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Press Release

28 March 2008

Osmetech plc preliminary results for the 12 months ended 31 December 2007

Highlights

• Profit after tax of £4.0 million (2006 – loss of £13.3 million)
• £17.6 million profit on sale of Critical Care Division generates substantial return on investment
• Continuing operations:
  • Revenue increases to £169,000 (2006 - £49,000)
  • Loss after tax of £12.0 million (2006 – loss of £12.3 million)
• Cash and cash equivalents increase to £13.9 million at 31 December 2007 (2006 - £7.1 million)
• Growth of installed base of eSensor® 4800 instruments running FDA approved Cystic Fibrosis Carrier Detection tests
• Second generation eSensor® XT-8 system with Warfarin sensitivity test currently under review by FDA – clearance and launch expected during the first half of 2008
• Extended Warfarin sensitivity test, including exclusively licenced 4F2 biomarker, scheduled for second half of 2008 
• New licencing agreements and strategic partnership collaborations under negotiation

James White, Chief Executive, Osmetech plc, said: “The molecular diagnostics market continues to experience high growth rates and offer prospects of very attractive margins. The on-going decentralisation of testing is increasing demand for FDA-cleared tests in a cost-effective, compact and easy to use format. Osmetech is set to launch its new XT-8 instrument platform shortly and remains one of a small group of companies able to meet these market requirements. We expect further progress and significant developments during the current year.”

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
Graham Moonie/Mark Way

Chairman’s statement

The sale of our Critical Care Division to IDEXX Laboratories, Inc. (‘IDEXX’) for £23.1 million ($45.4 million) in cash before costs was completed on 31 January 2007, representing a substantial return on the £1.7 million ($2.7 million) purchase price when the blood gas and electrolyte analyser business was acquired from Roche Diagnostics Inc in 2003. As a result of Osmetech’s active management of the business, considerable value was created through the acquisition of this non-core asset from a major company by Osmetech.

Osmetech is now making excellent progress towards replicating this success in a market with much more attractive growth prospects. We are now wholly focussed on exploiting the considerable opportunities in the rapidly developing molecular diagnostics market sector. This is centred on our proprietary technology and substantial intellectual property portfolio built around the acquisition of Clinical Micro Sensors, Inc. from Motorola, Inc in 2005.

The market dynamics for molecular diagnostics continue to be attractive with high growth rates and the prospect of high margins. Osmetech has directed its development at products that meet the requirements of a decentralizing diagnostics market which is demanding FDA-cleared tests in a cost-effective, compact and easy to use format. Many of the existing players in the wider molecular testing market have expensive and specialised instruments designed for the more complex demands of the research market and are finding the transition to diagnostics difficult to achieve.

Osmetech remains one of a small number of companies with the capability of meeting the requirements for this growing market. We have proven technology and products that have successfully passed key scientific and regulatory milestones and are now making sound commercial progress in achieving market acceptance of our first generation eSensor® 4800 platform.

We have completed the development of our second generation eSensor® XT-8 platform and are very excited about its commercial prospects. The system, along with the Warfarin sensitivity test, is currently under review by the FDA and following the anticipated FDA clearance we expect to launch the product in the first half of 2008. We plan to commercialise the product throughout the remainder of 2008 and into 2009 which will involve continued investment in Group’s infrastructure and product pipeline. We anticipate that further funding will be required during this period in order to fully execute our commercialisation plans. Not withstanding the matter of emphasis disclosed within note 2, based upon ongoing negotiations and discussions with potential strategic partners, licencees, commercial and other third parties we are confident that further funds will be available to the Group enabling us to optimise value from our products. We plan to pursue the alternative which delivers most shareholder value at the time and I look forward to updating shareholders in due course.

Gordon Hall
Chairman
28 March 2008

Chief Executive Officer’s Review

Introduction

We have continued to make strong progress in the year towards our aim of commercialising our proprietary electrochemical detection technology to provide a low cost, easy to use instrument platform for molecular diagnostics testing.

Commercialisation achieved with first generation system

A limited number of eSensor 4800 DNA Detection instruments were inherited when the Clinical Micro Sensors, Inc. business was acquired from Motorola in 2005. Our strategy has been to use this first generation eSensor 4800 platform to achieve regulatory and commercial acceptance of our technology.

We are pleased to report considerable progress in this regard. Following FDA regulatory clearance for our eSensor Cystic Fibrosis Carrier Detection test and eSensor 4800 DNA Detection instrument in 2006, 14 available instruments are now with customers either on a commercial basis or under evaluation.

Customers range from large to small hospitals and small reference laboratories and we have experienced a 100% conversion rate from the evaluation stage through to commercial contract. Whilst customer satisfaction levels remain high we plan to replace these eSensor 4800 systems with our second generation platform, the eSensor XT-8, following clearance by the FDA.

Throughout this commercialisation process we have established a core U.S. sales and marketing team in addition to an effective manufacturing base and supply chain. Valuable feedback and experience from the market has been gained allowing us to incorporate product enhancements into the development of our second generation eSensor XT-8 system.

Submission of second generation platform

The development of our second generation eSensor XT-8 electrochemical DNA analysis system has been completed and the product has been very successfully exhibited at a number of trade shows. Following highly successful pre-clinical trial studies, the system is currently under review by the FDA together with our Warfarin sensitivity test. Following FDA clearance, we plan to launch the platform in the first half of 2008.

FDA clearance for the XT-8 platform will simplify the regulatory pathway for future assay submissions. These submissions will be for new tests with no further review of the instrument being required.

The XT-8 system is based on the FDA-cleared eSensor 4800 product with several additional features to provide enhanced performance capabilities. It is a compact bench-top workstation with an integrated touch screen computer and disposable test cartridges that can process up to 3,000 tests a week. Using prepared samples, the eSensor XT-8 System can run up to 24 different tests independently (with variable throughput capacity dependent upon the user’s requirements) providing a definitive result within 30 minutes with limited operator involvement. The system incorporates several key features which we believe will make the XT-8 attractive to a wide range of laboratories, including:

• Simplicity.    Our eSensor XT-8 System eliminates the need for sophisticated instrumentation or complex reagent kits. Automation of a number of key process steps eliminates manual intervention in the detection process and algorithms provide test results without the need for operator interpretation or data manipulation, making molecular diagnostic testing widely available to both large and small hospital laboratories worldwide

• Cost-Effectiveness.  Our eSensor XT-8 System is a low cost platform that is accessible to smaller hospitals and reference laboratories.  Our versatile, cartridge-based design eliminates the need for multiple testing platforms.  By eliminating the need for skilled technicians and multiple complex platforms, hospitals and laboratories of all sizes can reduce their costs and obtain results from tests in their own laboratories at a significantly lower cost than through systems generally available today.  Assuming current Medicare reimbursement rates for genetic tests remain the same, the eSensor XT-8 system should provide hospitals and reference laboratories with an additional revenue source while allowing them to better serve their patients and clients with faster and more accurate test results

• True Random Access Testing.  The eSensor XT-8 System allows laboratories to economically run different tests from different patient samples when received and on demand, unlike other systems where laboratories must process patient samples in batches to control reagent and labour costs. True random access results in faster sample turn-around times, improved patient care and timely service to the ordering clinician waiting to act on the patient result.

• Multiplexing.  The eSensor XT-8 System enables scalable multiplexing of up to 72 target molecules on the same patient sample in a single assay cartridge. Potential applications include genomic and infectious disease test panels on a single use cartridge that allows for the simultaneous detection of multiple genetic mutations associated with complex diseases such as cystic fibrosis or respiratory infections.

• Accuracy and Reliability.  The eSensor XT-8 System utilises a proprietary electrochemical method to detect nucleic acids with high levels of sensitivity and specificity.  Electrochemistry is far more robust than optical recognition methods providing results that are less subject to variation from contamination or vibration and dust.

• Low maintenance.  We believe that the eSensor XT-8 requires less maintenance than any other competitor instrument. No set-up procedures are necessary allowing an extremely convenient ‘plug and play’ approach. Ongoing or regular maintenance is minimal.

• Validated Technology.  The eSensor XT-8 System is based on our proprietary electrochemical technology, a technology which has been used in other clinical applications, most notably in blood glucose measurement for diabetes management.  The XT-8 instrument utilises the same core technology as our eSensor 4800 system, which has been approved by the FDA and is currently in use in laboratory settings for cystic fibrosis carrier detection.

• Clinical Lab Ready System.  The XT-8 is designed specifically for the molecular diagnostics market using our experience of successful new blood gas products previously launched in our Critical Care Division, rather than attempting to adapt a complex research based instrument to meet the very different demands of the clinical environment.

Unique content in-licenced

We have obtained an exclusive licence from the Marshfield Clinic for an important newly discovered genetic marker for Warfarin, the CYP450 4F2 biomarker. The Marshfield Clinic has recently had an article published in the peer-reviewed journal, Blood Online, entitled “CYP4F2 Genetic Variant Alters Required Warfarin Dose” which describes clinical studies demonstrating that the 4F2 biomarker significantly influences Warfarin requirements. Gaining access to unique content through exclusive licencing is highly unusual in the molecular diagnostics industry and gives us a significant competitive advantage, confirmed by the numerous enquiries we have subsequently received from third parties seeking a sub-licence.

Together with the licences necessary for our marketed Cystic Fibrosis Carrier Detection test, we have also successfully completed the in-licencing of biomarkers for our Warfarin sensitivity and 2C9 pharmacogenomics tests planned for launch later this year. In addition to the unique 4F2 marker we have also obtained the rights to other genetic markers related to Warfarin metabolism which should form the basis of an Extended Warfarin Panel test also targeted for launch later in 2008.

Osmetech has recently been granted a broad non-exclusive worldwide diagnostics licence from Roche to use chemically modified thermostable polymerases for applications including existing marketed products, other genetic predisposition assays, companion diagnostics and infectious diseases such as HPV. This enables improved control over the amplification of select segments of nucleic acids, including genomic DNA, so that sufficient signal is available for diagnostic processing, resulting in a highly efficient and sensitive amplified assay. This licence will benefit both new and existing customers who will not be required to obtain this licence from Roche and pay royalties on tests performed when using Osmetech products. This is a good example where Osmetech is simplifying molecular diagnostics by including this critical component in an easy to use kit format for customers.

Expansion of our intellectual property portfolio and outlicencing activities

We believe that our intellectual property portfolio provides a significant barrier to the development of similar electrochemical based detection systems.  We own or have exclusive worldwide rights to more than 150 patents worldwide mostly in the field of electrochemical detection of biological entities such as DNA, RNA, and proteins. 

Our strong intellectual property portfolio for its core electrochemical detection technology was built through the combination of the Clinical Micro Sensors acquisition from Motorola and a series of worldwide exclusive licences most notably from CalTech (where most of the electrochemical detection technology originated), University of North Carolina, Harvard University and MIT.  To date there are more than 80 issued U.S. patents protecting the company’s electrochemical detection technology covering a diverse collection of areas including electrochemical DNA detection, self-assembling monolayer technology, signal processing and extraction methods.

We believe that our eSensor electrochemical technology is ideally suited to the decentralising molecular diagnostics market, enabling testing in less sophisticated laboratories outside of research institutions and large hospitals. It should also provide us with the ability to develop intuitive and robust point-of-care testing instrumentation and ultimately portable testing devices that are not subject to the limitations of photon (optical) based platforms.

We have licenced technology to Ohmx Corporation and Minerva Biotechnologies Corp on a non-exclusive basis. We see further opportunities to leverage our considerable patent portfolio to generate licencing income from commercial agreements, while maintaining our competitive advantage for applications in our core markets.

Business repositioned in the most attractive segment of the diagnostics industry: Molecular Diagnostics

The sale of our Critical Care Division (‘CCD’) blood gas and electrolyte analyser business early in 2007 completed the cycle of acquiring and developing a non-core undervalued asset from a major company through to the generation of significant returns. Osmetech was successful in creating considerable value with CCD in a mature, slow growing market with modest profit margins. We are now developing a molecular diagnostics business with higher growth and higher margin opportunities in a market sector of increasing strategic importance.

The molecular diagnostics market is the fastest growing segment of the overall in-vitro diagnostics (IVD) market. The global market for in vitro diagnostic products was estimated to be $34 billion in 2006 according to Boston Biomedical Consultants.  Molecular diagnostics generally refers to the use of genomic analysis of individuals to diagnose disease and treat patients and, as a sub-segment of the IVD market, includes diagnostic testing for infectious diseases, pharmacogenomics, genetics and cancer. This new and expanding part of the IVD market has emerged in response to a need for more rapid, sensitive and specific diagnostic tests than were previously available using traditional techniques, such as immunoassays.  Our market opportunity in molecular diagnostics is more than $2.3 billion.  We believe that the following factors, among others, are contributing to the growth of this market:

• Decentralization.  The diagnostics market is beginning the conversion from traditional methods of detection that are required to be performed in outside laboratories to molecular testing performed in hospital laboratories.  Generally, genetic testing required complex instrumentation utilising highly trained operators, expensive equipment and dedicated facilities.  There is growing demand from U.S. hospitals looking to build laboratory revenues and profitability through the reimbursement system by performing molecular testing on new, cost effective and easy to use platforms in their own laboratories.

• Conversion to FDA-Approved Molecular Testing Methods.  The FDA is encouraging the molecular diagnostic industry to develop tests that are cleared by the FDA rather then using ASR-based tests not submitted for clearance. It is expected that over time that many of these ASR tests and “home brew” tests created by laboratories will be phased out in favour of FDA-approved tests.

• Expansion of Human Genetic Testing.   Medical advances in the understanding of the relationship between genetics and disease and the disease process have led to the development of human genetic tests for diseases such as cystic fibrosis and inherited diseases.  As understanding and technology advance, we expect that additional genetic tests will become available to establish a person's predisposition to a wide range of diseases. 

• Pharmacogenomics.  Research is uncovering more information about the impact of genetics on patients’ ability to tolerate, metabolise and respond to many drugs.  The importance of this research is highlighted by the fact that, according to the Institute of Medicine, over 100,000 people die each year in the U.S. alone as a result of adverse drug reactions.  As a result, we expect that genetic testing will increasingly be used to guide treatment methods and dosages through the development of companion drug tests.  The FDA has noted an increase in pharmaceutical companies seeking clearance of products with accompanying diagnostic tests and over the next decade there is expected to be substantial growth in the companion molecular diagnostics market with companies focusing their development of drugs for patients who are more likely to respond favourably to that particular drug and drugs that focus on targeting a specific gene.  In addition, the FDA is seeking pharmacogenomic information from pharmaceutical companies on their currently marketed products, which could lead to the development of new tests for other pharmaceuticals. 

• Increasing Reliance on Genetic Testing.  Future growth in the molecular diagnostics market will be driven by continued development of new tests and the growing acceptance of, and reliance on, these tests by physicians and other practitioners in their decision making process and patients’ awareness of the potential of these tests.  We expect that as these tests become more accessible as a result of the lowering of barriers to entry to hospital laboratories for test processing, physicians and patients will come to include these tests as an important factor in prevention, diagnosis and treatment of many diseases.

Our applications

We are commercializing or have in development several genomic assays including the following:

Warfarin metabolism  

Our eSensor Warfarin Test is a pharmacogenomic test for the detection of genetic mutations that determine an individual’s ability to metabolize the oral anticoagulant Warfarin, also known as Coumadin. Warfarin decreases the blood’s clotting ability and is the most widely prescribed oral anticoagulant in North America and Europe. Individuals metabolize Warfarin differently, and if its administration is not managed carefully, life threatening side effects may occur.

In the U.S. alone there are an estimated 2 million new Warfarin patients each year. 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 the healthcare system approximately $1.1 billion annually.

In August 2007, the FDA announced the relabelling of Coumadin (generic name – Warfarin), which was reported on the front page of the Wall Street Journal. It is significant that the FDA has taken such a proactive stance to promote the use of genetic factors to predict how individuals will react to medicines. We 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 eSensor Warfarin Test, which is currently under review by the FDA together with the eSensor XT-8 System, detects three genetic markers that are known to play a critical role in metabolizing Warfarin. Through detection of these genetic markers, doctors are able to determine the appropriate initial Warfarin dosage level in a safer and more efficient manner.

We recently obtained an exclusive licence from the Marshfield Clinic for an important newly discovered genetic marker for Warfarin, the CYP450 4F2 biomarker. Clinical studies demonstrate that the 4F2 biomarker significantly influences Warfarin requirements. We have already conducted clinical trials incorporating this 4F2 marker and other additional genetic markers into our eSensor Extended Warfarin Test, which we expect to submit for FDA 510(k) clearance shortly after receiving clearance for our three marker Warfarin Test.

Cystic Fibrosis 

Our Cystic Fibrosis Carrier Detection Test is a qualitative, multiplexed genotyping assay that detects a 23-marker panel of mutations associated with cystic fibrosis based on guidelines published by the American College of Medical Genetics and the American College of Obstetricians and Gynecologists for screening of adult couples contemplating pregnancy. Our eSensor Cystic Fibrosis Test for the eSensor 4800 System received 510(k) clearance from the FDA in 2006 and is currently on the market. We anticipate that we will submit our eSensor Cystic Fibrosis Test for the eSensor XT-8 System for FDA clearance in early 2009.

The U.S. market for Cystic Fibrosis Carrier Screening is currently estimated to be 1.5 million tests, growing at 15% with less than 50% market penetration.  We expect that the launch of additional low-cost, FDA-approved tests will drive market expansion through increased testing by small and medium-sized laboratories as approximately 60% of tests are currently performed in large reference labs.  We anticipate that by 2010, approximately 2.5 million tests will be performed in the U.S., creating a total market of up to $300 million. 

2C9 drug metabolism

CYP2C9 is a member of the cytochrome P450 mixed-function system of enzymes involved in the metabolism of several important groups of drugs including many non-steroidal anti-inflammatory drugs (NSAIDs) and anti-diabetic drugs.

We have conducted clinical trials on a 2C9 drug metabolism test. We expect to submit for FDA 510(k) clearance for 2C9 later this year following clearance of our Warfarin Test.

Other assays

We have a respiratory virus panel currently in development which has the potential of addressing a large market. A test that differentiates between a number of common respiratory viruses and bacteria is well suited to the XT-8’s capabilities for multiplex detection from a single patient sample.

We are currently evaluating a number of opportunities to broaden our test menu. We are focussing on validated content with clear market requirements and anticipate that we will enter into licencing and commercial agreements with partners enabling further assays to be added to the eSensor XT-8 instrument platform. We expect that this pipeline will include pharmaceutical companion diagnostics and validated cancer markers.

Competitive landscape

Much of the molecular diagnostic testing today is performed on large, expensive and complex research-based instruments requiring highly skilled staff to perform tests and interpret results. In order to achieve acceptable financial returns, large volume batch testing is often required. As a consequence, testing is largely concentrated in reference laboratories and large hospitals with other hospitals and institutions forced to out-source testing, resulting in lengthy waits for results and the lost opportunity of performing potentially profitable tests in-house.

Many of the existing methods, including certain more recently developed technologies, are susceptible to contamination and inaccuracy because of the need for specialist involvement in every stage of the process which can lead to inconclusive results and incorrect interpretation.  Furthermore, many new technologies in molecular diagnostics have failed to provide the ease of use and cost-effectiveness that we believe is necessary to make molecular diagnostic instruments attractive to hospitals and reference laboratories that do not currently have the capacity to perform molecular diagnostics in their laboratories.

Market domination in this sector of the Diagnostics market by a limited number of key players has not yet occurred, and M&A and cross-licencing activity remains strong with many large players looking to increase their presence or enter the market for the first time.

We are one of a small number of companies with the capability of meeting the requirements for this growing market. We are also one of an even smaller group with FDA cleared tests and validated core technology necessary for widespread adoption by all sizes of customer in this decentralising market.

GeneSensor

During 2007 the development of the GeneSensor instrument platform was discontinued with the Group’s resources fully focused on the eSensor technology and XT-8 platform. We remain very encouraged by the market acceptance of eSensor system and now believe that the eSensor XT-8 instrument and our electrochemical detection technology generally have the ability to address many of the market requirements originally targeted by our GeneSensor instrument system.

Financial review

IFRS

This is the first year 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.
• Recognition and potential remeasurements 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 the notes to the preliminary announcement.

Discontinued Operations

The results for Critical Care Division sold in January 2007 together with the gain on disposal have been disclosed as ‘discontinued operations’ in the income statement for both 2006 and 2007. Discontinued operations also include results relating to GeneSensor which was discontinued in 2007.

A net profit on disposal of the Critical Care Division (CCD) of £17.6 million was recorded in the year, representing a significant return on the original investment. The total net income after tax attributable to CCD including the trading result for January 2007 was £17.3 million.

The loss attributable to the discontinued GeneSensor operation of £1.2 million included an impairment of assets amounting to £1.1 million, principally comprising the write off of goodwill of £1.0 million.

Continuing operations

The loss before taxation in the year from continuing operations in the year decreased by 3% to £12,031,000 (2006 - £12,340,000). Gross profit (revenue less changes in inventories) increased to £76,000 (2006 - £17,000) on higher revenue of £169,000 (2006 - £49,000); it is too early in the commercialisation stage for the business to provide any meaningful analysis of the reported gross profit margin of 45%.

The operating loss for the year increased by 2% to £13,048,000 (2006 - £12,751,000). With the development of the XT-8 completed in 2007, our instrument development costs were lower than in 2006, although this cost reduction was offset by an increase in assay development activity to ensure that we have a good progression of new tests in the pipeline for the XT-8. We anticipate that assay development costs will continue at this new higher level in 2008 and we plan to increase our sales and marketing resource as we launch the XT-8.

At 31 December 2007, cash and cash equivalents were £13.9 million and were boosted during the year by the proceeds from the sale of the Critical Care Division. Approximately 90% of the Group’s cash is held in U.S. dollars, a proportion which broadly matches the likely currency funding requirements for the business.

Cash flow

The increase in cash and cash equivalents in the year before the effect of foreign exchange rate changes was £7,184,000 compared to a total Group profit for the year of £3,984,000. The principle reasons for the difference are the cash received from IDEXX for the sale of net assets plus cumulative exchange reserve of the Critical Care Division, which amounted to £3,775,000 at 31 December 2006.

Redemption of warrants

On 19 March 2007, 7,811,428 warrants held by Motorola were repurchased and subsequently cancelled by Osmetech at a price of six pence per warrant for a total of £468,686 before costs of £12,159.  The warrants were issued to Motorola in consideration for Osmetech's acquisition of Clinical Micro Sensors Inc. in 2005. 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

In addition to securing FDA clearance of the eSensor 4800 DNA Detection instrument, we have been successful in recruiting new customers thereby establishing market acceptance of our technology. These are key milestones that have been met and the principal focus for the business is now execution.

Sales revenues have been increasing as the number of instrument placements has grown. Moving into 2008 we also expect to see an increase in test usage per instrument from existing customers looking to promote the Cystic Fibrosis test within their local communities to increase the revenues and profitability of their laboratories through established and attractive reimbursement rates.

We plan to build on this success by launching our second generation eSensor XT-8 system upon FDA clearance for our Warfarin sensitivity test expected shortly. By the end of 2008 we expect to have expanded our test menu to include two additional FDA cleared tests creating the basis to produce annual sales revenues in excess of $100,000 per instrument. We will also be preparing to increase our installed base of instruments further with international launch through a network of distributors.

We are currently in discussions or negotiations with a number of potential partners attracted by the broad appeal of our XT-8 instrument platform and electrochemical detection technology. We anticipate that this will result in new genetic and pharmacogenomic tests to expand our test menu as well as opportunities to develop a system that can process results directly from the patient sample, without the need for sample preparation to significantly improve the processing time of our tests. 

We believe that market success is likely to be driven by a combination of strength in technology, intellectual property, instrumentation, installed base and assay menu. Given these factors, the Board considers that Osmetech is building a strong position in this increasingly important market providing considerable scope to create further value in the business.

James White
Chief Executive Officer
28 March 2008

Consolidated income statement for the year ended 31 December 2007

Osmetech plc

Osmetech plc

Consolidated balance sheet at 31 December 2007

Osmetech plc

Cash flow statements for the 12 months ended 31 December 2007

Osmetech plc
Notes to the Cash Flow Statements

Reconciliation of operating loss to net cash outflow from operating activities

Osmetech plc
Notes to the Cash Flow Statements (continued)

Analysis of cash flows - Gross cash flows

Notes

1. Results

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2007 or 2006. The financial information for the year ended 31 December 2006 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498(2) or (3) Companies Act 2006.

The audit of the statutory accounts for the year ended 31 December 2007 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. The auditors are yet to sign their report on the statutory accounts for the year ended 31 December 2007 but have indicated that their auditor’s report will be modified by the inclusion of an added emphasis paragraph which highlights the existence of a material uncertainty that casts significant doubt on the company’s and Group’s ability to continue as a going concern. Further information is disclosed in note 2.

 

2. Going concern

During the year ended 31 December 2007 the Group incurred a loss before tax of £12.2 million from continuing operations. The Group’s directors have prepared projected cash flow information for the period ending 12 months from the date of approval of these accounts.

During the year, the Group has completed the development of the second generation e-Sensor XT-8 electrochemical DNA analysis system.  The system, along with the Warfarin sensitivity test, is currently under review by the FDA.  Following the anticipated FDA clearance the Group expects to launch the product in the first half of 2008.   The directors intend to commercialise the product throughout the remainder of 2008 and into 2009 which will involve continued investment in Group’s infrastructure and product pipeline.  The forecasts prepared by the directors indicate that further funding will be required in 2009 in order to supplement revenues from the launch of XT-8 and fully enact their commercialisation plans to optimise value from the Group’s products. 

The Directors have a reasonable expectation, given these recent achievements and the current strength of the Group’s operations, that the Group will be able to secure sufficient funding to enable it to properly exploit the commercialisation opportunities for the e-Sensor XT-8, meet its liabilities as they fall due for the foreseeable future and are currently evaluating a number of alternatives in order to achieve this.

However, the absence of agreed funding as at the date of this report indicates the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. This disclosure is given in accordance with International Standards on Auditing (ISA) 570.

3. Operating loss

The following items are charged / (credited) in arriving at the Group’s operating loss from continuing operations and the operating income from discontinued operations.