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Trading update and Placing of 71,000,000 new ordinary shares - 16 June 2006
Osmetech, the fast developing international diagnostics business serving the high growth near patient test market, today announces a trading update and a conditional placing of 71,000,000 new Ordinary Shares (the ‘New Ordinary Shares’) at 18.0 pence per share (the ‘Placing Price’), (the ‘Placing’) to raise approximately GBP12.8 million before expenses. Hoare Govett Limited has conditionally agreed to place 53,000,000 new Ordinary Shares at the Placing Price with institutional investors in the UK on a fully underwritten basis (the ‘Placing Shares’). The remaining 18,000,000 new Ordinary Shares have been conditionally subscribed by Efficacy Biotech Master Fund Limited, a US-based fund at the Placing Price. This is a significant equity fundraising for the Company and the New Ordinary Shares represent an increase of 53.9 per cent. in the issued share capital of the Company.
The Directors intend using the net proceeds raised pursuant to the Placing to provide additional working capital for the Group.
A letter from the Chairman of Osmetech together with a Notice convening an Extraordinary General Meeting of the Company (the ‘EGM’) to approve the Placing will be posted to shareholders today.
Background
Osmetech is a fast developing international diagnostics business serving the high growth near patient testing market, targeting small to medium sized hospitals. Osmetech's operations now comprise two US based divisions: Critical Care based in Atlanta and Molecular Diagnostics located in Boston and Pasadena. The Group's business model of selling instruments leading to ongoing consumable sales has resulted in excellent growth for the Company's Critical Care Division, particularly in the last 18 months. The Molecular Diagnostics Division is making excellent progress in developing a pipeline of products which is expected to start generating revenues this year based upon a similar business model of instruments and proprietary consumable sales.
Reasons for the Placing, Use of Proceeds and Working Capital
The document sent to Shareholders at the time of the placing in July 2005 in support of the acquisition of CMS highlighted that the Company was likely to require further financing in the near term and this view was repeated by the Board in the Company's Annual Report & Accounts for the period ended 31 December 2005 published on 28 March 2006. Shareholders should note that without additional working capital, the Group would be unable to trade much beyond August 2006.
Since the CMS acquisition, the Company has continued to progress its business model and the Directors believe that value has been created within the Group through the development of the Molecular Diagnostics Division. Most notably, the CMS eSensor™ product has received FDA approval, the Group's Pasadena facility has also received an FDA California State License to manufacture the CMS eSensor™ and related products and the launch of Osmetech's first three Molecular Diagnostics products are progressing on schedule.
In delivering this progress, the Group has incurred the expenditure that was anticipated in July 2005 such that the Group's cash balances were, at 31 May 2006, GBP1,745,000. In order to continue the momentum in the Osmetech business, the Group now requires additional working capital both to fund its current operations and new product launches. In addition, the Board intends to explore appropriate licensing and strategic partnership opportunities for the Molecular Diagnostics Division, when appropriate, and considers a strong cash position will improve the Company's ability to secure favourable arrangements with third parties.
Current Trading and Prospects
On 3 May 2006, the following statement was made at the Company's annual general meeting:
Critical Care Division
Our Critical Care business continues to build on the sales growth achieved in 2005 and as expected, demand in the current year for the Division's OPTI™ range of blood gas analysis products has remained strong in both the human and veterinary markets.
For the remainder of 2006 we expect the healthy levels of demand in the Critical Care Division to continue and therefore be another year of growth for this division.
Molecular Diagnostics Division
Osmetech continues to make significant progress and remains on schedule with its new product launches. As planned, in March we launched our FDA approved eSensor™ Cystic Fibrosis Carrier Detection test and eSensor™ 4800 DNA Detection instrument and later this month we will launch our OPTI TUBE™ product for use in the Roche LightCycler as a cost-effective and safe alternative to the Roche glass capillaries. Our OPTI GENE™ instrument and proprietary consumable system for the rapid detection of DNA and RNA targets will be available for sale in June, although the product will be fully launched with thrombophilia assays at the American Association of Clinical Chemists (AACC) Conference in Chicago in July.
We have been delighted with the initial stages of product commercialisation in this fast growing market sector. We plan to replicate the successful Critical Care business model of selling instruments and proprietary tests primarily to small and medium sized hospitals across the globe through our well established distribution networks.
The installation of instruments will provide the basis of future revenues by introducing a wider range of tests, developed both by Osmetech and third parties. In addition, our instruments have significant potential in other markets, such as veterinary, environmental and forensics, which we would look to exploit through strategic partnerships.
Outlook
The Board remains confident that 2006 will be a strong year for Osmetech.
Our Critical Care Division is on track to achieve another profitable performance and will continue to provide a strong base and proven infrastructure for the Group overall as we introduce products in the molecular diagnostics market.
We fully expect to be able to demonstrate the value of our strong position and the considerable opportunities that exist in the exciting molecular diagnostics market as we enter the important commercialisation phase."
Since the annual general meeting, the Board confirms that Osmetech has continued to make good progress and continues to view the Group's prospects with optimism.
Details of the Placing
The Company is proposing to raise approximately GBP12.8 million before expenses, by the issue of the New Ordinary Shares pursuant to the Placing at 18.0 pence per Placing Share.
Hoare Govett has agreed conditionally, pursuant to an agreement dated 16 June 2006 (the 'Placing Agreement'), to place the Placing Shares at the Placing Price with institutional investors in the UK, failing which Hoare Govett has conditionally agreed to subscribe as principal for those Placing Shares at the Placing Price to the extent that they are not subscribed under the Placing Agreement.
Efficacy Biotech Master Fund Limited, a US-based investment fund, has agreed directly with Osmetech to conditionally subscribe for the remaining 18,000,000 new Ordinary Shares at the Placing Price pursuant to a subscription agreement with Osmetech (the 'Private Placement Agreement'). The subscription by Efficacy Biotech Master Fund Limited has not been underwritten.
The Placing Agreement is conditional, inter alia, upon:
(a) the passing of the first resolution relating to the Placing to be proposed at the EGM;
(b) the Private Placement Agreement having become unconditional in all respects (save for any condition as to the Placing Agreement having become unconditional and admission of the New Ordinary Shares to trading on AIM ('Admission') having taken place) and the funds payable by Efficacy Biotech Master Fund Limited under the Private Placement Agreement having been paid to Osmetech's solicitors to hold in escrow pending Admission by the business day prior to Admission; and
(c) Admission becoming effective.
The Placing Agreement is also terminable in certain circumstances up until the time of Admission, including for a material breach of the Company's obligations under the Placing Agreement or for a material breach of a warranty contained in the Placing Agreement or in the event of force majeure or a material adverse change in the financial condition of the Company.
The Private Placement Agreement is conditional upon Admission becoming effective and the Placing Agreement becoming unconditional (save for any condition as to the Private Placement Agreement having become unconditional and not having been terminated in accordance with its terms).
The Placing Price represents a discount of approximately 6.5 per cent. to the closing price of 19.25p per Ordinary Share on 15 June 2006, being the last dealing day prior to the publication of this announcement.
Subject to the passing of the first resolution relating to the Placing to be proposed at the EGM, the New Ordinary Shares will be issued credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of the Company including the right to receive all dividends and distributions, declared, made or paid after the date of the issue. If all the New Ordinary Shares are issued and allotted the issued share capital of the Company will increase from 131,804,073 ordinary shares to 202,804,073 ordinary shares, representing an increase of 53.9 per cent. of the then enlarged share capital of the Company.
The Placing is also conditional on the admission of the New Ordinary Shares to trading on AIM becoming effective by not later than 8.00 a.m. on 11 July 2006 or such later time as the Company and Hoare Govett agree, being in any event not later than 25 July 2006.
Subject to shareholders approving the Placing at the EGM it is expected that admission of the New Ordinary Shares to AIM will become effective and dealings in the New Ordinary Shares will commence on 11 July 2006.
The Directors believe that raising new funds by way of the Placing is the most appropriate method of funding the Company at the present time. The Board considers that a general offer to existing Shareholders by way of rights or other pre-emptive issue is not appropriate at this stage of the Company's development due to the significant additional cost that would be incurred and delay in the production and approval of a prospectus. In addition, the Directors are keen to broaden the Company's institutional investor base to provide greater liquidity and, in the future, additional sources of funds if the Company requires them.
Commenting on the Placing, James White, Chief Executive of Osmetech said:
"Since gaining FDA approval for our eSensor product Osmetech has continued to capitalise on the fast growing molecular diagnostic market.
Having delivered what we set out to do with our blood gas analysis business this fund-raising now allows us to repeat this with our molecular division. We already have a healthy pipeline of products targeted at this sector.
As the Company's credibility continues to grow within the diagnostic community, we look forward to the further success of our products and to potentially working with additional third parties."
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Osmetech plc +44 (0)207 849 6027
James White, Chief Executive Officer
David Sandilands, Chief Financial Officer
Hoare Govett Limited +44 (0) 207 678 8000
Andrew Foster / Bertie Whitehead (Corporate Broking)
Lee Morton (Equity Syndication)
Justin Jones/Stephen Bowler (Corporate Finance)
madano partnership +44 (0) 207 593 4000
Matthew Moth
Mark Way