Creo Medical Regulatory News (CREO)

Creo Medical Group plc

Interim results for six months ended 30 June 2018

Continued momentum with the commercialisation of Speedboat and the CROMA platform

First products shipped to EMEA region for clinical use and

£48.5m (before expenses) raised in an oversubscribed placing post period-end

Chepstow, Wales, 28 September 2018 - Creo Medical Group plc (AIM: CREO) ("Creo" or the "Company"), a medical device company focused on the emerging field of surgical endoscopy, announces its unaudited results for the six and twelve month periods ended 30 June 2018, in line with management expectations.

These interim results constitute the second interim period in an 18-month accounting period to 31 December 2018. Audited results for the 18-month period will be announced by the end of April 2019.

Operational and Recent Highlights

· Further commercial progress with Creo's first products, Speedboat and the CROMA platform

o Completed UK and South Africa framework distribution agreements

o Shipped first products to EMEA region and performed seven upper GI procedures post period-end

o Extended the Hoya Pentax Medical distribution agreement in the Asia-Pacific (APAC) region, with the Creo Medical Education Programme to be initiated in APAC alongside market seeding in Australia

o 45 clinicians successfully trained (as of 28 August 2018) to use the Speedboat, each with differing backgrounds and experience in endoscopy

· Strengthened IP portfolio, with 117 granted patents and 362 pending applications over 78 patent families (as at 5 September 2018)

Financial Highlights

· Cash and cash equivalents of £6.4m at 30 June 2018 (30 June 2017: £13.7m)

· Operating loss of £5.2m for the 6 months to 30 June 2018 (6 months to 30 June 2017: £4.2m) including £0.5m share based payments, in line with management expectations

· Underlying operating loss of £3.6m for the 6 months to 30 June 2018 (6 months to 30 June 2017: £2.9m) reflecting continued momentum in the:

o Commercialisation of Speedboat and the CROMA platform

o Development and regulatory clearance of further devices as part of a suite of GI products

· Net cash outflow from operating activities of £2.6m for the 6 months to 30 June 2018 (6 months to 30 June 2017: £4.9m)

· Net assets of £7.3m at 30 June 2018 (2017: £14.7m)

· £48.5m (before expenses) raised in an oversubscribed placing post period-end

Craig Gulliford, Chief Executive Officer, commented:

"We continue to make good progress against our strategic objectives, executing on our training led commercialisation plan, targeting selected clinicians and key opinion leaders to drive clinical adoption. As of 28 August 2018, 45 clinicians have been successfully trained. Significantly, a growing number of patients in the UK are being successfully treated using the Speedboat device powered by our CROMA platform. Post period-end we have shipped our first products to South Africa which have been used in seven procedures so far. Furthermore, with the extension of our agreement with Hoya Group, Pentax Medical we expect to ship our first products to the APAC region in the upcoming months. We continue to invest in our pipeline, positioning us well to become a leading advanced energy, minimally invasive, medical device company. We remain on track for full commercial launch in 2019, and following the placing, are well funded to achieve our goals."

Notes to Editors

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 combines 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 platform to market through 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 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

Interim results for six months ended 30 June 2018

Chief Executive Review

Overview

Creo Medical Group plc ("Creo" or the "Company") is developing a suite of products based on its transformational CROMA electrosurgery advanced energy platform ("CROMA platform") for the emerging field of surgical endoscopy. It will initially launch this energy system into the field of Gastrointestinal ("GI") therapeutic endoscopy.

Endoscopy is a rapidly expanding practice due to the advent of colorectal cancer screening in most healthcare systems. This has driven the requirement for equipment and devices to enhance the ability to screen and detect early stage and pre-cancerous lesions in the GI tract. In the US, 16 million colonoscopies are performed annually1 and of these 1.1 million lesions usually require treatment2 with approximately half of those lesions being surgically removed. Creo's CROMA platform's combination of radiofrequency and microwave energy in a single platform enables a combined ability to cut, coagulate and ablate. These advanced therapeutic endoscopy options have the potential to reduce the risk of complications from such surgical procedures, with mortality rates improved to negligible levels - current mortality rates from upper GI bleeding are up to 15%3, and traditional colorectal surgery is associated with a 6% mortality rate at 30 days4. Furthermore, in contrast to the need for a long hospital stay and a general anaesthetic associated with traditional surgery, endoscopy procedures can be performed in an out-patient clinic with the patient being sedated, as is being demonstrated through the clinical use of our products. This requires long, flexible endoscopic devices and the need for precision and control.

Creo's advanced energy platform combines bi-polar radiofrequency ("RF") energy for precise localised cutting and microwave energy for controlled coagulation via a single accessory port. This technology provides physicians with flexible, accurate and controlled surgical solutions. Creo's Speedboat device, powered by the CROMA platform, is the first product approved in a suite of tools under development by Creo to aid the endoscopist in minimally invasive surgery. Early applications focus on GI procedures where Creo's technology is expected to improve patient outcomes (shorter procedures, hospital stays and recovery times), reduce risk and make procedures easier to perform.

Management believe that Speedboat, together with the suite of devices under development, is well positioned to be the next generation solution in minimally invasive surgery.

1 US surgical procedures volumes 2010, Millennium Research, RPUS435SV10, Feb 2010

2 Gastrointest Endosc 2014; 80-133-43

3 Annals of Hepatology, Vol. 10 No.3, 2011: 287-295

4 Ann R Coll Surg Engi 2011; 96: 445-450

Operational Review

During the period under review, Creo has continued to build on the progress achieved since its Initial Public Offering ("IPO") in December 2016 on AIM, the market of that name operated by the London Stock Exchange.

Regulatory and training progress

The Company completed the development required to gain CE Mark accreditation for the CROMA platform and Speedboat in Europe in 2017. Following this and six months ahead of management's expectations, the Company received 510(k) clearance from the FDA for its CROMA platform and Speedboat in August 2017.

To ensure best patient outcomes and sustained adoption, Creo is committed to a training led commercial programme. Since receiving regulatory clearance, the Company has initially invested in training a small but growing focused clinical user base. With the establishment of Creo's European Training Academy and the development of our repeatable and robust education programme, by 28 August 2018 we have successfully trained 45 key clinicians to use the Speedboat, each with differing backgrounds and experience in endoscopy.

In November 2017, Speedboat was successfully used at a second NHS site following the first cases at St Mark's Hospital in London. Clinical cases have continued during the period, with feedback confirming the removal of a number of lesions from multiple patients under sedation with regular procedure times of under one hour. Patients are able to be discharged on the same day for routine follow-up and monitoring.

The success of these early procedures and of those in South Africa is key to the placement of the CROMA platform and Speedboat which we have targeted during calendar year 2018 and for which, in management's opinion, we remain on track.

The Company also intends to commence a training-centric commercialisation programme in the US during calendar year 2018.

Pipeline update

The CROMA platform has been designed with a single accessory port compatible with a suite of single-use devices that use the microwave and RF energy for cutting, coagulating and ablating in various procedures. The Company's development of a suite of endoscopic products for use with the CROMA platform remains on track, with management aiming to launch a suite of devices during 2019. In addition, the Company continues to investigate other applications for its technology.

Management and Employees

Since IPO the Company has successfully recruited a number of employees to strengthen its team to enable the business to scale. Our employees bring with them significant experience from a variety of different sectors and disciplines, with many having significant prior experience in the medical device sector including the commercialisation of new and innovative medical device products. Management believe that the breadth of support and expertise available to the Company gives Creo the right platform to scale its operations both directly and through a carefully selected group of distribution partners throughout the world.

Current Trading and Outlook

The Company made good strategic, operational and financial progress in the period and continues to move forward with its vision and roadmap ensuring the continuing growth and corporate development of the business. The period since 30 June has started well with the Company remaining on track to deliver financial results and operational milestones in line with expectations for the 18-month period to 31 December 2018.

Creo is focused on generating further clinical data, allowing for recognition and validation of our technology to support the continued placing of our CROMA platform in hospitals in Europe, the USA and other key territories. The additional funds raised in August 2018 allow us to expand the training programme to increase the clinician base in Europe to a wider international group of clinicians. We remain committed to delivering comprehensive training programmes to key opinion leaders and clinicians on the platform and accompanying devices to consistently deliver high quality clinical outcomes across EMEA and the US over the next twelve to eighteen months.

The Board thanks its employees, collaborators and fellow shareholders for their continued support and focus on achieving Creo's aim of becoming a leading advanced energy, minimally invasive, medical device company and is looking to the future with confidence.

Craig Gulliford

Chief Executive

Financial Review

The Company's financial performance for the period under review was in line with management's expectations. Operating expenses reflect the increased clinical and development activities of the Company during the period, together with investment in headcount and business infrastructure to support the transition of the business to a fully integrated specialty medical devices manufacturer with product origination, development and commercialisation capabilities. This continued investment in the business will support its anticipated growth and development in the coming periods.

Research and development expenditure for the period were £2.3m (6 months to 30 June 2017: £2.0m). Expenditure on product development and clinical costs increased during the period as the business continued to invest in the expansion of its portfolio of products.

Administrative expenses for the period were £3m (6 months to 30 June 2017: £2.4m).

Operating loss

The operating loss for the period of £5.2m (6 months to 30 June 2017: £4.2m, 12 months to 30 June 2017: £8.9m, 12 months to 30 June 2018: £10.3m), reflected the increased operating expenses outlined above.

The underlying operating loss for the period is £3.6m (6 months to 31 December 2017: £2.9m, 12 months to 30 June 2017: £5.6m, 12 months to 30 June 2018: £7.1m). This is a non-statutory measure which adjusts the operating loss as follows;

*Underlying operating loss is calculated by adjusting operating loss for share based payments, depreciation and amortisation, R&D tax credits and expenses of the IPO.

Tax

The Company has not recognised any deferred tax assets in respect of trading losses arising in the current financial period. At present, the Company recognises tax assets in respect of claims under the UK research and development Small or Medium-sized Enterprise ("SME") scheme, accrued in line with costs with any adjustments being made on submission of a claim.

Where claims have been made under the RDEC scheme these are recognised as other income in line with IAS20 Accounting for government grants.

Earnings per share

Loss per share was 5 pence for the period (6 months to 30 June 2017: 4 pence).

Cash flow and Balance Sheet

Net cash used in operating activities was £7.0m for the 12 months to 30 June 2018 (12 months to 30 June 2017: £6.9m), driven by the increase in investment in research and development during the period. Net cash generated from share issues was £0.06m (12 months to 30 June 2017: £20m) reflecting the net proceeds from the issue of new ordinary shares relating to the exercise of share options.

Total assets at 30 June 2018 decreased to £9.6m (30 June 2017: £16.1m), reflecting the increase in operating cash outflow for the period. Cash and cash equivalents at 30 June 2018 were £6.4m (30 June 2017: £13.7m). Net assets were £7.3m (30 June 2017: £14.7m).

At 30 June 2018, the debtor position in relation to R&D Tax Credits was £1.7m, with cash received during the period of £1.7m.

The net increase of £0.5m in property, plant and equipment at 30 June 2018 is a result of investment in the new facility in Chepstow of £0.4m and other key asset purchases that will support development of £0.1m.

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 interim financial statements

1. Basis of preparation

This interim financial report, which is unaudited, does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006. These interim financial statements have been prepared in accordance with the AIM rules and the IAS 34.

The accounts of Creo Medical Group plc for the period ended 30 June 2017, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("adopted IFRSs"), have been delivered to the Registrar of Companies. Those accounts were prepared and audited as required by the Companies Act 2006.

This interim financial report for the six-month period ended 30 June 2018 (including comparatives for the 6 months ended 30 June 2017 and the 12 months ended 30 June 2018 and 30 June 2017) was approved by the Board of Directors on 28 September 2018.

The Company has prepared detailed forecasts and projections for its planned activities up to and beyond December 2020 including the placing of 38,800,000 new Ordinary Shares at 125p per share to raise £48.5m before expenses. On the basis of these financial projections the Directors are satisfied that the Company will have adequate resources to continue in operational existence for the foreseeable future and for a period of not less than 12 months from the date of signing this interim financial report. Thus, they continue to adopt the going concern basis of accounting in preparing the interim financial report.

Change of accounting reference date

The Company has changed its accounting reference date from 30 June to 31 December with effect from 20 April 2018. As a result of the change of accounting reference date, the Company's reporting calendar will be as follows:

· Unaudited interims for the 6-month period ending 30 June 2018 to be published by 30 September 2018; and

· Audited results for the 18-month period to 31 December 2018 to be published by 30 April 2019.

Thereafter, interim and annual reports will be published each year for the 6 months to 30 June and 12 months to 31 December respectively, in accordance with the AIM Rules for Companies.

Accounting policies

The same accounting policies and basis of measurement are followed in this interim financial report as published by Creo Medical Group plc in its statutory accounts for the period ended 30 June 2017, as delivered to the registrar of companies.

Changes in accounting policies

· IFRS 9 Financial Instruments (effective 1 January 2018).

The Group has not adopted IFRS 9 early. The Group does not expect a significant impact on its accounting policies for financial instruments. Up to and including 30 June 2018 the Group predominantly enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities like trade and other accounts receivable and payable, loans from other third parties, loans to related parties and investments in non-puttable financial instruments.

· IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018).

The Group has not adopted IFRS 15 early. The Group is pre-revenue and as such there are no significant changes or quantitative impacts to be accounted for in relation to periods up to and including 30 June 2018.

· IFRS 16 Leases (effective 1 January 2019).

The Group has not adopted IFRS 16 early. The group continues to review its leasing arrangements and will comment on the impact of IFRS 16 in the Annual Report for the period ending 31 December 2018 ahead of any inclusion in the Consolidated Statement of Financial Position for the period ending 31 December 2019.

Critical accounting judgments and key sources of estimation uncertainty

In application of the accounting policies, the directors are required to make judgments, estimates and assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Principal risks and uncertainties

The principal risks and uncertainties impacting the Group are described in our 2017 Annual Report and remain unchanged at 30 June 2018.

The risks and uncertainties in relation to the UK's exit from the European Union have been reviewed as part of a wider review into all the risks and uncertainties for the Group at 30 June 2018. Due to the continued uncertainty regarding the terms of the exit from the European Union, our position remains unchanged; we cannot be certain of any impact at this juncture but continue to ensure that we mitigate any potential risk where possible.

Share-based payments

Equity-settled share options are granted to certain officers and employees. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. Fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognised over the tranche's vesting period based on the number of awards expected to vest, through an increase to equity. The number of awards expected to vest is reviewed over the vesting period, with any forfeitures recognised immediately.

Research and development costs

The Company's principal activity is the research and development of electrosurgical medical devices relating to the emerging field of surgical endoscopy. Expenditure on research and development activities is recognised in the statement of profit or loss as incurred. The Company has to date developed and obtained FDA clearance for its Speedboat device and the CROMA platform, whilst continuing to develop further minimally invasive surgical devices in the field of surgical endoscopy. The Company continues with its commercialisation activities of those regulatory cleared products.

Based on the product development milestones still to be achieved, the directors have concluded that all the recognition criteria of IAS 38 to capitalise an internally generated intangible asset have not yet been achieved and therefore continue to expense the related expenditure as incurred. Where Creo has contracted with specific external OEM providers to develop products on a standalone basis then the development of each product and the costs in accordance with the milestone agreement will be considered on a case by case basis. When a product is being developed that could be a standalone product and be licensed as such then the costs will be capitalised provided the milestones are being achieved and the future commercial benefit can be determined and reliably measured.

2. 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.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares. The potential ordinary shares are considered to be antidilutive on the basis that they reduce the loss per share and are such are not included in the Company's EPS calculation, meaning that diluted EPS is the same as basic EPS. 

3. Share capital

4. Cash from share issue

5. Post balance sheet events

Placing of 38,800,000 new Ordinary Shares at 125p per share raising £48.5m before expenses.

Following Admission of the Additional EIS/VCT Shares and the Non EIS/VCT Shares on 20 August 2018, the Company's issued ordinary share capital consists of 119,923,065 Ordinary Shares; no shares are held in treasury. The above figure of 119,923,065 Ordinary Shares may be used by Shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the voting rights of the Company under the FCA's Disclosure Guidance and Transparency Rules.

Responsibility statement of the directors in respect of the interim report

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) [DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Richard Rees

CFO

28 September 2018