Zi Medical set to zoom

The arrival of the acclaimed biotech entrepreneur, Sir Christopher Evans, as chairman of medical device developer Zi Medical has barely been noticed by the stock market. However, the company's plans to consolidate the medical technology sector and commercialise products in an accelerated fashion should make investors sit up over the next year or two.

Evans reversed Oxford Newtech, majority owned by his Merlin Biosciences investment vehicle, into AIM-quoted Zi Medical in July. The all-share deal, first mooted in April, valued Evans' company at £5 million and left Merlin holding a near 50 per cent stake in the merged entity. At the same time the company raised £3 million at 7p a share.

Since the deal was concluded the shares have drifted by 16 per cent. This gives investors an excellent opportunity to take advantage, at a basement price, of the proven capabilities of the strong management team Merlin has assembled at Zi Medical.

Sitting alongside Evans on the board are Callum McKinlay and Mike Wyllie. Chief executive McKinlay trained as a medic, before moving into finance with HSBC. He has spent the last four years advising early-stage medical companies on commercialising their technology. Wyllie, meanwhile, enjoyed a lengthy career at Pfizer, where he was partly responsible for bringing anti-impotence blockbuster Viagra to the US market.

McKinlay's initial plan is to develop the existing Zi Medical infusion devices (syringes and drips that monitor the flow of liquids into the body). All three are already the subject of agreements with major distributors Baxter Healthcare and B Braun. 'Most of these are focused on UK markets. We want to open up the US and European markets as well, using our worldwide contacts and expertise,' he explains.

Prior to the reverse takeover, Oxford Newtech also had agreements in place regarding two other commercial projects.

The first is a technique called Drug Fingerprinting, developed in association with the defence research body, QinetiQ. Scientists at the recently privatised concern have adapted technology for use in the battlefield so that potential drugs can be tested for toxicity on specific human cells, such as the heart, at a pre-clinical stage.

This could save drug companies immense sums in testing drugs which subsequently have to be withdrawn because of negative side-effects. Several high profile therapies have suffered this fate recently. McKinlay is already talking to several large pharmaceutical companies that might license the product for six-figure sums.

Zi Medical also boasts Jean Fourcroy on its scientific advisory board. She worked for 14 years in a senior position at the US Food and Drug Administration. McKinlay hopes that will prove useful in getting this technology recognised as a valid test in the regulatory process.

The other project is Pathscore, which uses high-powered software developed at Oxford University to analyse pathological samples of cancer tissue. This improves the accuracy of diagnoses so that each patient can receive the correct treatment. This product is currently being validated by the Agency for Cancer Research, part of the World Health Organisation.

In addition to finding technology from institutes to bring to market within 18 months, Zi Medical has already identified companies that have high value technology. Many of these are under-capitalised. McKinlay hopes to take advantage of that fact, acquire them at a reasonable price, then accelerate their commercial plans.

McKinlay admits that the markets were against Zi Medical as the deal was completed. 'We would have liked to have raised £10 million' he says. He plans to pull in additional funds when further deals are announced, but is loathe to do so at under 7p a share. Therefore, at the current level, the shares represent the opportunity to benefit from consolidation in the medical devices field under a team with proven experience of commercialising technology.

House broker Brewin Dolphin's forecasts are based on royalties accruing from the existing products. Because they do not account for additional technologies being developed or acquisitions, they are pretty meaningless. However, the broker believes the company's fair value should be 20p a share and recommends a strong buy – a verdict that is hard to fault.