By Kristy Dorsey

Shares in Omega Diagnostics lost more than a quarter of their value yesterday after the company was hit with a £2.5 million bill for equipment to produce Covid tests that the UK Government no longer wants.

The money was provided to Omega as a pre-production payment to ramp up capacity to make hundreds of millions of lateral flow antigen tests for the Department of Health and Social Care (DHSC). However, Omega confirmed last month that the contract has expired and will not proceed into Phase 2.

The DHSC has now asked Omega to submit a proposal for returning the £2.5m pre-production payment made last year to purchase equipment for high-volume manufacturing at its headquarters in Alva.

READ MORE: Omega shares tumble on expiry of major Government contract

Having taken initial legal advice, Omega said it does not believe it is required to repay the money. It added that the board will continue to take further legal advice and hopes to reach a resolution “swiftly”.

“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,” chief executive Colin King said.

READ MORE: Omega secures new contract while awaiting overdue UK Covid test decision

“Acting in good faith we used these pre-production payments, along with our own funds, to upgrade our manufacturing facilities to be able to integrate the Government-furnished equipment and bringing on the additional staff required to be able to supply the DHSC using our UK-based volume manufacturing services. We therefore are confident that, having sought legal advice, we will not be required to make this repayment.”

Announced in March 2020, the DHSC agreement could have been worth up to £374m. The company's shares finished yesterday’s trading 8.75p lower at 23.75p, a decline of 27 per cent.