Medical equipment manufacturer Omega Diagnostics (ODX:AIM) has raised £5 million from investors to shore up its balance sheet after failing to win a follow on Covid testing contract with the Department of Health and Social Care.
Omega now plans to sell its diagnostic test kit manufacturing business and facility in Alva, Scotland. It has struck a conditional £1 million agreement with Zhejiang Orient Gene Biotech.
The cash call, via a placing of new shares to institutional investors, has been struck at 5p per share. Omega is hoping to raise another £2 million through an open offer to all shareholders, but the company has had to win investor backing for the fresh funding by deeply discounting the new shares.
The placing price represents a 49.5% discount to the closing share price on 9 February 2022, before investors got wind of funding talks. If all the new shares are taken-up they will represent 77% of the existing capital.
That saw Omega’s stock slump 17% to 6p, having dropped 25% yesterday (10 February 2022), after the company confirmed it was in funding discussions with shareholders.
The open offer is being conducted based on two new shares for every nine currently owned up to 40.6 million shares, but at least retail investors won't be forced to accept the dilution without the option to participate in the new funding round.
CUTTING ITS CLOTH
Having concluded that a sale of its test manufacturing site in Scotland is necessary, Omega has at least arranged for the business to be sold as a going concern, providing some security for its 109 employees, who will be transferred across to the new owner.
The sale includes a transitory agreement to enable the continued production of lateral flow tests and Omega is considering moving production to its new site in Ely, Cambridgeshire.
The Alva site became economically unviable after the Department of Health and Social Care decided not to proceed to the second phase of a contract signed in February 2021. The business made a loss of £4.9 million in the nine months to 31 December 2021.
Omega said it was facilitating discussions with manufacturing partners who may be willing to purchase the government funded equipment provided by the DHSC.
The company confirmed it doesn’t intend to purchase the equipment and is in discussions with the DHSC regarding the £2.5 million pre-production payment provided.
Chief executive Jag Grewal commented: ‘The focus of the Omega team is on delivering significant growth in the profitable Health & Nutrition division, determining the best way to deliver shareholder value from our CD4 product, which is now building momentum, and executing on a sub-contract production model for Covid-19.’
