WideCells Group PLC Interim Results
News Release | News Room
27 September 2018
WideCells Group PLC (‘WideCells Group’ or ‘the Group’)
WideCells Group PLC, the healthcare services company focused on providing stem cell services and insurance for stem cell treatment, announces its Interim Results for the six monthsended 30 June 2018.
- Primary focus on increasing client reach and driving sales across core portfolio of stem cell services and insurance cover that aim to make stem cell treatments accessible and affordable worldwide
- Undertaken a full operational review to refine business model and corporate structure in line with strategy to generate revenue, reduce overheads and achieve profitability
- Focused on converting current sales agreements for CellPlan, the world’s first stem cell insurance plan and medical concierge service, into tangible revenues
- Now active in the UK and Spain
- Commercial agreements in place to launch in Thailand, Singapore, India and Brazil with phased roll-out to commence in H1 2019
- Finalising terms for expansion in UAE and Lebanon
- Launched BabyCells stem cell storage services from state-of-the art Institute of Stem Cell Technology (‘ISCT’) in Manchester, UK following HTA licence award
- Targeting commercial agreements with a number of industry professionals, including midwives, obstetrics and gynaecology departments and medical clinics to facilitate roll-out
- Finalising a contract with an experience sales agent to target UAE and Lebanon markets
- Engaged in discussions to restructure Wideacademy in line with efforts to reduce costs
- Post-period-end signed an Issuance Agreement with a provider of Convertible Bonds to secure £2.7m worth of funding, underpinning cash-flow needs for the next 12-18-month period
- Loss of £2.03m due to slow sales
This is my first interim statement since my appointment towards the end of December 2017 as Chairman of WideCells Group PLC. It gives me no pleasure to report that the first half of 2018 has been a very difficult time for the Group. Whilst the vision and the value proposition of the Group remains unchanged, as shareholders will no doubt be aware, the year to date has been one that has presented us with unforeseen challenges. As a result, we have undertaken a thorough review of the Group’s operations and are undertaking a number of corporate changes to better streamline our structure and strategy, so that we can position ourselves for profitable growth.
The year began with the Group needing to secure substantial long-term capital in order to pursue its growth ambitions. It had negotiated a short-term overdraft facility of £0.5m from its bankers to sustain the business, while it sought new permanent funding. In the event, this took far longer than was expected. Initially, it was intended to raise capital as part of a wider growth strategy, which included the potential purchase of two stem cell banks in Brazil, a country which we had already identified as a growth market. However, this process was ultimately unsuccessful, despite some initially positive indications of potential institutional support. As a result, we were unable to complete the acquisitions, and had to significantly revise our growth plans and financing strategy, which were complicated further by the end of April 2018, when the Group was unable to announce its audited results for the year ended 31 December 2017 and was thus obliged to seek a suspension of trading in its shares.
This was a particularly frustrating and costly time; expensive in terms of legal and professional fees expended in acquisition due diligence and repeated attempts at financing documentation, but also costly in terms of senior management time and attention, since this has meant that much Board time during the six-month period under review has been taken up with capital raising efforts and managing the Group’s limited cash resources. Furthermore, when the suspension in our share trading was lifted, the shares recommenced trading at much lower price levels than before the suspension. On behalf of the Board, I wish to apologise to shareholders and other stakeholders that these circumstances arose.
Our mission has always been to provide an end-to-end stem cell service to make this potentially life-saving treatment accessible and affordable for all. In order to fulfil this mission, the Group has had to overcome two major hurdles that act as impediments to the growth of stem cell services: the perceived high cost of the treatment in the minds of potential clients, and a lack of understanding and awareness both in the general public and some parts of the medical profession of the benefits and availability of stem cell surgery. To overcome these challenges, the Group’s strategy has been to establish three divisions that collectively provide insurance cover to mitigate the cost fears (CellPlan), storage and processing to provide the underlying service (WideCells), and education and training services (Wideacademy). Having successfully launched all three divisions by early 2018, our priority for the current year has been to deliver revenue, profit and market share growth, and our internal business plans had reflected this anticipated growth.
Against this aim, the results for the six months to 30 June 2018 are very disappointing. The principal reasons for this are twofold: firstly, despite the obviously high long-term value in the contracts that the Group has already signed, it has taken much longer than expected, for the reasons outlined below, to make those contracts revenue generating and, second, until the placement in June, the Group had continued to invest in its products and services in line with its internal budgets in anticipation of the forecast growth in its business. As the revenue has failed to materialise as expected, these two factors have combined to generate a much higher than expected loss for the first six months of the year and has imposed on the Group a further considerable cash flow strain. In light of this, the Board is undertaking a number of cost-saving initiatives and has refined the Group’s strategy to ensure that resources are focussed on maximising the nearer term revenue opportunities of our business within the WideCells and CellPlan divisions.
To make stem cell treatment more affordable, we have created the world’s first comprehensive stem cell healthcare insurance plan, providing coverage of up to £1m for cord blood stem cell transplantation in any part of the world, a second medical expert opinion, travel and accommodation, and a concierge service to support the client. Despite cord blood stem cell storage often costing no more than a few thousand pounds, treatment for stem cell transplants can cost as much as £300,000, making it unaffordable for the majority of potential clients. By contrast, a CellPlan policy costs a few hundred pounds a year. Being an annual premium, this is expected to be a recurring revenue stream as the insurance policy is expected to have high client retention rates.
Having initially launched and trialled CellPlan in the UK through a collaboration with cord blood bank Biovault Technical Ltd in 2017, we are now focused on increasing the roll-out of CellPlan both in the UK and in other targeted countries. To that end, we launched in Spain via a two-phased roll-out. Firstly, in May 2018, we signed a commercial agreement with Stem Cell Banco Celulas Madre, S. A., (‘Stem Cell’), an established provider of stem cell storage services, to make CellPlan available to all of its new clients. The official launch and marketing drive commenced as part of the second phase in July, when our Spanish ecommerce platform went live, enabling all of Stem Cell’s existing clients and anyone in Spain who has stored stem cells with a facility approved by WideCells Group to purchase a CellPlan policy. Spain is one of the most established stem cell markets in Europe.
The Group also has commercial agreements in place to facilitate the launch of CellPlan in new territories, namely Brazil, Thailand, India and Singapore. In July 2017, we signed a deal with leading Brazilian storage facility Hemocord Clinica Medica Ltd to offer CellPlan to new and existing clients. This will provide us with exposure to the largest cord blood storage market in South America, a market projected to be worth US$445 million by 2023. In March 2018, we secured an agreement with Cryoviva, a significant cord blood storage facility, with operations in Thailand, Singapore and India, that has c.250,000 stem cell samples stored to date with c.25,000 new samples expected to be stored every year. We are now in discussions with respective local insurers to start the phased roll-out of CellPlan in Asia and Brazil in H1 2019. More recently, our WideCells storage division has secured the services of an experienced stem cell sales specialist, who will also be responsible for driving sales of CellPlan in the UAE and Lebanon, two prospective growth markets where stem cell storage is well established.
These new sales opportunities are undoubtedly positive developments for the Group. However, we must be realistic about revenue generation, as the timescales for turning these contracts into revenue are much longer than originally planned. Although we had not appreciated it in 2017 when preparing our budgets for 2018, it can take between 4-12 months to launch the CellPlan insurance product in a new jurisdiction. This is because, although the Group has access to first class international reinsurance capacity, each jurisdiction requires a local high-quality licensed insurer to issue policies compliant with local regulations. Hurdles include sourcing that local insurer, going through their compliance regime, adjusting the policy to meet local regulations, obtaining jurisdictional approval for the policy, translating all the documentation and marketing materials to local language, and adapting our marketing approach and ecommerce platform to meet each country’s requirements. This is clearly an extensive process but has been a valuable learning curve for the Group. We are now developing a stronger model that should allow us to go into any market in the world with a more reasonably accurate idea of when we will be able to start generating revenues from that jurisdiction. Moreover, having strengthened the operational side of our business, we now have a more proactive approach to making these contracts revenue generating. This will be crucial for future roll-out strategies, but I would like to assure shareholders that our current focus is firmly on building our presence (and, therefore, revenue) in the markets, in which we are currently established and/or have contracts, rather than seeking new growth opportunities elsewhere.
WideCells, our storage and processing services division, has made positive progress during the period, with the most notable milestone being the award of a Human Application Licence from the UK's Human Tissue Authority (“HTA”) in February 2018. This licence permits, for the first time, the Group to import, export, process, store and distribute for treatment umbilical cord blood and umbilical cord tissue to and from the UK and Europe in its state-of-the-art facilities at the Institute of Stem Cell Technology in Manchester, UK.
Our offering is a package known as BabyCells, which comprises collection and processing together with one year’s storage. Recurring annual storage revenues or multi-year pre-paid storage plans are available thereafter, giving us longer term recurring revenues. Whilst this revenue stream will take a while to grow, our focus is now to build the profile and drive uptake of this storage service. We are in active discussions and have begun to sign commercial agreements with a number of industry professionals, including midwives, obstetrics and gynaecology departments and medical clinics who will now offer and promote our stem cell storage service to their patients. Crucially, cross-selling opportunities exist between our complementary divisions, and clients of BabyCells will be offered one year's stem cell insurance cover provided by CellPlan. This means that each sale for WideCells is a new client for CellPlan, with both likely to generate repeat revenues over the coming years.
As mentioned earlier, we have signed a contract with a sales agent, who will be responsible for driving sales of BabyCells in the UAE and Lebanon. Mona Shantouf is an experienced stem cell sales specialist who manages an established team in the Middle-East and has significant industry experience, having worked as General Manager for one of the region’s leading stem cell storage operators for the past nine years. Under the planned terms of engagement with WideCells, Mona and her team will secure sales contracts for BabyCells, with samples to be collected and sent to the Group’s Manchester facility for storage. To facilitate this, the Group needs a trade licence to operate in the UAE, which will be licenced under a local company, and also needs approval from the HTA in the UK to export/import stem cells to/from the UAE. We hope to conclude both processes by the end of the year.
To ensure the successful launch of BabyCells and strong product uptake, the sale of this product will now be this division’s primary storage focus for the foreseeable future. Accordingly, whilst we have identified opportunities to add additional services including TeethCells and LipoCells, which will respectively process and store dental pulp and adipose tissue stem cells, further product development is being put on hold until we have established stronger BabyCells revenues.
Finally, within WideCells we also undertake research work, with three projects currently underway. These revenue generative projects not only create an additional income for the Group, but also support development in the industry as a whole, as we continue to unlock the significant medical potential of stem cells, thus also creating increased awareness of the benefits of the treatment.
Initially, Wideacademy was established to provide training and education services to drive awareness of the stem cells sector within both the general public and the medical profession to help to remove one of the impediments to growth of BabyCells and CellPlan.
More recently, having built a bespoke platform, which combines free-to-access educational areas with paid-for premium digital tools and resources for doctors and medical professionals (Wideacademy PRO), the additional focus has been on building the functionality of the platform and securing user agreements with professional bodies. As part of that strategy, we have been in discussions to build localised versions of the Wideacademy platform, which can then be used by third parties. The expectation was that contracts for the localised version would be secured in H2 2018, and that these agreements would generate significant up-front revenues for the Group, justifying the continuing development of the platform, with recurring revenues available from subscriptions. Regrettably, these contracts have not yet been forthcoming.
Accordingly, whilst we continue to recognise the very important role that a training and education division plays in our growth plans, the Board have decided to reduce our exposure to its ongoing development costs. We plan to re-focus Wideacademy back to its original purpose and strategy and are restructuring the division with two principal aims: the retention of digital resources to provide training and education services, and a substantial reduction in on-going overheads and investment. As one of the restructuring proposals, we are currently in negotiation over the sale of the division to the Wideacademy management, including division Vice President Alan Greenberg. Under that proposal, a new Wideacademy company will assume all on-going operating expenses and debt related to the division and deliver digital resources to WideCells Group for a fixed monthly cost. This is expected to realise significant cost savings for the Group. Further announcements will be made in due course.
Post-period-end, there have been some Board changes. In July 2018, Dr Jeremy Lea joined the Board as Chief Operating Officer ('COO') of WideCells Group to strengthen our approach to revenue generation. With a proven understanding of our business, having previously led the WideCells division, together with commercial and global sales experience and knowledge of the healthcare sector, we believe Jeremy is ideally placed to drive the operational side of the Group forward.
Lopes Gil, one of our founding directors, stepped down from the Board in June for personal family reasons but, I am happy to say, remains with the Group as an advisor. At the same time, Non-Executive Director Dr Marilyn Orcharton also stepped down from the Board, but again I am pleased to confirm that she will continue to support the Group in an advisory capacity.
I am also sorry to report that the results for the six months to 30 June 2018 show minimal revenue and, consequently, a loss of £2.03m. To provide a fairer comparison with the same period in the previous year, it should be noted that costs include over £0.39m relating to the aborted acquisitions and three attempts to raise capital, and reorganisation costs of £0.13m, both of which should be non-recurring in nature. Underlying administration costs thus rose from £0.90m in the previous period to £1.51m, of which nearly £0.3m relates to resourcing our WideCells division in anticipation of being granted an HTA licence to commence storage and processing services, and a nearly £0.2m increase in the investment in the Wideacademy platform and related staffing.
In June, the Group was successful in securing a placing for £2.06m, supported by a revised strategy that was based on a reduction in future cost investment and an expectation of significant revenues in H2 2018, particularly from CellPlan and the Wideacademy division. However, after costs and the conversion of existing loans into shares as part of the placing, the Group received only £1.66m in new cash, which fell further when the Group was unable to convert its overdraft, which by then had risen to £0.62m, to longer term debt and was thus repaid from the placing funds.
Looking ahead at the Group’s ongoing financial requirements for the remainder of 2018 and 2019, alongside undertaking cost-cutting measures, we need to ensure we have financial security to support the business’ ongoing requirements, whilst we build the revenue-generative potential of our services. The Board looked at all sources of financing in order to find the best solution in the interest of our shareholders. Given the absence to date of substantial revenues, we have been unable to secure traditional bank funding in the form of commercial loans, and the Board has been advised that, for similar reasons, a further equity fundraising from existing shareholders is unlikely to succeed.
Accordingly, the Group has entered into an Issuance Agreement with a provider of Convertible Bonds to secure £2.7m worth of funding in return for bonds convertible into shares with attached warrants. It is expected that these securities will be issued and subscribed for in sequential tranches as detailed below:
Three initial tranches of Convertible Bonds to be delivered in the following amounts and on the following dates:
i. £635,000 to be automatically disbursed upon signing the contract;
ii. £1,000,000 to be automatically disbursed at the later of either (a) November 15 2018, or (b) once a prospectus has been validated and approved by the Financial Conduct Authority;
iii. £265,000 to be automatically disbursed three calendar months after the second tranche; and
- Four subsequent tranches each of aggregate nominal value of £200,000.
The Group will covenant to drawdown the first two tranches on demand of the provider, who shall be authorised to request the drawdown of more than one tranche at a time with the prior consent of the Group.
As indicated above, the second and subsequent tranches of the Convertible Bond issue will require approval of our shareholders in general meeting in order to give the directors of the Group authorisation to issue the convertible bonds and associated warrants.
At an operational and, more specifically, at a financing level, WideCells Group has undoubtedly faced several challenges during the period under review. As a result, we have had to implement a number of changes to our business model to ensure we are better positioned for growth moving forward. The Board’s goal is to generate long-term sustained shareholder value, but its immediate duty must be to secure the financial viability of the Group to create that value in the future.
The stem cell market value fundamentals remain unchanged. The Group is part of a rapidly growing stem cell industry, currently valued at $96bn and expected to grow to $170bn by 2020 and $270.5bn by 2025. Since inception, our primary mission has been to build an end-to-end stem cell service to make access to this life saving treatment available to all, and thus take our place within this growing market, and we truly believe that we have an exciting opportunity to exploit. The Board believes that, successfully exploited, the commercial opportunities that we have already secured could represent substantial future value. In CellPlan alone, we have signed contracts which give the Group the opportunity to access c. 350,000 samples stored to date and another c. 30,000 new samples expected to be stored each year. If we can penetrate only 20% of that population, at the average revenue per policy we expect, that could generate in a mature year annually recurring revenues of £3.5m per annum, with a growth rate of an additional £0.3m each year. With a high expected retention rate, that will represent a very valuable growing annuity stream. This is in no way intended to be a forecast but is meant merely as an illustration of what capital value could be achieved for our shareholders in the future. As a consequence, the Board remain convinced that the Group’s overall long-term strategy is the right one; clearly, the execution of that strategy to date has not been right and must change.
The past six months have been a particularly difficult and chastening experience, and going forward, I believe that the Group has learned some valuable lessons. We, perhaps, have been too ambitious and have stretched our capabilities too far, too quickly. We must be more focussed and realistic in our business planning, with a fundamental change in the operation of the business. We have reviewed all aspects of the business, and this has resulted in the adoption of changes to ensure a more focussed, realistic approach. We are implementing a comprehensive IT system to support all aspects of the business, particularly sales management, financial control, budgeting and management and financial accounting and we are looking to recruit a qualified Financial Controller. The cost base is now under better control with our monthly cost outflows lowered. Costs have been cut across the business, particular examples being a reduction in the size of the Board and our restructuring of Wideacademy. However, in the short-term, our cash outflows will remain higher as we deal with outstanding creditor balances. Prudent financial management has become a key priority, since we can no longer count on previous views of revenue generation. Our recent experience of revenue timescales has taught us to be more realistic in our expectations, and in the shorter term we will focus only on those geographic areas, where we already have a presence, and which therefore require less cost to exploit, and only on our BabyCells stem cell storage product and our CellPlan insurance product.
However, these lessons have come at a significant cost. As a result, I very much regret having to inform shareholders that, once again, the Group requires the significant new fundraising outlined above, without which it is at risk of not being able to continue trading as a going concern. Whilst the Board understands the financial dilutive effect that such a fundraising will have on existing shareholders, we cannot allow the Group to remain continually concerned about its financial future, and it is the intention that this fundraising will draw a line under this uncertainty. It should provide the security to allow the Group to move forward positively in the interests of all stakeholders in the business. As outlined above, it will do so with new and improved disciplines in the expectation that it will deliver its potential.
Finally, I want to recognise the efforts of our management and staff, who are taking the Group forward, and would like to give my thanks to our shareholders for their patience and support. We are committed to maintaining a positive communications strategy with our shareholders and have accordingly established a dedicated email address, email@example.com, to provide a rationalised structure for communication between the directors, management and shareholders. Shareholders are invited to email questions to the Board and management team and responses will be compiled into Q&A documents, which are intended to be posted regularly on WideCells Group’s website and announced to the market where appropriate.
With new and improved disciplines and a refined business model, we look forward to proving the intrinsic value of our core stem cell service offering, so that we can build value for all stakeholders.
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