With what appears to be a transformational year in the making for Omega Diagnostics, we caught up with Omega Diagnostics CEO Colin King to gauge confidence on realizing the growth prospects of the business.
And it’s fair to say, Colin King is confident, supremely confident. Avoiding no questions and highlighting ‘big things are happening’, Colin reaffirmed the expectation of a positive and significant financial impact, absolutely no placings and to fulfill every unit of its 2m lateral flow test capacity per week.
Keep reading to see why Colin is very excited about the future for Omega Diagnostics.
The potential for a £374m award from the DHSC looked impressive. Why did you appear to be cagey in the RNS regarding it?
I don’t think you can say we were cagey, as this suggests we were reluctant to give out information. If anything we were the opposite of cagey and gave some investors more information than they wanted to hear – i.e. a clear and realistic view of where we stood with the actual contract. Don’t forget that one of the key obligations we have as Directors of an AIM listed company is to ensure that our communications aren’t “misleading, false or deceptive” and that we don’t “omit anything to affect the import of such information”. All we did in our announcement was provide a clear view of the full picture. I think it would have been highly misleading for us to let the £374m number go into the market without providing some explanation or word of caution.
Don’t get me wrong we are delighted that the potential value of the contract was estimated at £374m, but the contract itself contains no minimal volumes or guaranteed orders. Any CEO of a manufacturing business will tell you that what matters are not future customer estimates but real purchase orders – revenues that I can book, cash I can bank and earnings that we can recognise and potentially distribute. This is also what delivers value to shareholders in my view, but I appreciate that many investors think our approach was too cautious. I think your own website suggested we are just too honest for our own good – and I welcome that you commended us for our approach, but I also appreciate that this view isn’t shared by all. The bottom line is what we said in the trading update: we expect the DHSC contract to have a significant impact on the future performance of Omega. We don’t know volumes at this stage but we believe it will results in substantial revenue growth for the business.
How’s the progress on capacity 2m tests per week by April? Are there plans to potentially increase that if required?
It’s going really well and I’m very proud of the team for building up production capacity in such a short timescale. We have most of the equipment now on site and installed and we continue to make good progress. 2m tests per week remains our target and that is what we’re focussed on. Let’s get that delivered first before we tackle any questions on any further capacity increase.
You recently confirmed there will be no further placings. Do you think this stance could ever change in the coming year? Why not?
We have no need for a Placing – clear and simple. I have no idea why people would post such things online to deliberately manipulate the share price and I have no idea why anyone would take them seriously. We’ve put that rumour to bed for good and anyone who does raise that again and claims they have evidence to support it will be found out. We don’t need a Placing because we expect to have a year-end cash position of £5.5m to £6m. We have said that the DHSC contract is expected to have a significant impact on the future performance of the business and likely to result in substantial revenue growth in the coming financial year. This would have a significant impact on our cash generation and therefore removes any need for funds from investors.
Of course, no AIM listed company would ever rule out a Placing ever in the future – the whole point of being listed on AIM is that you can take advantage of equity to fund further expansion. To be clear, we don’t need funds to support our ongoing trading and COVID-19 manufacturing scale up, but no AIM CEO would rule out turning to investors if they had secured an attractive and enhancing merger or acquisition opportunity for example. But I’m certainly happy to confirm that we have no need for a Placing, no plans for a Placing and no requirement for funds to support the exciting opportunities in CD4, Food Intolerance and COVID-19 that we’ve presented to investors.
How confident are you in fulfilling that 2m capacity per week? And how long do you think this could go on for?
I think you can safely assume that we wouldn’t be building up capacity to produce 2m tests per week or ramping up our staffing levels considerably across the group if we didn’t think we would have the demand for the lateral flow tests that we can produce.
Across CD4, COVID-19 antigen tests and COVID-19 antibody tests we expect to have demand for them all. It is very difficult to predict how long demand for COVID-19 testing is going to last, but last month Nature reported that of more than 100 immunologists, infectious-disease researchers and virologists surveyed, 90% believed that coronavirus would become endemic, continuing to circulate for years to come. As a global population I would expect overtime for a greater number to have some level of immunity, either by infection or immunity, but I think the need for accurate, affordable and easy to use rapid testing will be around for some time to come. We also would expect to see demand for CD4 tests to rise considerably as more countries being to roll-out testing programmes so this would be a natural hedge against any decline in COVID testing.
Worst-case assumption that the DHSC doesn’t fill your production capacity, where else do opportunities lie for Omega Diagnostics?
I don’t think that’s a realistic scenario. We’ve been working closely with the DHSC for some time and they’ve been keen to support the build up our production capacity by lending us the machinery and equipment we need. The Government themselves have said that they are looking for significant manufacturing capacity to supply tests to support their plan to cautiously ease lock-down restrictions. I don’t see this worst-scenario coming to pass.
That said we know that we have a number of products that have significant commercial potential. More specifically CD4 has great potential particularly as we expected to see an accelerated deployment of the test in the new financial year. Of course, there is also a lot of excitement around the Mologic antigen test which we have now CE marked and which will be produced and sold under our VISITECT brand. The tests would not be made to fulfil the DHSC contract but would be sold by us to third-party customers and we are already in talks with a number of potential customers. And we also have an exciting opportunity with the AbC-19™ COVID-19 rapid antibody test (“AbC-19™”) which can be used to test immune response against vaccines or from natural infection, or potentially as part of an immunity passport solution. The UK RTC are making good progress to get the test approved in the US as well as over 30 other countries and we look forward to more news on these approvals.
The numbers. Do you have a view on how the numbers will compare for orders from the DHSC versus the private sector?
This is impossible to tell at the moment. As I mentioned above the DHSC contract doesn’t have minimum volumes or guaranteed orders. I don’t think we’re going to be in a position to give a clear view on the split in production utilisation until we have confirmation on which test has passed performance evaluations and so which one we’ll be manufacturing and even then we’ll only know volumes when the orders come in. There’s little point in speculating on the split but it will certainly be a blended mix across all of our lateral flow products.
Do you have anything else you’d like to say to investors to reassure them over the ongoing prospects?
I think it’s very clear that we have a number of growth opportunities ahead of us – particularly in terms of CD4 testing and our range of COVID-19 antibody and antigen tests. We haven’t speculated wildly about what these could be worth but we know that with weekly production levels of 2m being fully utilised across a wide range of our tests this would have a significant impact on the future performance of the business. We can certainly assure investors that we will continue to be clear and realistic about the prospects of our business and keep them informed as our plans continue to advance.
Big things are happening and we’re very excited about the road ahead.