7th Jun 2007 07:00
For further information, please contact: Medical Solutions plc Nick Ash Managing Director Tel: 0115 973 9010 www.medical-solutions.co.uk Bishopsgate Communications Ltd Nick Rome/Sophie Davis Tel: 0207 5623350 www.bishopsgatecommunications.com Nomura Code Securities Ltd Richard Potts Tel:0207 776 1212 www.nomuracode.com7 June 2007 Medical Solutions plc PROPOSED ACQUISITION OF GENESERVICE LIMITED
The Board of Medical Solutions plc , the diagnostics and healthcare business specialising in histopathology and cytology services and products, announces that it has conditionally agreed to acquire the entire issued share capital of Geneservice Limited ("Geneservice") for a total consideration of ‚£3.86 million payable in cash and loan notes.
Highlights:
* Medical Solutions to acquire entire issued share capital of Geneservice for ‚£3.86 million; * Geneservice is a profitable, expanding private UK-based company offering genomic products and technology services for applications in life sciences and clinical research and development; * Geneservice revenue for the period ended 28 February 2007 improved by 35 per cent to ‚£2.4 million compared with the period ended 31 March 2006 and the business is cash generative; * acquisition is in line with the Group's strategy to grow its healthcare and diagnostics business ,by enhancing its portfolio of products and services to include DNA and RNA based techniques; * acquisition benefits Medical Solutions by providing an expanded service offering and enhanced customer base, higher value quality assured service and a one stop shop for diagnostic services as well as cost benefits to the enlarged group including consolidation of operations to Nottingham; * Board further strengthened by the proposed appointment of Dr Tom Weaver. Dr Weaver, CEO of Geneservice, holds a PhD in Oncology and is a member of the scientific advisory boards of Cambridge Genetics Knowledge Park, SmartBead Technology and the UK Bio-Industry Association's panel on Bioinformatics; and * acquisition is conditional upon the approval of Shareholders at EGM.
Dr Nick Ash, Managing Director of Medical Solutions, commented: "We are delighted to announce the proposed acquisition of Geneservice. There is an increasing demand from within the pharmaceutical and biotechnology industry for gene expression analysisas part of their research and development programmes. In addition, the emergence of pharmacogenomic analysis to support clinical development of therapeutics requires the type of molecular analysis offered by Geneservice.Geneservice'sexpertise in this field will greatly enhance the Group's offering and be a valuable addition to our growing portfolio of diagnostic services. Medical Solutions and Geneservice bring together complementary skills which will ensureMedical Solutions retainsits position as aleading provider of diagnosticand healthcare serviceswithin the UK."
EGM Notice
The Acquisition is conditional upon the approval of shareholders of the Company in general meeting. An Extraordinary General Meeting will be convened for this purpose and will be held at the offices of Halliwells LLP, One Threadneedle Street, London EC2R 8AY, on a date to be announced shortly. A circular to Shareholders containing further information and a notice of the EGM will be dispatched as soon as is practicable.
Background and Reasons for the Acquisition
The Group's strategy is to grow its healthcare and diagnostics business through organic growth from existing operations combined with selected acquisitions and reinvesting the proceeds from the disposal of its Dubai operations to broaden the Company's portfolio of products and services. Medical Solutions has built its business on histopathology expertise and is at the forefront of cervical cancer screening in the UK, supplying liquid based cytology ("LBC") equipment, consumables and technical support to NHS Hospital Trusts throughout the UK.
Medical Solutions also has an established diagnostics offering with particular strengths in immunohistochemistry ("IHC") and fluorescence in situ hybridisation ("FISH"). The combination of this and an extensive tissue bank, and providing access to ethical tissue supplies, is a powerful offering for both the healthcare sector and the drug development community, including pharmaceutical and biotechnology companies, particularly with accelerating interest in "targeted" therapies, which require the quantitative evaluation of relevant biomarkers as part of the drug development process.
To broaden the healthcare and diagnostics offering, Medical Solutions has been evaluating companies providing complementary or synergistic diagnostic, prognostic and predictive tests. Much, but not all, of this new technology is based upon gene expression analysis, i.e. measurement of mRNA levels for (usually) groups of genes, and using quantitative real time PCR, a technology which Medical Solutions does not currently possess. The Directors believe that quantitative real time PCR is likely to be the favoured technology for a wide variety of these tests for at least 5-10 years, and Medical Solutions has identified it as being a useful technology and a gap in the Group's existing offering.
There is significant demand from the pharmaceutical and biotechnology industry for gene expression analysis in a range of cancers from a range of tissue types. This is especially relevant to small and medium sized companies who lack the in-house expertise and capabilities to deliver this type of analysis. Geneservice is a private company based in Cambridge, UK, spun out from the Medical Research Council ("MRC") facility in Cambridge on 1 August 2005.
Geneservice has approximately 35 employees, encompassing the management and scientific teams, with wide-ranging genomic biology experience in gene sequencing, genotyping and RNA expression. Its primary customer base has been the academic and charity-funded research sector. Geneservice has a very strong academic base and company culture, and benefits not only from its close ties to the MRC, but also from its close physical proximity to a number of the UK's premier academic and research centres. This has helped the company remain at the cutting edge of its field, and has ensured the continued, valuable relationship with major providers of molecular biology hardware such as Applied Biosystems ("ABI") and Affymetrix, Inc. ("Affymetrix").
The services provided by Geneservice are particularly beneficial to pharmaceutical companies which require molecular analysis as part of their pre-clinical research and development programmes as well as the emerging pharmacogenomic analysis supporting clinical development of therapeutics. Pharmacogenomics is the study of how genomes affect the way people respond to drug treatments and can be used to determine/understand, for example:
* patient metabolism of novel and existing drug therapies; * disease associations and understanding patient predisposition to certain diseases; and * disease response to drug therapies.
Medical Solutions and Geneservice bring together complementary skills and expertise. If Medical Solutions is to retain its position as a leading provider of diagnostic services, it needs to broaden its portfolio to include the additional technologies that Geneservice currently employs. Further, the Enlarged Group will have the clinical expertise and credibility in the healthcare and pharmaceutical/biotechnology communities that will broaden the customer base for Geneservice's existing offering.
Benefits of the Acquisition
The Acquisition will have a number of benefits for the Enlarged Group including:
Expanded service offering and enhanced customer base
Medical Solutions currently provides expert tissue analysis in conjunction with IHC and FISH analysis for healthcare and pharmaceutical/biotechnology customers. The acquisition of Geneservice will expand the offering by providing both DNA and RNA based services, for example providing genetic variation/ mutation detection testing services for both inherited and acquired characteristics. Medical Solutions has a core pathology and disease expertise servicing the healthcare and pharma/biotech markets, whilst Geneservice offers molecular biology and genomic expertise to mainly the academic and research institution markets. This combination represents a powerful service offering to existing and potential customers. Also, the customer bases of Geneservice and Medical Solutions are largely exclusive and there are cross selling opportunities to offer existing Geneservice products and services to Medical Solutions' customers and contacts.
Higher value quality service
Medical Solutions is CPA accredited and operates a GLP compliant environment. The transfer of these quality assurance standards to Geneservice's services and practices realises significant new markets for Geneservice, particularly in the NHS, private healthcare and pharmaceutical/biotechnology sector. The Directors believe that there is only one other laboratory in Europe that is GLP compliant for gene sequencing.
Human tissue sourcing and onestop shop service
The synergy between Medical Solutions and Geneservice is enhanced as a result of Medical Solutions having access to tissue (via its own tissue bank and third party suppliers), both control and diseased, from significant populations of patients. The archival and distribution infrastructure of the human tissue and genomic products can also be combined.
Cost benefits
Cost savings can be made in a number of areas largely based on the relocation of some or all of Geneservice's operations from Cambridge to Nottingham, consolidation of support functions and restructuring of operational and other staff. Furthermore, the blend of skills and expertise of Geneservice's directors and senior staff can create an extremely knowledgeable and effective team.
Post Acquisition Strategy
Medical Solutions and Geneservice bring together complementary skills and expertise, which will help Medical Solutions retain its position as a leading provider of diagnostic and laboratory services. Medical Solutions will benefit from direct access to the technologies and expertise which Geneservice provides, and at the same time Geneservice will gain the clinical expertise and credibility in the healthcare and pharmaceutical communities which Medical Solutions can provide.
Medical Solutions' reputation for quality and expertise in association with Geneservice serves to strengthen the Enlarged Group's service offering and provides further academic kudos. The status of Geneservice as a leading UK provider of Affymetrix and ABI technology is also important, as it maintains Medical Solutions' cutting-edge research and technology capability.
Principal terms of the Sale and Purchase Agreement
Pursuant to the Sale and Purchase Agreement, which was executed and exchanged on 6 June 2007, Medical Solutions has agreed to acquire the entire issued share capital of Geneservice for an aggregate consideration of ‚£3,855,000 (subject to an adjustment based on completion accounts) to be satisfied by a combination of cash payable on completion and secured redeemable loan notes.
The Sellers are the holders of all the issued A ordinary shares in the capital of Geneservice, representing approximately 70 per cent of the equity, with the remainder held by numerous individual holders of B ordinary shares in the capital of Geneservice (predominantly employees of Geneservice). It is a condition precedent to completion of the Acquisition that the Sellers procure (by invoking the "come along" procedures contained in the articles of association of Geneservice) the transfer by the B shareholders to Medical Solutions, on completion of the Acquisition, of all the B ordinary shares in issue.
The Sale and Purchase Agreement contains warranties for the benefit of Medical Solutions which are usual for a transaction of this nature. The Sale and Purchase Agreement also contains a tax indemnity and specific indemnities given by the Sellers. The maximum amount of the liability of the Sellers under the Sale and Purchase Agreement is limited to the total consideration to be received by the Sellers (i.e. ‚£2,673,370 in aggregate). Medical Solutions has the right under the terms of the Sale and Purchase Agreement to set-off any claims under the warranties or indemnities against amounts of interest and repayments of principal due under the loan notes.
The Acquisition constitutes a Class 1 transaction for the purposes of the Listing Rules and therefore requires, and is conditional upon, the approval of the Shareholders in general meeting. Medical Solutions is entitled to terminate the Sale and Purchase Agreement if the conditions contained therein are not met or waived by Medical Solutions by 31 July 2007 (or such other date as the parties may agree in writing).
Proposed Board Appointment
As an integral part of the transaction, it is proposed that Dr Thomas Andrew Weaver, Chief Executive Officer of Geneservice, will join the Board of Medical Solutions as Commercial Director. Dr Weaver has extensive experience in genomics and molecular biology. Prior to joining the MRC, and subsequently Geneservice, Dr Weaver was Director of Technology Development for Incyte Genomics Limited. Before joining Incyte, Dr Weaver was Head of Biology at Hexagen Limited, a genomics company spun out from the University of Cambridge Department of Genetics. He holds a PhD in Oncology and is a member of the scientific advisory boards of Cambridge Genetics Knowledge Park, SmartBead Technology and the UK Bio-Industry Association's panel on Bioinformatics.
Current trading and prospects
Medical Solutions
As stated in the audited Annual Report and Accounts for the year ended 31 December 2006, and announced on 27 March 2007, trading within the continuing Medical Solutions Group during 2006 improved compared with 2005. Revenue from continuing operations for the year ended 31 December 2006 improved by 7 per cent to‚£6.0 million compared with 2005 and the loss for the year from continuing operations was ‚£2.3 million, a reduction in loss of ‚£1.3 million compared with 2005. Moreover, on 7 November 2006, Medical Solutions completed the disposal of its Dubai operations for a gross consideration of ‚£16.5 million and net cash proceeds of ‚£13.2 million after transaction costs to date. Net cash at 31 December 2006 was ‚£15.2 million.
Geneservice
Revenue for the 11 months ended 28 February 2007 improved by 35 per cent to ‚£ 2.4 million compared with the period ended 31 March 2006. It should be noted that the financial statements for the period ended 31 March 2006 are for a 55 week period from the date of incorporation of Geneservice, and as such are not entirely comparable with the 11 month period ended 28 February 2007.
The profit before tax for the period ended 28 February 2007 was ‚£216,274 compared with ‚£599,063 for the period ended 31 March 2006. However, the result for the period ended 31 March 2006 included two non-recurring sources of income following the spin out of the Geneservice business from the MRC during 2006 as follows:
* the MRC provided a one-off contribution towards business relocation costs of ‚£50,000 and * on spin out from the MRC, Geneservice acquired certain trade and assets from the MRC for consideration of ‚£1. Under IFRS, business acquisitions have to be accounted for in accordance with IFRS 3 Business Combinations, and the purchase consideration has been allocated across the identifiable assets and liabilities acquired. Under IFRS, the excess of the fair value of the assets acquired over the purchase consideration is recognised immediately in the income statement in the period of acquisition. The income statement for the period ended 31 March 2006 includes exceptional income of ‚£426,838 arising from the recognition of the discount on acquisition, being the excess of the fair value of the assets acquired over the purchase consideration after the impact of accounting for deferred taxation.
If these two items are excluded, the profit before tax for the period ended 28 February 2007 was ‚£216,274 compared with ‚£122,225 (excluding the non-recurring sources of income) for the period ended 31 March 2006.
The Enlarged Group
There is increasing demand from the pharmaceutical and biotechnology industries for providers of support services in drug discovery and development who offer expertise in the more traditional laboratory discipline of histopathology as well as in situ hybridisation and cutting edge DNA and RNA based genomic techniques. The addition of Geneservice's genomic based techniques will also enable Medical Solutions to develop clinical applications for healthcare providers. With the acquisition of Geneservice, Medical Solutions will be able to offer the latest diagnostic techniques and broaden both the portfolio of services it provides as well as the customer base it can serve. The Board believes that the Enlarged Group will develop and grow in an effective and controlled manner, delivering value to its shareholders.
Financial information on Geneservice
A summary of the trading results for Geneservice for the 11 months ended 28 February 2007 and the 55 weeks ended 31 March 2006 is set out below.
11 months ended 55 weeks ended 28 February 2007 31 March 2006 ‚£'000 ‚£'000 Turnover 2,418 1,791Profit before tax 216 599Net profit 186 512Total assets 1,406 1,246
Extraordinary General Meeting
Completion of the Acquisition is conditional upon, inter alia, the approval of Shareholders at the EGM of the Company to be held at the offices of Halliwells LLP, One Threadneedle Street, London EC2R 8AY, on a date to be announced shortly.
--ENDS-- About Medical Solutions
Medical Solutions is a fully listed UK based diagnostics and healthcare business specialising in the provision of pathology and cytology services and products to the healthcare, pharmaceutical and biotechnology sectors. It has internationally recognised expertise in histopathology with advanced technology in image analysis, high throughput quantitative protein expression and biomarker determination.
About Geneservice
Geneservice is a private UK-based company offering genomic products and technology services for applications in life sciences and clinical research and development. It offers rapid access to high quality, leading edge genomic products essential for manipulating gene and protein function in the majority of model organisms and offers a one stop shop for many genomic applications. It has an international market for its products and services and its customers include academic and charitably funded research institutions, government laboratories and biotechnology and pharmaceutical companies. Geneservice's activities fall broadly into four categories:
* Genomic based product
Geneservice is an international distributor for an archive of more than 16 million DNA samples mainly represented as cDNA, genomic, protein-expression, antibody and RNAi libraries. These resources serve as essential biomarker tools used for enabling gene structure and gene function studies. Through its on-line portal, Geneservice can distribute these genomic based products, spanning a wide range of species, for use in a broad spectrum of life science disciplines.
* Genotyping and sequencing
This is a suite of genetic services whereby DNA can be extracted, banked, typed and analysed for the customer. Geneservice has established relationships with a number of institutions and supplies sequencing services to, for example, the Medical Research Council ("MRC") throughout the UK, as well as the Universities of Oxford and Cambridge.
* Gene expression profiling
This service revolves around determining how gene expression changes experimental or pathological conditions. Geneservice applies microarray and quantitative real time PCR platforms and also provides an "expert analysis" consultative service for large projects.
* Custom DNA handling and biobanking
Geneservice offers genomic DNA extraction, quantitation, amplification, sample re-arraying and biobanking of human DNA. Geneservice also provides "whole genome amplification", a technology enabling the processing of minute quantities of DNA and RNA from difficult or rare samples, which can then be sequenced, genotyped or expression profiled.
Appendix I
The following words and expressions have the following meanings in this document, unless the context requires otherwise:
"Acquisition" - the proposed acquisition by Medical Solutions of Geneservice pursuant to the Sale and Purchase Agreement
"Board" or "Directors" - the current board of directors of the Company
"Company" or "Medical and Solutions" - Medical Solutions plc a company incorporated in England Wales with registered number 79136
"Enlarged Group" - the Group following the completion of the Acquisition
"EGM" or "Extraordinary General Meeting" - the extraordinary general meeting of the Company to be held at the offices of Halliwells LLP, One Threadneedle Street, London EC2R 8AY,on a date to be announced shortly
"Geneservice" - Geneservice Limited a company incorporated in England and Wales with registered number 5355417
"Group" - the Company and its subsidiaries at the date of this document
"Nomura Code" - Nomura Code Securities Limited
"Ordinary Shares" or "Shares" - ordinary shares of 2 pence each in the capital of Medical Solutions
"Sellers" - Roger Turner, Nicholas Leaves and Thomas Weaver
"Sale and Purchase Agreement" - the agreement for the sale of the entire issued share capital of Geneservice dated 6 June 2007 and entered into between the Sellers and Medical Solutions
"Shareholder(s)" - a holder or holders of Ordinary Shares
Appendix II GLOSSARY
The following terms are used in this document:
biomarkers - Biomarkers often refer to substances found in blood, urine or tissue, changes in which may be used to indicate presence of disease or response to treatment. More generally the term biomarker refers to any molecule that can be used to monitor a particular cellular process.
CPA - Clinical Pathology Accreditation
DNA and cDNA - DNA (DeoxyriboNucleic Acid) is a large, complex molecule which, by virtue of a unique sequence of building blocks, contains all the genetic information required to create a cell or organism. cDNA (complementary DNA) is a simplified version of the original DNA, synthesised artificially using an RNA template (see below).
fluorescence in situ - In situ hybridisation ("ISH") is a powerful technique, not unlike hybridisation immunohistochemistry (below), for visualising the presence of specific sequences of DNA and RNA in tissue sections. The technique uses short synthetic sequences of DNA or RNA which will bind to the tissue with high specificity for the DNA or RNA of interest. Fluorescent "tags" are attached to these synthetic sequences, allowing them to be visualised with a special microscope, even when present at very low levels ("FISH").
genomic products - In this instance, DNA or RNA extracted and purified from a range of species, and provided in a variety of forms for research purposes.
genotyping & sequencing - DNA sequencing is the process of looking at the precise order in which the building blocks of the patient's DNA are linked together. Genotyping, in turn, is the process whereby an individual's DNA is tested for mutations (single changes in the building block sequence) which might give rise to disease or other abnormalities. This is normally carried out by sequencing.
Good Laboratory Practice - A set of principles that provides a framework within which (GLP) laboratory studies are planned, performed, monitored, recorded and reported.
histopathology - The study of changes in tissues and cells as a consequence of some disease or toxic process.
immunohistochemistry - Immunohistochemistry is a technique for visualising proteins and other molecules in thin sections of tissue. This technique uses antibodies raised in other species against the protein of interest as a tool, and exploits their exquisite sensitivity and specificity for binding to that protein.
liquid based cytology - Liquid based cytology ("LBC") is a process for collecting cytology samples from tissues such as the cervix or the lung, which provides purer populations of cells, without the other materials which frequently contaminate the sample such a blood or mucus
quantitative real time PCR - PCR (Polymerase Chain Reaction) is a method for accurately amplifying DNA and RNA, from vanishingly small amounts into quantities which allow further analysis and experimentation. Quantitative real time PCR uses this same amplification principle to measure differences in the relative amount of these molecules under different circumstances, such as in a cancer cell compared to a normal cell.
RNA - RNA (RiboNucleic Acid) is chemically quite similar to DNA, but is an intermediate product between the DNA of the gene, and the ultimate protein product of that gene. The level of expression of a gene can be gauged by the amount of RNA synthesised from that gene, a process usually measured by quantitative real-time PCR (see above).
RNAi libraries - RNAi (RNA interference) is a natural process by which cells control the expression of specific genes. Harnessing this process is now recognised as a potentially powerful means of controlling abnormal cells, such as in cancer. An RNAi library is a collection of short interfering RNA (siRNA) molecules, which in principle contains a range of molecules capable of suppressing expression of most genes in a cell.
MEDICAL SOLUTIONS PLCRelated Shares:
SBS.L