TSL.L Regulatory News (TSL)

29 Sep 2005 07:02

Tissue Science Laboratories PLC29 September 2005 29 September 2005 Interim Results for the Six Months Ended 30 June 2005 Tissue Science Laboratories plc (LSE: TSL) ('TSL' or the 'Company'), the medicaldevices company specialising in human tissue replacement and repair productsderived from porcine dermis, today announces its Interim Results for the sixmonths ended 30 June 2005. Operational highlights • TSL benefiting from good sales performance by Bard; consolidating its leading position both in the US and European urology markets • Product launch by Zimmer for rotator cuff repair in the US and Europe • Recruitment of direct US sales team in general surgery proceeding as planned • Therapeutic and prophylactic stoma surgical applications entering larger clinical studies in Q4 2005 and Q1 2006 respectively • Good progress with new product development activities, with teams and projects in place. Initial work has commenced • Post period-end: acquisition of 30,000 sq ft industrial unit to provide facilities for future expansion Financial highlights • Turnover increased by 25% to £5.0m (2004 H1: £4.0m); 38% growth on consistent currency basis • Maiden sales of Zimmer product in the period • Net loss of £0.8m (H1 2004: Loss £0.5m) in line with planned investment programme • Strong cash position - £9.2m (31 Dec 2004: £3.5m), following successful share placing in Feb 2005 raising £7.4m net of expenses Martin Hunt quote: "TSL has delivered another strong performance in the first half of the year withsustained sales growth and investment in our core marketing and productdevelopment programmes. Although, currently in an investment phase, the Companywill continue to grow by building on the success of its existing marketingpartnerships, developing its own sales team in the US and through futurebusiness development opportunities. In addition, the increasing amount of marketresearch published on the biologics sector reinforces our belief that the use ofbiologics in our target market segments is set to grow substantially in the nextfive years and we remain confident in our strategy for delivering future growthand shareholder value." -Ends- There will be a meeting for analysts this morning at 9.30am at Hogarth'soffices- 2nd Floor, Upstream, No 1 London Bridge, London SE1 9BG. Forregistration and/or enquiries, please contact Julie Cordice, Hogarth PR on tel:020 7357 9477 or jcordice@hogarthpr.co.uk. Enquiries:TSL plc Tel: 01252 369 603Martin Hunt, Chief ExecutiveDavid Jennings, Finance Director Hogarth Partnership Limited Tel: 020 7357 9477 / Mob: 07767 66 00 40Melanie Toyne-Sewell / Kate Catchpole 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 INTRODUCTION The six month period ended 30 June 2005 has seen further substantial developmentfor the business. In February we set out our vision for the medium-term futureof the Company and raised, by way of a share placing, £7.4m net of expenses tofinance our strategic plan. We had good responses from both existingshareholders and new institutional investors and we thank them for theirsupport. Our strategy is to focus investment in sales and marketing to increasepenetration in our core general surgery business, with our move to recruit adirect sales team in the US for the first time. Such increased sales andmarketing resources, we believe, will enable us to grow our business strongly inthe coming years. We are also seeking to broaden our future product portfoliowith product extensions and by applying our core manufacturing technology toother porcine tissues such as bone, ligaments and blood vessels. Developmentwork in all these areas is now underway and further progress updates areexpected in the second half of the year. FINANCIAL REVIEW Turnover in the first six months of the year increased by 25% to £5.0m (6 monthsto 30 June 2004: £4.0m). Revenues in the first half were adversely impacted bythe continuing weakness of the US dollar against sterling. On a consistentcurrency basis (translating revenues for the six months ended 30 June 2005 atthe same £/$ exchange rate as that achieved in the six months ended 30 June2004), revenues would have been £5.5m, an increase of 38%. Dollar depreciation against sterling has been substantial against the sameperiod last year. Our currency hedging in the first half enabled us to achieve acomposite exchange rate of $1.834 versus an average spot rate for £/$ for theperiod of $1.869. Gross margins of 52% (six months ended 30 June 2004: 58%) were also impacted byUS dollar weakness in the first half, amounting to a 4% margin erosion versusthe six months ended 30 June 2004. In addition, unit manufacturing costsincreased in the middle of the period as a result of inconsistencies experiencedin raw material quality and manufacturing yields. These issues were associatedwith the scale-up of manufacturing operations in Swillington and have beenaddressed through appropriate corrective actions. Overhead expenditure grew in line with our business growth and the plannedinvestment in sales and marketing resources. Selling and distribution expensesincreased to £0.7m (six months ended 30 June 2004: £0.6m), whilst marketingexpenditure increased to £0.9m (six months ended 30 June 2004: £0.6m).Investment in both selling and marketing expenses will increase in the secondhalf with the further recruitment of our direct sales team in the US anddevelopment of our marketing programmes. Other administrative expenses increasedin line with business growth to £1.2m (six months ended 30 June 2004: £1.0m). The net loss for the period was well inside current market expectations for theperiod at £0.8m (six months ended 30 June 2004: £0.5m). In March, we completed the placing of 4,690,641 ordinary 10 pence shares raising£7.4m net of expenses. We have therefore strengthened the balance sheet andremain in a sound financial position with £9.2m in cash at the end of the period(31 December 2004: £3.5m) and with net funds of £8.7m (31 December 2004: £2.9m).This placing will provide the basis for financing our planned growth goingforward. OPERATIONAL REVIEW The Company markets its products in four surgical areas - urology/gynaecology,general surgery, head and facial surgery and orthopaedic surgery, amounting to atotal addressable market of circa $600m. The first half of the year has beenbusy on an operational level and we are pleased to report that we have now fouractive sales channels and we are making good progress in product development. Urology/Gynaecology Sales to Bard of our products Pelvicol(R), PelviSoft(TM) and PelviLace(TM)addressing pelvic floor reconstruction and incontinence procedures, increased to$5.0m in the first half of the year (6 months ended 30 June 2004: $3.4m), anincrease of 47%. Bard is consolidating its position both in the US and Europe asa leading player in its market, and we have benefited from strong stockingorders by Bard in the first half, in particular for Pelvicol(R) and PelviSoft(TM) in Europe and PelviLace(TM) in the US. In Europe, Bard will be adjustingits inventory levels, which will impact our sales in the short term. However,market sales growth for both PelviLace(TM) and PelviSoft(TM) remains strong and,in response to surgeon preference, Bard is now marketing PelviSoft(TM) as thematerial of first choice for certain pelvic floor reconstruction procedureswhich have previously been addressed by Pelvicol(R). Regulatory approval for Pelvicol(R) in Australia has recently been gained andthe first half has also seen maiden sales by Bard of the Pelvicol(R) range ofproducts in this market. General Surgery In General Surgery, we are continuing to grow our market presence in this area.In the US, general surgery sales grew by 29% to $2.7m (6 months ended 30 June2004: $2.1m), whilst in the UK and Europe sales grew by 20% to £0.6m (six monthsended 30 June 2004: £0.5m). According to a market analysis report commissioned by TSL, the biologic herniarepair market is expected to grow by a Compound Annual Growth Rate ('CAGR') ofc.30% to over $300m by 2010. This confirms our belief that the complex herniamarket remains a key area in which we can differentiate our products and we havedeveloped our US business strategy to take advantage of this growth potential.To date, in the US, we have been working through third party distributors andmanufacturers' representatives. Our strategy is to increase the rate ofpenetration in this market through the development of our own direct sales teamto supplement our existing selling distributors in key metropolitan areas of theUS where we are not currently well represented. Our target is to complete the recruitment, training and deployment of up to 20sales representatives and associated management resources by the end of the yearin order to further accelerate sales growth in 2006 and we remain on course toachieve this. In addition, marketing support programmes, such as improvedproduct training, development of new marketing materials and further marketingsupport clinical studies are underway. In response to surgeon demand, we have also enhanced our product range with thelaunch of a new 20cm x 30cm implant, for both Europe and the US, addressing verylarge abdominal hernias and surgical wounds. Our market research highlights theproduction of these large pieces as a significant competitive advantage of TSLin the market place. Orthopaedic Surgery Our distribution agreement with Zimmer, addressing the shoulder repair market,continues to progress well. In February, Zimmer launched the product to surgeonsat the US Academy of Orthopaedic Surgeons meeting in Washington. In July, Zimmercommenced marketing the Zimmer(R) Collagen Repair ('ZCR') Patch within the United States, with the expectation of rolling out the product more widely later in 2005. Surgeon feedback from initial procedures, both in US and Europe has been encouraging. Maiden sales of product to Zimmer were made in the first half of 2005 of $0.2m.We will update shareholders at the preliminary results on sales progress for theyear, however, we expect revenues to be modest from this channel to the end ofthe year while the sales force is still being trained. Looking forward, we arebeing more cautious in our financial forecasting for this product as it is, asyet, too early to establish the likely scale and rate of penetration in thisattractive potential market. However, we are delighted with the progress made byZimmer in building the marketing platform which we believe will deliver thefuture success of this product. Head and Facial Surgery We are addressing facial reconstruction procedures, such as rhinoplasty, throughour distribution partner Porex Inc. Porex is continuing to develop its marketingplatform, although sales performance in this market has yet to meet ourexpectations. However, the forthcoming publication of two clinical studies - onein the UK and one in the US - should provide additional support to marketingefforts in this field. We have also entered head and face market in Korea, an attractive niche market,with sales of $0.1m in the first half. Manufacturing Facility One of our objectives this year has been to identify and secure new premises toprovide for the future growth and expansion of the business. Post period-end, wecompleted the freehold acquisition of a 30,000 sq ft industrial unit located inclose proximity to our current manufacturing facility in Leeds. This unit willbe the focus of a planned and controlled programme of investment phased over thenext 3-4 years as our business grows requiring additional capacity, laboratory,warehouse and office facilities. The acquisition has largely been financed via acommercial mortgage. New Product Development • Short term projects Permacol(R) Surgical Implant (rectocele/intussusception)A partial rectal prolapse or intussusception occurs when one part of the lowerbowel 'telescopes' down into another. For rectocele and intussusceptionrepairs, we have received special 510(k) clearance from the FDA for therespective specific shaped pieces of Permacol(R). Professor Norman Williams andhis team at St Bartholomew's and Royal London School of Medicine & Dentistry areconducting a pilot study for the new procedure. Permacol(R) Surgical Implant (prophylactic stoma reinforcement)Stomas are created through surgical procedures called ostomies and there areover 1.4 million ostomies in the US and Europe. Approximately 160,000 newostomies are created per annum; of that number, there is an approximateherniation rate of up to 50%. Coupled with these statistics, our US marketresearch report estimates that the market for prophylactic hernia procedureswill grow rapidly over the next five years at a CAGR of c.40% from 1,300 to10,590 procedures in 2010. Therefore, we believe there exists an excitingopportunity for a biologic implant such as Permacol(R) to reinforce newlycreated stomas to prevent subsequent herniation. In this area, Professor Williams has performed a pilot study and, based on theresults, he believes it is appropriate to commence a larger clinical study forwhich the draft protocol is being reviewed. TSL has opened the study design anddata review process to the surgical community and convened a study review group,chaired by Professor Norman Williams, comprising surgeons, national researchbodies such as the National Cancer Research Institute and patient groups. It ishoped that this approach to the study of the potential of Permacol(R) for stomareinforcement will yield high quality, independently reviewed clinical data thatwill be widely accepted by the surgical community. The study is anticipated tostart Q1 06. Permacol(R) Injection (UBA)We have recently received conditional approval in respect of our investigationaldevice exemption (IDE) submission to the FDA for the structure of our regulatoryclinical study in respect of Permacol(R) Injection for the treatment of urinarystress incontinence in women. We expect to be able to commence this key US studyas planned in Q4 2005. We have also received notification from the US Patent andTrade Mark Office that we have been granted a patent in connection with thisproduct. With respect to the treatment of Stress Urinary Incontinence ('SUI'), we believethere is an increasing trend towards office-based gynaecology rather thanurology. This trend reinforces our market research that gynaecologists willincreasingly be the 'gatekeeper' to therapy in areas such as SUI as women seektreatment within this field of medicine. Therefore, as part of our corporatedevelopment activity, we have identified potential distribution partners thatshare our view of the development of this market. Permacol(R) Injection (Dermal Filler)We are undertaking a study in Glasgow assessing the dermal filler in connectionwith lip enhancement. Analysis of the data is underway by an independent panelof cosmetic surgeons. Dependent on the data, a further new study on facialwrinkles will start in 2006. • Longer term projects Longer term activity has been focused on new tissue areas identified in ourproduct development plan - namely, bone, ligaments/tendons and blood vessels.Early stage process development in respect of these three product areas isunderway, with resource and staff allocated and now fully engaged with theseprojects. Human Resources The pace of development within TSL continues to increase and we are investing inadditional resources and staff to support this growth. The achievement of ourstrategic goals is dependent on the talents of our employees and we haverecognised the importance attracting, retaining and managing our human capitalwith the appointment of a dedicated human resources manager within TSL. Outlook TSL has delivered another strong performance in the first half of the year withsustained sales growth and investment in our core marketing and productdevelopment programmes. The Company will continue to grow by building on thesuccess of its existing marketing partnerships, developing its own sales team inthe US and through future business development opportunities. In addition, theincreasing amount of market research published on the biologics sectorreinforces our belief that the use of biologics in our target market segments isset to grow substantially in the next five years and we remain confident in ourstrategy for delivering future growth and shareholder value. Martin HuntChief Executive Officer Tissue Science Laboratories plcConsolidated Profit & Loss Account for the Six Months Ended 30 June 2005 Note Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £000s £000s £000s TURNOVER: 2 5,001 3,958 8,681Cost of Sales (2,432) (1,650) (3,658) Gross Profit 2,569 2,308 5,023Selling & Distribution costs (737) (576) (1,187) Administrative ExpensesResearch and development costs (637) (653) (1,410)Other administrative costs (2,091) (1,580) (3,210) --------- ---------- ---------- (2,728) (2,233) (4,620) Operating Loss (896) (501) (784) Interest Receivable 135 42 94 Interest Payable & similarchargesBank & finance lease interest (27) (35) (64) --------- ---------- ----------LOSS ON ORDINARY ACTIVITIESBEFORE TAXATION (788) (494) (754)Taxation (22) (26) 173 --------- ---------- ----------RETAINED LOSS ON ORDINARYACTIVITIES AFTER TAXATION (810) (520) (581) ========= ========== ========== Basic loss per ordinary share 3 (3.0p) (2.2p) (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 plcConsolidated Balance Sheet as at 30 June 2005 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £000s £000s £000sFixed AssetsTangible assets 1,613 1,819 1,725 Current AssetsStocks 2,387 892 1,550Debtors 2,110 1,407 1,887Cash at bank and in hand 9,163 4,017 3,472 --------- --------- --------- 13,660 6,316 6,909 Creditors: amounts falling due withinone year (2,600) (2,152) (2,652) --------- --------- --------- NET CURRENT ASSETS 11,060 4,164 4,257 Total assets less current liabilities 12,673 5,983 5,982 Creditors: amounts falling due aftermore than one year (162) (349) (212) --------- --------- ---------NET ASSETS 12,511 5,634 5,770 ========= ========= ========= CAPITAL & RESERVESCalled up share capital 2,932 2,445 2,463Share premium account 21,947 14,688 14,864Shares to be issued 175 172 175Merger reserve 545 545 545Profit & loss account (13,088) (12,216) (12,277) ---------- ---------- ----------EQUITY SHAREHOLDERS' FUNDS 12,511 5,634 5,770 ========== ========== ========== Tissue Science Laboratories plcConsolidated Cash Flow Statement for Six Months Ended 30 June 2005 Note Six months Six months ended ended Year ended 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £000s £000s £000s Net cash outflow from operatingactivities 4 (1,504) (494) (956) Returns on investment andservicing of Finance 72 3 22Taxation (22) (26) 173 Capital expenditure & financialinvestment (226) (103) (372) Cash outflow before use ofliquid resources & financing (1,680) (620) (1,133) FinancingNet cash inflow from financing 7,391 2,136 2,176 --------- --------- ---------Increase in cash in the period 5,711 1,516 1,043 ========= ========= ========= RECONCILIATION OF NET CASHFLOWTO MOVEMENT IN NET FUNDS (Decrease)/increase in cash inthe period 5,711 1,516 1,043Cash outflow from movement indebt & lease financing 161 232 386Change in net funds resultingfrom cash flows 5,872 1,748 1,429New finance leases (95) - (29)Currency translation difference (2) 57 (30) ---------- ---------- ----------Movement in net funds in the period 5,775 1,805 1,370 Net funds brought forward 2,927 1,557 1,557 Net funds carried forward 8,702 3,362 2,927 Tissue Science Laboratories plcNotes to the Accounts 1. ACCOUNTING POLICIES AND BASIS OF PREPARATION The financial information set out in this announcement does not constitute theCompany's statutory accounts for the six months ended 30 June 2005 and theseresults are not audited or reviewed by the auditors. Information for the yearended 31 December 2004 has been derived from the statutory accounts for thatperiod which have been delivered to the Registrar of Companies. The audit reportfor the year ended 31 December 2004 was unqualified. The accounting policies adopted are consistent with those adopted in theprevious period. 2. TURNOVER A geographical analysis of turnover by destination is as follows: Six months Six months Year ended Ended Ended 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £000s £000s £000sA geographical analysis of turnover bydestination is as follows:United Kingdom 557 511 1057Europe 757 429 1047USA 3,615 3,018 6,536Rest of World 72 41 --------- --------- -------- 5,001 3,958 8,681 ========= ========= ======== An analysis of turnover by class ofbusiness is as follows: Product sales 4,948 3,907 8,630Milestone income 53 51 51 ---------- ---------- --------- 5,001 3,958 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. Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £000s £000s £000s Loss for the period (810) (520) (581)Weighted average number of ordinaryshares 27,218,571 23,468,576 24,019,019Loss per share (3.0p) (2.2p) (2.4p) 4. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES Six months Six months Year ended ended Ended 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £000s £000s £000sOperating loss (896) (501) (784)Depreciation of tangible fixed assets 433 363 756Decrease/(Increase) in debtors (187) (36) (512)Decrease/(Increase) in stocks (837) (293) (951)(Decrease)/Increase in creditors (19) 48 521Profit on disposal of fixed assets 0 (44) (45)Foreign exchange loss/(gain) 2 (57) 30Share based payments 0 0 0Shares to be issued 0 26 29 ---------- ---------- --------- (1,504) (494) (956) ========== ========== ========= This information is provided by RNS The company news service from the London Stock Exchange