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Research labs supplier delivers first steps in turnaround plan

A rally at in-vitro diagnosics (IVD) specialist Immunodiagnostic Systems (IDH:AIM) could be a sign of things to come if ambitious growth targets can be met.

Immunodiagnostic recorded an underlying revenue decline of 9% in the six months to 30 September an improvement from full-year declines of 18.4%. And there are a number of other lead indicators in the business which show the business’ turnaround may be starting to gain traction.

Before moving into the financials, it’s important to understand what Immunodiagnostics does.

Business model

Research laboratories use specialist equipment, referred to as analysers, to run tests. Analysers are used, for example, to test blood, urine or other samples for traces of compounds which identify associated medical conditions.

Along with a sample from a patient, standardised samples called immunoassays are needed to run the tests. As a result, customers that use Immunodiagnostic Systems’ analysers need to regularly purchase immunoassays.

Immunodiagnostic Systems’ business model is to supply its analysers to research laboratories for free. It hopes to cover the cost of the analysers and make a profit through selling the immunoassays needed to run tests on the machines.

Immunodiagnostic table

Key indicators

Key performance indicators in the turnaround at Immunodiagnostic include the number of analysers it has managed to place with clients and the number of immunoassays it is able to provide.

Net placements of new analysers in Immunodiagnostic’s first half were five compared to minus 10 in the same period last year, taking Immunodiagnostics’ installed base to 305. Two new assays were also launched, taking the total to 17 in Europe and 10 in the US. Customers are more likely to use one of Immunodiagnostics’ analysers if it has a wider range of immunoassays available, Wittek says.

Profitability may be a big ask in its current financial year, the 12 months to 31 March 2017.

Profitability challenge

Revenue in Immunodiagnostic’s Automated In-Vitro Diagnostics division will need to almost double to around £50m before it is able to turn a profit, according to estimates by chairman Burkhard Wittek. Its other two divisions, Manual IVD and Licencing, have historically been the group’s profit drivers and both are now struggling.

The bullish case for investors is continued progress in new analyser placements and assay launches and partnerships. Mitigating some of the undoubted risk in Immunodiagnostic’s turnaround plan is a cash balance net of all liabilities which stands at £15.8m versus a market cap of around £53m, providing some flexibility. (WC)

Impressive first steps in what is likely to be a bumpy though potentially rewarding turnaround.

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