IDH.L Regulatory News (IDH)

3 Aug 2007 07:00

Immunodiagnostic Systems Hldgs PLC03 August 2007 For release3 August 2007 Immunodiagnostic Systems Holdings PLC ("IDS" or the "Group") Proposed acquisition of Biocode Hycel S.A. Proposed placing of 5 million new ordinary shares at 240p Immunodiagnostic Systems Holdings PLC ("IDS" or "the Company"), a leadingproducer of diagnostic testing kits, announces that it has entered into aconditional agreement to acquire 99.93% of Biocode Hycel S.A. ("Biocode Hycel"),a Belgian-French group that develops, manufactures and distributes IVDinstruments and reagents. The Company intends to raise £12m before expenses (£11.25m net) through aplacing of 5 million new ordinary shares at 240p per share (the "Placing") byTeather & Greenwood Limited, Nominated Advisor and Broker to IDS, to fund theacquisition of Biocode Hycel and for working capital. Information on Biocode Group Biocode Hycel develops, manufactures and distributes IVD instruments andreagents for immunoassay, haematology and biochemistry. Biocode has four sites,namely Liege (Belgium) and Massy, Rennes and Pouilly (France), and currentlyemploys 132 people. IDS announced on 4 December 2006 that it had reached an exclusive agreement withBiocode Hycel S.A., who were then in the final stages of developing a newgeneration of automation instrument, called the 3X3, to automate its completerange of bone & skeletal products on the 3X3. In doing so, IDS became a foundermember of the 3X3 Alliance that has been created to simultaneously develop testsfor this new platform. For the year ending 31 December 2006, Biocode Hycel made a negative EBIT of€2.77m (c. £1.85m), on a turnover of €12.10m (c. £8.07m). As at 31 December2006 Biocode Hycel's net assets under Belgian GAAP were €7.33m (c. £4.89m). Biocode Hycel's €12m sales are achieved primarily in France and a number ofrelatively minor IVD market territories. IDS is strong in the major IVDmarkets, with direct subsidiaries in the prime markets of the USA, Germany,France and the UK, and active distributors in Italy, Spain, Japan and Australia,amongst others. The Directors are confident that offering Biocode Hycel'sexisting products in these markets can significantly raise the level of sales ofthe expanded group Consideration and Placing • IDS has agreed to pay the Vendors €23 million, with €11 million to besatisfied in cash and €12 million by the issue of the Vendor Shares, less anynet debt as defined by the acquisition agreement. • In addition, IDS has agreed to pay the Vendors Earnout Royalties of€10,000 for each new 3X3 Instrument sold, rented out or placed by the BiocodeGroup in the period from completion of the Biocode Acquisition to 31 December2010, and €5,000 for each new 3X3 instrument sold to third party companies underOriginal Equipment Manufacturer contracts until 31 December 2012. • The Placing is intended to raise £12.0m gross (£11.25m net) with c.£7.4m to fund the cash element of the Initial Consideration and £3.85m toprovide additional working capital. While the Vendors Earnout Royalties will provide additional consideration to theVendors, the Directors are confident that the terms will also deliver acceptablemargins to IDS, with incremental contributions from long-term onward sales ofbespoke consumables such as plastic cuvettes and reagent modules generated byevery placement. It is proposed that Alain Rousseau, the current CEO of Biocode Hycel and theco-inventor of 3X3 instrument, be appointed to the Board of the Company asEngineering Director on completion of the acquisition. In addition Mr. Rousseauwill remain an employee of the Biocode Hycel on an undetermined-term contractwith a 6 month notice period and a total annual remuneration of approximately€198,000 (£134,000). The acquisition of Biocode Hycel and the Placing are both conditional upon,among other things, the approval of IDS shareholders of a resolution to beproposed at an Extraordinary General Meeting, which will be held at 10 DidcotWay, Boldon Business Park, Boldon, Tyne & Wear NE35 9PD at 11.00 a.m. on 28August 2007. The Directors unanimously recommend that all Shareholders vote in favour of theresolution, as they intend to so in respect of their own beneficial holdingsrepresenting 23.02% of the Company. Managing Director, Dr Roger Duggan, commented "On 26 July IDS announced that ithad completed the acquisition of Nordic Bioscience Diagnostics A/S (NBD), theDanish based producer of diagnostic testing kits, for £17m with £10m (€14.9m) tobe satisfied in cash, and the balance satisfied through the issue of 2,783,300new Ordinary Shares in IDS, at a price of 251.5p. This acquisition adds salesin excess of £4m per annum to existing IDS sales ((£9.9m), with an EBIT ofgreater than £2m, in highly complementary bone & skeletal products with a strongIP portfolio. It also creates "IDS Scandinavia" (to be known as IDS Nordic)providing for increased margins on sales of NBD products through the IDS Groupin the USA and Europe, and of IDS product sales throughout Scandinavia. Both the acquisition of NBD, and the acquisition of Biocode Hycel that we areannouncing today, are strategically sound in their own right, and whilst notlinked in any way other than temporally, are exquisitely incremental. The Acquisition of NBD delivers unique, patent-protected products that fill gapsin our existing product range to create a panel of tests exceeding that of anyof our competitors. The acquisition of Biocode Hycel facilitates the exploitation of the 3X3 by IDSand Alliance members, and empowers IDS to invite selected non-competingcompanies with the same quality ethic, and with expertise in the fields of notonly immunoassay, but also haematology and biochemistry, to become new members. Our goal of becoming the world leader in automated bone & skeletal biomarkers isboth enhanced and protected by these serial acquisitions, and we are confidentthat we can fill this important and expanding niche market. Elevated margins on existing IDS and NBD product sales in direct territories,falling straight to the bottom line, is simply the icing on the cake" A circular, containing further information on the proposed acquisition ofBiocode Hycel and on the Placing, and which contains a notice of EGM, and a formof proxy will be posted to shareholders today. Enquiries: Immunodiagnostic Systems Holdings plc Parkgreen Communications LtdDr. Roger Duggan, Managing Director Ben KnowlesTel: 0191 519 0660 Tel: 020 7479 7933www.idsltd.com Mob: 07900 346 978 ben.knowles@parkgreenmedia.com Teather & Greenwood LimitedSindre OttesenTel: 020 7426 9000 The following is taken from the circular sent to Shareholders on 3 August 2007: Expected Timetable of Events 2007Latest time and date for receipt of Form of Proxy 11:00 am 26 August Extraordinary General Meeting 11:00 am 28 August Admission and Commencement of dealings in the Placing Shares and CREST accountscredited 31 August Dispatch of Share Certificates in respect of the Placing Shares 4 September Conditional Acquisition of the Biocode Group and Placing of 5,000,000 New Ordinary Shares at 240 pence each Introduction On 26 July 2007 IDS announced that it had completed the acquisition of 100 percent. of the issued share capital of NBD, conditional on finalising a loan fromthe Company's bankers. On 3 August 2007, IDS announced that it had conditionally agreed to acquire99.93 per cent. of the issued share capital of Biocode Hycel S.A., and that ithad raised £12 million before expenses, to fund the Biocode Acquisition and forworking capital. The purpose of this letter is to explain the background to, and provide furtherinformation on, the NBD Acquisition, the Biocode Acquisition and on the Placing,and to seek your approval for the Resolution to be proposed at the forthcomingEGM, which is necessary to effect the Biocode Acquisition and the Placing. Notice of the EGM, which will be held at 10 Didcot Way, Boldon Business Park,Boldon, Tyne & Wear NE35 9PD at 11.00 a.m. on 28 August 2007, is set out at theend of this document. The NBD Acquisition It was announced on 26 July 2007 that IDS had completed the acquisition of theentire issued share capital of Nordic Bioscience Diagnostics A/S for £17million, to be settled by a mixture of cash and shares. Since 1991, NBD has been involved in the development of immunoassay products foruse in the study and diagnosis of bone and cartilage diseases such asosteoporosis and osteoarthritis, and in the monitoring of therapy. NBD began their development of biochemical assays with a marker for boneresorption, the first product being Urine CrossLaps(R) (CTX) ELISA launched in1993. Since then, an Osteocalcin assay has been launched (bone formation markersin humans; the first Osteocalcin assay to receive a 510(k) from the FDA),followed by a serum version of CTX and a number of research products for boneand cartilage biomarkers in humans and rodents. The IP portfolio associated withthese products transfers with the business on the NBD Acquisition. NBD's laboratory testing business and internal R&D operations, whichhistorically also have been part of NBD, will not be transferred to the Companyas part of the NBD Acquisition but rather will be "spun out" by NBD to itsholding company prior to the NBD Acquisition. The Directors believe that the products owned by NBD that will be transferred aspart of the NBD Acquisition are highly complementary to IDS's existing products,and will enhance and strengthen the existing panel of tests currently offered byIDS (notably Vitamin D, Parathyroid Hormone (PTH), Bone-specific AlkalinePhosphatase (BAP) and Tartrate-Resistant Acid Phosphatase (TRAP 5B)). The Directors furthermore believe that these established NBD bone markerproducts will also lend themselves well to automation on the 3X3 instrument thatIDS is acquiring under the Biocode Acquisition, thereby significantly enhancingthe earnings potential of the Enlarged Group in markets around the world. For the year ending 31 December 2006, NBD's EBIT (excluding the spun outbusinesses) was 23.46m Danish Kroner (c. £2.13m), on a turnover of 46.32m DanishKroner (c. £4.21m). The Directors believe that the NBD Acquisition will be earnings enhancing. The Directors propose to transfer production of the NBD products to the IDSmanufacturing facility at Boldon to achieve economies of scale in production,thereby reducing unit cost. IDS will retain the NBD sales and marketing functionpresently in Copenhagen to establish 'IDS Scandinavia', and begin direct salesinto the Scandinavian countries at full margin. Existing IDS sales will transferfrom our existing distributor to the new subsidiary in an orderly manner.Existing NBD distributor sales in Germany, UK, France and USA will transfer toIDS direct sales operations at full margin. The Directors propose to appoint an experienced CEO for the new operation, andare currently in discussion with potential candidates. The Biocode Acquisition and Placing It was announced on 3 August 2007 that IDS had conditionally agreed to acquire99.93 per cent. of the issued share capital of Biocode Hycel S.A. Under the Acquisition Agreement IDS has agreed to pay the Vendors €23 million,of which approximately €11 million is to be satisfied in cash and €12 million bythe issue of the Vendor Shares. The final amount of Initial Considerationpayable will be adjusted to reflect a deduction for the Biocode Group's 'netdebt' (as defined in the Acquisition Agreement) and the percentage of the issuedshare capital to be acquired. The Vendor Shares will be issued at the Placing Price, plus or minus 10 percent. dependent on whether the average closing middle market quotation for anOrdinary Share for the 10 dealing days prior to the EGM is more than 10 percent. greater than, or more than, 10 per cent. less than, the Placing Price. In addition, Immunodiagnostic Systems has agreed to pay the Vendors EarnoutRoyalties of €10,000 for each new 3X3 Instrument sold, rented out or placed bythe Biocode Group in the period from completion of the Biocode Acquisition to 31December 2010, and €5,000 for each new 3X3 instrument sold to third partycompanies under OEM (Original Equipment Manufacturer) contracts until 31December 2012. The Acquisition Agreement contains certain warranties and indemnities from theVendors to the Company in respect of the Biocode Group, and it is conditional onthe passing of the Resolution, the Placing Agreement becoming unconditional inall respects and on Admission. The Acquisition Agreement also imposes restrictive covenants on the Vendorswhich apply for a period of 5 years after completion. Following Completion, the Vendors will own approximately 11.0 per cent. of theenlarged share capital of IDS. Certain of the Vendors, who in total will ownapproximately 11.0 per cent. of the enlarged share capital of IDS followingCompletion, have entered into orderly market agreements with IDS and Teather &Greenwood, pursuant to which they have agreed for a period of six months only todispose of their Shares in IDS so as to maintain an orderly market in theOrdinary Shares. The proceeds of the Placing, which will raise £12.0 million gross orapproximately £11.25 million net of the expenses, will be used partially tosatisfy the cash element of the consideration for the Biocode Acquisition and toprovide additional working capital for the Enlarged Group. Information on the Biocode Group The Biocode Group is a Belgian-French group that develops, manufactures anddistributes IVD instruments and reagents for immunoassay, haematology andbiochemistry. Biocode Hycel S.A. has four sites, namely Liege (Belgium) andMassy, Rennes and Pouilly (France), and currently employs 132 people. Biocode Hycel S.A. was created through the acquisition of Hycel by Biocode in2000. Precursor companies of Hycel SA have been active in France since 1947.Hycel had been specialising in the distribution of haematology equipment as wellas the manufacturing of associated reagents and of small haematologyinstruments. Biocode was founded in 1987 as a spin-off from the University ofLiege to develop, manufacture and market reagents for immunoassay applications. A summary of the Biocode Group's recent financial performance and a pro formastatement of net assets are set out in Parts III and II of this circularrespectively, Biocode Hycel S.A. is in the final stages of developing a newgeneration of automation instruments, called the 3X3 Instrument. As announced on4 December 2006, IDS already has a contractual working relationship with BiocodeHycel S.A. in that IDS is part of the Alliance that has been developing testsfor this new platform. The 3X3 instrument The first generation 3X3 instrument is an immunoassay/chemistry diagnosticinstrument running general chemistries or specialty assays developed by Alliancemembers. The 3X3 is designed as a minimum-footprint, bench top instrument with athroughput of up to 120-150 tests per hour for Immunoassays, or 180 tests perhour for Biochemistry, in a fully-automated pushbutton mode. A second generation instrument is planned which is proposed to have a throughputof at least twice that of the initial instrument, typically processing between60,000 and 300,000 patient samples per year. The 3X3 is a 'Closed System', which means that test reagents are dedicated foruse on the machine, available only in bespoke containers (cassettes) produced byAlliance members, maximising income to the manufacturer and preventing 'counterfeiting'. The typical end-user for the first generation instrument is expected to be thoselaboratories sending out between, for example, 80 to 200 immunoassay orbiochemistry tests to external laboratories per day. This market segmentincludes small to medium sized reference laboratories, small & mid-size hospitallaboratories, and large reference and university hospital laboratories forspecialty or backup applications. Larger doctor's surgeries and veterinarylaboratories may be attractive future targets. The instrument will initially be offered for sale first in the EU, with launchesin other major territories, such as the USA and Japan, delayed for approximately12 months by regulatory requirements. The 3X3 Instrument will be sold throughexisting and new Alliance members, with the ability of partners to offerproducts of other Alliance members in many territories, broadening geographicreach. Strategy following the Biocode Acquisition EDMA estimates (2004) that 80 per cent. of the total IVD market is fullyautomated. Until now, IDS's products have been manual rather than automatedtests. Whilst IDS historically has been successful in selling its products onthat basis, given the niche nature of IDS's product range the Directors believethat adding instrumentation and automation capabilities to its product rangewill allow it to broaden its customer base to include much larger customers suchas reference laboratories. The Directors believe the specialist assay niche end of the IVD market in whichthey operate is poorly addressed with respect to automation, so adding thiscapability would give IDS an edge. In addition to immunoassay, the 3X3 Instrument also brings in haematology andbiochemistry reagents onto the same platform. Acquiring the 3X3 Instrument willtherefore allow IDS, together with other Alliance members, to address a widermarket than it historically has been able to address on its own. It is theDirectors intention to continue to work with existing, and to add new, Alliancemembers to ensure the 3X3 Instrument has a wide range of applications. Thisbroad application base should, in the Directors' view then make the 3X3 anattractive platform for a wide range of larger customers. In the longer term, IDS may also work with OEMs for use of the 3X3 Instrument inother, unrelated, industries such as utilities. Proposed Director It is proposed that Alain Rousseau be appointed to the Board on completion ofthe Acquisition Agreement as Engineering Director. Having a background in hi-tech sensors technology electronic car devices, AlainRousseau has filed over 30 patents in sensors, the automotive industry and theIVD industry. He was formerly the Head of the Instrumentation Division ofDiagnostica Stago, a haematology company, before joining Biocode Hycel S.A. in2003. He is the co-inventor of the 3X3 Instrument and currently the CEO of BiocodeHycel S.A.. Upon completion of the Acquisition Agreement, Alain Rousseau will enter into aservice contract governing his employment with Biocode Hycel S.A. Minority shareholders in the Biocode Group Biocode Hycel S.A. is 99.93 per cent. owned by the Vendors who are parties tothe Acquisition Agreement, with the balance being held mainly by a number ofprivate individuals. IDS intends in due course to acquire the shares held by the outstanding minorityshareholders of Biocode Hycel S.A. for a consideration equivalent, on a pro ratabasis, to the Initial Consideration payable to the Vendors under the AcquisitionAgreement. IDS does not intend to offer any Earnout Royalties to these minorityholders. Details of the Placing Under the terms of the Placing Agreement, Teather & Greenwood, as agent for theCompany, has agreed to use its reasonable endeavours to place the Placing Shareswith institutional and other investors at the Placing Price. The Placing, whichis not underwritten, is conditional, amongst other things, on Admission takingplace by 31 August 2007, or such later time, not being later than 14 September2007, as Teather & Greenwood and the Company agree. The Placing is intended to raise £12.0 million gross for the Company orapproximately £11.25 million net of the expenses of the Placing. Approximately£7.4 million will be used to fund the cash element of the Initial Considerationand £3.85 million will provide additional working capital for the Company. Subject to the Resolution being passed at the EGM, an application will be madeto the London Stock Exchange for the Placing Shares and the Vendor Shares to beadmitted to trading on AIM. It is expected that the Biocode Acquisition willcomplete on 31 August 2007 and the Placing Shares and the Vendor Shares will beadmitted to trading on AIM on 31 August 2007. The Placing is not a rights issue or open offer and New Ordinary Shares will notbe offered generally to Shareholders, whether on a pre-emptive basis orotherwise. The Directors believe that the considerable extra cost and delayinvolved in a rights issue or open offer would not be in the best interests ofthe Company in the present circumstances. Extraordinary General Meeting In order to issue the Placing Shares and the Vendor Shares it is proposed thatthe Directors be given authority to allot the New Ordinary Shares and thatstatutory pre-emption rights are disapplied. An EGM will be held at 11.00 a.m.on 28 August 2007 at 10 Didcot Way, Boldon Business Park, Boldon, Tyne & WearNE35 9PD. At this meeting, the following resolution will be proposed: • to increase the authorised share capital of the Company from £1,000,000to £1,500,000 by the creation of a further 25,000,000 new Ordinary Shares of 2 pence each in the capital of the Company each ranking pari passu in all respects with the existing Ordinary Shares of 2 pence each in the capital of the Company; • to authorise the Directors to allot the New Ordinary Shares pursuant tosection 80 (1) of the Act; • to authorise the Directors to allot the Placing Shares otherwise thanon a pre-emptive basis in the circumstances as set out in the notice of the EGM. Recommendation Your Directors believe that the Resolution is in the interests of the Companyand its Shareholders as a whole and unanimously recommend that all Shareholdersvote in favour of the Resolution, as they intend to so in respect of their ownbeneficial holdings, amounting in aggregate to 3,712,457 Ordinary Sharesrepresenting 23.02 per cent. of the existing issued ordinary share capital ofthe Company. ENDS This information is provided by RNS The company news service from the London Stock Exchange