Creo Medical Regulatory News (CREO)

Creo Medical Group plc

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

Final results for the 12 months ended 31 December 2019

Continued evolution from early clinical adoption to wider international commercialisation

Creo Medical Group plc (AIM: CREO), a medical device company focused on the emerging field of surgical endoscopy, announces its audited results for the 12 months ended 31 December 2019.

The 12 months to the end of December 2019 was a period of considerable progress in the development and path to commercial launch for 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, including post period end:

· Post period end 510(k) clearance from the US Food and Drug Administration ('FDA') for Creo's HS1 Haemostasis device ('HS1') and on track to gain clearance with additional devices from the suite of products in the USA

· Increased commercial momentum with Creo's first products, Speedboat and the CROMA Advanced Energy

Platform:

- Successful roll out of Creo's Clinical Education Programme ("CEP") in the United States ("US") and completion of the first Speedboat training course delivered by a US clinician trained as part of Creo's CEP

- Procedures successfully carried out on patients by a number of US clinicians using Speedboat

- First commercial orders for Speedboat and first revenue from US hospitals

- Additional European Framework Distribution secured across France, Germany and Italy with first physicians trained and delivering procedures

- Additional Asian Framework Distribution Agreement secured covering India with first physicians trained and publication of cases

- Suite of devices launched at the United European Gastroenterology Week Congress in October 2019

· Advanced progress made in gaining regulatory approvals in the EU for a further four devices optimised for the core tissue effects of dissection, resection, haemostasis and ablation all four products will be CE marked in Europe simultaneously on receipt of Creo's new EC certificate, which is expected in the near term

· Strengthened IP portfolio, with 188 granted patents and 599 pending applications (as at 31 December 2019)

· Post period end, key appointments made with the addition of Ivonne Cantu as an independent non-executive director

· Cogent plan to manage the business despite the global impact that COVID-19 and ensure the readiness of an expanded range of game-changing products for launch into key markets in due course.

Financial Highlights (for 12 months ended 31 December 2019):

· Strengthened balance sheet following the successful raise of an additional £51.9m (before expenses) through a placing and open offer

· Cash and cash equivalents of £81.0m at 31 December 2019 (31 December 2018: £44.6m)

· R&D expenditure for 2019 was £8.1m (18 months to 31 December 2018: £7.8m) to expand the portfolio of products

· Operating loss of £18.9m (18 months to 31 December 2018: £17.7m) including £1.6m share based payments, in line with management expectations

· Underlying operating loss of £14.0m (18 months to 31 December 2018: £12.6m) is in line with the anticipated spend profile and reflects increased commercial activities

· Net assets of £82.7m (31 December 2018: £47.4m)

· Total sales in the period was £151k (18 months to 31 December 2018: £30k) of which £13k was recognised as revenue in relation to direct sales and £138k was recognised from products supplied in relation to Framework Distribution Agreements

· Net cash outflow from operating activities of £11.9m (18 months to 31 December 2018: £14.3m) 

Craig Gulliford, Chief Executive Officer, commented:

"Despite the challenges and uncertainties that COVID-19 has created for businesses world-wide, we remain confident of our medium and long-term prospects having developed an unrivalled suite of game-changing devices that will change the way endoscopists and surgical users operate and bring positive benefits to patients globally. Supported by the security of our long-term funding and following the huge efforts of the Creo team we now have an exciting suite of advanced energy surgery products that are nearing regulatory clearance and which are poised for commercial rollout as lockdown restrictions are eased. I am proud of the progress we have made to date; we have advanced engineering projects into commercial products, we are ready to move from local production into volume manufacturing, and we have progressed our first trainees into trainers within their home markets. Whilst the global outlook for 2020 may be uncertain, I believe we have created a solid platform to deliver on our longer-term commercial goals."

About Creo Medical

Creo Medical, founded in 2003, is a medical device company focused on the development and commercialisation of minimally invasive surgical devices, by 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 uniquely delivers both bipolar radiofrequency for precise localised cutting and microwave for controlled coagulation through a single accessory port. 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 unique full spectrum adaptive 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.

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

Chairman's statement

At IPO in December 2016, we set out our ambitious and challenging three-year plan. We are therefore reporting on both the progress made by the Company in the twelve months ended 31 December 2019, and reviewing the key milestones achieved over those three years.

Overview

Having achieved US FDA clearance and CE marking ahead of plan for CROMA, our Advanced Energy Platform, and Speedboat, the first in our suite of patented electrosurgical devices, we have introduced our products in key international markets. These are delivering clinical benefits in the UK, EU, US, South Africa and India, where we now have distributors appointed and leading surgeons and endoscopists using our devices daily. We are completing the regulatory clearance process for our wider suite of GI devices, which will work alongside Speedboat, and are delighted to have received US FDA 510k clearance of our HS1 Haemostasis Device in March 2020.

We have received first commercial orders and revenue from US hospitals, a key milestone in our evolution from early clinical adoption to wider international commercialisation. With proprietary products at the core of the Company, we continue to focus on Research and Development and thereby strengthen our extensive IP portfolio.

Management and staff

I would like to congratulate our executive team and staff on delivering on the three-year plan. They have made excellent progress against milestones, in particular our focused three-prong strategy of turning production into manufacturing; projects into products; and trainees into users.

Over the course of the year we welcomed 22 new recruits to the Creo team in key areas including sales and marketing, clinical training, and corporate development. Together, this has taken the Company's permanent headcount to 91, a more than trebling since the IPO.

Shareholders and corporate finance

None of this is possible without the enthusiasm and support of our shareholders. A key milestone was the equity fundraising, completed in December, which raised £51.9 million. This follows the £48.5 million raised in August 2018 and the £20.0 million at the IPO. Each fundraising has been priced at a premium to previous equity issues, both strengthening the balance sheet and building shareholder value. These have allowed Creo to progress energetically over the three years, and our strong balance sheet puts us in an excellent position to execute on the next phase of our development.

We welcome all new shareholders to the Company and thank them, and our existing shareholders, for their continued encouragement.

Board and governance

We welcome Ivonne Cantu to the Board as our third independent non-executive director and chair of the Remuneration Committee and member of the Audit Committee. Ivonne brings deep experience of corporate finance, M&A and investor relations from her 20-year career in the City and subsequent executive roles in the quoted sector.

Coronavirus (COVID-19)

We are continually monitoring the development of COVID-19 and the impact it is having on our business. We have a cogent plan to manage the business during these uncertain times, in particular during the measures announced by the UK Government. The Board want to thank our colleagues, our customers and our suppliers for all their support and, of course, wish them and their families the best of health. We will support them and the wider medical technology community in any way we can.

Outlook

With a strong balance sheet, supportive shareholders and further additions to our team, we are confident we can build on this progress for the next stage of Creo's development. Notwithstanding delays that may arise outside our control from COVID-19 globally, our focus remains to complete the regulatory clearance for our suite of GI devices, accelerate the commercial rollout of our products in the US along with our global distribution partners, explore potential strategic acquisition opportunities, and continue research and development of new devices, energy modalities and applications for CROMA based on our extensive intellectual property.

Charles Spicer

Chairman

Chief Executive's Review

We have made enormous strides since Creo was admitted to AIM three years ago, achieving all of the goals set out in the three-year plan we articulated at IPO.

Below I set out progress we have made against the three pillars of our strategy.

Projects to products

I am delighted to report that 2019 saw our first commercial orders, generating revenues for the first time from our CROMA Advanced Energy Platform and Speedboat product, the first of a unique range of electrosurgical devices for GI and other applications.

Progress in gaining regulatory approvals for a further four devices, optimised around the core tissue effects of dissection, resection, haemostasis and ablation, is well advanced. Technical files are complete and, with revised arrangements with the Company's Notified Body, all four products will be CE marked in Europe simultaneously on receipt of Creo's new EC certificate, which is expected in the near term. In addition, alongside the FDA clearances received so far for the CROMA Advanced Energy Platform and the Speedboat device, we remain on track to gain US clearance for the remaining products with US FDA 510(k) clearance of our HS1 Haemostasis Device being issued in March 2020, the first device to use our unique non-stick haemostasis technology.

Having launched the range of devices to the market at the United European Gastroenterology Week Congress in October 2019, plans are in place to introduce the devices into clinical practice as we gear up for commercialisation.

All of our existing and future devices will be powered by CROMA's broad spectrum, adaptive technology, encompassing radio frequency ("RF"), microwave and other future modalities such as plasma or millimetre wave technology. Creo's talented team of developers is continuing to work on creating pioneering devices and energy modalities.

Production to manufacturing

In anticipation of seeing significant growth in orders for Speedboat, during the year we signed heads of agreement with an outsource contract manufacturer to facilitate the larger scale production of our devices and are in the final stages of formalising that contract. We have validated the process for Speedboat in the first instance, and our partner is poised to initiate production once orders reach a specified volume threshold. For other devices, we intend to retain early production in-house to optimise processes for newly launched products ahead of outsourcing.

Trainees to users

In collaboration with our distribution partners, our CEP for our Speedboat device now operates through multiple training centres of excellence spanning the UK, US, Europe, India and South Africa.

The year not only brought the first clinical use of Speedboat in the US, it was also satisfying to see the first of our trainees training other GI endoscopists who are now keen advocates and users of Speedboat, with the expertise now cascading through an expanding network of training centres in this important market.

We are working with our distribution partners to launch our range of GI and general ablation products, where the first cases had been expected in the first half of 2020 (prior to the outbreak of COVID-19). Our additional GI devices will be commercialised through the same channels as Speedboat, a model that we will work with distributors to replicate for the ablation product which will target pulmonary/bronchoscopy applications in particular.

To accelerate our route to market capabilities we have identified a cadre of high-quality prospective acquisition candidates to help us build a direct presence in the US and be better positioned to collaborate with distribution partners in other territories. Key appointments have brought extensive expertise in M&A from previous roles at Ernst & Young and Deloitte, and our strengthened balance sheet following our recent fundraise gives us the capabilities and firepower to execute on corporate development activity in a timely manner.

Growing the pie

Conscious that our ground-breaking products and energy platform have valuable application in much broader therapies than we have the resources to target, in 2021 we intend to run the first of a series of developer conferences. The aim is to stimulate third party device manufacturers and innovators to develop products powered by our full spectrum Kamaptive Technology and the CROMA Advanced Energy Platform. As well as increasing the overall size of the market for devices based on advanced energy in multiple applications and geographies, we envisage that this open platform approach will also be a source of royalty income for Creo.

Favourable market context

Our experience of working with clinicians and key opinion leaders around the world indicates latent demand for flexible endoscopic surgery devices to allow minimally invasive procedures. We believe that the advantages relative to more established laparoscopic or open procedures are compelling for physicians, patients and healthcare providers, in terms of outcomes and cost.

Detection of cancer has continued to increase as diagnostic capability improves and screening programmes have been extended in key markets. Growing numbers of cases are being diagnosed at an earlier stage of progression, with smaller tumours particularly suited to endoscopic surgery.

An entrepreneurial team

Our talented team has been enhanced by the appointment of several high calibre recruits to help Creo in the next stage of its development. We boosted our commercial team with the appointment of three former Olympus employees with commercial leadership roles to help drive our commercial expansion across EMEA, UK and the US. Post period, we have appointed our first US employee who has joined us from PENTAX Medical, bringing extensive sales experience and knowledge.

We are also delighted to benefit from the expertise of our new Chief Scientific Advisor, Joe Amaral, who held leadership positions within the surgical advanced energy division at Johnson & Johnson. Prior to this, a surgeon for many years, Joe co-developed the harmonic scalpel as well as becoming CEO of a major NY hospital. His experience of running a hospital and a surgical department are invaluable commercial and clinical insights. Our clinical evaluation capabilities have also been strengthened with the appointment of Professor Paul Sibbons, one of the world's leading histopathologists. Paul founded, and for many years led, the Northwick Park Institute of Medical Research, a pioneering research centre recognised worldwide.

As the business has grown we have been mindful to preserve our innovative, agile and outcome-oriented spirit and "thinking out of the box" culture, and I am grateful and humbled by the hard work, determination and talent we have in team Creo; we are one tribe.

COVID-19

As 2019 drew to a close we were poised to capitalise on momentum built during the year, whilst the COVID-19 pandemic was gathering force to impact on our lives in ways we could not have imagined just a few short weeks later.

We went into the pandemic slow down with a full calendar of clinical education and mentoring via centres in all our developing markets. At the time, this was with our first and only product cleared in the US and EU - Speedboat. Whilst the front line clinical focus worldwide has rightly focused on caring for patients with COVID-19 and related conditions, procedures utilising our products have, for the right reasons, been delayed as routine diagnostics have been stopped to free up resources for other use.

With our financial strength, we have been able to deploy our staff remotely with almost all the resources they need to continue with our technology development unabated with a skeleton staff operating within the production side of the business where needed. With this clarity of focus, we hope to emerge from the lock-down poised and ready to go with multiple devices cleared for use in the EU and the US. We are continuing to work hard behind the scenes to keep our clinical education and mentoring calendar full for the next two quarters ahead and utilising technology to continue with remote mentoring, case reviews and clinical studies with our customers who use this as much needed relief from COVID-19 wards.

We challenged staff to find ways to be productive at home during the lock-down, focusing on the things we can do and not what we can't, whether this is Creo related work or, if their Creo work cannot be done from home, work to help in the community or the NHS. I have been humbled by and am very proud to be part of Team Creo, which has not only kept pace with key business objectives, but has managed to deliver some amazing charitable initiatives:

· We have secured over 300 ventilators to help our local hospitals

· A disperse team have acquired over 20 3D printers and laser cutters to set up their own production lines printing PPE masks which they have delivered to local care homes, hospitals, pharmacies and other care workers

· We have delivered an initiative with 100 bicycles donated to front line staff at local hospitals to help with travel to shifts and between hospitals avoiding complicated and lengthy commutes

· Our innovation team have worked day and night to enhance our plasma sterilisation technology to optimise it against the COVID-19 virus with testing of rapidly produced prototypes in the coming weeks

We continue to monitor the COVID-19 situation globally and we are poised with a range of devices ready to re-launch into our key markets. This time is allowing us to strengthen our approach and adapt to what will inevitably be a different world and I am confident Creo will re-emerge from the lock-down, stronger, and with more game-changing products to drive through our global CEP and through our network of distributors and direct sales teams.

Craig Gulliford

Chief Executive Officer

Financial Review

Revenue and other income

2019 saw some major milestones for the Company. During the period we received first commercial orders for Speedboat from the USA, continued shipments of our CROMA Advanced Energy Platform and Speedboat devices pursuant to the framework agreements entered into with our distribution partners, as well as commercially launching the Speedboat device to the market. Revenues billed in the period totalled £0.2m of which £13k has been recognised as revenue with the balance accounted for below the line in administrative expenses.

Other operating income of £0.1m in the 12-month period to 31 December 2019 (18-months to December 2018: £0.3m) relates to research grants.

Operating loss

The operating loss for the period increased to £18.9m (18-months to December 2018: £17.7m), 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 £14.0m (18 months to December 2018: £12.6m).

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 £6,008 claimed under the large company ('RDEC') scheme in relation to monies received from Research Grants. 

Expenses arising from share issue

Following a share placing of 28,835,173 ordinary shares which raised £51.9m before expenses in December 2019, the expensed costs incurred in the period were £nil (18-months to December 2018: £nil), with capitalised costs in the period of £2.8m (18-months to December 2018: £2.6m).

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 yet to be recognised 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 £19.0m (18-months to December 2018: £17.9m). Adjusting for share based payments, depreciation, amortisation and tax income as shown in the table above, underlying administrative expenses are £14.0m (18-months to December 2018: £12.6m).

This annualised increase of £7.1m 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 (18-months to December 2018: 16 pence).

Dividend

No dividend has been proposed for the period to 31 December 2019 (18-months to 31 December 2018: £nil).

Cash flow and balance sheet

Net cash used in operating activities was £11.9m (18-months to December 2018: £14.3m), driven by the continued investment in research and development of new devices during the period and the further strengthening of our IP portfolio. Net cash generated from the share issue in December 2019 was £49.3m (18-months to December 2018: £46.1m), strengthening the balance sheet and enabling us to further develop multiple products through to commercialisation, whilst also providing the platform for future development including potential M&A activities.

Total assets at the end of the period increased to £88.3m (31 December 2018: £49.7m), a 77% increase, reflecting the increase in cash arising from the issue of new ordinary shares, offset by the operating cash outflow for the period. Cash and cash equivalents at 31 December 2019 was £81.0m (31 December 2018: £44.6m). Net assets were £82.7m (31 December 2018: £47.7m), a 73% increase.

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 2019 Report and Accounts.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group are set out in the 2019 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 2019 or 31 December 2018 but is derived from those accounts. Statutory accounts for the period ended 31 December 2018 have been delivered to the registrar of companies, and those for the period ended 31 December 2019 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 in accordance with the sales terms, 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

The Group has entered into a number of collaboration agreements with distributors in order to develop and penetrate geographical markets for the Groups' initial products (Speedboat device and the CROMA Advanced Energy platform) and to establish a working relationship in readiness for the Groups' suite of products.

The agreements represent the transfer of goods to the distributor for cash and the receipt of services in the form of marketing, promotion and setting up training and qualifying centres.

In respect of these agreements, the distributor is not deemed to be a 'customer' of the entity as defined in IFRS 15. Instead they are a provider of services relating to the Group's commercialisation and market penetration activities and as such no revenue is recognised in respect of these agreements. As such, the overall arrangement represents a cost to the Group.

The overall cost of the services is determined at inception and spread over the period of the agreement. The assumptions upon which the estimates are made are periodically updated. Any impact on profit or loss is recognised in the period in which the updates are made.

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.

Segmental reporting

Operating segments are identified on the basis of internal reporting and decision making. The board regularly reviews the Company's performance and balance sheet position for its operations and receives financial information for the Company. As a result, the Company has one reportable segment, which is being the research and development of electrosurgical medical devices relating to the field of surgical endoscopy. As there is only one reportable segment whole profit, expenses, assets, liabilities and cash flows are measured and reported on a basis consistent with the financial statements, no additional disclosures are necessary.

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.

5. Cash from share issue

6. Subsequent events

With effect from 1 February 2020 Ivonne Cantu was appointed in the role of independent non-executive director.

The business is continually monitoring the development of COVID-19 and the current and future impacts it will have on our business. The actions to mitigate these risks have been noted in Principal Risks and Uncertainties section of the annual report. Cash reserves at the end of March 2020 were £75.5m which are more than sufficient to secure the business activities and staff through the current situation and beyond. We are poised with a range of devices ready to re-launch into our key markets, this time is allowing us to strengthen our approach and adapt to what will inevitably be a different world and are confident Creo will re-emerge from the lock-down, stronger, with more game-changing products to drive through our global clinical education program with our network of distributors and direct sales teams.

The Group has received 510(k) clearance from the FDA for its HS1 device. This is the second device to gain FDA regulatory clearance within Creo's wider portfolio of flexible endoscopy devices for the gastrointestinal GI and pulmonary markets.

There have been no other material events subsequent to the period end and up to the 6th May 2020, the date of approval of the financial statements by the Board.