RNS Number:8466V
Tissue Science Laboratories PLC
26 February 2004
26 February 2004
Tissue Science Laboratories plc (TSL)
Preliminary Results for the year ended 31 December 2003
Tissue Science Laboratories plc (TSL), the medical devices company specialising
in human tissue replacement and repair products derived from porcine dermis,
today announces its Preliminary Results for the year ended 31 December 2003.
Operational Highlights
- In general surgery (hernia), US marketing operation and commission-only
sales force expanded and rapid sales growth achieved, with sales of
US$2.3m in 2003 (2002: US$0.6m (sales commenced June 2002))
- New products developed with CR Bard to address additional applications in
urology/gynaecology and launched in January 2004
- Worldwide distribution deal signed in September with Zimmer Inc. in
orthopaedic rotator cuff repair
- Manufacturing facility ISO accredited and FDA inspected
- Identification of a shortfall of evaluable patients in study for US
regulatory approval of PermacolTM Injection; discussions planned with the
FDA
- Post year-end, signed non-binding heads of terms for US distribution of
PermacolTM in head and face surgery; currently negotiating definitive
agreement
Financial Highlights
- Continued strong growth in revenues for 2003, with product sales increasing
by 57% to #4.9m (2002: #3.1m)
- Improved gross margins, before exceptional costs, of 52% (2002: 48%); gross
margin, after exceptional costs, 43%
- Net loss for the year of #2.6m, after exceptional charge of #0.5m
(2002: #2.3m)
- Fund raising of #2.58m (before expenses) announced today to fund inventory
build to support increased product demand from current growth and new
distribution agreements, and to strengthen balance sheet for future
partnering negotiations (see today's separate announcement)
- Current trading in line with expectations; strong growth in sales expected
to continue in 2004
Commenting on the results, Martin Hunt, CEO of TSL, said:
"Despite the short term impact of the manufacturing issue we identified and
announced in September, we have made substantial progress across the business
over the past year, driven by the success of our core technology, PermacolTM
Surgical Implant. The highlights have been the signing of our global marketing
agreement with Zimmer for orthopaedic rotator cuff repair and the development of
two new products in the urology/gynaecology field with Bard. We now have
products in four different surgical areas - urology/gynaecology, orthopaedic,
hernia and head & face - with significant growth expected in each of these
markets in the coming year. Furthermore, the additional funds raised from
today's announced Placing will strengthen us in our dealings with new partners
and customers, and will enable us to accelerate our growth faster than might
otherwise have been possible."
-Ends-
Enquiries:
TSL plc Tel: 01252 333 002
Martin Hunt, Chief Executive
David Jennings, Finance Director
Hogarth Partnership Limited Tel: 020 7357 9477
Melanie Toyne-Sewell
Chief Executive's Statement
Overview of 2003
2003, our second full year since admission to AIM, has seen achievements being
made across the business. I am particularly encouraged by our progress in
marketing PermacolTM Surgical Implant and its derivatives. We have expanded our
product range in urology and gynaecology with CR Bard Inc. (Bard) and, in
general surgery, we have continued to develop our US commission-only sales team
and add to our group of European distributors. In September, we signed a
worldwide distribution agreement with Zimmer Inc. (Zimmer) in the field of
orthopaedic rotator cuff repair and, today we announced that we have signed
non-binding heads of terms for the distribution of our product, EnduragenTM,
throughout North America in the head and face market.
This year has also provided some challenges for the management team and staff of
TSL. In our Interim results for the six months ended 30 June 2003 we reported on
the manufacturing issue which resulted in a write-off of inventory of #0.5m and
a short term interruption in supply of products to our customers. Appropriate
corrective action has been taken (see 'Manufacturing' below).
In August, our production facility was subject to a routine inspection by the US
regulatory authority, the Food and Drug Administration (FDA). I am pleased to
report that all observations made have been responded to and we do not
anticipate any further requirements from the FDA in relation to this inspection.
I believe this represents a considerable achievement for a company at our stage
of development and I would like to extend my thanks to the operations team whose
efforts made this possible.
Financial Review
Product sales increased by 57% to #4.9m (2002: #3.1m). Growth was achieved in
our core markets, in particular, in general surgery/hernia where the UK sales
team achieved #0.7m (2002: #0.3m) and the US commission-only sales team advanced
sales to US$2.3m to 31 December (2002: US$0.6m (sales commenced June 2002)). In
urology/gynaecology our marketing partner, Bard, achieved growth in both Europe
and in the US, despite the temporary interruption to supply of inventory in the
third quarter, a consequence of the manufacturing issue referred to below.
Gross margins before the exceptional inventory charge of #0.5m were 52% (2002:
48%). Gross margin after the exceptional charge was 43%. During the year, we
consolidated our production and packaging operations at our Swillington facility
and we are targeting further efficiencies in manufacturing as output and
operational productivity increases.
Administrative expenses excluding Research & Development expenditure increased
to #2.8m (2002: #2.3m) primarily as a result of the expansion of our US
marketing operations and increased product liability and general insurance
premiums.
Expenditure on productdevelopment and research amounted to #1.3m (2002: #1.4m)
and included #0.1m relating to the restructuring of the technical/new product
development team. A tax refund of #0.2m was obtained in the year in respect of
the government's research and development tax credit scheme.
The net loss for the year before charging the exceptional costs of #0.5m was
#2.1m (2002: #2.3m). The net loss after the exceptional charge was #2.6m (2002:
#2.3m). The basic loss per ordinary share was 11.8p (2002: 10.5p)
The second half of 2003 saw an accelerated weakening of the US dollar against
Sterling. The Company had taken steps to protect its revenues by selling forward
the majority of its dollar receipts such that the impact of the adverse currency
movement in the year was not significant.
The Company retained cash of #2.5m at the year-end (2002: #5.4m) and net funds
of #1.6m (2002: #4.9m). Today, we have announced a proposed fund raising of
#2.58m (before expenses) through a conditional underwritten placing by Panmure
Gordon. Full details of this are described in a separate announcement.
Technology and Products
TSL uses its proprietary technology to produce tissue replacement and repair
products from porcine collagen. The product is currently presented in two forms
- a sheet repair material and injectable collagen.
* PermacolTM Surgical Implant is a flat sheet of collagen and elastin matrix
for use by surgeons in soft tissue replacement and repair. Its patented
manufacturing process and product characteristics give PermacolTM a number of
key clinical and marketing attributes.
* PermacolTM Injection is a suspension of milled collagen in saline. In its
first product presentation as a urethral bulking agent(UBA), it addresses
urinary stress incontinence in women. A second format, a finer milled
collagen, is being developed as a dermal filler.
Markets and Strategy
Our current strategy is to market PermacolTM Surgical Implant in the following
fields:
* Urology/Gynaecology - pelvic floor reconstruction and incontinence
* General Surgery - complex hernia repairs
* Orthopaedic Surgery - rotator cuff repair of the shoulder
* Head and Face Surgery - facial reconstruction and repair
Our strategy is to approach each of these target markets through a combination
of strategic marketing partners, national level distributors or, where
appropriate, through our own sales teams.
Sales and Marketing
Total product sales grew strongly in 2003 to #4.9m (2002: #3.1m) despite being
impacted by a shortfall in available inventory in the third quarter. The current
marketing status and marketing approach for PermacolTM Surgical Implant can be
summarised as follows:
Application Market Regulatory Route to Market
Status
Urology/Gynaecology Worldwide 510k Marketing Partner - CR Bard Inc*
General Surgery US 510k Direct - US 'commission-only' sales team
General Surgery UK CE Mark Direct - UK sales team
General Surgery Europe CE mark National level distributors
Orthopaedic Surgery Worldwide 510k Marketing Partner - Zimmer Inc**
Head and Face Surgery North 510k Marketing Partner***
America
* Marketed as PelvicolTM
** Market branding to be announced
*** To be marketed as EnduragenTM, non-binding heads of terms signed
* Urology/Gynaecology
Bard has worldwide rights to market PelvicolTM in the field of urology and
gynaecology and is targeting pelvic floor reconstruction and incontinence. Bard
has marketed PelvicolTM in Europe since 2000 and in the US since 2001, and sales
have grown steadily as Bard's market penetration has increased. Total revenues
to TSL advanced by 12% to US$4.0m in 2003 (2002: US$3.5m). Sales growth has been
particularly strong in Europe, aided by obtaining reimbursement status for
PelvicolTM in the French market. Revenues were, however, adversely impacted in
the year due to the shortfall of available inventory in the third quarter, but
sales were restored in the fourth quarter of 2003 when inventory shipments
returned to planned levels.
In January 2004, Bard launched two new urology/gynaecology products jointly
developed with TSL - PelviLaceTM Biourethral Support System and PelviSoftTM
BioMesh. These new products will target surgical areas not currently addressed
by PelvicolTM, in particular urethral sling procedures, and I look forward to
reporting on the progress of these products in due course.
* General Surgery (hernia)
US
TSL has marketed PermacolTM to the complex and recurrent hernia market in the US
since June 2002 via a commission-only sales team. We have further developed this
team in 2003, supported by our own marketing operation established near Atlanta,
Georgia. Market penetration has been rapid and sales increased to US$2.3m in
2003 (2002: US$0.6m). By the end of 2003, PermacolTM had been sold to
approximately 200 US hospitals in circa 30 states. Our strategy, having
established a foothold in this market, is to focus sales training and marketing
resources on key metropolitan areas, to achieve full geographical coverage and
maximise future sales growth.
UK, Europe and Rest of the World
TSL has been active in the UK market since 1998 through its own direct sales
team. In 2003, UK sales performed strongly, growing by 110% to #0.7m (2002:
#0.3m), aided by the introduction of larger sizes of PermacolTM at the end of
2002. In Continental Europe, in 2003, we have established national level
distributors in Italy, Greece, Switzerland and Sweden. In the Far East, a
distributor has been appointed and regulatory approval is being obtained for
entry into the Korean market.
* Orthopaedic Surgery
In September 2003, we announced a worldwide distribution agreement with Zimmer
for the marketing of PermacolTM for the orthopaedic surgical application of
rotator cuff repair of the shoulder. Zimmer is a leader in the field of
orthopaedics, and is listed on theNew York Stock Exchange with a market
capitalisation of approximately US$19bn.
Zimmer estimates that there are more than 250,000 rotator cuff repairs performed
annually in the US alone, with growth in 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 PermacolTM can add to the strength of the
repair. The Directors estimate that this segment of the market has a potential
value of approximately US$150m per annum.
The distribution agreement with Zimmer provides for a pre-launch evaluation of
PermacolTM in order to support a full market launch in the US. This evaluation
is proceeding and I will continue to update shareholders on progress during the
year.
* Head and Face Surgery
We have signed non-binding heads of agreement with a specialist head and face
medical technology company in North America for the distribution rights to
EnduragenTM, our head and face product. The Company is currently negotiating a
definitive agreement for sales into North America. The initial target market
will include rhinoplasty procedures, of which there are 300,000 performed
annually in the US. We estimate that this market has a potential value of US$65m
per annum.
* PermacolTM Injection - Urethral Bulking Agent (UBA)
PermacolTM Injection is indicated for use as a UBA for female 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 existing
treatments.
European Marketing
The Company has commenced marketing PermacolTM Injection in the UK.
Post-marketing clinical studies have shown PermacolTM Injection to be an
effective UBA when compared with current market leading products. However,
despite the effectiveness of the product, sales have been slower than expected.
We believe that this is largely due to Johnson & Johnson's marketing drive for
its Tension-free Vaginal Tape (TVT) product. Despite involving a more invasive
procedure than one using UBA, the use of TVT is currently dominating the stress
incontinence market. In order to widen the potential clinical usage of Permacol
TM Injection in Europe, we are developing a device, which is designed to enable
urethral bulking procedures to be carried out as an outpatient procedure as
opposed to day surgery, thereby, potentially giving surgeons significant cost
and time benefits.
US Marketing
We are concluding a clinical study across a number of European centres to
further determine the efficacy of the product which will support a regulatory
submission to the FDA. It was originally anticipated that the clinical study
would be completed and a PMA submission made to the FDA in the first half of
2004. However, during the review period at the end of the study, it became
apparent that there was a larger than expected patient drop-out rate and a
compromise in the conduct of the study protocol in two of the main study centres
located in Poland.
The Company is currently analysing the impact of the data and will approach the
FDA shortly to establish the best way to proceed in its regulatory submission.
Depending on the outcome of discussions with the FDA, the original timetable for
marketing PermacolTM Injection in the United States is likely to be extended by
up to two years. The Company has sufficient unallocated resources within its
existing clinical budgets to undertake this process in 2004/05 and the Directors
do not expect that this development will impact TSL's existing clinical and
early stage development projects.
Marketing studies of PermacolTM Injection conducted in several large UK
hospitals have demonstrated its effectiveness in treating patients with stress
urinary incontinence and we remain confident of the long-term success of this
product.
Manufacturing
The new manufacturing facility (completed in 2002) has significantly increased
capacity in the manufacture of PermacolTM and enables our in-house functions to
be consolidated in one location. As reported in our interim results for the six
months ended 30 June 2003, as a result of the redesign of the manufacturing
process on scale-up, a quantity of stock was produced that did not meet the
Company's stringent quality assurance release criteria which are based on
internationally accepted standards. The Company's quality assurance systems
identified the affected inventory and no product was released to the market.
This resulted in a provision of #0.5m being made and a short-term interruption
to supply. Appropriate corrective action was taken and normal manufacture and
product release recommenced in September 2003.
Research and Development
During the year, we have continued to channel resources into developing new
products to exploit additional market applications for the PermacolTM sheet and
injectable forms. The Company is focusing on markets in which it already
operates toexploit fully the sales force and partners' marketing knowledge and
market presence. The following areas are currently under development:
* PermacolTM Surgical Implant
Rectal Prolapse
The PermacolTM Surgical Implant is currently being used in a small-scale
clinical study for a new procedure for the repair of rectal prolapse, with the
aim of reducing the recurrence rate. Professor Norman Williams and his team at
St. Bartholomew's and Royal London School of Medicine & Dentistryare leading
this study.
Prophylactic Stoma Reinforcement
In the UK, there are approximately 20,000 new stomas (openings created in the
abdomen, for example as a result of a colostomy procedure) created by surgeons
in 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 Professor Williams and his
team into the prophylactic use of PermacolTMin stoma creation.
The Company will seek US regulatory approval for rectal prolapse under its
existing 510(k) approvals and for prophylactic stoma reinforcement under a new
PMA.
* PermacolTM Injection
Bulking Agent
Since the launch of this product in Europe, we have identified further
opportunities to utilise an injectable collagen in a number of other surgical
applications where a long-lasting agent would be of benefit. The Company is
currently evaluating the market opportunities presented by each area.
Dermal Filler
We are planning to enter the reconstructive and facial augmentation market with
an injectable product. Our aim will be to provide a longer-lasting dermal filler
that reduces the need for regular repeattreatments - typically three to six
months for most competing collagen products. A human clinical study is to
commence in the second quarter of 2004 and our strategy will be to secure a
marketing partner in this field to fund the US PMA regulatory submission and
market entry.
Regulatory
During the year, we have applied for regulatory approval for PermacolTM Surgical
Implant for Korea and have made a submission to the Australian regulatory
authorities. We are also seeking regulatory access for Canada. Further CE marks
have been obtained in respect of PelviLaceTM Biourethral Support System and
PelviSoftTM BioMesh, and both products were launched by Bard in January 2004.
Our production facility has undergone numerous inspections and audits from a
number of regulatory bodies, including the FDA, and distribution partners. The
facility has also achieved accreditation to ISO 13485/2003 and ISO 9001/2000.
Current Trading and Outlook
Since a significant proportion of the Company's sales are in US dollars,
long-term weakness of the US dollar against the UK pound would have a potential
impact on TSL's business. In line with the Company's stated policy on the
hedging of foreign exchange, the Company has entered into arrangements to hedge
US$5 million at a composite rate of US$1.62=#1.00 for the year ending 31
December 2004. The Company is seeking to extend facilities available in respect
of unhedged US dollar revenues as part of its ongoing programme.
Current trading is in line with our expectations and the Directors remain
confident that 2004 will be another year of progress for TSL. We consider that
the core PermacolTM and PelvicolTM Surgical Implant products will continue to
grow strongly together with sales of PelviSoftTM Biomesh and PelviLaceTM
Biourethral Support System launched by Bard in January 2004. In addition, TSL
will seek to finalise its prospective deal with its partner to market Enduragen
TM, to progress our distribution agreement with Zimmer and continue to grow the
European distribution network.
Martin Hunt
Chief Executive Officer
Tissue Science Laboratories plc
Consolidated Profit & Loss Accounts for the Year Ended 31 December 2003
Year Ended Year Ended
31 December 31 December
2003 2002
(Audited) (Audited)
#000s #000s
TURNOVER: 4,945 3,167
Cost of sales excluding exceptional item (2,361) (1,651)
Exceptional item (461) -
Cost of Sales (2,822) (1,651)
Gross Profit 2,123 1,516
Selling & distribution costs (927) (644)
Administrative Expenses
Researchand development costs (1,256) (1,397)
Other administrative expenses (2,848) (2,287)
Total administrative expenses (4,104) (3,684)
Operating Loss (2,908) (2,812)
Bank interest receivable 115 217
Interest payable (54) (20)
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (2,847) (2,615)
Tax on ordinary activities 228 285
RETAINED LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (2,619) (2,330)
Basic and diluted loss per ordinary share (pence) 11.8p 10.5
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.
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 2003
Year Ended Year Ended
31 December 31 December
2003 2002
(Audited) (Audited)
#000s #000s
Fixed Assets
Tangible assets 2,035 1,576
Current Assets
Stocks 599 386
Debtors 1,372 1,005
Cash at bank and in hand 2,466 5,445
4,437 6,836
Creditors: amounts falling due within one year (2,230) (1,824)
NET CURRENT ASSETS 2,207 5,012
Total assets less current liabilities 4,242 6,588
Creditors: amounts falling due after more than one year (482) (346)
NET ASSETS 3,760 6,242
CAPITAL & RESERVES
Called up share capital 2,230 2,212
Share premium account 12,535 12,477
Shares to be issued 146 104
Merger reserve 545 545
Profit & loss account (11,696) (9,096)
EQUITY SHAREHOLDERS' FUNDS 3,760 6,242
Tissue Science Laboratories plc
Consolidated Cash Flow Statement for the year ended 31 December 2003
Year Ended Year Ended
31 December 31December
2003 2002
(Audited) (Audited)
#000s #000s
Net cash outflow from operating activities (2,723) (2,889)
Returns on investment and servicing of Finance 65 195
Taxation 228 285
Capital expenditure & financial investment (400) (1,018)
Cash outflow before use of liquid resources & financing (2,830) (3,427)
Financing
Net cash (outflow)/inflow from financing (169) 205
Decrease in cash in the period (2,999) (3,222)
RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET FUNDS
Decrease in cash in the period (2,999) (3,222)
Cash outflow/(inflow) from movement in debt & lease financing 245 (205)
Change in net funds resulting from cash flows (2,754) (3,427)
New finance leases (630) (18)
Currency translation difference (5) (44)
Movement in net funds in the period (3,389) (3,489)
Net funds brought forward 4,946 8,435
Net funds carried forward 1,557 4,946
Tissue Science Laboratories plc
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 year ended 31 December 2003 or for the year
ended 31 December 2002, but is derived from those accounts. Statutory accounts
for the year ended 31 December 2002 have been delivered to the Registrar of
Companies and those for the year ended 31 December 2003 will be delivered
following the Company's annual general meeting. The auditors have reported on
those accounts; their reports were unqualified and did not contain statements
under s237(2) of (3) Companies Act 1985.
2. TURNOVER
Year ended Year ended
31 December 31 December
2003 2002
(Audited) (Audited)
#000s #000s
A geographical analysis of turnover by destination is as follows:
United Kingdom 830 383
Europe 601 634
USA 3,514 2,150
4,945 3,167
An analysis of turnover by class of business is as follows:
Product sales 4,884 3,105
Milestone Income 61 62
4,945 3,167
3. EXCEPTIONAL ITEMS
Year ended Year ended
31 December 31 December
2003 2002
(Audited) (Audited)
#000s #000s
Stock written off 461 -
4. LOSS PER SHARE
Year ended Year ended
31 December 31 December
2003 2002
(Audited) (Audited)
#000s #000s
Basic and diluted loss per ordinary share has been calculated based on
the weighted average number of ordinary shares in issue during the period
Loss for the period (2,619) (2,330)
Basic and diluted loss attributable to ordinary shareholders (2,619) (2,330)
Weighted average number of ordinary shares 22,152,537 22,119,338
Basic and diluted loss per share 11.8p 10.5p
5. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING
ACTIVITIES
Year ended Year ended
31December 31 December
2003 2002
(Audited) (Audited)
#000s #000s
Operating loss (2,908) (2,812)
Depreciation and impairment of tangible fixed assets 571 322
Increase in debtors (368) (127)
Increase in stocks (213) (214)
Increase/(decrease) in creditors 129 (155)
Profit on disposal of fixed assets - (5)
Foreign exchange movement 5 44
Shares to be issued 61 58
(2,723) (2,889)
6. TAX ON ORDINARY ACTIVITIES
Year ended Year ended
31 December 31 December
2003 2002
(Audited) (Audited)
#000s #000s
UK tax receivable 237 290
US tax payable (9) (5)
Tax credit for the current year 228 285
This information is provided by RNS
The company news service from the London Stock Exchange
END
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