Optiscan reveals tough new strategy

Listed biotech Optiscan Imaging, one of many struggling to conserve cash while waiting for their IP to reach commercial fruition, appears to have won some breathing space with a tough new strategy.

The release of a strategic review by the company's new leadership team on Wednesday sparked a small rally in Optiscan's share price which moved up a few cents to 34 cents by early afternoon.

The review calls for paring non-essential expenses to reduce cash burn below $AUD500,000 per month while concentrating resources on Optiscan's most promising project, the flexible endomicroscope it is bringing to market in partnership with Japanese optical company Pentax.

Optiscan, whose IP relates to confocal microscopy imaging of cellular structures, needs to meet specific project milestones to secure a third payment of $6 million from Pentax.

To shave costs, the company plans to cut expenses by 20 per cent and slash staff to about 30, primarily by retrenching half of its non-R&D staff. The strategic review estimates those actions will yield annualised savings of about $1.7 million while incurring one-off restructuring costs of $800,000.

Optiscan will also cease direct marketing expenditures on its Stratum skin scanner and will opt for outsourced manufacturing of any second generation version of the instrument.

It will continue to seek a partner to help commercialise its rigid endoscope technology.

Director of technology Peter Delaney dubbed the results of the review "a strategy for stamina in a market where cash is king."

The review was conducted over the last several months by Optiscan's new chairman Grant Latta and new CEO Matthew Barnett and has been endorsed by the board.

The agreement with Pentax, signed last year and worth $19 million in staged up-front payments plus ongoing revenues, is the only commercialisation of Optiscan's technology to date.

The project's likelihood of attaining its final milestone payment this financial year, which relates to delivery of a functional system, appear to be promising, company sources said.

If the payment is received this year, Optiscan's annual result before restructuring costs will be near breakeven. If the payment occurs after June and is brought to account in the next financial year, the result for 2002/03 would be a loss of approximately $6.9 million, the company said.

Beyond that, revenues from its technology will depend on how well Pentax manages the marketing campaign. As a new technology, it will be partly at the mercy of the inherent uncertainty in the medical market's uptake of new devices, Delaney said.