Mediwatch’s healthy growth prospects (8th April)

Urological diagnostic specialist Mediwatch, which makes point-of-care equipment for urologists and doctors in this field, is planning new joint ventures and alliances and, so observers believe, acquisitions too. This would cement its position as a provider of a ‘one-stop shop’ service in this £495 million a year market. The Rugby-based company, founded 13 years ago by CEO Philip Stimpson, has clinched a new distribution agreement with leading US group Inverness Medical Innovations, a world-leading maker of point-of-care medical tests, and suggests this is the first of many deals.

New York-quoted Inverness has signed a five-year agreement with AIM counter Mediwatch for the global distribution of the British company’s flagship PSAwatch point-of-care measuring system for prostate cancer. Mediwatch, which already licenses some of Inverness’s technology, regards the PSAwatch deal (which brings it access to the US group’s 1,000-strong sales force direct into GPs’ surgeries) as the precursor of ‘more joint activities and the beginning of big things’, says Philip Stimpson, who recalls that the deal took two years to negotiate.

Mediwatch, which turned a £265,000 loss into a pre-tax profit of £408,000 in the year to last October, on turnover up 63 per cent to £9.3 million, is contemplating new joint ventures and alliances with other groups, says Stimpson. Company watchers expect some significant developments along these lines, perhaps including acquisitions before the end of the year.

Stimpson cites prostate cancer and kidney problems as areas of joint action and enthuses about the company’s own projects, including molecular testing and ‘Zero Flow’ technology, which Mediwatch argues has ‘exciting possibilities’ in genomics and proteomic science.

Mediwatch is developing more point-of-care tests, including a range of relatively high-margin pathology tests.The company intends to provide mobile screening clinics for private hospitals, clinics and nursing homes.

This is in line with Stimpson’s original strategy when he launched Mediwatch in 1996. His aim was to provide a full range of diagnostic products and services, many with superior properties to what hospitals, clinics and surgeries typically provide, in areas such as diagnostic ultrasound and point-of-care biochemistry.

The strategy gained new momentum at the end of 2006, when the company raised £2.5 million at a lowly 7.5p to buy stock and license software from the urology diagnostics arm of Medtronic.

In January 2008, Mediwatch filled the last big gap when it won approval for PSAwatch.

PSAwatch is cheaper but no less accurate than laboratory tests and takes ten minutes, rather than three days, to deliver results.This is what has impressed Inverness.

Analysts suggest these developments leave Mediwatch particularly well placed to take advantage of long-term growth drivers in its sector. One driver is an ageing population, particularly males, who are likely to need the company’s products and services.

Another is pressure on healthcare costs and spending, which reinforces the trend towards switching diagnostic testing from centralised laboratories to point-of-care locations. Increasing regulatory pressure for control and monitoring of drugs and treatments is boosting demand for the medical analysis equipment Mediwatch can supply, while its equipment can also be used in self-testing at home, which is becoming more popular these days.

Mediwatch, which joined AIM in 2000 through the reverse takeover of troubled Prostcare and has had to cope with a succession of challenges, is now in better shape than before. The company, which ended its financial year with £446,000 of net borrowings, has arranged a new facility with Barclays Bank, which it says will match its future needs.

Mediwatch’s shares fell from more than 80p in 2000 all the way to 4.25p last December. They have since bounced to 8p, with analysts expecting £620,000 pre-tax this year and £1.2 million for 2010.

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