Omega Diagnostics Group Plc (LON: ODX) share price plunged 31% after issuing an update on its contract with the Department of Health and Social Care (DHSC), which expired on 1 October 2021, after months of limbo.
Investors reacted negatively to the update, which revealed that the DHSC asked the company to repay the £2.5 million payment made to the company by the DHSC under phase 1 of the contract.
It appears that investors are worried that the DHSC may seek legal means to recoup its investment, which could negatively affect the biotech company’s finances.
Omega reported a statutory loss of £2.75 million during the first half of 2021 following increased labour costs in anticipation of an order to manufacture COVID-19 tests for the DHSC, which did not materialise.
The company told investors that it has taken legal advice and does not believe it is required to repay the money received from the DHSC. Instead, it invested the funds to upgrade its manufacturing facilities and hire extra workers to prepare for phase II.
Omega’s issues with the DHSC are similar to those facing Abingdon Health after the DHSC cancelled the company’s contract for supplying COVID-19 tests and refused to pay for the 1 million tests already delivered under the contract.
The DHSC currency owes Abingdon Health £8.45 million and is dragging its feet on the payment. Lastly, it said it could set up a payment plan, which is ridiculous given that the DHSC has a budget worth over £190 billion and could quickly pay the total amount.
The DHSC reluctance to pay some suppliers is driven by the public outcry that arose over some contracts awarded by the department, which were severely overpriced.
It appears that Omega diagnostics and Abingdon Health will pay a heavy price for their involvement with the government department. But, hopefully, they can recover from the same and get new business from other clients such as private companies.
Colin King, Omega Diagnostics’ CEO, said: “It is clearly disappointing to receive this request for repayment given the efforts we have gone to ensure manufacturing capacity for COVID-19 lateral flow test was available for the DHSC and that we did not progress to Phase 2 of the contract due to the lack of confirmation from the DHSC regarding which test they require us to manufacture.”
Since January, Omega shares have fallen 62.95% and may be attractive to some investors. However, I would wait for the dispute with the DHSC to be resolved before jumping in.
*This is not investment advice. Always do your due diligence before making investment decisions.
Omega Diagnostics share price.
Omega Diagnostics share price plunged 31.07% to trade at 22.40p, falling from Thursday’s closing price of 32.50p.
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