RNS Number:3224Q
Tissue Science Laboratories PLC
30 September 2003
30 September 2003
Interim Results for the six months ended 30 June 2003
Significant distribution agreement signed with Zimmer to drive long-term growth
Tissue Science Laboratories plc ('TSL'), the medical devices company
specialising in human tissue replacement and repair products derived from
porcine dermis, today announces its interim results for the six months ended 30
June 2003.
Operational highlights
* Orthopaedic distribution deal signed with Zimmer; expected product
launch in H2 2004 (see separate announcement today)
* Continued good progress in the Urology / Gynaecology market with Bard,
with new product to be launched Q1 2004
* Rapid development in marketing PermacolTM Surgical Implant in the
repair of recurrent hernias in the US and UK
* Swillington manufacturing facility inspected by FDA in July
* Continued focus of development resources targeting new applications
for PermacolTM in colorectal surgery
* Entry to US head and facial surgery market planned for Q4 2003
* Supply of stock temporarily interrupted in Q3 due to manufacturing
scale-up issue, now addressed. This has resulted in an exceptional stock
provision of #0.5m
Financial highlights
* Continued strong growth in revenues, with turnover of #2.2m (6 months
to 30 June 2002: #1.4m) in line with expectations
* Net loss #1.7m, after charging exceptional stock provision of #0.5m (6
months to 30 June 2002: loss #1.5m)
* Better than expected cash position achieved, with cash at 30 June of
#4.2m (31 December 2002: #5.4m)
* Significant deal signed with Zimmer expected to be a key driver of
sales growth going forward
Commenting on the results, Martin Hunt, CEO of TSL, said:
"We have had a good first half with respect to sales and have made progress in
both Europe and the US. Although in the third quarter we have experienced a
temporary setback associated with bringing our new manufacturing facilities on
line, we are confident that this has been addressed. Looking ahead, we expect
the signing of the distribution deal with Zimmer, together with new product
launches in general surgery, urology and head and face, to provide a springboard
for further substantial sales growth next year and in the longer term."
-Ends-
Enquiries:
TSL plc Tel: 01252 333 002
Martin Hunt, Chief Executive
David Jennings, Finance Director
MTS Business Communications Tel: 020 7792 9126
Melanie Toyne-Sewell 07767 66 00 40
Notes to Editors
Background on TSL
Founded in 1995 with headquarters in Aldershot, Hampshire, TSL has used its
proprietary technology to launch successfully two different formulations of the
product and build a development pipeline that addresses the large and fast
growing surgical implant and woundcare markets. The Company floated in November
2001 and is listed on the Alternative Investment Market.
TSL has a family of products based on the same core technology. Each product has
been adapted, with unique properties, to make it suitable for use in different
applications. PelvicolTM/PermacolTM Surgical Implant (SI) is sold by Bard in the
US and Europe for urology and gynaecology applications; PermacolTM SI (general
surgery) is sold for complex hernia repair in the US and Europe; PermacolTM SI
(ENT, plastic and reconstruction) is sold in Europe for head and face
applications, with an expected US launch in 2003; PermacolTM Injection (UBA) is
an injectable form of PermacolTM used as a urethral bulking agent to treat female
stress incontinence. Further variations of the sheet and injectable forms of
PermacolTM are being developed for facial augmentation and reconstruction, and
wound therapy applications.
Bard is a trademark of C.R. Bard, Inc. or an affiliate.
CHIEF EXECUTIVE'S STATEMENT
REVIEW OF SIX MONTHS ENDED 30 JUNE 2003
STRATEGY
Our objectives for 2003 are to continue to develop sales and new marketing
channels for our products. For the first half of the year, this has been
achieved in line with our expectations, with good performances from marketing
partners, the US commission-only sales force and our own team in the UK. We have
grown sales substantially in hernia surgery, and as a result of the success in
finding new markets for our surgical sheet product, we have undertaken a
refocusing of our development team to channel more resources into this area.
We remain focused on developing existing and new revenue streams and anticipate
new product launches in head and face, and urology at the end of this year with
further products under development for urology, general surgery and in
orthopaedics via our partnership with Zimmer next year.
FINANCIAL REVIEW AND OUTLOOK
Total sales grew to #2.2m in the first half versus #1.4m for the same period in
2002 and are in line with market expectations. Our growth was particularly
pleasing in general surgery sales for hernia repair, with our own UK sales team
achieving 183% growth versus the same period last year. In June last year, we
entered the US hernia market. Penetration by our commission-only sales team has
been rapid with sales in excess of $1m being generated in the first half of
2003. In urology, Bard has continued to grow in-market sales of PelvicolTM in line
with our expectations with a particularly strong performance in Europe. We look
forward to further growth next year in respect of the new product being
developed with Bard in a significant market application not currently addressed
by PelvicolTM.
We have also marketed PermacolTM Injection in the UK for the treatment of female
stress incontinence. UK sales in the first half have been lower than expected
and are unlikely to contribute significantly in the second half. Our main focus
for this product remains the US where different market dynamics exist. We remain
confident that a significant opportunity exists for this product in that market
and we are on target to make our submission this year for regulatory approval,
anticipating market entry in 2005.
Underlying gross margins (before charging an exceptional stock provision of
#0.5m - see 'Manufacturing' below) increased to 54% (H1 2002: 39%) as a result
of sales mix improvements and increased recovery of fixed production costs as
sales volumes have increased.
Administration expenses increased to #1.4m (H1 2002: #1.1m) reflecting the
investment in our US sales and marketing operation and the higher insurance
costs associated with increased sales volume, particularly in the US.
Expenditure on R&D in the first half marginally decreased to #0.6m (H1 2002:
#0.8m) as the Pre-Marketing Agreement (PMA) marketing study for PermacolTM
Injection Urethral Bulking Agent to support US market access draws to a
conclusion and as we continue to focus resources into product development
opportunities.
The loss on ordinary activities before taxation and exceptional charges of #0.5m
was #1.2m (H1 2002: loss #1.5m). Losses after charging the exceptional stock
provision were #1.7m, giving a basic loss per ordinary share of 7.5p (H1 2002:
6.8p)
As at the end of June, our cash position remains strong at #4.2m and ahead of
forecast of #2.7m.
Although the business continues to develop apace, sales growth in the second
half will be lower than anticipated. This is due to the later than planned entry
into head and face, lower than anticipated sales for PermacolTM Injection in
Europe and the impact of the stock loss that resulted from the manufacturing
scale-up issue encountered in the third quarter.
We remain on track, however, to deliver strong growth with new product launches
and distribution partnerships in 2004 and I look forward to updating
shareholders on our progress in our full year results. The business continues to
develop on a solid financial footing and we remain confident of the prospects
for the business in the medium and long term.
OPERATIONAL REVIEW
Our aims for 2003 were the further growth and consolidation of our positions in
the urology / gynaecology market with Bard and the building up of the general
surgery (hernia) markets in Europe and the US. We also planned to finalise our
decision on strategy for the head & face area - either seeking a partner or
using our commission-only sales team to build a market. We have achieved these
aims and have described our progress below.
SALES AND MARKETING
Our position with respect to marketing, regulatory status and route to market
is summarised in the following table:
Application Market Regulatory Route to Market
Status
Urology/ Worldwide 510(K) Marketing partner - CR Bard Inc*
Gynaecology
General/ UK CE Mark Direct UK sales team
Hernia
General/ Europe CE Mark National level distributors for main
Hernia European markets
General/ US 510(K) Direct commission-only US sales
Hernia teams
Orthopaedic Worldwide 510(K) Marketing partner - Zimmer
Head and Face US 510(K) Direct commission-only US sales team
*Marketed as 'Pelvicol'
PermacolTM Surgical Implant
- Urology/Gynaecology - CR Bard Inc
Our partnership with CR Bard has continued apace in the urology and
gynaecological market - in the field of pelvic floor repair and the treatment of
stress incontinence - in both the US and Europe. The sales performance of
PelvicolTM in the US for the first half of the year has been in line with our
expectations, however, in Europe, the growth has been more significant. This is
due to Bard increasing marketing spend and sales force resources to PelvicolTM
overall and obtaining reimbursement status for PelvicolTM in the French Market.
Progress is on track for the development by TSL of a new product for Bard in a
specific surgical application not currently addressed by the PelvicolTM implant.
Revenues from the filling of inventory are expected from the end of 2003 for a
product launch by Bard early in 2004.
- General Surgery - Hernia Repair
Last year, we launched into the market for the repair of recurrent hernia where
synthetic mesh is either not indicated or has been removed. The performance of
our commission-only sales team in the US has exceeded our expectations for
initial penetration of this market. We have increased our team in the US to 71
reps compared to 35 at the end of 2002. Our strategy is now to concentrate on
key territories and focus sales training and marketing resources to maximise
future sales growth. In the UK, our direct sales team has also performed well
and the introduction of larger sizes of PermacolTM has resulted in our increasing
sales by 183% versus the same period last year. In Europe, we have appointed
national level distributors for PermacolTM in Italy, Greece, Switzerland and
Scandinavia, and will be looking to develop sales from these channels in 2004.
We are also currently seeking regulatory access for Australia and Canada for the
further development of sales next year.
- Orthopaedic - Rotator Cuff Repair
Rotator cuff injuries of the shoulder are a common occurrence with age or over
use and as a result of sporting injuries. We believe that PermacolTM is
particularly well suited to this significant market and our sales team in the UK
has been supplying PermacolTM to this market since 2002 with growing success. We
have today announced the signing of a worldwide distribution agreement with
Zimmer, a leader in the field of orthopaedics, to develop this market. There are
more than 250,000 rotator cuff repairs performed annually in the US alone with
growth in both primary and revision procedures. Zimmer will be initially
targeting the 30% of rotator cuff repairs that are subject to re-tears and where
a material such as PermacolTM can add to the strength of repair. This would give
a potential market to TSL of circa $30m. The contract involves a six-month
clinical evaluation of PermacolTM to support a full market launch in the US in
the second half of 2004. We are delighted to be partnered with another major
corporation in a deal which will further underline the value of the core
PermacolTM technology and which offers the potential for future product
development opportunities in the orthopaedic sector.
- Cranio/Maxillo, Facial - Head and Face
In head and face, our search for a partner, begun in 2002, has taken longer than
expected and subsequently, has delayed entry into this market. We will, as
previously indicated, launch a limited but highly focused US sales team in this
field by the end of the year. The product will be marketed under the name,
EnduragenTM. Our aim will be to demonstrate the effectiveness and market
potential of PermacolTM technology in this field as a showcase for potential
partners, whilst generating revenue.
- PermacolTM Injection - Urethral Bulking Agent
When we first assessed the UBA market, we recognised a market with significant
unmet need in both the US and Europe. Since then, there have been developments,
which have changed the dynamic significantly in the European incontinence
market.
Johnson & Johnson has implemented a major marketing drive to support the sale of
its TVT (Tension-free Vaginal Tape) product, a more invasive procedure but one
that is currently dominating the stress incontinence market. We have commenced
marketing PermacolTM Injection in the UK and have made some progress to date.
However, in Europe, due to J&J's marketing drive, sales have been slower than
expected. We have also under development an introducer device for PermacolTM
Injection that will enable urethral bulking procedures to be carried out in the
outpatient setting as opposed to day surgery as is currently the case. We
believe that this will offer surgeons and patients an attractive alternative to
the more invasive surgical procedures currently being adopted. Clinical
evaluation of this alternative technique is underway.
Our main focus for this product has always been the US where injectable bulking
agents have been more widely adopted and where we believe that our product
offers advantages over existing treatments. We are currently concluding our PMA
clinical study to support application for US approval and anticipate entry into
this market in 2005.
MANUFACTURING
In 2002, we opened our new production facility at Swillington, Yorkshire, which
we were pleased to report was completed on budget and was validated by the
European regulatory authority. In the process of designing the new facility, we
focused on increasing the efficiency and scale-up of production. Recently, our
quality assurance monitoring system identified a change in the microbial loading
of the product which resulted in a temporary interruption in supply to our
customers and a quantity of manufactured stock being provided against. No stock
affected by this problem has been released to the market. Appropriate corrective
action has been taken to prevent recurrence and normal manufacture and product
release has been resumed. We are anticipating that current back orders for
product will be satisfied by the end of the year.
RESEARCH AND DEVELOPMENT
We remain fully committed to our research and clinical programmes, however, this
year has seen an increased emphasis on development to find new applications for
PermacolTM that will provide a fast return on investment. We have already
demonstrated that the TSL development team can achieve good results in this, as
illustrated by our launch into the orthopaedic and hernia fields.
Research
Our research programmes are still running in academic institutions. These
include the link with the DTI to investigate the growth of cells in our collagen
matrix, and with the NHS, in conjunction with Northwick Park Institute for
Medical Research, to investigate cell infiltration in PermacolTM for the use in
wound care products. An update on the technical outcomes and commercial
prospects of these programmes will be provided in the full year results.
Development
Following the success of finding alternative markets for PermacolTM, we have
channelled more resources into investigating new market niches for the
injectable and sheet form. Ideally, we are looking at markets that overlap the
areas we are already operating in to fully utilise our sales force and partners'
marketing knowledge and market presence.
- Injectable - Urethral Bulking
This is one of the original markets that we have been analysing and undertaking
clinical programmes. Having completed full recruitment of patients for the
urethral bulking agent for female stress incontinence last year, follow-up is
continuing. A submission to the US Food and Drug Administration (FDA) for a PMA
is on track for the end of 2003, with product approval anticipated in late 2004.
- Injectable - Rectal Bulking
Anal/faecal incontinence is a distressing condition and an area of unmet medical
need that offers a potential market for PermacolTM Injection as a bulking agent.
We are currently investigating the market dynamics and the applicability of
PermacolTM Injection in this area.
- Surgical Implant - Rectal Prolapse
Recently, we announced that our material was being used in trials for a new
procedure for the external fixation of the rectum for prolapse, with the aim of
improving on the recurrence rate for further surgery. Professor Norman Williams
and his team at St Bartholomew's and Royal London School of Medicine & Dentistry
are leading the study.
- Surgical Implant - Prophylactic Stoma Reinforcement
In the UK, there are approximately 30,000 new stomas (openings created in the
abdomen for colostomy etc) created by surgeons for patients each year. A
significant proportion of stomas are affected by herniation within 12 months,
often requiring corrective surgery or the re-siting of the stoma. A pilot study
is being carried out by the same team as for rectal prolapse above into the use
of PermacolTM prophylactically, in the creation of the stoma with the aim of
reducing the occurrence of herniation. If successful, this will represent an
attractive opportunity for the use of PermacolTM in a substantial new niche and
potentially offer surgeons greatly improved patient outcomes.
- Regulatory
At the end of July, the Swillington facility underwent a routine compliance
inspection by the FDA following on from the recent granting of our 510(K)
pre-market approval for PermacolTM in rotator cuff repair. In common with most
FDA inspections, a small number of observations were made and we have responded
to these observations. Final confirmation from the FDA is awaited.
TSL sites were successfully inspected to ISO 9001 in August 2003 by our European
notified body resulting in re-certification of all approved CE Marked products.
We are currently preparing further regulatory submissions in order to gain
access to new markets including Canada and Australia. We have recently gained
clearance to begin marketing PermacolTM in Korea for soft tissue repair. Further
updates on this are expected in the full year results.
STAFF
As a result of increasing emphasis on development of new markets and product
development opportunities for our technology, we have recently restructured the
technical team at TSL. This change will enable us to focus resources into key
areas of product development, project management and clinical research with the
aim of further reducing the time scales for converting ideas into new products
and revenue streams. This will be a key focus for us in the second half of 2003
and in 2004. One of the outcomes of this change has been the departure of John
Hamer, formerly VP and Director, Scientific Affairs. We thank him for the
significant contribution that he has made to the development of TSL and wish him
well in the future.
We have had a very busy first half of the year and on behalf of the Board, we
thank the TSL team for their continuing efforts and look forward to further
successes to come.
SUMMARY
We have had a good first half with respect to sales and have made progress in
both Europe and the US. Although in the third quarter, we have experienced a
temporary setback associated with bringing our new manufacturing facilities on
line, we are confident that this has been addressed. Looking ahead, we expect
the signing of the distribution deal with Zimmer, together with new product
launches in general surgery, urology and head and face, to provide a springboard
for further substantial sales growth next year and in the longer term.
Martin Hunt
Chief Executive Officer
Consolidated Profit & Loss Account for the Six Months Ended 30 June 2003
Note Six months Six months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
#000s #000s #000s
TURNOVER: 2 2,180 1,380 3,167
Cost of Sales (1,003) (842) (1,651)
Exceptional Item 3 (461) - -
Gross Profit 716 538 1,516
Selling & Distribution (455) (239) (644)
costs
Administrative Expenses
Research and development (589) (828) (1,397)
costs
Other administrative costs (1,385) (1,094) (2,287)
(1,974) (1,922) (3,684)
Operating Loss (1,713) (1,623) (2,812)
Interest Receivable 75 123 217
Interest Payable & Similar
Charges
Bank & finance lease (18) (8) (20)
interest
LOSS ON ORDINARY ACTIVITIES (1,656) (1,508) (2,615)
BEFORE TAXATION
Taxation (3) - 285
RETAINED LOSS ON ORDINARY
ACTIVITIES AFTER TAXATION (1,659) (1,508) (2,330)
Basic loss per ordinary 4 7.5p 6.8p 10.5p
share
All amounts relate to continuing operations.
There were no recognised gains and losses for the current or preceding period
other than those included in the profit and loss account.
There is no difference between the retained loss on ordinary activities before
and after taxation for the period stated above and their historical cost
equivalents.
No dividend has been paid or is payable in either the current or prior periods.
Consolidated Balance Sheet as at 30 June 2003
30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
#000s #000s #000s
Fixed Assets
Tangible assets 1,787 1,702 1,576
Current Assets
Stocks 270 207 386
Debtors 804 785 1,005
Cash at bank and in hand 4,200 6,289 5,445
5,274 7,281 6,836
Creditors: amounts falling due (1,947) (1,796) (1,824)
within one year
NET CURRENT ASSETS 3,327 5,485 5,012
Total assets less current 5,114 7,187 6,588
liabilities
Creditors: amounts falling due (501) (152) (346)
after more than one year
NET ASSETS 4,613 7,035 6,242
CAPITAL & RESERVES
Called up share capital 2,212 2,212 2,212
Share premium account 12,478 12,477 12,477
Shares to be issued 133 75 104
Merger reserve 545 545 545
Profit & loss account (10,755) (8,274) (9,096)
EQUITY SHAREHOLDERS' FUNDS 4,613 7,035 6,242
Consolidated Cash Flow Statement for Six Months Ended 30 June 2003
Note Six months Six months
ended ended Year ended
30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
#000s #000s #000s
Net cash outflow from 5 (1,052) (1,561) (2,889)
operating activities
Returns on investment and 56 127 195
servicing of Finance
Taxation (3) - 285
Capital expenditure & (249) (956) (1,018)
financial investment
Cash outflow before use of (1,248) (2,390) (3,427)
liquid resources & financing
Financing
Net cash inflow/(outflow) 18 (71) 205
from financing
Decrease in cash in the (1,230) (2,461) (3,222)
period
RECONCILIATION OF NET CASHFLOW TO
MOVEMENT IN NET FUNDS
Decrease in cash in the (1,230) (2,461) (3,222)
period
Cash (inflow)/outflow from (18) 71 (205)
movement in debt & lease financing
Change in net funds (1,248) (2,390) (3,427)
resulting from cash flows
New finance leases (227) (11) (18)
Currency translation (15) (11) (44)
difference
Movement in net funds in (1,490) (2,412) (3,489)
the period
Net funds brought forward 4,946 8,435 8,435
Net funds carried forward 3,456 6,023 4,946
Notes
1. ACCOUNTING POLICIES AND BASIS OF PREPARATION
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the six months ended 30 June 2003 and was
neither audited or reviewed by the auditors. Information for the year ended 31
December 2002 has been derived from the statutory accounts for that period which
have been delivered to the Registrar of Companies. The audit report for the year
ended 31 December 2002 was unqualified.
The accounting policies adopted are consistent with those adopted in the
previous 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
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
#000s #000s #000s
A geographical analysis of turnover
by destination is as follows:
United Kingdom 425 146 383
Europe 259 493 634
USA 1,496 741 2,150
2,180 1,380 3,167
An analysis of turnover by class of
business is as follows:
Product sales 2,180 1,380 3,105
Milestone income - - 62
2,180 1,380 3,167
3. EXCEPTIONAL ITEMS
Six months Six months Year
ended ended Ended
30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
#000s #000s #000s
Stock provision 461 - -
4. LOSS PER SHARE
Loss per ordinary share has been calculated based on the weighted-average of
ordinary shares in issue during the period.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
#000s #000s #000s
Loss for the period (1,659) (1,508) (2,330)
Weighted average number of ordinary 22,119,730 22,119,338 22,119,338
shares
Loss per share 7.5p 6.8p 10.5p
5. 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
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
#000s #000s #000s
Operating loss (1,713) (1,623) (2,812)
Depreciation of tangible fixed 265 123 322
assets
Decrease/(increase) in debtors 200 77 (127)
Decrease/(increase) in stocks 116 (35) (214)
Increase/(decrease) in creditors 36 (144) (155)
Profit on disposal of fixed - - (5)
assets
Foreign exchange loss 15 11 44
Shares to be issued 29 30 58
(1,052) (1,561) (2,889)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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