AS I SEE IT: Investors may be too hasty in writing off the health tech firm’s prospects, says TERRY MURDEN
Just a year ago Omega Diagnostics was deemed a rising star of the Scottish health technology sector, its shares soaring from penny stock to more than 100p. Last week they plummeted back to earth, selling for around 5p after the new CEO announced that losses were unsustainable and it was selling its Scottish plant. If ever there was an example of the risks attached to backing the biotech sector then this was it.
Enthusiasm for the Alva-based company grew as it emerged that a contract for Covid lateral flow test kits was soon to be signed withe Department of Health and Social Care. But the waiting went on, the promises turned to warnings, and by the end of last year the company had to admit that the deal was not going to happen.
Some will point the finger of blame at the UK government which last year was criticised for cancelling a big Covid vaccine deal with Valneva in Livingston. With apologies to Oscar Wilde, to lose one contract may be regarded as a misfortune. To lose two looks like carelessness…if it were not so serious.
Those small shareholders who believed Omega was the next big thing have seen their investments evaporate. Friday’s confirmation of a 2 for 9 offer at 5p, to accompany a placing with institutions at 5p, brings little comfort to those who stuck with the company as it staggered from one negative announcement to another, hoping it would all come good in the end.
But all may not be lost. On the upside, the board acted quickly last month by installing a new CEO and has taken drastic action to cut the firm’s losses. New institutional investors have been prepared to back the £5m placing, and together with the £1m raised from selling the Alva plant, this will help drive growth in the company’s profitable and growing health and nutrition business, which last year enjoyed revenue growth of 62% to £4.17m compared to H1 2020.
It sees huge opportunities in the US food sensitivity testing market. US revenues could potentially be between £3m and £6m over the next 3-5 years.
The company has orders worth over £800,000 for its HIV test kit which are expected to be delivered in the second half, and the company has an encouraging pipeline into the next financial year.
All this could yet see Omega emerge as a winner for those investors prepared to stay in for the long run. Of course, if it does, it will do so in a new base in Cambridgeshire.
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