Sphere Medical Holding Regulatory News (SPHR)

25 February 2016

Sphere Medical Holding plc

("Sphere Medical" or "Sphere" or the "Company")

Preliminary Results for the year ended 31 December 2015

Sphere Medical Holding plc (AIM: SPHR.L), a leading provider of innovative monitoring and diagnostic devices for the critical care setting, announces its audited preliminary results for the year ended 31 December 2015.

Business highlights for 2015 and post year-end

• Sales force established, selling into the UK, Germany, The Netherlands and Belgium

• Proxima 3 successfully launched into Europe to gain early adopter feedback

o First sales of Proxima 3 in the UK in 2015 and Germany Q1 2016

o To date more than 20 hospitals have undertaken evaluations

o To date more than 90 patients connected

o 120 articles in the clinical print and online press during 2015

• Proxima 4 development milestones met

o Technical files submitted for CE mark registration

o Launch expected 2016

• Commenced discussions with potential commercialisation partners

• New production facilities established in Wales

• Professor Mike Grocott, Professor of Anaethesia and Critical Care, University of Southampton, joins the Medical Advisory Board

Financial summary

• Successful equity fundraising in April 2015 of £13.2 million (before expenses)

• Revenue £15,000 (2014: £14,000) in line with go-to-market strategy

• Continuing tight financial control keeping operating expenses below budget

o Total operating expenses £6.1 million (2014: £5.9 million)

o Product development costs capitalised £0.9 million (2014: £nil)

• Loss after taxation £5.5 million (2014: £5.3 million)

• Reduced loss per share resulting from additional shares issued in 2015

o Loss per share 4.8p (2014: 9.0p)

• Cash balance better than budget

o Cash and short-term investments at year end of £10.0 million (2014: £3.7 million)

Commenting on today's announcement, Dr Wolfgang Rencken, Chief Executive Officer of Sphere Medical, said:

"2015 was an important year in the progression of the Company towards becoming a commercially successful business. A number of key milestones were reached, including the first sale of Proxima 3.

"We are encouraged by the growing traction for Proxima 3 and look forward to the launch of the next generation product, Proxima 4. This will represent a major step forward in the commercialisation of Sphere Medical's technology. We will continue to develop and enhance the Proxima platform and we will progress discussions with potential worldwide commercialisation partners. 2016 is set to be a pivotal year in the progression of Sphere Medical into a commercially successful company."

For further information, please contact:

Notes for Editors

About Sphere Medical (AIM: SPHR.L)

Sphere Medical is a medical device company developing and commercialising a range of innovative monitoring and diagnostic devices designed to significantly improve patient care.

Sphere Medical's vision is to become a leading solution provider to the critical care market offering innovative, near real time, point of care diagnostic and monitoring products to enable closer control of therapeutic response and improve patient outcomes and reduce the overall cost of care.

The Company's strategy is focused on developing the Proxima (CE-marked device) platform for measuring blood gases, electrolytes and metabolites. The Company is already marketing its Proxima 3 product directly to the critical care market, which includes the ICU and OR, with a dedicated field sales force in the UK, Germany, the Netherlands and Belgium. The Company also proposes to work with partners for the worldwide distribution of Proxima.

Proxima delivers near real time analysis of blood gases and electrolytes metabolites, at the patient's bedside. Proxima can be used on patients across a wide therapeutic range, enabling faster clinical decision making and improved patient outcomes, whilst potentially reducing costs for healthcare payers.

For further information, please visit www.spheremedical.com

Strategic Report

INTRODUCTION

2015 was an important year in the progression of the Company towards becoming a commercially successful business. A number of key milestones were reached, including recruitment of a sales force selling directly into four countries, the European launch of Proxima and the first sale of Proxima 3. In addition, development milestones have been met for Proxima 4. This next generation of the product will bring the benefits of the Proxima system to a much broader range of patients, both in terms of being applicable to a much wider list of medical conditions and by adding paediatric patients. These benefits include enabling better patient management during a patient's critical period, faster and more frequent production of results, and avoidance of blood loss and reduction of infection risks. The launch of Proxima 4, which is expected during 2016, will be an important step towards realising the full market potential of Proxima within the $3.2bn worldwide market for blood gas and electrolyte testing. Discussions have begun with potential global commercialisation partners.

We also successfully completed the £13.2 million fund raising in April 2015 which provided the Company with the financial resources to continue with its commercialisation strategy.

COMMERCIALISATION STRATEGY

Sphere Medical's strategy is focussed on commercialising Proxima, which remains the only commercially available patient-attached microanalyser device worldwide to monitor seven key analytes. The first generation to be marketed, Proxima 3, was launched in the UK in September 2014 and its continental European launch followed in March 2015. The next generation, Proxima 4, is a significant development of the product in application and functionality and work on this is well advanced, progressing in line with the Board's timetable. We aim to launch Proxima 4 in Europe during 2016, pending CE marking approval.

Looking further ahead, we plan to introduce more enhancements to the Proxima platform, including additional analytes, improved usability and expanding its use to neonatal patients, and we aim to launch Proxima in other major markets, such as the USA and Japan, in the next few years.

SALES TRACTION

Proxima is a novel device, the use of which enables hospitals to save costs. We continue to receive excellent feedback from clinicians as we demonstrate the benefits and build the case for the product. Early adoption can take 9-12 months, although this varies from hospital to hospital.

During 2015 we established a sales force across the UK, Germany, The Netherlands and Belgium. The first sale of Proxima 3 took place in the UK in June 2015. Since the year end we have also had the first sale in Germany. While the quantum of revenue is, as anticipated, likely to remain modest through 2016, importantly there is increasing market appetite, with a growing number of hospitals and clinicians showing interest in the Proxima platform, and a growing number of hospitals undertaking evaluations. To date, more than 20 hospitals have undertaken evaluations and more than 90 patients have been connected. We have also seen momentum increasing throughout the year, with the number of leads generated in the second half of 2015 more than 60% higher than in the first half, and the number of hospital evaluations undertaken growing by more than 70% over the same period. While some hospitals have chosen to wait for Proxima 4, a number are in the latter stages of approving the purchase of Proxima 3. Another five hospitals are currently undertaking evaluations or are in preparation to do so shortly.

PRODUCT DEVELOPMENT

Development work on Proxima 4 is progressing in line with expectations. This next generation of Proxima will have glucose and sodium added to the panel of analytes. In addition, there will be improved connectivity to hospital information systems, and a number of improvements in the user experience. Many of these developments stem from feedback from the evaluations of Proxima 3 within hospitals. This will bring the benefits of Proxima, of enabling better patient management during a patient's critical period, faster and more frequent production of results, and avoidance of blood loss and reduction of infection risks, to a broader patient demographic, including paediatric patients, increasing the market potential of Proxima several-fold. The data files for CE mark registration of Proxima 4 have been submitted and we expect to be ready to launch Proxima 4 during 2016.

Beyond Proxima 4, we have plans to add further analytes. Adding lactate to the panel will be another major step in expanding the potential market for Proxima. We aim to achieve this in 2017. We also plan to make further improvements in the functionality and usability of the system, and adapt the system for use with neonates.

PARTNERING PROGRESS

We are keen to ensure a rapid roll-out of Proxima into the major markets around the world and we recognise the quickest and most efficient way of achieving this is by establishing partnering arrangements. To this end, we have commenced discussions with a number of parties interested in becoming our worldwide partner for the commercialisation of Proxima.

MARKET VALIDATION

During the year, Sphere Medical collected further data on turnaround time, being the time between making the decision that a blood sample analysis was required and when the results are available at the patient to make clinical decisions. This work, carried out across a number of intensive care units and operating theatres, concluded that turnaround time can be reduced by around 40-60% in a typical clinical environment and that the typical 4-8 minutes time spent away from the patient can be eliminated by using the Proxima system. This work is now being followed up with a formal time and motion study being carried out by an independent third party.

Results from a method comparison study carried out at the Queen Elizabeth Hospital, Birmingham were presented at International Society of Intensive Care and Emergency Medicine and the Society for Computing and Technology in Anaesthesia conferences.

White papers were completed on blood conservation and on pre-analytical errors associated with blood gas testing. The blood conservation paper, published in the Clinical Services Journal, explored the aspects of Proxima design that promoted best practice in blood conservation, a key issue in avoiding blood transfusions in critically ill patients. The pre-analytical errors white paper identified how Proxima avoids errors associated with traditional diagnostic testing, particularly around sample collection, preparation and handling. The company has kept a consistent presence in the healthcare media with 120 articles in the clinical print and online press during 2015.

PRODUCTION

In preparation for increased demand for Proxima, we have been expanding our manufacturing capability, in a measured way. In February 2016 we opened our new manufacturing facility in St Asaph, north Wales, which should give us adequate capacity to meet our manufacturing needs for the next few years. We are in the process of transferring manufacturing of Proxima components to St Asaph and will shortly commence commercial production once the site has received regulatory clearance.

INTELLECTUAL PROPERTY

Our intellectual property portfolio is a key asset and we continue to invest in the maintenance and development of our IP estate. We currently have 22 patents either granted or in application covering chip and sensor design and manufacture, design of analytical systems, methods for chemical assay and methods for sensor calibration. We have an ongoing process of reviewing the patent register in order to focus our financial support on our core patent families.

KEY PERFORMANCE INDICATORS

The Group measures its performance according to a wide range of key performance indicators. The main key performance indicators for the Group during 2015 and subsequently were as follows:

FINANCIAL REVIEW

Revenue in the year ended 31 December 2015 was £15,000 (2014: £14,000).

Operating expenses were £6.1 million (2014: £5.9 million). Reflecting the move towards commercialisation of Proxima, selling and marketing expenses increased from £0.6 million to £1.0 million, and production overheads increased from £1.1 million to £1.3 million. Administration costs increased from £1.9 million to £2.2 million. £1.7 million (2014: £2.4 million) of product development costs were expensed in the period and £0.9 million (2014:£nil) of product development costs were capitalised.

Net finance income was £91,000 (2014: £65,000) representing primarily interest earned on cash deposits.

During the year, £0.6 million was received in respect of research and development tax claims for 2014 (2014: £0.5 million based on 2013 claims). No accrual has been made for any research and development tax claim for the 2015 year.

The post-tax loss for the year was £5.5 million (2014: £5.3 million). The basic and fully diluted loss per share for the year was 4.8 pence (2014: 9.0 pence).

During the year, £0.9 million of development costs in relation to Proxima were capitalised (2014: £nil). The decision to capitalise these costs rather than expense them immediately reflects management's increased confidence in the future potential of Proxima.

The funding round in April 2015 raised £13.2 million (£12.3 million net of expenses), increasing the number of ordinary shares in issue by 83.2 million to 141.8 million. Cash and short-term investments as at the end of the year were £10.0 million (2014: £3.7 million).

THE TEAM AT SPHERE MEDICAL

There were a number of changes to the Board in 2015. David Martyr, Brenig Preest and Meinhard Schmidt joined the Board as Non-Executive Directors, each of them bringing a wealth of experience to the Board. At the Annual General Meeting in June 2015 Anthony Martin stood down as Non-Executive Chairman after 10 years in the role, following which David Martyr assumed the chairmanship. Also joining the Board during the year was Richard Wright, who replaced Matthew Hall as Chief Financial Officer.

The Group continues to be supported by a very strong Medical Advisory Board (MAB), which comprises leading critical care clinicians from across Europe. In December 2015 Dr Tom Clutton-Brock stood down from the MAB as he moved to a new role within NICE. We thank him for his assistance over the past 13 years. In January 2016 Dr Michael Grocott joined the MAB. Professor Grocott is the Professor of Anaesthesia and Critical Care Medicine at the University of Southampton (UoS) and heads the UoS Centre for Human Integrative Physiology. His research interests include human responses to hypoxia, measuring and improving outcome following surgery, lung injury, and fluid therapy.

Sphere Medical continues to benefit from the hard work and expertise of its employees who, with the Board, are fully committed to transforming Sphere Medical into a successful commercial medical device company. The Board would like to take this opportunity to thank all our employees for their continued commitment.

OUTLOOK

We are encouraged by the growing traction for Proxima 3 and look forward to the launch of Proxima 4. This will represent a major step forward in the commercialisation of Sphere Medical's technology. We will continue to develop and enhance the Proxima platform and we will progress discussions with potential worldwide commercialisation partners. 2016 is set to be a pivotal year in the progression of Sphere Medical into a commercially successful company.

 1. Basis of preparation

The financial information set out in the announcement does not constitute the Group's statutory accounts for the year ended 31 December 2015 or 31 December 2014. The auditor has confirmed that the auditor's report that is required to be contained in the Annual Report and Accounts 2015 includes an unmodified opinion together with an emphasis of matter paragraph on going concern relating to the potential need to raise additional finance, as described in the Going Concern paragraph below. The statutory accounts for the year ended 31 December 2015 have not yet been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2014 were delivered to the Registrar of Companies as published on the Group's website on 1 June 2015.

Going concern

At 31 December 2015 the cash balance available to the Group was £10.0m while for the year ended 31 December 2015 the cash outflow from operating activities was £5.1m.

The Group's revenues from sales of products are not expected to be sufficient for the Group to become cash generative from commercial operations over the next 12 months, although the Board does believe that it has adequate resources to continue with its plans for at least the next 12 months. The Board's confidence that the development and commercialisation of the Group's principal product, Proxima, will prove to be successful has been increased by the launch of Proxima 3 into the European market, by the positive reception it has received, including its first sales, and by the good progress that has been made towards launching Proxima 4 in Europe.

As explained in the Strategic Report, the Group is currently in discussions with a number of potential commercialisation partners. Depending on the economics of any such arrangement, and depending on the sales growth of Proxima, the Group may or may not need to raise additional finance before it becomes cash generative. The Group has a good track record of being able to raise additional finance when it has needed to do so. The Board of Directors has concluded that the combination of these circumstances represents a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern and, therefore that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Nonetheless, based on the £10.0m of cash as at 31 December 2015, the 2016 budget approved by the Board of Directors and the business plan for the next several years, the Board of Directors has reasonable expectation that the business will be able to continue in operation for at least twelve months from the date of this announcement. For these reasons, the Board of Directors continues to adopt the going concern basis of accounting in preparing the financial statements for the year ended 31 December 2015.

2. Loss per share

Fully diluted loss per share is calculated after showing the effect of outstanding options in issue. As the effect of the options would be to reduce the loss per share, the diluted loss per share is the same as the undiluted loss per share.

Calculation of loss per share is based on the following loss and numbers of shares:

3. Property, plant and equipment

4. Intangible assets

5. Share capital

Share issue

82,352,582 ordinary shares of £0.01 each were issued and allotted in the period for total consideration of £13,176,413

6. Reconciliation of operating loss to operating cash flows