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Profit Warning Issued By Advanced Medical Solutions

Advanced Medical Solutions has issued a profit warning after the first half of its financial year was hit by reduced royalty income.

The Winsford-headquartered group was impacted by lower revenue from its patent licencing agreement with Organogenesis Inc.

Last month, Organogenesis announced that changes to US reimbursement coverage for the treatment of diabetic foot ulcers and venous leg ulcers has “created uncertainty regarding the revenue outlook for some of its key products”, including those utilising AMS patents.

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In a statement issued to the London Stock Exchange, Advanced Medical Solutions said: “Given that Organogenesis has withdrawn its own guidance and that we have no control of, and minimal insight into its sales, we are unable to quantify the financial impact on AMS at this stage.

“We therefore believe it to be prudent to remove this royalty in its entirety from Q4 2023 guidance onwards.”

Advanced Medical Solutions said the total full-year impact of the lower royalty is expected to be a reduction of £2m to its adjusted pre-tax profit.

In FY24 and FY25, the removal of the royalty is expected to reduce adjusted pre-tax profit by £4m per annum with a similar pro-rata impact in FY26 until the end of the agreement in September 2026.

Advanced Medical Solutions has also warned that talks with its US partners have taken “longer than first anticipated and associated destocking has been greater”

It added that it is clear that the FY23 impact “will be more significant than previously estimated”, impacting revenues just in the current year.

The group said it now expects its full-year revenue to be between £124m and £127m and its adjusted pre-tax profits to be between £25m and £27m.

Chief executive Chris Meredith said: “While the uncertainty in the Organogenesis royalty stream and the higher de-stocking of US LiquiBand is clearly disappointing, my confidence in AMS’s long term growth prospects is stronger than ever.

“We remain convinced that our new US LiquiBand partner strategy will drive accelerated growth from early 2024 and that this, in conjunction with other initiatives such as the imminent launch of LiquiBandFix8 in the US, will enable AMS to return to strong growth in 2024 and beyond.”

Analysis Dr Mike Mitchell and Dr Julie Simmonds of Panmure Gordon:

“This morning AMS has issued an unscheduled trading update highlighting two issues which prompt us to revise forecasts downwards.

“Recent commentary from Organogenesis on changes to US reimbursement coverage for the treatment of diabetic foot ulcers and venous leg ulcers has created uncertainty on revenue expectations for some of its key products, including those utilising AMS patents, undermining expectations for Organogensis-related royalty streams.

“Meanwhile, destocking on US LiquiBand – while the company makes ‘good’ but slower progress on its partnering relationships – will see an impact which AMS considers to be limited to FY23.

“The upshot? A disappointing turn of events but ones which do not, in our view, undermine the longer-term potential for the business.

“However in the near-term we expect investors will be waiting for final clarity on the US LiquiBand partnering activities.

“We move our target price to 225p (previously 270p) on the basis of peer group multiples against revised forecasts and move our recommendation from buy to hold.”

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