Medical Solutions' long march back

Shares in fully-listed diagnostics and pharmaceuticals business Medical Solutions plunged from a high of nearly 200p to a 10.5p low as a brace of profit warnings and bad news scared investors away. Since Trevor Twose vacated the chief executive role, stand-in boss Charles Green is working hard to get the business back on track. William Davidson reports.

The straight-talking Green said: 'I am here to make sure 2002 is a good year. Despite the profit warnings, Medical Solutions is not out of control. In fact, it is generating cash, and out-of-control companies do not generate cash'.

The business is divided into two divisions: cancer diagnosis and pharmaceuticals. Green said these could eventually be split. And the vultures have been circling. 'I have had offers for bits of the business which were greater than the market cap of the entire company', he said. 'Even now, I could sell the group for two or three times its market cap. I could do that without getting out of bed'.

The main drivers behind the cancer diagnostic business are PathLore and Fairfield Imaging. PathLore is a locum service for pathologists - the people who diagnose which cells are cancerous and decide on treatment. Green said there is a critical shortage of trained pathologists in the UK, with around half of the 900 posts expected remain unfilled in the next two years. It means NHS pathologists are over-worked and often have to deal with cancer tests outside their area of expertise. PathLore enables NHS trusts to get the tests done quickly, and by the right people. It has the top 48 clinical pathologists on its books. Green said they can earn more in an hour's work using PathLore than they would in two days' of traditional work.

Its CellPath arm produces training equipment for cervical smear tests, an area which is notoriously inefficient. Of the 6.4 million smear tests carried out each year, more than nine per cent are incomplete. The NHS is testing CellPath's equipment as well as a competitors'. It will award the contract on a 70:30 basis between the two companies. Even if Medical Solutions was awarded only a 30 per cent slice of the pie, finance director Andy Longstaffe estimates it would be worth 'around £15 million per annum'.

In the year to December, sales rose 64 per cent to £16.1 million, while losses swelled from £1.21 million to £1.6 million. Since the results, the share price has picked up from 15p to 28p. If Green can perform the recovery he predicts, the shares could have a lot further to go.

Sector: Health Care Equipment & Services

Companies: Source BioScience

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