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Anteo Diagnostics in funding drive ahead of global distribution push

Anteo Diagnostics (ASX:ADO) is moving to finalise a funding package for its acquisition of an established and profitable Belgian diagnostics company by launching a A$12 million entitlement issue.

This conditionally underwritten offer would be part of a funding package of $26.7 million, which also includes a €10 million (A$14.7 million) convertible note.

Anteo flagged its proposed acquisition of DIAsource ImmunoAssays earlier this year as a €15.4 million (A$22.7 million) deal that would transition Anteo towards becoming cashflow positive by providing the company with an established global distribution platform, manufacturing capabilities and a significantly broadened product range.

The entitlement issue will be priced at A$0.075 per share, which represents a 14.3% discount to the five-day volume-weighted average price of the company's shares.

Shares in Anteo last closed at A$0.086.

An underwriting agreement has been signed with PAC Partners to subscribe for any shortfall shares to the extent that there are sub-underwriting agreements in place.

It is anticipated, however, that PAC will enter into a number of sub-underwriting agreements, including those with Anteo chief executive Geoff Cumming and chief financial officer Richard Martin for a collective amount up to $900,000.

The acquisition is expected to be completed before the end of the calendar year.

Major acquisition

The pairing of Anteo and DIAsource is expected to benefit greatly from expanded management expertise, knowledge, skillsets and access to unique technologies.

Anteo leadership will be augmented by highly experienced DIAsource chairman Rolf Sickman joining Anteo's board as a non-executive director.

DIAsource CEO and founder Dr Jef Vangenechten will continue to manage the current DIAsource business and join the group executive team.

The new combined group will include 100 employees.

DIAsource's existing platform provides significant opportunities for Anteo's Mix&Go
technology, delivering tailored customer offerings and accelerating sales of the Mix&Go product range.

Mix&Go represents Anteo's healthcare nanoglue family, which uses coordination chemistry (rather than covalent chemistry or passive binding) for gentle and secure multipoint binding of biomolecules to synthetic surfaces.

This technology employs fine-scale nanotechnology in bioseparations processes, which are critical in medical lab work.

The market for bioseparation systems is expected to value US$6 billion by 2018.

DIAsource is expected to harvest the inherent advantages of this technology in its lucrative industrial immunoassay manufacturing business.

DIAsource achieved 2014 revenue of €11.9 million ($17.5 million) and €7.2 million ($10.6 million) in first half of 2015, with EBITDA margins of 20%.

Global expansion

The DIAsource deal also represents an important milestone in Anteo's global expansion strategy.
It was preceded by a partnership with Germany's SCIENION to co-develop protein microarray diagnostic consumables using Mix&Go technology and an agreement with US$16.7 billion life science and technology company Sigma-Aldrich Corporation.

Collaboration with SCIENION is expected to deliver more accurate results and better, longer-lasting and more cost effective diagnostics.

The Sigma-Aldrich arrangement, meanwhile, will provide Anteo access to Sigma-Aldrich's existing global customer base of more than 1.4 million scientists and technologists.

Inclusion of Anteo products into the Sigma-Aldrich portfolio follows the successful evaluation of Mix&Go for a variety of applications over the past year at Sigma-Aldrich's labs in the U.S.

Anteo also made Asian inroads in October when it confirmed a South Korean distribution agreement with Seoul-based KomaBiotech.

Under the deal, KomaBiotech will market, distribute and support Anteo Mix&Go products in a country where an already substantial life sciences industry is growing due to health and economic challenges related to an aging population base.

South Korea has more than 50 million people.

This market will now be exposed to Anteo's core nanoglue product range as it undergoes early-stage commercialisation.

Also, Tokyo-based biotech marketing group Veritas Corporation recently signed an agreement with Anteo for exclusive distribution rights in Japan.

Analysis

This funding package is a critical step forward in formally realising a transformative acquisition for Anteo.

The convertible note valued at A$14.7 million is an attractively priced hybrid instrument that provides Anteo with significant flexibility with regard to both capital structuring and cashflow management.

The $12 million entitlement issue, meanwhile, provides shareholders an opportunity to participate in Anteo's growth at an attractive discount.

The acquisition of DIAsource is an important step in the staged global expansion strategy for Anteo and builds on encouraging partnerships regarding important markets in Germany, Japan and South Korea.

Anteo's progress this year in building commercial, distribution and research relationships reflects significant interest in Mix&Go in key markets and an ability to extend intellectual property for the purposes of growing revenue streams.

The company's business and technology have become increasingly de-risked throughout the year as a result of activities including evaluation studies using clinical samples where the performance of Mix&Go assays was compared with the performance of incumbent assays by independent laboratories.

The encouraging results seen in this work to date are attractive to larger, risk averse customers who need to be assured incorporating Mix&Go materials can be achieved easily and that the results are clinically valid.

DIAsource, in particular, is a sound investment for Anteo as it offers a strong balance sheet and growth in both revenues and earnings, as well as an established organisation with experienced diagnostics management.

Revenue improvements may be achieved by the enlarged company through DIAsource products and inclusion of Mix&Go in the product mix.

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