Abcam PLC (ABCM) 2020 Q4 法說會逐字稿

(inaudible) good afternoon to (inaudible) thank you for joining the Abcam plc's preliminary (inaudible) I'll be moderating (inaudible).

(Operator Instructions)

(inaudible) to Alan Hirzel (inaudible) please go ahead.

Thank you. And thank you, everyone, for joining today.

I'm joined today by -- in this presentation by Michael Baldock, so you'll hear both of our voices.

Just to get us started on, Page 1. This year, like many years, is a confident investment in Abcam's future. We're going to a lot today about how we've been thinking about it this past year in the context of a multiyear growth story, and I look forward to going through that as well as covering questions at the end.

If we turn to Page 2. The presentation today and the discussion we have is covered by this disclaimer.

Page 3, our agenda. I'm going to start with the -- just a few comments and reflections on how our purpose as a company, the people we have, the culture we've built is inextricably linked to the growth and the kind of business that we're running as well as how we've been operating during COVID. Michael will then come online and talk about the financial performance of the business through this period. And then I will wrap it up with an overview of how our first year of the implementation of our 5-year plan and strategy is progressing and how we see the journey towards our long-term goals and business.

Page 4. Throughout all of the presentations that we've done together, I've always started with our purpose, how we're connected to life science; and talked about how important it is that Abcam is pursuing a path towards influencing life sciences and having real impact on society and that, if we do that well, it will translate into benefits for the society but also for the business and all stakeholders. And I just want to comment on that a little bit.

So Page 5, our purpose. If you ask every one of our people in the company, they will tell you our purpose, the reason we're here, is to serve life scientists and to help them in their research or clinical mission achieve their objectives faster than they would any other way. And that's what roots us all, what's gives us strength and energy. And it's how we think about our growing influence on life sciences; and ultimately helping people have better lives, better health and better well-being. And no matter how we measure it, we're confident that the impact that we're having on publications, on clinically relevant projects, on our -- the expansion of our portfolio into diagnostic platforms and beyond -- that we're certainly progressing towards the kinds of objective we have to influence society and scientific outcomes and be the most influential company in the life sciences in that regard.

If I turn to Page 6. That doesn't happen without an amazing team of people around the world that are dedicated to that purpose. Over the years, we have done a lot to make sure that our team is well compensated, well trained, works in great facilities, feels energized by what we're up to. And you can see some of the history of that transition in kind of how people feel about working at Abcam in the chart around global employee Net Promoter scores. It's up tremendously over the last 6 years, and it's not just us saying we'd like to work at Abcam. There are other organizations, like Glassdoor and 180 for women, who are recognizing that Abcam is a great place to work. And I want to thank everybody who's contributed to the results that we're going to talk about today around the world because we've not only done that with their normal dedication, agility and audaciousness. This year has been, of course, a very challenging year to operate; and all of them have figured out ways to contribute to our growth story whilst working remotely and working flexibly. And the team that you see here is an example of that.

Page 7. The organization is getting larger. We're over 1,500 people now worldwide. We continue to grow and develop our team. And of the roughly 500 people we've added to the business, that 400 of those were new hires and about just under 100 were through acquisitions and integrations that we've done. So we're making a big investment in scaling the capabilities of this company, and we continue to do that throughout the period of the COVID pandemic because we're confident in the outlook for the business. And you can see the spread here of people in terms of regions and the kinds of technical skills they bring. I'm absolutely confident that we've got an incredibly strong culture and team to deliver on the purpose that I talked about.

Page 8, just a few comments about what we've been doing during the pandemic that's kind of over and above the normal activities of Abcam. We certainly feel we've strengthened the business during the pandemic. We've delivered to customers consistently, even when we've had to shut our facilities entirely. Like in the early days in China back in late January or early February, we were still able to get a few people in to ship some important orders. And we've felt great about our global team's ability to manage that. We introduced new products. We're committed to innovating and continuing to push on immunology areas related to COVID. And certainly the opportunities to work closely with customers during this period has helped us see new opportunities to innovate and broaden the portfolio.

In the diagnostics area and then also in therapeutics related to COVID, we've had over 30 clinical collaborations around the world, and those have involved helping provide components for lateral flow diagnostics as well as creating antibody strategies for creating a kind of therapeutic response to COVID. And those are ongoing and we're excited to have that role to play. And then like many other companies around the world, we've tried to provide some in-kind support for the local communities and where we work.

Page 9. Over the past year, we've certainly been reviewing how we think about the impact from our business operations and how we communicate that kind of broader sustainability and with our growth objectives because we believe they're intrinsically linked. So this year, we've thought about the importance of sustaining value creations and sustainable developments around products, our people, partners and planet. And you'll hear us talking more about that and the alignment of those goals with the UN Sustainable Development Goals.

If I turn to Page 9. We're just at the beginning -- or sorry, Page 10. Just at the beginning of outlining and measuring our commitments in each of these areas. And we'd like to make it easier for everyone to understand how we've always run the business but to make it easier to sort of understand what we're doing and how we connect that to growing our impact and running a socially responsible business.

So that's it for the introduction. I hope that's a useful context now for the financial performance. And I'll turn it over to Michael, Page 11, to begin that section.

Thank you, Alan, and good afternoon, everyone.

If we could turn to Page 12, please. The most important point I'd like to make during our financial presentation today is that we've delivered a resilient top line performance against the backdrop of COVID-19 while continuing to invest in our long-term growth strategy.

Our revenues on a reported basis was flat at GBP 260 million and benefited from a small foreign exchange tailwind. On a constant currency basis, revenue declined 1.4%. Our gross margin for the year contracted by 120 basis points to 69.2%, with most of the decline due to the impact of COVID-19 on sales. Other smaller impacts included about 1% from foreign exchange, some geographic mix and lower IVD revenues, which was partially offset by growth in sales of our in-house products. We expect our gross margin to improve as the proportion of our in-house sales grow.

And after the strategic investments made during the talk -- during the year, our adjusted operating profit was GBP 44.5 million. Those investments, which I'll talk about later, included 30% expansion in our global head count, as Alan mentioned, to approximately 1,500 people; the integration of 4 acquisitions, which brought in over 80 people; and a doubling of noncash costs, comprising depreciation, amortization and share-based compensation. Our adjusting operating profit margin of 17.1% was below the target we set at the start of the year of 25% to 28%, but it's important to note that this was entirely attributable to the impact of COVID-19, together with the impact of the acquisitions made in the year. Had the second half sales continued the same trend that we saw in the first half, we would have been in line with our target. We continue to intend to invest further behind those acquisitions as well as in our growth initiatives in the year ahead.

Adjusted fully diluted earnings per share was 16.6p per share, reflecting both a decrease in earnings and an increase in share count resulting from the 5% share placing we did in April. The group continues to be highly cash generative with cash generated from operations of GBP 63.3 million. And this, together with the proceeds from the GBP 110 million share placing, means the group ended the year with a net cash position of over GBP 80 million, providing ample liquidity to support our organic investment plan.

As set out in the interim results, the Board sees significant further opportunities for profitable growth and attractive returns on investment and believe that the best way to maximize shareholder value over the long term is to increase the group's flexibility to invest in those opportunities as they arise. This view is shared by a significant majority of our shareholders we consulted with, and accordingly, the Board has decided not to declare a final dividend for the fiscal year. The Board will continue to review this and the group's capital allocation and dividend policy on an ongoing basis, with future distributions reflecting the group's cash generation and investment opportunity.

If we can turn to Page 13, please. So let's turn to our revenue performance.

Catalog revenues, which accounted for about 94% of the total in the year, was broadly flat at GBP 243.1 million, benefiting slightly from foreign exchange. This performance resulted mainly from the impact of COVID-19 pandemic in the second half of the year where we saw a reduction in demand as research labs reduced activity or shut down temporarily. We continued to serve the needs of laboratories that remained open, but the reduction in demand during the last 4 months of the year resulted in a 10.5% budget shortfall in catalog revenues.

Within catalog revenues, in-house products delivered a strong relative performance, increasing by 7.4% on a reported basis to GBP 114 million or 47% of catalog revenue. Including CP&L revenue, total revenue from in-house products and services increased 6.2% on a reported basis to GBP 131.3 million and represented for the first time over 50% of total revenues. The resilient demand for these products reinforces our underlying basis for our organic growth and our growth strategy.

Turning to CP&L. For the first time, to aid understanding, we've broken out CP&L by its component parts. As you can see, CP&L revenue actually comprises 3 main revenue streams: the custom service business; revenue from the supply of products for in vitro diagnostics use; and royalty and license income, including milestone payments. Custom services and royalties and licensing revenue lines both grew double digits, and we're pleased to see the downstream benefits from the last few years of driving royalty growth. The purchasing delays of IVD products that we experienced in the first half of the year continued into the second half, resulting in a decline in IVD revenue for the year. We continue to build long-term relationships with our major IVD customers, and we remain confident in the long-term growth potential of this area of the business.

If we could turn to Page 14, please. Regionally, all markets were adversely impacted by COVID-19 in our second half. Revenue trends in each country correlated strongly to policy actions taken by governments and organizations around the world in response to the spread of the virus and the resulting partial or full shutdowns and subsequent reopening of academic and biopharmaceutical research laboratories. The Americas and China saw the greatest impacts, with 18.4% and 20.5% below the second half of 2019, respectively; and are resulting in declines for full year revenues of 6.7% for the Americas and 1.5% for China. The EMEA, Japan and the rest of Asia fared much better. And overall, these regions delivered reported growth of 3.4%, 6.2% and 6.4% for the full year. Across all regions, performance gradually improved during the last 3 months of the year, and we've seen a gradual improvement in activity in the first 2 months of our new financial year.

Page 15, please. Let's turn to the investments that drive our top line growth. Notwithstanding COVID, we made a fast start to the implementation of our 5-year plan. We invested approximately GBP 120 million in acquisitions and external investments during the year to augment our organic plans. Forecast -- foremost amongst these was the acquisition of the proteomics and immunology business of Expedeon for EUR 120 million or around GBP 105 million. We invested an additional GBP 15 million, including integration and acquisition costs, across 5 other smaller transactions comprising the engineered cell lines and lysates portfolio of EdiGene, the gene editing platform and oncology product portfolio of Applied StemCell's; Marker Gene Technologies, which was an additional component of our conjugation strategy; and 2 small investments in BrickBio and SomaServe, 2 small private companies. Despite COVID, we believe the market for deals remains open; and we remain very active and actively focused on developing a pipeline of opportunities that meet our acquisition criteria.

We also invested over GBP 20 million of OpEx in our own strategic initiatives during the year. Over half of this was on product innovation R&D and building our new product categories. In the year, our total R&D investment as a percent of our in-house sales, including [capitalization of innovation], was over 20%. We also invested around GBP 10 million across areas including our commercial transformation and customer experience teams, our data analytics and digital transformation, our global supply chain and our teams. As Alan earlier mentioned, at the end of June 2020, we had almost 1,500 employees, up almost 350 people over the year, including over 80 that joined us through acquisitions.

If we could please turn to Page 16. The investments we're making under our 5-year plan can be seen on this adjusted operating profit bridge. The chart starts with last year's adjusted operating profit of GBP 83.6 million.

In fiscal year '20, we generated approximately GBP 4 million less of gross profit, GBP 1 million of which was foreign exchange related, with the remainder being a combination of lower IVD revenues, geographic mix and higher fixed costs like shipping during COVID. From the resulting approximately GBP 80 million, we invested about GBP 25 million back into the business, including approximately GBP 4 million of volume and inflationary-related costs and approximately GBP 6 million in incremental depreciation and amortization reflecting the increased capitalization of product development. That product development has happened in recent years. And as well as the employment of ERP modules and the completion of the U.K. headquarters. We expect underlying depreciation and amortization to rise a similar amount next year.

Noncash items also included the GBP 6.7 million charge for the impact of IFRS 16.

Please turn to Page 17. We continue to be highly cash generative, with cash generated from operations, after working capital movements, of GBP 65.4 million.

Investing activities totaled around GBP 150 million. This breaks down to just over GBP 112 million spent on acquisitions, as previously discussed; and around GBP 36 million on capital expenditures. CapEx was broadly level with that we saw in 2019. We also invested around GBP 20 million on CapEx relating to new product development. This included the kitting out of new laboratories to support our proteins and cell lines development capabilities as well as around GBP 9 million of capitalized product development. We also spent around GBP 14 million on IT programs in the year, the majority of which was on our ERP. We now anticipate the majority of the final modules of our ERP to be deployed in fiscal year '21 and at a similar capital cost to fiscal year '20.

Moving to financing activities. We drew down on the RCF in January to fund the Expedeon acquisition. Subsequent to the acquisition, we paid down part of this borrowing before drawing down again in March, following the escalation of the COVID-19 pandemic, to provide additional operational flexibility. The balance outstanding at the year-end was GBP 106.4 million, leaving GBP 93 million still undrawn as well as an accordion option of up to an additional GBP 100 million. After proceeds of the GBP 110 million from the equity issue in April and dividend outflows to shareholders of GBP 25 million during the year, total cash inflows from financing activities was GBP 184.5 million, resulting in a gross cash position of GBP 187.3 million at year-end.

If we please turn to Slide 18. As we discussed at our trading update in July, scientists around the world have continued to adapt their working conditions to COVID-19. The improving trend of activity we saw during the later stages of 2019-'20, as shown in this chart, has gradually continued into the new fiscal year across our major regions. Nevertheless, given the clear risks around further outbreaks, the potential for reintroduction of more stringent lockdown measures and general lack of visibility on short-term outlook, we are not providing full year guidance at this time.

With regards to our longer-term outlook and goals and notwithstanding the short-term impacts of COVID-19, the fundamentals of our business are strong, and the long-term dynamics of our markets are very attractive. Undoubtedly, COVID-19 has brought a level of uncertainty with respect to the near-term outlook. However, with that being said, we remain committed to the strategic investment plan we laid out in September 2019 and remain focused on achieving those financial goals. To further support the group's plans, in July 2020, the Board announced its intention to explore a secondary listing in the United States. Further to subsequent discussions with -- and analysis, the Board has decided to pursue a potential secondary listing on NASDAQ, supplementing the group's existing listing on AIM. The proposed secondary listing is expected to occur in the final calendar quarter of 2020, subject to market and other conditions.

In summary, despite everything that's going on in the world, these remain very exciting times at Abcam. And we continue investing in the business and remain focused on delivering our goals in order to deliver our long-term profitable revenue growth.

Thank you. Now I'll turn it back to Alan to update on our strategic progress in the year.

Thank you, Michael.

Turning to Page 19. 11 months ago, we and the entire team of Abcam described in great detail our aspiration to and goals to build a business that was 400 to -- GBP 450 million to GBP 500 million in revenue and had attractive economics by kind of November 2024. And we continue to believe in that opportunity and we're investing behind it. What I want to talk about now is just the progress that we've made in year 1, and then I'll wrap it up from there.

So if I turn to Page 20. The 6 major drivers to sustain our growth are all important. And we've, in this first year, been able to put capital and smart people or with real talent and capabilities that we have brought in or developed over time and good ideas to work in each of these areas. And I'm -- I can say with great confidence and pride that the team has done more in the first year. And we've been able to deploy more capital and more human resource into the long-term growth of the company than we had originally anticipated even back when we were talking in November 2019, and Michael has just described the financial scale of that. And that was what we always wanted to do. We wanted to put our foot on the accelerator, see how fast we could go because we know, the faster we drive into the investment, the more likely and more secure the out-years are going to be in terms of the financial outcomes from those innovations and things that we're building in the company.

[If I just give a] couple of examples for each of these on Page 21. Long may be true that we're still talking about research using antibodies. That's our core strength, and goal #1 is to extend our leadership there and how we use digital technology to reach customers who want those products. And this year has been another great year of innovation. We've exceeded our target for product launches. We now have over 20,000 recombinant antibodies. And we're putting those products into higher performance, higher quality, more validation standards, more variations of products than ever before. And we're getting great feedback from the market that those products are performing well both from kind of quality and satisfaction rate data but also from third-party reviews, either in terms of surveys that were done, the likes of Biocompare but -- or also the citation share which is the share of references that are using Abcam products both in antibodies as a sole reagent and antibodies also and immunoassays like ELISA's.

And ELISA's story is really a great one because we've not been doing work in immunoassays for very long, but it's the adjacent moves that we made, first, beyond research using antibodies only. And to have the immunoassays continuing to pick up steam and gain share versus our competitors in this way is very satisfying and gives us confidence to keep investing in this area because there are plenty of ideas to go for.

Page 22. The other components to our growth are the moves that we're making to expand into adjacent markets. And in terms of the first one, removing innovation constraints and launching new lines, this year, we've done exactly that. We've got our proteins business underway and been able to launch not only the technical capability of making them but also have customers beginning to buy them. Our cell lines, both engineered cell lines and lysates, again, added to the catalog. Customers are buying them. We expanded FirePlex into more high-throughput uses for biopharmaceutical customers. Those have gone very well. We're excited about the potential there. And in all of these areas, all these adjacent areas, the product uptake despite COVID was still ahead of commercial plan.

And the other area here, of course, is to move beyond Abcam's historic strength in small-volume academic buyers into more of a discovery partner for biopharma. And here too, I think we've made amazing progress over the last year by improving the -- both the scale and quality of the partnerships that we have but also the strength of our commercial team to support them.

Page 23. No -- none of this product development work can be as effective as we want it to be without being a leading digital company. The advantage of starting as a digital and e-commerce business is -- we're a long way into knowing what that means. We certainly see opportunities to improve. And over this past year, the addition of new team members has helped us rethink where we're going to go in terms of our digital platform and also helps us accelerate some of the improvements to our existing technology.

Page 24, yes. All these people, all these ideas, all these new product areas, they need facilities and processes to work in. And I think it's not just building buildings but actually improving how we do things that's important to us. And over the last 36 months, we've seen a 50% reduction in the time it takes us to develop an antibody. That's a whole bunch of work and process reengineering, quality management, automation, real capabilities that we didn't have as a company before we started to build out a manufacturing and supply team and also kind of advanced technologies in R&D. [I'm] very proud of the teams that have been working on that, and we still think there's opportunities to do more. And then we are doing the basics around facilities. And in the U.S. in particular, over this past year, we've initiated a pretty significant expansion with a 100,000-square-foot new building in Waltham, Massachusetts; expansion of our Eugene facility; and some further expansion in the bay area, where we already have 2 facilities, in order to accommodate our cell lines growth.

So a very important agenda for us because we don't want anything to get in the way of our growth, and certainly investing here ahead of our immediate need is important.

Page 25. Michael mentioned we're still pursuing acquisitions. It's the framework we're using is the same one that we talked about last November. We're trying to find opportunities to acquire really high-quality biological reagent portfolios. This can be in more acquisitions around antibodies and the related product categories that you see on this chart. And the question is just simply how do we unlock those opportunities at the right time when the sellers are ready to sell and that they're at the economics that we find attractive, but we -- this environment of COVID has certainly identified more opportunities than fewer.

So just to summarize on Page 26. We all, the Board, the executive team, the organization, feel like we have a great, talented team; and very strong culture to -- that has been tested and has thrived during COVID. And as we see through the short-term effects of COVID to longer-term opportunities, we're confident in the sustainable and durable growth that is possible for this company, and based on the foundations that we have, we're committed to investing because it's very attractive. When we get it right and particularly with our own products, return on capital and the growth prospects of those are very attractive. And we've got a team in place and a process in place for being disciplined around how we invest. And I declare the first year to be a success in terms of our strategic plan, that we've -- even with COVID going on, we were able to get so many things going. I certainly feel good about continuing to build on that success and in the financial year to come and the opportunities in terms of revenue growth that that's going to present in the years beyond that.

So thank you for your attention. And Michael and I will make ourselves available for questions now.

(Operator Instructions) So our first question is from James Gordon.

Great. It's James Gordon from JPMorgan. 2 questions, please, so 1 on 2021 and 1 on the longer-term target. So on '21, I note the comment on profitability continuing to be suppressed by the effects of COVID-19 and investment plans as well in the short to medium term. So clearly, COVID-19 is pretty hard to predict. And in terms of what's certainly more predictable, on investment plans, so what sort of pace could we see adjusted OpEx grow at for this year? Could it be something like 10% versus teens last year? Any commentary there would be very useful. And also, just as we do our own forecasts for the top line in '21, it was helpful when you talked about gradual improvement in the first 2 months of the year. Maybe also, if you could say something about how much better August looked versus July, that would be great, please. So that was the first question.

And then second question, the 2024 target. So there have been clearly some challenges from COVID-19. And also you're investing a bit more but on track to hit the '24 target, which I think would mean something like a 40% CAGR in EBIT from '21 to '24, so the question is, is there anything that -- as well as some of the challenges, things that are going better and that's why you think you're going to see this sort of inflection and even faster growth in the later years than you previously expected? Or was there any conservatism in the previous target? And how much M&A are you expecting to contribute to the '24 number as well?

Okay. Thank you, James. Why don't I hit on the first one, and Alan can mix it up on the other two. Look, it's as we said in the RNS, and we'll repeat. As I said, we aren't giving guidance this year. It's impossible for us to predict what's going on with COVID. And what we can tell you, not by quantum because we don't give monthly numbers, but the trend that we saw in the last few months is continuing. So you can read into that what you want. It's looking -- it's continuing to look better, but as you know, given what's going on around the world right now, predicting that on a day-to-day basis is pretty dangerous. We just can't do that. So we can't give you any guidance on the revenue or COVID front. On the OpEx side, I guess what I would say is that we are going to continue to push forward the investments that we've talked about, and that's both organic and inorganic, as we acquire some of these. As we make some of these acquisitions, we'll continue to pump in capital to make sure that we maximize the use of those technologies we're borrowing. And I wouldn't be surprised if the trend continues that we're seeing in revenues for us to really put our foot down on the pedal to increasing costs to bring in the teams and make sure we exploit the 5-year growth plan that we talked about so that we have a greater level of certainty in making and exceeding the plans, the numbers that we laid out for you before.

Yes. I'll just add. Look, I'll say exactly what I said back in November that we see tremendous opportunities for growth in research-use antibodies and the related applications and the adjacent markets that I've talked about. And the big question we had when we were launching the strategy was could we get started fast enough. Not because we were constrained on capital, but could we get started with putting the right people in the right areas fast enough in order to deliver that? And I've said a couple of times part of the -- part of our confidence here in the out-years revenue is we're putting the investment to work at great pace behind good ideas and good people, and we like what we're seeing so far. Those are goals, and we have goals then for how the next few years unfold and we back ourselves. We sort of like the feedback we're getting from the market from the products we've launched. And we like -- to the extent that the markets return to some kind of normal demand and activities in labs, we like our chances as to how we can compete in these marketplaces.

That -- all that said, you're right that we're a year on and our starting point is the same as what it was last year. So I think, all of us, we haven't lost the objective in terms of the target. We think it's absolutely possible, provided there's no major shocks in how science is done and that people will get back in their labs and that they continue to drive these products that we're developing. It's absolutely positive. We're absolutely confident in the GBP 450 million to GBP 500 million revenue target. I also said, in terms of margins of the business and where we'd be, it would depend on a couple of things. One, that original plan was a no-acquisitions plan. We bought a lot of things this year that didn't come with a lot of revenue, so we've got to think about how that impacts the shape of the P&L. And the reality is we always reserve the right, as long as the economics look good for investing in the long-term growth of the business, to invest because margins are high for our own products. We're going to invest in our own products. Return on capital is high. So I think people get a little worked up about particular margin targets. We don't run the business for margins and target. What we're trying to do is build a company that's capable of delivering GBP 450 million to GBP 500 million revenue over the next few years, and we're absolutely confident that's a possibility. How COVID affects the exact phasing of margins and exactly what we do on that, I don't think we should be speculating on at this point, but we'll be happily giving people updates along the way.

Our next question is from Charles Weston of RBC.

3 questions, please, maybe hitting them 1 at a time. First of all, on the CP&L line, you said in the presentation over 2,000 projects since 2013. I'm just wondering if you could give us a run rate of the number of projects that you're completing and licensing deals that you're completing per year, please. And on the IVD line, you -- obviously, that performed significantly. It sounds like you think that's temporary. Is that expected to rebound this year? That's the first question.

Okay, Alan do you want to talk...

Well, let me tackle the IVD first. The in vitro diagnostics revenue portfolio has a couple of things going on. So one, there's a handful of big customers who buy. And the one customer that we had that had the biggest impact over the last year was a carve-out of a larger company that's been set up as an independent business. And the conversations we're having with them are good and we're optimistic about them returning to a normal demand relationship, but most of that IVD impact was due to that one situation. But the other thing that's going on here is sometimes revenue that will show up in the in vitro diagnostics line will be part of a supply agreement which is temporary. And if -- that revenue can flip over into a out-license arrangement. So that moves from one line there to the royalties and licenses line, and we judge that as a good thing whenever it happens. So I think, when we look at the three split out, one of the reasons why I've been reluctant to split them out is you're going to find stuff bounces around, that the project revenue probably will be more often than not trending around a mean of 0% growth because that's kind of how we're planning for it. So some years, it might be down. Some years, it might be up, but we're not trying to do lots more projects -- sorry. I'll come back to your question on projects. And the most important growth area is in licensing and royalties, and the supply agreements with IVD can be an intermediate to that.

In terms of the number of projects. They vary, obviously, depending on the size of the project and scale, but I don't have to do the math for you to divide the 2,000 by the number of years, roughly the run rate. And you can all do that for yourselves, but this COVID did have an impact on the initiation of new projects and the ability to deliver to customers, because they weren't in labs, some of these projects. So we did see a little bit of a slowdown in the second half on customer projects.

And then on the new lines that you've been bringing in, the proteins, lysates, cell lines, conjugation, et cetera, ahead, despite COVID, sounds very strong. I just wondered if you could give us any further color on what you've been particularly pleased with. And from a gross margin perspective, do these have a similar gross margin characteristic to your recombinant antibodies?

Yes. I mean it's COVID created some opportunities, right. And our proteins capability was the area where we were furthest along [being launched]. By the time you guys were doing the tour in November, we had already had a pilot scaled production protein plan. We've now expanded that into the U.S. at more scale. And in a world where everybody was looking for spike protein for COVID, that certainly created a bunch of opportunities for us to develop products with customers, but it wasn't just spike protein. There were some other COVID-related proteins that were relevant and allowed us to cut our teeth on those whilst we were launching the products that we already thought we were going to be putting into market. So the uptake on protein has been good. We're happy with that. The cell lysates themselves, it's really small, but we're starting to learn a lot about who's buying and why and what the repeat rate of those are. All these are little seedlings. And it's basically a year-end or less is not enough yet to call it as victory, but the most important thing is we saw growth across all of them. And they were all doing better than we had expected but small.

On gross margin -- yes.

Yes, yes. On the gross margin, I think you can -- once we're fully up to scale and -- you can expect them to be where our in house -- fall in line with where our in-house products are on gross margin.

Great. And just lastly, on the digital platform, what are the obvious differences that we're going to notice when that comes online? And when is it going to come online?

The most obvious difference over time will be an increased level of personalization. It's presenting 300,000 SKUs to 700,000 people and using search as an intermediary to match them up is fine, but it's not as good as understanding individual users and what they want presenting and what's relevant to them. So that's the journey we're on. The first step to getting there is to replace the 21-year-old technology with something that's more flexible. That allows us to get there, and that's the process we're going to be undertaking in this year. And I think you and we are all probably going to have to wait for at least another year before we start to see the benefits of that in market. There's a lot of testing and design work going on at the moment.

Our next question is from Stefan Hamill of Numis.

Folks, 2 for me. So firstly, just on COVID and some of the addressable markets. You sort of reiterated your confidence in the research use-only market, but I guess one of the things that we've seen amid the COVID-19 pandemic, et cetera has been just the kind of sheer importance of having diagnostic approvals. And it's just a world of difference between the revenue that can be earned [for the fully or emergency] approved diagnostics versus research use only. And I guess the regulatory barriers have come down. So have you guys just thought about moving into that as an addressable market? Because it just sort of strikes me as sort of immediately addressing an -- a very large segment.

Stefan, yes. Early on, one of the questions we posed to ourselves was should Abcam be a more COVID company, and should we pivot our strategy to do more COVID-focused work or not? And you can see where we've come out on that. Basically our job, we -- as we see it, is to make great tools and components for people who are going to make those diagnostics but not compete with them; and not to lose sight of what our overall mission is, which is to serve all of life science, not just COVID. So we have not gone down the route some other companies have gone, which is to create our own antibody, tests and other things because that's not us. And our worry was doing that would not only compete with our customers but would distract us from the agenda, which is going to drive the price. And infectious disease in particular is a bit risky because there'll be a day when all these COVID products don't have any market because something will else come along. So we've decided not to pursue that. We basically took our strategy and said the world is going to get through this and we're going to be Abcam. The only focus we've made is where our products are relevant or where customers have need. We're spending a lot of time with them, but we're not trying to compete with them.

Okay, that's clear. And then just on the 4-year target now. You've reiterated that pretty strongly today. And within that and besides sort of 18% ROCE target as well, I guess that's going to rely on M&A, from what I can see. And we've seen the AxioMx impairment in the year. Can you just comment on how FirePlex is going and just how things like the impairments are going to be addressed within your ROCE target?

Mike?

Yes. Do you want to talk about FirePlex? Or just, I mean, AxioMx...

Yes...

It's okay. I guess, for Stefan, AxioMx, it wasn't an impairment of everything we got with AxioMx. It was an impairment of some very specific intangibles tied to the use of phage for manufacturing. And in the end, we've continued to use it for many things, but we're scaling up. The RabMAb manufacturing that we're doing continue to be the best way forward for us. So there's a point at which, in time, the accountants decided we should write off some of those intangibles, but it in no way impacts the benefits from some of the talent and technology we got out of AxioMx. And we will weigh if -- it will be incorporated into our return on capital. It obviously didn't become a part of the current calculation, but it will be calculated as we've written it off.

And then just on FirePlex, [any sub mix] and points of commentary around that [today]?

Yes. We -- look, the point of FirePlex is a little bit similar to the AxioMx [probably]. We bought FirePlex when it was a microRNA analytics technology in the early stage of development. What we thought was the opportunity with it was not to use it for that but to use it for antibodies. And that -- and now the development of that is complete. We have some high-throughput, mid-plex and larger plex immunoassays on FirePlex. And we've got some customer relationships that are beginning to use that and asking the CROs to use it. It's got to prove itself. It's still relatively small scale with rest of Abcam, and it's part of the story over the next few years. So I can't say much more about it than that, but from a kind of competitive performance as a product and technology, the feedback we've gotten is very strong, not only from our customers but from competitors. So we like FirePlex and where it is at the moment from a technical development now that commercialization is what lies ahead at scale. I mean it's selling. I mean it generates profit, sales. And you mentioned that you thought we'd have to buy to get to the GBP 450 million to GBP 500 million revenue target. I don't think we see it that way.

Our next question comes from Christian Glennie of Stifel.

Just a couple related to the helpful slides you put on Slide 18 -- or charts, just to get a bit of -- a bit more of a sense maybe for current trading. I know you've said it's largely in-line, but just to see what you can comment on more on July and August. Is it more sort of flat? You obviously got sort of almost flat at the end of June. Because the chart, the second chart, was in terms of lab activity. It looks like a bit of a snapshot from sort of from August suggests 70% were either shut down or partially operating, I mean, roughly, I guess, on an overall basis. 30% are fully operational, so how -- if you're still flat despite that level of activity.

Michael, I'll take this. So I think that chart on Page 18, at the bottom, in terms of lab activity ought to give all of us the same cautious perspective on trying to call anything because -- you rightly point out that, even as of the first couple weeks of August, the majority of labs were not yet fully operational. And even today, that's still true. So what does it mean to be partially operational is an interesting question. And we're still trying to figure out how does that affect demand, but part of the -- I guess, the whole reason here is that particularly the U.S. and the U.K. are well behind their normal levels of activity, based on these kinds of analyses and whether you're using -- in this case, we're using a third party or our own analysis. We know labs are struggling to get back. And so that's where we are. I -- we're -- to the extent we start talking about month by month now, I'm sure we're going to be dragged into talking about month by month for the next 6 months. I'll just ask you to hold until we see the results in the first half, and then we can all talk about what the profile was. But it's fair to say that you can imagine that the trend of improvement April, May and June carried on; and that took us into a more comfortable position.

Our next question comes from Miles Dixon of Peel Hunt.

So hopefully, 3 pretty quick ones, but firstly, the -- with the removal of the dividend today, does the flexibility of being able to deploy that additional capital create risk to the upside in the GBP 450 million to GBP 500 million target, please?

Michael?

I -- no, I don't think it creates risks at all. I think it's -- I mean it's really just looking at -- there are 2 different things, right? We are very comfortable with the targets we set in getting there. Then it becomes how do you finance it. And we just think the returns to shareholders are -- will be better sure or will be better by investing that money directly into those opportunities, as opposed to paying it out as a dividend.

Okay. And I think you probably already addressed this but just to ask once more that the operating costs -- clearly, you're not going to commit to quantitative numbers, but is it fair to assume that, if you're deploying capital a bit faster, we might expect the profile to bottom out a bit sooner? Or is that too simplistic?

I think it's probably too simplistic.

Okay, great. And then perhaps...

Like -- I'm just (inaudible) say, like our first year, when Alan mentioned when he was talking, that we actually were able to deploy more than we thought we were. It's we have to do it as circumstances arise and as we get the opportunity to get good people or good assets. So I think it's very hard to predict 1 day to the other based on a trend line.

Okay. And then just lastly, on the industry partners. So I think, the developments you're seeing now with Cancer Research UK and Michael J. Fox, that's really interesting. Have you got any analytics yet which demonstrate that that's seeing an improved traction with either your pharma partners or academic users?

Yes, Miles, the Michael J. Fox, we've had the privilege and honor of working with them now for over a decade. And we're a very, very strong company in Parkinson's area research, and that's gives us a lot of credibility in that field and helps us figure out what the next new products should be and to whom are they relevant. So that partnership of providing funding to open up new areas, whether it was LRRK2 or alpha-synuclein or a variety of other areas where together we've provided tools and capital to the right researchers, that has worked. And there's a template for how we thought about other relationships like Cancer Research UK, and we'd love to do more of that. I would love to do that sort of arrangement with every major funding organization in the world that's focused on particular areas or more broadly. And Cancer Research UK, we're optimistic about it because it's -- obviously it's a very large-scale and important funder in cancer research and we're at the very beginning of that relationship. We look forward to years of collaboration with them to make sure that cancer researchers they're funding are getting the tools they need to provide consistency in quality and reproducibility across their product portfolio. And that little chart on Page 19 was kind of step one of that, to be able to run joint video conferences with CRUK-funded centers on cancer research tools. And that's where we're stepping into. And what's most exciting about working with these kinds of organizations is it derisks opening up new areas of science for everyone because Abcam can create a great tool that's going to work in the hands of the researchers who were funded and derisks opening new areas of science for the researchers. They're going to get great tools, derisk it for us and derisk it for the funders. It's a big pause of sound, so I guess that's it for questions. Operator, anything further?

Yes, we do have one further question. Sorry. From Max Herrmann.

Just a couple. Just wanted to get an update. You talked obviously about the investment phase, investing in new projects and product launches coming from those. I wondered if you might elaborate on some examples of that. Anything come out yet that you're in commercial stage for or soon to be? And then secondly, in terms of Abcam Inside, I just wanted to get an update on where you are in terms of maybe on the diagnostic and the product therapeutic side, whether there's an update on how that's been progressing.

Sure, Max. I mean I guess, again, on Page 21, I'll just remind everybody that anything that we do knew how long it takes to get traction. So we started building the ELISA portfolio out under her own products and technology in 2013, '14. That's 6, 7 years of work, where we still feel like there's tons of opportunity. And so these things take time. And the same is true for every area, whether we're talking about proteins or cell lines or Abcam Inside. All of these things that we've started, there's enough signals for us that they're going well and the economics are attractive. That's putting a pretty disciplined Board and executive team in a position where we feel the best place for shareholder capital is to invest and doing more with that. And I -- that's the only thing I can say to you. I mean it sort of gets to the point, in terms of the number of products, the number of projects, that it's so many that I can't just talk about any one of them. I got to talk about categorically.

So on the kind of partnerships that we've got in place. I mentioned a few of those, but if you just take the COVID example: To have 30 clinical collaborations where we're working on either screening for drug candidates or providing antibodies that could become drug candidates or we're just helping design the diagnostic, those kinds of things that we're doing at Abcam today couldn't be done at Abcam before we started investing in these capabilities 4 or 5 years ago. The benefits of this kind of reputation and the ability to deliver are helping create more and more opportunities every day, and we're very excited about the progress we're making as a company. And the number that I think is in the annual report is around 50% of our revenue now in the catalog from our own products. It's -- as a company, it's well over 50%. That's moving very quickly. And so Michael talked about our own products continuing to grow. They're continuing to grow because they're better products. They're more targeted to the relevant areas. We're doing a better job getting them into Abcam Inside applications, and that's the strategy. There's going to be more of that.

We have a follow-up question from Charles Weston of RBC.

Just with regard to your NASDAQ listing. Is the main aim here to get access to a different pool of investors and research analysts, or -- and/or is it to raise equity?

Charles, given U.S. securities laws, we're constrained in what we can say to what we said in the statement. And I think we continue to say too that we [noticed that it has yet been made] with respect to raising capital on the part of the listing, and we'll update the market further as plans develop.

(Operator Instructions) We do not have any further questions.

Thank you, everybody. It's been great to be able to have access to all of you and be able to speak. I look forward to the day when we can do this in person again, and until then, we're going to be building Abcam.

Thanks for your time.

Thank you. Bye.

Ladies and gentlemen, this does conclude today's conference call. Thank you for joining. You may now disconnect your lines.