Last checked at 22 Jan 2009 07:00
Deltex Medical Group plc
Pre-close update on the year ended 31 December 2008
22 January 2009 - Deltex Medical Group plc ("Deltex Medical" or the "Company"), the global leader in oesophageal Doppler monitoring ("ODM"), today announces an update on its development and trading performance for the year ended 31 December 2008.
Throughout 2008 the Company made significant progress in all of its key markets towards its goal of establishing the use of its CardioQ-ODM™ system as a standard of care in the monitoring and management of patients undergoing major surgery. In 2008, for the third consecutive year, Group probe sales in each quarter were ahead of the corresponding quarter in the preceding year. The directors expect sales for 2008 to have been in excess of £5.2 million.
The Company has reviewed carefully the potential impact on its business of the global economic downturn. While health budgets may come under pressure in some markets, the Company considers it unlikely this will have any material long-term effect on the adoption of new medical technologies proven to improve patient outcomes. Furthermore, the proven ability of the CardioQ-ODM to reduce the costs of providing acute healthcare means that the Company is very well positioned to help healthcare managers meet their likely short and medium term financial objectives.
Cash consumption in the second half of the year was in line with the Company's plans for 2008 and the sales growth from the UK and International sales and marketing operations contributed to a sustainable reduction in the level of underlying cash burn (the difference between normalised run-rates of revenues and costs). The Company had approximately £650,000 available to it at 31 December 2008.
During 2008 the Company invested in a number of discretionary projects and programmes aimed at longer term value creation. As a result of the global economic downturn, the Board decided during the second half of 2008 to reduce or defer wherever possible the majority of such discretionary expenditure until the Company's expected continuing growth means they can be funded out of operational cash flows. Implementation of this revised plan was completed as far as possible during the final quarter of 2008. As a consequence of this change, the directors are reviewing the carrying value of a small number of assets related to specific research projects which the Company is not intending to support in 2009. The anticipated write-down of these assets together with the impact of charges for share based payments, neither of which have a cash impact, means that the loss for 2008 is expected to be broadly similar to that in 2007.
Nigel Keen, Deltex Medical's Chairman, commented:
"Deltex Medical continued to make significant progress during 2008 towards establishing the CardioQ-ODM as a global standard of care. In our more established markets in the UK and Europe momentum has increased generating strong sales growth.
"We have made considerable progress towards accelerated acceptance of ODM-guided fluid management as a standard of care in Spain. In one of the most influential teaching hospitals in Germany, our other direct market in Continental Europe, we are starting to see ODM-guided fluid management being written into standard operating procedures.
"In the USA we have focused on a small number of accounts and thereby made substantial progress in our strategy to position the Company to exploit the considerable opportunity it is creating.
"To date we have seen no adverse impact on either our business or our prospects as a result of the difficult global economic conditions. However, given uncertainty over the availability of new capital for emerging technology companies, the Directors believe that the Company will be best able to deliver shareholder value if it is in a position to finance its expansion plans out of operational cash flows. Therefore we have implemented a plan to accelerate breaking even within our current cash resources and after the first three months, we are ahead of this plan."
MARKETS
United Kingdom
In the UK the Company's business continued its track record of growth and over 2008 delivered both record volumes and record revenues for each of probes, monitors and maintenance contracts. December was a new record month for probe sales in the UK, and was the first time ever that probe units sold exceeded 3,000 in a month or that probe revenues exceeded £250,000 in a month.
Growth in both monitor and probe sales continued to be strongest in surgery and there was a return to growth in intensive care sales of both monitors and probes. The CardioQ-ODM remains the market leading technology for monitoring of cardiac output in UK intensive care units and there are opportunities for continuing growth despite this being a maturing market. The softer I2 range of probes launched towards the end of 2007 mean the CardioQ-ODM can be used easily on awake intensive care patients for the first time: this has allowed the Company to address the trend in UK intensive care units to minimise use of full mechanical ventilation.
The largest target market for the CardioQ-ODM is in surgery where there is no credible alternative to ODM's unique ability to enable doctors to give patients the right amount of fluid at the right time. Growth during 2008 continued to be strong both through introduction of CardioQ-ODM as a stand-alone improvement in peri-operative care and through its introduction as part of enhanced recovery or fast-track surgery programmes.
The Company continues to have a sufficiently large pipeline of well qualified sales prospects to enable it to maintain current levels of growth in the UK for several years to come. At the same time there are a number of pending significant developments which may encourage accelerated growth in the UK:
The work of the NHS National Technology Adoption Centre (NTAC) to support the implementation of CardioQ-ODM in three NHS hospitals is progressing well at all three sites. In its latest update on the project the NTAC reported "encouraging preliminary data that showed a trend to reduced length of hospital stay". The Whittington Hospital in London was the most established user of the CardioQ-ODM prior to the NTAC project and was the first NTAC site to increase its usage levels leading to growth of over 50% in probe sales in 2008 compared to 2007 sufficient to make the hospital one of the Company's ten biggest UK accounts. NTAC expects to issue guidance in Autumn 2009 to the NHS on both why and how to adopt CardioQ-ODM.
The UK Government funded health technology assessment into the clinical and cost effectiveness of ODM is currently scheduled for publication this month; although the Company has not been involved in the process of preparing this report, it understands that a draft of the report underpinned the highly encouraging 2008 report into ODM by the NHS Centre for Evidence-based Purchasing.
New clinical guidelines on peri-operative fluid management compiled by an expert consensus group of leading clinicians comprising representatives of the main professional bodies responsible for peri-operative care are expected to have a major impact in the UK and abroad over the course of 2009 and thereafter as they are disseminated and promoted. The recommendations attach the highest possible evidence grade to ODM-guided fluid management and will be the closest thing yet to a declaration of ODM-guided fluid management as a standard of care within the medical profession in the UK.
International - direct sales
The Company made substantial progress in Spain in 2008 towards making the CardioQ-ODM a standard of care for patients undergoing major bowel surgery. Preliminary results from a multi-centre audit of the CardioQ-ODM within an enhanced recovery programme showed lengths of hospital stay being halved. The audit is being led by some of the most influential colorectal surgeons in Spain who are seeking to complete the audit in the Spring and who are already recommending that ODM-guided fluid management be adopted throughout Spain. The Madrid based Entralgo Agency is the Spanish equivalent of the UK's National Institute for Health and Clinical Excellence (NICE) and has been involved in the audit since the start. The Agency has produced a highly favourable draft health technology assessment on ODM in colorectal surgery and has informed the Company that it plans to finalise and publish this as soon as the colorectal audit results are completed. Since the preliminary results of this audit became available, the Entralgo Agency has approached the Company about supporting a new multi-centre audit of the impact of CardioQ-ODM in other forms of major surgery: the purpose of this audit would be to justify rolling-out the Agency's anticipated recommendation of ODM-guided fluid management in colorectal surgery into other areas.
In Germany the Company expects to be able to announce important progress in the coming months as the use of the CardioQ-ODM starts to become established as part of the standard operating procedures for certain higher risk surgical patients in one of the country's most influential teaching hospitals and its most influential anaesthetic centre.
International - distributor sales
Sales into those International markets where the Company works with its distributor partners continued to grow satisfactorily in the second half of the year. Growth came both from initial stocking orders into new territories and from organic growth as a result of underlying increases in the breadth and depth of uptake of our products in longer established markets. Unit sales of probes to our distributor in France, our largest distributed market, were at record levels, approximately 25% ahead of 2007.
United States of America
The Company's strategy in the USA remains to develop a scalable business model by focusing on a small number of accounts to support their wide-scale adoption of ODM-guided fluid management using the CardioQ-ODM.
The first hospital to embark on the wide-scale adoption programme was in 2007 in Southern California and this hospital has continued to expand its usage of probes throughout 2008 to become the Company's largest single probe customer in the world. This expansion has come both through more doctors starting to use the probes and through existing users using it on a broader range of cases. The expansion has coincided with the emergence of predictable and satisfactory levels of physician reimbursement in the hospital for providing ODM-guided fluid management from both the Centers for Medicare and Medicaid Services (CMS) and private health insurers. There are opportunities for further expansion in this account in 2009 and from other hospitals supported by the same firm of anaesthetists in the region, with two such major hospitals having started installation and evaluation processes in 2008 with a view to implementation in 2009.
On the East Coast of the USA we started a major evaluation project towards the end of 2008 in one of the largest and most prestigious teaching hospitals and expect to start shortly a further project aimed at wide-scale implementation in a second major hospital. These opportunities, together with other existing qualified prospects, mean that the Company is well positioned to deliver both its strategic objectives in the USA and solid foundations for sustainable revenue growth in each of the short, medium and long terms.
The processes involved in establishing acceptable levels of reimbursement for doctors using the CardioQ-ODM in individual hospitals and regions has taken longer and proved more complex than the Company had originally anticipated. However, the levels of payment to doctors achieved in our larger accounts are satisfactory and we will be continuing to support existing customers and target hospitals in their efforts to agree appropriate levels of reimbursement with the various bodies that fund their activities.
For further information, please contact:-
Deltex Medical Group plc 01243 774 837
Nigel Keen, Chairman njk@deltexmedical.com
Andy Hill, Chief Executive ahill@deltexmedical.com
Ewan Phillips, Finance Director eap@deltexmedical.com
Gavin Anderson & Company 0207 554 1400
Deborah Walter dwalter@gavinanderson.co.uk
Robert Speed rspeed@gavinanderson.co.uk
Stuart Macaulay smacaulay@gavinanderson.co.uk
Nominated Adviser & Broker
Arden Partners 020 7398 1600
Chris Hardie chris.hardie@arden-partners.com
Notes for Editors
Deltex Medical manufactures and markets the CardioQ-ODM™ monitor, which uses disposable ultra-sound probes inserted into the oesophagus to determine the amount of blood being pumped around the body - 'circulating blood volume'. Reduced circulating blood volume is known as hypovolaemia, which leads to insufficient oxygen being delivered to the organs. This causes medical complications including peripheral and major organ failure which can lead to death. Hypovolaemia, which is akin to severe dehydration, affects virtually every patient having surgery because of the combined effects of pre-operative starvation, the impact of the anaesthetic agents and trauma from the surgery itself. Using fluids and drugs, guided by the CardioQ-ODM, to optimise the amount of circulating blood significantly reduces post-operative complications allowing patients to make a faster, more complete recovery and return home earlier.
The CardioQ-ODM incorporates the Company's proprietary software and a small diameter, easy-to-use, minimally invasive, disposable oesophageal probe that is used for transmitting and receiving an ultra-sound signal. By using this technology, the CardioQ-ODM provides clinicians with the ability to haemodynamically optimise critically ill patients and those undergoing routine moderate to major surgery through the controlled administration of fluid and drugs. Haemodynamic optimisation has been scientifically proven to improve the speed and quality of patient recovery and reduce hospital stay.
There are already over 1,600 CardioQ-ODMs currently in use in hospitals worldwide and distribution arrangements are in place in over 30 countries. Over 1,000 patients a week are treated using the CardioQ-ODM. In addition, there are currently approximately 200 clinical publications on the use of the CardioQ-ODM which have repeatedly:-
Validated the results of the Monitor against known standards for measuring cardiac output, demonstrating that the technology works
Proved that the CardioQ-ODM works in a wide range of surgical procedures
Demonstrated that the Company's technology provides significant health and economic benefits by helping to reduce post-operative complications and length of hospital stays by an average of 30 to 40 per cent for a wide range of patients.
The SupraQ™ is an entirely non-invasive device which uses an ultrasound probe held at the base of the patient's neck to track the flow of blood in the aorta; it presents the same data as the CardioQ-ODM in a similar format and is used for taking snapshots or monitoring over short periods.