Press Release

Osmetech plc ('Osmetech' or the 'Company')

Osmetech plc (OMH.L), the fast developing international molecular diagnostics business announces interim results for the 6 months ended 30 June 2007 - 27 September 2007

Highlights

Profit after tax for the half year of £10.0m (2006 – loss of £6.2m) includes £16.6m profit on sale of the Critical Care Division
Loss after tax from continuing operations of £5.5m (2006 - £6.2m) reflects the continued investment in molecular diagnostics
Cash balances of £20.1m at 30 June 2007 (2006 - £0.8m)
The $45.4m sale of Critical Care Division generates substantial return on investment
Increased Cystic Fibrosis customer base
Launch of XT-8 instrument platform with Warfarin assay expected in first half of 2008
FDA relabelling of Warfarin presents major opportunity for pharmacogenomics testing

James White, Chief Executive, Osmetech plc, said:

“The sale of the Critical Care Division confirms the Company’s ability to identify niche opportunities, add significant value to the business, making them suitable acquisition opportunities for larger healthcare companies.

“Our molecular diagnostic business continues to benefit from the increasing number of applications for our technology. Through successful licensing agreements, we will continue to expand the number of tests that our diagnostic equipment can use to identify patient predications.

”Personalised medicine is becoming increasingly valued as the benefit to patient care and medical costs is now recognized. With our FDA cleared platform and growing number of consumable tests, Osmetech is in a leading position in the molecular diagnostics field and on track to generate significant shareholder value.”

For further information:
www.osmetech.com

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 (Corporate Broking)
Justin Jones (Corporate Finance)

Madano Partnership +44 (0) 207 593 4000
Matthew Moth/Mark Way

Sale of Critical Care Division

The sale of our Critical Care Division to IDEXX Laboratories, Inc. (‘IDEXX’) for $45.4m in cash before costs was completed on 31 January 2007. This blood gas and electrolyte analyser business was acquired from Roche Diagnostics Inc in 2003 for US$2.7m. As such its subsequent sale represented a substantial return for the Company on its original investment and has created significant value for shareholders from Management identifying, acquiring and developing an undervalued business.

Molecular Diagnostics Division

We believe that Clinical Micro Sensors, Inc., acquired from Motorola in 2005 after receiving $400m investment and now with an FDA approval and over 150 granted patents, is another undervalued business and today forms the foundation of Osmetech’s Molecular Diagnostics Division.

The $2.6bn molecular diagnostics market continues to develop rapidly and remains the fastest growing sector of the global diagnostics market. Growth is being driven by the continued conversion of traditional testing methods to molecular methods, acceleration in the discovery of genomic biomarkers and the emergence of tests for pharmaco-genomics – personalised medicine.

As illustrated by the recent Warfarin relabelling announcement, the US Food and Drug Administration (FDA) is now taking a more pro-active stance by requiring additional information on drug labelling where genetic data is relevant in determining the appropriateness of the drug or in facilitating optimal dosing.

Molecular testing has traditionally been limited to reference laboratories, research facilities and laboratories associated with major hospitals, typically at academic teaching institutions, of which there are 200 to 300 in the United States. However, the demand for molecular testing is greatest among the increasing number of hospitals and laboratories which are now looking to perform this testing in-house for the first time. This decentralisation is now occurring following the emerging availability of affordable instrumentation combined with easy to perform, FDA cleared tests.

These market developments are important as Osmetech is one of a limited number of companies with FDA cleared molecular diagnostic assays and one of an even smaller number of companies that combines an instrument platform and proprietary assay-specific consumables. We are developing molecular diagnostic products with the throughput flexibility for use in all sizes of hospitals and reference laboratories and should benefit from the decentralisation of testing towards small and medium sized institutions.

Commercial Developments

Over the last six months, we have increased our installed base of US customers who are currently running the FDA cleared Cystic Fibrosis carrier detection test on the eSensor® 4800 DNA Detection instrument platform. We are finding that we are winning new customers in competitive situations for a range of reasons including the following:

We offer an FDA cleared instrument and consumable system
Ease of use
Quality of customer support and service
Supply of a complete diagnostic kit

We have a number of instruments that we inherited from Motorola and are confident they will all be placed by the end of this year.

XT-8 launch

We are now building upon the successful launch of our eSensor® 4800 system with the development of the second generation, eSensor® XT-8 platform, which has a number of additional features and benefits for customers. The new instrument received an excellent reception at the American Association of Clinical Chemists Conference (AACC) in San Diego in July and is planned for launch in the first half of 2008. The first assays will be FDA cleared pharmacogenomics tests: 2C9/VKOR for the blood thinning drug, Warfarin, and a 2C9 Cytochrome P450 assay for the commonly prescribed anti-epileptic drug Phenytoin and most non-steroidal anti-inflamatory drugs.

We believe that our XT-8 system will be a very robust product ideally suited to international distribution. It is already proving attractive to a number of assay content companies as we evaluate opportunities to license other genetic and pharmacogenomics tests.

Warfarin Relabelled

On 16 August 2007, the FDA announced the relabelling of Coumadin (generic name – Warfarin), which was reported on the front page of the Wall Street Journal as “In Milestone, FDA pushes genetic tests tied to drug”.

It is significant that the FDA have taken such a proactive stance to promote the use of genetic factors to predict how individuals will react to medicines. Larry Lesko, director of the clinical pharmacology office at the FDA, has stated that the FDA has “substantial” evidence to support the new label and went on to say “if the potential was not huge we wouldn’t be doing it”.

In the US alone, over 30 million Warfarin prescriptions were made last year including an estimated 2 million new patients. Warfarin is the second most likely drug, after insulin, to send Americans to the Emergency Room, resulting in an estimated 43,000 visits a year in the U.S. A recent economic study concluded that widespread use of Warfarin testing in the U.S. could avoid 85,000 serious-bleeding events and 17,000 strokes a year, and so save approximately $1.1 billion annually.

We are excited by the recent relabelling of Warfarin by the FDA and believe this is a significant milestone for the adoption of pharmacogenomics tests. The potential for Warfarin testing is a good illustration of the significant commercial opportunities for pharmacogenomics tests targeting specific drugs which are capable of being performed on Osmetech’s XT-8 platform. The Board consider that Osmetech is strongly positioned to benefit from these changes in healthcare and medical practices.

Financial review

This is the first period that the Group has presented its financial statements under International Financial Reporting Standards (‘IFRS’).The last financial statements under UK GAAP were for the year ended 31 December 2006 and the date of transition to IFRS was therefore 1 January 2006. The major areas of impact of IFRS are summarised below:

Goodwill is not amortised under IFRS but rather subject to annual impairment reviews.
Intangible assets (other than goodwill) are stated at cost less accumulated amortisation and are amortised over their useful lives on a straight-line basis.
Recognition of disposal groups under IFRS 5 ‘Non Current Assets Held For Sale and Discontinued Operations’.

The effect of these adjustments on the income statements, balance sheets and equity of the Group are set out in note 7.

Profits after tax for the first six months of 2007 of £10.0m (2006 – loss of £6.2m) included a gain on disposal of the Critical Care Division of £16.6m. The operating loss on continuing operations in the period was £5.5m (2006 - £6.2m), with the reduction reflecting the impact of an average 13% weakness in the dollar compared to the same period in 2006.

Following the sale of the Critical Care Division, cash balances increased to £20.1m at 30 June 2007, most of which are held in US dollars reflecting the Group’s operations and cost base.

On 19 March 2007, 7,811,428 warrants held by Motorola were bought back and cancelled by Osmetech at a price of six pence per warrant for a total of £468,686. The warrants were issued to Motorola in consideration for Osmetech's acquisition of Clinical Micro Sensors Inc. The warrants entitled Motorola to subscribe for up to 7,811,428 ordinary shares of 0.1 pence each in the capital of Osmetech (representing 3.85% of the current issued share capital) at a price of 17.5 pence per share at any time up to 26 July 2010.

Outlook

The market dynamics for molecular diagnostics continue to be attractive with high growth rates and the prospect of high margins. Market domination by a limited number of key players has not yet occurred, and M&A and cross4 licensing activity remains strong with many large players looking to increase their presence or enter the market for the first time.

The directors believe that market success is likely to be driven by a combination of strength in technology, instrumentation and assay menu. Given these factors, Osmetech is both a potentially attractive partner for new market entrants as well as being well placed to become a significant player in this important market in its own right.

The value created by our Critical Care Division and its subsequent sale has provided Osmetech with the funding strength to further develop the exciting opportunities open to it in molecular diagnostics. With our experienced management and a proven product technology, backed by a strong intellectual property portfolio, Osmetech is well positioned to build considerable value in its Molecular Diagnostics Division.

Gordon Hall James White.
Chairman Chief Executive Officer

27 September 2007