Buy Omega Diagnostics (ODX) at 14.311 Mar 2011 17:22
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Background
Omega Diagnostics (ODX) trades in the in-vitro diagnostics (IVD) industry, which is a particular favourite of mine at the minute. The IVD market is pretty much a one-way bet over the longer term due to underlying structural factors such as the burgeoning middle classes of the developing world; it is currently worth around $35 billion worldwide and is growing at a rate of 3-5% per annum. The point-of-care sub-sector (in which Omega specialises) accounts for much less - approximately $3.6 billion (US, Western Europe and Asia-Pacific) - but is growing at a substantially faster rate of 9-10% per annum in developed markets.
Last November, Omega announced the acquisition of the the IVD business of Allergopharma Joachim Ganzer KG, a leading European allergy testing business. The total consideration was 6 million euros (approximately GBP5 million), satisfied by a cash payment on completion and financed through the issue of 64,583,350 shares at 12p per share raising GBP7.75 million (approximately GBP6.7 million after expenses). The acquired business specialises in the research, development and production of in-vitro (lab based) allergy tests used by doctors to diagnose patients with allergies. Germany is currently the firm's principal market and generates 96% of sales, although the firm also sells into thirteen other markets, including Poland, Russia and Lebanon.
Apart from the obvious opportunity for Omega to use its global reach as leverage to grow sales, the company also has a couple of other tricks up its sleeve. Firstly, it intends to improve the efficiency of confirmatory allergy testing through entering into an agreement with Immunodiagnostic Systems Holdings PLC (IDS) to gain exclusive global use, for performing allergy diagnostics, of their US FDA-approved IDS-iSYS platform, an automated 'closed system' analyser. It is believed that only minor modifications will be required to produce a competitive working system for confirmatory allergy testing that will be able to process higher volume of tests and thereby increase reagent revenues for the enlarged group. Second, Omega will to apply its existing Genarrayt microarrary test platform technology, which is currently utilised for food intolerance testing, to IgE ('Immunoglobulin E', or IgE, is a natural substance in your body that can indicate an allergic reaction) Allergy screening. The firm believes that the Genarrayt microarray detection system has the ability to be used in a wide variety of applications where multiplexing (testing for a large number of analytes simultaneously on a single blood sample) can confer a competitive advantage, enabling the physician to commence the diagnostic process on a broad approach. Automation of slidehandling will allow more rapid processing of higher test volumes and thereby drive increased sales.
Financials and Evaluation
Allergopharma's financial statements sho
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