Vision Systems buys UK biotech

Vision Systems (ASX: VSL) has surprised the market by buying a UK biochemical manufacturer outright.

The Melbourne company, which mostly deals in the area of fire-detection, security and surveillance, announced this week it had purchased Novocastra Laboratories, a maker of reagents used in cancer detection, for $94 million.

The company said the new addition to its stable would fit nicely with its BioSystems division; a clinical diagnostics business that currently accounts for just 5 per cent of the company's total revenue.

"It is a very exciting expansion of our BioSystems offering and brings unique reagent skills to the business," Vision System's managing director Dr Jim Fox said in a statement.

"Most importantly, it delivers on our recurring revenue business model in a relatively recession-proof market sector."

He described Novocastra as a "first class, growing and profitable company that has been built on unique and sound technology" and said that the purchase would deliver not only a compatible business area, but also sales, marketing and operational synergies and compliance cost benefits.

In the year ended March 31, 2002, Novocastra delivered earnings before interest and taxes of $7.4m, up 36 per cent on the previous corresponding period.

Vision Systems said that at a price tag of $94 million, the acquisition was earnings per share and cash flow per share positive.

But the market appeared less than thrilled by the purchase, shaving 12 cents, or 7 per cent off the price of the stock yesterday. At the time of writing today, the shares were trading a further 12 cents lower at $1.45 each.

Novocastra, whose diagnostic antibodies are distributed to pathology labs worldwide, was founded in 1989 by Prof Wilson Horne at the University of Newcastle. Horne is to remain with the business as chairman.

Vision Systems' statement said the purchase was strategically important and, with the BioSystems division currently developing a range of instruments that would use Novocastra's reagents, would result in a "powerful, total solution to the pathology market".

In a stockbroker briefing yesterday, Vision BioSystems said it had begun implementing a new strategic direction that was intended to generate value by introducing new products into market segments where the business already has experience, sell its own branded products directly to capture full margins, and establish a recurring revenue stream from reagents.

The company said it had already divested itself of several original equipment manufacturer (OEM) products and redirected funds towards new product development, a strategy into which Novocastra fit well.

Parent company Vision Systems also left the door open for further purchases, saying that it was looking at fresh fund raisings to pay for new product development programs, growth in working capital requirements and acquisition possibilities already under consideration.