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Market unmoved by Osmetech's Roche deal

Osmetech, the technology company that makes electronic noses for medical diagnosis, has cut its losses and signed a deal to acquire a business from Roche Diagnostics that will give the company a foothold in the US.

The £16.4 million company (OMH) posted a pre-tax loss of £1.98 million for the six months to 31 October 2002, an improvement on the same period in the previous year when it lost £2.52 million.

The loss for 2002 is equivalent to 0.68p per share, down from 1.11p last time round, which is 20% of today's 3.3p share price.

Osmetech also announced an important deal with Swiss healthcare company Roche in which it will pay $3.5 million (£2.12 million) to acquire the company's Opti business.

Opti produces portable blood-gas analysing equipment that uses optical sensors and is designed for use at the point of care. The deal is expected to be complete by 31 March.

Although Osmetech is paying $3.5 million for this the net cost to the company will be $2.5 million since Roche is to invest $1 million in Osmetech's shares on completion of the deal. As a result it will own a maximum of 4.47% of Osmetech.

Opti is a US-based business and should give Osmetech access to the market in that country that is estimated to be worth between $1.4 billion and $1.9 billion. It will also increase the sum of its technical expertise.

According to James White, Osmetech's chief executive, the deal would transform his company from one that cash burning research organisation to one with established revenue streams. He said: 'It signals a significant change in the risk profile for the business.'

The additional revenue the company gains will reduce the rate it burns through the cash but no precise figures were given to quantify this. Osmetech boasts a cash balance of £5.6 million, which was boosted by a £4.3 million fund raising in September. The Roche deal should go some way to address investors' concerns about the company’s resources.

However, Gordon admitted today that these resources are limited and prevent the firm from exploring product areas it believes could be valuable. He said: 'Osmetech has identified many other healthcare applications that may enable its technology to deliver solutions to unmet clinical and economic needs. The company's limited resources have prevented any major progress on these projects.'

He also said the company had failed to find an investor to back its urinary tract infection (UTI) project. Most screening for this condition takes place in laboratories rather than at the point of care, where Osmetech's business is focused. So to exploit the opportunity Osmetech needs a partner but has been unable to find one. 'Whilst there continues to be interest, at this stage no party has been willing to make the investment necessary to complete the final product design and development,' said Gordon.

Investors have not reacted positively to the results and the share price is broadly flat today. It seems that most of the good news in today's announcement had already been priced in.

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