ODX.L Regulatory News (ODX)

16 April 2012 AIM: ODX 

Omega Diagnostics Group PLC

("Omega" or the "Company")

Trading Update

Omega, the medical diagnostics company focussed on allergy, food intolerance and infectious disease, announces that revenue for the year ended 31 March 2012 is expected to be £11.12m, approximately 41% ahead of last year's result (31 March 2011: £7.90m). On a like-for-like basis, excluding the contribution from the acquisition of Allergopharma's in vitro diagnostics ("IVD") business, sales growth is approximately 5%. Profit before tax (before acquisition costs, share based payments, IFRS-related discount unwinds and amortisation of intangible assets) is expected to be in line with latest market forecasts.

Commenting on the trading update, Andrew Shepherd, Chief Executive, said: "We are very pleased with the progress Omega has made and the overall business is performing strongly. We are also looking forward to significant opportunities presented by direct access into the Indian market, the launch of a range of allergy tests onto the automated IDS-iSYS platform and new prospects that exist that could transform the performance within our Infectious Disease portfolio."

Current trading performance

Omega has achieved growth in two of its three operating segments.

Allergy/Autoimmune

This segment has benefited from a full year contribution from the acquisition of Allergopharma's IVD business in December 2010 with resulting sales for Omega Diagnostics GmbH ("Omega GmbH"), our German subsidiary, growing by 305% to £3.87m (2011: £0.96m) in the year. On a full like-for-like basis, the growth in sales equates to 6% on a constant currency basis and 8% on a functional reporting currency basis. Sales of autoimmune products have risen slightly to £0.62m (2011: £0.58m)

Export sales of Allergendiscs through Omega GmbH have been slower than expected due to a combination of longer customer evaluation lead times and the identification that certain software enhancements are required to reach additional key markets. This is being addressed and is covered in more detail in the relevant strategy section below.

Food Intolerance

This segment has continued to perform well with an overall growth in sales of 10% to £3.90m. Sales of Genarrayt® reagents have grown to £1.56m (2011: £1.49m). Sales to Spain last year amounted to £0.82m, the customer laboratory having benefited from a one-off contract which was not repeated this year. Sales in the current year therefore fell back to more normal levels of £0.47m but it still remains the largest market. Despite this reduction, reagent sales in all other markets have grown by 63% to £1.09m (2011: £0.67m) so that Spain now accounts for less than one third of overall reagent sales. 13 Genarrayt® systems (2011: 33 systems) were sold in the year bringing the total global placements to 108 systems. However, this reduction in system placements was in line with an intentional decision by the Company to concentrate more on increasing sales traction across the existing estate. Excluding Spain, which continues to skew the numbers, average revenue per instrument in all other markets grew by 25% to c. £10,700 (2011: £8,500). This itself hides a wide spread between the second largest market, which generates over £100,000 per instrument to the smallest markets currently generating from £1,000 - £5,000 per instrument.

Sales of Food Detective® have pushed on strongly this year with growth of 27% to £0.98m (2011: £0.77m) with sales now reaching into 68 countries. The top five markets account for 50% of sales but we also see good growth in China and Brazil which fits with the Company's strategic focus on BRIC countries.

Sales of Foodprint® tests through our own testing laboratory have grown by 45% to £0.48m (2011: £0.33m) through a focussed marketing effort This is a very resilient performance for a discretionary spend decision by consumers, given current economic conditions, but an indication of the growing trend of certain people to take a more proactive role in managing their health.

Infectious Disease/Other

This segment continues to be the most competitive sector in terms of price and the number of competitors, hence Omega sales reduced by 2% to £2.75m (2011: £2.80m). The apparent reduction is all due to the UK, where sales through our subsidiary, Co-Tek, have shown a comparative reduction. However, sales through Co-Tek are still subject to contracted minimum order quantities in each year to 30 September and therefore a catch up will be seen in the first half of the new financial year.

Strategic update

Allergy/Autoimmune

The longer term growth driver for this segment remains the ongoing development of a range of allergy tests to be launched on the automated IDS-iSYS platform. Progress has continued and further to the announcement on 25 November 2011, the Company has now been successful with the optimisation phase of a first batch of six allergens. In addition to the high correlation reported previously, we have now demonstrated good agreement between these allergens on the IDS-iSYS system and the leading commercial product, with results showing a superior level of concordance with the market leader as compared to other companies' products. A final claim-support phase with these six allergens is expected to take two months. At the end of April, a second batch of approximately 12 allergens will begin an optimisation phase and with four iSYS instruments now deployed in the development programme, the Company still intends to launch an initial range of 40-50 allergens in the final quarter of the financial year ending 31 March 2013.

With regard to a multiplex platform, a review of market requirements suggests that allergen specific IgE testing in a multiplex format is best delivered by a platform with different attributes to our Genarrayt® system. Since our last announcement on 25 November 2011, we can now report that we have concluded a feasibility study, using two representative allergens, on a rapid, low sample volume platform that should be capable of eventually running between 10-20 allergen-specific IgE samples simultaneously at the point-of-care or remote site.

The delay in the export of allergy products from Omega GmbH is being addressed through a combination of improvements to product and amended software formats that are more suitable for export markets and with the aim of validating these products to run on automated instruments that are widely available in international markets.

Complementary to the allergy diagnostics portfolio, the current range of autoimmune test kits will also receive a revision in format. This too will include validation on automation platforms similarly widely available in export markets. This strategy will extend the product life cycle of this range together with supporting allergy kits sales in the low-mid volume segments.

Food Intolerance

The Food Intolerance market, particularly in the expanding BRIC economies, is still a growing, but immature segment, and benefits from an increasing number of people being more aware and taking a more direct responsibility for their own health. At present, the growth in food intolerance sales has come from Food Detective® proving a success with professional nutritionists and Genarrayt® having substantial sales in certain specialist laboratories with a particular knowledge of symptoms associated with food intolerances. We have been particularly successful in growing the Cambridge Nutritional Sciences ("CNS") brand in Turkey, where partnering with a key local organisation with a strong marketing background has helped to develop this market.

The strategy going forward is to replicate globally this franchise model, together with creating a separate sales and marketing focus and ultimately a division for this testing segment. To this end, the Group recently appointed an International Business Development Director with a successful track record of delivering growth in international markets with a direct competitor. This focus will help to develop fewer but larger partner organisations, allowing them to invest more heavily in their marketing, supported by the CNS global brand. In turn, the remaining sales resource within the Group will focus on the more traditional IVD sector to drive growth in Infectious Disease and Allergy & Autoimmune, particularly preparing the ground for iSYS commercialisation.

Infectious Disease/Other

The Group's historic success in this segment has been providing relatively simple-to-use tests in resource-poor settings around the world which has enabled a distribution network to be established in over 100 countries. In order to see growth rates beyond those seen in recent years, the Group has embarked on a deliberate strategy to access unique tests that could provide healthcare authorities with the tools to service current unmet diagnostic needs. Leveraging off its extensive worldwide network established over 25 years, the Group intends to commercialise a licensed-in novel technology that subject to a successful technology transfer, has the potential to develop the testing arena for key high prevalence diseases which could transform the Group's performance in this segment.

BRIC strategy

Further to the announcement on 25 November 2011 regarding the incorporation of Omega Dx (Asia) Pvt Ltd ("Omega Dx"), our Indian subsidiary, the Group is in the final stages of agreeing the administrative procedures regarding the termination and handover of responsibilities from its distributor. The Group will gain direct access to the Indian market with effect from 1 August 2012 at which point it will be fully operational with a team of sales and support staff. This strategic move by the Group enables more control and focus in an IVD market estimated to be worth £600m with annual growth rates of 20%. In addition, the investment in a direct presence will lead to greater access to a rapidly growing middle class population of 250 million representing a large target market segment for Food Intolerance.

There are also many UK companies with products, complementary to those of the Group, but with little experience or capability of how to gain access to the Indian market. These other companies will benefit from dealing with a UK-based Group that, through Omega Dx, can provide a local distribution sales channel. As a result, the Group is actively pursuing partnerships that will yield greater value from the investment in the Indian subsidiary.

Outlook and Notice of Results

Omega will announce its financial results for the year ended 31 March 2012 on Monday 2 July 2012 and we look to the future with much optimism regarding the strategic initiatives outlined for all our business segments.

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