osmetech annual report 2004    xx
osmetech plc
annual report and accounts 2007 xx    osmetech annual report 2004  
osmetech plc today
transforming molecular diagnostics into practical costeffective
testing solutions
as the demand for and acceptance of molecular diagnostic tests
multiplies so does the rate of testing decentralisation the movement
of molecular diagnostic testing into the clinical laboratories of mid
size hospitals requires greater simplicity flexible testing capabilities
and costeffectiveness
osmetech molecular diagnostics is focused on providing cutting
edge costeffective molecular diagnostic technologies and tools that
enable a broader range of hospitals and laboratories to offer
molecular diagnostic services for improved patient care
contents
1 highlights
2 chairman’s statement
3 chief executive officer’s review
12 board of directors
13 report of the directors
19 independent auditors’ report
21 consolidated income statement
21 consolidated statement of total recognised income and expense
22 consolidated balance sheet
23 company balance sheet
24 cash flow statements
25 notes to the cash flow statements
27 notes forming part of the financial statements
69 notice of annual general meeting
75 form of proxy
ibc directors and advisers highlights
• profit after tax of £40 million 2006 – loss of £133 million
• £176 million profit on sale of critical care division generates substantial return on
investment
• continuing operations
– revenue increases to £169000 2006 – £49000
– loss after tax of £120 million 2006 – £123 million
• cash and cash equivalents increase to £139 million at 31 december 2007 
2006 – £71 million
• growth of installed base of esensor
®
4800 instruments running fda approved cystic
fibrosis carrier detection tests
• second generation esensor
®
xt8 system with warfarin sensitivity test currently under
review by fda – clearance and launch expected during the first half of 2008
• extended warfarin sensitivity test including exclusively licenced 4f2 biomarker scheduled
for second half of 2008
• new licencing agreements and strategic partnership collaborations under negotiation
esensor
®
4800 instrument esensor
®
xt8 microarray consumable esensor
®
instrument chairman’s statement
the sale of our critical care division to idexx laboratories inc ‘idexx’ for £231 million 454 million
in cash before costs was completed on 31 january 2007 representing a substantial return on the 
£17 million 27 million purchase price when the blood gas and electrolyte analyser business was
acquired from roche diagnostics inc in 2003 as a result of osmetech’s active management of the
business considerable value was created through the acquisition of this noncore asset from a major
company by osmetech
osmetech is now making excellent progress towards replicating this success in a market with much more
attractive growth prospects we are now wholly focused on exploiting the considerable opportunities in
the rapidly developing molecular diagnostics market sector this is centred on our proprietary
technology and substantial intellectual property portfolio built around the acquisition of clinical micro
sensors inc from motorola inc in 2005
the market dynamics for molecular diagnostics continue to be attractive with high growth rates and the
prospect of high margins osmetech has directed its development at products that meet the
requirements of a decentralising diagnostics market which is demanding fdacleared tests in a cost
effective compact and easy to use format many of the existing players in the wider molecular testing
market have expensive and specialised instruments designed for the more complex demands of the
research market and are finding the transition to diagnostics difficult to achieve
osmetech remains one of a small number of companies with the capability of meeting the requirements
for this growing market we have proven technology and products that have successfully passed key
scientific and regulatory milestones and are now making sound commercial progress in achieving market
acceptance of our first generation esensor
®
4800 platform
we have completed the development of our second generation esensor
®
xt8 platform and are very
excited about its commercial prospects the system along with the warfarin sensitivity test is currently
under review by the fda and following the anticipated fda clearance we expect to launch the product
in the first half of 2008 we plan to commercialise the product throughout the remainder of 2008 and
into 2009 which will involve continued investment in group’s infrastructure and product pipeline we
anticipate that further funding will be required during this period in order to fully execute our
commercialisation plans not withstanding the emphasis of matter disclosed within the auditors’ report
based upon ongoing negotiations and discussions with potential strategic partners licencees
commercial and other third parties we are confident that further funds will be available to the group
enabling us to optimise value from our products we plan to pursue the alternative which delivers most
shareholder value at the time and i look forward to updating shareholders in due course
gordon hall
chairman
31 march 2008
2 osmetech annual report and accounts 2007 chief executive officer’s review
introduction
we have continued to make strong progress in the year towards our aim of commercialising our
proprietary electrochemical detection technology to provide a low cost easy to use instrument platform
for molecular diagnostics testing
commercialisation achieved with first generation system
a limited number of esensor 4800 dna detection instruments were inherited when the clinical micro
sensors inc business was acquired from motorola in 2005 our strategy has been to use this first
generation esensor 4800 platform to achieve regulatory and commercial acceptance of our technology
we are pleased to report considerable progress in this regard following fda regulatory clearance for
our esensor cystic fibrosis carrier detection test and esensor 4800 dna detection instrument in 2006
14 available instruments are now with customers either on a commercial basis or under evaluation
customers range from large to small hospitals and small reference laboratories and we have
experienced a 100 conversion rate from the evaluation stage through to commercial contract whilst
customer satisfaction levels remain high we plan to replace these esensor 4800 systems with our second
generation platform the esensor xt8 following clearance by the fda
throughout this commercialisation process we have established a core us sales and marketing team in
addition to an effective manufacturing base and supply chain valuable feedback and experience from
the market has been gained allowing us to incorporate product enhancements into the development of
our second generation esensor xt8 system
submission of second generation platform
the development of our second generation esensor xt8 electrochemical dna analysis system has
been completed and the product has been very successfully exhibited at a number of trade shows
following highly successful preclinical trial studies the system is currently under review by the fda
together with our warfarin sensitivity test following fda clearance we plan to launch the platform in
the first half of 2008
fda clearance for the xt8 platform will simplify the regulatory pathway for future assay submissions
these submissions will be for new tests with no further review of the instrument being required
the xt8 system is based on the fdacleared esensor 4800 product with several additional features to
provide enhanced performance capabilities it is a compact benchtop workstation with an integrated
touch screen computer and disposable test cartridges that can process up to 3000 tests a week using
prepared samples the esensor xt8 system can run up to 24 different tests independently with variable
throughput capacity dependent upon the user’s requirements providing a definitive result within 30
minutes with limited operator involvement the system incorporates several key features which we
believe will make the xt8 attractive to a wide range of laboratories including
• simplicity our esensor xt8 system eliminates the need for sophisticated instrumentation or
complex reagent kits automation of a number of key process steps eliminates manual intervention
in the detection process and algorithms provide test results without the need for operator
interpretation or data manipulation making molecular diagnostic testing widely available to both
large and small hospital laboratories worldwide
• costeffectiveness our esensor xt8 system is a low cost platform that is accessible to smaller
hospitals and reference laboratories our versatile cartridgebased design eliminates the need for
multiple testing platforms by eliminating the need for skilled technicians and multiple complex
platforms hospitals and laboratories of all sizes can reduce their costs and obtain results from tests
in their own laboratories at a significantly lower cost than through systems generally available today
osmetech annual report and accounts 2007 3 chief executive officer’s review
continued
assuming current medicare reimbursement rates for genetic tests remain the same the esensor xt8
system should provide hospitals and reference laboratories with an additional revenue source while
allowing them to better serve their patients and clients with faster and more accurate test results
• true random access testing the esensor xt8 system allows laboratories to economically run
different tests from different patient samples when received and on demand unlike other systems
where laboratories must process patient samples in batches to control reagent and labour costs
true random access results in faster sample turnaround times improved patient care and timely
service to the ordering clinician waiting to act on the patient result
• multiplexing the esensor xt8 system enables scalable multiplexing of up to 72 target molecules
on the same patient sample in a single assay cartridge potential applications include genomic and
infectious disease test panels on a single use cartridge that allows for the simultaneous detection of
multiple genetic mutations associated with complex diseases such as cystic fibrosis or respiratory
infections
• accuracy and reliability the esensor xt8 system utilises a proprietary electrochemical method to
detect nucleic acids with high levels of sensitivity and specificity electrochemistry is far more robust
than optical recognition methods providing results that are less subject to variation from
contamination or vibration and dust
• low maintenance we believe that the esensor xt8 requires less maintenance than any other
competitor instrument no setup procedures are necessary allowing an extremely convenient ‘plug
and play’ approach ongoing or regular maintenance is minimal
• validated technology the esensor xt8 system is based on our proprietary electrochemical
technology a technology which has been used in other clinical applications most notably in blood
glucose measurement for diabetes management the xt8 instrument utilises the same core
technology as our esensor 4800 system which has been approved by the fda and is currently in use
in laboratory settings for cystic fibrosis carrier detection
• clinical lab ready system the xt8 is designed specifically for the molecular diagnostics market
using our experience of successful new blood gas products previously launched in our critical care
division rather than attempting to adapt a complex research based instrument to meet the very
different demands of the clinical environment
unique content inlicenced
we have obtained an exclusive licence from the marshfield clinic for an important newly discovered
genetic marker for warfarin the cyp450 4f2 biomarker the marshfield clinic has recently had an article
published in the peerreviewed journal blood online entitled “cyp4f2 genetic variant alters required
warfarin dose” which describes clinical studies demonstrating that the 4f2 biomarker significantly
influences warfarin requirements gaining access to unique content through exclusive licencing is highly
unusual in the molecular diagnostics industry and gives us a significant competitive advantage
confirmed by the numerous enquiries we have subsequently received from third parties seeking a sub
licence
together with the licences necessary for our marketed cystic fibrosis carrier detection test we have
also successfully completed the inlicencing of biomarkers for our warfarin sensitivity and 2c9
pharmacogenomics tests planned for launch later this year in addition to the unique 4f2 marker we
have also obtained the rights to other genetic markers related to warfarin metabolism which should
form the basis of an extended warfarin panel test also targeted for launch later in 2008
osmetech has recently been granted a broad nonexclusive worldwide diagnostics licence from roche
to use chemically modified thermostable polymerases for applications including existing marketed
4 osmetech annual report and accounts 2007 chief executive officer’s review
continued
products other genetic predisposition assays companion diagnostics and infectious diseases such as
hpv this enables improved control over the amplification of select segments of nucleic acids including
genomic dna so that sufficient signal is available for diagnostic processing resulting in a highly
efficient and sensitive amplified assay this licence will benefit both new and existing customers who will
not be required to obtain this licence from roche and pay royalties on tests performed when using
osmetech products this is a good example where osmetech is simplifying molecular diagnostics by
including this critical component in an easy to use kit format for customers
expansion of our intellectual property portfolio and outlicencing activities
we believe that our intellectual property portfolio provides a significant barrier to the development of
similar electrochemical based detection systems we own or have exclusive worldwide rights to more
than 150 patents worldwide mostly in the field of electrochemical detection of biological entities such as
dna rna and proteins
our strong intellectual property portfolio for its core electrochemical detection technology was built
through the combination of the clinical micro sensors acquisition from motorola and a series of
worldwide exclusive licences most notably from caltech where most of the electrochemical detection
technology originated university of north carolina harvard university and mit to date there are more
than 80 issued us patents protecting the company’s electrochemical detection technology covering a
diverse collection of areas including electrochemical dna detection selfassembling monolayer
technology signal processing and extraction methods
we believe that our esensor electrochemical technology is ideally suited to the decentralising molecular
diagnostics market enabling testing in less sophisticated laboratories outside of research institutions
and large hospitals it should also provide us with the ability to develop intuitive and robust pointof
care testing instrumentation and ultimately portable testing devices that are not subject to the
limitations of photon optical based platforms
we have licenced technology to ohmx corporation and minerva biotechnologies corp on a non
exclusive basis we see further opportunities to leverage our considerable patent portfolio to generate
licencing income from commercial agreements while maintaining our competitive advantage for
applications in our core markets
business repositioned in the most attractive segment of the diagnostics industry 
molecular diagnostics
the sale of our critical care division “ccd” blood gas and electrolyte analyser business early in 2007
completed the cycle of acquiring and developing a noncore undervalued asset from a major company
through to the generation of significant returns osmetech was successful in creating considerable value
with ccd in a mature slow growing market with modest profit margins we are now developing a
molecular diagnostics business with higher growth and higher margin opportunities in a market sector of
increasing strategic importance
the molecular diagnostics market is the fastest growing segment of the overall invitro diagnostics ivd
market the global market for diagnostic products was estimated to be 34 billion in 2006 according to
boston biomedical consultants molecular diagnostics generally refers to the use of genomic analysis of
individuals to diagnose disease and treat patients and as a subsegment of the ivd market includes
diagnostic testing for infectious diseases pharmacogenomics genetics and cancer this new and
expanding part of the ivd market has emerged in response to a need for more rapid sensitive and
specific diagnostic tests than were previously available using traditional techniques such as
immunoassays our market opportunity in molecular diagnostics is more than 23 billion we believe
that the following factors among others are contributing to the growth of this market
osmetech annual report and accounts 2007 5 chief executive officer’s review
continued
• decentralisation the diagnostics market is beginning the conversion from traditional methods of
detection that are required to be performed in outside laboratories to molecular testing performed
in hospital laboratories generally genetic testing required complex instrumentation utilising highly
trained operators expensive equipment and dedicated facilities there is growing demand from us
hospitals looking to build laboratory revenues and profitability through the reimbursement system by
performing molecular testing on new cost effective and easy to use platforms in their own
laboratories
• conversion to fdaapproved molecular testing methods the fda is encouraging the molecular
diagnostic industry to develop tests that are cleared by the fda rather then using asrbased tests
not submitted for clearance it is expected that over time that many of these asr tests and “home
brew” tests created by laboratories will be phased out in favour of fdaapproved tests
• expansion of human genetic testing medical advances in the understanding of the relationship
between genetics and disease and the disease process have led to the development of human
genetic tests for diseases such as cystic fibrosis and inherited diseases as understanding and
technology advance we expect that additional genetic tests will become available to establish a
person’s predisposition to a wide range of diseases
• pharmacogenomics research is uncovering more information about the impact of genetics on
patients’ ability to tolerate metabolise and respond to many drugs the importance of this research
is highlighted by the fact that according to the institute of medicine over 100000 people die each
year in the us alone as a result of adverse drug reactions as a result we expect that genetic
testing will increasingly be used to guide treatment methods and dosages through the development
of companion drug tests the fda has noted an increase in pharmaceutical companies seeking
clearance of products with accompanying diagnostic tests and over the next decade there is
expected to be substantial growth in the companion molecular diagnostics market with companies
focusing their development of drugs for patients who are more likely to respond favourably to that
particular drug and drugs that focus on targeting a specific gene in addition the fda is seeking
pharmacogenomic information from pharmaceutical companies on their currently marketed
products which could lead to the development of new tests for other pharmaceuticals
• increasing reliance on genetic testing future growth in the molecular diagnostics market will be
driven by continued development of new tests and the growing acceptance of and reliance on
these tests by physicians and other practitioners in their decision making process and patients’
awareness of the potential of these tests we expect that as these tests become more accessible as
a result of the lowering of barriers to entry to hospital laboratories for test processing physicians and
patients will come to include these tests as an important factor in prevention diagnosis and
treatment of many diseases
6 osmetech annual report and accounts 2007 chief executive officer’s review
continued
our applications
we are commercialising or have in development several genomic assays including the following
application product description status
warfarin metabolism xt8 warfarin test
warfarin metabolism
2c9 drug metabolism
cystic fibrosis
cystic fibrosis
respiratory viruses in development identification of the
major respiratory
viruses aids
identification of
bacterial infections
respiratory viral panel
for esensor xt8
system
in development
510k application to be
submitted early 2009
test for preconception
screening of cystic
fibrosis gene carriers
cystic fibrosis test for
esensor xt8 system
on market fdacleared test for
preconception
screening of cystic
fibrosis gene carriers
cystic fibrosis test for
esensor 4800 system
development and clinical
trials complete 510k
application to be
submitted following fda
clearance of the xt8
warfarin test commercial
launch projected in the
second half of 2008
genetic test for cyp2c9
biomarkers associated
with metabolism of
phenytoin epilepsy and
most nonsteroidal anti
inflammatory drugs
including cox2
cyp 450 2c9 test for
esensor xt8 system
development and clinical
trials complete 510k
application to be
submitted following fda
clearance of the xt8
warfarin test commercial
launch projected in the
second half of 2008
genetic test for
additional cyp2c9
vkor biomarkers
associated with warfarin
metabolism including
exclusively licenced
cyp450 4f2 biomarker
xt8 extended
warfarin test
510k application
submitted december 2007
assuming fda clearance
commercial launch
projected in the first half of
2008
genetic test for cyp2c9
vkor biomarkers
associated with warfarin
metabolism
osmetech annual report and accounts 2007 7 chief executive officer’s review
continued
warfarin metabolism
our esensor warfarin test is a pharmacogenomic test for the detection of genetic mutations that
determine an individual’s ability to metabolise the oral anticoagulant warfarin also known as coumadin
warfarin decreases the blood’s clotting ability and is the most widely prescribed oral anticoagulant in
north america and europe individuals metabolise warfarin differently and if its administration is not
managed carefully life threatening side effects may occur
in the us alone there are an estimated 2 million new warfarin patients each year warfarin is the second
most likely drug after insulin to send americans to the emergency room resulting in an estimated
43000 visits a year in the us a recent economic study concluded that widespread use of warfarin
testing in the us could avoid 85000 seriousbleeding events and 17000 strokes a year and so save the
healthcare system approximately 11 billion annually
in august 2007 the fda announced the relabelling of coumadin generic name – warfarin which was
reported on the front page of the wall street journal it is significant that the fda has taken such a
proactive stance to promote the use of genetic factors to predict how individuals will react to medicines
we believe this is a significant milestone for the adoption of pharmacogenomics tests the potential for
warfarin testing is a good illustration of the significant commercial opportunities for pharmacogenomics
tests targeting specific drugs which are capable of being performed on osmetech’s xt8 platform
the esensor warfarin test which is currently under review by the fda together with the esensor xt8
system detects three genetic markers that are known to play a critical role in metabolising warfarin
through detection of these genetic markers doctors are able to determine the appropriate initial
warfarin dosage level in a safer and more efficient manner
we recently obtained an exclusive licence from the marshfield clinic for an important newly discovered
genetic marker for warfarin the cyp450 4f2 biomarker clinical studies demonstrate that the 4f2 biomarker
significantly influences warfarin requirements we have already conducted clinical trials incorporating this
4f2 marker and other additional genetic markers into our esensor extended warfarin test which we expect
to submit for fda 510k clearance shortly after receiving clearance for our three marker warfarin test
cystic fibrosis
our cystic fibrosis carrier detection test is a qualitative multiplexed genotyping assay that detects a
23marker panel of mutations associated with cystic fibrosis based on guidelines published by the
american college of medical genetics and the american college of obstetricians and gynecologists for
screening of adult couples contemplating pregnancy our esensor cystic fibrosis test for the esensor
4800 system received 510k clearance from the fda in 2006 and is currently on the market we
anticipate that we will submit our esensor cystic fibrosis test for the esensor xt8 system for fda
clearance in early 2009
the us market for cystic fibrosis carrier screening is currently estimated to be 15 million tests
growing at 15 with less than 50 market penetration we expect that the launch of additional lowcost
fdaapproved tests will drive market expansion through increased testing by small and mediumsized
laboratories as approximately 60 of tests are currently performed in large reference laboratories we
anticipate that by 2010 approximately 25 million tests will be performed in the us creating a total
market of up to 300 million
2c9 drug metabolism
cyp2c9 is a member of the cytochrome p450 mixedfunction system of enzymes involved in the
metabolism of several important groups of drugs including many nonsteroidal antiinflammatory drugs
nsaids and antidiabetic drugs
8 osmetech annual report and accounts 2007 chief executive officer’s review
continued
we have conducted clinical trials on a 2c9 drug metabolism test we expect to submit for fda 510k
clearance for 2c9 later this year following clearance of our warfarin test
other assays
we have a respiratory virus panel currently in development which has the potential of addressing a large
market a test that differentiates between a number of common respiratory viruses and bacteria is well
suited to the xt8’s capabilities for multiplex detection from a single patient sample
we are currently evaluating a number of opportunities to broaden our test menu we are focussing on
validated content with clear market requirements and anticipate that we will enter into licencing and
commercial agreements with partners enabling further assays to be added to the esensor xt8
instrument platform we expect that this pipeline will include pharmaceutical companion diagnostics
and validated cancer markers
competitive landscape
much of the molecular diagnostic testing today is performed on large expensive and complex research
based instruments requiring highly skilled staff to perform tests and interpret results in order to achieve
acceptable financial returns large volume batch testing is often required as a consequence testing is
largely concentrated in reference laboratories and large hospitals with other hospitals and institutions
forced to outsource testing resulting in lengthy waits for results and the lost opportunity of performing
potentially profitable tests inhouse
many of the existing methods including certain more recently developed technologies are susceptible
to contamination and inaccuracy because of the need for specialist involvement in every stage of the
process which can lead to inconclusive results and incorrect interpretation furthermore many new
technologies in molecular diagnostics have failed to provide the ease of use and costeffectiveness that
we believe is necessary to make molecular diagnostic instruments attractive to hospitals and reference
laboratories that do not currently have the capacity to perform molecular diagnostics in their
laboratories
market domination in this sector of the diagnostics market by a limited number of key players has not
yet occurred and ma and crosslicencing activity remains strong with many large players looking to
increase their presence or enter the market for the first time
we are one of a small number of companies with the capability of meeting the requirements for this
growing market we are also one of an even smaller group with fda cleared tests and validated core
technology necessary for widespread adoption by all sizes of customer in this decentralising market
genesensor
during 2007 the development of the genesensor instrument platform was discontinued with the group’s
resources fully focused on the esensor technology and xt8 platform we remain very encouraged by
the market acceptance of esensor system and now believe that the esensor xt8 instrument and our
electrochemical detection technology generally have the ability to address many of the market
requirements originally targeted by our genesensor instrument system
financial review
ifrs
this is the first year that the group has presented its financial statements under international financial
reporting standards “ifrs” the last financial statements under uk gaap were for the year ended 
31 december 2006 and the date of transition to ifrs was therefore 1 january 2006 the major areas of
impact of ifrs are summarised below
osmetech annual report and accounts 2007 9 chief executive officer’s review
continued
• goodwill is not amortised under ifrs but rather subject to annual impairment reviews
• recognition and potential remeasurement of disposal groups under ifrs 5 ‘non current assets held
for sale and discontinued operations’
the effect of these adjustments on the income statements balance sheets and equity of the group are
set out in the notes to the accounts
discontinued operations
the results for critical care division sold in january 2007 together with the gain on disposal have been
disclosed as ‘discontinued operations’ in the income statement for both 2006 and 2007 discontinued
operations also include results relating to genesensor which was discontinued in 2007
a net profit on disposal of the ccd of £176 million was recorded in the year representing a significant
return on the original investment the total net income after tax attributable to ccd including the
trading result for january 2007 was £173 million
the loss attributable to the discontinued genesensor operation of £12 million included an impairment
of assets amounting to £11 million principally comprising the write off of goodwill of £10 million
continuing operations
the loss after taxation in the year from continuing operations in the year decreased by 3 to
£12031000 2006 – £12340000 gross profit revenue less changes in inventories increased to £76000
2006 – £17000 on higher revenue of £169000 2006 – £49000 it is too early in the commercialisation
stage for the business to provide any meaningful analysis of the reported gross profit margin of 45
the operating loss for the year increased by 2 to £13048000 2006 – £12751000 with the
development of the xt8 completed in 2007 our instrument development costs were lower than in 2006
although this cost reduction was offset by an increase in assay development activity to ensure that we
have a good progression of new tests in the pipeline for the xt8 we anticipate that assay development
costs will continue at this new higher level in 2008 and we plan to increase our sales and marketing
resource as we launch the xt8
at 31 december 2007 cash and cash equivalents were £139 million and were boosted during the year
by the proceeds from the sale of the critical care division approximately 90 of the group’s cash is
held in us dollars a proportion which broadly matches the likely currency funding requirements for the
business
cash flow
the increase in cash and cash equivalents in the year before the effect of foreign exchange rate changes
was £7184000 compared to a total group profit for the year of £3984000 the principal reasons for the
difference are the cash received from idexx for the sale of net assets plus cumulative exchange reserve
of the critical care division which amounted to £3775000 at 31 december 2006
redemption of warrants
on 19 march 2007 7811428 warrants held by motorola were repurchased and subsequently cancelled
by osmetech at a price of six pence per warrant for a total of £468686 before costs of £12159 the
warrants were issued to motorola in consideration for osmetech’s acquisition of clinical micro sensors
inc in 2005 the warrants entitled motorola to subscribe for up to 7811428 ordinary shares of 01 pence
each in the capital of osmetech representing 385 of the current issued share capital at a price of 175
pence per share at any time up to 26 july 2010
10 osmetech annual report and accounts 2007 chief executive officer’s review
continued
outlook
in addition to securing fda clearance of the esensor 4800 dna detection instrument we have been
successful in recruiting new customers thereby establishing market acceptance of our technology these
are key milestones that have been met and the principal focus for the business is now execution
sales revenues have been increasing as the number of instrument placements has grown moving into
2008 we also expect to see an increase in test usage per instrument from existing customers looking to
promote the cystic fibrosis test within their local communities to increase the revenues and profitability
of their laboratories through established and attractive reimbursement rates
we plan to build on this success by launching our second generation esensor xt8 system upon fda
clearance for our warfarin sensitivity test expected shortly by the end of 2008 we expect to have
expanded our test menu to include two additional fda cleared tests creating the basis to produce
annual sales revenues in excess of 100000 per instrument we will also be preparing to increase our
installed base of instruments further with international launch through a network of distributors
we are currently in discussions or negotiations with a number of potential partners attracted by the
broad appeal of our xt8 instrument platform and electrochemical detection technology we anticipate
that this will result in new genetic and pharmacogenomic tests to expand our test menu as well as
opportunities to develop a system that can process results directly from the patient sample without the
need for sample preparation to significantly improve the processing time of our tests
we believe that market success is likely to be driven by a combination of strength in technology
intellectual property instrumentation installed base and assay menu given these factors the board
considers that osmetech is building a strong position in this increasingly important market providing
considerable scope to create further value in the business
james white
chief executive officer
31 march 2008
osmetech annual report and accounts 2007 11 board of directors
for the year ended 31 december 2007
gordon james hall
nonexecutive chairman
gordon hall aged 65 was managing director of shield diagnostic group plc now axisshield plc until october 1997 and prior to
this held senior positions at abbott laboratories he was appointed to the board as executive chairman on 24 september 1998
becoming nonexecutive chairman on 1 february 2001
james nicholas gerald white
chief executive officer
james white aged 37 was previously a senior consultant in arthur d little limited’s corporate finance practice where he
specialised in advising venture capitalists on investments in small and medium sized companies he was operations manager of
osmetech from september 1998 until appointed to the board as chief operating officer on 1 october 1999 he was appointed
chief executive officer on 22 december 2000
david anthony sandilands
chief financial officer
david sandilands aged 46 was group financial director at bluebird toys plc until its takeover by mattel inc of the usa mr
sandilands qualified as a chartered accountant with price waterhouse and was appointed to the board as chief financial officer
on 1 july 1999
gordon bruce kuenster
nonexecutive
gordon kuenster aged 74 has founded and developed major medical diagnostic companies he was appointed group vice
president and a director of squibb corporation following its acquisition of advance technology laboratories inc he is chairman
of umd technology inc a medical technology company he was appointed to the board on 3 february 1998 as director of
development and was appointed chief technology officer on 1 october 1999 becoming a nonexecutive director on 
3 september 2002
alfred marek
executive resigned 31 january 2007
alfred marek aged 62 was president of osmetech’s critical care division based in atlanta having joined the company at the time
of the opti acquisition in april 2003 he was previously with avl and was instrumental in developing their entire blood gas
business prior to its sale to roche in 2000 mr marek was appointed to the board on 21 april 2004 and resigned on 31 january
2007 following the sale of the critical care division to idexx laboratories inc
bruce huebner
executive appointed 12 february 2007
bruce huebner aged 56 is president of osmetech’s molecular diagnostics division and joined the group in may 2005 at the time
of the acquisition of clinical micro sensors inc from motorola inc he was previously chief operating officer of genprobe and
chief executive officer of nanogen two major international companies in the genetics and infectious diseases markets he was
appointed to the board on 12 february 2007
12 osmetech annual report and accounts 2007 report of the directors
for the year ended 31 december 2007
the directors submit their report together with the audited financial statements for the year ended 31 december 2007
results and dividends
the results of the group for the year are set out on page 21
the directors do not recommend the payment of a dividend 31 december 2006 – £nil
principal activities trading review and future developments
the principal activity of the group is the design development manufacture and sale of healthcare diagnostics and medical
devices incorporating sensing technology
the principal activities of the subsidiaries osmetech inc and clinical micro sensors inc are the same as osmetech plc osmetech
gmbh was established as a sales operation having exclusive rights to distribute osmetech’s critical care division products in
germany prior to the disposal of the division osmetech technology inc is a holding company molecular sensing limited
molecular sensors limited and osmetech gmbh are dormant companies the principal activity of osmetech aesop trustee
limited is to act as a trustee to an employee share ownership trust
the critical care division which operated through the osmetech inc and osmetech gmbh subsidiaries was sold to idexx
laboratories inc on 31 january 2007 during the year the development of the genesensor instrument platform was discontinued
this business operated through osmetech plc and osmetech inc
enhanced business review
operations
osmetech is a fast developing international healthcare diagnostics business with operations in boston and pasadena in the us
serving the high growth molecular diagnostics market targeting hospitals and reference laboratories osmetech molecular
diagnostics has primarily been built through the acquisition and subsequent development of the businesses of clinical micro
sensors inc “cms” in 2005
on 31 january 2007 the group’s critical care blood gas and electrolyte analyser business based in atlanta us was sold for 
£231 million 454 million representing a significant return on the original investment made when this business was acquired in
2003 whilst the results for 2007 and 2006 include those of the critical care division “ccd” these have been separately
disclosed as discontinued operations detailed commentary in relation to ccd is not relevant to the future performance of the
group and therefore this review concentrates on our molecular diagnostics business
during the year the development of the genesensor instrument platform was discontinued with the group’s resources fully
focused on the esensor technology and xt8 platform the genesensor technology was obtained as part of the acquisition of
molecular sensing plc in 2004 the results for the genesensor business have also been disclosed as discontinued operations
the financial position and performance of the group is set out on pages 21 to 24 a review of the business its markets and future
developments is included in the chairman’s statement and chief executive officer’s review set out on pages 2 to 11
business risks
the board considers that the principal risks and uncertainties facing the group may be summarised as follows
• recruitment and retention of employees the group operates in a knowledge based industry employing many highly skilled
specialist staff the group aims to provide a challenging and rewarding working environment for its employees and has share
options incentives for key staff
• regulatory compliance osmetech operates in a regulated industry with its us based operations and market governed by the
requirements of the us food and drug administration “fda” we have received fda 510k premarketing approval for our
cystic fibrosis carrier detection test and esensor
tm
4800 dna detection instrument platform in december 2007 we submitted
our warfarin sensitivity test and our second generation esensor xt8 instrument platform to the fda for 510k clearance it is
our intention to produce other fda cleared tests in the future both of our us sites operate under current good manufacturing
osmetech annual report and accounts 2007 13 report of the directors
continued
practice cgmp securing and maintaining the necessary regulatory approvals accreditations and quality standards is of
fundamental importance to the future success of the group
• product development although the directors believe that there is a strong and growing demand for the molecular diagnostics
products being developed by the group the ability of these products to meet the specifications demanded and therefore the
speed of market penetration and the achievability of target prices is not certain prior to acquisition or license by osmetech
the group’s core electrochemical detection technology has received considerable investment and we believe that the
principal technological and scientific risks have now largely been overcome
• market acceptance of osmetech’s products commercial success will be dependent upon on the market acceptance of the
group’s products including the ability to convince customers that the group’s technology is an attractive alternative to other
technologies manufacture products in sufficient quantities with acceptable quality and at an acceptable cost and sell place
and service sufficient quantities of the products early stage commercial success has been achieved with the placement of the
first generation esensor
tm
4800 dna detection and cystic fibrosis carrier detection test with 100 of potential customers
trialling the system converting to commercial contracts the group believes that the market opportunities for genetic testing in
particular are considerable driven by improved patient care and healthcare cost management these benefits have been
recognised by the fda who is actively encouraging further approved tests to promote the wider use of such testing
• intellectual property rights “ip” the group’s success relies in part on maintaining meaningful patent protection on its
inventions technologies and discoveries to compete effectively the group will depend on its ability to develop and maintain
proprietary aspects of its technology and to operate without infringing the proprietary rights of others or if necessary to
obtain rights to thirdparty proprietary rights whilst this is a complex area the directors believe that osmetech has a strong ip
position particularly in the field of electrochemical detection the molecular diagnostics market is at a relatively early stage of
development and we believe that osmetech’s ip will create barriers to entry
• economic risk the groups future is dependent upon generating cash flows from successful commercialisation of the esensor
xt8 system and any future instrument platforms incorporating our proprietary electrochemical detection technology the
directors are confident that due to the anticipated fda clearance of the xt8 system and planned expansion of test menus
the business is developing a sound base for commercial success for further information please refer to the chief executive
officer’s review on pages 3 to 11 until such time as the xt8 testing menu has expanded and the number of instruments in
use by customers has grown sufficiently the sales revenues generated may be insufficient to cover the costs of the business
and as such the group may be dependent upon additional funding through completion of one or more licensing deals
commercial collaborations or through injection of capital 
key performance indicators
the principal key performance indicators “kpis” are detailed below
• research and development as described in the “outlook” section of the chief executive officer’s review on page 11 the
focus of the business is the execution of the fda clearance of the xt8 instrument and molecular diagnostic tests it should be
highlighted that delays can be experienced on progress through regulatory approval due to factors beyond the control of the
group consequently it is not appropriate to set precise targets of the timings of future stages of product approval however
the group expects that the xt8 system will be cleared by the fda in the first half of 2008
• external research and development costs in the year amounted to £2748000 2006 – £3476000 included within these total
amounts are £2595000 2006 – £3034000 relating to continuing operations successful progress with product development
activities is critical to the future success of the business for which kpis are difficult to quantify product development
programmes are described in detail in the chief executive’s report
• net cash outflow from operating activities during the year was £14121000 2006 – £10770000 of which £12611000 2006 –
£10431000 related to continuing operations
• the group had a total of £13911000 of cash and cash equivalents at 31 december 2007 2006 – £7089000
14 osmetech annual report and accounts 2007 report of the directors
continued
• the group reduced its average headcount for full time equivalent staff in the year by 36 to 101 employees 2006 – 159 of
these totals average headcount relating to continuing operations increased in the year by 27 to 94 employees 2006 – 74
staff turnover in the year for continuing operations was 19 2006 – 15 which is considered to be broadly comparable with
our industry peers
charitable and political contributions
the group did not make any charitable or political contributions during the year 31 december 2006 –  £nil
directors
the directors of the company at 31 december 2007 and their interests all held beneficially in the ordinary share capital of the
company at the balance sheet date were as follows
ordinary shares of 010p each ordinary shares of 010p each
31 december 2007 31 december 2006
shareholder shares options shares options
g j hall 104965 100000 104965 100000
j n g white 208093 9154350 208093 9154350
d a sandilands 61597 4831138 61597 4577175
g b kuenster 383896 335000 613950 335000
b huebner – 3549087  1318087
bruce huebner was appointed as a director on 12 february 2007
save as mentioned above there have been no changes in the directors or movements in the directors’ interests in the company’s
share capital between 31 december 2007 and 31 march 2008
in accordance with the articles of association mr d a sandilands will retire by rotation and being eligible offers himself for re
election mr sandilands does not have a service agreement with the company mr sandilands’ appointment is terminable by at
least 12 months’ notice
directors’ interests in contracts
no director was or is materially interested in any contract subsisting during or at the end of the financial year which was
significant in relation to the business of the group
substantial shareholdings
in addition to the directors’ shareholdings shown above the directors have been notified or are aware of the following interests in
3 per cent or more of the issued ordinary share capital of the company as at 19 march 2008
shareholder number of shares per cent
vidacos nominees limited fgn account 36050840 1775
chase nominees limited usslend account 14025000 690
chase nominees limited schrodeq account 12892312 635
apollo nominees limited cre account 12861111 633
goldman sachs securities nominees limited ilseg account 9223605 454
vidacos nominees limited 2303 account 7887917 388
british coal staff superannuation scheme chase gis nominees limited bcsssx account 6186288 305
mineworkers pension scheme chase gis nominees limited mpsx account 6148666 303
compliance
the company is mindful of the provisions of the combined code however as an aim listed company the combined code is not
mandatory and the company has therefore not produced a separate corporate governance or directors’ remuneration report
osmetech annual report and accounts 2007 15 report of the directors
continued
going concern
the directors have a reasonable expectation that the group will be able to secure sufficient funding to enable it to meet its
liabilities as they fall due for the foreseeable future although there must remain some uncertainty over the ability of the group to
secure sufficient funding the directors have concluded that it is appropriate to prepare the accounts on a going concern basis the
accounts do not include any adjustments which may be necessary if the group was unable to continue to operate
statement of directors’ responsibilities
the directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and
regulations
company law requires the directors to prepare financial statements for each financial year the directors are required by the ias
regulation to prepare the consolidated financial statements under international financial reporting standards  ifrss as adopted
by the european union and have also elected to prepare the parent company financial statements in accordance with ifrss as
adopted by the european union the financial statements are also required by law to be properly prepared in accordance with the
companies act 1985 and article 4 of the ias regulation
international accounting standard 1 requires that financial statements present fairly for each financial year the company’s financial
position financial performance and cash flows this requires the faithful representation of the effects of transactions other events
and conditions in accordance with the definitions and recognition criteria for assets liabilities income and expenses set out in the
international accounting standards board’s ‘framework for the preparation and presentation of financial statements’ in virtually all
circumstances a fair presentation will be achieved by compliance with all applicable ifrss however directors are also required to
• properly select and apply accounting policies
• present information including accounting policies in a manner that provides relevant reliable comparable and
understandable information and
• provide additional disclosures when compliance with the specific requirements in ifrss are insufficient to enable users to
understand the impact of particular transactions other events and conditions on the entity’s financial position and financial
performance
the directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that the financial statements comply with the companies act 1985
they are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities
the directors are responsible for the maintenance and integrity of the corporate and financial information included on the
company’s website legislation in the united kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions
supplier payment policy
the company has due regard to the payment terms of suppliers and settles all undisputed accounts in accordance with the
payment terms agreed with the supplier for each business transaction the group had 18 days 31 december 2006 – 15 days of
purchases outstanding at the end of the financial year
crest
the company’s ordinary shares are eligible for settlement through crest the system for securities to be held and transferred in
electronic form rather than in paper shareholders are not obliged to use crest and can continue to hold and transfer shares in
paper without loss of rights
capital structure
details of the authorised and issued share capital together with details of the movements in the company’s issued share capital
during the year are shown in note 20 the company has in issue both ordinary shares and deferred shares neither of which carry
16 osmetech annual report and accounts 2007 report of the directors
continued
rights to fixed income each ordinary share carries the right to one vote at general meetings of the company the deferred shares
carry no voting rights the percentage of the issued nominal value of the ordinary shares is 29 of the total issued nominal value
of all the share capital
there are no specific restrictions on the size of a holding nor on the transfer of shares which are both governed by the general
provisions of the articles of association and prevailing legislation the directors are not aware of any agreements between holders
of the company’s shares that may result in restrictions on the transfer of securities or on voting rights
details of employee share option schemes are set out in note 22
no person has any special rights of control over the company’s share capital
with regard to the appointment and replacement of directors the company is governed by its articles of association the
companies act and related legislation
independent auditors
a resolution to reappoint deloitte  touche llp as the company’s auditor will be proposed at the annual general meeting
each person who is a director at the date of the approval of this report confirms that
1 so far as the director is aware there is no relevant audit information of which the company’s auditors are unaware and
2 the director has taken all steps that he or she ought to have taken as a director in order to make himself aware of any
information and to establish that the company’s auditors are aware of that information
this conformation is given and should be interpreted in accordance with the provisions of s234za of the companies act 1985
electronic communications
the company may deliver shareholder information including annual and interim reports forms of proxy and notices of general
meetings in an electronic format to shareholders
shareholders wishing to receive shareholder information in the conventional printed form will continue to do so and need take no
further action if you would like to receive shareholder information in electronic format please register your request on the
company’s registrar’s electronic database at wwwcapitaregistrarscom you will initially need your unique “investor code” which
you will find at the top of your share certificate there is no charge for this service if you wish to subsequently change your mind
you may do so by contacting the company’s registrar by post or through their web site
if you elect to receive shareholder information electronically please note that it is the shareholder’s responsibility to notify the
company of any change to their name address email address or other contact details shareholders should also note that with
electronic communication the company’s obligations will be satisfied when it transmits the notification of availability of
information or such other document as may be involved to the electronic address it has on file the company cannot be held
responsible for any failure in transmission beyond its control any more than it can for postal failure in the event of the company
becoming aware that an electronic notification is not successfully transmitted a further two attempts will be made in the event
that the transmission is still unsuccessful a hard copy of the notification will be mailed to the shareholder in the event that specific
software is required to access information placed on the company’s website it will be available via the website without charge
before electing for electronic communications shareholders should ensure that they have the appropriate equipment and
computer capabilities sufficient for the purpose the company takes all reasonable precautions to ensure no viruses are present in
any communication it sends out but cannot accept responsibility for loss or damage arising from the opening or use of any email
or attachments from the company and recommends that shareholders subject all messages to virus checking procedures prior to
use any electronic communication received by the company that is found to contain any virus will not be accepted
should you have any further questions on this please contact the company’s registrar capita registrars on 0871 664 0391
osmetech annual report and accounts 2007 17 report of the directors
continued
annual general meeting – explanation of special business
resolution 4
the directors may only allot shares or grant rights over shares if authorised to do so by shareholders the general authority
granted at the annual general meeting held on 3 may 2007 is due to expire at the annual general meeting in 2008 accordingly
resolution 4 will be proposed as an ordinary resolution to grant a new authority to allot unissued share capital up to an aggregate
nominal value of £67705 representing 67705000 ordinary shares of 010p each being approximately one third of the total issued
ordinary share capital as at 31 march 2008 if given this authority will expire at the earlier of a 30 june 2009 and b the
conclusion of the next annual general meeting of the company to be held in 2009 the directors have no present intention of
utilising the authority set out in this resolution
resolution 5
the directors also require additional authority from shareholders to allot shares or grant rights over shares where they propose to
do so for cash and otherwise than to existing shareholders pro rata to their holdings the general authority last granted was not
renewed at the annual general meeting in 2007 and has therefore expired accordingly resolution 5 will be proposed as a special
resolution to grant such authority if given this authority will expire at the earlier of a 30 june 2009 and b the conclusion of the
next annual general meeting of the company to be held in 2009 apart from rights issues open offers and other preemptive
issues the authority will be limited to the issue of shares up to an aggregate nominal value of £20312 being 20312000 ordinary
shares of 010p each representing approximately 10 per cent of the issued ordinary share capital at 31 march 2008 this authority
does not accord with ipc guidelines but the directors regard the authority as desirable having regard to the costs associated with
implementing a preemptive offer to shareholders to maximise the options open to the company in the coming year
resolution 6
it is proposed in resolution 6 to adopt new articles of association the “new articles” in order to update the company’s current
articles of association the “current articles” primarily to take account of changes in english company law brought about by the
companies act 2006 the company is also proposing further changes in the new articles which will only be effective on 1 october
2008 reflecting the new provisions in the companies act 2006 relating to directors’ interests and conflicts
the principal changes are summarised in the appendix other changes which are of a minor technical or clarifying nature and
also some further changes which merely reflect changes made automatically by the companies act 2006 have not been noted in
the appendix the new articles showing all the changes to the current articles are available for inspection on request
by order of the board
s a craig
secretary
31 march 2008
18 osmetech annual report and accounts 2007 independent auditors’ report
we have audited the group and parent company financial statements the ‘’financial statements’’ of osmetech plc for the year
ended 31 december 2007 which comprise the consolidated income statement the consolidated and parent company statements
of total recognised income and expense the consolidated and parent company balance sheets the consolidated and parent
company cash flow statements the notes to the cash flow statements and the related notes 1 to 28 forming part of the financial
statements these financial statements have been prepared under the accounting policies set out therein
this report is made solely to the company’s members as a body in accordance with section 235 of the companies act 1985 our
audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them
in an auditors’ report and for no other purpose to the fullest extent permitted by law we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body for our audit work for this report or for the opinions
we have formed
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable law and
international financial reporting standards ifrss as adopted by the european union are set out in the statement of directors’
responsibilities
our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and
international standards on auditing uk and ireland
we report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements
have been properly prepared in accordance with the companies act 1985 and as regards the group financial statements article 4
of the ias regulation we also report to you whether in our opinion the information given in the directors’ report is consistent
with the financial statements
in addition we report to you if in our opinion the company has not kept proper accounting records if we have not received all the
information and explanations we require for our audit or if information specified by law regarding directors’ remuneration and
other transactions is not disclosed
we read the other information contained in the annual report as described in the contents section and consider whether it is
consistent with the audited financial statements we consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements our responsibilities do not extend to any further
information outside the annual report
basis of audit opinion
we conducted our audit in accordance with international standards on auditing uk and ireland issued by the auditing practices
board an audit includes examination on a test basis of evidence relevant to the amounts and disclosures in the financial
statements and the part of the directors’ remuneration report to be audited it also includes an assessment of the significant
estimates and judgments made by the directors in the preparation of the financial statements and of whether the accounting
policies are appropriate to the group’s and company’s circumstances consistently applied and adequately disclosed
we planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material
misstatement whether caused by fraud or other irregularity or error in forming our opinion we also evaluated the overall adequacy
of the presentation of information in the financial statements
osmetech annual report and accounts 2007 19 independent auditors’ report
continued
opinion
in our opinion
• the group financial statements give a true and fair view in accordance with ifrss as adopted by the european union of the
state of the group’s affairs as at 31 december 2007 and of its profit for the year then ended
• the parent company financial statements give a true and fair view in accordance with ifrss as adopted by the european union
as applied in accordance with the provisions of the companies act 1985 of the state of the parent company’s affairs as at 
31 december 2007
• the financial statements have been properly prepared in accordance with the companies act 1985 and as regards the group
financial statements article 4 of the ias regulation and
• the information given in the directors’ report is consistent with the financial statements
emphasis of matter – going concern
without qualifying our opinion we draw attention to the disclosures made in note 1 of the financial statements concerning the
group’s ability to continue as a going concern the group incurred a loss from continuing operations of £12030624 during the
year ended 31 december 2007 and the cash flow forecasts prepared by the directors for the next twelve months indicate that
further funding will be required these conditions as set forth in note 1 indicate the existence of a material uncertainty which may
cast significant doubt about the group’s ability to continue as a going concern the directors have prepared these financial
statements on the going concern basis if the adoption of the going concern basis was inappropriate adjustments which it is not
practicable to quantify would be required including those to write down assets to their recoverable value to reclassify fixed assets
as current assets and to provide for any further liabilities that may arise
deloitte  touche llp
chartered accountants and registered auditors
manchester
united kingdom
31 march 2008
20 osmetech annual report and accounts 2007 consolidated income statement
for the year ended 31 december 2007
osmetech annual report and accounts 2007 21
2007 2006
note £ £
continuing operations
revenue 2 169273 48635
changes in inventories of finished goods and work in progress 92818 31350
employee benefits 5607046 4633119
research and development costs 2595179 3034323
depreciation and amortisation 589611 363184
share compensation charges 450317 620442
other expenses 3882702 4117377
13217673 12799795
operating loss 3 13048400 12751160
interest on bank balances and term deposits 864143 284582
loss before taxation 12184257 12466578
taxation 6 153633 126211
loss for the year from continuing operations 12030624 12340367
discontinued operations
profitloss for the year from discontinued operations net of tax 8 16014425 937161
profitloss for the year 3983801 13277528
earnings per share
from continuing and discontinued operations
basic and diluted 9 196p 802p
from continuing operations
basic and diluted 9 593p 746p
consolidated statement of total recognised income and expense
for the year ended 31 december 2007
2007 2006
£ £
exchange differences on translation of foreign operations 383633 903185
transfers
cumulative translation adjustment on disposal of discontinued operations 713901 –
1097534 903185
profitloss for the year 3983801 13277528
total recognised income and expense for the year 2886267 14180713 consolidated balance sheet 
at 31 december 2007
22 osmetech annual report and accounts 2007
2007 2006
note ££ ££
assets
noncurrent assets
goodwill 10 – 977095
other intangible assets 11 1162747 933947
property plant and equipment 12 976220 878017
2138967 2789059
current assets
inventories 14 445806 397633
trade and other receivables 15 367328 293920
current tax assets 16 465220 126146
cash and cash equivalents 17 13910710 7089106
15189064 7906805
assets held for sale 8 – 4597628
15189064 12504433
total assets 17328031 15293492
liabilities
current liabilities
trade and other payables 18 1273428 2068811
current tax liabilities 8478 9524
1281906 2078335
liabilities directly associated with assets classified as held for sale 8 – 1536460
1281906 3614795
noncurrent liabilities
provisions 19 171095 173280
total liabilities 1453001 3788075
net assets 15875030 11505417
equity
called up share capital 20 7028892 7028640
share premium account 21 51756252 51703745
merger reserve 21 – 1885533
other reserves 21 2138806 2136021
cumulative exchange reserve 21 572917 903185
accumulated deficit 21 44476003 50345337
total equity 21 15875030 11505417 company balance sheet
at 31 december 2007
osmetech annual report and accounts 2007 23
2007 2006
note ££ ££
assets
noncurrent assets
other intangible assets 11 483 36619
property plant and equipment 12 210 76705
investments 13 20502338 23423893
20503031 23537217
current assets
trade and other receivables 15 69658 128770
current tax assets 16 279779 126146
cash and cash equivalents 17 7425994 6054662
7775431 6309578
total assets 28278462 29846795
liabilities
current liabilities
trade and other payables 18 249704 355540
current tax liabilities 8478 9524
258182 365064
noncurrent liabilities
provisions 19 20000 20000
total liabilities 278182 385064
net assets 28000280 29461731
equity
called up share capital 20 7028892 7028640
share premium account 21 51756252 51703745
merger reserve 21 – 1885533
other reserves 21 2138806 2136021
accumulated deficit 21 32923670 33292208
total equity 21 28000280 29461731
these financial statements were approved by the board of directors on 31 march 2008
signed on behalf of the board of directors
d a sandilands director cash flow statements
for the year ended 31 december 2007
24 osmetech annual report and accounts 2007
consolidated consolidated company company
2007 2006 2007 2006
note £ £ £ £
net cash used in operating activities a 14121176 10770118 2089216 735512
net cash generated fromused in investing activities c 21864855 1007742 4019776 12028071
net cash used ingenerated from financing activities c 559228 12120676 559228 12120676
net increasedecrease in cash and cash equivalents 7184451 342816 1371332 642908
cash and cash equivalents at beginning of year 7089106 7207177 6054662 6697570
effect of foreign exchange rate changes 362847 460887 – –
cash and cash equivalents at end of year 17 13910710 7089106 7425994 6054662 notes to the cash flow statements
osmetech annual report and accounts 2007 25
a reconciliation of profitloss for the year to net cash outflow from operating activities
consolidated consolidated company company
2007 2006 2007 2006
£ £ £ £
profitloss for the year 3983801 13277528 1516995 1840809
adjustments for
depreciation of property plant and equipment 479611 597943 31151 16410
amortisation of other intangible assets 110000 12684 4576 4230
loss on disposal of property plant and equipment 18779 8064 – –
impairment losses 1057832 – 1240942 –
share compensation charge 614772 781296 614772 781296
interest on bank balances and term deposits 864143 284582 2282369 284582
income tax 153633 126211 153633 126211
gain on disposal of discontinued operations net of tax 17648646 – – –
decrease in provisions 2185 153280 – –
operating cash outflow before movements in working capital 12399442 12135054 2061556 1449666
decreaseincrease in inventories 64032 738290 – –
decrease in receivables 134927 499828 79137 359578
decreaseincrease in payables 1741293 1258305 106880 29517
cash used in operations 13941776 11115211 2089299 1119605
income taxes paidreceived 179400 384093 – 384093
net cash used in operating activities 14121176 10770118 2089299 735512
net cash used in continuing operations 12611140 10430752 2089299 735512
net cash used in discontinued operations 1510036 339366 – –
b major noncash transactions
there were no major noncash transactions in the years ended 31 december 2007 or 31 december 2006 notes to the cash flow statements
continued
26 osmetech annual report and accounts 2007
c analysis of cash flows – gross cash flows
consolidated consolidated company company
2007 2006 2007 2006
£ £ £ £
investing activities
interest received 890497 277996 210186 277996
purchases of property plant and equipment 658577 488662 – –
purchases of other intangible assets 388750 257580 – –
loans to subsidiaries – – 1329697 12398165
loans repaid by subsidiaries – – 5143931 199584
net cash used ingenerated from investing
activities continuing operations 156830 468246 4024420 11920585
net cash generated fromused in investing
activities discontinued operations 22021685 539496 4644 107486
21864855 1007742 4019776 12028071
financing activities
proceeds on issues of shares 52759 12120676 52759 12120676
cash payments to redeem share warrants note 21 480844 – 480844 –
cash settlements of repurchased share options 131143 – 131143 –
net cash used ingenerated from financing activities
continuing operations 559228 12120676 559228 12120676
net cash generated from financing activities
discontinued operations – – – –
559228 12120676 559228 12120676 notes forming part of the financial statements
for the year ended 31 december 2007
osmetech annual report and accounts 2007 27
1 accounting policies
osmetech plc the “company” is a company incorporated in the united kingdom under the companies act 1985 the company
and its subsidiaries are referred to as the “group” the address of the registered office is co ashurst llp  broadwalk house
5 appold street london ec2a 2ha
the group operates as an international healthcare diagnostics business the results are presented geographically in note 2
significant accounting policies
the financial statements have been prepared under the historical cost convention and are in accordance with applicable united
kingdom law and accounting standards the company has taken advantage of the exemption conferred by section 230 of the
companies act 1985 from presenting its own profit and loss account the following accounting policies have all been applied
consistently throughout the year and in the comparative year
going concern
during the year ended 31 december 2007 the group incurred a loss after tax of £120 million from continuing operations the
group’s directors have prepared projected cash flow information for the year from the date of approval of these accounts
during the year the group has completed the development of the second generation esensor xt8 electrochemical dna analysis
system the system along with the warfarin sensitivity test is currently under review by the fda following the anticipated fda
clearance the group expects to launch the product in the first half of 2008  the directors intend to commercialise the product
throughout the remainder of 2008 and into 2009 which will involve continued investment in group’s infrastructure and product
pipeline the forecasts prepared by the directors indicate that further funding will be required in 2009 in order to supplement
revenues from the launch of xt8 and fully enact their commercialisation plans to optimise value from the group’s products
the directors have a reasonable expectation given these recent achievements and the current strength of the group’s operations
that the group will be able to secure sufficient funding to enable it to properly exploit the commercialisation opportunities for the
esensor xt8 meet its liabilities as they fall due for the foreseeable future and are currently evaluating a number of alternatives in
order to achieve this
however the absence of agreed funding as at the date of this report indicates the existence of a material uncertainty which may
cast significant doubt about the group’s ability to continue as a going concern and therefore it may be unable to realise its assets
and discharge its liabilities in the normal course of business the accounts do not include any adjustments which maybe necessary
if the group was unable to continue to operate this disclosure is given in accordance with international standards on auditing
570 ‘going concern’ isa 570
basis of accounting
the financial statements have been prepared in accordance with international financial reporting standards ifrss for the first
time the disclosures required by ifrs 1 first time adoption of international financial reporting standards concerning the
transition from uk gaap united kingdom generally accepted accounting practice to ifrs on 1 january 2006 the transition date
are given in note 28 the financial statements have also been prepared in accordance with ifrss adopted for use in the european
union and therefore comply with article 4 of the eu ias regulation
basis of consolidation
the consolidated accounts incorporate the financial statements of osmetech plc and all of its subsidiary undertakings made up to
31 december each year the company uses the purchase method of accounting to consolidate the results of its subsidiary
undertakings the results of subsidiary undertakings are included from the date of acquisition until the date of disposal all
intra–group transactions balances income and expense are eliminated upon consolidation notes forming part of the financial statements
continued
28 osmetech annual report and accounts 2007
1 accounting policies continued
revenue recognition
continuing business
revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable from sales of
goods as well as income received from licence and development agreements in the normal course of business revenue is stated
exclusive of value added tax and other sales related taxes revenue from the sale of goods typically consumables is recognised
when substantially all the risks and rewards are transferred to the customer which is considered to be the point of delivery
revenue from licences is recognised evenly over the contractual period to which the licence relates
discontinued business
revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable from sales of
goods and services revenue is stated exclusive of value added tax and other sales related taxes revenue from the sale of goods
typically instruments and consumables is recognised when substantially all the risks and rewards are transferred to the customer
which is considered to be the point of delivery revenue from services is recognised evenly over the period to which the services
relate
goodwill
goodwill arising on consolidation represents the excess of the fair value of the consideration over the fair value of the assets
acquired goodwill is initially recognised at cost and is subsequently measured at cost less accumulated impairment losses
goodwill which is recognised as an asset is reviewed for impairment at least annually any impairment is recognised immediately in
the income statement and is not reversed negative goodwill is immediately recognised in the income statement
for the purpose of impairment testing goodwill is allocated to each of the group’s cashgenerating units expected to benefit from
the synergies of the combination cashgenerating units to which goodwill has been allocated are tested for impairment annually
or more frequently when there is an indication that the unit may be impaired if the recoverable amount of the cashgenerating
unit is less than the carrying amount of the unit the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit prorata on the basis of the carrying amount of each asset in
the unit
on disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal
operating loss
operating loss is stated after charging administrative expenses including research and development costs and share
compensation charges but before interest income
pension costs
contributions to defined contribution pension schemes are charged to profit and loss in the year in which they become payable the
differences between amounts payable and amounts actually paid are recognised as either a prepayment or an accrual in the balance
sheet notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 29
1 accounting policies continued
share based compensation arrangements
the group operates equitysettled share based compensation plans in accordance with transitional provisions the group has
applied financial reporting standard 20 “frs 20” sharebased payment to all grants of equity instruments after 7 november
2002 that were unvested as at 1 may 2005 frs 20 is consistent with ifrs 2 sharebased payment which was adopted by the
company on 1 january 2006
the group issues equitysettled share based payments to certain employees equitysettled share based payments are measured
at fair value at the date of grant the fair value determined at the grant date is expensed on a straight line basis over the vesting
period based on estimates of the number of options that are expected to vest fair value is based on both blackscholes and
binomial models according to the relevant measures of performance
at each balance sheet date the group revises its estimate of the number of options that are expected to become exercisable with
the impact of any revision being recognised in the profit and loss account and a corresponding adjustment to reserves over the
remaining vesting period the proceeds received net of any transaction costs are credited to share capital nominal value and
share premium when the options are exercised
operating leases
rentals under operating leases are charged on a straight line basis over the lease term even if the payments are not made on
such a basis
foreign currency
the individual financial statements of each group company are measured in the currency of the primary economic environment in
which it operates the functional currency for the purpose of the consolidated financial statements the results and financial
position of each group company are expressed in pounds sterling which is the functional currency of the company and the
reporting currency for the consolidated financial statements
in preparing the financial statements of the individual companies transactions in currencies other than the entity’s functional
currency are recorded at the rates ruling of the dates of the transactions at each balance sheet date monetary assets and
liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date
nonmonetary items in foreign currencies are translated at the rates prevailing at the dates when fair values were determined
nonmonetary items that are measured in terms of historical cost in a foreign currency are not translated
exchange differences arising on the settlement of monetary items and on the retranslation of monetary items are included in
profit or loss for the period exchange differences arising on the retranslation of nonmonetary items carried at fair value are
included in profit or loss for the period except for differences arising on the retranslation of nonmonetary items any exchange
component of that gain or loss is also recognised directly in equity
for the purpose of presenting consolidated financial statements the assets and liabilities of the group’s foreign operations are
translated at exchange rates prevailing on the balance sheet date income and expense items are translated at the average
exchange rates for the period exchange differences arising are classified as equity and transferred to the group’s reserves such
translation differences are recognised as income or as expenses in the period in which the operation is disposed of
taxation
current tax including uk corporation tax research and development tax credits and foreign tax is provided at amounts expected
to be paid or recovered using the tax rates enacted or substantively enacted by the balance sheet date notes forming part of the financial statements
continued
30 osmetech annual report and accounts 2007
1 accounting policies continued
deferred taxation
deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial information and the corresponding tax bases used in the computation of taxable profit and is accounted for using
the balance sheet liability method deferred tax liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised such assets and liabilities are not recognised if the temporary difference arises from
goodwill or from the initial recognition other than in a business combination of other assets and liabilities in a transaction that
affects neither the tax profit nor the accounting profit
deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the
group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in
the foreseeable future
deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised deferred tax is charged or credited in the income statement except when it relates to items charged or credited directly
to equity in which case the deferred tax is also dealt with in equity
internallygenerated intangible assets – research and development expenditure
expenditure on research activities is recognised as an expense in the period in which it is incurred
any internallygenerated intangible asset arising from the group’s development of healthcare diagnostics and medical devices is
recognised only if all of the following conditions are met
• an asset is created that can be identified and sold such as a new product for sale
• the group intends to complete the intangible asset and use or sell it
• the technical feasibility of completing the intangible asset so that it will be available for use or sale
• the availability of adequate technical financial and other resources to complete the development and to use or sell the
intangible asset
• it is probable that the asset created will generate future economic benefits and
• the development cost of the asset can be measured reliably
internallygenerated intangible assets are amortised on a straightline basis over their useful lives where no internallygenerated
intangible asset can be recognised development expenditure is recognised as an expense in the period in which it is incurred an
asset is not normally recognised until fda approval has been obtained and a commercially viable market has been identified
licences
licences are depreciated on a straight line basis over the shorter of the life of the product to which it relates after the first sale of
the product and the contractual length of the licence the product life may be shorter than the remaining contractual length of the
licence in circumstances when such products become obsolescent as a result of technical developments in the market
patents and trademarks
patents and trademarks are measured initially at purchase cost and are amortised on a straightline basis over their estimated
useful lives which is the shorter of the life of the product to which it relates after the first sale of the product and the contractual
length of the patent or trademarkthe product life may be shorter than the remaining contractual length of the licence in
circumstances when such products become obsolescent as a result of technical developments in the market notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 31
1 accounting policies continued
property plant and equipment
property plant and equipment assets are stated at cost net of accumulated depreciation and any provision for impairment
depreciation
depreciation is charged so as to write off the cost less estimated residual values of all tangible fixed assets except for assets
under construction over their expected useful lives residual values are reevaluated at each balance sheet date and the group’s
property plant and equipment currently have estimated residual values of £nil it is calculated at the following rates
short leasehold improvements – over the shorter of the life of lease or the useful economic life of the asset
plant machinery and laboratory equipment – 10–35 per annum on cost
office equipment – 25–50 per annum on cost
no depreciation is charged in respect of assets under construction until the assets are available for use at which point they are
transferred into plant machinery and laboratory equipment
inventories
inventories are valued at the lower of cost or net realisable value cost comprises direct materials and where applicable direct
labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition cost
is calculated using the fifo method net realisable value represents the estimated selling price less all estimated costs of
completion and costs to be incurred in marketing selling and distribution
trade receivables
trade receivables are stated at amortised cost less allowances for estimated irrecoverable amounts
cash and cash equivalents
cash and cash equivalents include cash at bank and in hand deposits and other short–term highly liquid investments which are
readily convertible into known amounts of cash have a short maturity of three months or less from the date of acquisition and
which are subject to an insignificant risk of change in value
noncurrent assets held for sale
noncurrent assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value
less costs to sell
non–current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use this condition is regarded as met only when the sale is highly probable and the
asset or disposal group is available for immediate sale in its present condition management must be committed to the sale
which should be expected to qualify for recognition as a completed sale within one year from the date of classification
trade payables
trade payables are stated at amortised cost
financial instruments
in relation to the disclosures made in note 26
the group does not hold or issue derivative financial instruments for trading purposes
investments
investments are initially recognised at cost including transaction costs in subsequent periods investments are recognised at
amortised cost less any impairment loss recognised to reflect irrecoverable amounts an impairment loss is recognised in profit or
loss when there is objective evidence that the asset is impaired and is measured as the difference between the investment’s
carrying value and the present value of estimated future cash flows discounted at the effective interest rate notes forming part of the financial statements
continued
32 osmetech annual report and accounts 2007
1 accounting policies continued
provisions
provisions are recognised when the group has a present legal or constructive obligation as a result of past events it is probable
that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated
critical accounting judgements and key sources of estimation uncertainty
in the process of applying the group’s accounting policies the group is required to make certain estimates judgements and
assumptions that it believes are reasonable based upon the information available these estimates and assumptions affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the period presented
on an ongoing basis the group evaluates its estimates using historical experience and other methods considered reasonable in
the particular circumstances actual results may differ from the estimates the effect of which is recognised in the period in which
the facts that give rise to the revision become known the following paragraphs detail the estimates and judgements the group
believes to have the most significant impact on the annual results under ifrs
a revenue recognition
the group recognises revenue as described in the revenue recognition accounting policy when the collection of the resulting
receivable is reasonably assured should management consider at the point of sale that collectability is not reasonably assured
due to the assessment of the credit worthiness of the customer or other such available evidence the revenue would not be
recognised until such a time when the collectability is determine to be probable
b fair value of share options
the group operates three share based compensation plans as required by ifrs 2 the group’s share options are measured at fair
value using a suitable valuation model and this fair value is recognised as an expense over the performance period the
determination of the fair values involves a significant amount of estimation and application of judgement
the assumptions are based on the directors’ best estimates of the expected share price volatility dividend yield and the expected
life of the options as well as including factors such as the risk free rate the vesting period the effects of exercise restrictions and
behavioural considerations and where applicable the expected probability of achieving market based and nonmarket based
performance criteria these assumptions may differ from actual results due to changing market and economic conditions as well as
differences in actual behaviour to that assumed by the directors this may have a positive or negative impact on operating profit
volatility is determined at the date of grant in reference to the historical volatility of the company’s share price over a length of
time that corresponds to the average expected life of the option the expected life of the option is determined in reference to
historical trends in the length of time an employee will hold an option before it is exercised the probability of achieving market
based criteria are assessed using the latest available market information at each grant date and the probability of achieving non
market based performance criteria are assessed on the individual circumstances at each grant date including the probability and
timing of the milestones to be achieved
c goodwill
the group records all assets and liabilities acquired in purchase acquisitions including goodwill at fair value goodwill is not
amortised but is subject at a minimum to annual tests for impairment impairment analyses require management to make
subjective judgements concerning the fair value of cash generating units which are determined using discounted cash flow
analyses based upon the group’s latest approved plans and forecasts notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 33
1 accounting policies continued
d intangible assets
the group invests significant resources into the research and development of healthcare diagnostics and medical devices the
point at which a project moves from the research stage to the development phase is considered to be a critical accounting
judgement the factors which are taken into consideration include whether the product has received fda approval and whether
the product has a commercially viable market
the valuation of internallygenerated intangible assets arising from the capitalisation of development costs requires management
to make subjective judgements concerning the generation of future economic benefits in order to estimate its recoverable value
for impairment testing purposes
recently issued accounting standards but not yet adopted
at the date of authorisation of these financial statements the following relevant standards and interpretations were in issue but
not yet effective the directors anticipate that the group will adopt these standards and interpretations on their effective dates
ifrs 8 operating segments
ifrs 3 revised business combinations
amendments to ias 27 consolidated and separate financial statements
amendments to ias 1 presentation of financial statement – a revised presentation
amendments to ias 23 borrowing costs
ifric 11 ifrs 2 group and treasury share transactions
ifric 12 service concession arrangements
ifric 13 customer loyalty programmes
ifric 14 ias 19 the limit on a defined benefit asset minimum funding requirements and their
interaction
amendments to ias 32 and ias 1 puttable instruments and obligations arising on liquidation
amendments to ifrs 2 shared–based payments vesting conditions and cancellations
the directors anticipate that the adoption of the standards and interpretations will have no material impact on the group’s
financial statements notes forming part of the financial statements
continued
34 osmetech annual report and accounts 2007
2 segment reporting
group revenue is wholly attributable to the group’s principal activity which is the design development manufacture and sale of
healthcare diagnostics and medical devices incorporating sensing technology the geographical analysis of segment revenue and
segment result is based on the location of its markets and is as follows
rest rest of
uk of europe usa far east world group
££££££
year ended 31 december 2007
continuing operations
segment revenue – 2253 153014 9629 4377 169273
segment result 1378575 155307 10548905 663850 301763 13048400
interest on bank balances and 
term deposits 864143
loss before tax 12184257
taxation 153633
loss for the year from continuing 
operations 12030624
year ended 31 december 2006
continuing operations
segment revenue – – 48635 – – 48635
segment result 2675773 – 10075387 – – 12751160
interest on bank balances and term deposits 284582
loss before tax 12466578
taxation 126211
loss for the year from continuing operations 12340367
the uk segment result includes £1090309 2006 – £2055331 of corporate costs
the segment result includes £614773 2006 – £781296 in respect of share compensation charges all of which are included within
the uk segment notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 35
2 segment reporting continued
rest rest of
uk of europe usa far east world group
££££££
year ended 31 december 2007
discontinued operations
segment revenue 38311 119466 429161 145651 28999 761588
segment result 1119618 172922 88883 210823 41975 1634221
interest on bank balances and term deposits –
loss before tax 1634221
taxation –
loss for the year from discontinued
operations 1634221
profit on disposal of discontinued operations 18529383
loss on realisation of cumulative 
translation adjustment 713901
tax on profit on disposal of discontinued
operations 166836
total profit for the year from
discontinued operations 16014425
year ended 31 december 2006
discontinued operations
segment revenue 85400 1383726 6166832 2303960 582543 10522461
segment result 1328009 107616 58247 179680 45305 937161
interest on bank balances and term deposits –
loss before tax 937161
taxation –
loss for the year from discontinued
operations 937161
the uk segment result £nil 2006 – £nil of corporate costs
the segment result above includes £164456 2006 – £160854 in respect of share compensation charges all of which are included
within the uk segment notes forming part of the financial statements
continued
36 osmetech annual report and accounts 2007
2 segment reporting continued
the geographical analysis of segment assets and liabilities is based on the location of the assets and liabilities is as follows
rest of
uk world usa group
££££
year ended 31 december 2007
continuing operations
other information
purchases of property plant and equipment and other intangible assets 4644 – 1042683 1047327
depreciation and amortisation 35643 – 553968 589611
balance sheet
segment assets 7496345 37822 9328644 16862811
segment liabilities 278182 1837 1172982 1453001
year ended 31 december 2006
continuing operations
other information
purchases of property plant and equipment and other intangible assets 107486 – 638756 746242
depreciation and amortisation 1284 – 361900 363184
balance sheet
segment assets 6296756 – 8870590 15167346
segment liabilities 385064 – 3403011 3788075
year ended 31 december 2007
discontinued operations
there were no purchases of property plant and equipment or other intangible assets there was no depreciation or amortisation
charged during the year ended 31 december 2007 other than the impairment of £1057000 in respect of genesensor which is
included in the uk segment result and there are no segment assets or liabilities
rest of
uk world usa group
££££
year ended 31 december 2006
discontinued operations
other information
purchases of property plant and equipment and other intangible assets – – 539496 539496
depreciation and amortisation 19356 5122 222967 247445
balance sheet
segment assets – 117135 4480493 4597628
segment liabilities – 38689 1497771 1536460 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 37
3 operating loss
the following items are charged in arriving at the group’s operating loss from continuing operations and the operating income
from discontinued operations
2007 2006
continuing discontinued continuing discontinued
group operations operations group operations operations
£££ £££
amortisation of other intangible assets 110000 110000 – 12686 8456 4230
depreciation 479611 479611 – 597943 354728 243215
fees payable to the auditors for the
statutory audit of the annual accounts
– osmetech plc 40921 40921 – 39000 39000 –
– other group companies 24479 24479 – 42663 21927 20736
fees payable to the auditors for other
services to the group
– tax services 53695 53695 – 41624 41624 –
– other 47483 42322 5161 –––
operating lease rentals – plant and machinery 27152 25591 1561 31966 12735 19231
impairment of goodwill property plant and
equipment and other intangible assets 1057832 – 1057832 –––
research and development 2748272 2595179 153093 3476110 3034323 441787
loss on disposal of property plant
and equipment 18779 18779 – 8064 – 8064
staff costs see note 4 6262399 5607046 655353 9360890 4633119 4727771
net foreign exchange losses 67815 67815 – 523442 523442 –
cost of inventories recognised as expense 668618 92818 575800 6979582 31350 6948232
revenue from continuing operations comprises £112000 from goods 2006 – £22000 and £57000 2006 – £27000 from licences
4 staff costs – group and company
staff costs for all employees including executive directors and nonexecutive directors consist of
group company
2007 2006 2007 2006
£ £ £ £
wages and salaries 5578799 8528263 807088 982812
social security costs 458693 582153 29123 34888
other pension costs 224907 250474 51825 47049
6262399 9360890 888036 1064749 notes forming part of the financial statements
continued
38 osmetech annual report and accounts 2007
4 staff costs – group and company continued
the average monthly number of employees of the group and company during the year including executive directors was as
follows
group company
2007 2006 2007 2006
number number number number
manufacturing 33 58 – –
research and development 38 47 – –
selling and administration 30 54 5 5
101 159 5 5
5 executive and nonexecutive directors
2007 2006
£ £
emoluments 1369836 2131145
defined contribution pension scheme payments 54641 63376
1424477 2194521
the executive and nonexecutive directors are considered to be the key management personnel of the group and company
2007 2006
£ £
highest paid executive director
emoluments 566226 938776
defined contribution pension scheme payments 29256 25550
595482 964326
there are 3 2006 – 3 directors who are members of defined contribution schemes
directors’ interests
the interests of the directors in ordinary shares of osmetech plc which are all held beneficially are as reported in the report of the
directors on page 15 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 39
5 executive and nonexecutive directors continued
options
total options total options
on ordinary on ordinary
shares of lapsedwaived granted shares of exercise
010p during the during the 010p date of price per exercisable
director 311206 period period 311207 grant share from to
g j hall 100000 – – 100000 250998 200p 211001 210108
j n g white 6590248 – – 6590248 020905 01p 030905 020915
493822 – – 493822 020905 01p 021005 020915
2070280 – – 2070280 020905 01p 021005 020915
d a sandilands 3295124 – – 3295124 020905 01p 030905 020915
493822 – – 493822 020905 01p 021005 020915
788229 – – 788229 020905 01p 021005 020915
– – 253963 253963 300107 01p 310107 300117
g b kuenster 135000 – – 135000 260400 2625p 260403 260410
100000 – – 100000 200301 1100p 200304 200311
100000 – – 100000 290102 1275p 290105 290112
a marek 1000000 1000000 – – 010403 233p 010404 010413
1977074 1977074 – – 020905 01p 030905 020915
b huebner 1318049 – – 1318049 020905 01p 021005 020915
– – 2231038 2231038 300107 01p 310107 300117
the midmarket price of the shares at 31 december 2007 was 2425p 31 december 2006 – 2525p and the range during the year
was between 1775p and 2725p 31 december 2006 – 1575p and 3375p notes forming part of the financial statements
continued
40 osmetech annual report and accounts 2007
6 tax on loss on ordinary activities
continuing operations discontinued operations total
2007 2006 2007 2006 2007 2006
£ £ £ £ £ £
current tax
adjustment in respect of prior years 63532 65 – – 63532 65
research and development tax credit 217165 126146 – – 217165 126146
tax charge from discontinued activities – – 166836 – 166836 –
total current tax 153633 126211 166836 – 13203 126211
corporation tax is calculated at 30 2006 – 30 of the estimated assessable income for the year taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions
the rate of uk corporation tax will reduce from 30 to 28 on 1 april 2008 whilst this has not affected the tax reported for the
year ended 31 december 2007 the reduced rate applies to any uk deferred tax as at 31 december 2007
the adjustment in respect of prior years represents amendments made to the research and development tax credit claimed in
respect of the period ended 31 december 2005
the credit for the year can be reconciled to the loss before tax as follows
continuing operations
2007 2007 2006 2006
£ £
loss before tax from continuing operations 12184257 100 12466578 100
tax credit at uk corporation tax rate of 30 2006 – 30 3655277 30 3739973 30
effects of
– unrecognised deferred tax assets 3431034 28 3632053 29
– research and development tax credit 7550 – 93578 –
– expenses not deductible for tax purposes 14628 – 75352 –
adjustment in respect of prior year 63532 1 65 –
total tax credit from continuing operations 153633 1 126211 1
discontinued operations
2007 2007 2006 2006
£ £
profitloss before tax from discontinued operation 16181261 100 937161 100
tax chargecredit at uk corporation tax rate of 30 2006 – 30 4854378 30 281148 30
effects of
– tax rate differences 166836 1 ––
– unrecognised deferred tax assets 4854378 30 281148 30
total tax charge from discontinued operations 166836 1 ––
of the total tax charge approximately £4330428 2006 – £57198 related to the profits arising in the critical care division
“ccd” after the utilisation of tax losses the total tax charge relating to discontinued operations was £166836 2006 – £nil which
arose on the disposal of the ccd during the year
there were no cumulative unremitted earnings of overseas subsidiaries and related undertakings at 31 december 2007 or 31
december 2006 therefore no deferred tax provision is required in respect of those earnings notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 41
6 tax on loss on ordinary activities continued
factors that may affect the future tax credit
deferred tax assets have not been recognised principally in respect of tax losses carried forward as there is insufficient evidence
that the asset will be recovered the amount of the tax losses carried forward is £28269000 2006 – £33191000 in addition a
deferred tax asset in respect of capital allowances of £113000 31 december 2006 – £110000 has not been recognised these
assets will be recoverable if the group generates income in the future from the same trade in which the expenses were incurred
the uk full rate of corporation tax will reduce from 30 to 28 with effect from 1 april 2008 the 30 rate will apply to profits
arising before that date and the 28 rate will apply to profits arising after that date
7 loss attributable to the company
the loss for the financial year dealt with in the financial statements of the parent company was £1516995 2006 – £1840809 as
permitted by section 230 of the companies act 1985 no separate income statement is presented in respect of the parent company
8 discontinued operations
critical care division
in december 2006 the group entered into a sale and purchase agreement to dispose of the critical care division the disposal
was effected in order to generate cash flow for the expansion of the group’s other businesses the disposal was completed on
31 january 2007 on which date control of the business passed to the acquirer the fair value of the consideration received was
£22021685 43294632 which comprised cash consideration of £23071211 45358000 less costs of £1049526 2063368
genesensor
during the year the development of the genesensor instrument platform was discontinued with the group’s resources fully
focused on the esensor technology and xt8 platform the genesensor technology was obtained as part of the acquisition of
molecular sensing plc in 2004 due to the decision to abandon the genesensor business the group has revised its cash flow
forecasts for this cash generating unit “cgu” the noncurrent assets relating to genesensor cgu were therefore reduced to
their recoverable amount being their value in use of £nil with the related impairment charge being reported within discontinued
operations the impairment losses of £1057832 2006 – £nil included the write down of goodwill arising on the acquisition of
molecular sensing business amounting to £977095 2006 – £nil the impairment of the property plant and equipment amounting
to £44534 2006 – £nil and the impairment of other intangible assets amounting to £36203 2006 –  £nil the impairment losses
recorded in the company amounted to £1240942 which included the write down of the investment £1159395 2006 – £nil the
impairment of the property plant and equipment £45344 2006 – £nil and other intangible assets £36203 2006 – £nil all of these
impairments have been reported in the loss attributable to the genesensor discontinued operation
the results of the discontinued operations which have been included in the consolidated income statement were as follows
critical care
division genesensor total
£££
year ended 31 december 2007
revenue 761588 – 761588
expenses 1150052 187925 1337977
impairment losses – 1057832 1057832
loss from operations 388464 1245757 1634221
profit on disposal of discontinued operations 18529383 – 18529383
attributable tax expense 166836 – 166836
realisation of cumulative translation adjustments 713901 – 713901
net profitloss attributable to discontinued operations net of tax 17260182 1245757 16014425
there is no tax income or expense in 2007 and 2006 in respect of the trading loss attributable to the discontinued operations notes forming part of the financial statements
continued
42 osmetech annual report and accounts 2007
8 discontinued operations continued
critical care
division genesensor total
£££
year ended 31 december 2006
revenue 10522461 – 10522461
expenses 11102469 357153 11459622
net loss attributable to discontinued operations 580008 357153 937161
the effect of discontinued operations on reporting segments is disclosed in note 2 the genesensor operation included within
that total increased the operating loss and loss before tax of the uk segment by £1064164 in 2007 2006 – by £271528 and of
the us segment by £181593 in 2007 2006 – £85625 the genesensor discontinued operation did not impact segmental revenues
or the tax credit in either 2007 or 2006
the net assets of the critical care division at the date of disposal and 31 december 2006 when classified as held for sale were as
follows
310107 311206
£ £
goodwill 271362 271362
property plant and equipment 862402 862402
inventories 1751455 1863660
trade and other receivables 1365515 1600204
total assets classified as held for sale 4250734 4597628
trade and other payables 591596 1536460
total liabilities directly associated with assets classified as held for sale 591596 1536460
net assets of the disposal group 3659138 3061168 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 43
9 earnings per share
2007 2006
£ £
profitloss for the year attributable to equity holders of the company – continuing and
discontinuing operations 3983801 13277528
adjustment for profitloss from discontinued operations 16014425 937161
loss for the year attributable to equity holders of the company – continuing operations 12030624 12340367
2007 2006
pence pence
earnings per share from continuing and discontinued operations
basic and diluted 196 802
earnings per share from continuing operations
basic and diluted 593 746
earnings per share from discontinued operations
basic and diluted 789 057
basic earnings per share is calculated by dividing profit or loss for the financial year attributable to equity holders by 202934689
2006 – 165457028 being the weighted average number of shares in issue during the year
as the group reported a loss for the year from continuing operations all potential shares relating to share options are viewed as
antidilutive the number of potential dilutive ordinary shares as at 31 december 2007 was 30498838 2006 – 30004873 notes forming part of the financial statements
continued
44 osmetech annual report and accounts 2007
10 goodwill
£
cost
at 1 january 2006 1308701
reclassified as assets held for sale 271362
exchange differences 60244
at 31 december 2006 and 31 december 2007 977095
accumulated impairment losses
at 1 january 2006 and 31 december 2006 –
impairment losses 977095
at 31 december 2007 977095
carrying amount
31 december 2006 977095
31 december 2007 –
the group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired
due to the decision to abandon the genesensor business as described in note 8 the group has revised its cash flow forecasts for
this cash generating unit “cgu” the noncurrent assets relating to genesensor cgu including the goodwill have therefore been
reduced to their recoverable amount of £nil with the related impairment charge being reported within discontinued operations notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 45
11 other intangible assets
patents and intellectual licence
trademarks property costs total
££££
group
cost
at 1 january 2006 278273 600000 730117 1608390
additions 16715 – 240865 257580
exchange differences – – 65230 65230
at 31 december 2006 294988 600000 905752 1800740
additions 4644 – 384106 388750
exchange differences – – 12910 12910
at 31 december 2007 299632 600000 1276948 2176580
amortisation
at 1 january 2006 254142 600000 – 854142
charge for the year 4228 – 8456 12684
exchange differences – – 33 33
at 31 december 2006 258370 600000 8423 866793
charge for the year 4576 – 105424 110000
impairment losses 36203 – – 36203
exchange differences – – 837 837
at 31 december 2007 299149 600000 114684 1013833
carrying amount
at 31 december 2007 483 – 1162264 1162747
at 31 december 2006 36618 – 897329 933947
licenses have an average remaining amortisation period of 16 years as at 31 december 2007 2006 – 18 years due to the decision
to abandon the genesensor business as described in note 8 the group has revised its cash flow forecasts for this cash generating
unit “cgu” the noncurrent assets relating to genesensor cgu have therefore been reduced to their recoverable amount of
£nil with the related impairment charge being reported within discontinued operations notes forming part of the financial statements
continued
46 osmetech annual report and accounts 2007
11 other intangible assets continued
patents and intellectual
trademarks property total
£££
company
cost
at 1 january 2006 278273 600000 878273
additions 16715 – 16715
at 31 december 2006 294988 600000 894988
additions 4644 – 4644
at 31 december 2007 299632 600000 899632
amortisation
at 1 january 2006 254142 600000 854142
charge for the year 4228 – 4228
at 31 december 2006 258370 600000 858370
charge for the year 4576 – 4576
impairment losses 36203 – 36203
at 31 december 2007 299149 600000 899149
carrying amount
at 31 december 2007 483 – 483
at 31 december 2006 36619 – 36619
due to the decision to abandon the genesensor business as described in note 8 the company has revised its cash flow forecasts
for this cash generating unit “cgu” the noncurrent assets relating to genesensor cgu have therefore been reduced to their
recoverable amount of £nil with the related impairment charge being reported within discontinued operations notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 47
12 property plant and equipment
short plant machinery
leasehold assets under and laboratory office
improvements construction instruments equipment total
£££££
group
cost
at 1 january 2006 159311 44825 1326886 628446 2159468
additions 13166 348894 340363 325735 1028158
disposals – 8064 – 16228 24292
reclassified as held for sale 4423 380358 585601 464770 1435152
currency translation adjustment 18826 5297 156812 72195 253130
at 31 december 2006 149228 – 924836 400988 1475052
additions – – 417239 241338 658577
disposals – – – 18779 18779
currency translation adjustment 2129 – 11884 5651 19664
at 31 december 2007 147099 – 1330191 617896 2095185
accumulated depreciation
at 1 january 2006 24483 – 437521 245698 707702
charge for the year 38478 – 338204 221261 597943
disposals – – – 16228 16228
reclassified as held for sale 2331 – 312657 257762 572750
currency translation adjustment 5334 – 74277 40021 119632
at 31 december 2006 55296 – 388791 152948 597035
charge for the year 35601 – 305345 138665 479611
impairment losses – – 44534 – 44534
currency translation adjustment 195 – 1216 803 2214
at 31 december 2007 90702 – 737454 290810 1118966
net book value
at 31 december 2007 56397 – 592737 327086 976220
at 31 december 2006 93932 – 536045 248040 878017
the group had not entered into contractual commitments for the acquisition of property plant and equipment at 31 december
2007 or 2006
due to the decision to abandon the genesensor business as described in note 8 the group has revised its cash flow forecasts for
this cash generating unit “cgu” the noncurrent assets relating to genesensor cgu have therefore been reduced to their
recoverable amount of £nil with the related impairment charge being reported within discontinued operations notes forming part of the financial statements
continued
48 osmetech annual report and accounts 2007
12 property plant and equipment continued
plant
machinery and
laboratory office
instruments equipment total
£££
company
cost
at 1 january 2006 – 4897 4897
additions 90771 – 90771
at 31 december 2006 and 31 december 2007 90771 4897 95668
accumulated depreciation
at 1 january 2006 – 2552 2552
charge for the year 15170 1241 16411
at 31 december 2006 15170 3793 18963
charge for the year 30257 894 31151
impairment losses 45344 – 45344
at 31 december 2007 90771 4687 95458
net book value
at 31 december 2007 – 210 210
at 31 december 2006 75601 1104 76705
the company had not entered into contractual commitments for the acquisition of property plant and equipment at 31 december
2007 or 2006
due to the decision to abandon the genesensor business as described in note 8 the company has revised its cash flow forecasts
for this cash generating unit “cgu” the noncurrent assets relating to genesensor cgu have therefore been reduced to their
recoverable amount of £nil with the related impairment charge being reported within discontinued operations notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 49
13 investments
a subsidiary undertakings
investments loan total
£££
company
cost
at 1 january 2006 3871273 14152659 18023932
new loans issued – 12398165 12398165
repayments – 199584 199584
at 31 december 2006 3871273 26351240 30222513
new loans issued – 3381764 3381764
repayments – 5143924 5143924
at 31 december 2007 3871273 24589080 28460353
provision for impairment
at 1 january 2006 and 31 december 2006 645 6797975 6798620
provided in the year 1159395 – 1159395
at 31 december 2007 1160040 6797975 7958015
net book value
at 31 december 2007 2711223 17791105 20502338
at 31 december 2006 3870628 19553265 23423893
the impairment charge of £1159345 2006 – £nil refers to the investment in molecular sensing plc which included the acquisition
of the genesensor technology as detailed in note 8 the development of this technology was discontinued during the year ended
31 december 2007
company
the following were subsidiary undertakings at the end of the year and have all been included in the consolidated accounts
proportion of
country of voting rights and
incorporation ordinary share
name or registration capital held nature of business
osmetech technology inc usa 100 holding company
osmetech inc usa 100 same as ultimate parent company
clinical micro systems inc usa 100 same as ultimate parent company
osmetech gmbh germany 100 dormant
molecular sensing limited uk 100 dormant
molecular sensors limited uk 100 dormant
osmetech aesop trustee limited uk 100 dormant
the country of operation is the same as the country of incorporation or registration
shares held by osmetech technology inc notes forming part of the financial statements
continued
50 osmetech annual report and accounts 2007
13 investments continued
b other investments
proportion of
country of voting rights and
incorporation ordinary share
name or registration capital held nature of business
atlas genetics limited uk 61 electrochemical dna detection
ohmx corporation usa 54 electrochemical detection
 shares held by clinical micro sensors inc
both of these investments are in unquoted private companies the investments were received in exchange for noncash
consideration the fair value of these investments at 31 december 2007 which is also the carrying value is considered to be £nil
2006 – £nil
14 inventories
2007 2006
£ £
raw materials and work in progress 391771 397633
finished goods 54035 –
445806 397633
there is no material difference between the replacement cost of inventories and the amount at which they are stated in the
financial statements at either 31 december 2007 or 31 december 2006
the company has no inventory
15 trade and other receivables
2007 2006
group company group company
££ ££
due within one year
trade receivables 49216 23 34160 –
other debtors 159951 7692 82654 10812
prepayments and accrued income 158161 61943 177106 117958
367328 69658 293920 128770
group trade receivables of £49216 2006 – £34160 which excludes those receivables classified as held for sale do not carry
interest and are stated net of allowances for doubtful receivables of £nil 2006 –  £nil million
including receivables classified as held for sale total trade receivables net of allowances held by the group amounted to £49216
2006 – £1634364 comprising those amounts above and trade receivables classified as held for sale of £nil 2006 – £1600204 group
trade receivables do not carry interest and in the current year there are no allowances for doubtful receivables 2006 – £95135
the group has no significant concentration of credit risk with exposure spread over a large number of customers the directors
consider that the carrying amount of trade and other receivables approximates to their fair value the average credit period taken
on sales is 30 days 2006 – 56 days
included within the group’s trade receivables balance are debtors with a carrying value of £nil 2006 – £184000 which are past due
but for which the group has not provided against as there had not been a significant change in credit quality and the assets were
classified as held for sale and recovered through the sale of the disposal group the average age of these balances are nil days
2006 – 60 days notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 51
15  trade and other receivables continued
the group primarily sells to us hospitals and reference laboratories which have high credit ratings no formal independent third
party credit scoring system is employed although credit limits and payment history are regularly reviewed for each customer
movement in allowance for doubtful receivables
2007 2006
£ £
balance at the start of the year 95135 100000
amounts recovered from customer – 2702
amounts recovered through sale of disposal group 95135 –
exchange gain – 7567
balance at the end of the year – 95135
the ageing of the impaired trade receivables at 31 december 2006 was over 120 days
the directors consider that the carrying amount of trade and receivables approximates fair value at both 31 december 2007 and
31 december 2006 on the basis of discounted cash flow analyses
16 current tax assets
2007 2006
group company group company
££ ££
research and development tax credits receivable 279779 279779 126146 126146
income tax recoverable 185441 – ––
465220 279779 126146 126146 notes forming part of the financial statements
continued
52 osmetech annual report and accounts 2007
17 cash and cash equivalents
2007 2006
group company group company
££ ££
cash at bank and in hand 4713622 104373 1403085 368641
shortterm deposits 9197088 7321621 5686021 5686021
cash and cash equivalents 13910710 7425994 7089106 6054662
the effective interest rate on short–term deposits during the year ended 31 december 2007 was 408 2006 – 522 these
deposits have a weighted average maturity of 20 days 2006 – 31 days in the years ended 31 december 2007 and 31 december
2006 short–term deposits included a significant amount denominated in us dollar excluding the impact of the us dollar deposits
the effective interest rate on short–term deposits which were denominated in sterling was 59 2006 – 505
the carrying amount of these assets approximates to their fair value as these are highly liquid assets with an average maturity of
20 days 2006 – 31 days
18 trade and other payables
2007 2006
group company group company
££ ££
trade payables 502081 54133 365341 78697
accrued employee benefits 435942 – 1328700 –
accrued professional fees 130512 130512 130300 130300
other accrued expenses 204893 65059 244470 146843
1273428 249704 2068811 355540
trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs no interest was
payable in 2007 2006 – £nil as all trade and other payables were current the group has financial risk management policies in
place to ensure that all payables are paid within the appropriate time frame
the directors consider that the carrying amount of trade payables equates to fair value at both 31 december 2007 and 31
december 2006 on the basis of discounted cash flow analyses
the average credit period taken for trade purchases is 18 days for the group 2006 – 15 days and is 11 days 2006 – 14 days for
the company notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 53
19 provisions
group company group company
££ ££
at 1 january 2006 20000 20000
additional provision in the year 153280 –
at 31 december 2006 173280 20000
additional provision in the year ––
exchange difference 2185 –
at 31 december 2007 171095 20000
provisions which relate to dilapidations on leased properties represent estimates for asset retirement obligations to remove assets
at the end of the lease term for which there will be no alternative future use at the end of the lease term the actual amount
payable will depend on actual expenses arising at the end of the term which is considered to be payable in two to five years
20 share capital and other reserves group and company
2007 2006
£ £
authorised
ordinary share capital
1120000000 shares of 010p each 31 december 2006 – 1120000000 shares of 010p each 1120000 1120000
1200000000 deferred shares of 099p each 31 december 2006 – 1200000000 shares of 099p each 11880000 11880000
authorised share capital – total 13000000 13000000
allotted called up and fully paid
ordinary share capital
201606639 shares of 010p each 31 december 2006 – 201354973 shares of 010p each 201607 201355
674978300 deferred shares of 099p each 31 december 2006 – 674978300
deferred shares of 099p each 6682285 6682285
6883892 6883640
allotted and called up but unpaid ordinary share capital
ordinary share capital
1450000 shares of 010p 31 december 2006 – 1450000 shares of 010p 1450 1450
14500000 deferred shares of 099p each 31 december 2006 – 14500000 shares of 099p each 143550 143550
145000 145000
called up share capital – total 7028892 7028640
the deferred shares were created at the time of the 10 for 1 consolidation of ordinary shares on 30 september 2005 and the
directors consider these to be of minimal value the deferred shares do not entitle the holder thereof to payment of any dividend
or other distribution or to receive notice or attend or vote at any general meeting of the company the deferred shares are non
transferable in the event of a return of assets on winding up of the company the deferred shareholders receive 1p in respect of
their shareholding it its entirety notes forming part of the financial statements
continued
54 osmetech annual report and accounts 2007
21 shareholders’ equity
share cumulative
share premium merger other exchange accumulated
capital account reserve reserve reserve deficit total
££££££ £
group
at 1 january 2006 6957640 39654069 1885533 1354725 – 37067809 12784158
loss for the year ––––– 13277528 13277528
new share capital issued 71000 12709000–––– 12780000
share issue costs – 659324 –––– 659324
credit to equity for
equitysettled sharebased
payments – – – 781296 – – 781296
exchange adjustments –––– 903185 – 903185
at 31 december 2006 7028640 51703745 1885533 2136021 903185 50345337 11505417
profit for the year ––––– 3983801 3983801
new share capital issued 252 52507–––– 52759
credit to equity for
equitysettled sharebased
payments – – – 614773 – – 614773
repurchased equity options – – – 131143 – – 131143
repurchased warrants – – – 480845 – – 480845
exchange adjustments –––– 383633 – 383633
exchange adjustments taken to
income statement for
discontinued operations –––– 713901 – 713901
transfer of merger reserve
to income statement – – 1885533 – – 1885533 –
at 31 december 2007 7028892 51756252 – 2138806 572917 44476003 15875030 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 55
21 shareholders’ equity continued
share cumulative
share premium merger other exchange accumulated
capital account reserve reserve reserve earnings total
££££££ £
company
at 1 january 2006 6957640 39654069 1885533 1354725 – 31451399 18400568
profit for the year ––––– 1840809 1840809
new share capital issued 71000 12709000–––– 12780000
share issue costs – 659324 –––– 659324
credit to equity for
equitysettled sharebased
payments – – – 781296 – – 781296
at 31 december 2006 7028640 51703745 1885533 2136021 – 33292208 29461731
loss for the year ––––– 1516995 1516995
new share capital issued 252 52507–––– 52759
credit to equity for
equitysettled sharebased
payments – – – 614773 – – 614773
repurchased equity shares – – – 131143 – – 131143
repurchased warrants – – – 480845 – – 480845
transfer of merger reserve
to income statement – – 1885533 – – 1885533 –
at 31 december 2007 7028892 51756252 – 2138806 – 32923670 28000280
the other reserve relates to the equity settled share compensation schemes
the merger reserve relates to the acquisition of genesensor the molecular sensing business when the shareholding was acquired
in 2004 the company elected to take the available merger relief on acquisition accounting under section 131 the shares issued
as consideration were recorded at market value rather than the nominal value and the corresponding increase inequity was
reported as a merger reserve in accordance with section 131 in the current year genesensor has been abandoned the goodwill
has been impaired and therefore the reserve has been realised notes forming part of the financial statements
continued
56 osmetech annual report and accounts 2007
21 shareholders’ equity continued
the following ordinary shares of 010p each were issued during the year for cash consideration as a result of the exercise of share
options
date number consideration
22 january 2007 10000 1425p
24 may 2007 166666 2225p
19 june 2007 33333 1925p
7 december 2007 25000 1850p
7 december 2007 16667 1925p
warrants
during the year the company repurchased warrants which had been previously issued to motorola inc as consideration for the
acquisition of clinical micro sensors inc the warrants outstanding were as follows
number of ordinary shares
under warrant as at subscription
date 2007 2006 price exercisable between
26 july 2005 – 7811428 175p 27 july 2005 to 26 july 2010
– 7811428
each warrant entitled the holder to subscribe for one ordinary share the warrants had a fair value of £923144 as determined by
the black–scholes model for pricing osmetech paid cash of £468686 plus costs of £12159 in return for the cancellation of the
warrants a corresponding deduction from equity has been recorded no gain or loss has been reported in line with ias 32
22 share based payments
the company has granted options under the osmetech plc enterprise management incentive plan “emi plan” the osmetech
plc 2003 us equity compensation plan “us plan” and long term incentive awards “ltip’s” and has entered into individual
option agreements and unapproved options as shown in the table below an unapproved share option is an option as defined by
hm revenue and customs which does not attract tax relief on exercise
1 emi plan
number of ordinary shares
under option as at subscription
date 2007 2006 price exercisable between
17 september 2002 75000 75000 175 p 17 december 2002 to 17 september 2012
24 february 2003 142601 142601 239 p 17 december 2003 to 24 february 2013
2 september 2005 987644 987644 010p 2 october 2005 to 2 september 2015
1205245 1205245 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 57
22 share based payments continued
2 us plan
number of ordinary shares
under option as at subscription
date 2007 2006 price exercisable between
1 april 2003 – 1825000 233p 1 april 2004 to 1 april 2013
3 august 2005 2410000 2600000 1925p 3 august 2006 to 3 august 2015
26 september 2005 – 25000 1810p 26 september 2006 to 26 september 2015
5 october 2005 – 500000 17p 5 october 2006 to 5 october 2015
24 october 2005 25000 25000 1475p 24 october 2006 to 24 october 2015
1 november 2005 485000 515000 1425p 1 november 2006 to 1 november 2015
2 december 2005 100000 100000 2425p 2 december 2006 to 2 december 2015
8 december 2005 160000 170000 2275p 8 december 2006 to 8 december 2015
24 march 2006 200000 2810000 2225p 24 march 2007 to 24 march 2016
27 march 2006 10000 35000 2250p 27 march 2007 to 27 march 2016
18 may 2006 50000 50000 2225p 18 may 2007 to 18 may 2016
21 june 2006 505000 780000 1850p 21 june 2007 to 21 june 2016
5 july 2006 470000 970000 2125p 5 july 2007 to 5 july 2016
10 august 2006 60000 110000 1875p 10 august 2007 to 10 august 2016
5 october 2006 250000 250000 1650p 5 october 2007 to 5 october 2016
28 november 2006 150000 150000 2500p 28 november 2007 to 28 november 2016
11 january 2007 1440000 – 2400p 11 january 2008 to 11 january 2017
28 march 2007 290000 – 2300p 28 march 2008 to 28 march 2017
8 may 2007 140000 – 2500p 8 may 2008 to 8 may 2017
29 june 2007 640000 – 2300p 29 june 2008 to 29 june 2017
31 july 2007 85000 – 1875p 31 july 2008 to 31 july 2017
31 august 2007 110000 – 1900p 31 august 2008 to 31 august 2017
9 october 2007 755000 – 2225p 9 october 2008 to 9 october 2017
7 december 2007 335000 – 2525p 7 december 2008 to 7 december 2017
8670000 10915000
3 individual option agreements
number of ordinary shares
under option as at subscription
date 2007 2006 price exercisable between
25 september 1998 111700 111700 20p 21 october 2001 to 21 october 2008
26 april 2000 135000 135000 2625p 26 april 2003 to 26 april 2010
20 march 2001 25000 25000 110p 1 march 2004 to 20 march 2011
20 march 2001 75000 75000 110p 20 march 2004 to 20 march 2011
29 january 2002 100000 100000 1275p 29 january 2005 to 29 january 2012
24 february 2003 4500 4500 239p 24 february 2004 to 24 february 2013
13 october 2004 76375 76375 34p 13 october 2004 to 22 november 2008
527575 527575 notes forming part of the financial statements
continued
58 osmetech annual report and accounts 2007
22 share based payments continued
4 unapproved options
number of ordinary shares
under option as at subscription
date 2007 2006 price exercisable between
2 september 2005 2858509 2858509 010p 2 october 2005 to 2 september 2015
2858509 2858509
5 ltips
number of ordinary shares
under option as at subscription
date 2007 2006 price exercisable between
2 september 2005 12521470 14498544 010p 3 september 2005 to 2 september 2015
30 january 2007 4716039 – 010p 30 january 2007 to 30 january 2017
17237509 14498544
employee participation in these schemes is at the discretion of the remuneration committee or senior management of the
company share options granted under ltips emi plan and unapproved options dated 2 september 2005 are exercisable at a
price of 01 pence per share subject to the achievement of specific nonmarket based performance criteria for ltips dated 
2 september 2005 exercise is also subject to the achievement of share price targets all other options are exercisable at a price
equal to equal to the average closing quoted market price of the company’s shares on the date of grant and generally vest
between 1 and 3 years
options are generally exercisable for a period up to 10 years after grant and are forfeited if the employee leaves the group before
the options vest at 31 december 2007 all options are equity–settled following the sale of the company’s critical care division
“ccd” on 31 january 2007 the us plan was amended to allow shares held by ccd employees leaving the group “ccd
options” to be repurchased for cash by the company for those holders of options totalling 3725000 options who elected to
exercise and immediately sell their shares the company repurchased the appreciation in value calculated on the difference
between the closing bid price of an osmetech plc share on the date of exercise and the related exercise price at 31 december
2006 the ccd options totalled 5055000 and expired on 31 december 2007
equity settled share–based payments are measured at fair value at the date of grant the fair value determined at the date of
grant of equity settled share–based payments is expensed on a straight–line basis over the vesting period based on the group’s
estimate of shares that will eventually vest
the fair value of the ltips is measured by use of a binomial model the black scholes model is used to determine the fair value of
other options the models include adjustments based on management’s best estimate for the effects of exercise restrictions and
behavioural considerations the option life is derived by the models based on these assumptions and other assumptions identified
below expected volatility is calculated using an analysis of volatility over an historical 3 year period
the expected volatility has been calculated with reference to the historical volatility across a period which equates to the expected
life as the directors consider this to be the best method to determine future volatility
the total expense included within the total operating loss for operating and discontinued operations in respect of share–based
payments was £615000 2006 – £781000 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 59
22 share based payments continued
details of the share options outstanding are as follows
year ended 31 december 2007 ltips emi plan and unapproved other options exercise price other options exercise price
options dated 020905 at or below 25 pence per share above 25 pence per share
weighted weighted weighted
average average average
number exercise price number exercise price number exercise price
of options pence of options pence of options pence
outstanding at beginning of period 18344697 010 11248801 2062 411375 15019
granted during the period 4716039 010 3610000 2311 335000 2525
forfeited during the period 1977074 010 2213334 2232 – –
exercised during the period – – 3976666 2141 – –
outstanding at end of period 21083662 010 8668801 2086 746375 9411
range of prices 010 1425 – 2500 2525 – 26250
weighted average fair value 1064 pence 890 pence 587 pence
contractual remaining life 799 years 835 years 595 years
exercisable at end of period 3846153 010 3018801 1930 411375 15019
year ended 31 december 2006 ltips emi plan and unapproved other options exercise price other options exercise price
options dated 020905 at or below 25 pence per share above 25 pence per share
weighted weighted weighted
average average average
number exercise price number exercise price number exercise price
of options pence of options pence of options pence
outstanding at beginning of period 18344697 010 7063801 2013 412550 14986
granted during the period – – 5230000 2124 – –
forfeited during the period – – 1045000 2036 1175 3400
outstanding at end of period 18344697 010 11248801 2062 411375 15019
range of prices 010 1425 – 2425 3400 – 26250
weighted average fair value 1094 pence 936 pence 276 pence
contractual remaining life 867 years 848 years 370 years
exercisable at end of period 3846153 010 3470468 2130 411375 15019
for those share options granted in the period the assumptions including revisions thereto in relation to ltips used in the
calculation of the fair values were as follows
year ended year ended
31 december 2007 31 december 2006
ltips other options ltips other options
vesting period years 42 42
expected volatility  507 507 699 585
expected life years 43 43
risk free rate  532 534 414 462
expected dividend yield  nil nil nil nil
probability of achieving nonmarket based performance
criteria where applicable 74 100 50 100
3976666 2006 – nil of options were exercised during the year as noted in the table above the weighted average share price at
the exercise date was 2141p notes forming part of the financial statements
continued
60 osmetech annual report and accounts 2007
23 commitments
at the balance sheet date the group had total future minimum lease payments under noncancellable operating leases for each of
the following periods
2007 2006
land and land and
buildings other buildings other
££ ££
commitments under noncancellable operating leases
within one year 359007 15969 – 29246
between two and five years 107296 – 1730187 45184
466303 15969 1730187 74430
the company does not have any lease commitments
in relation to the group’s significant leases there are no contingent rentals payable restrictions or further leasing imposed by
these lease arrangements
24 related party transactions
group
transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation and are
not disclosed in this note
company
the parent company derives interest receivable from subsidiary undertakings and certain costs are recharged between the parent
company and subsidiary undertakings in the normal course of business
total income received during the year amounted to £2052074 2006 – £1815332 and total recharges were £1048085 2006 –
£1175903 amounts outstanding at 31 december 2007 and 31 december 2006 between the parent company and subsidiary
undertakings are provided in note 13
related party receivables are not secured and no guarantees were issued in respect thereof balances will be settled in accordance
with normal credit terms no provisions have been made for doubtful debts in respect of the amounts owed by related parties
the executive directors and nonexecutive directors are considered to be management personnel of the group information on
the remuneration of executive directors is shown in note 5 no director was or is materially interested in any contract subsisting
during or at the end of the financial year which was significant in relation to the business of the group
25 pension costs
the company makes contributions on behalf of the group into money purchase pension schemes for the benefit of its employees
the assets of the schemes are held separately from those of the company in independently administered funds the pension cost
charge represents contributions payable and paid by the company to the funds and amounted to £197943 for the year ended 
31 december 2007 2006 – £250473 at 31 december 2007 the company had £62700 of unpaid pension contributions 
31 december 2006 – £33450 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 61
26 financial instruments
there is no material difference between the fair values and book values of the group’s financial instruments which comprise
financial assets and liabilities as disclosed in note 17 either in the current or prior year
the group’s treasury activities are designed to provide suitable flexible funding arrangements to satisfy its requirements the
group uses financial instruments comprising cash and short–term deposits the main risks arising from the group’s financial
instruments are interest rate and liquidity risks the board reviews policies for managing each of these risks and they are
summarised below
the group aims to achieve a balance between continuity and flexibility of funding by maintaining a range of maturities on its
liquid resources the group also mixes the duration of its deposits to reduce the impact of interest rate fluctuations
the group has limited foreign currency risk since overseas subsidiaries derive revenues and incur expenses denominated
predominantly in the currencies of the countries in which they operate all monetary assets and liabilities of the group are
materially denominated in the operating or functional currency of the operating unit involved
the group holds no financial liabilities with a contractual maturity date 2006 – £nil all trade and other payables are due within
one month 2006 – one month the credit risk is set out in note 15 and the directors consider that the risk is adequately managed
by appropriate credit control procedures as described in note 15
the sterling carrying amounts of the group’s foreign currency denominated monetary assets and monetary liabilities at the report
date are as follows
liabilities assets
2007 2006 2007 2006
£ £ £ £
euro 1837 38689 37822 179972
us dollar 1172984 1943516 7375811 4897966
the group’s exposure to foreign currency has remained the same in comparison to 2006 being that the group remains primarily a
us based business and therefore exposed to movements in the us dollar
in management’s opinion the sensitivity analysis is unrepresentative of the inherent foreign exchange risk in the group as the year
end exposure does not reflect exposure during the year the group does not enter into forward foreign exchange contracts
the following table details the group’s sensitivity to a 10 increase and 10 decrease in the sterling against the us dollar which is
the main risk area of foreign currency exposure
currency impact currency impact
us dollar us dollar us dollar us dollar
10 10 10 10
increase decrease increase decrease
2007 2007 2006 2006
lossprofit 492322 601727 878632 1073884
other equity 265959 325063 1405377 1717683
a positive number above indicates an increase in profit or other equity where the sterling strengthens 10 against the us dollar
for a 10 weakening of the sterling against the relevant currency there would be an equal and opposite impact on the profit and
other equity and the balances below would be negative
the impact on other equity relates to the cumulative exchange reserve the impact of this is limited because the group has taken
advantage of the first time adoption exemptions permitted under ifrs 1 to the period to 1 january 2006 which permits the group
to set the reserve to nil as at 1 january 2006 the effective date for the adoption of ifrs on 31 january 2007 the group disposed
of the ccd division and the cumulative exchange reserve relating to this division was recycled through profit and loss notes forming part of the financial statements
continued
62 osmetech annual report and accounts 2007
26 financial instruments continued
interest bearing financial assets
functional currency of operations
2007 2006
group sterling us dollar euro group sterling us dollar euro
££££ ££££
cash 4713622 104373 4571427 37822 1403085 368640 957108 77337
term deposits 9197088 1280000 7917089 – 5686021 1900000 3786021 –
13910710 1384373 12488516 37822 7089106 2268640 4743129 77337
the sterling and us dollar cash balances attract interest at floating rates based on the bank of england base rate and us prime
rate respectively
the term deposits are of 20 days duration 2006 – 31 days at a weighted average fixed rate of 408 2006 – 522
27 post balance sheet events
the uk full rate of corporation tax will reduce from 30 to 28 with effect from 1 april 2008 the 30 rate will apply to profits
arising before that date and the 28 rate will apply to profits arising after that date
28 explanation of the transition to ifrs
this is the first year that the group has presented its financial statements under ifrs the following disclosures are required in the
year of transition the last financial statements under uk gaap were the accounts for the year ended 31 december 2006 and the
date of transition to ifrs was therefore 1 january 2006
the major areas of impact of ifrs are summarised below
• goodwill is not amortised under ifrs but rather subject to annual impairment reviews this has decreased administrative
expenses for the year from continuing operations for the year ending 31 december 2006 by £111000 the net profit from
discontinued operations increased by £22000 as a result of this ifrs adjustment the increase in goodwill before
reclassification of the amount in respect of the disposal group was £133000 the opening equity reconciliation as at the date
of transition is not impacted since the directors have elected to select 1 january 2006 as the date of adoption of ifrs 3 as
explained further below the goodwill was not retranslated at the transition date
• recognition of disposal groups under ifrs 5 ‘non current assets held for sale and discontinued operations’ the impact is
shown in the balance sheet as at 31 december 2006 as the reclassification of certain assets and liabilities to assets held for sale
and liabilities held for sale the overall impact on net assets is nil there is no impact on the opening balance sheet as at 
1 january 2006 as the classification criteria were not met until 31 december 2006
• reclassification of short term amounts held on deposit with a maturity of less than three months as cash and cash equivalents
which we previously included in current asset investments under uk gaap  this has increased cash and cash equivalents at 
1 january 2006 by £6300000 and decreased current asset investments by £6300000 as at 31 december 2006 the impact of
this adjustment is an increase in cash and cash equivalents of £5686000 and a reduction in current asset investments of
£5686000
• reclassification of current tax assets to a separate component of current assets from trade and other receivables and the
reclassification of current tax liabilities to a separate component of current liabilities from trade and other payables
prior year restatements
the group has revisited its accounting treatment in respect of certain employee expenses incurred relating to the disposal of the
critical care division subsequent to the issuance of its uk gaap financial statements for the year ended 31 december 2006 the
group has determined that the costs should be expensed over the period from when the decision was made until the date of
disposal rather than recognising all the costs upon disposal notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 63
28 explanation of the transition to ifrs continued
the group has reclassified the accrued costs in relation to dilapidations commitments to provisions as the directors believe this
provides a better presentation of the nature and timing of the obligation
explanation of the adjustments to conform to ifrs
impact on the cash flow statements
under ias 7 ‘cash flow statements’ movements on cash and cash equivalents are reconciled cash and cash equivalents are
defined as amounts which are readily convertible to known amounts of cash with insignificant risk of changes in value
management has defined this as amounts with a maturity of less than three months under uk gaap the cash flow statement
reconciles cash only the change in presentation of the cash flow statement under ias 7 makes no difference to the cash and cash
equivalents generated by the group there is also no impact on the cash flow statements or notes to the statement
ifrs transitional arrangements
in accordance with international financial reporting standard 1 ‘first–time adoption of international financial reporting
standards’ ifrs 1 the group’s accounting policies under ifrs have been applied retrospectively at the date of transition with the
exception of a number of permitted exemptions these are summarised below
• the selection of 1 january 2006 as the date of adoption of ifrs 3 business combinations and as a consequence ias 21 ‘the
effects of changes in foreign exchange rates’ ias 38 ‘intangible assets’ and ias 36 ‘impairment of assets’ and
• the setting to zero of all cumulative translation differences at 1 january 2006
the permitted exemption in respect of ifrs 3 that a first–time adopter may elect not to apply ifrs 3 ‘business combinations’
retrospectively to past business combinations was adopted by the group in respect of all business combinations this resulted in
the goodwill recognised on acquisition of the ccd division and the goodwill recognised on acquisition of the genesensor
molecular sensing business was frozen at the amount previously recognised under uk gaap at the point of transition
• the permitted exemption under ias 21 that a first–time adopter need not apply ias 21 retrospectively to fair value adjustments
and goodwill arising in business combinations that occurred before the date of transition to ifrss therefore goodwill arising
on the ccd division is deemed to be a nonmonetary foreign currency item which is reported using the exchange rate applied
under previous gaap  notes forming part of the financial statements
continued
64 osmetech annual report and accounts 2007
28 explanation of the transition to ifrs continued
reconciliation of equity at 1 january 2006 date of transition to ifrs
group
reclassification restatement effect of
of liabilities of disposal restated transition
uk gaap to provision costs uk gaap to ifrs ifrs
££££££
goodwill 1308701 – – 1308701 – 1308701
other intangible assets 754248 – – 754248 – 754248
property plant and equipment 1451766 – – 1451766 – 1451766
total noncurrent assets 3514715 – – 3514715 – 3514715
inventories 1719302 – – 1719302 – 1719302
trade and other receivables 3019365 – – 3019365 – 3019365
investments 6300000 – – 6300000 6300000 –
cash and cash equivalents 907177 – – 907177 6300000 7207177
total current assets 11945844 – – 11945844 – 11945844
total assets 15460559 – – 15460559 – 15460559
trade and other payables 2656401 20000 – 2656401 – 2656401
provisions – 20000 – 20000 20000
total liabilities 2676401 – – 2676401 – 2676401
total assets less total liabilities 12784158 – – 12784158 – 12784158
issued capital 6957640 – – 6957640 – 6957640
share premium account 39654069 – – 39654069 – 39654069
merger reserve 1885533 – – 1885533 – 1885533
other reserve 1354725 – – 1354725 – 1354725
accumulated deficit 37067809 – – 37067809 – 37067809
total equity 12784158 – – 12784158 – 12784158 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 65
28 explanation of the transition to ifrs continued
reconciliation of equity at 1 january 2006 date of transition to ifrs
company
reclassification effect of
of liabilities restated transition
uk gaap to provision uk gaap to ifrs ifrs
£££££
other intangible assets 24132 – 24132 – 24132
property plant and equipment 2345 – 2345 – 2345
investments 11225312 – 11225312 – 11225312
total noncurrent assets 11251789 – 11251789 – 11251789
trade and other receivables 865789 – 865789 – 865789
investments 6300000 – 6300000 6300000 –
cash and cash equivalents 397570 – 397570 6300000 6697570
total current assets 7563359 – 7563359 – 7563359
total assets 18815148 – 18815148 – 18815148
trade and other payables 414580 20000 394580 – 394580
provisions – 20000 20000 – 20000
total liabilities 414580 414580 – 414580
total assets less total liabilities 18400568 – 18400568 – 18400568
issued capital 6957640 – 6957640 – 6957640
share premium account 39654069 – 39654069 – 39654069
merger reserve 1885533 – 1885533 – 1885533
other reserve 1354725 – 1354725 – 1354725
accumulated deficit 31451399 – 31451399 – 31451399
total equity 18400568 – 18400568 – 18400568 notes forming part of the financial statements
continued
66 osmetech annual report and accounts 2007
28 explanation of the transition to ifrs continued
reconciliation of equity at 31 december 2006
group
reclassification restatement effect of
of liabilities of disposal restated transition
uk gaap to provision costs uk gaap to ifrs ifrs
££££££
goodwill 1115072 – – 1115072 137977 977095
other intangible assets 933947 – – 933947 – 933947
property plant and equipment 1740419 – – 1740419 862402 878017
total noncurrent assets 3789438 – – 3789438 1000378 2789059
inventories 2261293 – – 2261293 1863660 397633
trade and other receivables 2020270 – – 2020270 1726350 293920
current tax assets –––– 126146 126146
investments 5686021 – – 5686021 5686021 –
cash and cash equivalents 1403085 – – 1403085 5686021 7089106
total current assets 11370669 – – 11370669 3463864 7906805
assets held for sale –––– 4597628 4597628
total assets 15160107 – – 15160107 133385 15293492
trade and other payables 2328575 173280 1459500 3614795 799484 2815311
current tax liabilities –––– 9524 9524
provisions – 173280 – 173280 – 173280
total liabilities 2328575 – 1459500 3788075 789960 2998115
liabilities directly associated with 
assets held for sale –––– 789960 789960
total assets less total liabilities 12831532 – 1459500 11372032 133385 11505417
issued capital 7028640 – – 7028640 – 7028640
share premium account 51703745 – – 51703745 – 51703745
merger reserve 1885533 – – 1885533 – 1885533
other reserve 2136021 – – 2136021 – 2136021
cumulative exchange reserve –––– 903185 903185
accumulated deficit 49922407 – 1459500 51381907 1036570 50345337
total equity 12831532 – 1459500 11372032 133385 11505417 notes forming part of the financial statements
continued
osmetech annual report and accounts 2007 67
28 explanation of the transition to ifrs continued
reconciliation of equity at 31 december 2006
company
reclassification effect of
of liabilities restated transition
uk gaap to provision uk gaap to ifrs ifrs
£££££
other intangible assets 36619 – 36619 – 36619
property plant and equipment 76705 – 76705 – 76705
investments 23423893 – 23423893 – 23423893
total noncurrent assets 23537217 – 23537217 – 23537217
trade and other receivables 254916 – 254916 126146 128770
current tax assets – – – 126146 126416
investments 5686021 – 5686021 5686021 –
cash and cash equivalents 368641 – 368641 5686021 6054662
total current assets 6309578 – 6309578 – 6309578
total assets 29846795 – 29846795 – 29846795
trade and other payables 385064 20000 365064 9524 355540
current tax liabilities – – – 9524 9524
provisions – 20000 20000 – 20000
total liabilities 385064 – 385064 – 385064
total assets less total liabilities 29461731 – 29461731 – 29461731
issued capital 7028640 – 7028640 – 7028640
share premium account 51703745 – 51703745 – 51703745
merger reserve 1885533 – 1885533 – 1885533
other reserve 2136021 – 2136021 – 2136021
accumulated deficit 33292208 – 33292208 – 33292208
total equity 29461731 – 29461731 – 29461731 notes forming part of the financial statements
continued
68 osmetech annual report and accounts 2007
28 explanation of the transition to ifrs continued
reconciliation of consolidated loss for the year ended 31 december 2006 for osmetech plc and subsidiaries
effect of
disposal adjusted transition
uk gaap costs uk gaap to ifrs ifrs
£££££
revenue 48635 – 48635 – 48635
changes in inventories of finished goods
and work in progress 31350 – 31350 – 31350
administrative expenses 6525032 713000 7238032 130626 7107406
depreciation and amortisation 610627 – 610627 – 610627
research and development costs 4767767 – 4767767 337797 4429970
share compensation charges 620442 – 620442 – 620442
12491518 713000 13268218 468423 12799795
operating expense 12506583 713000 13219583 468423 12751160
investment revenues 284582 – 284582 – 284582
loss before taxation 12222001 713000 12935001 468423 12466578
taxation 126211 – 126211 – 126211
lossprofit for the year from 
continuing operations 12095790 713000 12808790 468423 12340367
profitloss for the year from 
discontinued operations net of tax 142872 746500 603628 333533 937161
loss for the year 11952918 1459500 13412418 134890 13277528 notice of annual general meeting
osmetech annual report and accounts 2007 69
this document is important and requires your immediate attention if you are in any doubt as to what action to
take you should consult your stockbroker solicitor accountant or other appropriate independent professional adviser
authorised under the financial services and markets act 2000 if you have sold or otherwise transferred all your shares in the
company please forward this document and the accompanying form of proxy to the person through whom the sale or
transfer was effected for transmission to the purchaser or transferee
notice is hereby given that the annual general meeting of osmetech plc the “company” will be held at the offices of ashurst
llp  broadwalk house 5 appold street london ec2a 2ha on 14 may 2008 at 1100 am for the purpose of considering and if
thought fit passing the following resolutions
ordinary business
1 to receive and consider the accounts for the financial year ended 31 december 2007 together with the reports of the directors
and auditors thereon
2 to reelect d a sandilands as a director
3 to reappoint deloitte  touche llp as auditors of the company until the conclusion of the next annual general meeting and
to authorise the directors of the company to determine their remuneration
special business
to consider and if thought fit to pass the following resolutions of which number 4 will be proposed as an ordinary resolution and
numbers 5 and 6 will be proposed as special resolutions
4 that the directors be and they are hereby generally and unconditionally authorised for the purposes of and pursuant to
section 80 of the companies act 1985 the “act” to exercise all the powers of the company to allot relevant securities within
the meaning of section 802 of the act up to an aggregate nominal amount of £67705 representing 67705000 ordinary
shares of 010p each provided that this authority shall unless renewed varied or revoked expire at the earlier of a 30 june
2009 and b the conclusion of the next annual general meeting of the company to be held in 2009 and provided further that
the company may before the expiry of such period make any offer agreement or arrangement which would or might require
relevant securities to be allotted after such expiry and the directors of the company may allot relevant securities pursuant to
any such offer agreement or arrangement as if the authority hereby conferred had not expired
5 that subject to the passing of resolution 4 above the directors of the company be and they are hereby empowered to allot
equity securities within the meaning of section 942 of the act for cash pursuant to the authority conferred by resolution 4
above as if section 891 of the act did not apply to any such allotment provided that this power shall unless renewed varied
or revoked expire at the earlier of a 30 june 2009 and b the conclusion of the next annual general meeting of the company
to be held in 2009 and provided further that this power shall be limited to the allotment of equity securities
i in connection with a rights issue open offer or other preemptive issue in favour of ordinary shareholders where the equity
securities respectively attributable to the interests of all ordinary shareholders are proportionate as nearly as practical to
the respective numbers of ordinary shares held by them but subject to such exclusions or other arrangements as the
directors may deem necessary or desirable in relation to fractional entitlements or legal or practical problems arising in or
pursuant to the laws of any territory or the requirement of any regulatory body or stock exchange in any territory and
ii otherwise than pursuant to paragraph i above up to an aggregate nominal amount of £20312 representing 20312000
ordinary shares of 010p each
and provided further that the company may at any time before the expiry of such power make any offer or enter into any
agreement which would or might require equity securities to be allotted after the expiry of such power and the directors may
allot equity securities in pursuance of any such offer or agreement as if such power conferred hereby had not expired this
power shall be in addition to any existing like power not utilised at the time and date on which this resolution 5 is passed 70 osmetech annual report and accounts 2007
notice of annual general meeting
continued
6 that
a the articles of association produced to the meeting and initialled by the chairman of the meeting for the purpose of
identification be adopted as the articles of association of the company in substitution for and to the exclusion of the
existing articles of association and
b with effect from 0001am on 1 october 2008 the new articles of association adopted pursuant to paragraph a of this
resolution be amended by the insertion of new article 1018 in the form set out at note 9 in the appendix to this notice
and as produced to the meeting and initialled by the chairman of the meeting for the purpose of identification
by order of the board registered office
s a craig co ashurst llp
secretary broadwalk house
5 appold street
london ec2a 2ha
31 march 2008
notes
1 a member of the company may appoint one or more proxies to attend speak and vote at the meeting instead of the member a
proxy of a member need not also be a member a member may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to a different share or shares held by him
2 the instrument appointing a proxy and the power of attorney or other authority if any under which it is signed or a notarially
certified copy of that power or authority must be deposited with the company’s registrars capita registrars proxy department
34 beckenham road beckenham kent br3 4tu during normal business hours not less than 48 hours before the time for holding
the meeting a form of proxy accompanies this document for use by members
3 completion of the form of proxy will not preclude a member from attending and voting in person
4 as permitted by regulation 41 of the uncertificated securities regulations 2001 only those holders of ordinary shares who are
registered on the company’s share register as at 1100 am on 12 may 2008 shall be entitled to attend the annual general meeting
and to vote in respect of the number of shares registered in their names at that time changes to entries on the share register after
1100 am on 12 may 2008 shall be disregarded in determining the rights of any person to attend andor vote at the annual general
meeting
5 the register of directors’ interests in the share capital of the company copies of service agreements under which the directors of
the company are employed and copies of terms and conditions of appointment of nonexecutive directors are available for
inspection at the company’s registered office during normal business hours from the date of the notice of this meeting until the
date of the annual general meeting and will be available for inspection at the place of the annual general meeting for at least 15
minutes prior to and during the meeting
6 you may not use any electronic address within the meaning of section 3334 of the companies act 2006 provided in this notice
of meeting or in any related documents including the proxy form to communicate with the company for any purposes other than
those expressly stated appendix a – explanatory notes of principal changes to the company’s
articles of association
osmetech annual report and accounts 2007 71
1 articles which duplicate statutory provisions
provisions in the current articles which replicate provisions contained in the companies act 2006 are in the main amended to
bring them into line with the companies act 2006 the main changes made to reflect this approach are detailed below
2 form of resolution
the current articles contain a provision that where for any purpose an ordinary resolution is required a special or
extraordinary resolution is also effective this provision is being amended as the concept of extraordinary resolutions has not
been retained under the companies act 2006
3 convening extraordinary and annual general meetings
the provisions in the current articles dealing with the convening of general meetings and the length of notice required to
convene general meetings are being amended to conform to new provisions in the companies act 2006 in particular an
extraordinary general meeting to consider a special resolution can be convened on 14 days’ notice whereas previously 21 days’
notice was required
4 votes of members
under the companies act 2006 proxies are entitled to vote on a show of hands whereas under the current articles proxies are
only entitled to vote on a poll multiple proxies may be appointed provided that each proxy is appointed to exercise the rights
attached to a different share held by the shareholder multiple corporate representatives may be appointed the new articles
reflect these new provisions
5 electronic and web communications
provisions of the companies act 2006 which came into force in january 2007 enable companies to communicate with members
by electronic andor website communications the new articles further update the existing provisions concerning electronic
communications with members and in addition they also permit the company to take advantage of the new provisions
relating to website communications before the company can communicate with a member by means of website
communication the relevant member must be asked individually by the company to agree that the company may send or
supply documents or information to him by means of a website and the company must either have received a positive
response or have received no response within a period of 28 days beginning with the date on which the request was sent the
company will notify the member either in writing or by other permitted means when a relevant document or information is
placed on the website and a member can always request a hard copy version of the document or information
6 directors’ indemnities and loans to fund expenditure
the companies act 2006 has in some areas widened the scope of the powers of a company to indemnify directors and to fund
expenditure incurred in connection with certain actions against directors in particular a company can now indemnify a director
against liability incurred in connection with the activities of any company as trustee of an occupational pension scheme in
addition the existing exemption allowing a company to provide money for the purpose of funding a director’s defence in court
proceedings now expressly covers regulatory proceedings and applies to associated companies the new articles reflect these
wider provisions in the companies act 2006
7 joint holders
in order to make the flow of information more efficient between the company and our joint shareholders the articles are
being amended so that where there are joint shareholders anything agreed or specified with the company by any one joint
shareholder will have been deemed to have been agreed or specified with the company by all the joint shareholders
8 conflicts of interest
it is proposed to make a further change to the new articles with effect from 1 october 2008 to cover changes being
introduced by the companies act 2006 relating to directors’ conflicts of interest
the companies act 2006 sets out directors’ general duties which largely codify the existing law but with some changes under
the companies act 2006 from 1 october 2008 a director must avoid a situation where he has or can have a direct or indirect appendix a – explanatory notes of principal changes to the company’s
articles of association
continued
72 osmetech annual report and accounts 2007
interest that conflicts or possibly may conflict with the company’s interests the requirement is very broad and could apply for
example if a director becomes a director of another company or a trustee of another organisation the companies act 2006
allows directors of public companies to authorise conflicts and potential conflicts where appropriate where the articles of
association contain a provision to this effect the companies act 2006 also allows the articles of association to contain other
provisions for dealing with directors’ conflicts of interest to avoid a breach of duty the new articles as proposed to be altered
with effect from 1 october 2008 give the directors authority to approve such situations and to include other provisions to allow
conflicts of interest to be dealt with in a similar way to the current position
there are safeguards which will apply when directors decide whether to authorise a conflict or potential conflict first only
directors who have no interest in the matter being considered will be able to take the relevant decision and secondly in taking
the decision the directors must act in a way they consider in good faith will be most likely to promote the company’s success
the directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate
it is also proposed that the new articles should contain provisions relating to confidential information attendance at board
meetings and availability of board papers to protect a director being in breach of duty if a conflict of interest or potential
conflict of interest arises these provisions will only apply where the position giving rise to the potential conflict has previously
been authorised by the directors
9 new article 1018
1018 a for the purposes of section 175 of the 2006 act the directors may authorise any matter proposed to them in
accordance with these articles which would if not so authorised constitute or give rise to an infringement of duty
by a director under that section
b authorisation of a matter under sub paragraph a of this paragraph of this article shall be effective only if 
i the matter in question shall have been proposed by any person for consideration at a meeting of the directors
in accordance with the directors procedures if any for the time being relating to matters for consideration by
the directors or in such other manner as the directors may approve
ii any requirement as to the quorum at the meeting of the directors at which the matter is considered is met
without counting the director in question and any other interested director together the “interested
directors” and
iii the matter was agreed to without the interested directors voting or would have been agreed to if the votes of
the interested directors had not been counted
c any authorisation of a matter pursuant to sub paragraph a of this paragraph of this article shall extend to any
actual or potential conflict of interest which may reasonably be expected to arise out of the matter so authorised
d any authorisation of a matter under sub paragraph a of this paragraph of this article shall be subject to such
conditions or limitations as the directors may specify whether at the time such authorisation is given or
subsequently and may be terminated or varied by the directors at any time a director shall comply with any
obligations imposed on him by the directors pursuant to any such authorisation
e a director shall not by reason of his office or the fiduciary relationship thereby established be accountable to the
company for any remuneration or other benefit which derives from any matter authorised by the directors under
subparagraph a of this paragraph of this article and any contract transaction or arrangement relating thereto
shall not be liable to be avoided on the grounds of any such remuneration or other benefit or on the ground of the
director having any interest as referred to in the said section 175
f a director shall be under no duty to the company with respect to any information which he obtains or has obtained
otherwise than as a director or officer or employee of the company and in respect of which he owes a duty of
confidentiality to another person however to the extent that his connection with that other person conflicts or
possibly may conflict with the interests of the company this subparagraph f of this paragraph of this article
applies only if the existence of that connection has been authorised by the directors under subparagraph a of appendix a – explanatory notes of principal changes to the company’s
articles of association
continued
osmetech annual report and accounts 2007 73
this paragraph of this article in particular the director shall not be in breach of the general duties he owes to the
company by virtue of sections 171 to 177 companies act 2006 because he fails 
a to disclose any such information to the directors or to any director or other officer or employee of the
company andor
b to use any such information in performing his duties as a director or officer or employee of the company
g where the existence of a director’s connection with another person has been authorised by the directors under
subparagraph a of this paragraph of this article and his connection with that person conflicts or possibly may
conflict with the interests of the company the director shall not be in breach of the general duties he owes to the
company by virtue of sections 171 to 177 of the 2006 act because he 
c absents himself from meetings of the directors or any committee thereof at which any matter relating to the
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i for the purposes of this article a conflict of interest includes a conflict of interest and duty and a conflict of duties
10 provisions have been added to the new articles to allow any shareholder holding their shares in crest or any other
dematerialised form to appoint a proxy to by way of a dematerialised proxy instruction sent by means of the relevant system
to the company 74 osmetech annual report and accounts 2007 osmetech annual report and accounts 2007 75
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ordinary business for against withheld
1 to receive and consider the accounts for the financial year ended 31 december 2007
together with the reports of the directors and auditors thereon
2 to reelect d a sandilands as a director
3 to reappoint deloitte  touche llp as auditors of the company until the conclusion 
of the next annual general meeting and to authorise the directors of the company to 
determine their remuneration
special business
4 to authorise the directors to allot shares of the company up to a maximum
amount of £67605
5 to empower the directors to allot shares for cash on a preemptive basis and otherwise
up to a maximum amount of £20312
6 to adopt the articles of association produced to the meeting as the articles of 
association of the company in substitution for and to the exclusion of the existing
articles of association and that with effect from 1 october 2008 new article 1018 
be inserted into the articles of association
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gordon j hall nonexecutive chairman
james n g white chief executive officer
david a sandilands chief financial officer
gordon b kuenster nonexecutive
bruce a huebner executive
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sally a craig
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directors and advisers xx    osmetech annual report 2004  


Summary:
 chief executive officer’s review
introduction
we have continued to make strong progress in the year towards our aim of commercialising our
proprietary electrochemical detection technology to provide a low cost easy to use instrument platform
for molecular diagnostics testing
commercialisation achieved with first generation system
a limited number of esensor 4800 dna detection instruments were inherited when the clinical micro
sensors inc business was acquired from motorola in 2005 our strategy has been to use this first
generation esensor 4800 platform to achieve regulatory and commercial acceptance of our technology
we are pleased to report considerable progress in this regard following fda regulatory clearance for
our esensor cystic fibrosis carrier detection test and esensor 4800 dna detection instrument in 2006
14 available instruments are now with customers either on a commercial basis or under evaluation
customers range from large to small hospitals and small reference laboratories and we have
experienced a 100 conversion rate from the evaluation stage through to commercial contract whilst
customer satisfaction levels remain high we plan to replace these esensor 4800 systems with our second
generation platform the esensor xt8 following clearance by the fda
throughout this commercialisation process we have established a core us sales and marketing team in
addition to an effective manufacturing base and supply chain valuable feedback and experience from
the market has been gained allowing us to incorporate product enhancements into the development of
our second generation esensor xt8 system
submission of second generation platform
the development of our second generation esensor xt8 electrochemical dna analysis system has
been completed and the product has been very successfully exhibited at a number of trade shows
following highly successful preclinical trial studies the system is currently under review by the fda
together with our warfarin sensitivity test following fda clearance we plan to launch the platform in
the first half of 2008
fda clearance for the xt8 platform will simplify the regulatory pathway for future assay submissions
these submissions will be for new tests with no further review of the instrument being required
the xt8 system is based on the fdacleared esensor 4800 product with several additional features to
provide enhanced performance capabilities it is a compact benchtop workstation with an integrated
touch screen computer and disposable test cartridges that can process up to 3000 tests a week using
prepared samples the esensor xt8 system can run up to 24 different tests independently with variable
throughput capacity dependent upon the user’s requirements providing a definitive result within 30
minutes with limited operator involvement the system incorporates several key features which we
believe will make the xt8 attractive to a wide range of laboratories including
• simplicity our esensor xt8 system eliminates the need for sophisticated instrumentation or
complex reagent kits automation of a number of key process steps eliminates manual intervention
in the detection process and algorithms provide test results without the need for operator
interpretation or data manipulation making molecular diagnostic testing widely available to both
large and small hospital laboratories worldwide
• costeffectiveness our esensor xt8 system is a low cost platform that is accessible to smaller
hospitals and reference laboratories our versatile cartridgebased design eliminates the need for
multiple testing platforms by eliminating the need for skilled technicians and multiple complex
platforms hospitals and laboratories of all sizes can reduce their costs and obtain results from tests
in their own laboratories at a significantly lower cost than through systems generally available today
osmetech annual report and accounts 2007 3 chief executive officer’s review
continued
assuming current medicare reimbursement rates for genetic tests remain the same the esensor xt8
system should provide hospitals and reference laboratories with an additional revenue source while
allowing them to better serve their patients and clients with faster and more accurate test results
• true random access testing the esensor xt8 system allows laboratories to economically run
different tests from different patient samples when received and on demand unlike other systems
where laboratories must process patient samples in batches to control reagent and labour costs
true random access results in faster sample turnaround times improved patient care and timely
service to the ordering clinician waiting to act on the patient result
• multiplexing the esensor xt8 system enables scalable multiplexing of up to 72 target molecules
on the same patient sample in a single assay cartridge potential applications include genomic and
infectious disease test panels on a single use cartridge that allows for the simultaneous detection of
multiple genetic mutations associated with complex diseases such as cystic fibrosis or respiratory
infections
• accuracy and reliability the esensor xt8 system utilises a proprietary electrochemical method to
detect nucleic acids with high levels of sensitivity and specificity electrochemistry is far more robust
than optical recognition methods providing results that are less subject to variation from
contamination or vibration and dust
• low maintenance we believe that the esensor xt8 requires less maintenance than any other
competitor instrument no setup procedures are necessary allowing an extremely convenient ‘plug
and play’ approach ongoing or regular maintenance is minimal
• validated technology the esensor xt8 system is based on our proprietary electrochemical
technology a technology which has been used in other clinical applications most notably in blood
glucose measurement for diabetes management the xt8 instrument utilises the same core
technology as our esensor 4800 system which has been approved by the fda and is currently in use
in laboratory settings for cystic fibrosis carrier detection
• clinical lab ready system the xt8 is designed specifically for the molecular diagnostics market
using our experience of successful new blood gas products previously launched in our critical care
division rather than attempting to adapt a complex research based instrument to meet the very
different demands of the clinical environment
unique content inlicenced
we have obtained an exclusive licence from the marshfield clinic for an important newly discovered
genetic marker for warfarin the cyp450 4f2 biomarker the marshfield clinic has recently had an article
published in the peerreviewed journal blood online entitled “cyp4f2 genetic variant alters required
warfarin dose” which describes clinical studies demonstrating that the 4f2 biomarker significantly
influences warfarin requirements gaining access to unique content through exclusive licencing is highly
unusual in the molecular diagnostics industry and gives us a significant competitive advantage
confirmed by the numerous enquiries we have subsequently received from third parties seeking a sub
licence
together with the licences necessary for our marketed cystic fibrosis carrier detection test we have
also successfully completed the inlicencing of biomarkers for our warfarin sensitivity and 2c9
pharmacogenomics tests planned for launch later this year in addition to the unique 4f2 marker we
have also obtained the rights to other genetic markers related to warfarin metabolism which should
form the basis of an extended warfarin panel test also targeted for launch later in 2008
osmetech has recently been granted a broad nonexclusive worldwide diagnostics licence from roche
to use chemically modified thermostable polymerases for applications including existing marketed
4 osmetech annual report and accounts 2007 chief executive officer’s review
continued
products other genetic predisposition assays companion diagnostics and infectious diseases such as
hpv this enables improved control over the amplification of select segments of nucleic acids including
genomic dna so that sufficient signal is available for diagnostic processing resulting in a highly
efficient and sensitive amplified assay this licence will benefit both new and existing customers who will
not be required to obtain this licence from roche and pay royalties on tests performed when using
osmetech products this is a good example where osmetech is simplifying molecular diagnostics by
including this critical component in an easy to use kit format for customers
expansion of our intellectual property portfolio and outlicencing activities
we believe that our intellectual property portfolio provides a significant barrier to the development of
similar electrochemical based detection systems we own or have exclusive worldwide rights to more
than 150 patents worldwide mostly in the field of electrochemical detection of biological entities such as
dna rna and proteins
our strong intellectual property portfolio for its core electrochemical detection technology was built
through the combination of the clinical micro sensors acquisition from motorola and a series of
worldwide exclusive licences most notably from caltech where most of the electrochemical detection
technology originated university of north carolina harvard university and mit to date there are more
than 80 issued us patents protecting the company’s electrochemical detection technology covering a
diverse collection of areas including electrochemical dna detection selfassembling monolayer
technology signal processing and extraction methods
we believe that our esensor electrochemical technology is ideally suited to the decentralising molecular
diagnostics market enabling testing in less sophisticated laboratories outside of research institutions
and large hospitals it should also provide us with the ability to develop intuitive and robust pointof
care testing instrumentation and ultimately portable testing devices that are not subject to the
limitations of photon optical based platforms
we have licenced technology to ohmx corporation and minerva biotechnologies corp on a non
exclusive basis we see further opportunities to leverage our considerable patent portfolio to generate
licencing income from commercial agreements while maintaining our competitive advantage for
applications in our core markets
business repositioned in the most attractive segment of the diagnostics industry 
molecular diagnostics
the sale of our critical care division “ccd” blood gas and electrolyte analyser business early in 2007
completed the cycle of acquiring and developing a noncore undervalued asset from a major company
through to the generation of significant returns osmetech was successful in creating considerable value
with ccd in a mature slow growing market with modest profit margins we are now developing a
molecular diagnostics business with higher growth and higher margin opportunities in a market sector of
increasing strategic importance
the molecular diagnostics market is the fastest growing segment of the overall invitro diagnostics ivd
market the global market for diagnostic products was estimated to be 34 billion in 2006 according to
boston biomedical consultants molecular diagnostics generally refers to the use of genomic analysis of
individuals to diagnose disease and treat patients and as a subsegment of the ivd market includes
diagnostic testing for infectious diseases pharmacogenomics genetics and cancer this new and
expanding part of the ivd market has emerged in response to a need for more rapid sensitive and
specific diagnostic tests than were previously available using traditional techniques such as
immunoassays our market opportunity in molecular diagnostics is more than 23 billion we believe
that the following factors among others are contributing to the growth of this market
osmetech annual report and accounts 2007 5 chief executive officer’s review
continued
• decentralisation the diagnostics market is beginning the conversion from traditional methods of
detection that are required to be performed in outside laboratories to molecular testing performed
in hospital laboratories generally genetic testing required complex instrumentation utilising highly
trained operators expensive equipment and dedicated facilities there is growing demand from us
hospitals looking to build laboratory revenues and profitability through the reimbursement system by
performing molecular testing on new cost effective and easy to use platforms in their own
laboratories
• conversion to fdaapproved molecular testing methods the fda is encouraging the molecular
diagnostic industry to develop tests that are cleared by the fda rather then using asrbased tests
not submitted for clearance it is expected that over time that many of these asr tests and “home
brew” tests created by laboratories will be phased out in favour of fdaapproved tests
• expansion of human genetic testing medical advances in the understanding of the relationship
between genetics and disease and the disease process have led to the development of human
genetic tests for diseases such as cystic fibrosis and inherited diseases as understanding and
technology advance we expect that additional genetic tests will become available to establish a
person’s predisposition to a wide range of diseases
• pharmacogenomics research is uncovering more information about the impact of genetics on
patients’ ability to tolerate metabolise and respond to many drugs the importance of this research
is highlighted by the fact that according to the institute of medicine over 100000 people die each
year in the us alone as a result of adverse drug reactions as a result we expect that genetic
testing will increasingly be used to guide treatment methods and dosages through the development
of companion drug tests the fda has noted an increase in pharmaceutical companies seeking
clearance of products with accompanying diagnostic tests and over the next decade there is
expected to be substantial growth in the companion molecular diagnostics market with companies
focusing their development of drugs for patients who are more likely to respond favourably to that
particular drug and drugs that focus on targeting a specific gene in addition the fda is seeking
pharmacogenomic information from pharmaceutical companies on their currently marketed
products which could lead to the development of new tests for other pharmaceuticals
• increasing reliance on genetic testing future growth in the molecular diagnostics market will be
driven by continued development of new tests and the growing acceptance of and reliance on
these tests by physicians and other practitioners in their decision making process and patients’
awareness of the potential of these tests we expect that as these tests become more accessible as
a result of the lowering of barriers to entry to hospital laboratories for test processing physicians and
patients will come to include these tests as an important factor in prevention diagnosis and
treatment of many diseases
6 osmetech annual report and accounts 2007 chief executive officer’s review
continued
our applications
we are commercialising or have in development several genomic assays including the following
application product description status
warfarin metabolism xt8 warfarin test
warfarin metabolism
2c9 drug metabolism
cystic fibrosis
cystic fibrosis
respiratory viruses in development identification of the
major respiratory
viruses aids
identification of
bacterial infections
respiratory viral panel
for esensor xt8
system
in development
510k application to be
submitted early 2009
test for preconception
screening of cystic
fibrosis gene carriers
cystic fibrosis test for
esensor xt8 system
on market fdacleared test for
preconception
screening of cystic
fibrosis gene carriers
cystic fibrosis test for
esensor 4800 system
development and clinical
trials complete 510k
application to be
submitted following fda
clearance of the xt8
warfarin test commercial
launch projected in the
second half of 2008
genetic test for cyp2c9
biomarkers associated
with metabolism of
phenytoin epilepsy and
most nonsteroidal anti
inflammatory drugs
including cox2
cyp 450 2c9 test for
esensor xt8 system
development and clinical
trials complete 510k
application to be
submitted following fda
clearance of the xt8
warfarin test commercial
launch projected in the
second half of 2008
genetic test for
additional cyp2c9
vkor biomarkers
associated with warfarin
metabolism including
exclusively licenced
cyp450 4f2 biomarker
xt8 extended
warfarin test
510k application
submitted december 2007
assuming fda clearance
commercial launch
projected in the first half of
2008
genetic test for cyp2c9
vkor biomarkers
associated with warfarin
metabolism
osmetech annual report and accounts 2007 7 chief executive officer’s review
continued
warfarin metabolism
our esensor warfarin test is a pharmacogenomic test for the detection of genetic mutations that
determine an individual’s ability to metabolise the oral anticoagulant warfarin also known as coumadin
warfarin decreases the blood’s clotting ability and is the most widely prescribed oral anticoagulant in
north america and europe individuals metabolise warfarin differently and if its administration is not
managed carefully life threatening side effects may occur
in the us alone there are an estimated 2 million new warfarin patients each year warfarin is the second
most likely drug after insulin to send americans to the emergency room resulting in an estimated
43000 visits a year in the us a recent economic study concluded that widespread use of warfarin
testing in the us could avoid 85000 seriousbleeding events and 17000 strokes a year and so save the
healthcare system approximately 11 billion annually
in august 2007 the fda announced the relabelling of coumadin generic name – warfarin which was
reported on the front page of the wall street journal it is significant that the fda has taken such a
proactive stance to promote the use of genetic factors to predict how individuals will react to medicines
we believe this is a significant milestone for the adoption of pharmacogenomics tests the potential for
warfarin testing is a good illustration of the significant commercial opportunities for pharmacogenomics
tests targeting specific drugs which are capable of being performed on osmetech’s xt8 platform
the esensor warfarin test which is currently under review by the fda together with the esensor xt8
system detects three genetic markers that are known to play a critical role in metabolising warfarin
through detection of these genetic markers doctors are able to determine the appropriate initial
warfarin dosage level in a safer and more efficient manner
we recently obtained an exclusive licence from the marshfield clinic for an important newly discovered
genetic marker for warfarin the cyp450 4f2 biomarker clinical studies demonstrate that the 4f2 biomarker
significantly influences warfarin requirements we have already conducted clinical trials incorporating this
4f2 marker and other additional genetic markers into our esensor extended warfarin test which we expect
to submit for fda 510k clearance shortly after receiving clearance for our three marker warfarin test
cystic fibrosis
our cystic fibrosis carrier detection test is a qualitative multiplexed genotyping assay that detects a
23marker panel of mutations associated with cystic fibrosis based on guidelines published by the
american college of medical genetics and the american college of obstetricians and gynecologists for
screening of adult couples contemplating pregnancy our esensor cystic fibrosis test for the esensor
4800 system received 510k clearance from the fda in 2006 and is currently on the market we
anticipate that we will submit our esensor cystic fibrosis test for the esensor xt8 system for fda
clearance in early 2009
the us market for cystic fibrosis carrier screening is currently estimated to be 15 million tests
growing at 15 with less than 50 market penetration we expect that the launch of additional lowcost
fdaapproved tests will drive market expansion through increased testing by small and mediumsized
laboratories as approximately 60 of tests are currently performed in large reference laboratories we
anticipate that by 2010 approximately 25 million tests will be performed in the us creating a total
market of up to 300 million
2c9 drug metabolism
cyp2c9 is a member of the cytochrome p450 mixedfunction system of enzymes involved in the
metabolism of several important groups of drugs including many nonsteroidal antiinflammatory drugs
nsaids and antidiabetic drugs
8 osmetech annual report and accounts 2007 chief executive officer’s review
continued
we have conducted clinical trials on a 2c9 drug metabolism test we expect to submit for fda 510k
clearance for 2c9 later this year following clearance of our warfarin test
other assays
we have a respiratory virus panel currently in development which has the potential of addressing a large
market a test that differentiates between a number of common respiratory viruses and bacteria is well
suited to the xt8’s capabilities for multiplex detection from a single patient sample
we are currently evaluating a number of opportunities to broaden our test menu we are focussing on
validated content with clear market requirements and anticipate that we will enter into licencing and
commercial agreements with partners enabling further assays to be added to the esensor xt8
instrument platform we expect that this pipeline will include pharmaceutical companion diagnostics
and validated cancer markers
competitive landscape
much of the molecular diagnostic testing today is performed on large expensive and complex research
based instruments requiring highly skilled staff to perform tests and interpret results in order to achieve
acceptable financial returns large volume batch testing is often required as a consequence testing is
largely concentrated in reference laboratories and large hospitals with other hospitals and institutions
forced to outsource testing resulting in lengthy waits for results and the lost opportunity of performing
potentially profitable tests inhouse
many of the existing methods including certain more recently developed technologies are susceptible
to contamination and inaccuracy because of the need for specialist involvement in every stage of the
process which can lead to inconclusive results and incorrect interpretation furthermore many new
technologies in molecular diagnostics have failed to provide the ease of use and costeffectiveness that
we believe is necessary to make molecular diagnostic instruments attractive to hospitals and reference
laboratories that do not currently have the capacity to perform molecular diagnostics in their
laboratories
market domination in this sector of the diagnostics market by a limited number of key players has not
yet occurred and ma and crosslicencing activity remains strong with many large players looking to
increase their presence or enter the market for the first time
we are one of a small number of companies with the capability of meeting the requirements for this
growing market we are also one of an even smaller group with fda cleared tests and validated core
technology necessary for widespread adoption by all sizes of customer in this decentralising market
genesensor
during 2007 the development of the genesensor instrument platform was discontinued with the group’s
resources fully focused on the esensor technology and xt8 platform we remain very encouraged by
the market acceptance of esensor system and now believe that the esensor xt8 instrument and our
electrochemical detection technology generally have the ability to address many of the market
requirements originally targeted by our genesensor instrument system
financial review
ifrs
this is the first year that the group has presented its financial statements under international financial
reporting standards “ifrs” the last financial statements under uk gaap were for the year ended 
31 december 2006 and the date of transition to ifrs was therefore 1 january 2006 the major areas of
impact of ifrs are summarised below
osmetech annual report and accounts 2007 9 chief executive officer’s review
continued
• goodwill is not amortised under ifrs but rather subject to annual impairment reviews
• recognition and potential remeasurement of disposal groups under ifrs 5 ‘non current assets held
for sale and discontinued operations’
the effect of these adjustments on the income statements balance sheets and equity of the group are
set out in the notes to the accounts
discontinued operations
the results for critical care division sold in january 2007 together with the gain on disposal have been
disclosed as ‘discontinued operations’ in the income statement for both 2006 and 2007 discontinued
operations also include results relating to genesensor which was discontinued in 2007
a net profit on disposal of the ccd of £176 million was recorded in the year representing a significant
return on the original investment the total net income after tax attributable to ccd including the
trading result for january 2007 was £173 million
the loss attributable to the discontinued genesensor operation of £12 million included an impairment
of assets amounting to £11 million principally comprising the write off of goodwill of £10 million
continuing operations
the loss after taxation in the year from continuing operations in the year decreased by 3 to
£12031000 2006 – £12340000 gross profit revenue less changes in inventories increased to £76000
2006 – £17000 on higher revenue of £169000 2006 – £49000 it is too early in the commercialisation
stage for the business to provide any meaningful analysis of the reported gross profit margin of 45
the operating loss for the year increased by 2 to £13048000 2006 – £12751000 with the
development of the xt8 completed in 2007 our instrument development costs were lower than in 2006
although this cost reduction was offset by an increase in assay development activity to ensure that we
have a good progression of new tests in the pipeline for the xt8 we anticipate that assay development
costs will continue at this new higher level in 2008 and we plan to increase our sales and marketing
resource as we launch the xt8
at 31 december 2007 cash and cash equivalents were £139 million and were boosted during the year
by the proceeds from the sale of the critical care division approximately 90 of the group’s cash is
held in us dollars a proportion which broadly matches the likely currency funding requirements for the
business
cash flow
the increase in cash and cash equivalents in the year before the effect of foreign exchange rate changes
was £7184000 compared to a total group profit for the year of £3984000 the principal reasons for the
difference are the cash received from idexx for the sale of net assets plus cumulative exchange reserve
of the critical care division which amounted to £3775000 at 31 december 2006
redemption of warrants
on 19 march 2007 7811428 warrants held by motorola were repurchased and subsequently cancelled
by osmetech at a price of six pence per warrant for a total of £468686 before costs of £12159 the
warrants were issued to motorola in consideration for osmetech’s acquisition of clinical micro sensors
inc in 2005 the warrants entitled motorola to subscribe for up to 7811428 ordinary shares of 01 pence
each in the capital of osmetech representing 385 of the current issued share capital at a price of 175
pence per share at any time up to 26 july 2010
10 osmetech annual report and accounts 2007 chief executive officer’s review
continued
outlook
in addition to securing fda clearance of the esensor 4800 dna detection instrument we have been
successful in recruiting new customers thereby establishing market acceptance of our technology these
are key milestones that have been met and the principal focus for the business is now execution
sales revenues have been increasing as the number of instrument placements has grown moving into
2008 we also expect to see an increase in test usage per instrument from existing customers looking to
promote the cystic fibrosis test within their local communities to increase the revenues and profitability
of their laboratories through established and attractive reimbursement rates
we plan to build on this success by launching our second generation esensor xt8 system upon fda
clearance for our warfarin sensitivity test expected shortly by the end of 2008 we expect to have
expanded our test menu to include two additional fda cleared tests creating the basis to produce
annual sales revenues in excess of 100000 per instrument we will also be preparing to increase our
installed base of instruments further with international launch through a network of distributors
we are currently in discussions or negotiations with a number of potential partners attracted by the
broad appeal of our xt8 instrument platform and electrochemical detection technology we anticipate
that this will result in new genetic and pharmacogenomic tests to expand our test menu as well as
opportunities to develop a system that can process results directly from the patient sample without the
need for sample preparation to significantly improve the processing time of our tests
we believe that market success is likely to be driven by a combination of strength in technology
intellectual property instrumentation installed base and assay menu given these factors the board
considers that osmetech is building a strong position in this increasingly important market providing
considerable scope to create further value in the business
james white
chief executive officer
31 march 2008
osmetech annual report and accounts 2007 11