster. We do this by continuously innovating and providing our customers with high-quality tools, together with expert customer support. Our product offering includes an extensive portfolio of antibodies and related protein research tools that are fundamental to our customers’ research and experimental workflow. Our customers are primarily scientists and researchers in academic institutions, research institutes and pharmaceutical, biotechnology and diagnostics companies. Headquartered in Cambridge, United Kingdom, we operate across 15 locations around the world, supported by our world-class team of approximately 1,500 employees, including over 200 PhDs, and have served customers in over 130 countries.

Our addressable market can be broadly classified into two categories, based on the application of our products and type of customer they serve:

 

   

Research use only proteomic tools. We believe the global market for RUO antibodies and reagents is valued at approximately $3 billion as of 2019 and, as of 2019, was expected to grow at around 4% per annum (excluding any impact from COVID). These products include protein binding reagents, such as primary and secondary antibodies and singleplex and multiplex immunoassays, and related reagents, such as kits, proteins, peptides, lysates, cell lines and biochemicals. Our research products are used to detect, quantify, visualize and modify proteins in scientific research experiments, which we believe serve as mission critical tools, to enable our customers to develop insights about targets and pathways of interest. Our customers include academic labs for scientific research and clinical labs in pharmaceutical and biotechnology companies working in the drug discovery and diagnostic markets. Our catalogue revenue, the substantial majority of which is purchased for RUO, accounted for 93.5% of our total revenue for the fiscal year ended June 30, 2020.

 

   

Antibody development for clinical application. Antibodies are a critical component in many IVD assays and can also be used as therapeutic agents for the treatment of diseases, including cancers and immune-related diseases. In recent years, through the custom development of new antibodies and the out-licensing of our existing antibodies to biopharmaceutical and diagnostic companies, we have extended the commercial potential of our products into these markets. The substantial majority of our Custom Products and Licensing revenue, which includes custom development services, IVD sales and royalty and license income, is generated from these activities, and accounted for 6.5% of our total revenue for the fiscal year ended June 30, 2020.

Life science researchers are increasingly seeking higher quality tools and reagents, which deliver consistent, reproducible results, save time, uncover deeper biological insights and advance their research. We believe customers place their trust in Abcam because of our reputation for providing reliable, highly validated products with market leading specificity and high sensitivity, comprehensive and transparent product data, fast delivery and exceptional customer support. According to CiteAb, our products were cited in approximately half of all life science publications in 2019, and we were the most cited company in approximately 40% of the top 2,000 most studied protein targets as of June 30, 2020.

We aim to sustain and extend our position as a market leader within the life science tools market by utilizing our breadth of product data, knowledge and data analytics to derive consumer insights, which are used to direct our product development pipeline to areas which we believe would be of the highest demand for our customers. We do this by offering a diverse product portfolio while leveraging our differentiated innovation platforms and screening approaches to develop new, high-quality products, enabling experiments that are conclusive, consistent and repeatable. We also provide extensive product performance data, from both internal product validation tests

 

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and external customer reviews, to empower our customers to select the right product, together with swift customer service and exceptional customer support globally.

We have developed an industry leading innovation platform that is informed by data analytics, research area specialists and the relationships we have built with our customers, all of which enable us to anticipate and align our innovation efforts with our customers’ research priorities. Today, approximately two-thirds of our primary antibody innovation pipeline is driven by our proprietary algorithms that interrogate a wide variety of internal and external data sources, including research literature and our web data, to predict product and market demand, which inform our development efforts. We leverage this data to anticipate which tools researchers will need in the future in order to help advance their research, as well as to identify breakthrough opportunities in areas where there is a lack of high-quality products or where we identify custom opportunities in collaboration with our customers. We believe this capability and, in particular, our unique ability to leverage our extensive proprietary data, provides us with strategic advantage and helps us sustain and extend our position as a market leader within the life science tools market.

We offer a large and differentiated portfolio of approximately 100,000 products with over 300,000 SKUs as of June 30, 2020. Our flexible sourcing model enables us to grow our product offering in line with researchers’ needs. This is achieved by developing and manufacturing in-house products, as well as sourcing products from our OEM suppliers. We demand high product quality standards from our suppliers, and we enhance the utility of these products for our customers by providing additional data and product validation as well as by making them available through our global distribution platform and customer service. Over the last five years, we have increased focus on the development of in-house products for research areas we expect to have high demand. Notably, over the same period, we have increased our portfolio of proprietary recombinant monoclonal antibodies and assays, which are recognized for their leading specificity, high sensitivity and consistency, from approximately 3,200 as of June 30, 2013 to over 19,000 as of June 30, 2020. Alongside these highly validated protein binders, we offer additional related tools and reagents that customers require to study biological pathways and disease. This focus has seen our proprietary product portfolio grow to represent 51% of our total revenue for the fiscal year ended June 30, 2020, compared to 28% of our total revenue in the fiscal year ended June 30, 2012. Figure 4 below demonstrates the growth of our in-house products since 2010.

 

LOGO

Figure 4

1) Based on Company data

We are continuously expanding our portfolio to provide our customers with additional solutions and further expand within our addressable markets. Utilizing the foundations laid by our innovation platform and strategic acquisitions, our strategy is to leverage our capabilities to continue expansion into adjacencies and more comprehensive product offerings, including primary conjugated antibodies, singleplex and multiplex

 

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immunoassays, proteins and edited cell lines. In addition, through partnerships with biopharmaceutical and diagnostic companies, the potential application of our products is being extended into diagnostic and therapeutic markets.

We make our extensive product characterization and validation data available to our customers across our portfolio. This data is sourced by our in-house laboratories, our network of collaborators and independent consumer product reviews. Researchers use this to be able to select the right product for their highly specific needs. Stringent quality control and validation processes are carried out by our global laboratories to check the activity, stability and performance of our products. Whether it is antibodies, kits, proteins or other products, the validation process is continuous, and the data obtained is made available on our product datasheets and in our protocols. We are continuing to invest in product validation in order to raise quality standards and differentiate ourselves in the marketplace. For example, our award winning knockout CRISPR gene editing program is one of the most accepted and trusted validation processes for antibody specificity, and we have been recognized for carrying out the largest number of knockout validations for antibodies in the industry, according to CiteAb, who presented us with the award in 2020. In addition, we have more than doubled the number of applications in which we validate our antibodies from four in 2012 to ten in 2020. Our investment in product validation helps us meet our customers’ increasing demand for higher quality research tools.

Having established one of the first digital platforms in our industry over 20 years ago, our website, search engine optimization and data remain a strategic advantage. As a part of our core strategy, we now aim to build on our position by establishing a highly personalized, cross-platform digital relationship with our customers, wherein we are able to uniquely understand and anticipate their needs. Coupled with greater personalization of the user experience and the creation of a more dynamic and agile content management system, our goal is to provide customers with a seamless and intuitive experience that is integrated and embedded into their workflows. Through this, we hope to provide customers with more relevant products and services to help them achieve their research goals, improve online conversion rates, capture a greater share of business from existing customers and generate business from new customers.

Since 2001, we have sold our products and services to customers in over 130 countries through a variety of channels, including our ecommerce sites, a network of distributors and a targeted field sales team. In the fiscal year ended June 30, 2020, our worldwide customer base consisted of approximately 750,000 life science researchers. As of June 30, 2020, we had seven manufacturing facilities and a global distribution network that enables prompt delivery to our customers, with orders generally shipped within 24 to 48 hours of ordering. Our multilingual scientific support team, which is mostly comprised of individuals with PhDs, together with our customer support team are available to help customers around the world with technical and order-related queries.

We recorded revenue of £260.0 million, profit for the year of £12.5 million and Adjusted Operating Profit of £44.5 million for the fiscal year ended June 30, 2020. Revenue was broadly flat for the fiscal year ended June 30, 2020, as compared to the same period in the prior year. For the definition of Adjusted Operating Profit and reconciliation of Adjusted Operating Profit to profit for the year, please see “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-IFRS Financial Metrics.”

Our Growth Strategies

We are focused on building upon our success to accelerate our growth over the next five years, underpinned by three key goals: sustaining and extending our antibody and digital leadership; driving continued expansion into complementary market adjacencies; and implementing operational improvements to scale our business and drive sustainable, long-term value creation. We are actively investing in our business to reduce constraints to growth by expanding in-house innovation capabilities, developing a future digital experience that is more intuitive for our customers and reducing friction across all touch points, scaling up operational and IT capacity, strengthening our global teams and pursuing selective acquisitions.

 

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We aim to support those at the forefront of biological research, and we will continue to capitalize on our platform and competitive strengths as we pursue multiple growth strategies:

Extend Leadership in RUO Antibodies

We aim to increase the use of our RUO antibodies and grow their sales over time. We are committed to help advance our customers’ research and, in turn, support our market share gains. We seek to do this through the continual addition of product data, knowledge and information that demonstrates performance and increased utility in a broader range of experiments and applications. This information includes validation data, product citation data in research publications and detailed customer reviews, which are valuable to researchers when assessing product choice, resulting in greater purchase confidence. Over time, increased product use results in more customer feedback, data and citations, which further increase a product’s value to customers and expand its use. This process can continue for several years and, as the citation data awareness and use increases, products can become recognized as the “gold standard.”

This strategy is further enhanced through our focus on in-house proprietary products, including one of the world’s largest portfolios of recombinant rabbit monoclonal antibodies. We continuously innovate to ensure that our portfolio of antibodies is aligned with the targets, research areas and biological pathways in highest demand from our customers, including immuno-oncology, neuroscience, epigenetics and infectious diseases, such as COVID-19. We employ a differentiated range of in-house antibody discovery techniques and screening approaches that have been attained through strategic acquisitions and in-house development. Our in-house products are also typically tested and validated in a broader range of applications and species than our OEM products, further increasing their utility and demand from a broader range of existing and new customers.

Remove Innovation Constraints and Launch New Lines

We are developing our innovation capabilities to meet our customers’ needs in adjacent product areas. This enables us to further grow within our addressable markets and at the same time, provides us with in-house tools to develop high-quality validated antibodies thereby expanding our product portfolio. Specifically, we are focusing our efforts to expand our portfolio in:

 

   

Antibody-Derived Products for High Value, High Growth Markets. We intend to extend the range of products derived from our catalogue of in-house primary antibodies, including primary antibody conjugates, antibody pairs, our SimpleStep singleplex assays and our in-house Fireplex multiplex products.

 

   

Complementary Product Areas that Simultaneously Enable Faster Antibody Innovation. We see several new or adjacent product areas in which we can support our customers within the proteomics research tools space. Through product innovation as well as strategic acquisitions, we aim to support our customers’ needs while also providing the in-house tools needed to increase our internal rate of antibody development. These product areas include launching a portfolio of highly validated bioactive proteins, as well as a portfolio of disease relevant edited cell lines and associated cell lysates.

 

   

Third-Party Instrumentation Platforms and Multiplex Partners. With advances in life science research and experimental approaches, new instrument platforms and new biomarkers are constantly being developed. Our focus is to partner with third parties developing either novel platforms or upgrading their existing platforms to address novel biomarkers and help them develop the right content to offer their users (antibodies and other protein reagents). For example, we entered into a commercial partnership with NanoString in 2019, whereby we leverage our collection of recombinant monoclonal antibodies to create bespoke antibody-based content for NanoString’s GeoMx DSP platform. This enables GeoMx DSP users to explore cellular interactions and facilitate discovery of novel biology.

 

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Be a Leading Discovery Partner for Biopharmaceutical Organizations

Our in-house proprietary product portfolio allows us to have greater flexibility in customizing products to our customers’ specification and needs. In addition, we maintain control over manufacturing and intellectual property of products developed through our in-house platform, providing our customers with long term access to consistent and high-quality tools. We believe this has helped and will continue to help us to expand our offering to bring innovative solutions to our global strategic customers in the diagnostic and biopharmaceutical markets. Customers in these markets are seeking product development partners with unique antibody and assay development capability, such as ours, to help create products that are ready for clinical development, such as IHC analyte specific reagents, classified clones and FDA-approved antibodies. Our partners can incorporate these antibodies and assays into their clinical and commercial offerings. We commonly refer to the use of our products by third-party instrumentation platforms and multiplex partners or by partners for the potential use in clinical products as “Abcam Inside.” We have a history of supporting these customers through a combination of custom services, partnerships and collaborations, and we see an opportunity to expand our presence in this area. In addition, we are increasing the complexity, precision and value of our offerings by adding more practitioners with expertise in workflows critical to biopharmaceutical and other industries across our commercial organization.

Be a Leading Digital Company

Our digital platform and online presence remains an important differentiator in our markets. Our goal is to significantly enhance our digital channel by establishing a highly personalized digital relationship with our customers, which will be device agnostic, cloud based and driven by artificial intelligence. We believe this will help us to uniquely understand and anticipate researchers’ needs and to provide them with the right set of tools to advance their research. Through faster response to customers and greater personalization of the user experience, we aim to provide our customers with more relevant content to support their work and therefore, capture greater market share from existing customers and generate business from new customers. In addition, through the creation of a more dynamic and agile content management system, we plan to develop enhanced digital tools and marketing programs designed to increase the utility and stickiness of our platform, improve order conversion rates and share better insights with our customers regarding their needs and purchasing behaviors.

Remove Scalability Constraints and Sustain Value

Our objective is to strengthen our teams, systems and infrastructure to ensure we have the appropriate capabilities to scale our business while driving operational efficiency. We are focused on increasing our manufacturing capacity, increasing automation at process bottlenecks and optimizing our global network and procurement functions to eliminate waste and improve efficiencies and productivity. We are also transforming our systems and processes by implementing Oracle Cloud ERP and other software solutions to replace legacy IT systems.

 

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We also seek to expand our operations in multiple high growth regions or where we currently rely upon distributors. This involves expanding our local infrastructure in these markets, as well as going direct to market. In particular, we believe that the Chinese market presents a strong opportunity for growth over the medium and long term. Demand for our products and solutions in China is driven by a significant increase in the level of funding and investment to support scientific research. We have invested and will continue to invest in China by providing highly localized product support, operations and technology to better serve customers in this high growth market, and Figure 5 below shows the increase in our number of citations since 2013, which we believe reflects the success of our investments in the Chinese market.

 

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Figure 5, Source: CiteAb, 2019

While we believe the market opportunity in China is the most significant for our business, we are also focused on further increasing our presence in other markets that we believe to have attractive growth prospects over the medium and long term. Additionally, in certain markets where we currently rely on distributors and see growth potential, we intend to explore direct distribution opportunities to enhance our offering and expand our customer base.

Selectively Pursue Acquisitions

We have a strong track record of successfully identifying, completing and integrating strategic acquisitions and investments. Our strong brand, broad platform, global infrastructure and diversified customer base has allowed us to generate growth and operating leverage through acquisitions. Our deep understanding of our customers’ objectives provides us with the insight to make highly informed decisions on the acquisitions we should pursue. We have developed internal capabilities to source, evaluate and integrate acquisitions. We intend to continue to pursue opportunistic acquisitions in our existing and adjacent customer segments to accelerate our growth, expand geographic coverage and augment our capabilities and workflow solutions.

Our Competitive Strengths

Our customer-centric business model, combined with our product innovation capabilities and deep understanding of our customers’ needs, allows us to differentiate ourselves in the marketplace and is at the core of our competitive advantage. We believe the following competitive strengths provide the foundation for our position as a partner of choice for mission critical products and services to our customers.

Brand Leadership in Research Use Antibodies

We have established ourselves as a leading brand in research use antibodies, driven by high-quality, reliable products combined with extensive and transparent product data and excellent customer service. Our citations have shown consistent growth year over year since 2010, as demonstrated by Figure 6 below, which we believe demonstrates our influence in the research community. This is because we were the most cited company in approximately 40% of the top 2,000 most studied protein targets, according to CiteAb as of June 30, 2020. Furthermore, at least one Abcam product was cited in approximately half of all life science publications in 2019,

 

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according to CiteAb. We believe these citation statistics reflect our influence within the research community and also serve as an inherent recurring marketing tool to help sustain our leadership position.

 

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Figure 6, Source: CiteAb, 2019

Customer-Centric, Data Driven Model

Leading Digital Presence

As one of the first companies to provide a digital platform for antibodies and reagents, we believe our first mover advantage combined with the provision of extensive and transparent product validation data and search engine optimization has led to leading global traffic on our website over time. In the last three fiscal years ended June 30, 2020, the total number of sessions on our website has grown by more than 30%, with over one million user interactions on our website per month for the fiscal year ended June 30, 2019. A “session” on our website includes page views, ecommerce transactions or other interactions, and we monitor “sessions” to measure the volume of traffic to our website, which is strongly correlated to sales. In June 2020, we maintained the leading web search position for 10,000 of the top primary antibody search terms, appearing on the first page and at the top of users’ search results in approximately one-third of searches, compared to less than 20% for our next closest competitor, according to our internal data. We believe that the significance of “appearing first” in search results means that we are likely to experience greater traffic to our website, which may lead to greater brand recognition and increased sales. Our web search position is influenced by a combination of organic web searches by users and some paid advertisements, which drive traffic into our website.

Data Driven

Our web traffic data, combined with our ability to collect, analyze and interpret customer data, provides us unique insight into the needs of our customers. This in turn enables us to customize our engagement with customers and deliver more relevant, targeted marketing media, with the goal of improving the customer experience.

Differentiated Product Innovation Platform

We employ a differentiated product innovation model that is informed by data analytics, research area specialists and a deep understanding of our customers’ workflows, which enables us to anticipate and align our innovation efforts with our customers’ priorities. Today, approximately two-thirds of our primary antibody innovation pipeline is largely driven by data algorithms that are able to analyze market demand and interrogate research literature to help us anticipate which tools researchers will need in the future. The balance is focused on breakthrough innovation opportunities in areas where there are either few or no tools that currently exist for scientific research, or where we discover new opportunities in discussion with our customers, collaborators or commercial partners. Our innovation efforts span the following areas:

 

   

Proprietary Product Innovations. We utilize a range of technologies to develop antibodies, immunoassays and other proteomic research tools that meet stringent performance specifications. In

 

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recent years, we have added thousands of new products to our portfolio each year, and we expect to continue to do so through our in-house development efforts both for publication online to our catalogue, including the generation of entirely new products and the delivery of improvements and modifications to existing products. We also create new products for partners through our custom solutions teams.

 

   

Third-Party Product Innovations. We are an important channel for hundreds of antibody and related reagent suppliers. We benefit from significant brand recognition and traffic to our website and are widely used among a broad collection of emerging and established suppliers. This allows us to accelerate the market acceptance and growth of promising, high-quality third-party products to complement our own product offerings.

Product Quality and Customer Service Drives Customer Loyalty

The success of our customers’ work, from basic research to translational science, diagnostics and therapeutic clinical programs, requires rigorous product quality, performance and reliability. Accordingly, our customers rely on us to provide high-performance products that produce reliable and reproducible results. We continue to drive our quality standards through a variety of internal initiatives, including:

 

   

Extensive product quality assurance programs, which include our award-winning knockout CRISPR gene editing program, which as of June 30, 2020, covered almost 3,000 products and we have been recognized for carrying out the largest number of knockout validations for antibodies in the industry, according to CiteAb, who presented us with the award in 2020;

 

   

Manufacturing processes that increase the reliability and consistency of our product performance, notably recombinant antibody production. As of June 30, 2020, approximately 20,000 of our products were manufactured using this technique; and

 

   

Ongoing quality management of third-party products offered through our platform.

While most of our products are sold as RUO reagents, our antibody development expertise, combined with our stringent validation techniques and recombinant manufacturing capability, allow us to support antibody and assay development for use across the IVD sector, from laboratory-developed tests and rapid assay platforms through to companion diagnostics and clinical trials. Our antibodies created using our recombinant monoclonal antibody technology were used in 10 FDA-approved companion diagnostic assays as of August 2020. In addition, our facility located in Burlingame, California has a Medical Device Manufacturing License granted by the California Department of Public Health.

Large, Differentiated Product Offering

We offer an extensive portfolio of antibodies and related protein research reagents that enables us to serve life scientists studying a wide range of research areas. As of June 30, 2020, we offered approximately 100,000 products on our customer website, totaling over 300,000 SKUs, including one of the world’s largest portfolios of recombinant rabbit monoclonal antibodies, which are required by our customers as fundamental components used in their research and experimental workflow. Our portfolio of recombinant antibodies provide high specificity as a result of our RabMab technology, and across our product portfolio, our antibodies are cited tens of thousands of times per year in peer-reviewed research publications. We also offer custom services to certain of our customers seeking access to novel, high-quality and personalized solutions to support the development of specific diagnostic and therapeutic applications. Since 2013, we have undertaken more than 2,000 custom projects with our pharmaceutical and diagnostic partners.

Global Scale, Strategic Locations and Specialized Infrastructure

Since 2001, we have sold our products and services to customers in over 130 countries through a specialized global infrastructure. We have seven manufacturing facilities and seven distribution centers strategically located across four continents in close proximity to many of the largest clusters of life science research hubs, which

 

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enhances supply chain efficiency. Our global footprint, combined with a network of distributor partners, allows us to provide our extensive portfolio of products and services to customers almost anywhere in the world, with orders generally shipped within 24 to 48 hours. As of June 30, 2020, our global manufacturing and supply chain platform had over 430 employees and handled an average of over 7,000 products per week with fulfilment accuracy of approximately 99.6%. In addition to an efficient operational infrastructure, we have a multi-channel commercial presence through our digital platform, on-ground global sales teams, industry conferences and other events. Our customer and scientific support teams provide around the clock, multilingual and highly specialized assistance to ensure that our customers are supported through their research, both before and after they purchase our products. In the fiscal year ended June 30, 2020, our support teams handled approximately 470,000 inquiries and responded to the vast majority of these inquiries within 24 hours.

Resilient and Growing End Markets and Attractive Financial Profile

We serve the life science research markets, which are supported by significant funding and capital investments from both public and private institutions. We expect the convergence of multiple industry trends to underlie continued growth in our sector, including an increasing global demand for healthcare and strong funding support for biomedical research. Furthermore, while our products are critical to basic research and development, our products often represent a small percentage of the overall cost of our customers’ workflow. Additionally, most of our products are consumable in nature and once established in the marketplace, the demand tends to be stable.

We have an attractive business model due to our resilient revenue base, which grew at a CAGR of 13% from 2014 to 2020, high product margins and strong cash flow generation, and we had a gross margin of approximately 70% from 2014 to 2020. Our ROCE has consistently exceeded our cost of capital, maintaining an average of above 18% from 2014 to 2020, and our balance sheet is supported by £187.3 million in cash and cash equivalents for the fiscal year ended June 30, 2020.

Strong Leadership and Global Team with Proven Ability to Execute

Our management team has a proven track record of delivering business growth, executing on investment plans, driving continuous and material improvement of our global enterprise and generating high returns on capital. Our management team is supported by approximately 1,500 employees around the world, including over 200 with PhDs, who have extensive scientific and commercial experience and enable us to provide our customers with tailored expertise and service. The ability to attract excellent talent to our team is a key strength and enabler for growth. For example, in 2020, we were recognized by Glassdoor as the sixth best place to work in the United Kingdom. As we expand our footprint, we will continue to invest in locations that provide access to deep talent pools while building compelling spaces for our teams to work.

Industry Overview

As a global supplier of critical life science research reagents and tools, we help life scientists to advance scientific discovery through their research. The life science industry is experiencing an increase in research funding and capital investment supporting the growth of collaborative and global discovery networks. Our protein binding reagents, tools and solutions are increasingly used by academic, pharmaceutical and biotechnology organizations across a range of major research fields including oncology, cardiovascular, cell biology, epigenetics, infectious diseases, metabolism, developmental biology, immunology, microbiology, neuroscience, signal transduction and stem cell research. The credibility and influence of a life science company, such as ours, is, in part, determined by the number of times their products are cited in scientific papers. The number of times our products are cited has grown consistently year over year since 2010, and we were the most cited company in approximately 40% of the top 2,000 most studied protein targets, according to CiteAb as of June 30, 2020. According to CiteAb, approximately half of all life science publications cited at least one of our products, in 2019.

 

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Antibodies are also a critical component in many IVD assays, including companion diagnostics, and can also be used as therapeutic agents for the treatment of diseases, including cancers and immune-related diseases. As well as developing these antibodies internally, biopharmaceutical and diagnostic organizations are increasingly outsourcing the initial discovery and development of antibodies to third-party organizations able to provide these services on a contract basis.

In recent years, we have increased our focus on this area of the market, through both the custom development of new antibodies and the out-licensing of our existing antibodies to biopharmaceutical and diagnostic companies, extending the commercial application of our products into these markets. We believe that we are well positioned to leverage our expertise in protein binding reagents to support clinical and instrument platforms, capturing greater market share and driving growth within these markets as a result.

Large and Growing Addressable Markets

In 2019, we estimated that our capabilities served a total addressable market of approximately $8 billion, which we estimate was comprised of a total addressable market of the research antibody and reagents industry of approximately $3 billion and a total addressable market for the generation of third-party antibodies for diagnostic and therapeutic companies’ applications of approximately $5 billion.

 

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Our Market Opportunities

The summary below sets out an overview of the key addressable markets for our products, as well as the competitive dynamics and growth prospects for each of these:

 

    

Proteomic Research Reagents

  

Antibody Development for Clinical Application

Abcam Revenue

   Catalogue    Custom products and services, IVD sales and royalty and license income (“CP&L”)

% of Sales (FY19)

   93.5%    6.5%

Estimated

addressable

market size

   $3 billion    $5 billion

Long-term

estimated market

growth trend1

   approximately 4%    approximately 4-8%

Abcam

Products

  

•  In-house and OEM research products, including primary and secondary antibodies, kits and assays, proteins, peptides, cell lines, lysates and biochemicals

  

•  Custom / out-licensed monoclonal antibodies

 

•  Immunoassays

Description

  

•  Provision of catalogue antibodies and associated reagents for customers to detect, quantify and modify proteins in scientific research experiments

  

•  Provision of antibodies or immunoassays (either custom-made or out-licensed from our catalogue) to biopharmaceutical and diagnostic organizations seeking to develop antibody based IVD assays, and/or companion diagnostics, or therapeutic agents

Customers

  

•  Academic labs in universities, higher education and government research institutes

 

•  Clinical labs in pharmaceutical and biotechnology companies working on drug development and diagnostics

 

•  Core facilities in hospitals, research institutes and other large organizations

  

•  Clinical labs in pharmaceutical and biotechnology companies working on drug and diagnostic development

Competition

  

•  Few players have significant global scale and liquidity

 

•  Fragmented and competitive market reflects wide range of technologies and applications for these products

  

•  Companies in diagnostic and therapeutic-use markets include specialist diagnostic businesses, Contract Research Organizations (“CROs”) and in-house teams at biotechnology and biopharmaceutical firms, who may outsource antibody design and development when reaching capacity or when they encounter a problem that requires outside expertise

 

•  We have built a significant network of collaborations across this landscape and are working on many bespoke projects in partnership with large biopharmaceutical and diagnostic companies to develop antibodies for these markets

Regulation

  

•  Regulatory approval of research-grade antibodies is not required

  

•  Antibody diagnostics require regulatory approval if they are used in a regulatory environment

 

•  Therapeutic antibodies require high levels of regulatory approvals

 

1)

Excluding the impact from COVID-19

 

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Proteomic Research Reagents

The growing and fragmented proteomic research reagents market currently represents a majority of our sales and is a field where we have established a strong position, with our revenue having grown at a CAGR of 13% over the last six years, compared to an estimated 4% per year long-term growth rate for the proteomics research reagents market. Even as a leader within this market, we believe there is significant headroom for growth, as highlighted by Figure 7 below.

 

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Figure 7

Furthermore, we expect the proteomic research reagents market to grow at a long-term growth rate of approximately 4% per annum (excluding any impact from COVID-19). We believe this growth will be driven primarily by: (i) a growing number of life science researchers and research studies; (ii) an increase in the total available funding for proteomic and other related research, which thereby determines the volume of reagents used by researchers; (iii) technological advancements which increase the throughput, data, efficiency and speed of biological research; and (iv) increases in the pricing for proteomic reagents, broadly in line with inflation. Historical increases in total funding available for proteomic and other related research are shown in Figure 8 below, and we believe this trend will continue.

 

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Figure 8, Source: National Institute of Health

 

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Antibody Development for Clinical Application

Beyond their use as research tools, over the last two decades, antibodies have become a critical component of many diagnostic assays. These assays have the potential to measure key biomarkers and provide clinicians with crucial insight to aid an effective diagnosis. Furthermore, using IVD assays as a companion diagnostic helps to screen patients and ensure that prescribed therapeutic agents will be efficacious for the specific disease variant. This can provide better clinical outcomes for the patient as well a more effective use of healthcare resources. As such IVD assays are an increasingly important part of clinical disease diagnosis, management and treatment selection. This is driving a rapid expansion of the companion diagnostics market, which we believe is expected to reach $6 billion by 2025.

In addition, antibodies themselves are increasingly being used as therapeutics for a wide range of diseases. For example, monoclonal antibody therapies have various advantages compared to traditional chemo and radio therapies, such as fewer treatment-related adverse effects and high target specificity. As a result, biological drugs increasingly represent a larger proportion of drugs in the global research and development pipeline. Globally, the total research and development spend in the pharmaceutical market is projected to grow as demonstrated by Figure 9 below. We believe that because biological drugs are becoming a larger part of the global research and development pipeline, this projected growth in total spend on pharmaceutical research and development will translate into growth in the market for biological drugs.

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Figure 9, Source: EvaluatePharma, July 2020

We serve this market by leveraging the expertise and content from our proteomic research reagent business as well as our innovation capabilities to provide high-quality reagents to clinical and instrument platform partners. This is realized both through the provision of our in-house catalogue products, which we are able to out license to clinical partners, as well as the custom development of novel products for potential use in these markets. We believe customers are choosing to partner with us as a result of our unique antibody discovery and innovation capabilities, strong IP protection, precise and reliable reagents and our ability to support their needs as they progress through regulatory approvals.

 

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We believe the macro environment and dynamics within the diagnostic and biological therapeutics markets are attractive and expect this market to grow at a long-term growth rate of approximately 4% to 8% per annum, driven primarily by: (i) biopharmaceutical research and development spending; (ii) increasing demand for accurate diagnoses to support high-cost therapeutic prescription; (iii) the move from small to large molecule biologics; (iii) the rise of precision medicine; and (iv) the trend toward industry outsourcing. These recent trends are demonstrated by Figures 10 and 11 below, and we believe these trends will continue.

 

 

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   Figure 10, Source: Pharmaprojects, January 2019        Figure 11, Source: Pharmaprojects, January 2019

Industry Trends Across RUO and Clinical Markets

We expect the convergence of a number of industry trends to support the fundamental market growth drivers across both RUO and clinical markets, resulting in an increased demand for our products and services, including:

 

   

Favorable Demographic and Epidemiologic Trends: Global demand for healthcare is increasing rapidly, which has been driven primarily by rising and ageing populations, an increased prevalence of chronic diseases and a focus on improving access to healthcare. The Centers for Medicare and Medicaid Services estimates that in the United Sates, the total healthcare expenditure will increase from representing approximately 17.7% of gross domestic product in 2018 to approximately 19.4% in 2027. In addition to the demographic trends driving the global demand for healthcare, and in turn the demand for biomedical research, there has been a steady rise in the population of the scientific community that forms a large part of our customer base. In the United Kingdom, for example, from 2014 to 2018, there was a 3% increase in the number of individuals who obtained higher education qualifications in Biological Sciences and a 9% increase in postgraduate degrees awarded during this same period.

 

   

Strong Funding Environment for Biomedical Research: Life science research funding continues to grow in many countries around the world, driven by increased investment into biomedical research from a variety of sources, including governments, industry participants and private capital. Increased investment is funding translational research programs associated with the development of next-generation therapies including immuno-oncology and immuno-therapy, treatments for chronic diseases associated with ageing populations, as well as rare and genetic diseases and the ongoing threat from infectious diseases. This trend has also resulted in an increase in funding for industry-academia collaborations. Recent examples include the NIH’s BRAIN initiative and the NCI’s Cancer Moonshot, and we expect to see this trend continue in the future. The increase in government funding for life science research is particularly relevant for us, as a large percentage of our revenue is derived from customers conducting academic studies or from research institutes.

 

   

Focus on Increased Research Reproducibility and Reagent Quality to Reduce Wasted Time and Resources: Beyond their use in therapeutics, antibodies play a vital role in biomedical research across the life science industry. The quality of research reagents is intrinsically linked to the reproducibility of data. High-quality research antibodies, providing high specificity, sensitivity and consistency are

 

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critical to increasing confidence in research outcomes and reducing the gratuitous expenditure of both time and funding resources. With an estimated $17 billion lost in avoidable experiment expenditure annually, against a backdrop of increased outsourcing of research and development in order to optimize efficiency and reduce lead times, the ability for researchers to source high-quality and validated reagents is increasingly important.

 

   

Growing Significance of Genomics and Proteomics: The pace of technological innovation has significantly reduced the cost of gene sequencing in recent years, rapidly expanding its use and consequently resulting in a commensurate increase in the identification of possible genetic targets and biomarkers for disease diagnosis and treatment. This has led to a proliferation in proteomic research in areas spanning stem cell research, gene editing, epigenetics, neuroscience and oncology. In addition, the market is further benefiting from the increase in the use of instrumentation, which facilitates automation and an increase in the use of technologies such as multiplexing allowing for a comprehensive, quick analysis of proteins. This increases both the efficiency and speed of output of biological research and thus the volume of available data, which in turn drives advances in process design and development in an ongoing cycle. We believe all areas of proteomics research are benefiting from these trends.

 

   

China Expansion: The Chinese market represents a large and attractive growth opportunity. Increasing health needs, driven by an expanding and ageing population, has resulted in a heightened focus on healthcare and innovation. China now ranks second in the world for citations for the number of scientific papers produced, behind the United States, according to the State Council of the People’s Republic of China as of November 2019. The Chinese government has placed scientific and technological innovation at the center of the long-term socio-economic development of the country and is supporting this initiative through funding, reform and societal status. In 2018, China spent approximately $293 billion on research and development, which was 2.1% of the country’s GDP and an 11.6% increase compared to 2017. We expect to see continued growth in research and development spending in China. In March 2019, the government announced the intention to increase research efforts and enhance innovative capabilities as well as encouraging enterprise-led industry-academia research collaborations. In the fiscal year ended June 30, 2020, sales in China contributed to 16% of our catalogue sales, and we believe the Chinese market has the potential to grow to become the same size as the U.S. market for our business over the next 15 years.

Our Products and Services

We offer customers a range of catalogue products and customized solutions. We innovate and manufacture our own products in our specialist facilities worldwide, and we source thousands more from hundreds of quality suppliers. This combination of in-house production and sourcing offers scientists access to the newest high-quality research tools available globally.

In total, we offer approximately 100,000 products in our catalogue as of June 30, 2020. These catalogue products support the research of proteins in biological pathways. Ultimately, findings from this research can translate into treatments for diseases such as cancer and immune deficiency disorders.

Including our Custom Products and Licensing revenue, in the fiscal year ended June 30, 2020, 51% of our total revenue was derived from our in-house manufactured products, innovation and services, up from 28% in the fiscal year ended June 30, 2012.

 

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Catalogue Products:

Antibodies

Research grade antibodies

We are a leading provider of antibodies and research reagents worldwide. According to CiteAb in 2019, approximately half of all life science publications cited at least one of our products, resulting in approximately 30,000 citations. Our ability to provide researchers around the world with products they can trust, that are of high quality, together with the data needed to support and validate their research, is vital to our continued success.

We provide antibodies intended for basic research, or those that are typically used in academic pharmaceutical and biotechnology laboratories to investigate fundamental scientific questions. The human body makes proteins known as antibodies when an unknown foreign substance is introduced into the body, such as bacteria. Each antibody binds to a very specific part of the foreign substance known as an antigen, and different antibodies bind to different antigens. We can artificially generate antibodies to target antigens on molecules that researchers are interested in studying in order to understand where antigens are located within a cell or tissue sample. High-quality research antibodies are critical to scientists’ research and their ability to reproduce experiments, as unreliable research reagents lead to wasted time and money. We strive to offer high-quality antibodies that provide specificity, sensitivity and consistency, which helps to increase confidence in research outcomes and reduce waste across the industry.

In vitro diagnostic antibodies

Antibody-based IVD assays are tools typically used in a clinical setting, such as a hospital or medical institute laboratory, to help diagnose a disease or condition. These tools are used on patient samples (such as blood, urine or tissue) and help clinicians to diagnose or assess the progression of a disease. IVD assays can also provide information on the type of treatment to use and assist with disease prognosis. We sell these products directly and through specialist distributors.

Conjugated antibodies and conjugation kits

Conjugation is the process of attaching a label to an antibody to enable visualization and measurement. Labels come in many forms, such as enzymes, fluorescent molecules and metals. Based on a survey of 347 researchers in North America and Europe conducted on our behalf by a contact services company on September 30, 2019, more than 80% of antibody customers use conjugated antibodies for their research. We offer directly conjugated primary antibodies and antibody conjugation labelling kits for customers to undertake conjugation of their own antibodies. With the Expedeon Acquisition and our investment in BrickBio in the fiscal year 2020, we have expanded our ability to offer more internal labelling and external conjugation products and services.

These products complement our existing suite of antibodies and will allow us to develop a wide range of new products for applications and kits across our product portfolio.

Immunoassays

Singleplex

An immunoassay is a test that uses one or more antibodies to detect and quantify a molecule of interest within a sample. While some researchers prefer to run experiments using all individual components, prepackaged immunoassay kits offer a valuable time-saving resource that minimizes the potential variability between experiments. A researcher provides the sample of interest, and our kits provide the researcher with the reagents needed to conduct the experiment; each kit also provides a protocol to optimize its performance.

 

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We offer more than 1,400 ELISA kits, which are based on reliable and optimized matched antibody pairs. In particular, our SimpleStep ELISA kits allow researchers to run a common ELISA experiment in just 90 minutes. Our matched antibody pairs are recombinant, monoclonal antibodies that are developed and optimized for use in relevant sample types like plasma and serum for reliable performance. Our immunoassays portfolio has developed rapidly since 2010, as illustrated by Figure 12 below, showing the growth of our share of global citations for our ELISA kits.

 

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Figure 12, Source: CiteAb March 2020

Multiplex

Multiplex immunoassays allow researchers to simultaneously quantify multiple analytes within a single test. We offer a range of in-house multiplex immunoassay products that can be used with standard laboratory equipment. We also offer our innovative FirePlex multiplex product, which features customizable multiplex panels that allow the analysis of up to 70 analytes simultaneously per well, with fast and easy readout on standard flow cytometers. FirePlex immunoassays combine our proprietary FirePlex particle technology along with our optimized matched antibody pairs for analyte detection, offering high standards in sensitivity and specificity. Through our acquisition of Firefly Bioworks Inc., we in-licensed from the Massachusetts Institute of Technology (“MIT”) certain patents covering the FirePlex products.

Our antibodies and antibody pairs are also made available to a range of third parties developing either novel multiplex platforms or upgrading their existing platforms. For example, we entered into a commercial partnership with NanoString in 2019, whereby we leveraged our portfolio of recombinant monoclonal antibodies to create bespoke content for NanoString’s GeoMx DSP platform. This enables GeoMx DSP users to explore cellular interactions and facilitate discovery of novel biology.

Proteins and peptides

Proteins and peptides are the molecules that carry out almost all of the actions within and between cells. Major types of proteins include cytokines, which can initiate an immune response, growth factors, which help scientists culture cells in a laboratory, or enzymes, which catalyze reactions. Scientists use these proteins and peptides as part of more complex experiments to test how cells and organisms function.

We offer a range of over 15,000 proteins and peptides, the majority of which are currently sourced from third parties. More recently, we have begun building an in-house capability to develop our own range of high-quality, biologically active proteins to complement and enhance our offering.

 

 

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Edited cell lines and lysates

Cell lines and lysates are an important emerging tool for antibody validation by both our customers and in our own labs. Based on market research we conducted in March 2018, we believe approximately 70% of our customers utilize gene-edited cell lines in their research. We saw an opportunity to help develop this market to further address our customers’ needs as there was no clear market leader with a comprehensive line of high-quality cell lines and lysates. In 2019, we acquired a portfolio of ready-made edited diploid cell lines available for validation from EdiGene, and as a result, we published an initial range of knockout lysates. As of June 30, 2020, we offer more than 2,800 knockout cell lysates and lines, which are being used for our in-house validation needs and are being made available to our customers for their own research. In 2020, we launched a range of CRISPR edited cell lines, and as of June 30, 2020, we offer approximately 1,400 cell lines.

Other products

We offer a wide variety of other products, including cellular activity kits and miRNA kits, among others and other products such as our agonists, antagonists, activators and inhibitors range, which includes hundreds of different molecules that change how other proteins normally function. By regulating a protein’s activity, scientists can begin to understand its function. We provide a range of ligands, modulators of ligand and voltage-gated ion channels, enzyme inhibitors and cell signaling pathway tools, which help researchers to find molecules needed for their research.

Custom Products and Licensing

We provide comprehensive solutions for custom antibody development, from initial target evaluation through to the delivery of purified, fit-for-purpose antibodies for research, diagnostic or therapeutic application. We have highly experienced teams dedicated to antibody discovery for custom projects. These teams design and execute tailor-made discovery and selection strategies to generate and select binders that meet desired antibody specifications.

Our teams conduct the screens and any application-specific tests to enable identification of the best antibody for their specific requirements in terms of selectivity, sensitivity and application performance. In addition, all our custom antibodies are sequenced, cloned and produced in a recombinant system. This ensures high antibody yields, batch-to-batch consistency and sustainable long-term supply.

In other situations, antibodies that are already available on our online catalogue for research use purposes are requested for potential clinical use. In such case, we work with those customers to provide a license. For example, in 2016, we licensed the use of an antibody from our catalogue to Epic Sciences for diagnostic purposes, including in connection with its prostate cancer diagnostic test.

For newly created antibodies, as well as receiving fees upon successful completion of each project, additional commercial options for these products include (i) making them available for sale to researchers through our online catalogue, (ii) manufacturing and supplying the product to the customer in the required formulation, (iii) licensing the technology to the customer for their own manufacture and (iv) receiving payments from milestones achieved in clinical development and/or royalty payments once products are approved and being prescribed by clinicians.

We have developed over 2,000 custom projects with our partners during the fiscal year ended June 30, 2013 to the fiscal year ended June 30, 2019. In the fiscal year ended June 30, 2020, we completed over 140 projects and executed over 50 agreements, across these areas.

 

 

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In the ordinary course of our business, we often enter into license agreements with third parties to expand our product portfolio. For example, in January 2018, we entered into a license and asset transfer agreement with Roche for consideration of approximately $17.6 million (£13.0 million). Under the terms of this agreement, we obtained the exclusive rights to the product portfolio of Spring Bioscience Corporation in the RUO field as well as the exclusive RUO rights for all future products developed for an initial period of 10 years. Following the Expedeon Acquisition and our acquisition of the gene editing platform and oncology product portfolio of Applied Stem Cell in 2020, we plan to expand our custom offering to include conjugation and cell editing services.

Innovation and New Product Development

We believe one of the keys to our success is our ability to react rapidly to the needs of our customers and meet general industry demand. In order to anticipate our customers’ needs and to be at the forefront of research and development, we analyze data taken from a variety of sources, including interactions with our customers through our various support teams and other customer touch points, such as trade shows, surveys, focus groups and key opinion leaders, as well as data taken from our website and digital platform. The feedback and insight gained from these interactions is used to inform our innovation process by helping our product development teams better understand our customers’ unmet needs.

We intend to increase our investment in research and development over the next five years across a number of areas. First, we aim to sustain and extend our leadership position as an innovator of antibodies. For the fiscal year ended June 30, 2020, our primary and secondary antibodies accounted for approximately 71% of our revenues. We have developed thousands of novel antibody products and line extensions each year and believe that we are well positioned to continue to improve upon the quality and performance of antibodies currently available in the market through our product development efforts.

We have built a differentiated antibody discovery platform over a number of years, which leverages a range of technologies and screening techniques, including RabMAb, B Cell Cloning, NGS and Phage Display. Combined with the significant expertise of our in-house teams, we believe the continued development of this platform has the potential to drive continuous improvement in the success of our new product development pipeline and enable us to generate specific and sensitive antibodies at scale.

 

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Figure 13

Second, we are focused on continuing to expand our product innovation beyond primary antibodies and into complementary research tools including immunoassays, proteins, edited cell lines and conjugation technologies and labels. We have already demonstrated our commitment to broader innovation by investing in our in-house scientific capabilities, which is evident from the positive impact in-house innovation has had on our revenue. For example, in the seven year period ended June 30, 2019, our in-house product revenue grew by an average of approximately 23%. Further, our total in-house product revenue grew from approximately 28% in the fiscal year ended June 30, 2012 to 51% for the fiscal year ended June 30, 2020. Further, by transitioning more products from OEM suppliers to innovating in-house provides a better rate of growth per molecule from our own products using our data. As illustrated by Figure 14 below, we benefit from higher gross profits from our in-house products.

 

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Illustrative average gross profit margin for primary antibodies sold by Abcam during the first six years following launch, on average based on products launched between 2011 to 2015, as compared to OEM products sold by Abcam during the first six years following launch over the same period.

Figure 14

We are constantly searching for new ways to bring more products in house and to improve our internal production capabilities through the use of data analytics, especially where we see that a customer’s needs are not being fulfilled or if there is demand for a higher quality alternative. We believe our commitment to product innovation has allowed us to strengthen our position in core markets, providing greater choice and faster protocols to researchers through the addition of new, more efficient product lines.

Third, we have established various partnerships in which we are positioned to co-create innovative tools and aim to replicate this across more areas of scientific need. For example, we are assisting with advancing research in rare disease areas, which impact fewer than 1 in 2,000 people. In January 2019, we partnered with the Loulou Foundation, a private foundation based in the United Kingdom that is focused on finding a cure for CDKL5 Deficiency Disorder, which involves the mutation of a gene essential for normal brain development and function. The lack of quality research reagents for CDKL5 has been a significant hurdle to the understanding of the biology of this devastating disorder and has been impeding the development of effective therapies. By combining the technical expertise of our teams with the disease-specific expertise of groups like the Loulou Foundation, we are helping to support effective rare disease research through the innovation of precision research tools.

Underpinning our differentiated and innovative product development capability is a strong and dedicated team of experts. We have invested and will continue to invest in our team, who have the skills and know-how that make such innovation possible. As of June 30, 2020, we had 285 employees in our new product development team, who focus on research and development. We believe that it is crucial to the growth of our business to invest in talented people who are committed to our mission of providing high-quality products to our customers. By having a strong, talented and dedicated team, we are able to accelerate the implementation of product development initiatives that will allow us to seize more market opportunities.

Manufacturing Quality

We are committed to maintaining industry leading standards for our manufacturing processes at our global facilities in order to continue to provide our high-quality products to our customers. We follow strict global quality control procedures across all of our manufacturing facilities to ensure consistent lot-to-lot performance for our customers. We also impose the same quality standards on our third-party OEM suppliers, to ensure that our customers receive a consistently high level of quality across products offered in our catalogue.

 

 

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Our primary manufacturing site, based in Hangzhou, China, is ISO 9001:2015 certified and all other sites work to these standards. The facility of our IVD group, located in Burlingame, California, is registered as a medical device establishment with the FDA and is subject to the FDA’s Quality System Regulation (“QSR”) and in compliance with ISO 13485:2016. This facility has a Device Manufacturing License granted by the California Department of Public Health.

Our Infrastructure

Manufacturing

We are strategically located in close proximity to many of our global customers to drive supply chain efficiency, minimize customer lead times and navigate a complex network of regulatory requirements. Our global footprint consists of seven manufacturing facilities. We have the expertise and government licenses to manage multiple controlled environments globally, enabling us to handle highly regulated chemicals and other materials in a compliant manner. The depth and breadth of our portfolio provides our customers with a comprehensive range of products and services and allows us to create customized and integrated solutions for our customers. As of June 30, 2020, we had over 430 employees dedicated to our supply chain and manufacturing platform, together delivering over 31,000 in-house products and approximately 95,000 products in total, available in over 175,000 configurations.

We continue to focus on delivering scaled growth by investing in our infrastructure, supply chain engineering and technology systems. Investment in infrastructure will include core facility expansions as well as build out our regional infrastructure. Supply chain engineering efforts will be aimed at improving utilization through network optimization and improved material and procurement management. Finally, we aim to improve our technological capabilities in the form of increased automation and enhancement of our business and quality management systems. Our ability to deliver enhancements and scale our business was demonstrated by our ability to increase our average volume of product batches placed into production by approximately 100% from 2018 to 2020 at our manufacturing facility in Hangzhou, China. In the fiscal year ended June 30, 2020, we initiated multiple programs to allow us to further scale the business while achieving efficient economics.

Distribution Network and Facilities

We have seven manufacturing facilities strategically located across four continents in close proximity to many of the largest clusters of life science research hubs, which enhances supply chain efficiency, and allow us to provide our extensive portfolio of products and services to customers nearly anywhere in the world. We have sold our products in over 130 countries through a variety of channels, including both direct customer sales and the use of local distributors. As of June 30, 2020, our global distribution network handled an average of over 7,000 products per week with a fulfilment accuracy of approximately 99.6%, and works to ensure that in many cases, our customers are able to have the product they require for their research within 24 to 48 hours of ordering, depending on where a customer is located. We employ approximately 336 sales and sales support professionals around the world who focus on serving our customers.

Customers

Our customers are life science researchers who seek to understand biological processes and their role in health and disease. Our customers are vitally important to the development and growth of our business; everything we do is anchored in the belief that our customers drive the urgency and direction of our business. We believe it is critical that we listen to our customers and offer products and services that are of the highest quality, are effective and convenient to access to ensure we address our customers’ needs.

 

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We have three primary categories of customers including: academic institutions, research institutions, and pharmaceutical, biotechnology and diagnostic companies. While across all categories our ultimate customers are the same – life science researchers – customer orders are received from individual scientists ordering on their own behalf, laboratory managers ordering on behalf of their lab teams, purchasing managers ordering on behalf of several labs, or central procurement teams ordering on behalf of labs, divisions or entire organizations. Orders can be received directly, through a variety of means, or via one of our distributors. Our customers span the world, however, as of June 30, 2019, a large number were located in the United States, where 44% of our total revenue came from the United States, and 56% of our total revenue came from all other countries in which we operate.

 

   

Researchers and scientists from research laboratories and academic institutions. These customers purchase products based on their individual scientific and/or research requirements, which typically results in lower purchasing requirements. Researchers and scientists in this category tend to order products from our catalogue through our website and other digital and traditional channels. In the fiscal year ended June 30, 2020, the average order value of these customers was approximately $590 which reflects the purchasing habits and product needs of this category of customers.

 

   

Biopharmaceutical and diagnostic companies. These customers typically require larger order sizes and greater customization of their orders. We typically build more personalized relationships with these customers, and we also seek to partner with them to support their research and development efforts over a longer period of time. Through these partnerships, we are able to create new products for their needs that we are ultimately able to add to our catalogue and that we can then offer to other researchers and scientists.

In the fiscal year ended June 30, 2020, our worldwide customer base consisted of approximately 750,000 life science researchers. As of June 30, 2020, approximately 60% of our total revenue was derived from academic institutions, and the remaining approximately 40% was derived from our other customers including research institutes and biopharmaceutical, biotechnology and diagnostics companies. Our sales are widely distributed, and no single customer accounted for more than 5% of our revenue during the fiscal year ended June 30, 2019.

We focus on understanding, anticipating and serving our customers’ needs as quickly as possible, which we accomplish by maintaining regular dialogue with key opinion leaders through a variety of touch points. We also conduct customer surveys and host focus groups in order to continue our interaction with our customers, in addition to using data analytics and insights to gauge customer satisfaction and inform our product pipeline. We believe our scientific support teams and other customer touch points allow us to keep up with market and research trends and gain insights into our customers both in academia and industry.

Another way that we seek to foster positive relationships with our customers is by providing personalized and swift customer service globally. We measure the real-time satisfaction levels of our customers through a transactional Net Promoter Score (“tNPS”), a method that is a widely used, non-proprietary metric. We calculate our tNPS by sending surveys to our customers after certain interactions (for example, we send surveys immediately after a customer places or receives an order or when a customer complaint is closed). At this point, a customer is asked how likely they are to recommend our products and services to a friend or colleague on a scale of 0 to 10. Those who respond with a score of 9 to 10 are called “Promoters,” 0 to 6 are called “Detractors” and 7 to 8 are called “Passives.” The tNPS is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. For purposes of calculating the tNPS, Passives count towards the total number of respondents. In November 2018, we appointed a new tNPS survey partner, which changed the mechanism by which customer feedback is collected. With this change, response rates increased, and we saw a consistent number of “Promoters,” a decrease in “Passives” and a slight increase in “Detractors.” Because the tNPS measure is sensitive, this resulted in a tNPS outcome that was approximately 10% lower than the score under the previous mechanism. Our tNPS score for the fiscal year ended June 30, 2020 was 56% compared to 59% for the corresponding period in the preceding year.

 

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Sales Channels

We have talented, global sales and marketing teams that work to provide our customers with the products they require to further their research goals. We have invested and will continue to invest in our digital marketing strategy, which continues to grow and enhance our digital footprint by driving increased customer engagement and conversion rates on our digital platform.

We sell our products directly to our customers through our digital platform and other offline channels. These channels provide customers the flexibility to purchase our products quickly and from any location in the world. We continue to focus on ways to improve the ease and efficiency with which customers are able to find and access the products and services they need. In addition to our digital platform, we have an extensive range of offline channels, which include our global sales and customer and scientific support teams and Abcam and other industry hosted conferences, among others.

We also provide support to our customers before and after they purchase our products to ensure that they have what they need to carry out their research. We continue to invest in our scientific and customer support teams, which provide our global customers with multilingual, around the clock support. In 2019, we launched an online “Live Chat” service through our website to make it easier for customers to resolve issues quickly. In the fiscal year ended June 30, 2020, our support teams handled approximately 470,000 inquiries and responded to the vast majority of these inquiries within 24 hours.

Suppliers

We maintain a large network of product suppliers and collaborators. We select suppliers that adhere to high-quality and ethical standards, and we monitor their performance through audits, reviewing the progress of any corrective action plans and measuring of key performance indicators. Our product suppliers benefit from our global distribution network, digital platform and recognized brand to support the sales of their products. Our suppliers are widely distributed, with no single OEM supplier accounting for more than 5% of our revenue in the fiscal year ended June 30, 2020.

We are transparent about how we work in terms of ethics, quality, the environment and general business principles, and aim to build long-term collaborative relationships based on trust.

Competition

The biotechnology and life science industries are characterized by rapidly advancing technologies, significant change and a strong emphasis on intellectual property. We operate in a highly competitive environment with a diverse and fragmented base of competitors, many of whom focus on specific regions, customers and/or specific product segments. While many customers weigh and balance competitive factors differently in our industry, many focus upon consistency of product quality and performance, service and delivery, breadth of product line, consistency across products, price, customer support, online capabilities and the ability to meet the special and local needs of our customers. Market success is primarily dependent upon product innovation and quality, selection of products, price and reputation. For certain customers, competition is driven not only by the product quality across our industry, but also by the adaptability of the supplier as a developmental and commercial partner. We rely on our scale, expertise, deep customer access, depth of product offering, marketing strategies and sales force, acquisition strategy, financial profile and management team to deliver superior solutions to our customers and provide extensive market channel access to our suppliers.

Although only a few competitors have significant global scale and liquidity, the marketplace for reagents and biological tools, including RUO antibody suppliers, is fragmented and competitive, reflecting the wide range of technologies and applications that use these products and the unregulated status of the market.

The worldwide market for protein related research reagents is supplied by a number of companies, including parts of Thermo Fisher Scientific Inc. (U.S.), Merck KGaA (Germany), Becton, Dickinson and Company (U.S.),

 

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Bio-Rad Laboratories, Inc. (U.S.), Cell Signaling Technology, Inc. (U.S.), Bio-Techne Corporation (U.S.), PerkinElmer, Inc. (U.S.), Santa Cruz Biotechnology, Inc. (U.S.) and BioLegend, Inc. (U.S.), among others. We also compete with other smaller, niche competitors and specialized companies that focus on certain areas, including innovators and resellers. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Intellectual Property

Our success depends in part upon our ability to protect our core technologies and intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets and trademarks, as well as customary contractual protections.

Patents

As of June 18, 2020, we own approximately 61 issued U.S. patents, 17 pending U.S. patent applications, 150 issued foreign patents and 45 pending foreign patent applications. As of June 18, 2020, we exclusively licensed from MIT, through our acquisition of Firefly Bioworks Inc., five issued U.S. patents and 15 issued foreign patents. These patents include claims relating to the methods and process of making our products including antibodies, immunoassays and conjugation products, as described further below.

Antibodies

Through our acquisition of Epitomics Inc., as of June 18, 2020, we own several patent families related to the generation of antibodies, including, for example: (1) a patent family consisting of six issued U.S. patents related to a fusion partner and the generation of monoclonal rabbit antibodies therefrom, and patents in this family are expected to expire in June 2026, exclusive of possible patent term adjustments or extensions or other forms of exclusivity; (2) a patent family consisting of one issued U.K. patent and five pending patent applications in Europe, Australia, Canada, China and the United States related to the method of producing a recombinant allotype specific rabbit monoclonal antibody, with the issued U.K. patent expected to expire in December 2034 and any patents issuing from the pending applications (including a U.K. patent which may be obtained through the pending European application) expected to expire in December 2035, exclusive of possible patent term adjustments or extensions or other forms of exclusivity; and (3) a patent family consisting of three pending applications in the United States, Europe and China, related to methods of generating rabbit monoclonal antibodies by B cell panning and proliferation (without using fusion partner), and any patents issuing from the pending applications are expected to expire in March 2036, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.

Through our acquisition of AxioMx Inc., as of June 18, 2020, we own several patent families related to the generation of recombinant antibodies, including, for example: (1) one patent family consisting of one issued U.S. patent and five pending applications in Australia, China, Canada, Europe and the United States, related to methods and compositions for producing a chimeric polypeptide, such as converting single-chain variable fragment to properly folded immunoglobulin, with the issued U.S. patent and any patents issuing from the pending applications expected to expire in June 2036, exclusive of possible patent term adjustments or extensions or other forms of exclusivity; and (2) two patent families derived from two Patent Cooperation Treaty (“PCT”) applications and consisting of 12 pending patent applications in Australia, Canada, China, Europe, Japan and the United States, related to methods of generating antibodies against traditionally difficult targets involving ligand-directed or post-translational modification directed antibody generation, and any patents issuing from these pending applications are expected to expire in August 2038, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.

Assays

Through our acquisition of Firefly Bioworks, Inc., as of June 18, 2020, we have rights to, through ownership and exclusive license, several patent families related to our Fireplex product, consisting of eight issued U.S.

 

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patents, two pending U.S. patent applications, 41 issued foreign patents, and seven pending foreign patent applications, of which five issued U.S. patents and 15 issued foreign patents are exclusively licensed from MIT. The issued patents and any patents issuing from the pending applications in those families are expected to expire between 2026 and 2035, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.

Through the Expedeon Acquisition, as of June 18, 2020, we own three patent families related to the CaptSure technology utilized in our SimpleStep ELISA kits, consisting of four issued U.S. patents, two pending U.S. patent applications, five issued foreign patents in France, Germany, Netherlands, Switzerland, and the United Kingdom, and six pending foreign patent applications in Australia, Canada, China, Europe and Japan. The issued patents and any patents issuing from the pending applications in those families are expected to expire between 2030 and 2036, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.

Conjugation

Through the Expedeon Acquisition, as of June 18, 2020, we own four patent families related to our conjugation products, consisting of three issued U.S. patents, one pending U.S. patent application, 39 issued foreign patents, and two pending foreign patent applications. The issued patent and any patents issuing from the pending applications in those families are expected to expire between 2026 and 2034, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.

Individual patents have terms for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, utility patents issued for applications filed in the United States are granted a term of 20 years from the earliest effective filing date of a non-provisional patent application. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. All taxes, annuities or maintenance fees for a patent, as required by the USPTO and certain foreign jurisdictions, must be timely paid in order for the patent to remain in force during this period of time.

The actual protection afforded by a patent may vary on a product by product basis, from country to country and can depend upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions and the availability of legal remedies in a particular country and the validity and enforceability of the patent. Our patents and patent applications may be subject to procedural or legal challenges by others. We may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business, and we may be subject to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business. For more information, see the section titled “Risk Factors—Risks Relating to our Intellectual Property.”

Trademarks

As of June 18, 2020, we own trademark registrations or registration applications including ABCAM, RABMAB, FIREPLEX, SIMPLESTEP ELISA, and LIGHTNING LINK in the United States and in certain foreign jurisdictions, such as Europe.

Trade Secrets and Proprietary Information

In addition to patents and trademarks, we rely upon unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. However, trade secrets and know-how can be difficult to protect. We seek to protect our proprietary information, in part, by executing confidentiality agreements with our collaborators and scientific advisors, and non-competition, non-solicitation, confidentiality, and invention assignment agreements with our employees, consultants, and independent

 

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contractors. We have also executed agreements requiring assignment of inventions with selected scientific advisors and collaborators. The confidentiality agreements we enter into are designed to protect our proprietary information and the agreements or clauses requiring assignment of inventions to us are designed to grant us ownership of technologies that are developed through our relationship with the respective counterparty. We cannot guarantee, however, that we have executed such agreements with all applicable counterparties, such agreements will not be breached, or that these agreements will afford us adequate protection of our intellectual property and proprietary rights. See “Risk Factors—Risks Relating to our Intellectual Property.”

Properties

Our headquarters is located at Discovery Drive, Cambridge Biomedical Campus, Cambridge, CB2 0AX United Kingdom. We also operate from properties in Cambridge, United Kingdom, Shanghai, Beijing and Hong Kong in China, Taipei in Taiwan, Tokyo in Japan, Adelaide in Australia and Branford, Connecticut, Natick and Cambridge, Massachusetts, Pleasanton and Burlingame, California and Eugene, Oregon in the United States

Our People and Culture

We believe that our culture is a strength and key differentiator for our business. We recognize that our people are fundamental to our continued success, as their skill and dedication enable us to fulfill our vision and purpose. We aim to create a safe, fair and dynamic working environment that is collaborative and outcome focused. We will continue to invest in the development of our employees and encourage the sharing of feedback and ideas, as we believe in the importance of listening to our employees and recognizing their achievements. We actively promote our culture, which focuses on earning the trust of all of our employees. Nurturing employee excellence is one of the keys to our success, and we continue to prioritize the ongoing learning, training and development of our staff. In 2019, Glassdoor awarded us the “Glassdoor Employees’ Choice Award,” which is based on feedback from employees about their job, work environment and their employer. Based on employee feedback provided to Glassdoor from October 2018 to October 2019, we were ranked sixth in the “Best Places to Work 2020 Employees’ Choice” in the United Kingdom.

We offer online and offline training programs, across a range of areas including work-based skills, leadership and compliance-related courses. For the fiscal year ended June 30, 2020, we extended courses to over 1,200 employees. From July 2019 to July 2020, we offered eight different apprenticeship routes at levels two to seven in the United Kingdom and had 32 active apprentices including nine senior leaders masters apprenticeships. As of July 2020, an external employee survey, which measured employee engagement at number of companies, found that Abcam was in the top 25% in three employee development categories including mentoring, learning and career path, and in the top 10% for employee growth.

We aim to create a positive, collaborative culture, and we want to ensure everyone is aware of the contribution they can make across our business. We recognize that the work environment has an impact on productivity, innovation and collaboration, which is why we have dedicated resources to building new facilities. We want employees to be engaged and motivated and have opportunities to develop and progress. We recognize that rewarding employees fairly, equitably and competitively is crucial to attracting and maintaining a motivated workforce.

In September 2018, we launched “AbShare,” an innovative share plan available globally to all of our permanent employees. The plan, which won “Most Innovative & Creative Plan Design” at the GEO 2019 awards, was designed to encourage broad share ownership across our offices around the world, create alignment throughout our organization and help to attract and retain highly talented employees. At its launch, approximately 87% of our global employee base elected to participate in this plan.

For the years ended June 30, 2018, 2019 and 2020, we had 1,054, 1,155 and 1,492 employees, respectively. As of June 30, 2020, over 200 of our employees hold PhDs.

 

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The table below sets out the number of employees by geography as of June 30, 2020:

 

Geography

   As of June 30,
2020
 

United States

     388  

EMEA(1)

     672  

APAC(2)

     432  
  

 

 

 

Total

                 1,492  
  

 

 

 

 

  (1)

The significant majority of our EMEA employees are in Cambridge, United Kingdom.

  (2)

APAC includes employees in Shanghai, Hangzhou and Hong Kong in China, Tokyo, Japan and Sydney, Australia.

The table below sets out the number of employees by category as of June 30, 2020:

 

Department

   As of June 30,
2020
 

New Product Development

     285  

Logistics

     106  

Customer Services

     77  

Quality and Operational Excellence

     18  

Other(1)

     1,006  
  

 

 

 

Total

                 1,492  
  

 

 

 

 

  (1)

Other employees includes departments such as Regional Sales and Marketing, Data & Analytics, Scientific Support, In-House Manufacturing, Core Finance and Facilities Health & Safety.

We believe that we maintain a good relationship with our employees. Currently, none of our employees belong to unions.

Information Technology

Data Privacy and Security

Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of critical or sensitive personal information. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, federal and state consumer protection laws and regulations (for example, Section 5 of the Federal Trade Commission Act and the Health Insurance Portability and Accountability Act (“HIPAA”)), govern the collection, use, disclosure, and protection of personal information could apply to our operations or the operations of our partners. In particular, regulations promulgated pursuant to HIPAA establish privacy and security standards that limit the use and disclosure of individually identifiable health information (known as “protected health information” or “PHI”) and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical analyses and may be subject to changing interpretation. State laws may be more stringent, broader in scope or offer greater individual rights with respect to PHI than HIPAA, and state laws may differ from each other, which may complicate compliance efforts. Entities that are found to be in violation of HIPAA as the result of a breach of unsecured PHI, a complaint about privacy practices, or an audit by the U.S. Department of Health and Human Services (“HHS”), may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations, as well as significant reputational harm, if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance.

 

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California recently enacted the California Consumer Privacy Act (the “CCPA”), which creates new individual privacy rights for California consumers, as defined in the law, and places increased privacy and security obligations on entities handling certain personal data of consumers or households. The CCPA requires covered companies to provide new disclosures to consumers about such companies’ data collection, use and sharing practices, provide such consumers new ways to opt out of certain sales or transfers of personal information. The CCPA also provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information that may increase the likelihood of, and risks associated with, data breach litigation. The CCPA went into effect on January 1, 2020, and the California Attorney General may bring enforcement actions for violations as of July 1, 2020. The CCPA was recently amended, and it remains unclear what, if any, further modifications will be made to this legislation or how it will be interpreted. Additionally, a new California ballot initiative, the California Privacy Rights Act, appears to have garnered enough signatures to be included on the November 2020 ballot in California, and if voted into law by California residents, would impose additional data protection obligations on companies doing business in California, including additional consumer rights processes and opt outs for certain uses of sensitive data. It would also create a new California data protection agency specifically tasked to enforce the law, which would likely result in increased regulatory scrutiny of California businesses in the areas of data protection and security. Similar laws have been proposed in other states and at the federal level, and if passed, such laws may have potentially conflicting requirements that would make compliance challenging.

EU member states, Switzerland and other countries have also adopted data protection laws and regulations that impose significant compliance obligations. For instance, the collection and use of personal health data in the EEA is governed by the provisions of the General Data Protection Regulation (“GDPR”). The GDPR became effective on May 25, 2018 and imposes strict obligations and restrictions on the ability to collect, analyze, and transfer personal data. In particular, these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the information provided to the individuals, the transfer of personal data out of the EEA, security breach notifications, security and confidentiality of the personal data, and the imposition of substantial potential fines for breaches of the data protection obligations. Data protection authorities from the different EU member states may interpret the GDPR and national laws differently and impose additional requirements, which add to the complexity of processing personal data in the EU. In addition, the United Kingdom leaving the EU could also lead to further legislative and regulatory changes. It remains unclear how the United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfer to the United Kingdom from the EU will be regulated, especially following the United Kingdom’s departure from the EU on January 31, 2020. However, the United Kingdom has transposed the GDPR into domestic law with the Data Protection Act 2018, which remains in force following the United Kingdom’s departure from the EU. Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules. See “Risk Factors – Risks Relating to our Business and Industry—Cyber security risks and the failure to maintain the confidentiality, integrity and availability of our computer hardware, software and internet applications and related tools and functions, could result in damage to our reputation, data integrity and/or subject us to costs, fines or lawsuits under data privacy or other laws or contractual requirements.”

Regulatory Matters

U.S. Regulation

Our products and operations may be subject to regulation by the FDA and other federal, state, or local authorities, as well as foreign regulatory authorities. The FDA regulates, among other things, the research, development, testing, manufacturing, clearance, approval, labeling, storage, recordkeeping, advertising, promotion, marketing, distribution, post-market monitoring and reporting, and import and export of medical devices. The vast majority of our products are currently marketed as research use only medical devices.

 

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Pursuant to its authority under the FDCA, the FDA has jurisdiction over medical devices, which are defined to include, among other things, IVD devices. IVD devices that are marketed as RUO are not intended for use in a clinical investigation or for clinical diagnostic use outside an investigation and must be labeled “For Research Use Only. Not for use in diagnostic procedures.” Products that are intended for RUO and are properly labeled as RUO are exempt from compliance with the FDA’s requirements applicable to medical devices more generally, including the requirements for clearance or approval and compliance with manufacturing requirements known as the QSR. A product labeled RUO but intended to be used diagnostically may be viewed by the FDA as adulterated and misbranded under the FDCA and is subject to FDA enforcement. The FDA may consider the totality of the circumstances surrounding distribution and use of an RUO product, including how the product is marketed, when determining its intended use.

RUO products cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot be intended for human clinical diagnostic use. In November 2013, the FDA issued a final guidance on products labeled RUO, which, among other things, reaffirmed that a company may not make any clinical or diagnostic claims about an RUO product. If the FDA were to determine, based on the totality of circumstances, that our products labeled and marketed for RUO are intended for diagnostic purposes, they would be considered medical devices that could require clearance or approval prior to commercialization.

European Union Regulation

A limited number of our products are classified as IVD medical devices in the European Union. Commercialization of IVD medical devices in the EEA (comprised of the 27 EU Member States plus Iceland, Liechtenstein and Norway, and the United Kingdom, until the end of the transition period on December 31 provided for in the withdrawal agreement between the European Union and the United Kingdom), is regulated by the European Union. The EU requires that all IVD medical devices placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 98/79/EC (the “In Vitro Diagnostic Medical Devices Directive” or “IVDD”). The most fundamental essential requirement is that an in vitro medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients or the safety and health of users and others. In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner. To demonstrate compliance with the essential requirements laid down in Annex I to the IVDD, manufacturers must undergo a conformity assessment procedure, which varies according to the type of in-vitro diagnostic medical device and its classification. Except for low-risk IVD medical devices, where the manufacturer can self-declare the conformity of its products with the essential requirements, a conformity assessment procedure requires the intervention of a so-called Notified Body. The Notified Body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system. If satisfied that the relevant product conforms to the relevant essential requirements, the Notified Body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the required “CE Mark” to the device, which allows the device to be placed on the market throughout the EEA.

In April 2017, the European Parliament passed the In Vitro Diagnostic Medical Devices Regulation (Regulation 2017/746), which repeals and replaces the IVDD. Unlike directives, which must be implemented into the national laws of the EU member States, the regulations would be directly applicable, i.e., without the need for adoption of EU member State laws implementing them, in all EU member States and are intended to eliminate current differences in the regulation of medical devices among EU member States. The In Vitro Diagnostic Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The In Vitro Diagnostic Medical Devices Regulation will become applicable five years after publication (in May 2022). Once applicable, the In Vitro Diagnostic Medical Devices Regulation will among other things:

 

   

strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

 

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establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;

 

   

improve the traceability of IVD medical devices throughout the supply chain to the end-user or patient through a unique identification number;

 

   

set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and

 

   

strengthen rules for the assessment of certain high-risk devices which may have to undergo an additional check by experts before they are placed on the market.

Legal Proceedings

We are not subject to any material legal proceedings.

Insurance

We maintain commercial insurance programs with third parties in the areas of property and business interruption, employers’ liability, product liability and cyber security, among others. In addition, we hold warrant indemnity insurance in respect of the Expedeon Acquisition. We self-insure certain risks inherent in our business which, taken together with the deductible levels and exclusions contained within our third-party programs, results in our recording of accruals for incurred claims. Our ultimate exposure may be mitigated by amounts we expect to recover from third parties associated with such claims.

 

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MANAGEMENT

Executive Officers and Board Members

The following table sets forth the name and position of each of our executive officers and board members as of the date of this prospectus:

 

Name

   Age     

Position

Executive officers

     

Alan Hirzel

     51      Chief Executive Officer and Director

Michael Baldock

     54      Chief Financial Officer and Director

Non-executive board members

     

Peter Allen(2)(3)

     62      Chairman of the Board

Mara Aspinall(1)(2)(3)

     56      Director

Giles Kerr(1)(2)(3)

     59      Director

Louise Patten(1)(2)(3)

     64      Director

 

(1)

Audit and Risk Committee member

(2)

Remuneration Committee member

(3)

Nomination Committee member

The current business addresses for our executive officers and board members is c/o Abcam plc, Discovery Drive, Cambridge Biomedical Campus, Cambridge CB2 0AX, United Kingdom.

Executive Officers

The following is a brief summary of the business experience of our executive officers.

Alan Hirzel has served as our Chief Executive Officer since September 2014 and as a member of our board since January 2014. Prior to joining Abcam, Mr. Hirzel was a partner at Bain & Company where he advised global executives and private equity investors on growth strategy, performance improvement and acquisitions. Early in his career, Mr. Hirzel worked in a variety of roles from life science researcher at Cornell University to new product development research at Kraft Foods. Mr. Hirzel holds BS, MS, and MBA degrees from Cornell University.

Michael Baldock has served as our Chief Financial Officer since February 2020 and as a member of our board since February 2020. From November 2008 to January 2020, Mr. Baldock was a founding partner at Ondra Partners, an independent financial advisory firm. Prior to that, from 2004 to 2007, he was a Managing Director, Global Head of Healthcare and Head of Investment Banking, Americas for HSBC plc, a global universal bank. From 2000 to 2004, he was a Partner of Lazard Frères & Co. LLC, a financial advisory and asset management firm. Mr. Baldock also serves as a non-executive director of Jaws Acquisition Corp. Mr. Baldock received an A.B. in Social Studies from Harvard College.

Non-executive Board Members

The following is a brief summary of the business experience of our non-executive board members.

Peter Allen has served as a member of our board since June 2018. Mr. Allen is currently Non-Executive Chairman of Advanced Medical Solutions plc, Clinigen plc and privately owned Oxford Nanopore Technologies Ltd. He is a Non-Executive Director of Istesso Ltd. Mr. Allen has over 20 years’ experience as an executive director, non-executive director and chairman in a wide range of life science companies. From 2015 to 2020, Mr. Allen served as the Chairman of Diurnal Group plc. From 2009 to 2012, Mr. Allen served as Chairman of Proximagen Neurosciences plc, from 2007 to 2013 he served as Chairman of ProStrakan Group plc, including as interim CEO from 2010 to 2011, and he served as CFO and Deputy CEO of Celltech Group plc from 1992 to 2004. Mr. Allen holds a B.A. in Accountancy and Law from the University of Kent.

 

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Mara Aspinall has served as a member of our board since September 2015. Ms. Aspinall is a Director of Allscripts Healthcare Solutions Inc., Castle Biosciences Inc., Blue Cross Blue Shield Arizona Inc., OraSure Technologies Inc., Strateos (previously 3Scan Inc.), RainBird and Paradigm Diagnostics. Ms. Aspinall is a co-founder and Managing Director of BlueStone Venture Partners and CEO of Health Catalysts Group. Previously, Ms. Aspinall was President and CEO of Ventana Medical Systems/Roche Tissue Diagnostics. Ms. Aspinall spent twelve years at Genzyme Corporation (now part of Sanofi) as President of Genzyme Genetics and Genzyme Pharmaceuticals. Ms. Aspinall is co-founder of the International School of Biomedical Diagnostics at Arizona State University, the only institution dedicated to the study of diagnostics as an independent discipline. Ms. Aspinall is also a Fellow of the American Institute for Medical and Biological Engineering. Ms. Aspinall holds a B.A. in International Relations from Tufts University and an M.B.A. from Harvard Business School.

Giles Kerr has served as a member of our board since December 2018. Mr. Kerr is currently a Non-Executive Director of Arix Bioscience plc, Senior plc and Oxford Sciences Innovation and is the Chairman of Paypoint plc. Since 1990, Mr. Kerr has served in a variety of increasingly senior roles at Amersham plc, including Chief Financial Officer and a board member from 1997 to 2004, when the company was acquired by GE Healthcare. Prior to his role at Amersham, Mr. Kerr was a National Partner with Arthur Andersen & Co. Mr. Kerr was Director of Finance of the University of Oxford from 2005 until 2018 and was previously a Director of Victrex plc, BTG plc, Quanta Dialysis Technologies and Elan Corporation Inc. Mr. Kerr holds a B.A. in Economics from the University of York.

Louise Patten has served as a member of our board since March 2014. Ms. Patten is currently a Senior Advisor to Bain & Company and a Non-Executive Director of Arthur J Gallagher (UK) Limited, Arthur J Gallagher Holdings (UK) Limited and Arthur J Gallagher Insurance Brokers Limited. Having started her career in corporate and investment banking, Ms. Patten moved into management consultancy and became a Board Director of the Hilton Group. Since then, Ms. Patten has served on a succession of multi-national listed company boards for more than 20 years as a non-executive director, a senior independent director, a remuneration committee chairman and a company chairman at organizations including the retailers Marks & Spencer plc, GUS plc and Somerfield plc. Ms. Patten holds a M.A. from Oxford University.

Corporate Governance Practices and Foreign Private Issuer Status

As a public company incorporated in England and Wales and that has shares admitted to AIM, we are not required to have regard to the U.K. Corporate Governance Code. Our board is, however, committed to maintaining high standards of corporate governance, and we intend to apply the U.K. Corporate Governance Code and comply with its principles and provisions so far as is practicable and appropriate given our size and status as an AIM-traded company.

As a “foreign private issuer,” as defined by the SEC, we will be permitted to follow home country corporate governance practices instead of certain corporate governance practices required by Nasdaq applicable to U.S. domestic issuers. We intend to voluntarily follow most Nasdaq corporate governance rules. However, we intend to follow U.K. corporate governance practices in lieu of the Nasdaq corporate governance rules as follows:

 

   

We do not intend to follow Nasdaq Rule 5620(c) regarding quorum requirements applicable to meetings of shareholders. Such quorum requirements are not required under English law. In accordance with generally accepted business practice, our Articles of Association provide alternative quorum requirements that are generally applicable to meetings of shareholders.

 

   

We do not intend to follow Nasdaq Rule 5605(b)(2), which requires that independent directors regularly meet in executive session, where only independent directors are present. Our independent directors may choose to meet in executive session at their discretion.

 

   

We do not intend to follow Nasdaq Rule 5635(c), which requires shareholder approval for the establishment of or any material amendments to equity compensation or purchase plans or other equity

 

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compensation arrangements. We will follow English law with respect to any requirement to obtain shareholder approval in connection with equity compensation or purchase plans or other equity compensation arrangements.

 

   

We do not intend to follow Nasdaq Rule 5635(d), which requires shareholder approval in order to enter into any transaction, other than a public offering, involving the sale, issuance or potential issuance by the Company of ordinary shares (or securities convertible into or exercisable for ordinary shares) equal to 20% or more of the outstanding share capital of the Company or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the ordinary shares. We will follow English law with respect to any requirement to obtain shareholder approval in connection with any private placements of equity securities.

We may in the future decide to use other foreign private issuer exemptions with respect to some or all of the other Nasdaq corporate governance rules.

Although we may rely on certain home country corporate governance practices, we will be required to comply with the Notification of Noncompliance requirement (Nasdaq Rule 5625) and the Voting Rights requirement (Nasdaq Rule 5640). Further, we will be required to have an audit committee that satisfies Nasdaq Rule 5605(c)(3), which addresses audit committee responsibilities and authority, and consists of committee members that meet the independence requirements of Nasdaq Rule 5605(c)(2)(A)(ii).

If we cease to be a “foreign private issuer” under the Nasdaq rules and the Exchange Act, as applicable, we will take all action necessary to comply with applicable Nasdaq corporate governance rules.

Because we are a foreign private issuer, our directors and senior management are not subject to short-swing profit and insider trading reporting obligations under Section 16 of the Exchange Act. They will, however, be subject to the obligations to report changes in share ownership under Section 13 of the Exchange Act and related SEC rules.

Composition of our Board of Directors

Our board of directors currently consists of, and will consist of following this offering, six members. We expect our board to determine that four of our six directors, Mr. Allen, Ms. Aspinall, Mr. Kerr and Ms. Patten, do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the rules of Nasdaq. There are no family relationships among any of our directors or executive officers.

In accordance with our Articles of Association, the following directors will retire from office and be eligible for re-election:

 

   

any director who was not elected or re-elected at either of the two preceding annual general meetings and any director who wishes to retire and offer himself for re-election (whether by reason of the U.K. Corporate Governance Code or for any other reason); and

 

   

such number of the directors (excluding any director who is required to retire under our Articles of Association) as would, when added to the number of directors (if any) retiring in accordance with the above bullet point represent one third of the directors. If one third is not a whole number then the number of directors to retire is the number nearest to one third.

We intend to continue to comply with the requirements of provision 18 of the U.K. Corporate Governance Code that all directors be subject to annual re-election.

Retiring directors are eligible for re-election. See “Description of Share Capital and Articles of Association—Articles of Association—Directors—Rotation of Directors.”

 

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Committees of our Board of Directors

Our board has three standing committees: an Audit and Risk Committee, a Remuneration Committee and a Nomination Committee. Each of these committees will be governed by a charter that is consistent with applicable U.K. law and SEC and Nasdaq corporate governance rules, effective upon the effectiveness of the registration statement of which this prospectus forms a part, and which will be available on the Investors section of our website at www.abcamplc.com. The information contained on, or that can be accessed through, our website does not form part of this prospectus.

Audit and Risk Committee

Our Audit and Risk Committee consists of Mara Aspinall, Giles Kerr and Louise Patten. Mr. Kerr serves as the chairman of the Audit and Risk Committee. We expect our board to determine that all members of our Audit and Risk Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq corporate governance rules. We expect our board to determine that Mr. Kerr is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq corporate governance rules.

We expect our board to determine that each member of our audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members.

The Audit and Risk Committee will be responsible for, among other things:

 

   

recommending the appointment of the independent auditor to the general meeting of shareholders;

 

   

the appointment, remuneration, retention and oversight of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit services;

 

   

pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services;

 

   

evaluating the independent auditor’s qualifications, performance and independence, and presenting its conclusions to the full board on at least an annual basis;

 

   

reviewing and discussing with the executive officers, the board and the independent auditor our financial statements and our financial reporting process;

 

   

approving or ratifying any related party transaction (as defined in our related party transaction policy) in accordance with our related party transaction policy;

 

   

reviewing and overseeing the adequacy and effectiveness of our financial reporting and internal control policies and systems, covering all material controls, including financial, operational and compliance controls, and the procedures for the identification, assessment, management and reporting of risks; and

 

   

periodically reviewing w