New Issues Examined, by Oliver Haill

Soon after carbon credits player EcoEnergy secured its new funds Dublin-based pharmaceuticals outfit AGI Therapeutics reeled in £29.2 million, money that will be devoted to six ‘product candidates’ (five of which are in Phase II trials) it hopes will be able to treat such uncomfortable disorders as irritable bowel syndrome, functional dyspepsia, ulcerative colitis and gastro-esophageal reflux disease. At 86.5p the company, which obviously still has much to prove, is valued at £58 million.

However, I found the arrival of another gut-focused health sector player, Personal Screening, which made one of the smallest AIM fundraisings last month, more
easily digestible.

This former OFEX tiddler is a supplier of self-test medical kits for detecting health and medical conditions such as bowel and prostate disorders, diabetes, high cholesterol, and the menopause. With the help of broker SP Angel and adviser Nabarro Wells, it pulled in £795,000 net at 1p on its journey to AIM’s shores. The shares now stand at 1.81p and value it at £2.61 million.

Executive chairman Michael Scorey, whose previous chairmanship of private healthcare business Clinovia saw it sold in 2003 for £45 million and whose last AIM-listed chairmanship, Omnicare, was sold in 1997 to US-owned Allied Healthcare, told me that Personal Screening was a ‘bit of a bag of worms’ operating in a cut-throat subsector when he arrived in 2004. However, very propitiously for the company (and presumably why it  was brought to market) the marketing and distribution of these tests became controlled by European legislation that year and, laughs Scorey, ‘in a stroke took away all our competition’.

A unique position…

‘We’re in a unique position to exploit this market,’ brags Scorey. ‘A lot of our past competitors, who sold just to hospitals, are coming to us to sell their kits in the retail market.’ PS’s nine CE-approved kits are sold in pharmacies, on the internet and by mail order. Its last results, for the six months to last June, saw pre-tax losses cut from £563,000 to £52,000. Costs have been cut and new IT systems introduced. ‘This means we are able to increase sales volumes with very little associated increases in overheads,’ says Scorey ‘and this should hopefully be a fairly rapid route to easy profits.’

...in a growing market

This health sub-sector is expanding well, argues Scorey, as it has strong state support and a market in which people are becoming more aware of self-treatments and the benefits of supplements and self-testing products.

Indeed, the Government's recent announcement of a bowel-cancer screening programme for 60-to-70 year olds was a contributory factor in increasing mail order sales. People not in this age bracket – but who still considered themselves at risk – were able to buy their own screening kits, demonstrating the growth of the home health culture.

The UK market for over-the-counter medicines was £2 billion in 2004 and legislative changes to lighten the load on GPs have led to pharmacists being incentivised with higher rates of pay for the services they offer. Significantly for Personal Screening, offering self-test medical kits counts as a service. Making the kits even more alluring is that they are likely to result in repeat business for pharmacists’ over-the-counter medicine. Elsewhere, the company has signed a deal with 50 Holland & Barratt health food stores, which are similarly motivated as they sell supplements that alleviate many of the tested complaints.

The placing funds are to be used to beef up PR and marketing efforts, as Scorey sees these as the most effective way to increase visibility with the public.

Looking further ahead, the next stage of growth is in expanding the range of tests, with drug testing being mooted and possibly even a move into pet screening for diabetes in dogs and chlamydia in cats.