Diaceutics PLC (DXRX) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Diaceutics Half Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today and will publish those on the Investor Meet Company platform. Before we begin, we'd like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd like to hand over to CEO, Ryan Keeling. Good afternoon.

Thank you, and good afternoon to all of you joining the call today. We're delighted to host you. And hopefully, you'll find the session today informative and I'll share some of the excitement we have about the business as we report our H1 numbers and also look towards full year 2024. And we feel there's a lot to like from H1. I'm going to walk you through our investment case as it exists, but of course, we have updated based on the performance of the business through the first half of the year. And I'll be careful to call out where that evolution of our business model has occurred and how we are gaining traction toward some of our end goals. If I start by reminding us on the problem that we're solving, always a great place to start when you try to understand the business. And for those of you who have followed us, there are many on this call who might be hearing this for the first time. The headline here is that we help pharma find patients, and that is a very true statement. We are in the business of working with our pharma clients to help them look at patients who have a very complex disease pathway where the testing, the diagnosis of that patient is sometimes protracted but always complex. We work a lot in oncology and other challenging disease areas where identifying patients is key to understanding the opportunity to treat them with new precision medicines. If we think about how we do that, we're going to talk about the key assets of the business, starting on the left hand side. We have spent the last 10 years -- actually 11 years now, building a network of laboratories. That build was accelerated significantly through the IPO of the business in 2019 and really has got us to this point where we have very broad network of laboratories who provide us with a daily feed of patient-level data. That data is anonymized and we do a lot of work to make that data available to our pharma clients but that is the lifeblood of this organization. It's proprietary data to Diaceutics. It's very unique, given how we get it and ultimately, what we use it for but that data coming into the business is at the core. We've done a lot of work to strengthen the lab network through H1. You may have noticed updates to that network, most notably through the onboarding of some rare disease laboratories to give us an ability to offer our products in rare disease areas. We'll talk about the impact that's having on the business. in a moment. We also substantially upgraded our network and our data availability in Europe as a precursor to launching and further commercializing some services, such as our Signal service in Europe. The data that we bring in from the laboratories is often very challenging to work with. There's a lack of standardization. There's a lot that needs to be done to that data in order to make it available on our platform. And we've invested significantly over the last 2 years. Remember, we're coming to the end of a 2-year investment cycle in the business. That investment cycle has been largely build to automate both the extraction of the data, but also the analytics and curation of that data for end customer. We're now n a place where we are able to completely automate the extraction of data from the lab network. To the parsing of the data, the cleaning of the data, we've used a lot of AI to replace manual effort, people-based effort to now be in a position where nobody touches the data as it comes out of the lab and goes into our customer hands. And that's a key beachhead for us to get to, as it pertains to scale and ability to really grow this business. Removing that bottleneck has been crucial and has been a big result of the investment that we've made in the business. It's also a lot of product innovation. Last year, we launched our daily Signal service, i.e., we were able to get the data out to customers on every day rather than previously only been able to manage that on a weekly and there's other benefits that we've derived from there, all building up for PMx solution launch, which has been a big part of H1 for us. And that leads me on to our DXRX platform. This business is about driving an ability to use platform services, digitally led services to enable pharma to better locate patients. In that, we have launched a solution called PMx and PMx is very differentiated for us in that we are now completing the journey to get this data that has proven to be extremely effective at finding patients. We're now doing more of the actual patient engagement and engagement with physicians. And we have a slide in a few moments' time to really dig into PMx. So just to sum up, we've evolved the lab network, both with the rare disease data in the EU. We've continued to build AI into our data pipelines to a point now where that's fully automated. And on our platform, we continue to evolve. And most recently, we've launched our largest and most significant product to get, which is PMx and a big part of the future of the business. All this off the back of 2 years of investment and sets us up really well for the future, in particular, our drive toward profitability in 2025. That's a cornerstone of our strategy. It's a cornerstone of the investment case that we put together back in 2022. And we now feel the benefits of that investment as this business is ready for scale, seeing the productivity gains otherwise. Moving to the next slide. Quick recap on precision medicine. We take what is increasingly an accepted version of definition for precision medicine. And that is where you have a treatment that is informed -- heavily informed by diagnostic testing or other diagnostic information about the patient. And you think about how medicine has been practiced for thousands of years, the approach has been to try a patient on a treatment, whatever that might be and see if they respond. And if they do, great, they stay on it. If they don't, stop it and try something else and then try something else and try something else. Precision medicine is all about testing the patient first to see if they will respond to the therapy, to options so that you're not wasting time, you're not wasting resources, you're not wasting critical time for that patient as it pertains to getting them on the right drug. And we are right at the very center of that, trying to match patients largely based on their genomic profile with the right drugs for them based on precision medicine availability in the market. It's incredibly exciting, seeing new targeted precision medicines coming to the market. And we are very keen to make sure that patients who would benefit from those are enabled and ultimately, physicians are informed about the opportunity to put the patient on drug. When we think about the challenge, and this is largely the reason why Diaceutics exists today. Precision medicine is challenging. It's proving, I would say, increasingly challenging for pharma to really build a model that works for precision medicine. And the core of the challenge here is that you have a large pharmaceutical company that might be built for launching blockbuster drugs and is brilliant at doing that. But then you take a precision medicine that it might only have 1,000 patients a year that are eligible for it, i.e., very small patient population. But in those patients, the drug is hugely efficacious and absolutely the right drug for them to be on. And pharma has struggled with the commercialization model. Diaceutics has been assisting with that for a long time. Signal has brought us a long way down the road in trying to find those patients. PMx, which is our next horizon is right in the center of helping pharma commercialize. It, in itself, is a commercialization model and something that we intend to only reach heavily as we rise to this challenge the precision medicine presents as to its commercialization. You've heard me talk a lot about PMx here. Let me put it in context for you, in hopefully, somewhat simple terms. Just focusing on the bottom half of this slide. Signal, we launched in 2022, okay? That is our solution for providing data to -- largely to pharma sales teams, where we would enable the sales team to go and have a more effective conversation with a doctor, a physician knowing that, that physician, in the very recent past, had a patient who is positive for a particular disease or more likely a subtype of disease driven by gene mutation or otherwise. And that has been hugely successful for us and has been hugely successful for our clients and for patients and physicians in trying to get to those hard-to-find patients. What we're doing with PMx, which is the bit at the bottom of the slide, is we're providing a solution to the industry now where we don't necessarily need to have a sales team between the data and the physician, actually leveraging our DXRX platform and the services and solutions that we have as a business, all wrapped up in PMx. We are actually delivering this data directly into the physician office. We have numerous ways we're doing that. It's an omnichannel approach because there's no one way, it's digitally led, so it's highly scalable, but it's allowing us to reposition the business and certainly position the product offering, more as a promotional partner and an opportunity for us to have success based payments and other different contracting models. But the core of it is that we're not actually doing more of that patient recruitment engaging directly with physician. Really interestingly for PMx, what we've been able to do is leverage our lab network. So the lab network asset that we've been building for years, which has really been about taking data out of the labs. We've now been able to reverse that and push that data back through the labs, Put in simple terms, what that's enabling is a new channel into the physician office whereby on a particular patient signal or trigger as it's more commonly known in the industry, we will engage the pathologist who perform a test to have a conversation with the doctor who's prescribing the treatment. And that's a peer-to-peer conversation that is proving to be significantly high -- significantly higher levels of engagement and ultimately conversion on to treatment. And it allows us to triage those patients in a way that we've never been able to do before. So not only does PMx remove the need for -- or significantly reduce the need for our traditional sales team approach, which can be very costly for pharma, it's actually delivering higher levels of engagement with physicians and ultimately, higher levels of conversion of our patients on the treatment because the physicians feel better about making that decision, knowing that there is the right information at the right time and the support for them through the form of pathologists and others, we're really trying to offer our wraparound here. What does it do for our business? It allows us to take the component parts, Signal at its core, but we've added P2P and others. Effectively, we have an average revenue per brand of GBP 400,000 up until this point. Our first PMx deal, which we signed at the end of H1, brings us to GBP 2 million per year per brand. I'm not showing the opportunity we feel for this business with ostensibly the same set of component parts, but now built into a solution. Yes, there's obviously some additionality there but we brought it and positioned it very differently as a promotional partnership and not only is there opportunity to increase that revenue per brand, but also there's upside here beyond the GBP 2 million, if based on success [indiscernible] for patient recruitment, again, allowing us to share more in the value creation of the patient. If there's been a criticism of Diaceutics in the past, it's been that we were not charging enough for the data, okay, that we were enabling a significant value creation event in the patients going on to drug. And at its best case, that was $100 return for every $1 the pharma was spending with Diaceutics. PMx is a first step, we think a big step toward rectifying that. With this PMx deal, that's going from $1 to $5, so we're still leaving a lot on the table. But it's a transformative for this business. And of course, our intent here is to build a significant pipeline of portfolio of PMx deals, many of which will share a lot of synergy. And there's a lot of economy and scale in how we intend to build this. I'm going to jump on -- just in the interest of time, making sure I leave enough time for my colleague Nick to come in a moment and just talk to some of the key metrics on the operational side as we ended H1. Our people at the end of the half have risen to 206. We continue to grow the number of therapeutic brands that we work on. This is a rolling 12-month number, and we're working on 63 brands, really encouragingly, we grew the number of enterprise-wide engagements from 4 as of the end of FY '23 to 7 at the end of H1. That's a great first half of the year for us that the PMx deal is counted as one of those enterprise-wide, but we're increasingly gaining traction now with some very significant customers -- partners where we are increasingly embedded. And that's a great statement for the business. We continue to work with top-tier pharma. We are growing that, Nick will talk to some of those numbers more specifically later. And again, just in the interest of time, I'm going to jump to this Slide 11. Some of you may have seen this, it's a case study showing the impact that we're having in a particular market. And this story continues to evolve. It's still live in the market today. And just for those who haven't seen it, remind you that the chart on the bottom is showing the number of patients who started on a drug per week. So each bar represents a week starting at 2023 -- January '23 up to the end of June this year. And this is a drug that customer launched at start of '23, it's a lung cancer targeted -- targeting KRAS -- KRAS G12C mutation. And we switched our Signal data on midway through '23. You'll see the pale blue bar is showing the additional patients that were started on that drug based on the Signal data that we were providing. So from day 1, we're bringing additionality. And most weeks, we doubled the number of patients that started on the drug. And some weeks, we actually almost tripled the number of patients starting on the drug. And as you see, as the market has grown through into 2024, we've grown with it. There's no tail off or lag here. This is continued to grow -- continuing to exceed the forecast of this drug. We had story for the pharma customer, great story for us. More importantly, great story for patients because those that are in the pale blue section may not have made their way to this drug. It is absolutely the right drug for the majority of KRAS G12C mutated lung cancer patients as per guidelines, as per your best practice, et cetera. And of course, remember, it's always physician's choice what drug the patient goes on, but we believe that there are patients who are -- their lives have been altered, changed positively because of this solution, this data that we provide to the market, and there's a great new story there. When we bring PMx in, we'll be able to add to this in terms of, we believe the conversion to treatment will go up even higher because of the way we've tailored that solution, the way we're opening new channels into the physician office. And remember, we're leveraging already established mechanisms such as the lab-physician interface that we're not asking physicians to change behavior, and that's key. A typical oncologists in the U.S. has 18 minutes to make a decision of what drug to treat a patient with. What we have to try to do in those 18 minutes is give them all the information they could possibly need for what is a very complex patient. They get a really in-depth and a great piece of information from the lab and the lab report. But a fully loaded genomic profile lab report, 63 pages, okay? They're not going to get through all of that. And while some of that's parsed out and put on Page 1, et cetera, what we're trying to do is cut through all that and give the -- put our arms around the physician, put our arms around the patient so that we can successfully move them on to a drug that is, as I said, potentially life-altering for them. I'm going to pass over to Nick, and then I'll come back in for Q&A momentarily. Nick, do you want to take control there from Slide 13?

Thank you, Ryan, and good afternoon. I noticed that our camera switched off at the beginning, just to confirm, we were having some bandwidth issues, so that's why that switched off. But hopefully, you can see the slides and that's probably the most important thing. So hopefully, what came across in the RNS are a few key messages, which I just wanted to reiterate now, which I think, we are really pleased about the progress we've made there and the outlook. So First of all, our continued performance and growth as a business. So this is on our same period of consecutive growth. And hopefully, you can see that on the slide here, and I'll go into a bit more detail on the financial strength. I think that's one of the key areas of our investment case and of course, the results for the half. Ryan highlighted PMx, I really can't stress how important that is in terms of a launch of a solution to our pharma customers, it really brings together all of the last 2 years' worth of investment that we made, all of the last 2 years' worth of team effort our people have put in to bring a joined-up end-to-end differentiated commercialization solution for pharma. It allows them to launch these precision medicines where the patients are hard to find, hard to diagnose, it's great for patients because they're getting the best drug in the market. And it's great for pharma -- our pharma customers because it gives them a better return on investment. Remember more money for these pharma customers means that they can reinvest that in developing new groundbreaking drugs and bring those to market. And finally, hopefully, which comes across is a bit of an outlook here towards 2025. This year is important. We'll continue to deliver on what are our internal management expectations but also the general consensus guidance in the market. But for 2025 and going forward, it's key and we wanted to stress that we're going to move back to profitability, so that profitability down the whole way of the P&L, all the way to the bottom and also free cash flow generation in 2025 and onwards. The last 2 years have been important years in terms of deploying some of the cash that we had in the business, growing the business, investing in the business to be able to scale. And I think now that's coming to an end, the end of this year, we need to now move forward with profitability and cash flow generation. Ultimately, we feel that those are going to be the biggest drivers of shareholder value. Just on this slide. And again, I think many of you will be familiar with this, but just to talk through our financial strength in terms of our investment case. So we are a high-margin business. What that means, gross profit margins in H1 were 87% and we feel that they will be 85% or thereabouts for the full year. And that is representative of what we feel will be the ongoing gross margin of the business. We have high top level sort of top line growth and that manifests in a 20% CAGR over the last 3 years, which we feel is best in class. We are moving more towards higher quality, more visibility in terms of revenues. So now we have 55% of our revenues being recurring. And we'll continue to evolve some of the finance metrics that we're using to articulate the changing dynamic within the business. So over the last few years, we've introduced order book, which is the future contracted revenue of the business. We've introduced ARR at the end of last year. And for the first time ever, we brought in a renewal rate on subscriptions as well, all of those to help our investors and stakeholders understand how the business is progressing. We are -- we announced our 7 enterprise-wide engagement, which was up from 4 at the end of 2023 and those are important, those enterprise-wide engagements, the most recent one in PMx really showed the traction and the trust that we get from our customers. And finally, we have a strong balance sheet, no debt, cash of GBP 16.7 million as at the end of June. And just to remind everyone, back in January 2023, we outlined our 2-year accelerated investment program. And as part of that, we articulated there would be a free cash outflow over last year and partly over this year, but we wouldn't go below a minimum cash holding of GBP 12 million. That is still the case. And you can see that reflected in the strong cash balance at the end of this half. The low point in terms of cash, I feel, would be at the end of this financial year, and that is likely to be around GBP 13 million. But as I said, that wouldn't go below GBP 12 million at any point in time. On the next slide here, we just highlight -- we just talk to some of the finance KPIs that are highlighted in the RNS. Some of those pre [indiscernible] as part of the trading update at the end of July, but I'll just touch on those again. So importantly, revenue up to GBP 12.3 million, so that's up 24% or 28% on a constant currency basis. Again, just to remind everyone, our revenue is around about 90% denominated in U.S. dollars. That is as a result of contracting with pharma, particularly U.S. pharma, which are predominantly based in the U.S. Our recurring revenues and importantly, our order book continued to grow. So we're up to 50% -- 55% recurring revenue. That's up from 47% in the prior comparative period. And we are targeting hitting 70% recurring revenue by the end of 2025 and are still very much on track to deliver that. Our order book at a record high of GBP 27.9 million as at the end of the half. Importantly, that gives us visibility of around about 71% of the full year consensus analyst guidance revenue for the year, roughly around about GBP 30 million for the full year is where the analysts are guiding to. So at the end of the half, we had about 71% visibility to that number. And that's comparing to the prior year which was around about 70%. So in absolute terms, a higher revenue number we're going for this year. But in terms of comparative visibility, very much similar. I mentioned the high gross margin. Very pleasing to see gross profits were GBP 10.7 million to the half versus GBP 8.7 million in the prior comparative period. And our EBITDA loss widened slightly to a negative GBP 1.3 million versus negative GBP 200,000 as at the end of June 2023. Just to highlight a couple of other key financial metrics, not on this slide. I've talked about EBITDA. We introduced subscription renewal rate as a metric. So in terms of the value of contracts that we're renewing, that was 93%. Importantly, that doesn't include -- that's not a net revenue retention number, so it doesn't include upsells or new contracts in that. That is just the pure value of contracts that we're renewing, 93% being -- we feel higher, probably representative of where the business will be on an ongoing basis. But again, that's a new metric. We'll continue to monitor that, and we'll continue to discuss that, articulate changes to the market as we report it. Our TCV for the first half of 2024 down slightly at GBP 13.8 million versus the comparative period last year. There's a few reasons for that change. The timing of some contracts, some large contract wins in the first half of 2023. We had a large enterprise deal signed in the first half of 2023. So that made the comparative number a little bit higher than what we feel would be normal. We saw some change orders in H1 2024. Again, I think that's just normal as we transition to more recurring, more subscription base revenues that we observed that and we managed it. We saw some lower SAS sales revenue. So that's our scientific and advisory services. There, Q1 sales were slightly down but have bounced back strongly in Q2 and Q3 of this year and we expect them to do very well this year and post a significant increase on the prior year full year revenue. And finally, we just observed some of the contract -- the Signal contracts being signed in H1 2024, were for 12-month contracts rather than multiyear. Again, that affects both the value of the TCV and the value of the order book. And again, we think some of that is just us being mindful of selling in longer-term Signal contracts when, of course, we are right on the cusp of launching PMx, which is really where we'd like to see a lot of upsell and a lot of Signal discussions to go to in time. I think all of those reasons, we were sort of conscious of observing, aware of, and we have been investing in sales and marketing capabilities. So we feel TCV, order book, ARR and those sort of metrics will continue to grow both in the second half of the year and into future years, and we're investing in sales and marketing. We did that in H1 of this year. Of course, that takes a little bit of time to come online. Expect that to really those new sales hires to start contributing at the end of this year and certainly into 2025. We've got a few operational highlights, which I think tie nicely to the finance KPIs, I'll cover those off. Ryan has touched on some of these and I mentioned 7 enterprise-wide engagements. You can see there, enterprise-wide engagements making up GBP 10.6 million of our ARR. Our ARR as at the end of June, in total was GBP 14.2 million. So you can see how important enterprise is for driving both order book and recurring revenue going forward. That continues to be a key area of focus and a key area of investment. And we've mentioned previously that we've invested in our account teams, who are designed to service our customers and for some of these really important accounts, of which enterprises make up a few of them. To those, we have one account team just servicing one customer, that customer may generate GBP 2 million to GBP 3 million of revenue per year for us and so you can see the importance of that. We had 206 people as at the end of June. We'll continue to grow the number of people within the business, and that will help us to scale things like sales and marketing capability that I mentioned. But as we go into future years, the growth rates that we've seen in the past in terms of overall people costs will start to fall back as we start to realize more scale in the business and move to that profitability and free cash flow generation. Importantly, we had 63 customer therapeutic brands under management as at the half year. On a rolling 12-month basis, that's over 70 and we would expect to have approaching 80 brands under management by the end of the full year. And that's across currently 44 active customers. And again, we'd expect to grow that still further by the end of the year. I think really talking to our purpose, I'll just finish on the number of patients identified through our DXRX Signal. Signal is probably the most important product in terms of being able to highlight patients that we can help through our pharmaceutical customers. That was 250,000 or just over at the half year, and we expect that to be significantly north of 500,000 by the end of the year. Hopefully, that helps illustrate, one, how closely tied helping patients are to our purpose, but also the impact we're having on patient lives. I think that wraps up the key financial aspects. And I'm just going to move on now. I think we're going to finish on this slide in a moment, and we'll move on to Q&A now. So I'll pass over to Mark, who's going to read out some of the questions.

[Operator Instructions] We've had a number of questions from investors this afternoon. Thank you, everybody, for your engagement. Let me start off with the first question, which reads as follows: How do you plan to scale PMx further? And what competitive advantages will ensure sustained adoption by pharma and biotech companies?

Let me take that. So let me take the first part in terms of scale. The scale of PMx is largely -- we've already built a target list. We are pursuing that target list in terms of the sales effort to bring those customers into PMx. The great advantage here is that largely, PMx customers are going to come from our existing customer base. So we're not starting from zero, we're starting from a point where they may already, for instance, have a signal or they may already be working with us in our advisory business, where we're helping them to understand how they commercialize their therapy under test. So there is already -- we've already identified and as far back as 12 months ago, we were identifying opportunities for PMx, we've obviously sold one. There are others that are advancing and we have created a team inside, led by one of our executive leaders, a member of our ExCo team, who will focus increasingly on building that PMx portfolio. That's how we're thinking about this, that we will have a portfolio of drugs that we're applying a PMx approach to and we've identified how we want to do that through bringing the most synergy and scale to the business. The second part of that question was around the impact. That's -- we already have a great starting point there in terms of the data. Remember, our data is proprietary. And the way we use the data, the pipeline that we've built, there's a significant competitive moat around that. Our competition for PMx today is in the form of more traditional commercialization options for pharma. It's very easy for pharma to go ahead and find companies who will offer them a field force of a sales rep for hire-type team. And we feel that we will compete very favorably with that, if that indeed emerges as the true competition, which we think it will. We compete on cost very favorably. We compete on ultimately, the main thing which is the number of patients that we can get on the drug. And we are excited about that opportunity. There may be some partner channels and there may be other ways to leverage this with maybe some of the more established organizations that are traditionally providers of pharma commercialization solutions. So while initially, they may look like competitors, they may ultimately be partners and a smarter way for us to commercialize what we feel is a solution that could be dropped into many different scenarios and use cases.

A couple of questions now, perhaps around margins and revenue. With 55% of revenue now subscription-based, how do you see the transition to a fully subscription-led model progressing by the 2025 target? I mean, what risks do you see to this shift?

Yes. Thank you. And that's a great question. So absolutely right, 55% recurring revenues at the end of June. I think we're planning to be sort of around circa 60% by the end of the year, give or take. And ultimately, we've indicated to the market, we'd like to be around 70% by the end of 2025. And I think we're progressing well against that. In terms of the risk, I think it's largely within our control. So with this transition -- with any transition from a business towards a more SaaS type model, we're not a SaaS play -- typical SaaS play, we're more of a platform play but certainly, the metrics that we're articulating in terms of recurring revenue, ARR are very SaaS-based. The common problems businesses had to overcome with this transition is balancing of hitting revenue growth in the near term. And whilst building an order book and transitioning to the recurring revenue, the two don't quite go hand in hand. I think to date, the business has done very well at managing that, both achieving order book growth, switch to recurring and top line growth. I think in terms of risk and not getting to 70% by the end of 2025, I think, as I said, that is largely within our control. So what may happen there as we say we might give up a few percentage points on the switch to recurring revenue to achieve near-term revenue growth. But by doing that, all we are doing is slightly delaying the inevitable, which is we will move to 70% recurring revenue. If it's not by the end of 2025, it may be 6 or 12 months later. But ultimately, we, as a business, need to find the right balance between hitting the near-term revenue growth, hitting that profitability and cash flow generation and the longer-term play to embed those revenues as recurring subscription-type revenues. So hopefully, that answers the question.

I guess moving on against some of the points there. How do you plan to maintain the current high gross margins as the business scales? Do you see any challenges in achieving this?

So there's always challenges. But again, I think those are largely within our control. If you think about the costs, the direct costs that make up our cost of sales and our gross margin, a majority of those costs, either follow to be direct costs of project delivery, which would predominantly be around the scientific and advisory services part of the business, again, but that is very, very high gross margin, very sustainable. And we commonly know what the price point for that product is and again, what the cost to deliver those products are. The other major element that makes up direct cost of sales is the direct platform costs. So they are the cost to run the platform, the compute cost to ingest data to drive insights. Again, that can vary and that has gone up a bit over the last few years as we're ingesting more data. But again, I think we have very good visibility of that and can plan for that a lot better. The one final bit, which is probably less out of our control in terms of the direct costs and can impact margin is what we call platform transaction values, pass-through costs and those, of course, whereby we might engage on a large project with a customer. And as part of that project, they might ask us to incur certain costs. Those costs are directly charged on to the customer at a small margin. Again, pass-through costs are very common in CRO type businesses, and we can incur some of those. They can be margin dilutive, but again, they do grow the top line, and it is delivering on what our customers have asked us for. So in summary, a lot of these costs are within our control or we have very good visibility of them with the pass-through costs, which are less so and can be quite large amounts. Again, it's all very -- it helps progress the top line, and we can absorb that. They're not overly dilutive to our margin.

A couple of questions around partnerships. Michael's question kind of summarizes it. Thanks for the really helpful presentation. Can you provide an update on how the KPMG partnership is developing? What benefits have you noticed so far? Have you quoted on any contracts together? And have you won any contracts as much as you can tell us about that really?

Yes. Nick, why don't you take that one?

Yes, sure. So we don't report specifically on partnerships. So we wouldn't specifically say how much we won or how many we've tendered on. I can say the partnership is very good. It's a very strong partnership. So we continue to do a lot of thought leadership pieces with KPMG. Most recently for us, we had the economic forum, we held in Belfast. The KPMG Life Sciences team from Boston and the U.S. came over to present and support that. We do co-promote marketing activities at large conferences where both our common customers are present. And we have done -- we developed joint marketing material and done joint pitches, and those are going very well. So very promising. But we were not going to report specifically on contract wins.

I'd just add to that, that while we announced KPMG partnership earlier this year, we have -- we are continuing to build out those partner channels, and we'll be in a position to talk about those more fully, I think, towards the end of the year. But it's certainly emerging for us as a really strong way for us to build additional sales channels into customers, some by association, some more directly. And that's part of an overall encompassing strategy to build our sales and marketing and really our presence in the market.

Final question here unless any others come forward. And this is from [ Mustafa ]. In future periods, do you think the split between H1 and H2 will become more equal weighted than the current 40/60? Or is it always going to be a case of pharma spending predominantly in Q4?

I'll take this one. I know my CFO wants to take it but I will take it. He can correct me if I don't say it. The reality is that it's well understood in the industry that for those providing pharma services and the type of services we provide, pharma spends more in Q4. And to that extent, there's always going to be a weighting toward it. We believe that, that will continue to get a bit more balanced than it is today as we move more toward subscription model. You can't have a 70% business of recurring revenue, subscription base and still have that in balance. So there's a commensurate switch. Probably -- though we're not going to get much, probably want to go to about 55/45, and we touched close on that in some years gone past. So it's not 1 million miles away from where it's going to net out. And again, it's very much down to product offering. But we do have products designed as do most suppliers, vendors in the pharma where budget becomes available in mid-November because it tends to do that and they want to buy something. We have things on the shelf for them to buy, of course, we would. And that's important. So there will always be a bit of an imbalance. I think 55/45 is probably in and around where it should sit. And as we continue to drive the subscription recurring revenue, that's what you'll see as an indicator to the success of that model.

That's great, Ryan. Nick. Thank you very much. And thank you to everybody for your engagement this afternoon. Ryan, Nick, I'll shortly redirect those on the call to provide you with the feedback, which I know is particularly important to you both. But before doing so, I wonder if I may, Ryan, just come back to you for a couple of closing comments.

Yes. I wanted to thank you all for joining us today and we look forward to catching up some of you on the roadshow in the coming days. We have a very packed week ahead of us. As I started this session, I'll end it. We think there's a lot to be excited about in this business. Hopefully, that comes across in the presentation, and hopefully, it comes across in the numbers as well and we are -- remain very confident on the outlook for the year. We talked a lot about the drive to profitability and the future for the business into 2025 and beyond. Hard not to see PMx emerge here as the thing that we are really focused on, on building. Hopefully, you can see how we've built the bridge to PMx, and I go back to the real challenge here for this business and the criticism of the business in the past, which has been, you're selling this for too little. Well, hopefully, we're starting to show how we're correcting that. And from a strategic direction and everything else we're doing, it's about correcting that and driving this business forward. Thank you all and we'll talk. If you have any further questions, please do get in touch via Investor Relations, diaceutics.com. My IR person beside me is insistent I said that. So I have been a good boy today both on left and right, and thank you all for your time today.

That's great. Ryan, Nick, thank you once again for updating investors. If I could please ask investors not to close this session as well. Now automatically redirect you for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a couple of moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Diaceutics PLC, I'd like to thank you for attending today's presentation. I wish you all a very good afternoon.