Last checked at 4 Mar 2009 07:00
Deltex Medical Group plc
Preliminary results for the year ended 31 December 2008
4 March 2009 - Deltex Medical Group plc ("Deltex Medical", "Group" or "Company"), the global leader in oesophageal Doppler monitoring (ODM), today announces its preliminary results for the year ended 31 December 2008.
Financial Highlights
Revenues increased by 26% to £5,235,000 (2007: £4,168,000)
77% of sales from recurring revenue streams
Gross margins improved to 72% (2007: 70%)
Operating losses increased by £331,000 to £2,554,000
Operating cash outflow of £2,387,000 (2007: £2,129,000)
Cost base reconfigured to accelerate break-even
£475,000 cash at year end
£188,000 committed loan available to be drawn down at 31 December 2008
£1,000,000 unsecured five year convertible loan issued since year end
Operating Highlights
Significant progress in all focus areas
New CardioQ-ODM monitor launched
I2 probes rolled out successfully in Europe; FDA approval secured in USA
Satisfactory levels of reimbursement in key focus accounts in USA
UK Government health technology assessment identifies mortality benefit from ODM
UK Government reports show ODM to be cost effective in surgery
UK clinical consensus guidelines highlight strong evidence supporting wider ODM usage
Significant progress made in Spain towards accelerated recognition of ODM as standard of care
Nigel Keen, Chairman of Deltex Medical, said:
"Opinion about how best to deliver healthcare is undergoing a fundamental shift with the growing insistence on the part of healthcare providers and payers that new medical technologies must be demonstrated in randomised, controlled clinical trials to be both clinically and cost effective before being widely adopted and that healthcare delivery should be evidence-based. Deltex Medical's CardioQ-ODM is a perfect fit for this new environment."
"It is this changing healthcare environment and our unique position within it that will enable Deltex Medical to deliver better outcomes for patients, consistent sales growth and sustainable long-term value to its shareholders."
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 |
| Nominated Adviser & Broker | |
| Arden Partners plc | 020 7398 1600 |
| Chris Hardie | chris.hardie@arden-partners.com |
| Matthew Armitt | matthew.armitt@arden-partners.com |
| Kreab Gavin Anderson | 020 7554 1400 |
| Deborah Walter | dwalter@kreabgavinanderson.com |
| Robert Speed | rspeed@kreabgavinanderson.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.
Chairman's Statement
Deltex Medical made significant progress in 2008, delivering sustained growth in sales in the UK, Europe and the Rest of World markets and in those regions of the USA where the Company provides on-the-ground support. The Company substantially increased its installed base and sold 221 new CardioQ-ODM™ monitors. Overall, revenues for the Group increased by 26% from £4,168,000 to £5,235,000.
The Company's sales growth is underpinned by growth in recurring revenue streams as the Company's products are adopted into routine clinical practice. Revenues from the sale of disposable probes were ahead by 22% at £3,871,000 compared to £3,185,000 in 2007 and accounted for 74% of Group revenues for the year.
Operating losses were £2,554,000 an increase of £331,000 over 2007, as a result of increases in non-cash charges and investment in a number of one-off projects designed to accelerate the Company's established momentum in 2009 and beyond.
Cash at the year-end was £475,000, in line with the Company's expectations, with a further £188,000 available to be drawn down under a loan facility. Since the year end the Company has raised an additional £1,000,000 through the issue of a five-year unsecured convertible loan note.
As a result of the actions taken in 2008, the Company entered 2009 with its run rates for revenues and cash costs rapidly converging as sales continued to grow. Furthermore, it has the cash in the bank both to enable it to invest in specific projects which generate early returns and to deal with any unforeseen events during the current period of economic uncertainty.
Group Summary
Deltex Medical's CardioQ-ODM oesophageal Doppler monitor (ODM) is changing the way doctors care for patients having major surgery or who are in intensive care. Scientific evidence of the highest quality from independently conducted, randomised controlled clinical trials, is being translated into routine clinical practice in leading hospitals around the world and as a consequence patients are recovering from their surgery faster and leaving hospital sooner and in better health than they otherwise would do.
Doctors and healthcare administrators around the world are increasingly aware of the potential health and economic benefits of wide-scale adoption of the CardioQ-ODM in their hospitals. Our primary role is to facilitate implementation of the CardioQ-ODM as a standard of care through a programme of structured education, training and post-implementation support that enables doctors to help their patients recover more fully and quickly from their surgery and hospital managers to provide a better quality of care more efficiently and cost effectively.
The CardioQ-ODM helps patients by enabling doctors to reduce the complications that arise from a medical condition that is common to almost all patients having surgery and many others in intensive care or arriving in the accident and emergency department. This condition is known as hypovolaemia - a reduction in circulating blood volume - and in surgical patients arises as a direct consequence of the combined effects of pre-operative starvation, the anaesthetic agents used to put the patient to sleep and the blood and fluid losses associated with the surgical procedure itself. Hypovolaemia means that the body struggles to get sufficient blood to the tissues and vital organs which are consequently starved of essential oxygen. This can cause medical complications including peripheral and major organ failure, which if not dealt with quickly can lead to severe compromise or even death.
The body compensates for developing hypovolaemia through the sequential shut down of the circulatory system and diversion of blood to critical organs. This helps to maintain blood pressure at normal levels and preserve oxygen delivery to those organs at the expense of other systems.
The CardioQ-ODM uses disposable ultrasound probes placed in the oesophagus to measure real-time blood flow which is an earlier and much more sensitive indicator of changes in circulating blood volume than blood pressure. This allows the doctor to detect and deal rapidly with the early stages of hypovolaemia before it becomes a clinical problem. In contrast, blood pressure-based monitoring systems, however sophisticated, are unable to detect hypvolaemia until it is so severe that the body's compensatory mechanism begins to fail, at which point the patient is already in a critical condition.
Trading Results
| Sales | 2008 | 2008 | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 | 2007 | 2007 | 2007 |
| Probes | Monitors | Probes | Monitors | Other | Total | Probes | Monitors | Probes | Monitors | Other | Total | |
| units | units | £'000 | £'000 | £'000 | £'000 | units | units | £'000 | £'000 | £'000 | £'000 | |
| Direct markets | ||||||||||||
| UK CardioQ-ODM | 28,880 | 80 | 2,359 | 588 | 164 | 3,111 | 25,730 | 60 | 2,041 | 398 | 135 | 2,574 |
| UK SupraQ | - | 2 | - | 26 | - | 26 | - | 3 | - | 60 | - | 60 |
| UK total | 28,880 | 82 | 2,359 | 614 | 164 | 3,137 | 25,730 | 63 | 2,041 | 458 | 135 | 2,634 |
| USA | 6,495 | 12 | 507 | 65 | 6 | 578 | 7,075 | 12 | 518 | 63 | 6 | 587 |
| Spain | 890 | - | 102 | - | - | 102 | 520 | 9 | 50 | 85 | 1 | 136 |
| Distributor markets | ||||||||||||
| Europe | 12,170 | 80 | 661 | 309 | 8 | 978 | 9,400 | 25 | 436 | 102 | 6 | 544 |
| Rest of world | 5,500 | 49 | 242 | 194 | 4 | 440 | 4,240 | 36 | 140 | 122 | 5 | 267 |
| 53,935 | 223 | 3,871 | 1,182 | 182 | 5,235 | 46,965 | 145 | 3,185 | 830 | 153 | 4,168 |
Sales
Revenue for the group in 2008 was £5,235,000 compared to £4,168,000 in 2007, an increase of 26%.
Revenue derived from sales of disposable probes accounted for 74% of total Group revenues and was ahead by almost 22% at £3,871,000 compared to £3,185,000 in 2007. In 2008, for the third consecutive year, Group probe sales in each quarter were ahead of the corresponding quarter in the preceding year. This trend demonstrates the growing strength of the Company's value proposition to doctors and healthcare administrators alike.
Sales of CardioQ-ODM monitors were ahead by 79 units compared to the prior year (2008: 221 units; 2007: 142 units), with a significant increase in the monitor base in the United Kingdom where a further 80 monitors were sold during the year (2007: 60 units).
Cash
Cash at 31 December 2008 was £475,000, in line with the Company's expectations, with a further £188,000 available to be drawn down under a loan facility.
The Company has carefully reviewed 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. In the first weeks of 2009 we have continued to make progress in sales in all our key territories.
During 2008 the Company raised £2,000,000 of new capital and invested in a number of discretionary projects and programmes designed to help grow the business. As a result of the global economic downturn, the Board has undertaken a detailed review of its sales and expenditure forecasts across all of its markets as well as a review of its supply chain. Following this review 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.
The adoption of this approach is enabling the Company to conserve its cash and ensure it has sufficient cash reserves in excess of ongoing operational cash flows to deal with the unexpected (for example, a supplier being adversely affected by the downturn), without materially affecting long-term growth prospects and shareholder value.
Since the year end the Company has raised an additional £1,000,000 through the issue of a five year unsecured convertible loan note. The Company raised the new capital to strengthen its balance sheet to be able to deal with unforeseen events during the current difficult economic times and to allow it to move ahead more quickly on certain initiatives with potential for early returns, particularly in establishing ODM in Spain.
Operating results
Operating losses for the year were £2,554,000 compared to £2,223,000 in 2007, an increase of £331,000 as a result of modest increases in the underlying (recurring) cost base and larger increases in one-off costs and costs on discretionary projects. Increases in the underlying cost base included expanding our sales and clinical teams in the USA by three people, Spain by one and in the UK by two as well as three additional office staff to support higher sales volumes. During the year the Company opened low cost offices in both Spain and Germany and relocated its US office from Annapolis, Maryland to Greenville, South Carolina.
The Company sold 221 new CardioQ-ODM monitors in 2008 and expects these to contribute to continuing growth in probe sales in 2009. In addition the Company completed a number of projects in 2008 which it expects to contribute to its continuing growth. We successfully launched the new generation CardioQ-ODM monitor in the UK and key European markets and completed the majority of the work necessary for US regulatory approval. We rolled out the I2 range of probes, launched for surgical use in the UK in 2007, into critical care applications and into International markets. We took key steps towards securing patents to protect those aspects of I2 design which make the probes suited to awake patients and went through the application process for US regulatory approval of the I2 range, gaining full FDA approval in February 2009. We upgraded our manufacturing systems and production workflows so that they reflect the substantially higher manufacturing volumes we expect in the coming years. In the USA we invested heavily in supporting doctors making the first claims for reimbursement from both CMS and private healthcare insurers and as a result have developed templates for new customers to follow and established the first satisfactory precedents for payment levels. We set up new subsidiaries in each of our overseas direct sales markets of the USA, Spain and Germany to position ourselves for growth and establish a local identity. We undertook a programme of attendance at clinical meetings for specialists in both urological and orthopaedic surgery to generate the contacts and leads we needed to be able to focus on these large market segments and supported a number of clinical projects aimed at refining the marketing messages needed to drive accelerated expansion in these specialties. Similar projects in colorectal surgery enhanced recovery are continuing to add to our momentum in bowel surgery as the results start to be disseminated. In the UK we deployed considerable resources to support the NHS National Technology Adoption Centre projects in three hospitals: all the indications to date are that these projects will result in the NHS producing clear guidance for its hospitals on how to implement CardioQ-ODM on a wide-scale.
Sales related bonuses and commissions were £193,000 higher than in 2007. For the first time ever both the UK and International sales teams exceeded their targets for the year, entitling them to above target earnings. To preserve the Company's cash, all staff with an accrued bonus at 31 December 2008 have agreed to take their entitlement in share options under the Company's Enterprise Management Incentive (EMI) scheme.
Including bonuses payable under the Company's EMI scheme the total of non-cash items charged in arriving at the operating loss was £910,000, £298,000 higher than in 2007 (£612,000). These items include charges for share based payments (2008: £367,000; 2007: £328,000), amortisation of pre-paid research projects (2008: £171,000; 2007: £244,000), bonuses to be satisfied by equity issue (2008: £307,000; 2007: £Nil), depreciation and amortisation (2008: £65,000; 2007 : £40,000).
Gross margins continued to improve to 72% in 2008 from 70% in 2007 and the Company is targeting continuing margin development both from increasing average selling prices and from decreasing unit manufacturing costs.
Markets
Deltex Medical sells its products directly to hospitals, using its own team of sales people and clinical trainers in the United Kingdom, United States of America and Spain. In Germany, since early in 2008, we work directly with our customers, but collaborate with a distributor who provides logistical and regulatory support. In all other territories we work with a network of distributor partners which we support through a small UK-based sales and clinical training team.
It is our goal to establish a position of market leadership in the provision of haemodynamic management systems in each of the leading healthcare markets in the world today, in particular the UK, USA, France, Germany and Japan, and become recognised as a leading global medical technology company through innovation both in technology and in the delivery of that technology to the end user.
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 evidence-based enhanced recovery or fast-track surgery programmes. We achieve this through clinical education and training programmes as an integral part of the sales and implementation strategy.
United Kingdom
Sales of CardioQ-ODM monitors in the UK in 2008 were 33% higher than in 2007 (2008: 80 units; 2007: 60 units). Revenue from the sale of disposable probes was up by 16% compared to the prior year (2008: £2,359,000; 2007: £2,041,000) and a new record for monthly probe sales was established in December at over £250,000 as probe sales exceeded 3,000 units in a single month in the UK for the first time ever.
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 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 and keep patients awake wherever feasible. Approximately one in eight of our probes sold in the UK in 2008 was an I2 probe.
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 significant potential market drivers emerging which may encourage accelerated growth in the UK:
A working group of leading clinicians representing the Association of Surgeons of Great Britain and Ireland, BAPEN Medical, the Association for Clinical Biochemistry, the Society of Academic and Research Surgery, the Renal Association and the Intensive Care Society have now published the British Guidelines on Intravenous Therapy for Adult Surgical Patients (GIFTASUP). The various professional bodies are hosting the guidelines on their websites and are disseminating them to their members via editorials in their journals. Of the 28 various recommendations made, five cite clinical evidence from trials using ODM and two (recommendations 10 and 13) are based exclusively on outcome data from randomised controlled trials using ODM-guided fluid management: one of these is assessed as having the highest possible quality of evidence, "level 1a", the other as having "level 1b" evidence. The GIFTASUP guidelines are believed to be the first comprehensive set of guidelines on intra-operative fluid management in the world and represent a major step forward in establishing ODM-guided fluid management during surgery as a standard of care in the UK and beyond.
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 January update the NTAC reported "encouraging preliminary data that showed a trend to reduced length of hospital stay". Of the three sites involved, 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. Since the year end the team from Derby Hospital have given highly encouraging feedback on their experiences with the project at a conference organised jointly by the NHS Confederation and NTAC.
Since the year end the NHS National Institute for Health Research (NIHR) has published the UK Government funded health technology assessment into the clinical and cost effectiveness of ODM. The report's findings were extremely positive about ODM-guided fluid management during high risk surgery and found statistically significant reductions in mortality, major complications, total number of complications and length of hospital stay. The authors did not include in their analyses newer, unpublished, data from both case series and randomised controlled trials which the Company expects to demonstrate even more conclusively that the CardioQ-ODM saves lives. For example doctors in Kent found that, over a five year period, only one out of 144 patients on whom they used the CardioQ-ODM died within a month of surgery compared to three deaths in the 94 patients where they did not use CardioQ-ODM and despite their tending to use the CardioQ-ODM on the sicker, higher risk patients.
The NIHR report also concluded that it was probable that use of CardioQ-ODM would reduce hospital costs and that, using the Quality Adjusted Life Year (QALY) methodology adopted by the National Institute for Health and Clinical Excellence (NICE), there was an 80%-90% chance that ODM was cost effective, with the main uncertainty surrounding the additional costs that the NHS would incur treating the additional survivors of surgery after ODM usage. As a result the NIHR report indicates that ODM is both more cost effective and of greater clinical benefit than would be necessary to secure recommendation by NICE and the consequent mandatory application of NHS funding. This may prove very powerful as the Department for Health looks to establish a single evaluation pathway for new medical technologies in the UK and as NICE launches NHS Evidence in the coming months.
United States of America
Overall revenues from the USA were unchanged year-on-year (2008: £578,000; 2007: £587,000) as a consequence of favourable exchange movements and significant gains in our focus regions of New England and California being offset by losses in regions where we have no active sales or clinical support. Sales of disposable probes in New England rose by 31% in dollar revenue terms (2008: $226,000; 2007: $173,000) and rose in California by 33% in dollar revenue terms (2008: $215,000; 2007: $162,000).
It is our stated goal to create and prove a scalable and sustainable business model that can be tailored to fit each of the healthcare provider types operating in the USA. We believe that our evidence-based sales and clinical support model is demonstrably effective in transforming interest into implementation on a wide-scale. We have a number of hospital projects currently in progress that we expect will enable us to verify this and will provide the revenues required to fund further expansion of our small field team as we progress through 2009.
In order to achieve our goal we need to be able to bring together anaesthetists, surgeons and hospital administrators and get each group to "buy in" to adopting ODM as standard practice. It is the unique combination of clinical and economic benefit, user reimbursement and the growing support of the professional societies that is driving the desire to use ODM in the USA.
It is in this context that a prestigious and highly influential hospital in the northeast of the United States has begun working on an audit of the impact of the use of ODM in the management of intra-operative fluid delivery on post-operative length of stay. This audit, which is due to report its findings to senior hospital management in the latter part of 2009, is the precursor to a phased roll-out of routine, protocol-based use of ODM across a range of surgical procedures in the hospital.
A university teaching hospital, also in the northeast, is pursuing a programme of wide-scale implementation across all major surgery. This project started with interest from a colorectal surgeon who had heard the Freeman Hospital group from Newcastle-upon-Tyne present their ODM clinical trial data at a meeting in the USA. The project now enjoys support from the whole anaesthesia group as well as the heads of each of the key surgical teams at the hospital and is progressing towards full implementation over the course of the remainder of 2009.
In southern California we are continuing to work closely with a leading group of anaesthetists who provide services to two hospital systems and are seeking to spread adoption of ODM as part of their standard anaesthesia practice. A project team has recently been set up to coordinate the programme and drive it forward, based on the highly positive experience of implementation in the first hospital we worked in with this group of anaesthetists Both private insurers and public healthcare payers are already reimbursing doctors working with this group and the existing reimbursement policy is common to each of the hospitals in both hospital systems.
In mid-2008 the Company relocated its US office and customer services to Greenville, South Carolina, having secured inward investment funding to the value of $2,000,000 from the state of South Carolina to support further near-term expansion of the US sales and clinical training team and our market development activities in the USA, particularly in respect of physician reimbursement.
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. We are in discussion with Medicare (the public sector payer and the primary decision maker on reimbursement) and their sub-contractors with a view to simplifying and automating the payment process, but cannot predict when this more user-friendly and more consistent process will be in place.
In recent months, particularly since the Presidential election in the USA, there has been increasing discussion among healthcare providers, politicians and the healthcare industry about healthcare economics and cost-effectiveness. There seems to be a growing consensus emerging that increased emphasis must be placed on the delivery of cost-effective healthcare in the USA and that technologies with a clear economic benefit will be favoured over those not proven to be cost-effective.
International Sales
Overall sales to the international markets (that is, excluding the UK and USA) were £1,520,000 compared to £947,000 in 2007, an increase of 60%. Substantial progress was made in some long-standing distributor markets with sales to Austria slightly more than doubling to £57,000 from £28,000 in 2007. Sales to France, our longest standing distributor, increased by 50% from £191,000 in 2007 to £287,000 in 2008. Sales to Korea increased by 21% to £64,000 from £53,000 in 2007.
We established new distributors in Iran and Russia who placed large initial stocking orders for £109,000 and £111,000 respectively. It will take some time for these initial purchases to translate into regular, repeat orders for probes, but both represent significant opportunities for developing a long-term and profitable business relationship.
In our newer, direct international operations - Spain and Germany - we made significant early progress. Revenues from the sale of disposable probes in Spain grew by 104% to £102,000 from £50,000 in 2007. In Germany, sales rose from a very modest £19,000 to a more substantial £99,000 in 2008 as we embarked on a small number of very focused market development projects.
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 spring 2009 and who are already recommending that ODM-guided fluid management be adopted throughout Spain.
The concepts of evidence-based medicine, cost effectiveness and health technology assessment are central to current Spanish health policy and one of the bodies responsible for health technology assessment has been watching closely the colorectal surgery audit from its inception. They have prepared a favourable draft health technology assessment which they have indicated they plan to update for publication once the audit has finished. Since the year end this body has approached the Company about its plan to conduct a second, larger, multi-centre audit of CardioQ-ODM in types of surgery other than colorectal. The Company plans to increase its clinical team in Spain to support those sales leads already generated from the existing colorectal project and to enable it to support the wider scale project if satisfactory terms can be agreed with participating hospitals.
In Germany the Company has been collaborating with doctors at one of Europe's largest teaching hospitals, an institution that is responsible in large part for setting the German national guidelines on anaesthetic practice. The clinical leader at this hospital is well respected across Europe and highly influential among the growing community of doctors involved in so-called fast-track surgery or enhanced recovery programmes. It is hoped 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 this hospital.
International - Distributor Sales
Sales into those International markets where the Company works with its distributor partners similarly made significant progress in the year. Growth came both from initial stocking orders into new territories - primarily Iran and Russia - and from organic growth as a result of underlying increases in the breadth and depth of uptake of our products in longer established markets.
By way of example, sales of probes to our distributor in France, our largest distributed market, were at record levels, approximately 50% ahead of 2007 at £284,000 compared to £189,000 in 2007.
Where distributors have sought to emulate the evidence-based sales and clinical training model developed in the UK and USA they have seen significant increases in uptake of ODM in surgery. Sales of surgical probes in the distributed markets grew almost three-fold from 2,235 units in 2007 to 6,680 units in 2008, while sales of probes destined for use in intensive care remained broadly constant year-on-year at just under 10,000 units.
Research and Development
In April 2008 we released the enhanced version of the CardioQ™ monitor, the CardioQ-ODM in the UK and international markets. The CardioQ-ODM offers a number of significant improvements over predecessor models including enhanced patient management and event recording, upgraded compatibility with hospital networking systems, better and easier patient data management and greater ease of use.
During 2008 the Company's research and development effort has been focused on design enhancements for the range of oesophageal probes. These enhancements fall into two phases: the first phase is aimed at shorter-term improvements in manufacturability and cost reduction, continuing projects initiated in 2007. The second phase is aimed at a radical re-engineering of the probe technology platform and seeks to achieve a number of goals including the automation manufacture, improved ease of use and enhanced performance.
During 2008 we were able to implement a number of the first phase design enhancements including a new probe connector that is easier to handle, offers a more robust connection to the interface cable, thereby reducing the risk of accidental disconnection, and making it easier to discriminate between probe variants. The new connector is easier and faster to assemble during probe manufacture and eliminates two steps in the production process. Full implementation of the new connector across all probe variants will be completed by the end of 2009.
The second phase of probe design review is a longer-term focus for the research and development team and comprises a number of sub-projects that in combination will produce a new technology platform that provides significantly superior probe placement and focusing and focus retention capabilities along with enhanced defence against external interference from electro-cautery ("diathermy") devices that are used intermittently during surgery and can at times disrupt use of ODM. These changes are being developed to enhance manufacturability and with a view to eventual automation of production and provide significant opportunities to further strengthen our intellectual property position.
We are continuing to develop the pulsed wave Doppler version of the non-invasive SupraQ™monitor, with which we plan to extend our awake patient market potential beyond that created by the success of the I2 probes. While we have deferred most of the remaining development costs to be financed out of operating cash flows, we are in the process of gaining the necessary ethics committee approvals to allow us to test the existing prototype devices against the oesophageal probes using healthy volunteers. This trial will allow us to complete much of the regulatory approval process at low cost.
In February of 2009 we received notice from the US regulatory authority that the I2 range of oesophageal probes had been approved for sale in the USA. This now gives doctors in the USA access for the first time to a probe that can be placed nasally in the awake patient in the operating theatre, intensive care unit or in the emergency room.
Board Membership
Dr George Flouty is standing down from the Board at the forthcoming AGM having served as a non-executive director for nine years. On behalf of the Board I would like to thank George for his contribution over this period and wish him well in his future endeavours.
Prospects
Deltex Medical is uniquely positioned to capitalise on the acceptance by anaesthetists and surgeons of the need for better and timelier haemodynamic management for patients undergoing surgery. No other technology has been demonstrated to provide the proven benefits of ODM and at this time the Company feels it highly unlikely that any currently available technology could provide those benefits.
Healthcare providers and payers in the USA and Europe, having examined the evidence at length, have independently reached the conclusion that use of ODM to guide fluid delivery during surgery clearly reduces complications and shorten lengths of hospital stay - the core of the Company's value proposition. Moving forward, it is increasingly clear that the CardioQ-ODM also improves patients' prospects of surviving major surgery.
Opinion about how best to deliver healthcare is undergoing a fundamental shift with the growing insistence on the part of healthcare providers and payers that new medical technologies must be demonstrated in randomised, controlled clinical trials to be both clinically and cost effective before being widely adopted and that healthcare delivery should be evidence-based. Deltex Medical's CardioQ-ODM is a perfect fit for this new environment.
It is this changing healthcare environment and our unique position within it that will enable Deltex Medical to deliver better outcomes for patients, consistent sales growth and sustainable long-term value to its shareholders.
Nigel Keen
Chairman
4 March 2009
Consolidated Income Statement
for the year ended 31 December 2008
| Unaudited | Unaudited | |
| 2008 | 2007 | |
| £'000 | £'000 | |
| Revenue | 5,235 | 4,168 |
| Cost of sales | (1,475) | (1,250) |
| Gross profit | 3,760 | 2,918 |
| Administrative expenses | (2,667) | (2,334) |
| Sales and distribution costs | (3,253) | (2,525) |
| Research and development costs | (394) | (282) |
| (6,314) | (5,141) | |
| Operating loss | (2,554) | (2,223) |
| Finance income | 13 | 33 |
| Finance costs | (22) | (21) |
| Loss before taxation | (2,563) | (2,211) |
| Tax on loss | 6 | 23 |
| Loss for the year | (2,557) | (2,188) |
| Loss per share - basic and diluted | (2.6p) | (2.5p) |
Consolidated Statement of Recognised Income and Expense
for the year ended 31 December 2008
| Unaudited | Unaudited | |
| 2008 | 2007 | |
| £'000 | £'000 | |
| Exchange differences taken to reserves | 28 | 8 |
| Loss for the year | (2,557) | (2,188) |
| Total recognised expense for the year | (2,529) | (2,180) |
Consolidated Balance Sheet
at 31 December 2008
| Unaudited | Unaudited | |
| 2008 | 2007 | |
| £'000 | £'000 | |
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 180 | 37 |
| Trade and other receivables | 328 | 20 |
| Intangible assets | 160 | 190 |
| Total non-current assets | 668 | 247 |
| Current assets | ||
| Inventories | 681 | 441 |
| Trade and other receivables | 1,593 | 1,570 |
| Current income tax recoverable | 6 | 47 |
| Cash and cash equivalents | 475 | 763 |
| Total current assets | 2,755 | 2,821 |
| Total assets | 3,423 | 3,068 |
| Liabilities | ||
| Current liabilities | ||
| Borrowings | (490) | (407) |
| Trade and other payables | (1,515) | (1,204) |
| Provisions for other liabilities and charges | (73) | (77) |
| Total current liabilities | (2,078) | (1,688) |
| Non - current liabilities | ||
| Borrowings | (361) | - |
| Total liabilities | (2,439) | (1,688) |
| Net assets | 984 | 1,380 |
| Equity | ||
| Share capital | 1,004 | 925 |
| Share premium | 18,110 | 16,423 |
| Capital redemption reserve | 17,476 | 17,476 |
| Other reserves | 1,709 | 1,342 |
| Translation reserve | 27 | (1) |
| Retained deficit | (37,342) | (34,785) |
| Total equity | 984 | 1,380 |
Consolidated Statement of Cash Flows
for the year ended 31 December 2008
| Unaudited | Unaudited | |
| 2008 | 2007 | |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Operating loss | (2,554) | (2,223) |
| Depreciation of property, plant & equipment | 30 | 38 |
| Amortisation of intangibles | 35 | 2 |
| Capitalisation of clinical trial costs | (70) | (264) |
| Amortisation of clinical trial costs | 171 | 244 |
| Loss on disposal of fixed asset | - | (1) |
| Exchange gain/loss on fixed assets | 2 | - |
| Earnings before interest, tax, depreciation and amortisation | (2,386) | (2,204) |
| Cost of equity settled share schemes | 367 | 328 |
| Accrued bonus to be settled through equity issue | 307 | - |
| Operating cash flows before movements in working capital | (1,712) | (1,876) |
| (Increase)/ decrease in inventories | (190) | 41 |
| Increase in trade and other receivables | (426) | (273) |
| Decrease in trade and other payables | (80) | (50) |
| (Decrease)/increase in provisions | (4) | 27 |
| Cash used in operations | (2,412) | (2,131) |
| Interest paid | (22) | (21) |
| Income taxes received | 47 | 23 |
| Net cash used in operating activities | (2,387) | (2,129) |
| Cash flows from investing activities | ||
| Purchase of property, plant & equipment | (171) | (29) |
| Capitalised development expenditure | (5) | (101) |
| Interest received | 13 | 28 |
| Net cash used in investing activities | (163) | (102) |
| Cash flows from financing activities | ||
| Issue of ordinary share capital | 1,773 | 2,613 |
| Expenses in connection with share issue | (7) | (151) |
| Proceeds from increase in borrowings | 464 | 110 |
| Repayment of obligations under finance leases | (4) | - |
| Net cash generated from financing activities | 2,226 | 2,572 |
| Net (decrease)/increase in cash and cash equivalents | (324) | 341 |
| Cash and cash equivalents at beginning of the year | 763 | 418 |
| Effect of exchange rate fluctuations on cash held | 36 | |
| Cash and cash equivalents at end of the year | 475 | 763 |
1 Nature of the financial information
The financial statements for Deltex Medical Group plc have yet to be approved for the year ended 31 December 2008. The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 December 2008 or 31 December 2007. The financial information for the year ended 31 December 2007 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2008 are expected to be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
The preliminary results have been prepared in accordance with applicable accounting standards under International Financial Reporting Standards (IFRS). The financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985.
2 Segmental information
The segment results for the year ended 31 December 2008 are as follows:
| UK | USA | International | Spain | Unallocated | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Total segment revenue | 3,406 | 578 | 1,418 | 102 | - | 5,504 |
| Inter segment revenue | (269) | - | - | - | - | (269) |
| Group revenue | 3,137 | 578 | 1,418 | 102 | - | 5,235 |
| Segment/operating result | 484 | (332) | (26) | (75) | (2,605) | (2,554) |
| Finance income | 13 | |||||
| Finance costs | (22) | |||||
| Loss before taxation | (2,563) | |||||
| Tax on loss | 6 | |||||
| Loss for the financial year | (2,557) |
Included within segment/operating result are the following significant non-cash items:
| UK | USA | International | Spain | Unallocated | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Depreciation | 1 | 13 | 1 | - | 15 | 30 |
| Share based payments | 26 | 11 | 77 | 3 | 250 | 367 |
| Accrued equity settled bonuses | 214 | - | 94 | - | - | 308 |
3 Dividends
The directors do not recommend payment of a dividend (2007: nil).
4 Loss per share
Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares issued during the year. The Group had no dilutive potential ordinary shares in either year, which would serve to increase the loss per ordinary share. Therefore, there is no difference between the loss per ordinary share and the diluted loss per ordinary share.
The loss per share calculation for 2008 is based on the loss of £2,557,000 and weighted average number of shares in issue of 96,849,319. For 2007 the loss per share calculation was based upon the loss of £2,188,000 and weighted average number of shares in issue of 87,737,746.
5 Distribution of the announcement
Copies of this announcement are being sent to all shareholders and will be available for collection free of charge from the Company's registered office at Terminus Road, Chichester, West Sussex PO19 8TX. Copies of the Report and Accounts for the year ended 31 December 2008 will be sent to shareholders in due course. Both this announcement and the Report and Accounts (when released) will be available to download from the Company's website free of charge at www.deltexmedical.com