Diaceutics PLC

LSE:DXRX

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to Diaceutics H1 2024 Results Analyst and Investor Call. [Operator Instructions]. I would like to remind all participants that this call is being recorded. Questions will follow after the presentation.

I will now hand over to Diaceutics team to start the presentation.

[Ryan Keeling, executive]

Thank you, and thank you all for joining us. Ryan Keeling here CEO of Diaceutics. We feel there is a lot to like from our H1 update that we'd like to present to you today and I'm going to start by just [ rebaselining ] us back into first principles, and then we'll layer in the evolution of the business through H1. And ultimately, I'll pass over to my colleague, Nick, to deep dive on the finances.

For those of you who follow us, and I know there are many on this call, forgive me, if you've heard some of this, you may have even heard some of it today. But for those who are new to the story, very welcome. And hopefully, we can have a good collaborative session today.

If we could go to Slide 3, please. And just to remind the audience, the problem that we're solving, the solution that we provide to pharma, where there are patients that have very complex disease that are ultimately hard to find the proverbial, needle in a haystack, if you wish. We are at the forefront of being able to provide a service that identifies patients based on their diagnostic testing.

So let me walk you through a little bit of how we do that. We have 3 unique assets in this business. These assets are a key part of our differentiator and are really driving our growth, particularly over the last few years. The first is our lab network, the lab network we have been building for 10 years, we've really accelerated since we IPO-ed the business back in 2019. That lab network has continued to grow through H1 2024, but I would say the growth has been driven by strategic need and customer demand unless vigorously than it has grown in the past entirely by design.

The lab network increase that we've seen through H1 has been primarily in some new disease areas, most notably into rare disease, and we see some significant opportunity and synergy for rare disease data and rare disease lab interaction in the business. We've also grown the lab network in Europe and have brought in some substantial additional EU data to support future growth and ambitions, particularly around EU Signal, which we'll talk about as a product later.

The lab network is also characterized is becoming more automated. The automation here is really focused on how we extract data from the lab, how that comes into Diaceutics and ultimately gets transformed and ready for customer interaction. We use AI heavily and that AI has been developed over the last 12 to 18 months, and is a key part of the current investment cycle that we're in the business. Note, of course, that we're coming to the end of that investment cycle and preparing the business for return to profitability, and scale and productivity enhancements are at the core of that going into 2025.

But that investment in automation has led to significant product evolution. We've talked to you before about, for instance, the evolution of our Signal product where we -- 12 months ago, launched daily Signal. That was on the back of an ability to automate and process that data much more, much quicker and more efficiently than we have done historically.

We're now at a point where the data isn't interact with in any way by human interaction from source in the lab right through to delivery to customer. And that's been a key goal for us to allow scale and growth in the business.

Just before I move on to talk about the platform. And just to highlight data, we continue to grow data to build product of data and very exciting for us. We have combined our data products from other services to launch our PMx solution in H1 of 2024, then I'll talk to you about at length in a few slides' time.

Our platform continues to grow, and we continue to bring on new customers and launch new products off the back of that. We just talked about PMx and other enhancements are all wrapped up in that continued development of the DXRX. Again, we feel at this point, we have built significant scale and longevity into the platform, while we will always need to maintain the era of significant investment in growth, a significant investment and the growth of that platform is moving to a different stage.

Next slide, please. A quick 101 on what is precision medicine and could vary succinctly. Precision medicine by our definition is any disease area where the therapeutic options that are eligible for the patient are very heavily informed by a diagnostic test or some sort of diagnostic intervention that can ultimately identify a response to the drug. A paradigm shift for how medicine has been practiced for millennia in terms of who traditionally is try the drug, see if it works, if it doesn't try something different.

In precision medicine, we're very much about testing the patient understanding likelihood of response before we treat, and that has obvious advantages in terms of efficiency, in terms of patient health and ultimately, a better way to practice medicine.

When we apply the broad definition that we just discussed, actually very many diseases come into that universe, and we'll talk later about how we are growing the business to capture some of that market opportunity beyond what we would traditionally see as precision medicine in oncology or other areas where there has been a beachhead established for precision medicine.

Next slide, please. The key challenge with precision medicine is the science dictates that the drugs are highly efficacious and therefore, give high response rates. But typically, they're in small or smaller populations. And that is sometimes hard to target, hard to find these patients, and we sometimes have challenges with the patients not being tested. Sometimes we have challenges with that testing not being immediately actionable or the knowledge and awareness established or hard to action it.

So our precision medicine is absolutely the right approach and for those patients where we can find them, we can join them to the right therapeutic for their particular subtype of disease, then there is no question. The challenge is around how do we commercialize, how does a pharma company commercialize a precision medicine drug that maybe is targeting 1,000 patients in the U.S. a year. At the same time has got a market, a blockbuster drug like an Ozempic or something like this and the models that are required are very different.

Next slide, please. You heard me mention PMx, it's been a big feature of our RNS that we put out today and indeed some recent updates to the business. And I want to first describe to you what PMx does. And then I want to elaborate on the impact it should have on our business model.

On the bottom half of this slide, you'll see a comparison between PMx and Signal. Signal we launched in 2022, and the purpose and goal for Signal was to better inform and enable pharma sales teams. Okay? So I'm here in the middle of the slide. And you imagine that the mindset has been get Signal established, put it in the hands of a sales team and they go and do that last mile effort with the doctor in order to try to build awareness and educate around the opportunity to treat the patient with their drug.

Very targeted, has been very successful and will continue to be for Diaceutics and for our customers and ultimately for patients. What we're doing with PMx though is furthering that journey, and we are through the launch of PMx and the updates we've made to the platform, now able to deliver that message directly to the physician ourselves. Without the need for our sales team in the middle. Our clients may choose to still have sales on the ground and maybe they'll choose to have a more modified version of that. But PMx is effectively an omnichannel approach, driven by the DXRX platform and leveraging our data, so we still trigger it off the back of a Signal, that's core and we know that there's a patient.

But now we deliver the education awareness and content directly to the physician's desk, rather than enabling a third-party, whether that's the pharma, sales or somebody else to do that. That allows us to position this very differently from how we position the Signal data.

We are evolving the business from away from being a data vendor to more of a promotional partner. And indeed, the deal that we signed at the end of H1, our first-ever PMx we are positioned as the sole promotional provider for -- partner, sorry, for that particular drug launch. That will be the actual drug and who the partner is will be made public when the drug launches imminently.

And just to reiterate what that means, that means that Diaceutics is out there promoting the drug talking to the physicians about testing but we're taking a digital-first approach and doing it when there's a data Signal that supports it. There isn't a separate sales entity. We are the sole partner here.

What does that mean for revenue per brand, which is a KPI for Diaceutics? We've been tracking this for a long time. And at this point, we have a revenue per brand of around GBP 400,000 per brand per year. That's our average. What PMx does is show how we can move that quite significantly and the deal that we've signed has that revenue per year at around GBP 2 million with some significant upside opportunity based on success that we haven't baked in yet, but that's a key part of the model that we will benefit financially from a patient population moving on to the drug.

The more patients we find, the more patients are recruited on to the therapy, the better the structure is for Diaceutics. And remember, this is all in an effort to try to rebalance some of the -- what we feel is an imbalance in the value creation around the patient.

Historically, we've had an average of a return for pharma of $100 for every $1 they spend with Diaceutics. And if there's been a criticism of this business, it's been are you pricing this high enough for the revenue you're generating for pharma and PMx is our response to that. And ultimately, the beginning of the journey toward a rebalancing where this currently is more like $5 for every $100 invest. So it's a fivefold increase for us, but there's still a journey to travel there as we understand exactly how we leverage this and ultimately sell a position in the market.

Final point on this before I move on. Remember, what we're doing here with PMx is taking what we have built over the last years, particularly in the last 2 years, the investment cycle that we're just coming out the other side of, is effectively to bring PMx to market. We have the scale, we have the data, we have the capability to deliver what we need to do now is really focus on the commercialization, the selling of this and go and build a portfolio of PMx assets and done well, will be incredibly synergistic and transformative for this business.

Next slide, please. I'll touch on this very briefly. This is our story, it continues and I think we already articulated what 2024 will bring. PMx will be a key theme, but we believe that there is more to talk about. One of the mantras that we have with the business is to continually meet our guidance, the numbers that are guided to in the market consensus guidance.

This is our 7th continual period of reporting in line and reporting growth and that's something that we are very focused on, and particularly as we move toward moving to profitability in 2025, which is a key statement from us and something that we're gearing up for in the business. As we evolve this slide, we'll see a lot of those achievements in 2024 being out as we go.

Next slide, please. Some KPIs that we track. We have, as of the end of H1, 206 people in the business, primarily growth from sales -- increased sales team, which we talked about at the start of the year, key part of our strategy, particularly hiring sales folks in the U.S., also some additional assets around the business that are very much are on the commercial focus.

We've brought in some additional leadership at a VP level, primarily U.S.-based and again, of a strong commercial intent and focus for running the business as we go forward. We have 63 therapeutic brands that we're working with, that number remains very healthy, and Nick will talk to some of the improvement there versus H1 2023, but all of these metrics are improving. 7 enterprise-wide engagements up from 4 at the end of last year. The PMx deal is one of these and again, a healthy to bring 3 of those in, in the first half of the year.

Next slide. I'm actually going to jump past this slide, if that's okay, and go to the slide -- because I think I can capture it better in -- not Slide 10, but Slide 11, please. And then I'll pass over to Nick after this.

So to recap where are we and what ultimately are we solving for the market, I think this slide really shows that this is a case study that you may have seen before. We continue to add to it. It's still live in the market today, and we're still recruiting patients. This is a drug that launched in lung cancer in the United States at the start of 2023.

This data shows the weekly number of patients that are starting on that drug, these are new starts on drug and which would start data on halfway through year 1, week 27 here. And our -- the impact we've had, the additionality comes when you start to see the pale blue bar. And you can see most weeks we are doubling, sometimes almost tripling the number of patients who start on drug.

And we know that, that's impact that we're bringing because we can track right at a patient level through to the drug that we're on. And ultimately, we can see the impact we're having. This is very similar to the impact that we're having elsewhere. This is -- this is a really stark example of how adding our data can bring continuous upside to the pharma forecast and ultimately bring patients on to drug that wouldn't previously be on it.

You can see as their market has grown. If we move to the right of this chart. We have kept up with that. There's no tail off here, and we're still seeing continual additionality brought. What we will hope to see as we bring PMx to market, and we produce a similar sort of graphic chart for PMx, we'll see that with the same data, that we will convert even more of those patients over on to drug because the method, the approach that we're taking, the additional services that are inherent within PMx, our pilot programs and all the research that we've done suggest that the key metric of converged therapy.

Once you find a patient, can you actually get them on to the drug. A significantly higher with PMx than it is with Signal on its own and that's something that we continue to want to articulate and show as the evidence comes through to the business.

I think that's a good point to pass over to Nick, our CFO, who is going to walk through some of the financial update of the half.

[Nicholas Roberts, executive]

Thanks, Ryan. And can I ask just to skip forward one more slide, Slide 13, please. Thank you.

So I think hopefully what comes through in our RNS, certainly from a financial point of view, 3 key messages really. One is our continued performance and growth. Ryan alluded to this being our set period of growth and continue meeting of both our internal management expectations, but also those expectations that are set in the market.

Also, PMx, I don't think I can stress how important that is commercially in terms of our ability to reposition our offering with our customers, really demonstrate how we add value. And of course, the significant uplift in the market opportunity that really opens up for us.

And finally, hopefully, what came across in the RNS strongly was -- as we near the end of our 2-year investment cycle, which you might remember, we announced at the beginning of 2023, we are looking to move to profitability and cash flow, free cash flow generation in 2025.

That was a strong message that we sent to the market this time around, but also in prior announcements, and one we want to really reiterate and emphasize, I think that is key for us in terms of being able to deliver on future shareholder value. It's taking that investment that we've done over the last few years, really scaling on it and delivering on higher profitability and cash flow.

The finance strength slide here really talks to, I think, some of our key elements of our business case, what makes Diaceutics different, how do we stand out. It's our high margin, so 87% gross profit margin for the half 1, and we expect to be around 85% for the full year and that being representative of future years as well. We continue with strong top line growth. So our revenue CAGR over the last 3 years of 27%.

We continue to move the business towards a subscription-recurring revenue model. That's important. That's important for our future visibility of earnings and also the quality of those earnings. Ryan touched on the enterprise-wide engagements, the second front being added is PMx, so a different kind of enterprise engagement, probably one of the more important ones, certainly something we look to build on for future years.

Finally, strong balance sheet at the end of the half, GBP 16.7 million in cash, no debt, obviously, forecasting to move to profitability, cash flow generation in 2025, and just to emphasize that, again, like we announced in January 2023, we wouldn't be going below a minimum cash holding of GBP 12 million, and that is still the case as we see through the rest of the year and go into '25 where we'll see that the cash balances start to increase.

Can we go to the next slide, please? I'll cover up a few of the key finance metrics here. Obviously, we have a session at the end. I'm happy to jump into a bit more detail. Some of these we already pre-trailed as part of the trading update, no change to those numbers. So really important things, top line growth of GBP 12.3 million, up 24%, up 28% on a constant currency basis.

And just to explain, obviously, 90% or thereabouts of our revenue is in U.S. dollars. Our business is predominantly focused on the U.S. market, U.S. pharma, and they have a strong propensity to contract in dollars, hence, why it's important to report that constant currency growth.

I mentioned the shift to recurring revenues and order book, so record order book in terms of the GBP 27.9 million as an absolute value and really good visibility to our full year consensus and less guidance in the market. So we have around about 71% visibility as at the end of June to our full year number. That is very consistent with the prior year, and obviously, growing still over at a significant rate, that's sort of 25% to 27% year-on-year.

So a couple of the metrics that aren't covered on this slide, but I think equally as important to highlight TCV. So we saw the TCV marginally down on the first half of 2023 and 2022. So from GBP 16.9 million to GBP 13.8 million. A few things to note there that are in play, 2023 was a particularly high year due to the large 3-year enterprise-wide engagement that was announced in June, right at the end of H1 '23. Also to highlight 2022, was a strong H1 for us, really off the back of Signal launch and the opportunity in the market from this despite revolutionary products, a lot of low hanging fruit achieved there.

We did see some change orders in the first half of 2024. I think that's just part of the business model as we evolve towards more subscription-based recurring revenue contracts. We'll see some movements there. So very pleasing to see the subscription renewal rate based on value, 93% and even stronger. If you just look at subscriptions relating to Signal, which is obviously a key product for us.

Just finally on the TCV, we saw a push on shorter-term sales activity towards 1-year signal contracts in H1, again, which meant some of those numbers weren't as impressive as prior year. But to a large extent -- to a large extent, a lot of this was expected and we've been investing heavily in our sales and marketing capability at the end of last year, beginning of this year, and we're going to see that come online end of this year, probably Q4 and into next year. So really continue to invest for TCV revenue, order book ARR growth in future years.

I'll finish by just commenting again on a couple of metrics that aren't on here but very important. The EBITDA loss broadened to GBP 1.3 million, up from a loss of GBP 200,000 in 2023. Again, just to reiterate, that was expected, that was forecasted as part of our investment cycle, and we expect to see that reverse from H1 2025 onwards, where like in 2022, we'd expect to see both H1 profitability at an EBITDA level and, of course, full year profitability all the way down the P&L and cash flow generation as well.

Can I go to the next slide, please? A few of the operating KPIs, which I think are important. And just to say, Ryan's touched on a few of those enterprise-wide engagements up from -- sorry, for the beginning of the year to 7. We continue to invest in our people. So we have 206 as at the end of June and expect that to be around about 220 by the end of the financial year. And of course, some of those being the new -- the VP new hires and promotions is really key for us to be able to sell in and scale the business going forward.

We see record levels of both the number of brands we're working with and the number of customers, both really important metrics there. And I just want to touch on one final metric. So over 250,000 patients identified through Signal in H1 of 2024. That is over and above higher -- way higher than in previous halves. We expect that to be way north of 500,000 by the end of the year. I think really articulating the number of patient lives that we're looking to impact, particularly in U.S. where Signal is really leading the way.

Finally, I'll just finish on the next slide, if you may, on the future outlook and growth. I think as Ryan said, the -- our ability to capture significant and growing market opportunity is really embedded in our ability to both increase the number of brands we work with and that average revenue per brand. And what PMx has allowed us to do is unlock or remove that potentially perception of a glass ceiling that people might have had around what is our ability to move GBP 400,000 of revenue per gram per year upwards towards the GBP 1 million or GBP 2 million that we had articulated possible in prior -- well, in prior announcements and in prior years.

I think really this PMx deal we signed should alleviate those concerns and show that the opportunity is there for us to build that market opportunity. We've done a lot of the heavy lift in terms of the investment in our platform, our data, our people and a lab network, which is going to allow us to scale and become profitable. Apologies for the background noise, which I think it might have been a fire alarm.

On that note, why don't -- why don't I pause there and open up for any questions that people might have.

[Operator]

[Operator Instructions] We'll take our first question from Christian Glennie from Stifel.

[Christian Glennie, analyst]

Yes. Great. I suppose kicking off with the PMx deal, anything to note particularly around, obviously, the margin profile of such a deal versus your other enterprise deals that you have? And then maybe just to give us a bit of insight, obviously, there's performance-related milestones as you presumably deliver -- find more patients ultimately, I guess, is slower. But any way to sort of articulate how you achieve those extra sort of GBP 1.9 million of milestones? Are they reasonably credible? Are they [ British ] stretch targets, some idea about how you're structuring these deals?

[Nicholas Roberts, executive]

Yes. No, very good question. So I think just the question around margin, hopefully put your mind to rest there. So the margin on a PMx contract -- when you take into account all of the opportunity from the potential success fees patients getting on to drug is very much consistent with our current margin.

But even with, let's say, some lesser success fees, it would still be a very strong margin for this business. And actually, we welcome the opportunity to -- the challenge to sort of get as many patients as possible onto drug. And just to note that GBP 1.9 million, I guess answering the second part of your question is a reasonable -- it's based on a reasonable expectation of patients coming on to drug. So we've looked with the with a biotech partner as to what the market opportunity is, the number of patients. And we've set what we think is a fair challenge to the market.

Also to note that there's no cap on this. So if we were to achieve 120%, 150% of the anticipated patients on drug, then that ratchets up and the success fee follows that. Likewise, if we were to get no patients on drug, which won't happen, but if that were to, then again, the margin just on the base level service fee is reasonable for us and wouldn't significantly dilute our current margin level.

[Christian Glennie, analyst]

And then the follow-up would be as you're flagging, obviously, looking into 2025 now and this pivot to profitability and cash flow generation. I guess, what gives you the confidence that, that sort of comes through that you continue to -- that top line will continue to grow very strongly, but as you obviously unwind some of the investments that you've been making and you deliver that profitability ultimately.

[Nicholas Roberts, executive]

Yes. So I think a lot of it is in the groundwork that we have laid and we are laying this year. So we know that we need to invest in the sales and marketing capability, and we highlight that I talked about a little bit of that with the TCV. We've certainly invested in the ability to scale the business, and we continue to increase the market opportunity. So some of the key metrics that I always want to see increasing those number of brands we're working with, the number of customers we're working with. What we're finding as we're sort of breaking into new customers, breaking into new brands, we are becoming ever more sticky with our offering.

So I'm very confident, as we land brands, we are able to stick with them and expand the offering. So again, I think it's right that we need to continue to invest in the sales and market capability because when it comes down to it, I think one of the limiting factors for us has been just having the number of salespeople with the right marketing enablers of our marketing tools to get out there and really talk to as many people within these very large pharma customers as possible.

I know we've highlighted this in prior cases, but as an example, you've got one, maybe 2 key account managers looking after 3 or 4 of the largest pharmaceutical companies in the world. Those companies have multiple precision medicine assets and they just don't have enough bandwidth and enough time to get around and really explore opportunities for all of the stakeholders within pharma.

[Operator]

Next question comes from Natalia Webster from RBC Capital Markets.

[Natalia Webster, analyst]

Just checking you can hear me okay?

[Nicholas Roberts, executive]

Yes, all good.

[Natalia Webster, analyst]

I have two, please. So my first question relates to your slightly lower total contract value for the first half and a lot of the subscription renewals to the non-Signal product. Given these have a shorter contract length versus Signal contract, should we expect this trend of sort of higher churn to continue? And if this is the case, should we really be only thinking about the Signal contract as truly recurring nature? And if that is the case, are you able to provide some color around sort of the percentage order book that relates to the Signal product?

[Nicholas Roberts, executive]

Okay. So I noted those down, Natalia. Let me try and answer them. And if I forget one, will you please remind me. But -- so I think the -- I addressed some of the reasons why the TCV is slightly lower than in prior years. I think the non-Signal renewals is still strong.

So one of the things we want to be absolutely clear and consistent on is that as we move more of the products onto a subscription onto recurring revenue basis, so that's contractually design for that case. If we're including them, we've been in subscription and measuring that as a lagging metric in terms of renewal rate, then we also include them in the ARR, and we also need to include them in the renewal numbers.

Signal is very important. So it makes up around about 50% of our order book because it's -- and obviously, it's a significant part of order book when you get into over 12 months as well. In fact, it's most of the order book over 12 months. Renewal rate on Signal is key. We highlighted that the volume renewal rate on Signal is 94%.

What does that mean? We only lost one Signal renewal in the last 12 months. And the reason for that was that the pharma customer had abandoned the budget for their asset in the market because a competitor asset was better than them. So that was the rationalizing their spend and redeploying their budgets internally. So I think Signal is important to order book. It's important to renewal revenue and the renewal rates on those are very high.

The other products, some of the bolt-on are important. As I said, they're important for that subscription metric. And as we move more of them onto subscription, we should continue to measure manage these products as and when they come up for renewal so that we can maximize the opportunity there. So I don't think they should -- to your question, I don't think they should be excluded. I think they're still important, and we should consider those in the overall evolution of the business.

[Natalia Webster, analyst]

That answers my questions. I guess I'll just follow up with one second one if that's okay, a bit more general around lab consolidation in the industry. So I appreciate that it differs by lab type, and it's slightly different for precision medicine versus more routine testing. But curious to hear, if you've seen any impact on your lab network or testing coverage as a result of consolidation in the space? Just given your focus is more on the small to midsized labs.

[Ryan Keeling, executive]

Yes. Thanks, Natalia. I'll take that one. The -- there are 2 key trends that we see in the lab market. Let's be specific here. This is the U.S. lab market. One is consolidation, acquisition of by larger labs or smaller lab, particularly it was acquired buying hospital systems, et cetera.

The other key trend, and this is really critical for us is given the type of testing that we are really focused on here, genomic testing, molecular testing. That is benefiting hugely from the increased availability of technology on the lower price point, which laboratories that previously wouldn't have done complex molecular testing. Now that's much more attainable to them.

The equipment, the bioinformatic pipelines, the CapEx investment in terms of a lab being able to offer a complex say, 500 to 1,000 gene panel in oncology, which 5 years ago, 10 years ago, was really reserved for the very biggest labs with significant capital budgets. Now small hospital labs can to that testing in-house. They want to do it in-house because they don't want to send it out to big labs because they're fearful that they'll lose that business in the long run.

And as I said, you can now bring equipment into a lab, the size of a photocopier that has all of the software capability, all of the data capability built into it. So those 2 trends are competing for us. We're benefiting significantly from our small and medium labs, now starting to do very complex testing. And if it's a volume game, which we're in, then we're seeing most volume growth for genomic testing outside of the traditional big institution, academic labs or big multinational labs or countrywide labs into that sector.

Net for us is a volume game in terms of the volume of testing that we're seeing coming through our network. Where we do see churn in the network, it is largely driven by some acquisition. But for the most part, that has been outstripped by the volume increase and the democratization, if you like, of some of that complex testing, which is the highest value and its core to precision medicine.

[Operator]

Our next question comes from Hayley Palmer from Canaccord Genuity.

[Hayley Palmer, analyst]

Can you hear me?

[Ryan Keeling, executive]

Yes, Hayley.

[Hayley Palmer, analyst]

Just a couple of questions from me, please. Firstly, on PMx, I was wondering whether you could provide a bit of an idea of the journey to date with your client partner there, how did that engagement begin with them? And then also looking ahead to future clients, given your more closely tied to the commercial success of their asset, and it's obviously kind of a 2-way street partnership. I was wondering what you do to feel comfortable that the asset is worth effectively backing in the beginning. So if you could give an idea of that, please, and then I'll move on to the next half towards.

[Ryan Keeling, executive]

The fortuitous position of having all the data or a lot of the data is that you can ultimately see how many patients there are in the first phase that are eligible for the drug. And that was very much the case for this first deal. We knew -- well, we knew as well and see better than the actual biotech who are developing the drug, what the market opportunity was, where the patients are, and ultimately how to get to those patients. So that bit we feel we have covered off and that is part of our approach to PMx in terms of how we are actively trying to now build a portfolio of PMx partnerships.

We have assigned one of our executive leadership team. So one of my ExCo colleagues is moving to be very focused potentially in the future, exclusively focused on building the PMx commercial portfolio and out there now working with not just biotech, but our pharma clients who have drugs that would fit into this model very nicely. The advantage we have, of course, is that we're already working with, we think, the majority of future PMx customers.

A lot of them are already buying something from us they will be buying Signal yet for the most part because maybe the drug hasn't launched. But some of them are and some of them might be looking at how they can have a more efficient commercial model. But the clients that we work with here, our partner. We have been working with them for over 2 years. In a customer capacity, they've been buying data sets from us to understand their market, market research landscape, some of our advisory services.

And then in the last 6 to 9 months, that conversation has evolved more to PMx as they understood better our plans to bring this forward as a solution. It quickly turn to a broader conversation, most notably at a significantly higher level within the organization than we would typically sell into.

So while the sales cycle is longer, obviously, it would be. It's not starting from 0. These are existing customers. We envisage for the most part, a lot of them already bought from us. A lot of them already understand how compelling that data is. And as we gather more evidence and ultimately show how The second part of PMx, which is the physician interaction and engagement really makes the data even more valuable and more actionable, then we feel it's clear option and differentiator for us in the market.

[Hayley Palmer, analyst]

That's really helpful. And then in terms of the European market, I know in the statement that you pull out that you're kind of looking at some early-stage trials there. I was wondering whether you could just give a bit of an update of what you're seeing in that market and of the competitive landscapes or barriers to entry there?

[Ryan Keeling, executive]

Yes. So Europe is continually an interesting market and important because we have to balance the very significant opportunity there is in the U.S. for a multitude of reasons versus making sure that we continue to grow our capability and potential offering in Europe.

One of the things that's very clear is that the way that drugs are commercialized in Europe is very different than the U.S. Most notably, when pharma's return on investment per patient based on how the drugs are priced in Europe versus U.S. is very different. We feel that actually PMx, if we jump over the Signal opportunity in Europe for a moment and just go straight to PMx, where our pharma margins are tight, where the ability to get the patients is potentially even harder than it is in the U.S., given how decentralized some of our health care systems are in Europe, that the PMx could be a real opportunity for us to enable pharma and biotech to bring drugs to market that they might not have bothered launching in Europe previously, because the economics didn't stack up or access to physician and patient is too challenging.

So the data is certainly the initial step towards that, and we brought on some significant EU data in H1. It won't appear significantly in our revenue in 2024. We don't believe, but it is engaged today in pilot programs and various other things that we're doing with pharma. The headwind we have there, the barriers to entry are not a competitive one.

In fact, Europe is effectively blue ocean for us. Thus, it's -- there's an excitement there of the opportunity, but the challenges around bringing pharma on that journey, the compliance model, the legal model around it, while we built a framework, which is compliant. It's about getting our customers comfortable.

We were here 10 years ago in the U.S., when we first started offering or when others offered you a signal lab data-type offering. And there was a lot of hesitancy as to, are we allowed to do this? That obviously has being corrected in the U.S. We're at that embryonic stage in Europe. We're engaging with clients for the first time. They've never done next before, and we need to give their legal teams, their compliance teams, et cetera, comfort that the same approach that works in the U.S., is allowed in Europe with all of the announced privacy rules, et cetera, we have here. We believe we've built our model, but it's about bringing them along that journey.

[Operator]

Our next question comes from Julie Simmonds from Panmure Gordon.

[Julie Simmonds, analyst]

I was just wondering what puts the cap on the growth rate at the moment? Is it the pharma companies? Is it your sales ability? and what sort of stops the growth rate getting higher?

[Ryan Keeling, executive]

I think it's the latter, Julie. I think we've talked about that, and we talked about the how the Diaceutics story on our offering and capability and the value we create just needs to be brought to a significantly higher level of exposure. And thus, our investment in sales, thus the investment in marketing and a big push on the marketing front, just to make our customers -- potential new customers, very aware of what we can do for them.

We still get challenged and the market from customers pains me when I hear it, but we still hear commonly of, "We didn't know you did that?" Okay, also they may know Diaceutics from the past or what we did once for them or be back for more adviser consulting.

So trying to move that in PMx, trying to be really heavily on the PMx positioning is part of changing story. And then similarly, as precision medicine grows and precision medicine becomes more prominent. And ultimately, we stopped calling it precision medicine and start calling it medicine and because it's not this thing over to the side.

So the good things take time, but it's largely about positioning market presence, and right now, we're still out there tip of the spear type sales approach. We have had success this year in building some channel partnerships, which we'll talk about more in future updates but they could bring scale and growth. So it's not always one track strategy, but that's a limiting factor today.

[Julie Simmonds, analyst]

Lovely. And then just finally, in terms of your partnerships, when you start with the brand, I mean, how long do you think the sort of longevity of an individual brand partnership is now? Because I know in the early days, they sort of tended to use your launch and then it stopped, but that doesn't seem to be the case anymore.

[Ryan Keeling, executive]

No. Our ideal and I'll describe the reality. Our ideal is to pick them up about 3 years before launch. We have services designed to live with that brand 3 years before. And then I think we're working on brands today that are been in the market for 6 or 7 years. We may not have been working with them for that entire 7 years, but they picked up Signal maybe on year 3 into the market, because that's when we launched it.

So we can see there that there's maybe a 10-year runway -- sorry, 10-year period where we can stay for the brand. What will limit that -- competitive forces on their brand. Are they still commercializing the drug at the level they were previously? And competition is key to that. And ultimately, how disease evolves and other options that might be available for the patient. So it's a bit -- it will be different case by case. But we very much see this now as now and we do everything right and that the drug has a good run on the market.

Given our 93% renewal volume renewal, we're not seeing these getting switched off. So get in, get in early and stayed switched on, and 7 to 10 years is absolutely possible, and we've already shown that we can do that for some.

[Operator]

Our next question comes from Chris Glasper from Singer Capital.

[Christopher Glasper, analyst]

Just a couple of follow-ups on PMx and one on the rare disease offering, if I may. Have you quantified how many customers do you think are eligible or would have appetite for adopting PMx as an end-to-end solution? And also, obviously, they have alternatives when it comes to commercializing their products either in-house or outsourced sales or [ feet ] on the street. What is the economic advantage to adopting PMx rather than maybe going down some of those more traditional commercialization routes?

[Ryan Keeling, executive]

Let me take that and maybe Nick can too. So I'll take the second bit first, Chris. The economic advantage is twofold. One is the conversion rate, as we call it, i.e., the percentage of patients then when you get to them, you can actually convert to your treatment, okay, or get them on to treatment. We can see that is significantly higher with PMx than it is through traditional, where even traditional ways enabled by signal where you know the patients there, but maybe you're engaging other ways in, we see PMx is moving that on again.

So you couple up with the signal data, which is best-in-class, works timely, most actionable data. And you put it in now with a PMx solution, which has at its core, a way to leverage the diagnostic journey the patient is on to better inform the patient -- sorry, inform the physician. And we see significant upside for the pharma.

Couple that with the cost implications. So a sales team is one of the biggest expenses for an all-market drug outside of clinical development and clinical programs to go out and actually put a 50-person sales team in the U.S. is an expensive thing to do. What we're offering here is a model where you don't need to do that or you don't need to the full extent. You might drop down to a key account manager team, regional account managers, something that can go hand-in-hand with an omnichannel approach that we're offering here with PMx.

So there's a cost saving significant at times along with a better outcome and couple that against a market where more and more physicians are shutting down access to them from sales channels, i.e., don't allow pharma reps to go and visit them. And we're channeling towards funneling into solutions, which are delivering in promotional channels and that's exactly what we're bringing to the market.

On the opportunity and how many of these, we're still doing that work, Chris, if I'm honest. We can -- we've built a sales pipeline to go after. It's not exhaustive, yet. It's not representative of the full market opportunity. So if you want to a live, we'll come back on that as to what that could look like. But -- and to an extent, we're trying to be somewhat measured in how we communicate to the market what this does to our total addressable market.

We think it's significant. If we can move the average revenue per brand from GBP 400,000 to anywhere close to where we come with PMx as an average, that will have a profound impact on this business. At the same time, as identifying those new precision medicines that are coming to market. And that's still a very healthy number of brand new drugs. A lot of them being driven by biotech and they're right in our sweet spot for conversation around doing this.

[Nicholas Roberts, executive]

Yes. And just to add to that, I mean, I feel that ultimately, a significant proportion of the 250-odd precision medicine that has been highlighted should pick up PMx in some shape or form, some maybe to a lesser extent than others. But in terms of a short-term pipeline, the one that Ryan is referring to, we're currently doing quite a lot of due diligence in the market around customers and brands that we currently work with for a lot of these late-stage biotech, well-funded NASDAQ listed, we're looking at their detailed analyst reports to understand what's their forecast opportunity in the market versus the data that we are seeing in terms of patient numbers.

We're identifying whether they're maybe overestimating or underestimating and that then helps us identify those brands that are close to launch those that are in our sweet spot in terms of maybe oncology -- certain types of oncology other than others, and we're chasing down those opportunities first because I think those are the ones that will convert most readily to be PMx.

[Ryan Keeling, executive]

And just a final point on that. This is not just about a biotech kind of smaller company who doesn't have sales presence. We're actually in conversation. We think the next PMx as we announced are going to be big pharma who have precision medicine drugs that have been on market for quite a few years They are cycling the sales team off to go and focus on a new launch, something different. And we're potentially going to provide the promotional capability instead.

So there is a model where we have maybe a brand that we've been selling Signal to for a few years. They're taking the sales team off and we are there to maybe go alone from here, albeit in a different model and a different position. and that's very exciting to -- for us in terms of how we could maybe bring a brand that was perhaps even declining in terms of its market expectation and patient coverage and really brief some new life into it.

[Christopher Glasper, analyst]

That's very helpful. And just very quickly on the new extended rare disease offering, you obviously signed up your first Signal client there. Hopefully, first of many. Just wondering if you can talk about the pipeline there and maybe in slightly more abstract terms where you think rare disease might get to as a percentage of revenues over the next few years?

[Ryan Keeling, executive]

Just I'll take that. So the rare disease opportunity is very interesting and increasingly significant driven by a couple of things. One is we talk about it, look, I guess one thing that's thousands of diseases, okay? Two, the way the disease is diagnosed. Typically, we're going after genetically-driven rare disease. So these are hereditary-driven by some sort of gene mutation, et cetera.

So the type of testing, the lab network we have, the data pipeline we've built, all of that lend themselves really nicely to that genomic genetic testing. In terms of the percentage revenue, oncology for the foreseeable will remain our key area in the business. I would like to see precision -- sorry, rare disease grow to be at least 10% of our revenue by the end of next year and then maybe 20% to 30% in time.

Look, there's a bit of wiggle room there, and we need to observe that. The key thing for us and the really exciting thing with rare disease is, we're seeing, particularly with gene therapies, and a lot of gene therapies are targeting rare disease, the value per patient is exponentially higher than even that is in oncology. It's high-priced drugs in oncology, but you move into gene therapy for rare disease, they're significant value per patient. And typically, these patients are on the drugs for life.

So the opportunity to find one patient is tremendous. And if we can bring PMx into that model, which we fully intend to do, then the upside opportunity for us as we continue to have best-in-class data. And finding these patients is the name of the game. That's the pursuit. So that's what PMx in rare disease, and Signal and rare disease looks like for us.

[Operator]

There were no further questions on the webinar. I will now hand over to the Diaceutics team for closing remarks.

[Ryan Keeling, executive]

Thank you. And just, again, thank you all for joining us today. Hopefully, that furthered your knowledge in the business and we were able to give you some additional color. As hopefully evidenced in the presentation today and then the [ ones ], we're tremendously excited about this business. We remain confident and the outlook for 2024 and beyond.

We're steadfastly resolute and as my CFO sits to my right in the drive towards profitability and beyond in 2025, and we feel that option makes sense for the business. It's not just that we say we do it, so we're doing it. It's the right approach for us as we scale and drive the business.

The challenge ahead for Diaceutics is not a build, one, it's an execution and that is where we're heavily invested, both invested financially, but also heavily invested in the strategy and in the planning around how do we grow the sales and marketing and the presence of this organization. We're doing that through direct partnerships with others through direct selling capability, through bringing on new commercial leaders into the business that will really drive us forward. A real focus on the U.S. market where data is key.

At the same time, continuing to focus on growing that market opportunity, scaling the business and doing this at scale with recurring revenue, bringing on enterprise-wide engagements. All of those things are important. Bringing Signal through now alongside PMx or enhanced into PMx is core, and growing beyond our current client base into biotech, into other parts of pharma segments, which we haven't talked a lot about yet, but we will in the future. All present significant opportunity for the business and we believe the trajectory we're on will continue, and we're very excited about that.

Thank you, and talk to you all again someday. Thank you very much.

[Nicholas Roberts, executive]

Thank you.