Lombard Medical Technologies PLC ( Lombard Medical or the Company )

Transcription

1 Press Information Lombard Medical Technologies PLC ( Lombard Medical or the Company ) Final Results for the Year ended 31 December 2012 Aorfix Procedure Growth in Europe and Significant US Progress Aorfix Approval Achieved Post Period End London, UK, 9 April 2013 Lombard Medical Technologies PLC (AIM: LMT), the specialist medical technology company focused on innovative vascular products, today announces its results for the year ended 31 December Operational highlights Demand, as measured by patients treated, for Aorfix increased 13% in main EU markets (UK, Germany, Italy and Spain) with 382 patients treated (2011: 338 patients) o Demand was not fully reflected in revenue as it was partly supplied from distributor stock Aorfix revenue of 2.3m in main EU markets (2011: 2.2m) o 32% growth in Germany reflecting expansion of direct sales team High angle clinical data from US PYTHAGORAS trial presented in June 2012 o Strong data despite extremely challenging patient group with high neck angles Launch of Aorflex delivery system in April 2012 o Encouraging clinician feedback Key hire appointment of Ian Ardill to the Board as Chief Financial Officer in January 2012 Financial highlights Total commercial revenue (total revenue less revenue from the clinical trial) flat at 3.9m (2011: 3.9m) despite procedure growth of 13% in main EU markets Total revenue declined to 3.9m (2011: 4.0m) due to completion of US trial enrolment and loss of related revenues Operating loss decreased by 28% to 8.2m (2011: 11.4m) Cash and cash equivalents of 2.7m as at 31 December 2012 (31 December 2011: 7.5m) 3.0m raised from issue of convertible loan notes to Invesco Asset Management Limited ( Invesco ) in March 2012 Share consolidation of 1 new ordinary share of 20p for every 200 existing ordinary shares of 0.1p in March 2012 Six month extension of Long Stop Date of Second Tranche of the May 2011 Fundraising Participation of 2.8m by LSP Life Sciences Fund N.V., a specialist healthcare fund, in the Second Tranche of the May 2011 Fundraising Post period events 14 February US FDA approval of Aorfix for the endovascular repair of AAAs o Label indication for the treatment of patients with angulations at the neck of the aneurysm from 0 to 90 degrees 1

2 o Aorfix the only endovascular stent graft licensed in the US for use in cases with neck angulations greater than 60 degrees (consistent with high-angle, 90 degree, label claim in Europe) US approval of Aorfix has triggered receipt of 14.1m gross funds from the Second Tranche of the May 2011 Fundraising Aorfix approval in Japan anticipated in 2014 o US approval has triggered receipt of $2.5m from the $5.0m convertible loan facility granted by Medico's Hirata Inc., the Company s distribution partner in Japan Simon Hubbert, Chief Executive of Lombard Medical, commented: 2012 has been a key year for the Company, during which we worked to ensure the approval of Aorfix in the US. I am delighted our efforts have been rewarded and Aorfix is now approved by the FDA; the only endovascular stent graft licensed in the US for use in cases with neck angulations up to 90 degrees. We also made good progress across the rest of the business; reporting an increase in Aorfix cases in the main EU markets and sales growth of 32% in Germany. In addition, we launched our new Aorflex delivery device and our expanded size range of custom built stent graft devices will be available by mid-year. With the US approval of Aorfix in February, the stage is now set for significant future growth for the Company which we believe will also translate into significant shareholder value. We look forward to launching Aorfix in the US through our own direct sales force and are confident of capturing a meaningful share of the world s single largest market for the treatment of AAAs. About Lombard Medical Lombard Medical Technologies PLC (AIM: LMT), is a medical device company focused on device solutions for the $1.2 billion dollar per annum abdominal aortic aneurysm (AAA) repair market. AAAs are a balloon-like enlargement of the aorta which, if left untreated, may rupture and cause death. Approximately 4.5 million people are living with AAAs in the developed world and each year 600,000 new cases are diagnosed. The market for endovascular stent grafts for this application is expected to grow to $1.6 billion by The Company s lead product, Aorfix, is an endovascular stent graft which has been specifically designed to solve the problems that exist in treating complex tortuous anatomy which is often present in advanced AAA disease. Aorfix is currently being commercialised in the EU, and has been approved by the FDA in the US The Company is headquartered in Oxfordshire, with operations in Ayrshire and Phoenix, USA. Further background on the Company can be found at For further information: Lombard Medical Technologies PLC Tel: Simon Hubbert, Chief Executive Officer Ian Ardill, Chief Financial Officer Canaccord Genuity Limited Lucy Tilley/ Henry Fitzgerald O Connor/ Tim Redfern/ Dr. Julian Feneley FTI Consulting Simon Conway / Susan Stuart / Victoria Foster Mitchell Tel: Tel: References 1. US Market for Peripheral Vascular Devices and Accessories, idata Research Inc., February Eurostar Study results (Frequency, predictive factors, and consequences of stent-graft kink following endovascular AAA repair. Fransen GA, Desgranges P, Laheij RJ, Harris PL, Becquemin JP; EUROSTAR Collaborators. Published in J Endovasc Ther Oct;10(5):913-8.) 2

3 Chairman s Statement The progress seen in 2012 has enabled Lombard Medical to achieve one of the most important corporate goals in the history of the Company to date; the US FDA approval of Aorfix, the Company s lead product for the endovascular repair of Abdominal Aortic Aneurysms ( AAAs ). On 14 February 2013, the US FDA approved Aorfix with a significantly differentiated label claim, which we believe will be central to the commercial success of this product in the US. FDA approval of Aorfix includes a label indication for the treatment of patients with angulations at the neck of the aneurysm from 0 to 90 degrees. Aorfix is the only endovascular stent graft licensed in the US, the largest market for AAA repair, for use in cases with neck angulations greater than 60 degrees. Independent market research suggests that the US market for the repair of AAAs is worth over $600 million per annum 1, is forecast to grow at approximately 8% 1 per annum, and that up to 30% of all patients have some tortuosity either at the neck of the aneurysm or in the iliac arteries 2. It is to this segment of patients that Aorfix is targeted with its uniquely flexible design. In Europe Aorfix is already licensed to treat neck angulations of up to 90 degrees. In the Company s main EU markets (Germany, UK, Italy and Spain) the Group reported a small increase in full year sales compared to the same period in 2011 ( m vs m). Cases performed with Aorfix TM increased by 13% to 382 patients confirming the underlying demand for the Company s unique and flexible Aorfix device. The difference in growth between the reported sales figure and the cases performed is due to inventory destocking by our Spanish and Italian distributors. These results were achieved against a backdrop of challenging economic conditions and government austerity measures, creating a difficult sales environment. The Company also made good progress with its new development projects and announced the launch of its new delivery device, the Aorflex, in April Employees The Company s considerable progress in 2012 would not have been possible, were it not for the continued support of our employees, investigators and clinical advisors. Their hard work has played an invaluable role in securing US FDA approval of Aorfix and in ensuring our device remains competitive in our established markets in Europe. On behalf of the Board, I would like to express our appreciation to all of the Company s employees for their exceptional efforts during We look forward to their continued support as we enter what promises to be a transformational period for the Company. The Board In January 2012, the Board welcomed Ian Ardill to the Company as Chief Financial Officer. Ian replaced Tim Hall, who resigned as Finance Director in December Ian joined from Biocompatibles International plc where he worked for over eight years; for six of which he was Finance Director. After two years of service as Lombard Medical's Chairman and following the recent achievement of FDA approval for Aorfix in the United States, I have decided it is the appropriate time to step down as Chairman of the Company. The Board has initiated a search for my successor using an international executive search firm. Until a suitable replacement is appointed, with the requisite skills to help realise the Group's full potential, I will continue to act in my current role. Thereafter I intend to remain an active and committed member of the Board as a non-executive Director. Investment I am pleased that LSP Life Sciences Fund N.V. ( LSP ) agreed to participate in the Second Tranche of the two tranche placing and subscription announced by the Company on 20 April 2011 (the May 2011 Fundraising ). LSP is one of Europe s largest specialised healthcare and biotechnology investment firms with offices in Amsterdam, Munich and Boston. In view of LSP s specialist healthcare focus and international reach, the Board welcomes its support and participation in the Second Tranche. LSP s presence in the US is particularly relevant given the strategic importance of this market to the Company going forward. LSP replaced MVM Life Science Partners LLP ( MVM ), which decided to assign its rights to subscribe for new ordinary shares in the Second Tranche. MVM remains supportive of the Company and continues to hold a seat on the Board. 3

4 The approval of Aorfix post period end has released 14.1m of funds from the Second Tranche of the May 2011 Fundraising. These funds will primarily be used to: Launch Aorfix in the US through the Company s own direct sales force Expand production capacity to meet anticipated demand for the Aorfix stent graft Complete the planned extension of stent graft sizes Develop the next generation, lower profile delivery device US approval of Aorfix also triggered the Company s receipt of $2.5m from the $5.0m convertible loan facility granted by Medico's Hirata Inc., the Company s exclusive distribution partner in Japan. The Japanese market for Endovascular Aortic Repair ( EVAR ) products is estimated to be worth $100 million and is one of the fastest growing in the world. 4

5 Chief Executive s Review 2012 was a pivotal year for the Company during which significant progress was made towards achieving our strategic objectives, most importantly, the US FDA approval of Aorfix. The Company successfully completed and submitted all the clinical material necessary for the approval of Aorfix, which was subsequently approved, after the year end, on 14 February In Europe, Lombard Medical launched its new Aorflex delivery system and will introduce an expanded, custom built size range for Aorfix in Q The challenging market conditions seen in Europe during the first half of the year continued into the second half of 2012, against which the Group reported a 13% increase in FY 2012 demand for Aorfix with 382 patients treated in the Group s four main EU markets (2011: 338). This full increase in demand was not reflected in our reported revenue as it was partly supplied from our Spanish and Italian Distributors stock. Revenue Total commercial revenue was flat at 3.9m (2011: 3.9m) due to challenging market conditions in Europe and declines in Rest of World distributor sales. US clinical trial revenues decreased 74% to 0.0m (2011: 0.1m), following the completion of trial enrolment in The combination of these effects resulted in total revenues declining marginally to 3.9m (2011: 4.0m). Revenue in the main EU markets increased 1% to 2.3m (2011: 2.2m). This revenue growth underrepresents the increase in case numbers as distributors in Spain and Italy reduced their inventory holding in response to government austerity measures. The Company sells Aorfix directly in Germany and the UK. In Germany sales increased 32%, reflecting the impact of the expanded sales team put in place in UK sales were flat compared with the previous year, reflecting a reduction in the number of UK centres performing endovascular aortic repair, in line with Government policy of creating specialist centres. The new Aorflex delivery system is now available in Europe and has received positive clinician feedback. The combination of continued adoption of this enhanced delivery device, the availability of an expanded size range of custom built Aorfix devices in Q2 2013, and additional sales following US Aorfix approval, are expected to positively impact revenue growth in the near to medium-term. In France work continues with the regulatory authorities to achieve reimbursement approval for Aorfix. The Company reported commercial Aorfix revenues of 0.9m (2011: 1.0m) outside of the main European markets and commercial sales of 0.7m (2011: 0.6m) from our Lombard Medical Scotland facility. Aorfix Regulatory Approval in the US sets the stage for significant growth The FDA s decision to approve commercialisation of Aorfix in the US is a major milestone for the Company and the key driver of future growth. Data from the US PYTHAGORAS trial of Aorfix, demonstrated that Aorfix can successfully treat a larger patient population than competing devices, including both standard and difficult to treat cases of AAAs. The Company recruited 218 patients into the trial, resulting in data from 151 patients with neck angles greater than 60 degrees and 67 patients with neck angles less than 60 degrees. We were pleased to report that no aneurysms expanded in patients with neck angles less than 60 degrees and just 1.8% expanded in patients with high neck angles. These results compare favourably with the results of other devices in normal, less tortuous anatomy. Launch strategy The Company intends to launch Aorfix in the US during H following the approval of its next generation Aorflex delivery device. A co-ordinated launch event of Aorfix with the new Aorflex delivery system will take place at the Veith symposium in November 2013 (New York). Aorflex was approved in Europe in April 2012 and it has since met with positive feedback from clinicians due to its improved, easier to use delivery mechanism. The Company will submit a marketing application for Aorflex in H to the US FDA. The Company believes no in-patient data will be required and expects a swift approval for this supplement to the existing PMA (premarket approval) in H

6 With the proceeds from the Second Tranche of the May 2011 fundraising, the Company will build its own direct sales force and marketing infrastructure to launch Aorfix in the US. Initially Lombard Medical will target the 302 centres which perform more than 50% of the EVAR operations in the US. To this end the Company is in the process of recruiting and training a field sales force of approximately 20 people ahead of a H US launch. Marketing efforts for Aorfix will be focused on exploiting the device s unique label in the underserved tortuosity segment which represents up to 30% 2 of all EVARs. The Company calculates this segment of the market to be currently valued at c.$185m and expected to grow to c.$290m in ,2. Aorfix is the only approved device to treat such highly angulated cases but also works well in treating less challenging anatomies (0-60 degrees). In addition, the Company s collaboration with Machine Solutions Inc. (MSI), a global supplier of process and testing solutions for the medical device industry, will play an important part in the Company s wider plan to develop improved manufacturing processes and efficiencies for Aorfix. In the UK, the Board plans to establish a new clean room facility and expand commercial operations in Oxfordshire and Ayrshire to meet expected device demand. The Company is confident of capturing a significant share of the tortuosity segment over the next few years. This will require additional funding and, the Directors believe, will transform Lombard Medical into a sustainably cash generative Company and provide a meaningful return to shareholders. RoW Aorfix Update US approval of Aorfix has triggered the Company s receipt of $2.5m from the $5.0m convertible loan facility granted by its exclusive distribution partner in Japan, Medico's Hirata Inc. Medico's Hirata is a leading supplier and developer of medical device products in Japan, with the sales infrastructure to maximise the potential of Aorfix in this important market. Lombard Medical continues to work with its partner to achieve Aorfix approval in Japan, which it anticipates will be in Large Body of Clinical Evidence supports broad commercial use At the Society of Vascular Surgery (SVS) Annual Meeting, 7-9 June 2012, Dr Mark Fillinger of Dartmouth Hitchcock Medical Centre, presented high angle clinical data results from the US PYTHAGORAS trial of Aorfix. The unique data set featured results from the world's first and largest multicentre EVAR clinical trial studying patients with angles greater than 60 degrees. 205 patients were recruited in the trial and the data resulted from 143 patients with highly-angulated aortic necks (angles between 60 and 110 degrees). Treatment of this patient group is not indicated in any stent grafts currently available in the US. The data presented showed that Aorfix performed well in extreme aortic neck angulations. Outcomes such as freedom from major adverse events (MAEs, as defined by the SVS) at 30 days and 365 days, were significantly lower than in patients undergoing open surgical repair (81.1% vs. 56.4% p< and 75.5% vs. 54.5% p< respectively). Although not tested in this trial, Dr Fillinger noted that the outcomes were similar to EVAR trials of other stent grafts in much less severe anatomy. The PYTHAGORAS trial's results were achieved despite the inclusion of patients with predictors of worse short and long-term outcomes such as: Age (75.4 +/-8 years vs /-7 years, p=0.001) Proportion of female patients (35% vs. 20%, p=0.015) Congestive heart failure (14% vs. 4%, p=0.029) High neck angles (83 +/- 15 degrees, compared to SVS control group: 48 +/-22 degrees, p<0.05) The results from the PYTHAGORAS trial were submitted to the US FDA and formed a central part of the Lombard Medical's pre-marketing authorisation application for Aorfix. The results of this trial are summarised in the product s label and the Company expects the full data set will be published in a peer reviewed journal in

7 Lombard Medical has remained committed to the collection of data in its Retrospective Aorfix Data Retrieval Registry (RADAR). The RADAR registry now contains data from over 1,800 Aorfix cases and enables the Company to present on the largest clinical experience ever compiled on difficult anatomy patients at conferences around the world. New Product Development Lombard Medical has made progress across two new product development projects in line with our continuous commitment to providing innovative endovascular solutions which meet clinicians needs and improve patient outcomes. The first project is focused on improving clinicians experience during Aorfix stent graft delivery. The new delivery system, Aorflex, introduces a number of enhanced features with clear clinical benefits and has received encouraging feedback from clinicians since its European launch in April The Company will be seeking US regulatory approval for Aorflex which it expects to launch in H The Company has also made significant progress towards expanding the size range of Aorfix, addressing the needs of patients with AAAs, who have aortic neck diameters either too large or too small for the current product size range. The Company estimates this to be up to 25% of the total AAA patient population. A wider range of sizes will be available for custom order in Europe in Q Financing On 27 March 2012 shareholders approved 3.0m financing through the issue of convertible loan notes to Invesco Asset Management Limited ( Invesco ), the Company's largest shareholder. These funds provided additional resources to strengthen the Company s working capital in case of delays in the US FDA approval process. Shareholders also approved a share consolidation of one new ordinary share of 20 pence for every 200 existing ordinary shares of 0.1 pence. In May 2011, the Company completed the first part of a two tranche fundraising, incorporating in total a placing, subscription and offer, of 27.2m before expenses. The first tranche of 13.0m was supported by certain existing shareholders and two new shareholders at the time, Abingworth LLP and MVM. These same shareholders committed to subscribing for further shares in the Company through a 14.2m Second Tranche of fundraising. As announced on 20 December 2012, the original Long Stop Date of the Second Tranche was extended from 31 December 2012 to 30 June 2013 to ensure the Second Tranche would be available to the Company in the event US FDA approval of Aorfix slipped into Q In addition to certain existing shareholders, the Company announced that the Second Tranche would now be supported by LSP, replacing MVM, who decided to assign their rights to subscribe for new ordinary shares in the Second Tranche. Funds from the Second Tranche will ensure the Company has sufficient resources to launch Aorfix TM in the US through its own direct sales force. In addition to building the US sales and marketing infrastructure, funds from the Second Tranche will also be used to expand production capacity to meet anticipated demand for Aorfix TM, complete the planned extension of stent graft sizes and develop the next generation, lower profile delivery device. The funds will also be used to redeem the full amount of the 3m Convertible Loan Notes issued to Invesco Asset Management Limited, to the extent that Invesco has not already converted, or indicated its willingness to convert, the Convertible Loan Notes. US approval of Aorfix has triggered the Company s receipt, in March 2013, of $2.5m from the $5.0m convertible loan facility granted by its exclusive distribution partner in Japan, Medico's Hirata Inc. Additional funding will be sought in 2013 to allow the Company to achieve its longer-term goals in the US market. Outlook 2012 was an important year for the Company during which we focused on securing the approval of Aorfix in the US, the world s largest market for the endovascular repair of AAA s, which was subsequently approved in February In the main EU markets we saw an increase in demand for 7

8 Aorfix, through cases performed, despite tough economic headwinds and government austerity measures. We also launched our Aorflex delivery system in Europe, which has received encouraging clinician feedback. US approval of Aorfix has materially changed the future prospects of the Company. With the proceeds from the Second Tranche of the May 2011 fundraising, the Company will build its own direct sales force and marketing infrastructure to launch Aorfix and expand production capacity to meet expected demand. This strategy, combined with our new product development projects and a further fundraising, is expected to markedly benefit revenues and create significant shareholder value going forward. 8

9 Financial Review Revenue Total revenues decreased 3% to 3.9m (2011: 4.0m). Total revenues consisted of commercial revenues, which were flat at 3.9m (2011: 3.9m), and US clinical trial revenues, which decreased 74% to 0.0m (2011: 0.1m). Commercial revenues of Aorfix decreased 4% to 3.1m (2011: 3.3m), with growth in the direct sales markets of Germany and the UK being outweighed by declines in the distributor markets of Italy, Spain and Rest of World. Other commercial revenues increased 18% to 0.7m (2011: 0.6m) due to an increase in contract service revenues generated by the Company s Prestwick facility as its main customer replenished stocks and grew sales in the US. Gross Profit The gross profit for the year decreased 29% or 0.6m to 1.4m (2011: 2.0m). The gross margin decreased to 36% (2011: 49%) as a result of lower production volumes following a stock build in 2011, initial unanticipated costs from the transfer of the Aorflex TM delivery system into production and the impact of high overhead levels carried forward in stock from The temporary decline in yields reported in the half-yearly results reversed in the second half and overall yields for the year were similar to those of Operating Expenses The Group s operating expenses decreased by 23% or 3.0m to 9.6m (2011: 12.6m) as a result of the restriction of expenditure to conserve cash ahead of the second tranche of the May 2011 fundraising. Selling, marketing and distribution expenses decreased by 4% or 0.1m to 2.8m (2011: 2.9m) primarily due to a restriction of marketing activities to support the conservation of cash. Research and development costs declined by 30% or 2.0m to 4.6m (2011: 6.6m) as clinical and regulatory expenditure reduced following completion of enrolment into the Aorfix clinical trial; and Aorfix development project expenditure was restricted in order to conserve cash. Administrative expenses decreased by 28% or 0.8m to 2.3m (2011: 3.1m). A share option credit of 0.3m (2011: charge of 0.3m) was accounted for, reflecting the directors view that the performance criteria would not be met. The remainder of the decrease in administrative expenses was due to the 2011 costs of the Board reorganisation and senior management recruitment, which did not repeat in Interest Interest receivable was minimal, under 0.1m in both 2011 and 2012 and finance costs of 0.4m (2011: nil) were incurred as a result of the accounting for the effective interest payable on the convertible loan notes. Taxation The tax credit of 0.4m (2011: 1.3m) represents the estimated R&D tax credit due in respect of 2012 of 0.6m (2011: 1.2m) less an adjustment of 0.2m for an overestimate of the R&D tax credit in the prior year accounts (2011: plus an adjustment of 0.1m for an underestimate). Loss and Total Comprehensive Expense for the Year The loss and total comprehensive expense for the year decreased significantly to 8.3m (2011: 10.1m). The average number of shares in issue during 2012 increased to 20.2m (2011: 16.3m) resulting in a decrease in the loss per ordinary share to 41.1 pence (2011: 61.9 pence). The 2011 comparative average number of shares has been restated retrospectively for the effect of the share consolidation, to allow comparability. Operating Cash Flow Net cash outflow from operating activities decreased to 7.5m (2011: 10.0m) due to the lower loss before taxation. 9

10 Investing Activities The net cash used in investing activities of 0.1m (2011: 0.5m) was predominantly capital expenditure of 0.1m (2011: 0.5m). Financing Activities Net cash flows from financing activities were 2.8m (2011: 12.2m) as the Company issued 3.0m of convertible loan notes. In 2011, the Company received 13.0m before expenses of 0.8m from the first tranche of the 27.2m, two tranche placing, subscription and offer approved by shareholders in May Treasury The Company s policy is to invest surplus funds in money-market and short-term bank deposits. The Company s primary focus is to safeguard the principal by only placing deposits through institutions with good credit ratings. As at 31 December 2012, the Group had cash and cash equivalents of 2.7m (2011: 7.5m). Headcount Headcount at 31 December 2012 was 88 (2011: 102). The majority of the headcount decrease occurred in the production and quality departments as production volumes decreased, following the stock build that occurred in 2011 and in the development department as activities and projects were refocused. Commitment to issue shares The investors in the May 2011 share issue, as amended in December 2012, committed to invest a second tranche of 14.1m before expenses, conditional upon the Company receiving FDA approval for Aorfix before 30 June FDA approval was received on 14 February 2013 and the second tranche shares were issued in March 2013 at the contractual price of 140 pence, being lower than the prevailing market price on the day the tranche was drawn down by the Company. The net cash proceeds from the share issue were also received in March Going Concern The Group has obtained regulatory approval in the United States for Aorfix TM on 14 February 2013 and intends to launch the product in the US market during The Group expects to incur more costs than will be recovered by revenues during this launch period and will continue to be loss making until sales increase to a sufficient level. This is not expected in the near term. Therefore based on current forecasts the Directors will have to raise additional funding, which has not yet been secured, prior to the period when the Group becomes cash generative through these increased sales levels. The Directors are confident that they will be able to raise suitable additional funding and based on this the going concern basis has been adopted in the preparation of these financial statements. These circumstances nonetheless represent a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. Should the Group be unable to obtain further funding, adjustments would be required to reduce balance sheet values of assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify fixed assets as current assets. 10

11 Consolidated Statement of Comprehensive Income for the year ended 31 December Restated Note Revenue 3 3,889 4,012 Cost of sales (2,489) (2,035) Gross profit 1,400 1,977 Selling, marketing and distribution expenses (2,792) (2,895) Research and development expenses (4,598) (6,571) Administrative expenses (2,252) (3,107) Total operating expenses (9,642) (12,573) Impairment provision investment - (850) Operating loss (8,242) (11,446) Finance income interest receivable Finance costs 4 (421) - Loss before taxation (8,640) (11,387) Taxation ,282 Loss and total comprehensive expense for the year (8,290) (10,105) Basic and diluted loss per ordinary share (pence) From continuing operations 6 (41.1) (61.9) The accompanying notes form part of these financial statements. 11

12 Consolidated Balance Sheet as at 31 December 2012 Company registration number: Note Assets Intangible assets 2,235 2,275 Property, plant and equipment Financial assets - available for sale - - Non-current assets 2,825 2,883 Inventories 1,959 2,312 Trade and other receivables 1,138 1,465 Taxation recoverable 569 1,150 Cash and cash equivalents 2,747 7,545 Current assets 6,413 12,472 Total assets 9,238 15,355 Liabilities Borrowings 7 (2,761) - Trade and other payables (2,323) (2,972) Current liabilities (5,084) (2,972) Total liabilities (5,084) (2,972) Net assets 4,154 12,383 Equity Called up share capital 8 28,189 28,189 Share premium account 8 47,451 47,451 Other reserves 8 11,437 11,118 Accumulated loss (82,923) (74,375) Total equity 4,154 12,383 The accompanying notes form part of these financial statements. 12

13 Consolidated Cash Flow Statement for the year ended 31 December Note Cash flows from operating activities Cash used in operations 9 (8,274) (10,842) Interest paid (184) - Research and development tax credits Net cash outflow from operating activities (7,527) (10,010) Cash flows from investing activities Interest received Purchase of property, plant and equipment (137) (526) Net cash flows used in investing activities (114) (467) Cash flows from financing activities Proceeds from issue of convertible loan notes 3,000 - Convertible loan notes issue expenses (157) - Proceeds from issue of ordinary shares - 13,004 Share issue expenses - (796) Net cash flows from financing activities 2,843 12,208 (Decrease)/increase in cash and cash equivalents (4,798) 1,731 Cash and cash equivalents at beginning of year 7,545 5,814 Cash and cash equivalents at end of year 2,747 7,545 The accompanying notes form part of these financial statements. 13

14 Consolidated Statement of Changes in Equity for the year ended 31 December 2012 Note Share Capital 000 Share Premium Account 000 Other Reserves 000 Accumulated loss 000 Total Equity 000 At 1 January ,331 37,101 11,118 (64,530) 10,020 Loss and total comprehensive expense for the year (10,105) (10,105) Share-based compensation Issue of ordinary shares 8 1,858 11, ,004 Share issue expenses - (796) - - (796) At 31 December ,189 47,451 11,118 (74,375) 12,383 Loss and total comprehensive expense for the year (8,290) (8,290) Share-based compensation (258) (258) Equity component of convertible loan notes (net of issue expenses) At 31 December ,189 47,451 11,437 (82,923) 4,154 The accompanying notes form part of these financial statements. 14

15 Notes to the Financial Statements for the year ended 31 December Basis of Preparation The financial information presented by the Directors in this statement is derived from the Group financial statements for the year ended 31 December 2012 that have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, IFRIC interpretations, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. These accounts have been audited and whilst the report of the auditors on those accounts was unqualified, it does contain a material uncertainty in respect of going concern but does not contain a statement under section 498(2) or (3) of the Companies Act. The accounts will be delivered to the Registrar of Companies following the Company s Annual General Meeting. The financial statements have been prepared on the going concern basis, which assumes that the Group will continue in operational existence for the foreseeable future. The Group obtained regulatory approval in the United States for Aorfix on 14 February 2013 but still expects to absorb cash until sales reach an appropriate level. Based on current forecasts the Directors expect to have to raise additional funding prior to the period when the group becomes cash generative through these increased sales levels. The Directors are confident, based on the combination of the US approval, a large market for the product, a unique product indication, near term cash funding and supportive major shareholders that they will be able to raise suitable additional funding and based on this the going concern basis has been adopted in the preparation of these financial statements. These circumstances nonetheless represent a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. Should the Group be unable to obtain further funding, adjustments would be required to reduce balance sheet values of assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify fixed assets as current assets. 2. Accounting Policies The financial information is prepared in accordance with the accounting policies set out in the 2011 financial statements. 3. Segmental Information The Group is engaged in a single business activity of cardiovascular devices and medical fabrics and the Group does not have multiple operating segments. The Group s cardiovascular devices and medical fabrics business consists of the development and commercialisation of these products. The Executive Management team is the Group s chief operating decision-making body, as defined by IFRS 8, and all significant operating decisions are taken by the Executive Management team. In assessing performance, the Executive Management team reviews financial information on an integrated basis for the Group as a whole, substantially in the form of, and on the same basis as, the Group s IFRS financial statements. Resources are allocated between activities and products on a Group-wide basis on merit. 15

16 Geographical Segments Revenue and activity arises as follows: Analysis by Country of Origin Revenue United Kingdom 3,851 3,865 United States of America ,889 4,012 Loss before taxation United Kingdom (7,688) (9,949) United States of America (952) (1,438) (8,640) (11,387) Net assets/(liabilities) United Kingdom 4,169 12,506 United States of America (15) (123) 4,154 12,383 Geographical analysis based on the country in which the customer is located is as follows: Revenue by Destination United Kingdom and Europe 3,399 3,294 United States of America Rest of World ,889 4,012 Revenue by Type Product sales 3,883 4,006 Royalty and licence income 6 6 3,889 4,012 16

17 4. Finance Costs Convertible loan notes Other interest payable Taxation on Loss on Ordinary Activities The credit comprises: UK research and development claim: For the current year 575 1,150 For prior years (215) ,321 Overseas taxation charge (10) (39) Total tax credit 350 1,282 The UK research and development claim relates to the utilisation of UK tax losses from research and development expenditure to reclaim payroll taxes paid. Taxation losses carried forward at the end of the year amounted to approximately 57m (2011: 49m) and the unrecognised deferred tax asset at 23% (2011: 25%) is approximately 13m (2011: 12m). No deferred tax asset has been recognised in respect of these losses as the Directors consider it is, as yet, uncertain whether the losses will be utilised. Tax losses would be utilised in future periods against trading profits. During the year there was a change in the UK main corporation tax rate to 24%, which was substantially enacted on 26 March 2012 and was effective from 1 April A reduction to 23% was substantively enacted on 3 July 2012 and will be effective from 1 April A further reduction to the UK corporation tax rate was announced in the March 2012 Budget, which is proposed to reduce the rate by 1% to 22% by 1 April The current UK tax credit of 360,000 (2011: 1,321,000) is higher than the standard UK corporation rate of 24.5% (2011: 26.5%) applied to the loss for the year. The differences are explained below: 17

18 Loss before tax for the period at 24.5% (2011: 26.5%) (2,117) (3,018) Additional deduction for research and development expenditure (721) (1,161) Amounts not deductible for tax purposes Payroll taxes recoverable at a lower effective rate of % (2011: 12.88%) 738 1,278 Losses carried forward 1,508 1,403 Overseas taxation charge Adjustments in respect of prior years 215 (171) Tax credit for year (350) (1,282) 6. Loss per Share Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares. The diluted earnings per ordinary share are identical to those used for the basic earnings per ordinary share as the exercise of share options and warrants would have the effect of reducing the loss per ordinary share and are therefore not dilutive. Reconciliations of the losses and weighted average number of shares used on the calculations are set out below: Restated Loss for the financial year 000 (8,290) (10,105) Weighted average number of shares ( 000) 20,162 16,319 Basic and diluted loss per share (pence) (41.1) (61.9) The weighted average number of shares figure for 2012 reflects the 2012 share consolidation of one new ordinary share of 20 pence each for every 200 existing ordinary shares of 0.1 pence each. The 2011 comparative has been restated retrospectively for the effect of the share consolidation, to allow comparability. 7. Borrowings Convertible loan notes with a face value of 3m were issued to Invesco, the Company's largest shareholder, on 30 March The loan notes pay interest of 8% per annum and are repayable at the Company s discretion at any time until 1 July The loan notes are repayable or convertible at the holder s discretion at any time between 1 July 2013 and 1 September 2013 or on certain other events as noted in the shareholder circular dated 9 March In the case of conversion, the conversion share price is 140 pence per share. 18

19 At 31 December 2012, the amount outstanding comprised: 000 Face value of convertible loan notes issued on 30 March ,000 Equity component (337) Issue costs relating to the liability element (139) Liability component on initial recognition at 30 March 2012 Interest expense Interest paid 2, (182) 2,761 The outstanding liability on the convertible loan notes was valued at a discount rate of 18%, considered a market rate for an equivalent non-convertible loan and the excess liability has been treated as an equity component and credited to other reserves. 8. Equity i) Share Capital 2012 Number of Shares 2012 Nominal Value 2011 Number of Shares 2011 Nominal Value 000s s 000 Allotted, called up and fully paid Ordinary shares of 20 pence each 20,162 4, Ordinary shares of 0.1 pence each - - 4,032,362 4,032 A Deferred shares of pence each 373,857 3, ,857 3,223 B Deferred shares of 1 pence each 136,186 1, ,186 1,361 C Deferred shares of 0.9 pence each 2,174,695 19,573 2,174,695 19,573 28,189 28,189 On 6 May 2011 a capital reorganisation and issue of new ordinary shares were approved at a general meeting of the Company that included: i) the subdivision of each existing ordinary share of 1 pence each into one new ordinary share of 0.1 pence each and one new C deferred share of 0.9 pence each, and ii) the issue of 1,857,667,456 new ordinary shares of 0.1 pence each for a total consideration of 13,004,000 before expenses of 796,000. The investors in this share issue have committed to invest in a second tranche share issue of 14.2m before expenses conditional upon the Company receiving FDA approval for Aorfix by 31 December 2012, provided that if the Company initially receives a restricted indication to treat only those patients with tortuous anatomy there is no major reason to indicate that a wider indication could not be achieved by 30 September In December 2012, the majority of these investors ( 14.1m) agreed to an extension of the approval deadline to 30 June The conditions for this second tranche share issue were satisfied after the year end. Shares issued in the second tranche will be priced at 19

20 the lower of 140 pence (post the 2012 share consolidation) or the prevailing market price on the day the tranche is drawn down by the Company. On 27 March 2012 a share consolidation of one new ordinary share of 20 pence for every 200 existing ordinary shares of 0.1 pence each was approved at a general meeting of the Company. No new share capital was issued during the year. Rights - Ordinary Shares Voting: in a show of hands every holder has one vote and in a poll each share has one vote. Dividends: each ordinary share has the right to receive dividends. Return on capital: each ordinary share has the right to share in a liquidation of the Company s assets. Rights - Deferred Shares Voting: deferred shares do not entitle the holders to attend or vote at any general meeting of the Company. Dividends: deferred shares do not entitle the holder to receive any dividend or other distribution. Return on capital: on a winding up the holders of deferred shares are only entitled to the amount paid up on each deferred share after the holders of the ordinary shares have received the sum of 1m for each ordinary share. ii) Share Premium Account This consists of the proceeds from the issue of shares in excess of their par value less associated issue costs. iii) Other Reserves This arose on the conversion of convertible preference shares to ordinary shares and represents the difference between the fair value of the preference shares and the nominal value of the ordinary shares issued. 9. Reconciliation of Loss before Taxation to Net Cash Outflow from Operating Activities Group Loss before taxation (8,640) (11,387) Depreciation and amortisation of licences Share-based compensation credit/(expense) (258) 260 Impairment provision investment Net finance expense/(income) 398 (59) Decrease/(increase) in inventories 353 (618) Decrease/(increase) in receivables 327 (399) (Decrease)/increase in payables (649) 368 Net cash used in operating activities (8,274) (10,842) 20

21 10. Post Balance Sheet Events On 14 February 2013, the Company received confirmation from the US Food and Drug Administration that the Aorfix TM product had been approved for sale in the US. This approval triggered the second tranche of the May 2011 fundraising. 10,040,000 shares of 20 pence each were issued at a price of 140 pence per share, raising 14,056,000 of cash before expenses of 562,000 in March