SKIN.L Regulatory News (SKIN)

9 December 2019

Integumen PLC

("Integumen", "Group" or "Company")

Integumen raises approximately £1.368 million to maintain current pace of growth

Subscription and Placing of, in aggregate, 91,253,530 new Ordinary Shares at 1.5 pence per share

Integumen plc (AIM: SKIN) is pleased to announce a subscription for new Ordinary Shares and a placing of new Ordinary Shares through its broker, Turner Pope, involving the issue of, in aggregate, 91,253,530 new Ordinary Shares at 1.5 pence per share which will raise approximately £1.368 million (before expenses) for the Company, utilising all of the headroom currently available.

Gerard Brandon, Chief Executive Officer, commented:

"The Company guided revenues of £1 million in 2019 and four times that for 2020 to £4 million.  Even with cash in the bank, a very low-geared (8 per cent.) balance sheet and profitability in sight, it is necessary for the Company to provide verifiable assurances during a client's due diligence process that its cash buffer is strong throughout the duration of each client's engagement with the Company. The monies raised will provide this buffer and enable this continued rapid growth of sales to many leading global skincare companies through the expansion of both facilities and employees. With the visibility we have of sales into next year, 2020 is already looking to be a good year for Integumen."

Funding to maintain current pace of growth into 2020 includes:

·; Providing working capital to help deliver £4 million in revenues, guided for 2020

·; Intending to double the size of the Labskin laboratory in York, currently 3,162 square feet, which could provide an estimated 10-fold increase on 2019 turnover capacity

·; Managing tenders made jointly with commercial and academic consortium research partners for approximately £7 million in state supported grant funding and an application to a large US philanthropic foundation made together with other research partners for a vector skin, insect borne disease project with a combined value of US$7.7 million

·; Hiring additional laboratory, sales and data scientists

·; Increasing average sales per client to between £100,000 and £500,000 for physical and AI services

·; Engaging technical support professionals to support Rinodrive and its intelligent data management and analytics software services in connection with the framework agreement to be entered into between the Company and Parity Group plc

·; Increasing the financial robustness of the Group to assist client due diligence

Trading update Quarter 3, 2019 (unaudited)

In the nine months ended 30 September 2019, the Group has achieved turnover of £0.591 million (compared with £0.116 million in the comparative period in 2018) with gross margins of 78 per cent. and posted an EBITDA loss of £0.668 million, a reduction of £0.134 million on the comparative period in 2018. Overheads for the nine-month period ended 30 September 2019 totalled £1.129 million, an increase of £0.249 million over the comparative period in 2018. The increase in overheads is due to incorporating Rinocloud operating costs since 2 May 2019 and the appointment of additional laboratory and management staff. As at 30 September 2019, the Group had cash balances of £0.477 million.

All of the financial information referred to in the paragraph above is unaudited. Financial information for the financial year ended 31 December 2018 excludes discontinued operations.

Issue of new Ordinary Shares

The issue of 91,253,530 Ordinary Shares pursuant to the Placing and the Subscription and the grant of warrants to Turner Pope over 5,279,999 Ordinary Shares is the maximum the Company is able to issue without the need to convene a further general meeting of Shareholders to approve a greater authority.

Gerard Brandon, Camillus Glover and Fionán Murray have agreed to subscribe equally for, in aggregate, 3,253,531 new Ordinary Shares pursuant to the Subscription.

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

Enquiries:

About Integumen: www.integumen.com

Integumen is a vertically integrated product and services company for skin related diseases, treatments and therapies with four business units:

·; Labskin AI's technology platform incorporates artificial intelligence within clinical research for medical device, pharmaceuticals, cosmeceuticals and related life science test services. Labskin allows skincare, healthcare, pharmaceutical manufacturers and cosmetic companies to test their products on human-like skin in a real-world environment with full access to multiple state-of-the-art partner technologies.

·; Rinodrive is a data aggregation, refining and AI analysis open-source eco-system designed to provide third-party service providers the ability to offer their clients valuable insights that support clinical, operational and financial decisions in healthcare services, third-level education, government departments and the financial sector.

·; Wound pHase is developing skin and wound care products using its proprietary wound dressing technology. Working in collaboration with CBD providers creating a CBD infused diabetic wound care product range.

·; Stoer-for-men skin products e-commerce division offers a range of skincare products derived from 5 natural super-ingredient plant extracts specifically for men to reduce the signs of ageing and is also used as a control for client testing within Labskin laboratories.

Subscription and Placing of, in aggregate, 91,253,530 new Ordinary Shares at 1.5 pence per share

Introduction

The Company is pleased to announce that it has raised £1.368 million (before expenses) by a subscription for and placing of, in aggregate, 91,253,530 new Ordinary Shares at a price of 1.5 pence per Ordinary Share. The Placing was undertaken by the Company's brokers, Turner Pope, as agent for the Company with existing and new investors in the Company.

The Placing is conditional upon Admission and the Placing Agreement not being terminated in accordance with its terms prior to Admission. The Subscription is also conditional upon Admission.

Admission is expected to take place on or around 16 December 2019.

Background

The following explains the background to the Placing and Subscription:

Integumen's business units

Integumen is a vertically integrated product and services company specialising in skin related diseases, treatments and therapies with four business units.

1. Labskin AI's technology platform incorporates artificial intelligence within clinical research for medical devices, pharmaceuticals, cosmeceuticals and related life science testing and R&D services. Labskin allows skincare, healthcare and cosmetics companies and pharmaceutical manufacturers to test their products on human-like skin in a real-world environment with full access to multiple state-of-the-art partner technologies. The platform is also starting to be used by large customers to conduct R&D into the skin microbiome.

2. Rinodrive is a data aggregation, refining and AI analysis open-source eco-system that has been designed to provide third-party service providers with the ability to offer their clients operational data management and valuable insights to support clinical, operational and financial decisions in healthcare services, third-level education, government departments and the financial sector.

3. Wound pHase is developing skin and wound care products using its proprietary wound dressing technology.

4. Stoer-For-Men skin products offers a range of skincare products derived from five natural super-ingredient plant extracts specifically for men to reduce the signs of ageing and is also used as a control for client testing within Labskin laboratories.

Significant growth since August 2018, guiding 2020 revenues of £4 million

Following a strategic review by new management in August 2018, the Company repositioned its Labskin offering from selling £1,500 skin kits as consumables for the product testing departments of large customers to offering a complete service where tests would be undertaken in accredited Labskin labs by experienced Labskin scientists.

During the current financial year, this has seen average sales to large clients increase to, on average, approximately £46,000 for R&D services. It has seen engagement at clients move to C-level personnel where Labskin is increasingly carrying out IP impacting R&D work into the holistic impact on the skin microbiome.

Turnover for the Group has increased from £0.274 million (audited) for the year ended 31 December 2018, to an expectation of over £1 million in the current financial year. In the nine months ended 30 September 2019, the Group posted (unaudited) revenues of £0.591 million.

In its recent trading update on 13 November 2019, the Company gave guidance in relation to the financial year ending 31 December 2020 as follows:

"Since 2018, the Company has seen average sales grow from £5k for consumable, one-off sales to 2019 average sales of £50k as a service contract. Heading into 2020, Integumen is engaging with multiple top 20 global skin and personal care companies and believes average sales are likely to range between £100k to £500k for data as a service to skincare R&D framework multi-year agreements, providing good visibility of revenue. Therefore, excluding developments that may arise from Integumen entering into the agreement with Parity Group plc, the Company is guiding 2020 revenues of £4 million." 

Trading update Quarter 3, 2019 (unaudited)

In the nine months ended 30 September 2019, the Group has achieved turnover of £0.591 million (compared with £0.116 million in the comparative period in 2018) with gross margins of 78 per cent. and posted an EBITDA loss of £0.668 million, a reduction of £0.134 million on the comparative period in 2018. Overheads for the nine-month period ended 30 September 2019 totalled £1.129 million, an increase of £0.249 million over the comparative period in 2018. The increase in overheads is due to incorporating Rinocloud operating costs since 2 May 2019 and the appointment of additional laboratory and management staff. As at 30 September 2019, the Group had cash balances of £0.477 million.

All of the financial information referred to in the paragraph above is unaudited. Financial information for the financial year ended 31 December 2018 excludes discontinued operations.

Increasing revenue per client

In the "Outlook" section of the Company's Interim Report for the six months ended 30 June 2019, which was published on 11 September 2019, the Company stated that the current level of pipeline activity continues to be significantly higher than the Company has experienced in the past and demand continues to increase for the Company's products and services.

The objective of increasing the average revenue per client is being met with the Board believing that average sales in 2020 are likely to range from £100,000 to £500,000 for services that combine Labskin's physical living skin equivalent and LabskinAI analysis capabilities. As stated above, the Company is guiding revenues for the financial year ending 31 December 2020 of £4 million.

Tender applications for grant supported research partnerships, leveraging AI and skin microbiome

Labskin is currently engaged in three drug remedy and discovery process tender applications with commercial and academic consortium partners from EU countries (Ireland and the UK). These are for state supported grant funding provided by the UK, Ireland and Horizon 2020 and are subject to approval. If successful, the combined value of the funding provided to these research partnerships will be in excess of £7 million.

In addition, an application for a vector skin, insect borne disease project to be undertaken by Labskin with other research partners which has a combined value of US$7.7 million is under review from a large US philanthropic foundation. Labskin flexibility will be essential for achieving the complex objectives of this project and the amount allocated to Labskin for its participation would be agreed upon award of the contract.

Other projects for blood borne ailments, skin microbiome reaction and skin absorption are being prepared for submission and will involve EU and US commercial partners and academic research institutions.

New staff members being recruited

As a consequence of increased demand, the Group has recruited one new member of staff and is in the process of recruiting more new staff members for the Labskin laboratories over the coming months. The Company intends to recruit additional senior sales executives in the new year to maintain the current pace of growth as the Company adds clients from the United States and the Far East.

Rinocloud AI acquisition

In May 2019, Integumen acquired Rinocloud Limited for £3 million to enable LabskinAI to use the Rinodrive AI platform to provide cloud-based data services to some of Integumen's leading global skincare clients. By the end of June 2019, Rinocloud had reached monthly profitability and, over the six-month period to 31 October 2019 (inclusive), revenue from Rinocloud's AI software has exceeded revenue from Labskin services.

LabskinAI digital hub, Cork, Ireland

In June 2019, following the Rinocloud acquisition and integration of data management and analytic services into LabskinAI, the Company opened a digital hub in Cork, Ireland to centralise global IT operations for the Group. This hub manages IT and further AI development, incorporating LabskinAI, the virtual laboratory-as-a-service that complements the Labskin laboratory services in York, UK, and provides online customer support to clients around the world.

New management appointments

In June 2019, Paul Ryan was appointed Head of Enterprise Sales at LabskinAI. Paul has managed strategic partnering programmes and initiatives with companies such as Siemens, Microsoft, Accenture and IBM and joins the Company from 8 West Consulting, a company with more than 240 personnel, where he was Head of New Business Development. He has worked with a network of clients that include Avon, Image Skincare, Estée Lauder and Anthem Inc., a Fortune 50 US health insurer.

In June 2019, Colin O'Sullivan was appointed Chief Information Officer (CIO). Colin has 20 years' experience and joins the team from the Australian Medical Association where he was Group Information Officer. He brings extensive cross-platform software experience in medical and science applications ranging from enterprise applications, cloud computing, artificial intelligence, IT operations, customer experience and development operations. Over a six-year period Colin was responsible for transforming the online business of the Australian Medical Association.

Labskin York laboratory physical operations - scaling to meet demand

On 7 November 2019, the Company announced the official opening of the enlarged York, UK, Labskin laboratory. This is now 3,162 square foot having increased from 941 square foot in 2018. As part of the most recent laboratory expansion, £400,000 of laboratory equipment was installed. Heading into 2020, the Company requires additional laboratory space to meet the continued increases in client services.

The Board intends to expand further into the available laboratory space in the same corridor at the site in York which the Board believes should provide:

·; additional tissue culture labs for Labskin production;

·; additional microbiology labs for microbiome testing;

·; a dedicated analytical service laboratory, including next generation sequencing equipment;

·; dedicated immunohistochemistry and media preparation labs to support production and services; and

·; additional office space available for shared services centre.

Additional equipment for the expanded laboratory would also need to be installed and commissioned.

To meet the rapid demand from clients, the Board estimates that increasing the size of the Labskin laboratory further could provide an estimated 10-fold increase on 2019 turnover capacity within six to 12 months.

Heads of terms signed with Parity Group plc

As announced on 13 November 2019, a multi-year framework agreement is expected to be completed on or before 18 December 2019, for the supply of AI software across Parity's National Health Service, Central Government and private institutional clients.

The Board believes this framework agreement will create an opportunity to cross-sell intelligent data management, extracting value using analytics, with a focus on proving return on investment, to Parity's 150+ institutional clients. Rinodrive will provide the platform for Parity to satisfy its own compliance with the General Data Protection Regulation, with secure cloud data migration from existing legacy systems to a digital workplace through the military grade encryption "Drive4Growth" AI platform powered by Rinodrive.

The Placing and the Subscription

The Company is proposing to raise £1.368 million gross (approximately £1.245 million net of expenses) by the placing of the Placing Shares (£1.320 million) and the subscription for the Subscription Shares (£0.048 million) at the Issue Price. The Issue Price represents a discount of approximately 4 per cent. to the closing middle market price of 1.56 pence per Ordinary Share on 6 December 2019, being the business day prior to the date of this announcement.

Following Admission, the New Ordinary Shares will represent approximately 8.5 per cent. of the Enlarged Issued Share Capital.

The New Ordinary Shares will be credited as fully paid and, when issued, will rank in full for all dividends and other distributions declared, made or paid on the Ordinary Shares following Admission and otherwise rank pari passu in all respects with the Existing Ordinary Shares.

Placing

The Placing is conditional upon, inter alia:

·; the Company allotting, subject only to Admission, the Placing Shares in accordance with the Placing Agreement;

·; Admission of the Placing Shares to trading on AIM becoming effective by no later than 8.00 a.m. on 16 December 2019 (or such other time and/or date, being no later than 8.00 a.m. on 23 December 2019, as Turner Pope, SPARK and the Company may agree);

·; the conditions in the Placing Agreement relating to the Placing being satisfied or (if applicable) waived; and

·; the Placing Agreement not having been terminated in accordance with its terms prior to Admission.

If any of the conditions is not satisfied, the Placing Shares will not be issued.

Placing Agreement

The Placing Agreement contains warranties from the Company in favour of Turner Pope and SPARK in relation to, inter alia, the accuracy of the information in this document and other matters relating to the Company and its business. In addition, the Company has agreed to indemnify Turner Pope and SPARK in relation to certain liabilities they may incur in respect of the Placing. Turner Pope and SPARK each have the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, in the event of a material breach of the warranties.

In addition, under the terms of the Placing Agreement, Turner Pope will be issued with warrants to subscribe for an aggregate of 5,279,999 new Ordinary Shares at an exercise price equal to the Issue Price per Ordinary Share. The warrants are exercisable at any time up to the date three years following Admission. No application is being made for these warrants to be admitted to trading on AIM.

The Placing is not being underwritten.

Subscription

Gerard Brandon, Camillus Glover and Fionán Murray have agreed to subscribe equally, in aggregate, £48,802 for 3,253,531 new Ordinary Shares pursuant to the Subscription.

The Subscription Shares will be issued at the Issue Price, raising £48,802 for the Company. The Directors who have subscribed pursuant to the Subscription have subscribed directly with the Company for the Subscription Shares, which are issued on the same terms and conditions as the Placing Shares.

The Subscription is conditional upon Admission of the Subscription Shares to trading on AIM becoming effective. If this condition is not satisfied, the Subscription Shares will not be issued.

The Subscription is not being underwritten.

Settlement and dealings

Application has been made for the New Ordinary Shares to be admitted to trading on AIM. The Placing and the Subscription are expected to become effective, and dealings in the New Ordinary Shares are expected to commence, by no later than 8.00 a.m. on 16 December 2019. Settlement of the New Ordinary Shares is expected to take place within the CREST system following Admission.

Placees and subscribers who elect to receive their Placing Shares or Subscription Shares in CREST will have their CREST account credited with their Placing Shares or Subscription Shares following Admission, which is expected to be on 16 December 2019.

Use of proceeds

The Placing and the Subscription will strengthen the Company's balance sheet and provide a further £1.245 million (net of expenses) for working capital purposes, which will accommodate the increased growth in the Company's core areas of expertise in both Labskin and data.

The growth in demand for Labskin services from small, medium, and large skincare companies continues to accelerate and requires additional resources, including more laboratory space expected to be brought online in 2020. As detailed above, additional members of the scientific team are currently in the process of being recruited. 

New technical support professionals will be added to support Rinodrive and its software services in connection with the framework agreement to be entered into between the Group and Parity Group plc and other partnership agreements as they develop. Rapid growth requires continual improvements to be made to internal systems and controls in order to maintain and upgrade accreditations as further laboratories come on stream.

The Company has quickly gained an industry thought leadership role with many leading global skincare companies and its physical presence at microbiome conferences in the US, Europe and South East Asia, as skin microbiome experts is essential to reinforce that position and as a powerful marketing tool, assisting in closing ever larger agreements for Labskin and LabskinAI services.

In addition, Rinodrive, as an industry agonistic solution, is being promoted as a revenue shared service, through partners with large sales, marketing and distribution channels. The first such agreement is the framework agreement to be entered into between the Group and Parity Group plc. Dedicated partner managers will be hired as new clients and partners in new sectors come onstream.

Finally, many of the Group's clientele are large corporations that are adopting the Group's services and increasingly using the output of results from Labskin and LabskinAI. Their due diligence process often includes a review of the financial robustness of the Group for the duration of the client's engagement and a certain proportion of funds will be retained as a liquid asset.

KEY STATISTICS

*at the Issue Price

DEFINITIONS AND GLOSSARY

The following definitions apply throughout this announcement, unless the context requires otherwise.

"Admission" admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with Rule 6 of the AIM Rules;

"AIM" AIM, a market operated by the London Stock Exchange;

"AIM Rules" the rules for AIM companies as published by the London Stock Exchange from time to time;

"AI" artificial intelligence or artificially intelligent;

"Company" or "Integumen" Integumen plc, a public limited company incorporated in England and Wales with registered number 10205396;

 "Board" or "Directors" the directors of the Company;

"EBITDA" earnings before interest, taxation, depreciation and amortisation;

"Enlarged Issued Share Capital" the entire issued share capital of the Company immediately following Admission;

"Existing Ordinary Shares" the 981,163,373 Ordinary Shares in issue at the date of this document;

"Group" the Company and its subsidiaries and subsidiary undertakings from time to time;

"IP" intellectual property;

"Issue Price" 1.5 pence per Ordinary Share;

"IT" information technology;

"Labskin" Labskin is a lab-grown full thickness human skin model that naturally mimics the skins microbiome. The good and bad bacteria that naturally exist on human skin is present on Labskin when testing skincare, cosmetics, healthcare, drug delivery or wound care products. The Labskin test platform and protocols help maintain an optimum real-world environment that shows the positive or negative impact on skin's natural microflora;

"LabskinAI" Labskin has a 12-year track record of developing human skin models and since the acquisition of Rinocloud in May 2019, now includes a range of test and experimental services available online with technologies such as AI and machine learning. These are maintained in a repository of data/knowledge offering bigdata research and predictive analysis related to skin for industry and academia;

"London Stock Exchange" London Stock Exchange plc;

"New Ordinary Shares" the Placing Shares and the Subscription Shares;

"Ordinary Shares" ordinary shares of 0.01 pence each in the capital of the Company;

"Placing" the placing of the Placing Shares pursuant to the Placing Agreement which is being undertaken using existing shareholder authorities;

"Placing Agreement" the conditional agreement dated 9 December 2019 between the Company, SPARK and Turner Pope relating to the Placing in relation to the Placing Shares;

"Placing Shares" the 87,999,999 new Ordinary Shares placed on behalf of the Company pursuant to the Placing;

"R&D" research and development;

"Rinocloud" Rinocloud Limited, a company registered in Ireland with registered number 581277 which is a subsidiary of the Company and was acquired in May 2019;

"Shareholder(s)" holder(s) of Ordinary Shares;

"SPARK" SPARK Advisory Partners Limited, the Company's nominated adviser;

"Subscription" the subscription for the Subscription Shares by three of the Directors pursuant to the Subscription;

"Subscription Shares" the 3,253,531 new Ordinary Shares subscribed pursuant to the Subscription; and

"Turner Pope" Turner Pope Investments (TPI) Ltd, the Company's broker.