Analysts have placed blood gas analysing device-maker Sphere Medical’s (SPHR:AIM) forecasts under review after its collaboration partner decided not to buy the rights to its Proxima 4 system.

This creates a period of uncertainty for the loss-making company and suggests pressure will remain on a share price which is already down 32.8% year to date.

Proxima analyses the blood gases that determine a patient’s health at the bedside, replacing the need to send samples to a lab. As well as cutting costs it reduces infection and anaemia risk with the analyser attached to a patient’s arm for six days and returning each sample to the body.

On 17 August, Sphere reported that in-vitro diagnostic-maker Ortho Clinical Diagnostics decided against exercising an option to buy the exclusive global rights to the sale of Proxima.

Before the news FinnCap expected a pre-tax loss of £6.9 million for 2015, up from £5.8 million in 2014. The market awaits the broker’s new forecasts.

Sphere formed an agreement with Ortho in July 2013 where the US firm invested £3.3 million in the business with the option to sell Proxima 4. This is the next generation of the system, which incorporates glucose and sodium analysis within the sensor panel and adds connectivity to hospital information systems.

Ortho specialises in distributing laboratory-based tests and systems. FinnCap believes its decision was the result of it not having a big enough presence in the point-of-care testing market, which is needed to distribute the Proxima 4 system.

This leaves Sphere free to negotiate a deal with another party, especially a lab-bound diagnostic company in the blood analysis space which does not have a point-of-care device.

If the £20.1 million cap markets the device itself then uptake is likely to be slower than it would be through a larger company with more developed distribution channels. On this basis forming an agreement with another party would be the preferred option for many shareholders.

Sphere keeps any of the intellectual property that was developed during the coloration period and is working on submitting Proxima 4 for its CE mark, which clears it for sale in most of Europe.

Sphere has a good device and superficially 14.2p looks a good entry price, but beware a value trap as the shares are likely to fall further when FinnCap’s new forecasts are published.

SWOT ANALYSIS

STRENGTHS

• Point-of-care device

• Retains intellectual property

WEAKNESSES

• Loss-making

• No distribution agreement

• Does not have own distribution infrastructure

OPPORTUNITIES

• Free to form new agreement

• Securing European sales clearance

THREATS

• New market entrants

• No distribution agreement

• Regulation