TSL.L Regulatory News (TSL)

24 Feb 2005 07:04

Tissue Science Laboratories PLC24 February 2005 24 February 2005 Preliminary Results for the year ended 31 December 2004 Tissue Science Laboratories plc (LSE: TSL), the medical devices companyspecialising in human tissue replacement and repair products derived fromporcine dermis, today announces its Preliminary Results for the year ended 31December 2004. Operational Highlights - 100% growth in hernia sales in US to $4.6m, (2003: $2.3m)- Strong sales contribution by new urology products launched in Q1 2004- Evaluation phase of Zimmer Inc deal completed; plans for launch scheduled for February 2005- Launch of EnduragenTM for head and face applications through partnership with Porex Surgical Inc in North America- Required inventory levels in place to support further growth in 2005- Additional regulatory clearances achieved in US for parastomal and abdominal wall applications- New appointments in US management team to support 2005 growth plans Financial Highlights - Revenues continued to grow strongly in 2004, with turnover increasing by 78% to £8.7m (2003: £4.9m); on a consistent currency basis, turnover would have been £9.6m- Gross margins improved to 58% (2003: 52% pre-exceptional costs of £0.5m)- Significantly reduced net loss for the year of £0.6m (2003: net loss of £2.6m)- Successful post year end fundraising of £8.0m (before expenses) announced today, to increase marketing efforts in the US and accelerate new product development projects ( see separate announcement)- Strong growth in sales expected to continue in 2005 Commenting on the results, Martin Hunt, CEO of TSL, said: "2004 has been a year of substantial progress in all areas of our business. Wehave now established four sales and marketing channels to target specificsurgical applications for our core products. These routes to market are alsovital as we address exciting new product development opportunities. Despite thecontinued weakness of the dollar, I believe the Company is well positioned forfurther growth and expansion in 2005 and beyond." -Ends- There will be a meeting for analysts this morning at 9:30am at ThreadneedlesHotel,5 Threadneedle Street, London EC2R 8AY. For registration and/or enquiries,please contact Nathalie Barone, Hogarth PR, on tel: 020 7357 9477 ornbarone@hogarthpr.co.uk. Enquiries:TSL plc Tel: 01252 369 603Martin Hunt, Chief ExecutiveDavid Jennings, Finance Director Hogarth Partnership Limited Tel: 020 7357 9477Melanie Toyne-Sewell / Kate Catchpole Mob: 07767 66 00 40 Background on TSL Founded in 1995, with headquarters in Aldershot, Hampshire, TSL is a medicaltechnology company specialising in tissue repair and replacement with aproprietary sheet product, derived from porcine dermis, called Permacol(R). TSLhas launched successfully different formulations of the product and built adevelopment pipeline that addresses the large and fast growing surgical implantmarket. The Company floated in November 2001 and is listed on the AlternativeInvestment Market (LSE: TSL). TSL has a family of products based on the same core technology. Each producthas been adapted, with unique properties, to make it suitable for use indifferent applications, including urology/gynaecology, complex and recurrenthernia repair, shoulder rotator cuff repair and head and face repair andreconstruction. The Company has signed distribution agreements with CR Bard Inc(urology/gynaecology - worldwide), Zimmer Inc (orthopaedic - worldwide) andPorex Surgical Inc (head & face-US and Canada). Further variations of the sheetand injectable forms of Permacol(R) are being developed. Chief Executive's Statement Overview of 2004 2004 has seen further significant growth and development of our business. Ourcore technology, Permacol(R) Surgical Implant, is now actively marketed throughthree sales channels - CR Bard Inc (CR Bard) in urology and gynaecology, TSL'sdistributors in general surgery and Porex Surgical Inc (Porex) in head and faceapplications. With Zimmer Inc (Zimmer) scheduled to launch the rotator cuffrepair product imminently, we will also enter the orthopaedic market. Whilst themain focus of our business is the US, CR Bard has extensive Europeanrepresentation and TSL has a growing number of national distributors inindividual EU countries, together with our own sales team in the UK. We have continued to develop the infrastructure of the Company in order tosupport our rapid growth rate. Additional manufacturing, packaging, regulatoryand quality assurance personnel have been recruited, and we are also in theprocess of establishing a regulatory affairs function in our Atlanta office asfurther support for the US team. The requirement for an additional productionfacility has also been identified in order to house more office space, togetherwith laboratory facilities and raw material processing steps. A search forappropriate premises close to our existing facilities is underway. The year was also notable for corporate partner development activity. Weextended our relationship with CR Bard to include new products described below,completed the evaluation phase of our agreement with Zimmer and concludednegotiations with Porex for access to the head and face market in North America. Financial Review Turnover increased by 78% to £8.7m (2003: £4.9m) after taking into accountforeign currency translation. On a consistent currency basis (translating 2004dollar revenues at the same dollar/£ exchange rate as that used in 2003),turnover would have increased by 96% to £9.6m. Sales in urology/gynaecology wereup by 108% to $8.3m (2003: $4.0m) following the successful introduction of thePelviLaceTM Biourethral Support System (PelviLaceTM) and PelviSoftTM BioMesh(PelviSoftTM) products in the first quarter. Increased sales to CR Bard havearisen from strong market acceptance of these new products and from re-stockingfollowing the inventory shortage experienced in the second half of 2003. Ingeneral surgery, we have expanded our commission-only sales and distributornetwork and US sales have increased to $4.6m (2003: $2.3m) - a growth rate of100%. In head and face surgery, initial inventory amounting to $0.1m, has beenshipped to our partner Porex, whilst further marketing activity to support thefull roll-out of the product in this field in 2005 has been undertaken. Sales ofPermacol(R) Injection for the treatment of female urinary stress incontinence inEurope remain unchanged at £0.1m (2003: £0.1m). Gross margins improved to 58%, (2003: 52% before charging exceptional costs of£0.5m) as increased volume recovered our fixed overhead cost. Selling expensesincreased to £1.2m (2003: £0.9m), reducing from 19% of turnover in 2003 to 14%in 2004. Other administrative expenses (including marketing costs but excludingresearch and development) increased to £3.2m (2003: £2.8m) in line with thegrowth in our business and as a result of the continuing investment in our USsales and marketing operation to £0.8m (2003 £0.6m). Expenditure on product development, clinical and regulatory activities(including internal staff costs) increased marginally to £1.4m (2003: £1.3m)representing work on current product development projects for the dermal sheetand injectable products. A tax refund of £0.2m was received in the year inrespect of the Government's research and development tax credit scheme.2004 saw a steady and prolonged weakening of the US dollar versus sterling,trading in the range of £1 = $1.75 to $1.95). The Company had in place hedgingcontracts to the value of $9.3m entered into in 2003 and 2004 and maturing inthe year at a composite rate of $1.75, and was thus able to reduce its foreignexchange exposure accordingly. For 2005, the Company currently has in placeforward contracts to the value of $10.5m at a composite rate of £1 = $1.82. The net loss for the year reduced to £0.6m (2003: net loss £2.6m), whichrepresents a basic loss per ordinary share of 2.4p (2003: loss 11.8p). Cashoutflow (before financing) in the year reduced to £1.1m (2003: £2.8m). TheCompany held £3.5m in cash at the year-end and £2.9m in net funds. Technology and Products TSL uses its proprietary technology to produce tissue replacement and repairproducts from porcine dermal collagen. The product is currently presented in twoforms - a sheet repair material and injectable collagen. • Permacol(R) Surgical Implant is a flat sheet of collagen and elastin for use by surgeons in soft tissue enhancement, replacement and repair. • Permacol(R) Injection is a suspension of milled collagen in saline. In its first product presentation as a urethral bulking agent (UBA), it addresses female urinary stress incontinence. A second format, a finer milled collagen, is being developed as a dermal filler for facial augmentation. Markets and Strategy Our strategy is to market Permacol(R) Surgical Implant through a combination ofstrategic marketing partners, national level distributors or, where appropriate,through our own sales teams. We have targeted specifically the following markets: •Urology/gynaecology - pelvic floor reconstruction and incontinence •General surgery / colorectal surgery - complex hernia repairs, abdominal wall defects, parastomal reinforcement •Orthopaedic surgery - rotator cuff repair of the shoulder •Head and face surgery - facial reconstruction and repair Sales and Marketing Total turnover grew strongly in 2004 to £8.7m (2003: £4.9m). The currentmarketing status and marketing approach for Permacol(R) Surgical Implant can besummarised as follows: Application Market Approx. Market Size Brand Name Distribution Channel Urology /Gynaecology Global $165m PelvicolTM CR Bard PelviLaceTM PelviSoftTM Hernia US $120m Permacol(R) 'Commission-only' Surgical sales team and Implant distributors Hernia UK/ $70m Permacol(R) TSL/National Europe Surgical distributors Implant Orthopaedic Global $150m Zimmer Zimmer Collagen Repair PatchTM Head and North $65m EnduragenTM PorexFace America • Urology/Gynaecology CR Bard has worldwide rights to market PelvicolTM, its brand name for our coretechnology, in the field of urology and gynaecology for pelvic floorreconstruction and incontinence. Sales have grown steadily as CR Bard's marketpenetration has increased. In 2004, total revenues grew strongly to $8.3m (2003: $4.0m). Sales growth hasbeen driven by demand for the two new products launched in January 2004.PelviSoftTM is positioned for use around thin tissue, such as in vaginalprocedures where its expansive characteristics are important to restore functionpost-operatively. PelviLaceTM is marketed as a natural alternative toTension-free Vaginal Tape (TVT), from Johnson and Johnson, in the treatment offemale urinary incontinence. • General Surgery (Hernia) US TSL has marketed Permacol(R) to surgeons treating complex and recurrent herniasin the US since June 2002 via its commission-only sales team and distributors.We have continued to invest in our US management structure and we appointed anew marketing director and a sales director in the last quarter of 2004. Salesdoubled to $4.6m in 2004 (2003: $2.3m). We have focused on gaining salesrepresentation in the key metropolitan areas of the US and, whilst coverage hasincreased considerably, there still remain areas of significant potential as yetwithout sales coverage. Europe and Rest of the WorldTSL markets Permacol(R) in Europe via its own direct sales team in the UK and inother European countries via national level distributors. In 2004, sales grew by38% to £1.1m (2003: £0.8m). We have distributors now in Italy, Greece,Switzerland, the Netherlands and Sweden. In the Far East, a distributor has beenappointed and product now has been shipped for launch in Korea in early 2005. • Orthopaedic Surgery In September 2003, we signed a worldwide distribution agreement with Zimmer forthe marketing of Permacol(R) for the orthopaedic surgical application of rotatorcuff repair of the shoulder. Zimmer is a leader in the field of orthopaedics andis listed on the New York Stock Exchange. Zimmer estimates that there are more than 250,000 rotator cuff repairs performed annually in the US alone, with growth both primary and revision procedures. Zimmer is targeting the 30 per cent. of these procedures that are subject to re-tears and where a material such as Permacol(R) can add to the strength of the repair. The Directors estimate that this segment of the market has a potential value of approximately $150m per annum. The agreement provided for an evaluation phase which has enabled Zimmer to undertake a range of testing procedures on Permacol(R) prior to developing plansfor product launch. This phase has now been successfully completed and the launch of Zimmer Collagen Repair PatchTM is scheduled to take place at the US Academy of Orthopaedic Surgeons meeting in Washington in February 2005. •Head and Face Surgery We concluded contract negotiations with Porex in March 2004 and EnduragenTM waslaunched at the end of June. To support the marketing of EnduragenTM, Porex has initiated an opinion leader development programme with clinical studies focused on key procedures, such as rhinoplasty. This initiative will also be supported from the UK where a large study will be published in H1 2005. We expect to see an acceleration in revenues during 2005 as these clinical studies become available. •Permacol(R) Injection - Urethral Bulking Agent (UBA) Permacol(R) Injection is indicated for use as a UBA for female urinary stress incontinence. It is a common condition affecting one in eight women over the age of 45 and in the US alone, there are an estimated 11 million sufferers. Although the Company has entered the European market, our main focus will be on the US market where injectable bulking agents have been more widely adopted and where the Company believes that its product would offer advantages over existingtreatments. European Marketing During 2004, we have focused on a number of initiatives designed to improve thepresentation and user-friendliness of Permacol(R) Injection and these will beintroduced during 2005. As reported in the interim results, initial analysis ofthe double-blinded study confirms our confidence that Permacol(R) Injection isan effective bulking agent for the treatment of female stress incontinence. Oncepublished, the data will be used to support marketing in Europe, where theproduct is already being sold. US Marketing The Company previously reported in 2003 that there was a larger than expectedpatient drop-out rate in the European study and a compromise in the conduct ofthe study protocol in two of the main study centres located in Poland. In theinterim results for 2004, we reported that the data could not be used to supporta Pre-Marketing Approval (PMA) application to the Food and Drug Administration(FDA). Since then, we have performed additional market research in the USA whichsupports our belief that there is a significant market for effective urethralbulking agents. Therefore, we intend to initiate a new clinical study forPermacol(R) Injection in the USA to support a PMA application to the FDA andplanning is well advanced. We anticipate patient recruitment to commence in Q22005. Manufacturing We invested a proportion of the funds raised in February 2004 in manufacturingand packaging staff recruitment. This initiative has enabled us to put in placeinventory levels to support our growth plans in each of our sales channels. Thishas been achieved by moving onto a shift pattern of working at our productionfacility in Leeds, having recruited 22 new operators. We are pleased to reportthat we achieved the necessary recruitment levels in a short space of time, putin place training programmes and met the required shipment dates to support thesales activities of our partners. Research and Development During the year, we have continued to channel resources into developing newproducts to exploit additional market applications for the Permacol(R) sheet andinjectable forms. The Company is focusing on markets in which it alreadyoperates to exploit fully the sales force and partners' marketing knowledge andmarket presence. Products for the following surgical areas are currently underdevelopment: • Permacol(R) Surgical Implant Rectal IntussusceptionA partial rectal prolapse or intussusception occurs when one part of the lowerbowel 'telescopes' down into another. Professor Norman Williams and his team atSt. Bartholomew's and Royal London School of Medicine & Dentistry are workingwith TSL on a new procedure for the repair of rectal intussusception, with theaim of reducing the recurrence rate. To this purpose, TSL has developed aT-shaped piece of Permacol(R) and a bespoke surgical instrument for itsimplantation. Ultimately the surgical implant and instrument will be supplied asa range of sterile surgical procedure kits (INTREKITTM) for rectal prolapseconditions. Professor Williams and his team is conducting a small-scale clinicalstudy for the new procedureProphylactic Stoma ReinforcementIn the US and Europe, there are currently approximately over 1.4m patients withstomas and approximately 160,000 new stomas are created per annum. A significantproportion of stomas (c.47%) are affected by herniation, often requiringcorrective surgery or the re-siting of the stoma. A pilot study is being carriedout by Professor Williams and his team into the prophylactic use of Permacol(R)in stoma creation to prevent subsequent herniation.The Company will seek US regulatory clearance for rectal intussusception repairand for prophylactic stoma reinforcement under new applications. • Permacol(R) Injection Dermal Filler We are developing an injectable product for the reconstructive and facialaugmentation market. Our aim will be to provide a longer-lasting dermal fillerthat reduces the need for regular repeat treatments - typically three to sixmonths for most competing collagen products. A human clinical study commenced inJune 2004 and will run for 12 months. Subject to successful interim results, thefuture development path of this product would be a PMA clinical study for accessto the US market. Future Developments The development programme will focus on exploring the extension of the core TSLprocessing technology into the therapeutic areas of bone fillers, ligament/tendon repair products and vascular grafts. On completion of successfulpre-clinical proof of principle testing, the Company would seek a marketingpartner for each application to support the subsequent clinical developmentprogramme to launch. Regulatory In December 2004, our application to the FDA for a special 510(k) clearance forPermacol(R) Surgical Implant in the treatment of abdominal wall defects,including parastomal hernias, was cleared. This broadens our marketing platformin the US and enables us to use the existing sales channels to target colorectalsurgeons performing procedures to treat herniated stomas. During the year, we also successfully applied for regulatory approval for Permacol(R) Surgical Implant for Korea and PelvicolTM in Australia. We are alsoseeking regulatory access for Canada. Further CE marks have been obtained in respect of PelviLaceTM and PelviSoftTM. Outlook The Directors remain confident that 2005 will build upon the success of 2004. In2005, we will have four active sales channels in the US and a growing number ofdistributors across the EU. We expect our core technology to continue toestablish itself as a biomaterial of choice among a variety of surgeons acrossdifferent disciplines. Our development pipeline is healthy and we believe thatwe will be in a solid position to continue to derive new products that addressunmet surgical needs in the future. Martin HuntChief Executive Officer Tissue Science Laboratories plcConsolidated Profit & Loss Accounts for the Year Ended 31 December 2004 Year Ended Year Ended 31 December 31 December 2004 2003 (Audited) (Audited) Notes £000s £000s TURNOVER: 2 8,681 4,945---------------------------------- ------ --------- --------- Cost of sales excluding exceptional item (3,658) (2,361)Exceptional item 3 - (461)---------------------------------- ------ --------- --------- Cost of Sales (3,658) (2,822) --------- ---------Gross Profit 5,023 2,123 Selling & distribution costs (1,187) (927) Administrative Expenses---------------------------------- ------ --------- --------- Research and development costs (1,410) (1,256)Other administrative expenses (3,210) (2,848)---------------------------------- ------ --------- ---------Total administrative expenses (4,620) (4,104) --------- ---------Operating Loss (784) (2,908) Bank interest receivable 94 115 Interest payable (64) (54) --------- ---------LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (754) (2,847) Tax on ordinary activities 6 173 228 --------- ---------RETAINED LOSS ON ORDINARY ACTIVITIES AFTERTAXATION (581) (2,619) ========= ========= Basic and diluted loss per ordinary share(pence) 4 2.4p 11.8p ========== ========== All amounts relate to continuing operations. There were no recognised gains and losses for the current or preceding periodother than those included in the profit and loss account. No dividend has been paid or is payable in either the current or prior periods. Tissue Science Laboratories plcConsolidated Balance Sheet as at 31 December 2004 Year Ended Year Ended 31 December 31 December 2004 2003 (Audited) (Audited) £000s £000sFixed Assets Tangible assets 1,725 2,035 Current Assets Stocks 1,550 599Debtors 1,887 1,372Cash at bank and in hand 3,472 2,466 --------- ---------- 6,909 4,437 Creditors: amounts falling due within one year (2,652) (2,230) --------- ----------NET CURRENT ASSETS 4,257 2,207 Total assets less current liabilities 5,982 4,242 Creditors: amounts falling due after more than oneyear (212) (482) --------- ----------NET ASSETS 5,770 3,760 ========= ========== CAPITAL & RESERVES Called up share capital 2,463 2,230 Share premium account 14,864 12,535 Shares to be issued 175 146 Merger reserve 545 545 Profit & loss account (12,277) (11,696) ---------- ----------EQUITY SHAREHOLDERS' FUNDS 5,770 3,760 ========== ========== Tissue Science Laboratories plcConsolidated Cash Flow Statement for the year ended 31 December 2004 Year Ended Year Ended 31 December 31 December 2004 2003 (Audited) (Audited) Notes £000s £000s Net cash outflow from operating activities 5 (956) (2,723) Returns on investment and servicing of 22 65Finance Taxation 6 173 228 Capital expenditure & financial investment (372) (400) --------- ---------Cash outflow before use of liquid resources& (1,133) (2,830)financing Financing Net cash inflow/(outflow) from financing 2,176 (169) --------- ---------Increase/(decrease) in cash in the period 1,043 (2,999) --------- --------- RECONCILIATION OF NET CASHFLOW TO MOVEMENTIN NET FUNDS Increase/(decrease) in cash in the period 1,043 (2,999) Cash outflow from movement in debt & leasefinancing 386 245 --------- ---------Change in net funds resulting from cash 1,429 (2,754)flows New finance leases (29) (630) Currency translation difference (30) (5) --------- ---------Movement in net funds in the period 1,370 (3,389) Net funds brought forward 1,557 4,946 --------- ---------Net funds carried forward 2,927 1,557 ========= ========= Tissue Science Laboratories plc Notes 1. ACCOUNTING POLICIES AND BASIS OF PREPARATION The financial information set out in this announcement does not constitute theCompany's statutory accounts for the year ended 31 December 2004 or for the yearended 31 December 2003, but is derived from those accounts. Statutory accountsfor the year ended 31 December 2003 have been delivered to the Registrar ofCompanies and those for the year ended 31 December 2004 will be deliveredfollowing the Company's annual general meeting. The auditors have reported onthose accounts; their reports were unqualified and did not contain statementsunder s237(2) of (3) Companies Act 1985. 2. TURNOVER Year ended Year ended 31 December 31 December 2004 2003 (Audited) (Audited) £000s £000sA geographical analysis of turnover by destinationis as follows:United Kingdom 1,057 830Europe 1,047 601USA 6,536 3,514Rest of World 41 - ----------- ---------- 8,681 4,945 =========== ========== The Directors consider there to be one class ofbusiness.Turnover comprises two components as follows:Product sales 8,630 4,884Milestone Income 51 61 ----------- ---------- 8,681 4,945 =========== ========== 3. EXCEPTIONAL ITEMS Year ended Year ended 31 December 31 December 2004 2003 (Audited) (Audited) £000s £000s Stock written off - (461) =========== ========== 4. LOSS PER SHARE Year ended Year ended 31 December 31 December 2004 2003 (Audited) (Audited) £000s £000sBasic and diluted loss per ordinary share has beencalculated based on the weighted average number ofordinary shares in issue during the period Loss for the period (581) (2,619)Basic and diluted loss attributable to ordinaryshareholders (581) (2,619)Weighted average number of ordinary shares 24,019,019 22,152,537 Basic and diluted loss per share 2.4p 11.8p ========== ========= 5. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATINGACTIVITIES Year ended Year ended 31 December 31 December 2004 2003 (Audited) (Audited) £000s £000s Operating loss (784) (2,908)Depreciation and impairment of tangible fixedassets 756 571Increase in debtors (512) (368)Increase in stocks (951) (213)Increase in creditors 521 129Profit on disposal of fixed assets (45) -Foreign exchange movement 30 5Shares to be issued 29 61 ----------- ----------Net cash outflow from operating activities (956) (2,723) =========== ========== 6. TAX ON ORDINARY ACTIVITIES Year ended Year ended 31 December 31 December 2004 2003 (Audited) (Audited) £000s £000sUK tax receivable 210 237US tax payable (37) (9) ---------- ----------Tax credit for the current year 173 228 ========== ========== This information is provided by RNS The company news service from the London Stock Exchange