Tissue Regenix Group Regulatory News (TRX)

Tissue Regenix Group plc

Unaudited Interim Results for the six months ended 30 June 2019

Leeds, 10 September 2019 - Tissue Regenix Group (AIM:TRX) ("Tissue Regenix" or the "Group") the regenerative medical devices company announces its unaudited interim results for the six months ended 30 June 2019.

Highlights

Financial

·; Group sales increased to £6.1m (H1 2018: £5.6m)

- DermaPure increased sales by 33% to £2.0m (H1 2018: £1.5m)

- GBM-v revenue growth of 19% to £1.1m (H1 2018: £0.9m)

- Orthopaedics & Dental sales were affected by a realigning of manufacturing to address capacity in H2 but still delivered sales of £3.0m (H1 2018: £3.2m)

·; Group EBITDA* loss of £3.6m (H1 2018: £3.5m)

·; Cash balance of £10.1m (H1 2018: £12.2m), post-$7.5m drawdown under a credit facility secured for up to $20m to invest in meeting growing demand for products

*EBITDA is a non-IFRS measure that the Group uses to assess its performance. It is defined as earnings before interest, taxation, depreciation and amortisation

Commercial

·; Accelerating US market penetration

o Expanded Group Purchasing Organisation coverage for DermaPure®

o Commissioned SurgiPure® XD post marketing clinical data collection trial

·; Continue to exploit global market potential

o Entered Latin America for the first time through a distribution agreement for BioRinse® products in Chile

·; Working towards strengthened portfolio

o Submitted positive two-year clinical data for OrthoPure™ XT to the notified body

Operational

·; Commenced second shift for BioRinse® products

·; Appointed US President of Operations

·; Supply chain improvement to deliver efficiencies

Post period

·; John Samuel resumed position of Executive Chairman, Gareth Jones appointed Interim Chief Executive Officer and Mike Barker appointed Chief Financial Officer following the resignation of Steve Couldwell as Chief Executive Officer due to a recurrence of his illness.

Executive Chairman, John Samuel, commented: "We have strong global demand for our products, which allowed us to deliver continued revenue growth, demonstrated by DermaPure, which increased sales by 33% in the first half. We remain focused on short and medium term initiatives to increase capacity and alleviate supply constraints."

"During the first half of the year, we streamlined our supply chain activities and enhanced our operational procedures. These initiatives have enabled us to increase production capabilities within the San Antonio facility, the benefits of which will come to fruition in the second half of the year. Longer term, having secured a credit facility of up to $20m with MidCap Financial LLP, this will support our ambitious growth plans, by adding further processing capacity to the San Antonio facility and expanding our commercial footprint."

"We anticipated that the year would be significantly weighted towards the second half, as announced on the 4 June 2019, at the time of the Company's results for the year ended 31 December 2018.

We continue to expect that this will be the case, and, against a background where we see the ever growing demand for our products as the business looks to increase its manufacturing capabilities, the ability to bring this on stream during the second half of the year will be key in determining the year end outcome."

For more Information:

About Tissue Regenix

Tissue Regenix is a leading medical devices company in the field of regenerative medicine. Tissue Regenix was formed in 2006 when it was spun-out from the University of Leeds, UK. The company's patented decellularisation ('dCELL®') technology removes DNA and other cellular material from animal and human soft tissue leaving an acellular tissue scaffold which is not rejected by the patient's body and can then be used to repair diseased or worn out body parts. Current applications address many critical clinical needs such as sports medicine, heart valve replacement and wound care.

In November 2012 Tissue Regenix Group plc set up a subsidiary company in the United States - 'Tissue Regenix Wound Care Inc.', January 2016 saw the establishment of joint venture GBM-V, a multi- tissue bank based in Rostock, Germany.

In August 2017 Tissue Regenix acquired CellRight Technologies®, a biotech company that specializes in regenerative medicine and is dedicated to the development of innovative osteoinductive and wound care scaffolds that enhance healing opportunities of defects created by trauma and disease. CellRight's human osteobiologics may be used in spine, trauma, general orthopedic, foot & ankle, dental, and sports medicine surgical procedures.

Business Review

BioSurgery  

The BioSurgery division (DermaPure®,) grew revenue 33% year-on-year to £2.0m, as the repositioning in the hospital space continues to gain traction.

We received a further Group Purchasing Organisation (GPO) approval in April, and now have access to circa 95% of all hospitals covered under GPOs in the US. With the increasing use of the product in uro-gyneacology procedures, where we have a specialist distribution partner, ARMS Medical, and the commencement of use in maxilliofacial and dental applications, we expect continued strong demand for the BioSurgery products in the second half of the year. To satisfy growing demand we have reinstated the processing agreement with Community Tissue Services for the production of DermaPure® in order to increase capacity and have received the first products under this agreement.

The business continues to make good inroads into premium medical institutions within the US market and this, coupled with additional product line extensions, is anticipated to create opportunities in the near future.

Orthopaedics and Dental

As we realigned manufacturing capacity for further growth in the second half of the year there was a slight dip in revenue performance during the first half of the year for the Orthopaedics and Dental division, primarily comprising of the BioRinse® portfolio.

We introduced a second shift during the first quarter, which has increased processing capacity, and, in conjunction with supply chain improvements, we expect to see these changes drive revenue performance in the second half of the year. The relationship with our BioRinse® strategic distribution partner, Arthrex, Inc. continues to develop as we look to explore additional market opportunities.

Positive two-year clinical data for OrthoPure™ XT (porcine tendon) has been submitted to the notified body and we remain optimistic that we will be awarded the CE mark during 2019

GBM-V

Our controlled joint venture GBM-V is now largely self-sustainable and during the period increased revenue by 19% though the sale of corneal implants, whilst it also manages the regulatory process for the CardioPure products in Germany, which remains on track for a launch during 2020.

Operations and Management

Daniel Lee, appointed as President of US Operations in January 2019, has initially focused on developing the manufacturing capabilities and re-alignment of our supply chain processes at the San Antonio facility, with the introduction of a second shift, and in March 2019 the hiring of a Head of Donor Services.

On the orthopaedic / dental side of the business (BioRinse®), the lead-time for final products to become available is 3 months. This means that manufacturing in Q3 will be increased, following these initiatives, and this will be key in determining our final revenues for 2019.

Post balance sheet events

As announced on 15 August 2019, we have entered into an agreement for a 10-year lease, with an option to purchase, on a 21,000sq ft manufacturing facility, adjacent to our current building in San Antonio which allows for the first phase of the expansion project to begin. Initially, the office space and warehousing will be transferred into the new facility allowing for further clean rooms to be installed in the original building. Over time, this will allow for further clean rooms to be brought on stream as required.

Steve Couldwell, Chief Executive Officer (CEO), informed the Board of a recurrence of his illness, and resigned his position with immediate effect in order to concentrate on his recovery. John Samuel resumed the position of Executive Chairman, Gareth Jones, Chief Operating Officer, has taken up the position of interim-CEO. Mike Barker, who has supported the Group since January was appointed as Chief Finance Officer and Director on the Board.

Financial Overview

During the first half of 2019, we have achieved a number of milestones in order to help secure our future success. Pivotal to this was the credit agreement with MidCap Financial LLP, which has allowed us access of up to $20m of debt financing, meaning we can begin to implement our ambitious growth plans.

Revenue

Revenue has increased to £6.1m (H1 2018: £5.6m). BioSurgery has increased by 33% and our joint venture, GBM-V, has increased by 19% on a reported basis. As a result of manufacturing capacity constraints in the first half, Orthopaedics and Dental revenues decreased by 5%.

Margin

Margin decreased in H1 from 56% to 47% reflecting short term higher cost absorption as the second shift was brought up to full efficiency and an adverse sales mix as lower BioRinse® product volumes (generally our higher margin products) contributed less to the overall total.

Loss for the year

Operating loss in the six months ended 30 June 2019 improved to £4,220K (H1 2018: £4,736K).

R&D tax credits of £352K (H1 2018: £353K) represent the estimated tax credit receivable, together with a premium of 40%, on development costs.

Exceptional costs of £40k represent the costs of the MidCap Financial Trust (MidCap) loan facility.

Cash position

Cash position for the Group at 30 June 2019 is £10.1m (H1 2018: £12.2m). The Group received the first tranche of the MidCap loan at $7.5m in June 2019, and has available the initial revolving credit facility of up to $3.0m.

Current trading and Outlook

During the first half of the year, we made significant operational progress, both in terms of our production and supply chain capabilities, investment in key appointments, and secured further funding to underpin the development of the business and to allow for our continued expansion. With this now in place, the long-term outlook for our product portfolio remains positive and our focus will be on executing against our strategic focus areas to drive forward commercial momentum.

We continue to look at ways to develop relationships with our strategic partners and have entered investigational discussions for geographic expansion through licensing or distribution agreements with a number of additional potential partners.

Demand for our products is strong, evidenced by our healthy order book from key customers, which we expect to fulfil as the operational improvements come to fruition. As capacity is increased, it will allow us greater flexibility to pursue the varied commercial opportunities we see for the products in the market.

We anticipated that the year would be significantly weighted towards the second half, as announced on the 4 June 2019, at the time of the Company's results for the year ended 31 December 2018.

We continue to expect that this will be the case, and, against a background where we see the ever growing demand for our products as the business looks to increase its manufacturing capabilities, the ability to bring this on stream during the second half of the year will be key in determining the year end outcome.

The loss for the period arises from the Group's continuing operations.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

Approved by the Board and authorised for issue on 10 September 2019

1. Basis of preparation

The condensed financial statements are not statutory accounts, have not been audited and, as permitted under the AIM Rules, do not comply with IAS 34 "Interim Financial Reporting".

The accounting policies adopted are in accordance with International Financial Reporting Standards and are consistent with those expected to be applied in the preparation of the audited financial statements for the year ending 31 December 2019, including the adoption of the following new standard with effect from 1st January 2019:

·; IFRS 16 Leases

The comparative figures for the year ended 31 December 2018 are from the statutory accounts. Those accounts have been reported on by the Company's Auditor and delivered to the Registrar of Companies. The report of the Auditor was unqualified, did not include reference to any matters by way of emphasis and did not contain a statement under section 498 of the Companies Act 2006.

This is the first set of results since the adoption of IFRS 16 which has caused no material impact to the Group's financial statements as the Group has been able to benefit from the exemption for leases with less than 12 months left to run.

2. Segmental reporting

The following table provides disclosure of the Group's revenue by geographical market based on location of the customer:

3. Taxation

The Group has accumulated losses available to carry forward against future trading profits.

4. Loss per share (basic and diluted)

Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the period excluding own shares held jointly by the Tissue Regenix Employee Share Trust and certain employees. Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume conversion of all dilutive potential ordinary shares.

The Company has issued employees options over 23,786,780 ordinary shares and there are 16,940,386 jointly owned shares which are potentially dilutive. There is, however, no dilutive effect of these issued options as there is a loss for each of the periods concerned.

5. Interim financial report

A copy of this interim report is available on the Company's website at www.tissueregenix.com in accordance with AIM Rule 20.