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For Immediate Release: 27 December 2007 Disposal of Loss-making Sub-contract Machining Division The Medical House PLC (“TMH”or the “Group“), (AIM:MLH) the drug delivery specialist, is pleased to announce that it has agreed to sell its loss-making sub-contract engineering subsidiary, Eurocut Limited (“Eurocut”), to Semes Limited (“Semes”) a company controlled by Eurocut’s Managing Director, Stephen Shaw, in a deal (the “Disposal”) which enables TMH to concentrate all of its resources on growing its profitable Drug Delivery Division. For the year ended 30 June 2007, Eurocut reported operating losses of £856,000; Eurocut’s losses have continued since then. At 30 June 2007, Eurocut had net assets of £1.6m. Under the terms of the sale agreement (the “Agreement”), debts associated with Eurocut of around £1.4m will immediately leave the Group. This deal completes a dramatic turn around in TMH’s bank financing. In the past four months, cash received by TMH and debts leaving the Group have totalled £4.5m. The result is that TMH now has a modest bank overdraft and no long-term debt. Semes has agreed to pay up to £3.7m (in aggregate) for the whole of the issued share capital of Eurocut and the repayment of existing inter-company loans. Payments to TMH are due to commence on 1 January 2009, with TMH taking charges over all of Eurocut’s unencumbered assets. However, the value of the assets secured under these charges will mean the majority of the amount which is due to be paid will not be backed by available security, so that an element of the amount due to the Company will be dependent on Eurocut’s future performance. Consequently, TMH will be accounting for the financial shortfall in the security available on a receipts basis. Appropriate provisions will be made in the TMH accounts to 31 December 2007, which will be announced in April 2008.A parent guarantee relating to certain machinery finance agreements remains in place against an undertaking from the bankers of Eurocut to either procure the release of such guarantee or to reduce the bank’s security over the assets of Eurocut by an amount equivalent to the guarantee Most of the consideration relates to an inter-company loan which has built up over several years and now stands at £2.9m. The monthly instalments which are due to commence in January 2009 will first be applied to the repayment of this loan. Such repayments will be limited to 50% of Eurocut’s profits, thereby allowing Eurocut to rebuild its position in the market and consequently giving TMH the best opportunity to be repaid in full. The Agreement incorporates provisions to cover the possibility of a subsequent sale of Eurocut by Semes. This could result in earlier settlement of the consideration and a possible increase in the Disposal price obtainable. Should the sale to a third party be for a sum which, together with the repayments already received, exceeds £3.7m then TMH will receive a further payment equivalent to 25% of such excess. TMH has retained ownership of the appropriate design and development facilities in addition to an exclusive licence to finalise and exploit the intellectual property which Eurocut has recently been developing in respect of disposable surgical instruments. The costs of maintaining these facilities are relatively modest, but will enable TMH to exploit its creativity in two medical markets, drug delivery and orthopaedics. This is in keeping with TMH’s successful track record in designing and licensing medical devices, enabling the Company to continue to benefit from its expertise and experience in commercialising medical device intellectual property. Under the Agreement, Stephen Shaw will resign as a Director of TMH and as an employee of the TMH group, and will receive the sum of £25,000 in respect of compensation for loss of office..
“Although we are sorry to see Eurocut leave the Group, we are delighted that this transaction puts TMH on a much sounder financial footing. It effectively draws a line under a difficult situation which has persisted for the past 18 months. This deal eliminates the risk of TMH incurring further losses which might result from Eurocut’s somewhat unpredictable order profile, whilst still allowing TMH shareholders to benefit from Eurocut’s future success The deal also allows us to concentrate all our efforts on designing, developing and licensing medical device technologies, where we already have a considerable record of success. We will be starting 2008 in our best ever financial position
and are very excited about our future prospects. For further information The Medical House PLC Nomura Code Securities Limited
About The Medical House There is a growing trend in the pharmaceutical industry towards the use of disposable autoinjectors, incorporating pre-filled syringes, which facilitate patient self-injection, as a means of creating competitive advantage for injectable drugs, including a number of significant new biologic products. TMH’s “ASI” autoinjector technology allows injections to be easily and safely undertaken by patients or by other non-clinicians such as family members and colleagues and are suitable for both elective therapies and emergency situations. In November 2007, TMH announced that it has agreed to extend the term of the development, licensing and supply agreement for the ASI which it signed in December 2006 with a leading global pharmaceutical company. Under new terms, the minimum duration has been increased from five to six years, with TMH agreeing to a provision for further extension to approximately 16 years. Additionally, TMH’s projected revenues are increased from £27 million to £34 million (of which £23 million is for technology access, or licence, fees). TMH’s minimum guaranteed revenues have also increased to £20.5 million (of which £15 million is in licence fees). TMH is receiving £3 million of pre-commercialisation licence fees. TMH recently commenced work on the pre-commercial phase of the agreement’s development programme and this will result in additional development monies to TMH of approximately £900,000 over the next 18 months. Also in November 2007, TMH announced that it has signed a strategic marketing agreement with Catalent Pharma Solutions (formerly the Pharmaceutical Technologies and Services segment of Cardinal Health, Inc), a leading global provider of advanced technologies and outsourcing services to pharmaceutical and biotechnology companies. Under the terms of this agreement, the companies will jointly promote and market TMH’s ASI system in combination with Catalent’s services and technologies, which include sterile filling of pre-filled syringes. Catalent offers extensive capabilities for the development, manufacture and packaging of pharmaceutical and biotechnology products, and brings to the collaboration extensive customer relationships in nearly 100 countries, and an experienced business development team operating in the world’s leading pharmaceutical markets. The companies are also exploring opportunities to jointly develop specific drug & device combination products, suitable for out-licensing and/or marketing partnerships with pharmaceutical industry partners. TMH signed its first licensing deal for the ASI in June 2006 with Martindale Products and Specials, part of Cardinal Health Inc, in an initial five-year contract to supply the ASI system for use with an, as-yet, undisclosed pharmaceutical product, in the United Kingdom. The combined product is to incorporate TMH’s ASI and Martindale’s pre-filled syringe, The agreement has projected revenues for TMH of £3m over an initial supply period of 5 years. In December 2005, TMH announced an agreement with a European
Government Agency to develop a disposable autoinjector for emergency
administration of specific pharmaceutical compounds, based on
TMH’s ASI autoinjector. Within this project, TMH’s
client is making the required capital investment and covering
the costs of design and development. In March 2007, it was announced
that TMH had been commissioned by this Agency to enter into a
second phase of development within the project, which involves
TMH developing and manufacturing devices, according to defined
operational and functional requirements, for technical assessment,
over an anticipated 12 months project duration. Within the second
phase of the project, TMH will receive up to £1m, subject
to achieving agreed milestones, in relation to the cost of the
project including associated design and development activities.
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