Sinclair Pharma Regulatory News (SPH)

Sinclair Pharma Plc

Preliminary results for 12 months ended 31 December 2017

20% growth in revenues and a return to adjusted EBITDA profit; continued progress in building a leading global pure-play aesthetics company with significant, long-term growth potential

30 April 2018, Sinclair Pharma plc (AIM: SPH.L), ("Sinclair" or the "Company") the international aesthetics company, announces its unaudited results for the 12 months ended 31 December 2017.

FINANCIAL HIGHLIGHTS for the 12 months ended 31 December 2017

· Sales of £45.3 million representing growth of 20% (2016: £37.8 million, 18 months ended 31 December 2016 £45.5 million)

o Silhouette Soft® sales up 12% to £15.7 million (2016: £14.0 million)

o Silhouette Instalift™ sales of £5.2 million (2016: £1.3 million)

o Ellansé® sales increased 18% to £9.6 million (2016: £8.1 million)

o Perfectha® sales up 16% to £9.4 million (2016: £8.1 million)

o Sculptra sales down 14% to £5.4 million (2016: £6.3 million)

· Gross profit increased 23% to £32.9 million (2016: £26.7 million) as gross margin improved to 72.6% (2016: 70.7%)

· Adjusted EBITDA* of £0.4 million (2016: loss of £6.1 million)

· Operating loss £2.2 million (2016: £ 6.8 million, 18 months ended 31 December 2016: £18.2 million)

· Net debt** of £3.0 million at 31 December 2017

OPERATING HIGHLIGHTS

· Strong progress achieved in Brazil

o Silhouette Soft® sales growth of 17% in market driven by Sinclair's direct sales team

o Perfectha™ re-registered successfully and re-launched in Q4

o Established exceptional Brazilian advisory board for Ellansé® ahead of 2018 launch

· FDA approved commercially significant label change for Silhouette InstaLift™ making the procedure simpler and cheaper to train doctors in the US

· Continued to receive significant physician interest in Silhouette InstaLift™ training but re-order rates achieved by partner Thermi were disappointing

· Full portfolio sold in Mexico for first time with strong growth achieved in H2

· Established and launched South Korean affiliate with repatriated local rights for Silhouette Soft® and Ellansé®

· Restructuring commercial operations in UK, France and Germany and de-stocking in these markets adversely affected revenues

· New European CE mark granted for Silhouette Soft®

· Sinclair's physician congress 'World Experts Meeting' held in Barcelona again attended by around 1000 aesthetic practitioners from around the world

POST YEAR-END EVENTS

· Ellansé® granted ANVISA approval and launched in Brazil

· Full US commercial rights for Silhouette InstaLift, Silhouette Refine and Silhouette Lift returned to Sinclair following termination of agreement with Thermi

· Raised $5m investment via a convertible loan from EW Healthcare Partners, a specialist investor focused on rapidly growing healthcare companies with proceeds used to finance termination of Thermi agreement

· Created direct US operation following Thermi termination, initial salesforce consists of seven dedicated InstaLift™ reps recruited from Thermi, aim to build to 15 by end of 2018

· New €23.0 million five year debt facility to provide greater operational flexibility and repayment of £5.0 million Silicon Valley Bank loan

Chris Spooner, Sinclair's CEO commented: "2017 was another year of significant progress for Sinclair, during which we continued to deliver on our strategy resulting in continued revenue acceleration and a return to EBITDA profitability. The recent launch of Ellansé in Brazil and the launch of our new affiliate in South Korea will be significant growth drivers for the Group going forwards. Having considered a range of options in the US we are excited to confirm today that we will be developing our own US direct operation for the sale and distribution of Silhouette InstaLift™ going forwards. We firmly believe that retaining control of this highly differentiated product in this significant market will provide the Group with a platform to promote additional products and drive long-term value and optionality for our shareholders."

Sinclair's management team will discuss the Company's results at a presentation for analysts today at 9:30am which will be held at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD

* Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, impairment, share based payments, exceptional items and loss from discontinued items. See finance review for reconciliation of operating loss to adjusted EBITDA.

** Net debt defined as cash at bank less current and non-current borrowings and deferred arrangement costs.

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About Sinclair Pharma plc - www.sinclairpharma.com

Sinclair Pharma plc is an international company operating in the fast growth, high gross margin, self-pay global aesthetics market. Sinclair has built a strong portfolio of differentiated, complementary aesthetics technologies, which are experiencing significant growth, targeting unmet clinical needs for effective, high quality, longer duration, natural looking and minimally-invasive treatments. The Company is planning entry to multiple new geographic markets and line extension launches over the next few years. Sinclair has an established sales and marketing presence in the leading EU markets, Brazil and South Korea, and has a network of international distributors.

"Safe Harbor" Statement under the US Private Securities Litigation Reform Act of 1995: Some or all of the statements in this document that relate to future plans, expectations, events, performances and the like are forward‐looking statements, as defined in the US Private Securities Litigation Reform Act of 1995. Actual results of events could differ materially from those described in the forward‐looking statements due to a variety of factors.

BUSINESS BECOMES EBITDA POSTIVE DURING 2017

Sinclair continued to deliver substantial revenue growth resulting in a positive adjusted EBITDA for the first time since the disposal of the medicinal dermatology business in 2015, and in line with our guidance. The key 2017 trend was the acceleration of revenue growth through the period. First half reported revenue growth was up 16% on H1 2016 compared to an increase of 23% for the second half. In H1 2017, the Group reported an adjusted EBITDA loss of £1.7 million which compared to £0.4 million EBITDA profit for the year as a whole indicates a strong second half performance. In H2 2017, the combination of revenue growth and operational gearing resulted in the Group trading profitably at the adjusted EBITDA level outside the US. For the year as a whole, the Group achieved an adjusted EBITDA profit of £1.2 million outside the US and a loss of £0.8 million in the US as marketing contributions to Thermi offset the margins on sales of Silhouette InstaLift™.

Profitability throughout the business built during the year through a combination of strong sales growth, increasing gross profit and strong cost control, such that a 2016 adjusted EBITDA loss of £6.1 million, was converted to an adjusted EBITDA profit of £0.4 million. The Company believes the current rate of EBITDA conversion from additional sales (outside the US) is approximately 50%.

During H2 2017, the restructuring of the European operations enacted in H1 started to bear fruit, culminating in a notably strong fourth quarter. Our Brazilian affiliate also made good progress throughout the year, again resulting in a strong fourth quarter. Management took the decision to take advantage of the strength in the ex US business to reduce sales of Silhouette Soft® and Ellansé® to certain distributors ahead of creating its own affiliates/new distribution ventures.

During 2017, the Group continued to focus on driving growth and increasing efficiencies throughout its commercial operations. Marketing investment is now focused more towards consumers with less emphasis on physician training following three years of intensive investment in this activity. Concurrently, Sinclair has increased spend on digital and social media activity to complement its local field forces. The Group's ambition is to create an industry leading digital platform for lead sourcing, customer tracking and physician training. The Sinclair College™ is the Group's on-line training platform, and multiple modules regarding the products, the technologies, techniques and anatomy are already available in the languages of Sinclair's leading markets.

BRAND PERFORMANCE AND PROGRESS

Sinclair's current aesthetic portfolio comprises four brands (Silhouette Soft®/Instalift™, Ellansé®, Perfectha® and Sculptra®). The Company owns these assets globally with the exception of Sculptra®, which is exclusively licensed for Western Europe from Galderma. Brands are marketed directly (in France, UK, Spain, Germany, Brazil and South Korea) and through an established network of distributors in Central Eastern Europe, the Middle East, Asia and Latin America. During the year the Group also had a distribution agreement in the US with ThermiGen LLC ('Thermi') for certain products which was terminated post the period end.

Silhouette Soft®

Sales reached £15.7 million in the period, compared with £14.0 million in 2016, reported growth of 12%.

Performance was somewhat mixed geographically, but improved during the year, with a marked acceleration of growth following restructuring in Europe, the roll-out of multiple new marketing and digital initiatives, and the benefit of LATAM seasonality. Silhouette Soft® continues to be a market leading aesthetic suture which we estimate has a 30% share of the European market. The product is firmly placed as a premium brand which both suspends and rejuvenates. While several new suture brands have been launched in the past two years, the Company has successfully generated considerable data to demonstrate the product's clinical superiority and value. Moreover there has been extensive clinical work by Sinclair key opinion leaders around implantation techniques in order to both simplify the procedure and improve clinical results and longevity. Training techniques now only focus on the use of multiple suture procedures (six or more), with 'straight line' implant vectors. The Company believes that improved physician technique is key to maximising the product's clinical potential and driving product use.

Our newly formed Brazilian operation had a very strong year, with annual sales up 117% in 2017 to £5.0 million (2016 £2.3 million) to become the Group's largest individual market. A generally strong growth rate elsewhere in multiple markets including Spain, the Middle East and various APAC markets was reduced by underperformance in the UK and France linked to local issues, which have been largely resolved following the restructuring of these operations. In the UK, a new aesthetics commercial team was created during the period, which resulted in a substantial improvement in sales performance towards the year end which has continued into 2018. Similarly, in France there was a notable improvement towards the year end however the full team rebuild is not expected to be completed until mid-2018.

Successful marketing activities by distributor MDC Global ('MDC') generated strong physician demand in South Korea, a competitive but attractive territory and led to Sinclair bringing the MDC team in-house in H2 2017 to launch Sinclair's direct operation in this strategically important market. Continued strong sales in Q4 resulted in in-market sales of Silhouette Soft® growing by over 90% over the course of 2017. Sinclair revenues increased to £1.8 million from £1.0 million in 2016.

As previously announced, the sudden closure of several European medical device Notified Bodies in 2016 created some uncertainty around the Silhouette Soft® CE mark. In October 2017, a new CE mark was granted for Silhouette Soft® under the Group's new Notified Body. The CE mark renewal process did not affect supply of Silhouette Soft®.

Silhouette Instalift™

The US is the world's leading aesthetics market, almost twice the size of the rest of the world combined but with fewer approved products and typically tighter regulation. Consequently, the Board has always believed there to be a significant opportunity for Sinclair's products in this region. Silhouette Instalift™ was the first Sinclair brand to receive FDA approval (in 2015) and is recognised as a first-in-class product, fulfilling unmet clinical needs with a unique mid-facial lifting claim and long-lasting patient satisfaction, and endorsed at multiple industry events by a US Advisory Board who comprise some of the leading dermatologists and plastic surgeons in the industry.

In June 2017, the FDA approved a commercially significant change to the Silhouette InstaLift™ label, with physicians no longer required to use a permanent anchoring suture. This change allowed the promotion, training, and marketing of the use of Silhouette InstaLift™ via the clinically desirable, self-anchoring procedure that is established as the insertion technique for the Silhouette Soft® brand through the rest of the world.

The product was launched by Thermi in the US in August 2016 and revenue to Sinclair for the year ended 31 December 2017 reached £5.2 million which was in-line with minimum purchase obligations. Doctor training continued its rapid roll-out, with over 1000 physicians attending educational events in the twelve months to 31 December 2017. However, as reported by Sinclair in January 2018, product re-order rates during the period were disappointing despite the high rate of physician training and Sinclair confirmed it was evaluating a number of options to improve performance. Product volumes acquired by Thermi from Sinclair during the year were in excess of in-market demand and when the termination of the agreement was announced Sinclair confirmed that it would be purchasing Thermi's remaining inventory as at the date of termination. 

That said, recent independent survey data continues to indicate strong levels of patient and physician satisfaction with the InstaLift™ procedure and clinical benefit, and points to high levels of use among established customers. Indeed, Sinclair believes that a key reason for the disappointing in-market sales performance in 2017 was the failure to build the Instalift™ US commercial infrastructure to the scale expected at the outset of the distribution agreement. As a consequence, the Company has taken InstaLift™ distribution rights back from Thermi and has been selling the product through its own US commercial affiliate with effect from 1 April 2018.

Post Period US Strategy

As previously announced Sinclair has been in advanced discussions to secure a new distribution agreement in the US and had a high level of confidence in securing a deal. In parallel with these discussions Sinclair has been assessing other commercialisation options for the US market.

However it is apparent that Silhouette InstaLift has garnered a strong reputation with physician users and patients alike, and disappointing re-order rates have been largely a result of historic commercialisation issues. As a result, the Board has taken the decision to retain full control of the product and therefore not enter into another distribution agreement at the current time. The Board sees significant potential to drive attractive shareholder returns by investing in a controlled fashion in the creation of its own US direct operation.

Sinclair has experience in creating successful direct operations in large aesthetic markets with notable recent success in South Korea and Brazil. In terms of the US market we have the added benefit of existing demand from an already created customer base, large numbers of trained physicians to follow up, sunk launch costs and a supportive and well respected advisory board giving a strong platform for our US management team led by Doug Abel, to build Sinclair's own US sales network. To this end we have been pleased to hire eight of Thermi's sales reps and we plan to increase the field force to 15 by the end of 2018 and believe that our US operations will be EBITDA positive in the year ending 31 December 2019 and will only generate modest losses through 2018. This option provides maximum flexibility to introduce further products into the portfolio and enables potential future collaborations while maintaining control and capture of full gross margins. Furthermore the Group will be well positioned to subsequently take the full benefit of launching Ellansé® in the US market currently expected to be in 2021.

Management's continued confidence in the potential for Instalift™ is supported by new data as well as investigatory work by the Company's financial backers. A recently published 100 patient study led by leading plastic surgeon Julius Few, Clinical Professor of the Division of Plastic and Reconstructive Surgery at The University of Chicago, published in The Aesthetic Surgery Journal (ASJ) demonstrated high patient satisfaction with Silhouette InstaLift™ for lifting of the mid-face while improving a number of age related changes. Further data was presented at the International Masters Course on Aging Skin (IMCAS) in Q1 2018. Dr Mark Nestor, Chairman of the Silhouette InstaLift™ advisory board, presented 12 month US data confirming the products safety and longevity, and high patient satisfaction rate.

Ellansé®

Ellansé® revenues of £9.6 million compared to £8.1 million for 2016, up 18%. Growth remains broad based across multiple markets and notably in Spain, Mexico and Iran. The Board remains highly confident in the future prospects for this brand and continues to believe that sales will surpass those of Silhouette Soft® in the medium term as a result of its comparative ease of use and consequent larger pool of physicians able to use the product.

In 2017, as with Silhouette Soft®, reported sales were impacted by the restructuring in Europe, however with a good recovery seen towards the end of the period. Further, South Korea, which continues to be the single largest market for the product, was de-stocked in the fourth quarter ahead of the creation of Sinclair's local affiliate.

Key to a step change in sales volumes for Ellansé® will be the commercialisation of the brand in the world's largest aesthetic markets, Brazil, China and the US, and further generation of data to compare the clinical benefit and longevity of Ellansé® with the industry's leading filler brands. The Company continues to believe that Ellansé® is well positioned to meet a largely patient driven evolution in the aesthetics market for long lasting, yet non-permanent products, and for natural-looking volumisation. Moreover the strength of Ellansé® in the Taiwanese market augurs well for an eventual launch into the mainland China market, where facial shape and volumisation are the primary clinical goals.

Prior to the anticipated regulatory approval for Ellansé® in Brazil, (granted in Q1 2018) the Company formed a distinguished Advisory Board comprising of some of the most influential plastic surgeons and dermatologists in that market and chaired by eminent dermatologist Dr Reinaldo Tovo, (Hospital Sirio Libanês , São Paulo) and plastic surgeon Dr Antonio Graziosi (Hospital Albert Einstein São Paulo).

Congress activity and pre-launch promotion has created a great deal of excitement around Ellansé®, which was approved by ANVISA on 16 January 2018. Sinclair is optimistic about prospects for the launch of Ellansé® in this important market and its growth in the years ahead.

In China and the US, Ellansé® formulations, S and M, are under development. During the period, US activity comprised on-going pre-IDE work ahead of a US study and then filing expected in 2020. In China, enrolment was completed in the fourth quarter by commercialisation partner Clovers, for the on-going 12-month head-to-head study against Restylane®. There growing interest in Ellansé® from a number of the leading Chinese aesthetic players, primarily due to the product's potency for volumisation and on the back of the brand's growing reputation elsewhere. Both Sinclair and Clovers expect commercialisation of the brand will involve distribution through an additional partner.

Sinclair has initiated a European based clinical trial comparing the safety and efficacy of Ellansé® S, Ellansé® M and a leading Hyaluronic acid filler (Juvederm Voluma®) in the treatment of patients with mid face volume deficit due to the ageing process. The study also involves the use of a range of sophisticated techniques to quantify any changes in the patient's skin quality occurring as a result of the treatments. It is envisaged that this aspect of the study will provide clinical evidence to support the subjective market feedback that treatment with Ellansé® is associated with a consequent improvement in the skin quality of patients, and in doing so will allow the Company's marketing teams to support the brand with a new and highly differentiating clinical claim.

The multi-centre clinical trial investigating the use of Ellansé® S in the treatment of moderate to severe nasolabial folds has now completed the primary assessment phase. Ellansé® S demonstrated an 85 % treatment success at 12 months and a 64% treatment success at 18 month with no serious adverse events being observed throughout the study. These impressive results further support the safety and durability of Ellansé® for facial aesthetic treatments.

Perfectha®

Reported revenues increased 16% to £9.4 million against £8.1 million in 2016.

Perfectha® performed well, notably in certain Asian markets (including South Korea which remains the products largest market under distributor DNC), the Middle East and Mexico, but was depressed temporarily by the transition from distributor to the Group's new affiliate in Brazil which resulted in zero sales in that market for much of the year, but which has recovered strongly following regulatory approval achieved in Q4 2017.

From on-going regulatory work during the period, Sinclair expects to launch its Perfectha® Lidocaine line extension in several markets during 2019. This is anticipated to be a highly significant step in addressing markets where the direct combination of HA and anaesthetic is perceived to be key, including the UK, Germany, Spain and South Korea.

Sinclair is actively developing a new range of Perfectha® formulations, the first of which, slated for 2020/21 launch, will be a product specifically designed for use in the (soft) volumisation of lips.

Sculptra®/New-Fill®

Sinclair sells and markets Sculptra® and NewFill® (reimbursed prescription in France and the UK for facial lipodystrophy) in Western Europe, under a long-term distribution arrangement with Galderma. The product has a loyal physician following but with sales £5.4 million (-14%), is not a strategic product for the Group and suffers from limited promotion and Ellansé® competition. Sculptra's gross margin trails Sinclair's other brands due to third party manufacturing and royalties payable to Galderma.

Silhouette Refine®

In May 2017, Sinclair acquired the FDA cleared Refine™ Support System ('Refine'), indicated for reinforcement of soft tissue in plastic or reconstructive surgery. With this unique claim, Sinclair in conjunction with leading plastic surgeons has developed an industry first breast lifting procedure.

In Q3 2017 the Californian wildfires resulted in smoke damage to the Refine manufacturing facility. This has resulted in a severe delay to launch and the switch to a new commercial manufacturing partner. US launch is now anticipated in 2019, with the ex US development programme similarly delayed by around a year.

CREATION OF OWN AFFILIATES IN SOUTH KOREA AND BRAZIL

Sinclair realised its strategic ambition to be directly present in South Korea at the end of 2017, through the acquisition of the commercial team of MDC Global, Sinclair's local distributor.

Brazil is the world's third largest injectable aesthetics market, with a fast-growing aspirational customer base. In July 2016, Sinclair created a new Brazilian affiliate to house the commercial infrastructure following the regained distribution rights for Silhouette Soft®. During the year Brazil became the Group's largest direct operation in terms of sales and commercial staff numbers (42 direct and indirect reps), following the repatriation of Perfectha® rights in the final quarter. Post period, the ANVISA approval of Ellansé® means the operation commercialises all leading brands.

Sinclair's annual 'World Experts Meeting' ('WEM') held in Barcelona and exclusively promoting Sinclair products to doctors from around the world has been enormously successful. Since inception in 2014 annual attendance numbers have exceeded 1000 physicians. With the Group's LATAM business growing rapidly and the creation of our new wholly owned affiliate there and following approval of Ellansé® in Brazil, a LATAM WEM will be held in Rio de Janeiro during May 2018.

BOARD/MANAGEMENT UPDATE

The Board expects to appoint a new non-executive director and will make an announcement in due course.

In December the Board was delighted to announce the appointment of Kamal Abbasi as Head for the Asia Pacific, MENA, Central and Eastern Europe. Kamal is a medical doctor and has held several senior positions within healthcare and aesthetic dermatology. Prior to joining the Company, he was head of APAC for Nestlé Skin Health (Galderma). Kamal's Sinclair role is to drive growth and profitability by the implementation of the global strategy for the region. This involves working closely with the local managers and key partners in the regions, as well as building a strong network across geographies with key external stakeholders.

OUTLOOK

Over the last two years the Company has delivered total revenue growth in excess of 80% in the aesthetics portfolio. 2017 was another year of significant progress for Sinclair, notably achieving the stated aim to return to adjusted EBITDA profit following the 2015 disposal of the non-aesthetics business.

Ex US, the Board expects to deliver at least mid-teens percentage revenue growth in 2018 with high marginal profitability. As in 2017 the Group's revenues will be second half weighted.

Headline US revenue performance in 2018 will mask more complex underlying trends. There have been no InstaLift™ sales in Q1 2018 as a result of over stocking in 2017. As previously announced Sinclair took direct control of the product from 1 April 2018 and has acquired Thermi's remaining inventory. While Sinclair now records full in-market revenues, gross margins will be reduced for the rest of 2018 as a result of the cost of buying back inventory, and in addition the Company will record an inventory write down of approximately £1.5 million in H1 2018. The Board expects US sales of approximately £3.0 million (on a constant currency basis) in 2018 and that the US direct operation will be EBITDA profitable in the year ending 31 December 2019.

At the adjusted EBITDA level, the Board expects the Group to remain profitable in 2018 despite the reduction of sales in the US, significant Ellansé® launch costs in Brazil and the incremental costs of the direct operation in South Korea.

In summary, the Board believes that the difficulties in the US, while disappointing, are nonetheless temporary and the Silhouette InstaLift™ opportunity remains significant. The Board continues to expect an acceleration in revenue growth and operating leverage in 2019 as the business gains momentum in its key strategic markets including the US, Brazil, South Korea and the Middle East. In the medium to longer term, launches of Perfectha® Lidocaine, Silhouette Refine™, Ellansé® in the US and China, and Silhouette InstaLift™ in China, supported by robust aesthetic market fundamentals, are expected to drive sustainable premium growth for the Group.

Financial review 

Change of accounting reference date

In 2016, the Group changed its accounting reference from 30 June to 31 December following the disposal of the non-aesthetics business in order to align its reporting calendar with industry peers. The comparative period financial information within the financial statements therefore covers the 18 month period ended 31 December 2016. The financial review below includes audited numbers for the 12 months ended 31 December 2017 and comparatives for the unaudited 12 months ended 31 December 2016 as this provides a more meaningful comparison and reflects the annual 12 month period for the Group going forward.

* Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, impairment, share based payments, exceptional items and loss from discontinued items. Adjusted EBITDA provides a more consistent measure of the underlying performance of the business by removing non‐cash accounting items.

The Group achieved an improved financial performance in the year with revenue growth of 20% to £45.3 million, gross margin expansion to 72.6% and a return to adjusted EBITDA profit, achieving a key milestone for the Group.

Revenue increased to £45.3 million (2016: £37.8 million) representing 20% headline growth for the year, and 81% over the last two years. On a constant currency basis, revenues were £43.1 million, the weakness of Sterling during the period contributed an additional £2.2 million to reported revenues.

Gross profit increased faster than sales by 23% to £32.9 million (2016: £26.7 million) driven by a continued improvement in sales mix. The gross margin for 2017 of 72.6% is the best achieved to date by the Group and improved from 70.7% in 2016 as a result of the growth in sales of higher margin Silhouette especially in the US and Brazil. With sales of Silhouette and Ellansé® expected to drive the bulk of the Group's medium term growth, and by capturing the full margin through our direct operation in South Korea, the Board expects gross margins to continue to improve in the coming periods.

Selling, marketing and distribution costs increased by 1% to £21.9 million in 2017. While costs increased as a result of the full year presence in Brazil (+£1.6 million) and due to the weakness of Sterling (+£0.7 million), savings were achieved elsewhere to largely offset these increases. In the US the one-off pre-launch costs for Silhouette InstaLift™ of £1.7 million in 2016 were not repeated and in the Group's European affiliates efficiencies were delivered through the centralisation of much of the marketing activity in the Global marketing team.

However, the Group expects marketing spend will be circa £3 million higher in 2018 due to the costs of the South Korea affiliate, launch of Ellansé in Brazil, and incremental digital marketing spend. The impact of marketing costs associated with the direct presence in the US following the termination of the Thermi agreement will be broadly in line with the level of 2017 spend which included marketing contributions to Thermi.

Administrative expenses, pre-exceptional items, were £17.1 million to 31 December 2017, reduced from £18.4 million in 2016, a fall of 7%. This is a result of the restructuring implemented in 2016 following the disposal of the non-aesthetics business, combined with a continuing drive to control costs and focus investment on sales and marketing activities that will support revenue growth.

Operating loss, pre-exceptional items, for the year ended 31 December 2017 was £6.2 million (2016: £13.4 million). Adding back depreciation, amortisation, impairment and share based payments derives an adjusted EBITDA profit for 2017 of £0.4 million, a significant improvement from the EBITDA loss of £6.1 million in 2016.

Finance costs

Finance costs reduced to £2.2 million (2016: £4.7 million) and consist of £1.9 million of non-cash discount unwind charges linked to deferred consideration liabilities, and £0.2 million interest payable on borrowings drawn in the year.

Taxation

A tax credit of £3.7 million (2016: £0.4 million) has been recorded for the year to 31 December 2017. This is made up of UK research and development tax credits of £0.3 million (2016: £nil) overseas corporation tax charges of £0.7 million (2016: £1.0 million) and net deferred tax credits of £4.0 million (2016: £1.6 million). The deferred tax credits arise from the amortisation of intangible assets acquired through business combinations and a one-off credit from the reduction in tax rates in Spain and France.

Loss from continuing operations

There has been a further significant reduction in the statutory loss for the year to £0.7 million from £11.1 million in 2016 which has been driven by the growth in revenues and gross profitability, fall in administrative expenses, reduction in finance costs and increased tax credit in the year.

Exceptional items

There a couple of exceptional items recorded in the year which result in a net credit to the income statement of £4.0 million. These are:

· Acquisition costs of £0.1 million relating to the transaction to repatriate the rights to Silhouette Soft® in South Korea and the establishment of a direct operation in this key market.

· A credit of £4.1 million has arisen from adjustments to the value and expected timing of deferred considerations relating to the acquisitions of Silhouette Lift and Obvieline as a result of revised forecasts of future sales for Silhouette InstaLift and Perfectha. The majority of this credit (£3.9 million) results from revised revenue forecasts following the termination of the Thermi distribution agreement effective 31 March 2018 and transition of InstaLift sales to a new partner.

Discontinued operations

A profit on discontinued operations of £0.6 million has arisen in the year (18 month period to 31 December 2016: £3.8 million). This is a result of the release of tax provisions for overseas operations sold along with the non-aesthetics business in December 2015, which are no longer required.

Cash flow

Net cash outflow for continuing operations pre-exceptional items was significantly reduced to £3.6 million in 2017 (2016: £7.0 million) as a result in the return to an adjusted EBITDA profit (£0.4 million in 2017 versus loss of £6.1 million in 2016) offset by increases in working capital.

In addition, there were operating cash outflows in the year for exceptional items of £1.2 million (2016 exceptional restructuring charges) and discontinued operations of £5.7 million, which included the £4.0 million warranty claim settlement linked to the sale of the non-aesthetics business.

Investing activities cash outflows of £8.8 million in the year, included deferred consideration payments of £6.1 million and capital expenditure of £2.7 million which included the initial purchase price for the Refine assets as well as capitalised development expenditure which mainly relates to Ellansé and Silhouette development projects.

Borrowings

In March 2017, the Group entered into a new debt facility of up to £10 million with Silicon Valley Bank ('SVB') to fund investment in future growth. The facility consists of a £5.0 million term loan maturing in September 2020 and £5.0 million two year working capital facility. Availability under the working capital facility was linked to the Group's receivables balances in certain markets. As revenue growth has disappointed in some of these markets, particularly in the US, funds available for drawing from the working capital facility were significantly less than the £5.0 million potentially available.

EW HEALTHCARE PARTNERS CONVERTIBLE LOAN

In February 2018, the Group announced a $5.0 million investment in the Group via the issue of a $5.0 million convertible loan to EW Healthcare Partners ('EW'). The proceeds of this investment were used to settle the one-off payment and acquisition of inventory arising from the early termination of the distribution agreement with Thermi for Silhouette InstaLift™ in the US. EW is a specialist investor focussed on rapidly growing healthcare companies and holds several investments in medical aesthetics. Interest accrues on the convertible loan at 8%, compounded annually, and if not converted the loan is repayable not before 1 September 2020. The loan is capable of conversion three months from the date of issue at a price of 28p per ordinary share and is secured by way of a second ranking charge over Sinclair's assets.

NEW DEBT FACILITY

The Group has today announced a refinancing of the SVB facility with a new five year term loan from Hayfin Capital Management. The facility of €23.0 million is provided on more flexible terms than the SVB facility. Proceeds of the facility will be utilised to; repay the SVB borrowings of £5.0 million; fund the Group's growth, particularly its direct operations in the US and South Korea; settle deferred consideration liabilities as they come due; and to invest in expanding as well as upgrading and increasing manufacturing capacity and pre US clinical trial development activities for Ellansé®. The facility is secured by way of a first ranking charge over the Group's assets.

Unaudited Consolidated Income Statement

For the year ended 31 December 2017

Unaudited Consolidated Statement of Comprehensive Income

For the year ended 31 December 2017

Unaudited Consolidated Balance Sheet

As at 31 December 2017

Unaudited Consolidated Statement of Changes in Equity

For the year ended 31 December 2017

Unaudited Cash Flow Statement

For the year ended 31 December 2017

1. Basis of preparation

During the prior period, the Group changed its accounting reference date from 30 June to 31 December. The comparative preliminary financial information therefore covers the 18 month period ended 31 December 2016.

The preliminary financial information has been prepared in accordance with International Financial Reporting Standards ('IFRS') and International Financial Reporting Standards Interpretations Committee ('IFRS IC') interpretations as adopted for use in the European Union and with Companies Act 2006 applicable to Companies reporting under IFRS. In preparing this financial information management has used the principal accounting policies as set out in the Group's annual financial statements for the 18 month period ended 31 December 2016 and which will be used in preparing the financial statements for the 12 months ended 31 December 2017. No new standards, amendments, or interpretations, effective for the first time for the financial year beginning on 1 January 2017, have had a material impact on the Group.

The preliminary financial information does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. The financial information for the 18 month period ended 31 December 2016 has been extracted from the Group's financial statements for the period ended 31 December 2016. The auditors' report on the financial statements for the 18 month period ended 31 December 2016 was unqualified and did not contain statements under either section 498 (2) or section 498 (3) of the Companies Act 2006. The financial statements for the period ended 31 December 2016 have been delivered to the Registrar of Companies and those for the year ended 31 December 2017 will be filed shortly.

The Directors are satisfied, after making appropriate enquiries that the Group has adequate resources to continue in business for the foreseeable future and accordingly considers that it is appropriate to adopt the going concern basis in preparing the financial statements.

This preliminary financial information was approved by the Board of Sinclair Pharma plc on 30 April 2018.

2 Segment information

The chief operating decision maker has been identified as the Board of Directors. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. Based on this, management has determined that following the disposal of the non-aesthetics business that the continuing business consists of one reportable segment, which is Aesthetics.

The Board assesses the performance of the operating segments based on a measure of adjusted earnings before interest, tax, depreciation, amortisation, impairment, discontinued operations exceptional items and share-based payments.

The Board also monitors business performance based on geographic destination of sales. Revenues on a geographic basis were as follows:

A reconciliation of total adjusted EBITDA to total operating loss is provided as follows:

3. Exceptional items

Exceptional items represent significant items of income and expense which due to their nature, size, or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the period, so as to facilitate comparison with prior periods and to better assess trends in financial performance.

Acquisition and business development costs in the twelve months to 31 December 2017 includes £50,000 relating to the acquisition of Sinclair Korea Ltd. In the 18 month period to 31 December 2016, acquisition and business development costs include £224,000 relating to the acquisition of Sinclair Pharma Brasil Ltda, and £127,000 of other costs arising on acquisitions from prior periods.

Adjustments to contingent consideration in the twelve months to 31 December 2017 includes a credit of £3,880,000 (2016: £2,301,000) as a result of changes to the forecast timing of contingent consideration payments for the acquisition of Silhouette Lift SL, following a reassessment of the growth profile of Silhouette InstaLift in the USA. The remaining credit of £186,000 (2016: £700,000 ) follows changes to the profile of contingent consideration relevant to acquisition of Obvieline SAS.

Adjustments to contingent consideration in the 18 months to 31 December 2016 also included a credit of £8,539,000 following early settlement of all remaining milestones on the acquisition of Aqtis Medical BV resulting in a reduction to the total purchase consideration.

Further adjustments to contingent consideration in the 18 month period to 31 December 2016 included a credit of £2,091,000 following a reduction in the contingent purchase consideration of Juvinessence Limited which held the distribution rights for Silhouette in the UK. This adjustment followed a review of the forecast value of royalty payments. This was offset by an impairment charge of £1,545,000 relating to the corresponding intangible asset recognised on the repurchase of these rights in 2014.

All adjustments to contingent purchase consideration have been credited to the income statement as the changes were triggered more than twelve months after the original acquisition completion date. There is no tax impact of these adjustments.

During the 18 month period ended 31 December 2016 the Group undertook an internal restructuring following the disposal of the non-aesthetic products to create a focussed aesthetics business. This resulted in £2,898,000 of one-off severance and redundancy costs being incurred.

In the 6 month period ended 31 December 2015, the Group took a decision to de-stock its distribution partners. As a result during this period of below average sales the Group's inventory increased and aged. A decision was then made to withdraw inventory with a limited shelf life from commercial sale in order to provide partners and doctors product with as long a shelf life as possible. This resulted in a provision for short life inventory of £1,800,000 in the 18 months ended 31 December 2016.

Prepaid arrangement fees on the Group's debt facility totalling £2,861,000 were expensed to the income statement on the repayment of borrowings in December 2015. This charge was deductible for tax.

4. Finance expense

Discount unwind costs represent non-cash charges for the reversal of discounting on the Group's deferred consideration liabilities which are carried at their net present value, see note 12 for further details.

Net foreign exchange gains of £Nil (2016: £1,770,000) arise from the difference in the Sterling: Euro and the Sterling: US Dollar exchange rates on borrowings from the date of drawdown and the period end or date of repayment.

5 Taxation

6. Loss per share

The basic loss per share has been calculated by dividing the loss for the period, by the weighted average number of shares in existence for the period. The loss and weighted average number of shares for the purpose of calculating the diluted loss per share are identical to those used for the basic loss per share at 31 December 2017 and 31 December 2016, as the exercise of share options would have the effect of reducing the loss per share and therefore is not dilutive.

7. Goodwill

During the year ended 31 December 2017, the Group acquired Sinclair Korea Ltd (note 15). The goodwill valuation for this acquisition remains provisional.

During the period ended 31 December 2016, the Group acquired Sinclair Pharma Brasil Ltda.

Exchange adjustments arise as a result of the impact of the difference in the Sterling: Euro exchange rate and the Sterling: US Dollar exchange rate, at the beginning of the period or the date of acquisition, and at end of the period on balances recorded in Euros and US Dollars.

Goodwill has been allocated to cash generating units ('CGU's) on a product basis as these form an easily identifiable group of assets with independent cash flows.

Goodwill has been allocated to the following CGUs:

Goodwill is not amortised but tested annually for impairment or more frequently if there are indications that it may be impaired. Value in use calculations have been utilised to calculate recoverable amount. Value in use is calculated as the net present value of the projected post-tax cash flows of each CGU.

The cash flows, which have been approved by the Board, have been projected over five years for all CGUs, representing the Director's best estimate of future product revenues and margins. The cash flows are based on a combination of past experience and current industry trends. Growth rate assumptions have been applied at an individual product and market level. Long term growth-rate assumptions beyond year five are consistent with forecasts used in industry reports for aesthetic products and reflect growth rates in emerging markets. The key assumptions for each CGU are as follows:

Value in use calculations generate significant headroom over recoverable amounts for all CGUs. Whilst forecasts are sensitive to growth rates for specific products, the Directors believe that any reasonably possible change in the key assumptions on which the recoverable amounts are based for all CGUs would not cause the carrying amount to exceed their recoverable amount.

8. Intangible assets

Additions arising on business combinations are the fair value of the identifiable intangible assets acquired which primarily relate to the product rights and trademarks covering the acquired products. The amount recognised of £2,188,000 in the 12 months to 31 December 2017 is in respect of Sinclair Korea Ltd (2016: £5,818,000 in respect of Sinclair Pharma Brasil Ltda), details of which are in note 15.

Additions in the period include £924,000 for the Refine Support System, a patented and FDA cleared, suture based product, acquired by the Group on 19 June 2017.

Further additions to licences and product rights includes capitalised development costs in relation to obtaining regulatory approval for Ellansé in Brazil and other Ellansé development programs including the US launch (2016: £1,602,000 represents payments to acquire direct distribution rights for Silhouette, Perfectha, and Ellansé in certain markets).

Exchange adjustments arise as a result of the impact of the difference in the Sterling: Euro exchange rate and the Sterling: US Dollar exchange rate, at the beginning of the period or the date of acquisition and at end of the period on balances recorded in Euros and US Dollars.

In 2016, adjustments to business combinations of £1,060,000 represents a change in the intangible asset arising on acquisition of Arkea BV, following a re-appraisal of the asset valuation during the 12 month period subsequent to acquisition.

Included in the impairment charge in the period to 31 December 2016, is £1,545,000 recognised in exceptionals (note 3) and £480,000 in respect of development costs for other products which have not been launched.

9. Trade and other receivables

10. Trade and other payables

Non-current liabilities

11. Borrowings

In March 2017, the Group entered into a new £10 million debt facility with Silicon Valley Bank to fund investment in future growth. The facility consists of a £5.0 million term loan maturing in September 2020 and a £5.0 million two year working capital facility. At 31 December 2017, £5.0m has been drawn down against the term loan, and the capital is to be repaid in 30 equal monthly instalments, commencing July 2018. There are no drawings on the working capital facility.

Interest on the term loan is charged at LIBOR + 5.75% and payable monthly in arrears. Interest on the working capital facility is charged at Euro Base Rate + 7% or Wall Street Prime rate plus 3.25% for drawings in Euro or USD respectively. The facility is secured by a fixed and floating charge over the assets of the Group.

Movement in net debt for the Group is analysed as follows

12. Other financial liabilities

Other financial liabilities include deferred and contingent purchase considerations which are due as follows:

Items of deferred and contingent consideration represents the Directors' estimate of the fair value of the assumed contractual minimum liabilities discounted to their net present value.

Other includes:

Deferred consideration payable to the previous owner of SEPI AG, the original developers of Haemopressin, in annual instalments until March 2017. At 31 December 2017 the balance outstanding is £Nil (2016: £798,000 in current liabilities).

Deferred consideration is payable to the vendors of Medicalio, the former distributors of Silhouette in Spain. On 31 December 2017, £231,000 is current (2016: £223,000) and £179,000 is non-current (2016: £340,000).

Deferred and contingent consideration is payable as follows

13. Provisions

All provisions relate to ongoing legal disputes and are expected to be utilised within the next year.

14. Cash flows from operating activities

15. Business combinations

South Korea

On 2 August 2017, the Group acquired the South Korean distribution rights for Silhouette (direct sales) and Ellansé (indirect sales) from MDC Global Ltd. All related trade and assets were transferred into a newly incorporated South Korean entity, MDC Asia Ltd, (which has subsequently been renamed Sinclair Korea Ltd) which is a wholly owned subsidiary of Sinclair Holdings Ltd.

The goodwill of £750,000 arising from the acquisition is attributable to the economies of scale expected from selling Silhouette through the Group's direct sales force in South Korea. Goodwill is not deductible for tax purposes.

Details of the consideration paid, the provisional fair value of assets acquired and liabilities assumed, and goodwill arising are as follows:

Sinclair Korea Ltd contributed £709,000 revenue and a profit before tax of £244,000 to the Group's loss for period from the date of acquisition to 31 December 2017.

If Sinclair Korea Ltd had been acquired on 1 January 2017, additional revenue of £1,701,000 and a profit before tax of £585,000 would have been included in the group financial statements.

Sinclair Pharma Brasil Ltda

On March 29 2016, the Group acquired 100% of the share capital of "Building Health Distribuidora de Produtos para a Saude Ltda", an off-the shelf company registered in Brazil, which will subsequently be renamed "Sinclair Pharma Brasil Ltda" (Sinclair Brazil). On 30 June 2016, the Group completed its re-acquisition of the distribution rights for Silhouette Soft in Brazil and has transferred all related trade and assets into the acquired entity.

As a result of the acquisition, the Group now has a direct presence for Silhouette in the key Brazilian market via a 16 reps sales force, and is now additionally using the sales force to launch Perfectha. The goodwill of £2,281,000 arising from the acquisition is attributable to the economies of scale expected from selling Silhouette and Perfectha through the Group's direct sales forces in Brazil. Goodwill is not deductible for tax purposes.

Details of the consideration paid, the final fair value of assets acquired and liabilities assumed, and goodwill arising are as follows:

16. Post Balance Sheet Events

Financing

In February 2018, the Group announced a $5 million investment in the Group via the issue of a $5.0 million convertible loan to EW Healthcare Partners ("EW"). Interest will accrue at 8%, compounded annually, and if not converted into ordinary shares, will mature no earlier than 1 September 2020. The convertible loan will be secured by way of a second ranking charge over Sinclair's assets. The proceeds of the investment were used to finance the one-off payment and acquisition of inventory following the termination of the distribution agreement with ThermiGen LLC.

In April 2018, the Group refinanced the SVB facility with a new five year term loan from Hayfin Capital Management. Proceeds of the facility will be utilised to repay the SVB borrowings, fund growth (particularly in the Group's direct operations in the US and Sough Korea), settle deferred consideration liabilities as they come due and to invest in expanding as well as upgrading and increasing Ellansé® manufacturing capacity and pre US clinical trial development activities for Ellansé®.

The facility is available in two tranches, the first £15m to be drawn immediately, and a further £5m before 31 March 2019, with a five year term ending in April 2023. Interest is charged at EURIBOR+9.0% (with a EURIBOR floor of 0.75%). The facility is secured by a fixed and floating charge over the assets of the Group.