Creo Medical Regulatory News (CREO)

Creo Medical Group plc

("Creo" the "Group" or the "Company")

Final results for the 12 months ended 31 December 2020

A Transformational Year: Significant growth and continued regulatory progress

Creo Medical Group plc (AIM: CREO), a medical device company focused on the emerging field of surgical endoscopy, announces its audited final results for the 12 months ended 31 December 2020.

The Board is pleased to be able to report that, despite the COVID-19 pandemic, the year ended 31 December 2020 was a strong period for Creo marked by significant internal development and expansion, along with the continued development of the Company's suite of devices to complement the Company's CROMA Advanced Energy Platform ("CROMA") and Speedboat device for use in Gastrointestinal ("GI") therapeutic endoscopy.

Operational Highlights:

· Albyn Medical and Boucart Medical acquired providing a direct sales presence in key European markets and strengthening Creo's commercial team

· An increased ESG focus with a strong COVID-19 response

· Appointment of David Woods as Chief Commercial Officer in August 2020, brought a wealth of knowledge and experience to the business

· Recruitment of a direct sales team in the USA and APAC

· 10-fold increase in the commercial, marketing and distribution resource

· Direct presence across five European countries, four regions of the USA and a centralised hub in Asia

· CE marking an additional five devices

· US Food and Drug Administration ('FDA') 510(k) clearance achieved for:

o SlypSeal;

o MicroBlate Fine; and

o MicroBlate Flex (post period end)

· The first clinical use of MicroBlate Fine in a successful pancreatic tumour ablation

· Strengthened IP portfolio, with 247 granted patents and 763 pending applications

Financial Highlights:

· Total sales in the period were £9.4m (2019: £0.01m)

· Cash and cash equivalents of £45.1m at 31 December 2020 (31 December 2019: £81.0m)

· Operating loss of £23.5m (2019: £18.9m) including £0.7m share based payments, in line with management expectations and reflects increased R&D and commercial activities

· Net cash outflow from operating activities of £16.3m (2019: £11.9m) 

Craig Gulliford, Chief Executive Officer, commented:

"It has been a transformational year and we have made impressive progress against our build, buy and partner strategy. Perhaps the most satisfying achievement for the whole team has been the first clinical use of MicroBlate Fine to successfully treat a number of patients with pancreatic tumours in early December 2020, with no adverse events reported to date.

"Though the evolution of Creo since IPO has been exceptional our mission remains the same: to improve patient outcomes and this is evidence that we are doing that.

"Having started the year with only one CE marked device, we have successfully cleared five additional advanced energy devices through the CE mark process and gained FDA 501(k) clearance for three devices. Furthermore, we have completed two transformational acquisitions which are delivering meaningful revenue to the business and we have exceeded our objectives in expanding our sales team globally.

"We are extremely well positioned to be the next generation solution in minimally invasive surgery and, whilst our current focus is on GI therapeutic endoscopy, looking forward we see significant further opportunities in other surgical disciplines/specialities and then beyond into diagnostics."

About Creo Medical

Creo Medical, founded in 2003, is a medical device company focused on the development and commercialisation of minimally invasive surgical devices, bringing advanced energy to endoscopy. The Company's mission is to improve patient outcomes by applying microwave and RF energy to surgical endoscopy. Creo has developed CROMA, an electrosurgical Advanced Energy Platform that delivers bipolar radiofrequency for precise localised cutting and microwave for controlled coagulation. This technology provides clinicians with flexible, accurate and controlled surgical solutions.

The Company's strategy is to bring its CROMA Advanced Energy Platform powered by its full spectrum Kamaptive Technology to market, enabling a suite of medical devices which the Company has designed, initially for the emerging field of GI therapeutic endoscopy, an area with high unmet needs. The CROMA Advanced Energy Platform will be developed further for bronchoscopy and laparoscopy procedures. The Company believes its technology can impact the landscape of surgery and endoscopy by providing a safer, less invasive and more cost-efficient option of treatment. An overview of the Creo Medical device technology portfolio can be seen here:

https://www.rns-pdf.londonstockexchange.com/rns/8918P_1-2020-6-14.pdf

For more information about Creo Medical please see our website, www.creomedical.com  

Chairman's statement

As for many businesses, families and individuals across the globe, 2020 was an extraordinary year for Creo. The Board is full of admiration for how effectively our senior management team and staff rose to the challenges presented by COVID-19 and navigated the Company through the year, achieving significant regulatory and commercial progress. 

While the excitement around the clinical results being achieved remains high in each of our key markets, as expected, the various lockdowns and other national and international restrictions impacted the ability for Creo's products to be commercially adopted. The senior management team wisely refocused resources to build an international commercial platform and, in parallel with our R&D and engineering teams, continued to develop our technology and intellectual property faster and further than planned. Consequently, we achieved better than expected progress in developing new products, filing intellectual property and have secured regulatory clearances in Europe and the USA.

In July, we announced the transformational acquisition of Albyn Medical, the first and largest of the two acquisitions executed during the period. Completing cross-border acquisitions of businesses based in Europe against the headwinds of both COVID-19 and Brexit presented a set of challenges to which the Executive Directors and wider team rose admirably to. In November, we also acquired Boucart Medical to further strengthen Albyn's European platform. We welcome both the Albyn and Boucart teams into the Group and thank them for their hard work and flexibility in integrating the businesses so quickly. Albyn exceeded our expectations in its first five months as part of the Group and, as announced in the trading update on 19 May 2021, the Directors are very positive about its ongoing contribution to the enlarged business.

Management and staff

In 2020, Creo's executive team and staff have continued to evolve and expand and this positions us very favourably for the years ahead. David Woods was appointed Chief Commercial Officer in August and has quickly recruited an experienced international team to support him in the US and APAC. David was, of course, already part of the Creo family, having served as a Non-Executive Director of the Group since the IPO. He now takes on a vital executive role in building out our global commercial platform and we are very pleased to welcome him and his new colleagues onto the executive team.

Central to the seamless integration into Creo of Albyn has been the addition of its CEO Luis Collantes to the Group's senior management team. Supported by his team, Luis has made an immediate and positive contribution to Creo so we are similarly delighted to welcome them into the Group.

Last year we reported that our staff had trebled since the IPO and with two acquisitions, by the end of 2020, the Group employed 217 staff based in eight countries; this represents a roughly eightfold increase in our overall headcount since our admission to AIM in 2016. The Creo team now includes first class talent from a wide range of nationalities, technical skill sets and professional backgrounds. The Board would like to express its thanks and admiration for all they have achieved during this year and the energy, good humour and resourcefulness with which they have addressed the added challenges presented by the pandemic.

Shareholders

Creo has a supportive shareholder base of which we are highly appreciative. With their support, and having completed our equity raise in December 2019, we entered 2020 with a strong balance sheet. This gave us a solid platform on which to grow during what proved, for everyone, a turbulent year. We continue to maintain frequent communications with our shareholders and remain very grateful for their enthusiasm, support and understanding.

ESG

This year, in line with evolving best practice, our annual report will for the first time include an ESG report, which we hope shareholders will find informative especially around the shared response to the pandemic. Creo has always recognised its wider responsibilities and has prioritised those communities it serves, most obviously our patients and their families, the clinicians that treat and care for them, but also our staff and their families and the local communities in which we employ them.

Outlook

Against the backdrop of the pandemic we made impressive progress in 2020 targeting internal development and expansion to provide strong foundations upon which to build in the future. We have a solid book of clinicians waiting to be trained and are strongly placed to support healthcare systems clearing patient screening and treatment backlogs built up through the pandemic. This, combined with the commercial progress we expect to make with our expanded core portfolio as restrictions on hospital access ease, give us confidence for 2021 and beyond and so we remain excited by what the future holds for Creo and its shareholders.

Chief Executive's Review

I am proud of the progress we have made in delivering against our strategy during 2020. COVID-19 caused a huge upheaval in our industry, demanding that clinical resource be reassigned to assist on the front line. At the start of the pandemic I asked the Creo team to "focus on what you can achieve, and not on what you can't achieve". I believe that they did just that and, in so doing, enabled Creo to take great strides forward so I thank each and every colleague for playing their part in our achievements during the year.

Having started the year with only one CE marked device, we have successfully cleared five additional advanced energy devices through the CE mark process and gained FDA 501(k) clearance for three devices. Furthermore, we have completed two transformational acquisitions which are delivering meaningful revenue to the business and we have exceeded our objectives in expanding our sales team globally.

Like all businesses we have been impacted by COVID-19, but we are resourceful and have used the period to adapt and grow. We rapidly adjusted our day-to-day operations to ensure employee safety, supporting our community by being able to source ventilators for NHS hospitals, donating bikes for medical staff and acquiring 3D printers to allow Creo employees to manufacture PPE from home, in local schools and in small businesses. We have included further details on our COVID-19 response within our annual report.

We have organically grown our commercial team in 2020. David Woods, previously a Non-Executive Director of Creo and former President and CEO of PENTAX Americas, joined Creo full-time as Chief Commercial Officer. Since joining the executive team David has built an experienced team in the US and APAC providing the Company with greater access to these important markets. This additional strength, together with the acquisitions of Albyn Medical and Boucart Medical, have resulted in a tenfold increase in Creo's commercial, marketing and distribution resource so, importantly, we now have an established commercial and distribution platform to accelerate our growth.

Building momentum

We have made strong progress against our build, buy and partner strategy.

Build

We have significantly strengthened our product portfolio during the year having CE marked five new devices across

our four technology platforms: Speedboat, SlypSeal, SpydrBlade and MicroBlate. Despite the disruption caused by COVID-19, we were also pleased to receive FDA 510(k) clearance for SlypSeal Flex and MicroBlate Fine. After the year end, MicroBlate Flex was our fourth product to receive FDA 510(k) clearance.

We have continued to receive commercial orders for Speedboat Inject from the UK, US, South Africa and Australia where the initial focus is on establishing clinical education centres.

Perhaps even more satisfying for the whole team, was the first clinical use of MicroBlate Fine to successfully treat a number of patients with pancreatic tumours in early December 2020, with no adverse events reported to date.

Buy

The acquisition of Albyn Medical in July 2020 brought breadth and depth to Creo within Europe, accelerating our commercial progress there. Albyn is a European specialist in the supply and manufacture of Gastroenterology, Urology and Endoscopy products to healthcare providers in Spain, France, Germany and the UK. With a well established sales and marketing team, this acquisition gives us an enhanced commercial and distribution platform, providing a direct route to market for our products. Albyn's product range is highly complementary to Creo's and also brings with it the opportunity to broaden into the pulmonary and urology markets. We were delighted to welcome Luis Collantes, CEO of Albyn Medical, to Creo's senior management team and the enlarged Group is already benefitting from his significant experience and market expertise.

In November 2020, we further enhanced our European commercial platform and direct European coverage through the acquisition of Boucart Medical, the largest independent supplier of gastrointestinal (GI) endoscopy consumables in Belgium and Luxembourg.

Partner

As we look forward to 2021, we are focused on delivering clinical outcomes for all our current devices. In addition, we see further opportunities to exploit the potential of Kamaptive, the advanced energy technology that powers our devices, in the adjacent fields of laparoscopic and robotic assisted surgery. We intend to address these markets through building partnerships and, where appropriate, licensing our Kamaptive Technology for use with third party solutions.

The journey to commercialisation

The delivery of our first significant revenues marked a further milestone on our journey to commercialisation. Whilst the £9 million of revenue generated in 2020 was largely from our recent acquisitions, the expansion of our global commercial team and imminent product launches, puts us in a strong position to build on this and enhance the value of the businesses that we have acquired.

People

In addition to Dave Woods and Luis Collantes joining our senior management team, we welcomed a further 95 new employees into the Creo family through the Albyn and Boucart acquisitions. Combined with the organic growth in our engineering talent, the Company exited the year with 217 employees. Maintaining and nurturing our culture across this fast-growing organisation has been a priority, along with the careful integration of the newly acquired businesses.

Against the backdrop of an uncertain world, the commitment and dedication of all our staff has been impressive. I would like to thank them all for the resilience and pragmatism they have shown in tackling the challenges COVID-19 has presented.

COVID-19 Reflection

It would be remiss of me to not take a moment to reflect on COVID-19 and the impact it has had on all of us. Creo started 2020 with a strong balance sheet having closed a funding round at the end of December 2019 and looking forward to the challenges that lay ahead. Little did any of us realise that we would be facing a global pandemic on a scale not seen for over a century.

In line with UK Government guidance, in March 2020 I instructed the Creo team to work from home where possible and to stay safe. The resilience that we have built into the Creo team proved invaluable, with everyone pulling their weight and more, to ensure that the business could respond appropriately to the Pandemic whilst continuing to deliver against Creo's goals and objectives.

Our 2020 Report and Accounts sets out examples of how Creo played its part in the COVID-19 response, not just within Creo but with the wider community. I am extremely proud of the response that we have been able to coordinate.

Whilst we have had cases of COVID-19 within the team, we have been lucky to have no fatalities. This being said, I am aware that within our network of friends, family and business associates there are those who have suffered; our thoughts remain with them.

Looking forward

2020 has been a transformational year for the Company. The reduction in elective surgery and redeployment of medical staff in response to COVID-19 has inevitably delayed Creo's short-term commercialisation activities. However, the significant backlog in surgery and procedures that have resulted as a consequence of the pandemic will require faster, more efficient healthcare solutions and the solutions available through Creo's technology and devices have never been more relevant than now.

The steps we have taken this year to gain regulatory clearances for our devices and build our global commercial and distribution platform means we are ready for the next phase of our growth and to play our part in improving timeframes and outcomes for patients. In 2021 we will expect to see a wider adoption of our devices and to begin developing broader commercial opportunities for our Kamaptive Technology.

Though the evolution of Creo since IPO has been exceptional our mission remains the same: to improve patient outcomes. We are extremely well positioned to be the next generation solution in minimally invasive surgery and, whilst our current focus is on GI therapeutic endoscopy, looking forward we see significant further opportunities in other surgical disciplines/specialities and then beyond into diagnostics.

Craig Gulliford

Chief Executive Officer

Financial Review

I am pleased to announce Creo's audited results for the year ended 31 December 2020. The adversity faced by the business from COVID-19 has, in part, been mitigated through the strength of the balance sheet following the 2019 fund raise. Applying this funding in line with the objectives set out in 2019 to acquire Albyn Medical and Boucart Medical brings immediate revenue and positive cash flow to the Group, strengthens the business and confirms Creo as a platform for future growth.

Revenue and other income

Despite Covid-19 disrupting sales channels limiting access to clinical training and travel, the Group has made significant progress in establishing a longer-term sales channel through new products as well as development of our commercial footprint via acquisitions and organic growth. We secured distribution contracts in the APAC region, developed our sales team in the US, headed by David Woods, and acquired Albyn Medical to provide additional cashflow, access to and sales expertise throughout Europe and further enhanced our European presence with the acquisition of Boucart Medical.

Revenues billed in the period in relation to Speedboat and CROMA totalled £0.1m of which £39k has been recognised as revenue with the balance accounted for below the line in administrative expenses. Since the acquisition of Albyn Medical SL, the Albyn Group of the business generated Albyn £9.4m of revenue in the five-month period since 24 July 2020. Other operating income of £0.05m in the 12-month period to 31 December 2020 (2019: £0.1m) relates to research grants.

Operating loss

The operating loss for the period increased to £23.5m (2019: £18.9m) reflecting the increased operating expenses in relation to clinical and development activities together with further investment in headcount and business infrastructure to support the business and enable it to continue to develop and commercialise its technology. This continued investment in the business will support anticipated growth and development in the coming periods.

The underlying operating loss (also referred to as adjusted EBITDA) for the period was £18.0m (2019: £14.0m).

Whilst EBITDA is not a statutory measure, the Board believes it is helpful to investors to include as an additional metric to help provide a meaningful understanding of the financial information as this measure provides an approximation of the ongoing cash requirements of the business as it continues to pursue its future development and begins to commercialise its approved products. The adjusted EBITDA position excludes share-based payment expenses which are non-cash and incorporates the recovery of research and development expenditure which the Group is able to benefit from through R&D Tax credit schemes.

*R&D expenditure includes a £1,839 claimed under the large company ('RDEC') scheme in relation to monies received from Research Grants. 

Tax

The tax credits recognised in the current and previous fiscal year relate solely to R&D tax credit claims. A deferred tax asset has been recognised in respect of the business combination relating to our Albyn subsidiaries. A deferred tax asset has yet to be recognised for the losses of Creo Medical Limited due to the uncertainty over the timing of future recoverability.

Expenses

Administrative expenses comprising R&D, operational support, sales and marketing, and finance and administration costs totalled £27.1m (2019: £19.0m). Adjusting for share-based payments, depreciation, amortisation and tax income as shown in the table above, underlying administrative expenses are £21.7m (2019: £14.0m).

This annualised increase of £8.1m reflects the continued investment made by the Group in clinical and development activities and the move from small discrete production batches into full-scale manufacturing. Personnel costs continue to be the largest expense and represent approximately 60% of the Group's underlying administrative expenses.

Loss per share

Loss per share was 13 pence (2019: 13 pence).

Dividend

No dividend has been proposed for the period to 31 December 2020 (31 December 2019: £nil).

Cash flow and balance sheet

Net cash used in operating activities was £16.3m (December 2019: £11.8m), driven by the continued investment in research and development of new devices, establishing a U.S. and APAC presence. Net cash used in investing activities was £21.0m (2019: £0.8m) driven by the acquisition of Albyn and Boucart to bolster market access and sales expertise.

Total assets at the end of the period increased to £93.5m (31 December 2019: £88.3m), a 5.9% increase, reflecting the increase in assets and goodwill, as a result of the business combination, offset by the operating cash outflow for the period. Cash and cash equivalents at 31 December 2020 was £45.1m (31 December 2019: £81.0m). Net assets were £62.8m (31 December 2019: £82.6m), a 25% decrease due to liabilities associated with the business combination.

Accounting policies

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards. The Group's accounting policies have been applied consistently throughout the period and are described in the 2020 Report and Accounts.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group are set out in the 2020 Report and Accounts.

Richard Rees

Chief Financial Officer

Consolidated Statement of Profit and Loss and Other Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the financial statements

1. Financial information set out in this announcement 

The financial information set out above does not constitute the Company's statutory accounts for the period ended 31 December 2020 or 31 December 2019 but is derived from those accounts. Statutory accounts for the period ended 31 December 2019 have been delivered to the registrar of companies, and those for the period ended 31 December 2020 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2. Revenue and other operating income

Revenue from contracts with customers

Revenue is recognised when substantially all of the risk and reward of ownership of the goods are transferred to the customer on despatch, and thus has the ability to direct the use and obtain the benefits from the goods. Revenue is recognised net of any sales tax.

Collaborative arrangements

All Collaboration agreements as at 31 December 2020 have been terminated or moved to non-collaboration agreements. s. The result of this is that these new distribution agreements are now deemed to be a 'customer' of the entity, as defined in IFRS 15 and all sales made under these new distributor agreements are assessed against the IFRS 15 criteria upon inception of the contract to determine the appropriate accounting treatment.

Performance obligations and revenue recognition policies

Revenue is recognised in accordance with IFRS 15 at the point at which the Groups performance obligation has been satisfied. Below is a summary of the recognition policies for each type of sale:

The revenue split between the Group for 2020 was as follows:

Segmental reporting

Operating segments are identified on the basis of internal reporting and decision making. Creo currently has one operating segment which is the research, development and distribution of electrosurgical medical devices relating to the field of surgical endoscopy.

The acquisition of Albyn Medical SL and Boucart Medcial SRL in the year was made to helps us achieve our objectives in this segment. As the Group continues to grow we expect the internal reporting structure to change to meet the changing goals and objectives of the business and additional operating segments may be identified in future reporting periods. 

As there is only one reportable operating segment whole profit, expenses, assets, liabilities and cashflows are measured and reported on a basis consistent with the financial statements, with no additional disclosures necessary.

Other operating income

Other operating income relates to research grants. Income is recognised necessary to match it with the related costs in the profit or loss on a systematic basis over the periods in which the entity recognises expenses for the related costs for which the grants are intended to compensate. Furthermore, income is recognised only when there is reasonable assurance that the Company will comply with any conditions attached to the grant and the grant will be received. Grant income received during the year was £49k (2019: £126k).

3. Loss before tax

The loss before income tax is stated after charging/(crediting):

4. Earnings per share

Earnings per share has been calculated in accordance with IAS 33 - Earnings Per Share using the loss for the period after tax, divided by the weighted average number of shares in issue.

6. Subsequent events

MicroBlate Flex received FDA regulatory clearance in January 2021 and is the fourth device within Creo's portfolio of flexible endoscopy devices for the gastrointestinal ('GI') market to receive FDA regulatory clearance, alongside CE marking already received across the range in 2020.

Post year end we have signed agreements with a number of distributors to purchase and promote Creo products throughout various regions. The distributor agreements signed were as follows: