Threat to Anagen system

A legal dispute with a former business partner may threaten quoted healthcare firm Anagen's ability to exploit its crucial Auraflex blood analysis system.

Integrated Technologies Ltd (ITL), which is suing Anagen after the firm pulled out of a manufacturing project, has sent a letter to industry firms saying it has told regulators it can no longer be held responsible for meeting manufacturing standards on the Auraflex machine.

ITL, which originally made the hardware, met the standards required. But it now says that it cannot be held responsible for the safety of the machines it built because it alleges Anagen is making its own modifications.

Anagen shares have fallen 20p to 49p since the Independent on Sunday revealed two weeks ago that it had decided not to tell investors last summer that there were serious problems developing the Auraflex project. That was despite the company's statement last year that Auraflex had been launched in February 1995 and subsequent press reports that it was selling well, when none had in fact been sold.

Under a settlement deal with a Dutch distributor, which pulled out last October, Anagen received most of the stock of 150 Auraflex instruments which had already been made by ITL.

To sell, the machines must meet standards imposed by European directives as well as those rules imposed by national bodies such as the US Food and Drug Administration. It can take a year to pass through the FDA's hoops, which ITL had already done.

"We wanted to caution clients and notify the authorities so that they realise this is the case and that the nameplate on the back of the machines we built, which gives our seal of quality manufacturing, is no longer providing them with any assurance from a safety and regulatory point of view," said Amir Modjarrad, ITL's managing director.

On advice from its lawyers Mc- Kennas, Anagen refused to comment on whether it was registered with the FDA, what other approvals it has and what impact ITL's withdrawal would have.

In January, Anagen said it believed Auraflex sales could contribute pounds 1m to cash reserves in the current year. It has also issued counter-writs against ITL.