TSL.L Regulatory News (TSL)

23 Mar 2006 07:02

Tissue Science Laboratories PLC23 March 2006 23 March 2006 Tissue Science Laboratories plc ('TSL' or the 'Company') Preliminary Results for the year ended 31 December 2005 Tissue Science Laboratories (LSE: TSL), the medical devices company specialisingin human tissue replacement and repair products derived from porcine dermis,today announces its Preliminary Results for the year ended 31 December 2005. Operational Highlights • Successful recruitment of new direct sales force in general surgery; early penetration into fast-growing biologic market • Permacol(R) entering large-scale clinical studies in colorectal surgery; substantial unaddressed market • Supply issues for human cadaver-sourced bio-materials in the US creating added opportunity for TSL's porcine-based, sterile products • Zimmer launch of rotator cuff repair product; maiden sales in the period • Positive clinical results with dermal filler showing safety and efficacy • Excellent progress in new product development projects • Post period end: • Signed non-binding heads of terms with distribution partner for UBA product • Announced new Canadian distributor for general surgery Financial Highlights • Successful £7.6m (net) fundraising for investment in sales and marketing and new product development • Turnover increased by 17% to £10.2m (2004: £8.7m): 21% growth on a constant currency basis • Net loss for the year, which increased with planned investments to £2.3m (2004: loss £0.6m), was significantly lower than expected • Strong cash position: £6.8m (31 December 2004: £3.5m) • Current trading - encouraging contribution from new direct sales force in general surgery Commenting on the results, Martin Hunt, Chief Executive of TSL, said: "In 2005, we set out our strategy for achieving the growth and development ofthe Company, raising new finance to fund the next stage of development. Theappointment of a new Canadian distributor, the signing of a non-bindingagreement with a distribution partner for the UBA and the growing salescontribution of our new US direct sales team in general surgery is anencouraging start to 2006. We remain confident that the major investments thatwe are making in sales and marketing resource, clinical studies and new productdevelopment will continue to drive revenue growth and offer enhanced shareholdervalue." -Ends- For further information, please contact: TSL plc Tel: 01252 369 603Martin Hunt, Chief ExecutiveDavid Jennings, Finance Director Hogarth Partnership Tel: 020 7357 9477Melanie Toyne-Sewell / Fionnuala Synnott Notes to Editors 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 biologic surgicalimplant market. The Company floated in November 2001 and is listed on AIM (LSE:TSL). TSL has a family of products based on the same core technology. Each product hasbeen adapted to make it suitable for use in different applications, includingurology/gynaecology, complex and recurrent hernia repair, rotator cuff repairand head and face repair and reconstruction. The Company has signed distributionagreements with CR Bard Inc (urology/gynaecology-worldwide), Zimmer Inc(orthopaedic-worldwide) and Porex Surgical Inc (head & face-US and Canada).Further variations of the sheet and injectable forms of Permacol(R) are beingdeveloped. Background on Permacol(R) Permacol(R) was developed at Dundee and Cambridge Universities over a 20-yeartime period. The key to the Permacol(R) concept lies in it collagen technologywhich uses non-reconstituted porcine dermal collagen, very similar in structureto human tissue. Non-collagenous material, except elastin, is removed by the TSLmanufacturing process. The remaining collagen, which retains its original 3-Dstructural architecture, is stabilised by a patented cross-linking process. Theresult is a non-reconstituted, non-allergenic, collagen implant which isresistant to biodegradation, is recognised and accepted by the body, and is ableto provide a long-term support for the in-growth of new tissue and itsassociated blood supply. CHAIRMAN'S STATEMENT REVIEW OF 2005 2005 has been a significant year of development for TSL. We completed a £7.6m(net of expenses) financing to fund our strategy for future growth. Core areasof investment in sales and marketing and new product development were identifiedin our programme and I am pleased to report that good progress has been made. In general surgery we have succeeded in recruiting a direct sales and marketingorganisation in the US as planned, to address the rapidly growing market forbiologic surgical materials. We have established an office in Boston, a key hubfor medical technology companies to support this sales team. In urology/gynaecology CR Bard has continued to grow revenues with our PelviSoftTM andPelviLaceTM brands and in orthopaedic surgery, Zimmer has successfully launchedour product for shoulder repair in both the European and US markets. During the year we reported on the positive outcomes of clinical studies for ourproducts in incontinence, cosmetic reconstruction and dermal filling. Theseresults bode well for the future growth of our business. We have also begun alarge-scale patient study in therapeutic stoma repair for Permacol(R) and theplanning of a further study into the prophylactic use of Permacol(R) in stomasurgery is well advanced. At our fund raising in March 2005, we identified further significant productdevelopment opportunities for our technology. By applying our proprietarymanufacturing process to other porcine tissues - bones, ligaments and bloodvessels we are seeking to develop products with superior performancecharacteristics for orthopaedic and cardiovascular applications. We haveadvanced to in vivo testing in all three tissue areas with encouraging resultsto date and I look forward to reporting further in respect of these projects inthe coming year. FINANCIAL REVIEW Turnover in the year increased by 17% to £10.2m (2004: £8.7m) after taking intoaccount foreign currency translation. On a constant currency basis (translating2005 US$ revenues at the same $/£ exchange rate as that used in 2004) turnoverincreased by 21%. Sales in general surgery increased by 26% in the US to $5.8m (2004: $4.6m) andby 18% to £1.3m (2004: £1.1m) in our European markets. In the US we havecompleted the initial deployment of our own direct sales team and are encouragedby early results. Sales in urology/gynaecology increased by 14% to $9.5m. (2004:$8.3m), with strong performances from our PelviSoftTM and PelviLaceTM brandsmarketed through CR Bard. 2005 also saw initial revenues of $0.4m from Zimmerwho launched our product in Europe and the US. We anticipate further growth in2006 in this attractive market segment as the Zimmer sales organisation istrained in the use of biologic materials. Gross margins of 50% (2004: 58%) were impacted by US dollar weakness and anincrease in manufacturing and compliance costs as we build our manufacturinginfrastructure to support future growth. We anticipate that increased sales andproduction volumes in 2006 will enhance recovery of fixed manufacturingoverhead, leading to improved gross margins. Overhead expenditure increased in line with our business growth and the plannedinvestment in sales and marketing resources. Selling and distribution expenses increased to £1.9m (2004: £1.2m) reflectingthe recruitment and payroll costs of our direct US sales team in the secondhalf. Administration costs (which include marketing expenditure) increased to£4.6m (2004: £3.2m). In our core US general surgery market, marketingexpenditure increased to £1.4m (2004: £0.7m). General administration expensesincreased in line with our investment in US infrastructure. Research, development and regulatory expenditure amounted to £1.3m (2004: £1.4m)and we have continued to demonstrate the effectiveness of our internal resourcesin progressing product development projects. Net loss for the year, which increased with planned investments to £2.3m (2004:loss £0.6m), was significantly lower than expected. In July, we acquired the freehold of a new industrial facility in Yorkshire toprovide for future expansion of our manufacturing and office facilities. Thepurchase was mostly funded by a commercial mortgage facility of £1.3m. We haveinvested in additional stock inventory to support our partners and futuregrowth. As anticipated, cash outflow before financing increased to £5.3m (2004: £1.1m),however following our successful fundraising we remain in a strong cash positionwith £6.8m in cash at year end (2004: £3.5m) and net funds of £5.0m (2004:£2.9m). BOARD AND STAFF We have continued to strengthen the TSL management team with key appointments inhuman resources, sales and marketing, and finance and administration. I welcomeall new members of the TSL team to the Company and would like to take thisopportunity to extend the thanks of the Board to all the staff for theircontinuing efforts and look forward with confidence to further successes in2006. SUMMARY In March 2005, we set out our strategy for delivering future growth andshareholder value. To that effect, we developed our general surgery businessthrough a direct sales team in the US, broadened the surgical applicationsaddressed by our current products and widened our product development portfoliothrough the application of our manufacturing process to other porcine tissues.The Company has made key investments in personnel and development programmes.While such investment has impacted profitability in the short-term, the Boardbelieves that the strategy will ensure a broader and deeper penetration of therapidly developing biologic implant market offering substantially enhancedshareholder value in the longer term. After a year of investment in 2005, welook forward to a year of accelerated growth in 2006. Patrick Paul Chairman CHIEF EXECUTIVE'S REPORT OVERVIEW OF 2005 2005 has been another year of significant development for TSL. We have provideda review of operational developments below. SALES AND MARKETING General Surgery In 2005, we began the transition from a solely distributor-based sales model,with the successful recruitment of a direct sales team in the US. Salescontributions will start to be generated by this team from Q1 2006, aspreviously stated. Sales in general surgery in 2005 were solely generated by ourcurrent distributors and grew by 26% in the US to $5.8m (2004: $4.6m). A key element of our strategy is to address the rapidly growing complex andrecurrent hernia market. Biologic implant materials are increasingly beingadopted by surgeons as the therapy of choice in dealing with these difficultsurgical wounds. Recent research indicates that this market is expected to growat a compound annual rate of 30% to circa $300m by 2010, and has confirmed ourview that this area represents a considerable market opportunity for theCompany. The recently publicised issues surrounding the supply of humancadaver-sourced bio-materials in the US has further reinforced the opportunityfor our sterile, non-human derived tissue. Our objective in the second half of 2005 has been to recruit, train and deployrepresentatives in 20 key metropolitan areas in the US where our currentdistributors are not represented. I am pleased to report our goal has beenachieved and we are very encouraged by early successes in the market place. Ourchallenge in 2006 is to expand our direct team further in order to build on ourmomentum. In Europe, our general surgery sales grew by 18% to £1.3m (2004: £1.1m). Our UKdirect sales team continues to perform well and we are now generating good salesfrom certain European markets eg Greece. We are looking to expand further ourdistribution in continental Europe in the coming year. We have also recently announced the signing of a distribution agreement with anew distributor, Canadian Hospital Specialties, for Canada. Urology/Gynaecology CR Bard has worldwide distribution rights in urology/gynaecology. Sales to Bardincreased overall by 14% in the year to $9.5m (2004:$8.3m) driven by increasedsales of the PelviSoftTM and PelviLaceTM brands. Bard has now established amarket leading position in the use of biologic material for pelvic floorreconstruction procedures. Recent developments within Bard include the launch ofan enlarged sales team in the US, specifically focused on women's healthcare.The TSL product range will feature prominently in this initiative. Increasing competition is being seen in this market, particularly in the US,however Bard remains committed to our technology in this key business area interms of future product development and expansion into new geographical markets.During the year, regulatory approval was gained by Bard for the Australianmarket and initial sales have been made. Further markets currently underdevelopment are Canada (regulatory application submitted) and South Africa. Orthopaedics In September 2003, we signed a worldwide distribution agreement with Zimmer tomarket Permacol(R) for rotator cuff repair. After extensive internal evaluationof the technology, Zimmer conducted a controlled launch of the product in bothEurope and the US in the first half of 2005. The product, branded the Zimmer(R)Collagen Repair Patch, has been initially targeted at selected surgeons.Response to the clinical performance of the patch has been very positive. Zimmer has developed product branding and clinical data to support marketing.Initial inventory has been shipped to Zimmer and total revenues from thischannel amounted to $0.4m (2004: nil). We expect sales to increase steadily asZimmer rolls out the product more widely in the coming year. Biologic implantsare increasingly seen as future drivers for growth as orthobiologics gain marketacceptance and we remain confident that our technology will make a significantimpact in this market sector. Head and Face Surgery A 45 patient UK clinical study into the use of our product in rhinoplastyprocedures has been completed and confirms that Permacol(R) is "a convenienteasy material to use and produces excellent results." The data will be used tosupport marketing of the product in this target indication. We have also enteredthe Korean market where there is a strong head and face market with initialsales of $0.1m (2004: nil) in the year. Both the US and Korean markets will bethe focus of further business development efforts in 2006. Marketing and Business Development Our marketing expenditure increased in the year in line with planned investmentto £2.1m (2004: £1.3m). We are working with key opinion leaders in general andcolorectal surgery, conducting marketing studies and having research publishedin clinical publications. In addition, we are promoting the Company and itsproducts at carefully selected industry meetings and surgical conferences. Forexample, Professor Norman Williams of the Royal London Hospital, a leadingauthority on colorectal surgery, presented clinical data on the performance ofPermacol(R) at the influential Cleveland Clinic surgical symposium in the USA inFebruary. We have also recruited product managers in the UK and the US to providetechnical and logistical support to the field sales teams and are wellpositioned to support planned growth in the coming year. CLINICAL STUDIES Permacol(R) - Colorectal Procedures - Therapeutic Stoma Repair The treatment of herniated stomas, a common complication of stoma surgery, is acore area of focus for TSL. A pivotal 200 patient study using Permacol(R) torepair herniated stomas has commenced in c.20 centres in the UK. There arecurrently between 750,000 and 1,000,000 stomas in the US alone with a potentialherniation rate of 44%. The Company believes that herniated stomas are notreadily treatable with synthetic meshes. This therefore represents aconsiderable market opportunity for a biologic material such as Permacol(R). Thestudy has a 12 month patient follow-up and initial results are expected in 2007.The Company already has regulatory access to this market in the US within itsexisting 510k approvals. Permacol(R)- Colorectal Procedures - Prophylactic Stoma Repair We are also developing a further study of 300 patients which will investigatethe use of Permacol(R) in the prevention of stoma herniation by implanting thematerial at the time that the stoma is first created by the surgeon. The studyprotocol has been developed during the year and first patient recruitment isexpected in the first half of 2006. Permacol(R) Injection - Urethral Bulking Agent In December, we reported on the results of our 249 patient clinical study intothe use of Permacol(R) injection as UBA. The results demonstrate the efficacyand safety of our product in this indication. Our strategy now is to commencethe pre-marketing application study (PMA) for US market access. Theidentification and enrolment of study centres is underway and the study protocolhas received full approval from the FDA. We anticipate that the first patientswill be recruited imminently into the study. Post year-end, we are pleased to announce that we have signed non-binding headsof terms with a distribution partner for the UBA product. We will make a fullerannouncement once details have been finalised. Two further potential applications of Permacol(R) Injection are currently underdevelopment - treatment of anal fistulae and wrinkles or guttering aroundstomas. In respect of anal fistulae, in vivo studies have shown promising clinicalresults. In addition, further work is being carried out independently into theseeding of Permacol(R) Injection with cells, also for the treatment of fistulae.The Company intends to seek a PMA for this product indication in the US. The bulking agent has also been used successfully in the correction of wrinklesand guttering around stomas. This is a common condition associated with stomascausing leakage which can lead to local skin abrasion and infection of the stomasite. The bulking agent is injected sub-dermally to smooth-out wrinkling andother deformities restoring the seal between stoma and colostomy bag. Thispotentially avoids the need for more extensive surgery to re-site or repair thestoma. Permacol(R) Injection - Dermal Filler We reported in December on the outcome of the 79 patient clinical study of ourdermal filler injection in lips. The initial results are very pleasing anddemonstrated equivalence in product performance to current market leadingproducts. Further analysis of these results will be published in 2006. We willnow conduct a further study into the use of the product for facial wrinkles. Ourstrategy will be to identify a marketing partner with whom we can jointlyprogress the marketing and regulatory clinical studies for access to the USmarket. NEW PRODUCT DEVELOPMENT A core element of our strategy for future growth is the application of ourmanufacturing technology to other porcine tissues - bone, ligament and bloodvessels. We have now defined each of these projects, allocated internalresources and accelerated the development work. In each case we will take theprojects through to pre-clinical proof of principle before seeking marketingpartners. Bone: Treated porcine bone will be used to develop bone blocks and fillers thatwill provide a scaffold to aid vascularisation, integration and repair in bonegraft procedures. Our aim is to produce products with superior performancecharacteristics to those currently available and early development work ispromising. In vivo studies have indicated that our potential product isbiocompatible and non-allergenic. Ligaments: Work has progressed with in vivo studies also producing good resultsin terms of biocompatibility and non-allergenicity. Our aim is to producereplacement ligaments for procedures such as Anterior Cruciate Ligament repair -a common sporting injury with 250,000 ACL repairs performed annually in the USalone. Blood Vessels: Early development work has shown that the integrity andelasticity of porcine blood vessels is maintained when the TSL manufacturingprocess is applied. The target is to develop replacement blood vessels forprocedures such as arterio-venous access for dialysis patients, treatment ofperipheral vascular disease and ultimately coronary heart bypass grafts. I look forward to updating shareholders on our progress with these projects inthe coming months. MANUFACTURING AND OPERATIONS The scale-up of our manufacturing operations in the first half of the year ledto an increase in unit manufacturing costs as the new teams were brought up tonormal operating efficiency. As planned, our objective for the year was to buildproduct inventories to support our US sales teams and marketing partners. We have recruited additional quality assurance, compliance and support staff inthe year and have established appropriate development, laboratory and officefacilities for our staff in Leeds as planned. In July, we completed the acquisition of a new industrial unit located within ashort distance of our current facilities in Leeds. This 30,000 square feetfacility will be the subject of a phased investment over a 2-3 year period aslonger term business growth demands additional manufacturing capacity, officeand laboratory facilities. Our current facilities will meet our business needsover the medium-term. REGULATORY Through its regulatory activity in the year, TSL gained access to additionalmarkets, received approval for product line extensions and provided dedicatedregulatory support to our sales teams and marketing partners. For Permacol(R),regulatory access was gained for Canada, Turkey and for additional product sizesin the Korean market. In addition, product approvals were obtained in Europe forPelviLaceTM trans-obdurator (surgical procedure) support system and furthersubmissions have been made for certain Eastern European markets for PelvicolTM,PelviSoftTM and PelviLaceTM. Approvals were also granted in the US in respect ofcolorectal procedure-related products. SUMMARY AND OUTLOOK In 2005, we set out our strategy for achieving the growth and development of theCompany, raising new finance to fund the next stage of development. Theappointment of a new Canadian distributor, the signing of a non-bindingagreement with a distribution partner for the UBA and the growing salescontribution of our new US direct sales team in general surgery is anencouraging start to 2006, We remain confident that the major investments thatwe are making in sales and marketing resource, clinical studies and new productdevelopment will continue to drive revenue growth and offer enhanced shareholdervalue. Martin Hunt Chief ExecutiveTissue Science Laboratories plc Consolidated Profit & Loss Account for the Year Ended 31 December 2005 Note Year Ended Year Ended 31 December 31 December 2005 2004 (Audited) (Audited) £000s £000s TURNOVER: 2 10,171 8,681 Cost of Sales (5,071) (3,658) Gross Profit 5,100 5,023 Selling & Distribution costs (1,882) (1,187) Administrative Expenses Research and development costs (1,297) (1,410)Other administrative costs (4,564) (3,210) ---------- ---------- (5,861) (4,620) Operating Loss (2,643) (784) Interest Receivable 293 94 Interest Payable & similar charges Bank & finance lease interest (94) (64) ---------- ----------LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (2,444) (754) Taxation 140 173 ---------- ----------RETAINED LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (2,304) (581) ========== ==========Basic loss per ordinary share 3 8.1p 2.4p ========== ========== 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. There is no difference between the retained loss on ordinary activities beforeand after taxation for the period stated above and their historical costequivalents. No dividend has been paid or is payable in either the current or prior periods. Tissue Science Laboratories plc Consolidated Balance Sheet as at 31 December 2005 31 December 31 December 2005 2004 (Audited) (Audited) £000s £000s Fixed Assets Tangible assets 3,340 1,725 Current Assets Stocks 2,301 1,550Debtors 2,713 1,887Cash at bank and in hand 6,842 3,472 ----------- --------- 11,856 6,909 Creditors: amounts falling due within one year (2,482) (2,652) ----------- --------- NET CURRENT ASSETS 9,374 4,257 Total assets less current liabilities 12,714 5,982 ----------- ---------Creditors: amounts falling due after more than one year (1,554) (212) ----------- --------- NET ASSETS 11,160 5,770 =========== ========= CAPITAL & RESERVES Called up share capital 2,946 2,463 Share premium account 22,075 14,864 Shares to be issued 167 175 Merger reserve 545 545 Profit & loss account (14,573) (12,277) ----------- ---------- EQUITY SHAREHOLDERS' FUNDS 11,160 5,770 =========== ========== Tissue Science Laboratories plc Consolidated Cash Flow Statement for Year Ended 31 December 2005 Note Year Ended Year Ended 31 December 31 December 2005 2004 (Audited) (Audited) £000s £000s Net cash outflow from operating activities 4 (3,301) (956) Returns on investment and servicing of Finance 196 22 Taxation (32) 173 Capital expenditure & financial investment (2,144) (372) Cash outflow before use of liquid resources &financing (5,281) (1,133) Financing Net cash inflow from financing 8,651 2,176 ---------- ---------Increase in cash in the period 3,370 1,043 ========== ========= RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NETFUNDS Increase in cash in the period 3,370 1,043 Cash outflow from movement in debt & leasefinancing 343 386 Change in net funds resulting from cash flows 3,713 1,429 New finance leases (393) (28) Currency translation difference 18 (30) Bank loan (1,300) - ---------- ---------- Movement in net funds in the period 2,038 1,371 Net funds brought forward 2,928 1,557 ---------- ---------- Net funds carried forward 4,966 2,928 ========== ========== 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 2005 or for the yearended 31 December 2004, but is derived from those accounts. Statutory accountsfor the year ended 31 December 2004 have been delivered to the Registrar ofCompanies and those for the year ended 31 December 2005 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. The accounting policies adopted are consistent with those adopted in theprevious period. 2. TURNOVER A geographical analysis of turnover by destination is as follows: Year Ended Year Ended 31 December 31 December 2005 2004 (Audited) (Audited) £000s £000s A geographical analysis of turnover by destination isas follows:United Kingdom 1,201 1,057Europe 1,465 1,047USA 7,413 6,536Rest of World 92 41 ---------- --------- 10,171 8,681 ========== ========= An analysis of turnover by class of business is asfollows: Product sales 10,117 8,630Milestone income 54 51 ---------- ---------- 10,171 8,681 ========== ========== 3. LOSS PER SHARE Loss per ordinary share has been calculated based on the weighted-average ofordinary shares in issue during the period. Year Ended Year Ended 31 December 31 December 2005 2004 (Audited) (Audited) £000s £000s Loss for the period (2304) (581)Weighted average number of ordinary shares 28,296,310 24,019,019Loss per share 8.1p 2.4p ========== ========== 4. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATINGACTIVITIES Year Ended Year Ended 31 December 31 December 2005 2004 (Audited) (Audited) £000s £000s Operating loss (2,643) (784)Depreciation of tangible fixed assets 922 756Increase in debtors (633) (512)Increase in stocks (751) (951)(Decrease)/Increase in creditors (178) 521Profit on disposal of fixed assets - (45)Foreign exchange loss/(gain) (18) 30Shares to be issued - 29 ---------- ---------- (3,301) (956) ========== ========== This information is provided by RNS The company news service from the London Stock Exchange