Avacta Group Regulatory News (AVCT)

14 Nov 2007 09:08

Avacta Group plc

Acquisition of Oxford Medical Diagnostics Limited

Complementary gas detection and analysis technology to broaden market reach

Avacta Group plc ("Avacta" or the "Company"), which develops detection and analysis technology aimed at the defence & security, biopharmaceutical and clinical diagnostics markets, announces that it has conditionally agreed to acquire Oxford Medical Diagnostics Limited ("OMD"), a specialist in high sensitivity, laser-based, gas-detection technology which was spun out from Oxford University in 2004. OMD's applications are synergistic with Avacta's existing products and customers and its technology is complementary, providing gas phase detection capabilities to work alongside Avacta's core strengths in liquids and solids analysis.

The initial purchase consideration of ‚£3 million will be satisfied by the issue of 43,908,069 ordinary shares of 0.1 pence each in the capital of Avacta (the "Consideration Shares") at an issue price of 5.0 pence per share, a cash payment of approximately ‚£64,000 and the grant of options to subscribe for a further 14,822,213 ordinary shares of 0.1 pence each in the capital of Avacta at a weighted average exercise price of 0.7 pence per share. In addition, options to subscribe for 37,409,242 ordinary shares of 0.1 pence each in the capital of Avacta at an exercise price of 0.1 pence per share will be granted to certain key personnel of OMD the exercise of which will be subject to the satisfaction of certain operational and commercial milestones over a period of up to four years. The Consideration Shares represent 5.6% of the current issued ordinary share capital of Avacta.

The acquisition is conditional upon:

* The approval of resolutions to increase the authorised share capital of Avacta; to give the directors of Avacta the required powers and authorities to issue and allot the Consideration Shares and the ordinary shares which are the subject of the options to be issued pursuant to the acquisition; and to dis-apply the statutory pre-emption rights in respect of the issue of such shares. These resolutions will be proposed as special business at the forthcoming Annual General Meeting of the Company; and * Tax clearance being obtained by the selling shareholders of OMD. This is expected to be obtained by 16 December 2007.

Application will be made for the Consideration Shares to be admitted to trading on AIM when the acquisition becomes unconditional in all respects.

The patented technology exclusively licensed to OMD uses infrared absorption spectroscopy and is targeted at two major markets: industrial process monitoring and, in the longer term, clinical diagnosis through the rapid analysis of breath samples.

Industrial Process Monitoring

OMD's laser-based gas analysis device has reached the final prototype stage and the first product, which will provide a measurement of moisture content in natural gas which drives gas value, is expected to reach the market late in calendar year 2008. The market for industrial gas analysis technology is estimated at approximately $1.5 billion (The Freedonia Group - Chemical Sensors: Liquids, Gas and Biosensors Study) and includes security and defence applications, toxic gas detection in a range of industries, and gas quality analysis in sectors such as the petrochemical industry. OMD's technology will provide quick and sensitive measurements in a cost effective product. This equipment is expected to position Avacta as a leading developer of this type of technology.

Point of Care Clinical Diagnostics

A growing number of diseases, such as tuberculosis, asthma, lung cancer and some ulcers, can be diagnosed through the presence of certain molecules in the breath. At present such analysis is carried out using large, expensive and complex mass spectrometers. OMD has a strong patent position to use its technology to analyse breath for diagnostic purposes and Avacta believes that the equipment under development will lead to lower cost, portable devices which can be used easily by clinicians to give accurate, rapid diagnoses.

For the year ended 31 December 2006, OMD reported turnover of ‚£25,000 and a loss on ordinary activities before taxation of ‚£381,469. The net asset value of OMD as at 31 December 2006 was ‚£348,266.

As the vendors of OMD include IP Group PLC ("IP Group") which, through its subsidiary company, Techtran Group Limited, is a substantial shareholder of Avacta, the acquisition is classified as a related party transaction under the AIM Rules. With the exception of Alan Aubrey, who is a director of Avacta and of IP Group, the directors of Avacta consider, having consulted with WH Ireland Limited, the Company's nominated adviser, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned.

The vendors of OMD have agreed, subject to certain exceptions, not to dispose of any Consideration Shares without the consent of the Company for a period of 12 months following Admission and only to dispose of such shares with the prior consent of, and through, the Company's broker for a period of 12 months thereafter.

Professor Alastair Smith, Chief Executive, Avacta, commented:

"OMD is a perfect fit for Avacta. It brings a highly complementary capability that has applications in our core markets of biopharmaceuticals, defence and healthcare and brings with it new routes to market for us in industrial process monitoring. The Oxford founders, led by Professor Graham Hancock, and the operational team are a huge asset to the wider Group.

The long term goals of the two companies are also perfectly aligned - to provide high value products for the lucrative clinical diagnostics market. Point-of-care health diagnosis is increasing in importance, driven by the need to effect more immediate treatments. We believe that the OMD technology, which has a well-protected position in this application area, will become an important tool for clinicians helping to make breath diagnostics a routine method of health assessment in the future."

14 November 2007Enquiries:Avacta Group plc Tel: 0870 835 4367 Alastair Smith, Chief Executive Nexus Financial Ltd Tel: 020 7451 7050 Nicholas Nelson/Kathy Boate nicholas.nelson@nexusgroup.co.uk WH Ireland Limited Tel: 0161 832 2174 David Youngman/Robin Gwyn BankOra Limited - Nominated Broker Tel: 020 7562 4713 Henry Turcan/Michael Brennan Notes to Editors:About Avacta

Avacta was spun-out from the University of Leeds in 2004 by its current management team as a biophysics company, with the aim of combining the disciplines of physics and biology to develop innovative technologies and expert technical services to address needs in the pharmaceutical, defence and clinical diagnostics markets. Avacta has a core bio-analytical technology development programme addressing the needs of the biopharmaceutical sector to fully characterise their new products at the earliest stage in their development to reduce the risk of late stage failure. High value solutions in defence and clinical diagnostics are also being provided by Avacta's development programmes. A successful and growing part of the Avacta business model is its technical services arm, Avacta Analytical Ltd which is focused on providing leading edge contract research to the biopharmaceutical and healthcare/personal-care materials sectors. Avacta was admitted to AIM in August 2006. On completion of the acquisition, Avacta will have 822,386,111 Ordinary Shares in issue and options over 9.4 per cent. of the enlarged issued share capital.