RNS Number:1060O
Osmetech PLC
30 July 2003
30 July 2003
Osmetech plc ('Osmetech' or 'the Company')
Preliminary results for the year ending 30 April 2003
Highlights
Operational
*OPTI product line of blood gas analysers acquired. Roche acquire 4% stake
in Osmetech.
*OPTI revenues and profits continue to be well ahead of expectations
including major sales into China to aid in monitoring SARS.
*FDA approval secured for Bacterial Vaginosis sensor device.
*Development of integrated vaginal infection product on target; formal
clinical trials expected H1 2004.
Financial
*Operating loss significantly reduced at #3.1 million (2002: #4.9
million). Cost base further reduced since the year end.
*Increased cash balance of #3.2 million (2002: #2.7 million) reflecting
successful #4. 3 million fund raising and #0.6 million investment by Roche.
*Expectations of profitability and self-sustaining financial position
brought forward; significant reduction in risk for the Company.
Gordon Hall, Chairman of Osmetech, said,
"The acquisition of the OPTI business has been a major success and a key
milestone in developing Osmetech into a significant healthcare diagnostics
company in the fast growing near patient testing and point of care markets.
"The OPTI business is trading well above expectations and its cash generative
nature should ensure a rapid pay back in less than two years, even allowing for
the investment required to grow revenues and increase market share. OPTI is an
excellent fit with Osmetech's core business and the access to the additional
skills and resources now available should enable the development and launch of
the integrated vaginal infection device to be more successful.
"We have significantly reduced both the cash burn and the risk profile of the
Group and will continue to search for opportunities to develop the business
further and extend the product portfolio."
Enquiries to:
Osmetech plc 020 7849 6027
James White, Chief Executive
David Sandilands, Chief Financial Officer
Bell Pottinger Financial 020 7861 3232
Charles Reynolds
Jonathon Brill
Osmetech plc
Unaudited Preliminary Results for the 12 months ended 30 April 2003
Chairman's Statement
Introduction
The Company's strategy is to build a healthcare diagnostics business in the fast
growing near patient testing and point of care markets. In support of this
strategy, two major milestones have been reached this year.
Earlier in the year the Company secured regulatory approval from the US Food and
Drug Administration (FDA) for its Bacterial Vaginosis (BV) sensor device. This
is an important step in the development of an integrated vaginal infection
device, with which good progress continues to be made.
With effect from 1 April 2003, the Company acquired the assets of the 'OPTI'
product line of blood gas analysers from Roche Diagnostics ('Roche'). This
profitable US-based business has a strong revenue base in the near patient
testing market. The acquisition should enable the Group to reach profitability
and a self-sustaining financial position earlier than previously anticipated,
marking a significant favourable shift in the risk profile of the Group. The
prospects for the vaginal infection project and for the Group in general have
been significantly enhanced by the 'OPTI' acquisition.
OPTI Acquisition
In early April 2003, certain assets of the Atlanta, US-based near patient
testing pH-blood gas analysing OPTI business were acquired. The total
consideration is estimated to be $3.0 million, subject to adjustment for final
inventory levels, of which $2.0million was paid to Roche upon completion. In
return, Roche has subscribed $1.0 million in cash for 21,821,422 new Ordinary
Shares in Osmetech. The balance of approximately $1.0 million is payable in two
equal instalments in September 2003 and in March 2004.
The principal benefits of this acquisition are:
*Gaining a cash generative and profitable business.
*Gaining a high quality and growing revenue stream. The majority of
revenues are from reagent sales to an existing installed base of
instruments.
*Establishing a presence in the US.
*Gaining an experienced medical devices management and infrastructure
capable of supporting further growth in the US.
*Gaining a growing world wide distributor chain
*Establishing a customer base in the Emergency Room and other near patient
testing settings in both the US and international markets.
*Access to IP and key skills for the commercialisation of sensor
technology.
*Reducing the net 'cash burn rate' for the combined business.
The OPTI business is established throughout the world with an existing customer
base of some 4,000 instruments already in use. Revenue is generated through
sales of new instruments and ongoing repeat sales of proprietary reagents to
facilitate analysis. Reagent sales to existing customers are expected to account
for over half of total estimated revenues in a typical year.
The portable OPTI instruments incorporate optical sensors for pH-blood gas,
electrolyte and metabolite analysis. This core sensing technology is highly
regarded, proving to be extremely robust and enabling excellent instrument
performance.
Roche has retained an option to sell and distribute a new hand-held blood gas
analyser, the OPTI IV, currently under development. Osmetech has also identified
a number of near term, relatively low cost and high impact product development
opportunities that should enable both significant revenue and profit growth for
the business over the next few years.
This acquisition has established Osmetech in the US near patient testing
diagnostics market, where the key opportunities lie for its own product
pipeline. In addition, Osmetech's development programme for its integrated
vaginal infection product and point of care device will benefit from the
technical expertise present within the existing OPTI business, which has a
strong track record of taking product from the development phase successfully
through to market.
The OPTI business has a very experienced management team and an infrastructure
capable of providing a strong platform to support further growth in the US.
OPTI - Trading
The transfer of the business from Roche and its integration into Osmetech has
proceeded very well. Customer service remains at a high level and the
establishment of a comprehensive and proven international distribution network
is virtually complete. The business has traded profitably since acquisition and
is expected to continue to trade profitably and be cash generative in the
future.
The success of the OPTI products for monitoring severe acute respiratory
syndrome (SARS) patients has contributed to sales of $1,518,000 to China during
the three-month from April to June. These sales have primarily been of
instruments, from which reagent sales should flow in the future. Current year
performance outside China also continues to be well ahead of expectations.
BV
The Company's second FDA approval was achieved in January after clinical trials
had demonstrated that its BV sensor device was capable of yielding diagnostic
readings in a significantly considerably faster timescale than current testing
methods.
A study at Johns Hopkins Hospital, Baltimore, US is currently in progress with
the objective of demonstrating that the BV sensor device has the ability to
quantify and track the healing process of BV patients undergoing treatment. This
would be an important first for any BV diagnostic and would be very useful for
linking in with patient therapy to prescribe more effective drugs.
The preliminary results of this study are extremely encouraging, showing a very
strong correlation between sensor readings and the success of the healing
process. The full results of the study are planned to be published in an
influential international medical journal, later in the year. The study should
attract much interest as there is currently no clear gold standard for
diagnosing BV.
Integrated Vaginal Infection Product
BV testing is often carried out at the same time as tests for other conditions
and vaginal infections. The Company has carried out extensive research that
indicates that the most attractive route to market is to combine Osmetech's BV
test with other tests for diagnosing and differentiating between the most
prevalent and clinically important vaginal infections, where symptoms are often
similar, rendering early diagnosis difficult.
Incidence levels for these infectious diseases continue to rise in many key
markets including the UK and the US where government organisations have
recognised the importance of controlling their spread. Annually, there are
estimated to be at least 17 million separate patient visits where tests are
carried out in the US alone, with an annual market potential estimated to be
US$1.4 billion to US$1.9 billion.
Osmetech's proposed device is intended to provide objective results, without the
need for interpretation by medical staff and within the timeframe of a normal
patient consultation. Market research has further indicated that demand for such
a device could be especially strong in non-specialist environments such as the
Emergency Room, where up to 50% of such tests are believed to be initiated in
the US.
Five of the most commonly occurring and clinically important vaginal infections
have been identified for this product, including BV, gonorrhoea and chlamydia.
For the initial launch of the device some of the tests will be based upon
alternative technologies from third parties. Four out these five tests to be
integrated already have FDA approval which will shorten the time to market and
minimise technological risk. The regulatory approval process for the fifth test
is anticipated to be a very similar process and is therefore perceived to be low
risk. The device under development will automate many of the relatively complex
manual testing procedures currently required in order to perform these tests.
The longer term objective is for this integrated device to comprise tests based
solely upon the Company's proprietary e-nose technology.
Selective testing on clinical samples is planned for September this year. Formal
clinical trials in support of a submission for FDA regulatory approval are
expected to commence during the first half of 2004 following completion of the
final device. The US launch of the product will follow regulatory approval.
UTI
The Company's first FDA approval was a landmark achievement for the e-nose
industry and demonstrated the capability of the core sensing technology in
meeting the demanding regulatory requirements.
The UTI screening device is capable of significantly reducing the workload for
processing urine samples in clinical laboratories rather than at point of care
or in near patient testing settings, where Osmetech's healthcare strategy is
directed. Osmetech remains in discussions with a number of potential commercial
partners with the ability to make the investment necessary to complete the final
product development prior to marketing and distributing the device.
Other Projects
Osmetech has identified numerous potential healthcare applications utilising its
proprietary multi-sensor array based technology that have the ability to deliver
shareholder value in the longer term. During the past year the Company has
focused its limited resources upon shorter term opportunities. The financial
rewards that these near term opportunities should deliver can then be applied to
further development of the electronic nose technology in healthcare and
potentially in other markets as well.
Financial Review
The operating loss for the year before reorganisation costs has been
substantially reduced from #4,863,000 to #3,099,000. This reduction of 36%
reflects the initial restructuring of the Company's cost base undertaken during
the first half of the year. The restructuring was completed following the OPTI
acquisition and the subsequent closure of the Company's Crewe facility at the
end of May. A number of key development staff have now transferred to Atlanta.
Reorganisation costs totalling #863,000 were incurred in the period, although
this included approximately #356,000 of non-cash items comprising mainly fixed
asset write downs. This restructuring will have a financial pay back of less
than 4 months and should enable the Company to further reduce its core 'cash
burn rate' to approximately #150,000 per month.
One month's results from the OPTI business are included for the year ended 30
April 2003. The business traded profitably with total sales of $1,055,000.
Revenues included 47% new instrument sales, with the balance principally being
made up of sales of proprietary reagents. This level of activity was ahead of
expectations and included $557,000 of sales to China in relation to SARS.
The increased cash balance at 30 April 2003 of #3,239,000 reflects the recent
fund raising outlined below. In addition to the reduction in the core cash burn
rate referred to above, external costs relating to the development of, and
clinical trials for, the integrated vaginal infection product have also been
reduced and are expected to run at approximately #50,000 per month prior to
launch. Group cash flows should benefit from the profitable trading of the OPTI
business.
Fund Raising and Move to AIM
In September 2002, Osmetech successfully raised #4,267,000 net of expenses
through a Firm Placing and Open Offer. In conjunction with this fund raising,
the Company transferred its listing to AIM and now has a more cost-effective
stock market quotation.
The more flexible requirements of an AIM listing have enabled the OPTI
acquisition to be completed after incurring professional fees of less than
#100,000.
The OPTI business now provides the Group with an opportunity to raise short-term
asset backed finance to fund its operations. Further equity-based funding may be
appropriate for the Group in order to develop its exciting commercial
opportunities at a faster pace.
Outlook
The acquisition of the OPTI business has been a major development for Osmetech.
This is a well-respected, profitable medical devices business with a high
quality revenue stream from proprietary reagent sales to a significant number of
customers operating an installed base of instruments.
Strategically this acquisition has been a very important step forward in
developing Osmetech into a significant healthcare diagnostics company in the
fast growing near patient testing and point of care markets. It provides a solid
US platform with experienced management and a strong worldwide distribution
infrastructure capable of supporting both organic and inorganic growth. Osmetech
will continue to search for opportunities to extend its product portfolio. This
product may typically represent non-core product lines or divisions of
multi-national companies, or where financing constraints may be preventing
commercial success.
Operationally the OPTI business is complementary to Osmetech's core business and
the access to the additional skills and resources now available should enable
the development and launch of the integrated vaginal infection device to be more
successful.
The acquisition was completed on highly attractive terms for such a high quality
business. The cash generative nature of its operations should ensure a rapid pay
back of the cash purchase price in less than two years, whilst developing
further the clear opportunities for accelerating revenue growth and increasing
market share.
From a financial perspective there are key indirect benefits from the
acquisition that have enabled other Group operations to be streamlined,
resulting in a lower cost base and lower cash burn.
All of these factors have significantly reduced the risk profile of the Group,
which is now extremely well positioned to exploit the very attractive
opportunities that lie ahead through the launch of the integrated vaginal
infection product into a $1.4 - $1.9 billion US market, organic growth from OPTI
or from acquisitions and partnerships to accelerate revenue growth and
profitability.
Gordon Hall
Chairman
30 July 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 April 2003
2003
(continuing 2003
operations) (acquisitions) 2003 2002
# # # #
Turnover 16,726 669,685 686,411 41,136
Cost of sales - (315,630) (315,630) (16,082)
-------- ---------- -------- --------
Gross profit 16,726 354,055 370,781 25,054
Administrative expenses 3,223,365 246,253 3,469,618 4,887,668
-------- ---------- -------- --------
Operating loss (3,206,639) 107,802 (3,098,837) (4,862,614)
Cost of fundamental
restructuring of continuing
operations (862,981) -
-------- --------
Loss on ordinary activities
before interest (3,961,818) (4,862,614)
Interest receivable 130,919 155,771
Interest payable and similar
charges (146) (372)
-------- --------
Loss on ordinary activities
before taxation (3,831,045) (4,707,215)
Taxation 163,762 929,696
-------- --------
Loss for the year transferred
from reserves (3,667,283) (3,777,519)
======== ========
Loss per share - basic (0.94p) (1.62p)
======== ========
Loss per share - diluted (0.93p) (1.61p)
======== ========
Consolidated statement of total recognised gains and losses for the year
ended 30 April 2003
2003 2002
# #
Loss for the financial year (3,667,283) (3,777,519)
Currency translation difference on foreign currency net
investments 2,930 (4,458)
-------- --------
Total recognised losses relating to the year (3,664,353) (3,781,977)
======== ========
CONSOLIDATED BALANCE SHEET
At 30 April 2003
2003 2003 2002 2002
# # # #
Fixed assets
Intangible
assets 1,074,958 905,040
Tangible
assets 412,341 237,179
--------- ---------
1,487,299 1,142,219
Current assets
Stocks 966,424 82,319
Debtors - due
within one
year 1,116,234 677,715
Cash at bank and
in hand 3,238,833 2,716,428
--------- ---------
5,321,491 3,476,462
Creditors:
amount falling
due within one
year 1,574,647 615,140
--------- ---------
Net current
assets 3,746,844 2,861,322
--------- ---------
Total assets
less current
liabilities 5,234,143 4,003,541
========= =========
Capital and
reserves
Called up share
capital 5,161,775 2,464,639
Share premium
capital 28,038,700 25,840,881
Profit and loss
account (27,966,332) (24,301,979)
--------- ---------
Equity
shareholders'
funds 5,234,143 4,003,541
========= =========
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 April 2003
Reconciliation of operating loss to operating cash flows
2003 2002
# #
Operating loss (3,098,837) (4,862,614)
Depreciation and amortisation 126,674 171,394
Loss on disposal of fixed assets 54,648 22,138
(Increase) in stocks (259,340) (14,407)
(Increase) in debtors (724,340) (8,678)
(Decrease)/ increase in creditors 966,300 (116,871)
Cash impact of fundamental restructuring of
continuing operations (506,717) -
-------- ---------
Net cash outflow from operating activities (3,441,612) (4,809,038)
======== =========
2003 2002
# #
Net cash outflow from operating activities (3,441,612) (4,809,038)
Taxation 449,569 416,360
Returns on investments and servicing of
finance 127,267 270,723
Capital expenditure and financial
investments (166,944) (110,487)
Acquisitions and disposals (1,340,342) -
Management of liquid resources (620,000) 2,900,000
Financing 4,894,955 1,927,861
-------- ---------
(Decrease)/increase in cash (97,107) 595,419
======== =========
Reconciliation of net cash flow to movement 2003 2002
in net funds
# #
(Decrease)/increase in cash in the year (97,107) 595,419
Movement in liquid resources 620,000 (2,900,000)
Exchange differences (488) (193)
-------- ---------
Change in net funds 522,405 (2,304,774)
Net funds at beginning of year 2,716,428 5,021,202
-------- ---------
Net funds at end of year 3,238,833 2,716,428
======== =========
Notes
1 Results
This statement presents results for the year ended 30 April 2003 and was
approved by the Board on 29 July 2003. It does not constitute full accounts for
the purpose of Section 240 of the Companies Act 1985. The figures have been
prepared on the basis of the accounting policies set out in the most recently
published set of financial statements.
The audit report on the full final statements for the year ended 30 April 2003
is yet to be signed.
The information relating to the year ended 30 April 2002 is based on the full
financial statements which have been delivered to the Registrar of Companies and
on which the auditors' opinion was unqualified.
2 Loss per share
The basic loss per share has been calculated on the weighted average number of
shares in issue during the year namely 389,690,248; (2002 - 232,796,080) and
losses of #3,667,283; (2002 - #3,777,519).
The calculation of diluted loss per share is based on basic loss earnings as
defined above and on 394,737,534 shares (2002 - 234,736,425) calculated as
follows:
2003 2002
No. No.
Basic weighted average number of shares 389,690,248 232,796,080
Weighted average number of dilutive shares
under option 11,722,497 3,087,189
Number of shares that would have been
issued at fair value (6,675,211) (1,146,844)
--------- ---------
Diluted weighted average number of
shares 394,737,534 234,736,425
--------- ---------
Diluted loss per share (0.93p) (1.61p)
========= =========
3 Operating loss
2003 2002
# #
This is arrived at after
charging:-
Amortisation of
intangible fixed assets 16,566 10,105
Depreciation 110,108 161,289
Auditors' remuneration - audit Osmetech plc 22,500 23,500
services:
Other Group
companies 17,493 4,839
- non audit
services 12,877 20,954
Operating lease rentals 192,576 211,455
Loss on disposal of fixed
assets 54,648 22,138
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This information is provided by RNS
The company news service from the London Stock Exchange
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