RNS Number:2499A
Tissue Science Laboratories PLC
23 March 2006
23 March 2006
Tissue Science Laboratories plc
('TSL' or the 'Company')
Preliminary Results for the year ended 31 December 2005
Tissue Science Laboratories (LSE: TSL), the medical devices company specialising
in human tissue replacement and repair products derived from porcine dermis,
today announces its Preliminary Results for the year ended 31 December 2005.
Operational Highlights
* Successful recruitment of new direct sales force in general surgery;
early penetration into fast-growing biologic market
* Permacol(R) entering large-scale clinical studies in colorectal surgery;
substantial unaddressed market
* Supply issues for human cadaver-sourced bio-materials in the US creating
added opportunity for TSL's porcine-based, sterile products
* Zimmer launch of rotator cuff repair product; maiden sales in the period
* Positive clinical results with dermal filler showing safety and efficacy
* Excellent progress in new product development projects
* Post period end:
* Signed non-binding heads of terms with distribution partner for UBA
product
* Announced new Canadian distributor for general surgery
Financial Highlights
* Successful #7.6m (net) fundraising for investment in sales and marketing
and new product development
* Turnover increased by 17% to #10.2m (2004: #8.7m): 21% growth on a
constant currency basis
* Net loss for the year, which increased with planned investments to #2.3m
(2004: loss #0.6m), was significantly lower than expected
* Strong cash position: #6.8m (31 December 2004: #3.5m)
* Current trading - encouraging contribution from new direct sales force
in general surgery
Commenting on the results, Martin Hunt, Chief Executive of TSL, said:
"In 2005, we set out our strategy for achieving the growth and development of
the Company, raising new finance to fund the next stage of development. The
appointment of a new Canadian distributor, the signing of a non-binding
agreement with a distribution partner for the UBA and the growing sales
contribution of our new US direct sales team in general surgery is an
encouraging start to 2006. We remain confident that the major investments that
we are making in sales and marketing resource, clinical studies and new product
development will continue to drive revenue growth and offer enhanced shareholder
value."
-Ends-
For further information, please contact:
TSL plc Tel: 01252 369 603
Martin Hunt, Chief Executive
David Jennings, Finance Director
Hogarth Partnership Tel: 020 7357 9477
Melanie Toyne-Sewell / Fionnuala Synnott
Notes to Editors
Background on TSL
Founded in 1995, with headquarters in Aldershot, Hampshire, TSL is a medical
technology company specialising in tissue repair and replacement with a
proprietary sheet product, derived from porcine dermis, called Permacol(R). TSL
has launched successfully different formulations of the product and built a
development pipeline that addresses the large and fast growing biologic surgical
implant market. The Company floated in November 2001 and is listed on AIM (LSE:
TSL).
TSL has a family of products based on the same core technology. Each product has
been adapted to make it suitable for use in different applications, including
urology/gynaecology, complex and recurrent hernia repair, rotator cuff repair
and head and face repair and reconstruction. The Company has signed distribution
agreements with CR Bard Inc (urology/gynaecology-worldwide), Zimmer Inc
(orthopaedic-worldwide) and Porex Surgical Inc (head & face-US and Canada).
Further variations of the sheet and injectable forms of Permacol(R) are being
developed.
Background on Permacol(R)
Permacol(R) was developed at Dundee and Cambridge Universities over a 20-year
time period. The key to the Permacol(R) concept lies in it collagen technology
which uses non-reconstituted porcine dermal collagen, very similar in structure
to human tissue. Non-collagenous material, except elastin, is removed by the TSL
manufacturing process. The remaining collagen, which retains its original 3-D
structural architecture, is stabilised by a patented cross-linking process. The
result is a non-reconstituted, non-allergenic, collagen implant which is
resistant to biodegradation, is recognised and accepted by the body, and is able
to provide a long-term support for the in-growth of new tissue and its
associated blood supply.
CHAIRMAN'S STATEMENT
REVIEW OF 2005
2005 has been a significant year of development for TSL. We completed a #7.6m
(net of expenses) financing to fund our strategy for future growth. Core areas
of investment in sales and marketing and new product development were identified
in our programme and I am pleased to report that good progress has been made.
In general surgery we have succeeded in recruiting a direct sales and marketing
organisation in the US as planned, to address the rapidly growing market for
biologic surgical materials. We have established an office in Boston, a key hub
for medical technology companies to support this sales team. In urology/
gynaecology CR Bard has continued to grow revenues with our PelviSoftTM and
PelviLaceTM brands and in orthopaedic surgery, Zimmer has successfully launched
our product for shoulder repair in both the European and US markets.
During the year we reported on the positive outcomes of clinical studies for our
products in incontinence, cosmetic reconstruction and dermal filling. These
results bode well for the future growth of our business. We have also begun a
large-scale patient study in therapeutic stoma repair for Permacol(R) and the
planning of a further study into the prophylactic use of Permacol(R) in stoma
surgery is well advanced.
At our fund raising in March 2005, we identified further significant product
development opportunities for our technology. By applying our proprietary
manufacturing process to other porcine tissues - bones, ligaments and blood
vessels we are seeking to develop products with superior performance
characteristics for orthopaedic and cardiovascular applications. We have
advanced to in vivo testing in all three tissue areas with encouraging results
to date and I look forward to reporting further in respect of these projects in
the coming year.
FINANCIAL REVIEW
Turnover in the year increased by 17% to #10.2m (2004: #8.7m) after taking into
account foreign currency translation. On a constant currency basis (translating
2005 US$ revenues at the same $/# exchange rate as that used in 2004) turnover
increased by 21%.
Sales in general surgery increased by 26% in the US to $5.8m (2004: $4.6m) and
by 18% to #1.3m (2004: #1.1m) in our European markets. In the US we have
completed the initial deployment of our own direct sales team and are encouraged
by early results. Sales in urology/gynaecology increased by 14% to $9.5m. (2004:
$8.3m), with strong performances from our PelviSoftTM and PelviLaceTM brands
marketed through CR Bard. 2005 also saw initial revenues of $0.4m from Zimmer
who launched our product in Europe and the US. We anticipate further growth in
2006 in this attractive market segment as the Zimmer sales organisation is
trained in the use of biologic materials.
Gross margins of 50% (2004: 58%) were impacted by US dollar weakness and an
increase in manufacturing and compliance costs as we build our manufacturing
infrastructure to support future growth. We anticipate that increased sales and
production volumes in 2006 will enhance recovery of fixed manufacturing
overhead, leading to improved gross margins.
Overhead expenditure increased in line with our business growth and the planned
investment in sales and marketing resources.
Selling and distribution expenses increased to #1.9m (2004: #1.2m) reflecting
the recruitment and payroll costs of our direct US sales team in the second
half. Administration costs (which include marketing expenditure) increased to
#4.6m (2004: #3.2m). In our core US general surgery market, marketing
expenditure increased to #1.4m (2004: #0.7m). General administration expenses
increased in line with our investment in US infrastructure.
Research, development and regulatory expenditure amounted to #1.3m (2004: #1.4m)
and we have continued to demonstrate the effectiveness of our internal resources
in progressing product development projects.
Net loss for the year, which increased with planned investments to #2.3m (2004:
loss #0.6m), was significantly lower than expected.
In July, we acquired the freehold of a new industrial facility in Yorkshire to
provide for future expansion of our manufacturing and office facilities. The
purchase was mostly funded by a commercial mortgage facility of #1.3m. We have
invested in additional stock inventory to support our partners and future
growth.
As anticipated, cash outflow before financing increased to #5.3m (2004: #1.1m),
however following our successful fundraising we remain in a strong cash position
with #6.8m in cash at year end (2004: #3.5m) and net funds of #5.0m (2004:
#2.9m).
BOARD AND STAFF
We have continued to strengthen the TSL management team with key appointments in
human resources, sales and marketing, and finance and administration. I welcome
all new members of the TSL team to the Company and would like to take this
opportunity to extend the thanks of the Board to all the staff for their
continuing efforts and look forward with confidence to further successes in
2006.
SUMMARY
In March 2005, we set out our strategy for delivering future growth and
shareholder value. To that effect, we developed our general surgery business
through a direct sales team in the US, broadened the surgical applications
addressed by our current products and widened our product development portfolio
through the application of our manufacturing process to other porcine tissues.
The Company has made key investments in personnel and development programmes.
While such investment has impacted profitability in the short-term, the Board
believes that the strategy will ensure a broader and deeper penetration of the
rapidly developing biologic implant market offering substantially enhanced
shareholder value in the longer term. After a year of investment in 2005, we
look forward to a year of accelerated growth in 2006.
Patrick Paul
Chairman
CHIEF EXECUTIVE'S REPORT
OVERVIEW OF 2005
2005 has been another year of significant development for TSL. We have provided
a review of operational developments below.
SALES AND MARKETING
General Surgery
In 2005, we began the transition from a solely distributor-based sales model,
with the successful recruitment of a direct sales team in the US. Sales
contributions will start to be generated by this team from Q1 2006, as
previously stated. Sales in general surgery in 2005 were solely generated by our
current distributors and grew by 26% in the US to $5.8m (2004: $4.6m).
A key element of our strategy is to address the rapidly growing complex and
recurrent hernia market. Biologic implant materials are increasingly being
adopted by surgeons as the therapy of choice in dealing with these difficult
surgical wounds. Recent research indicates that this market is expected to grow
at a compound annual rate of 30% to circa $300m by 2010, and has confirmed our
view that this area represents a considerable market opportunity for the
Company. The recently publicised issues surrounding the supply of human
cadaver-sourced bio-materials in the US has further reinforced the opportunity
for our sterile, non-human derived tissue.
Our objective in the second half of 2005 has been to recruit, train and deploy
representatives in 20 key metropolitan areas in the US where our current
distributors are not represented. I am pleased to report our goal has been
achieved and we are very encouraged by early successes in the market place. Our
challenge in 2006 is to expand our direct team further in order to build on our
momentum.
In Europe, our general surgery sales grew by 18% to #1.3m (2004: #1.1m). Our UK
direct sales team continues to perform well and we are now generating good sales
from certain European markets eg Greece. We are looking to expand further our
distribution in continental Europe in the coming year.
We have also recently announced the signing of a distribution agreement with a
new distributor, Canadian Hospital Specialties, for Canada.
Urology/Gynaecology
CR Bard has worldwide distribution rights in urology/gynaecology. Sales to Bard
increased overall by 14% in the year to $9.5m (2004:$8.3m) driven by increased
sales of the PelviSoftTM and PelviLaceTM brands. Bard has now established a
market leading position in the use of biologic material for pelvic floor
reconstruction procedures. Recent developments within Bard include the launch of
an enlarged sales team in the US, specifically focused on women's healthcare.
The TSL product range will feature prominently in this initiative.
Increasing competition is being seen in this market, particularly in the US,
however Bard remains committed to our technology in this key business area in
terms of future product development and expansion into new geographical markets.
During the year, regulatory approval was gained by Bard for the Australian
market and initial sales have been made. Further markets currently under
development are Canada (regulatory application submitted) and South Africa.
Orthopaedics
In September 2003, we signed a worldwide distribution agreement with Zimmer to
market Permacol(R) for rotator cuff repair. After extensive internal evaluation
of the technology, Zimmer conducted a controlled launch of the product in both
Europe and the US in the first half of 2005. The product, branded the Zimmer(R)
Collagen Repair Patch, has been initially targeted at selected surgeons.
Response to the clinical performance of the patch has been very positive.
Zimmer has developed product branding and clinical data to support marketing.
Initial inventory has been shipped to Zimmer and total revenues from this
channel amounted to $0.4m (2004: nil). We expect sales to increase steadily as
Zimmer rolls out the product more widely in the coming year. Biologic implants
are increasingly seen as future drivers for growth as orthobiologics gain market
acceptance and we remain confident that our technology will make a significant
impact in this market sector.
Head and Face Surgery
A 45 patient UK clinical study into the use of our product in rhinoplasty
procedures has been completed and confirms that Permacol(R) is "a convenient
easy material to use and produces excellent results." The data will be used to
support marketing of the product in this target indication. We have also entered
the Korean market where there is a strong head and face market with initial
sales of $0.1m (2004: nil) in the year. Both the US and Korean markets will be
the focus of further business development efforts in 2006.
Marketing and Business Development
Our marketing expenditure increased in the year in line with planned investment
to #2.1m (2004: #1.3m). We are working with key opinion leaders in general and
colorectal surgery, conducting marketing studies and having research published
in clinical publications. In addition, we are promoting the Company and its
products at carefully selected industry meetings and surgical conferences. For
example, Professor Norman Williams of the Royal London Hospital, a leading
authority on colorectal surgery, presented clinical data on the performance of
Permacol(R) at the influential Cleveland Clinic surgical symposium in the USA in
February.
We have also recruited product managers in the UK and the US to provide
technical and logistical support to the field sales teams and are well
positioned to support planned growth in the coming year.
CLINICAL STUDIES
Permacol(R) - Colorectal Procedures - Therapeutic Stoma Repair
The treatment of herniated stomas, a common complication of stoma surgery, is a
core area of focus for TSL. A pivotal 200 patient study using Permacol(R) to
repair herniated stomas has commenced in c.20 centres in the UK. There are
currently between 750,000 and 1,000,000 stomas in the US alone with a potential
herniation rate of 44%. The Company believes that herniated stomas are not
readily treatable with synthetic meshes. This therefore represents a
considerable market opportunity for a biologic material such as Permacol(R). The
study has a 12 month patient follow-up and initial results are expected in 2007.
The Company already has regulatory access to this market in the US within its
existing 510k approvals.
Permacol(R)- Colorectal Procedures - Prophylactic Stoma Repair
We are also developing a further study of 300 patients which will investigate
the use of Permacol(R) in the prevention of stoma herniation by implanting the
material at the time that the stoma is first created by the surgeon. The study
protocol has been developed during the year and first patient recruitment is
expected in the first half of 2006.
Permacol(R) Injection - Urethral Bulking Agent
In December, we reported on the results of our 249 patient clinical study into
the use of Permacol(R) injection as UBA. The results demonstrate the efficacy
and safety of our product in this indication. Our strategy now is to commence
the pre-marketing application study (PMA) for US market access. The
identification and enrolment of study centres is underway and the study protocol
has received full approval from the FDA. We anticipate that the first patients
will be recruited imminently into the study.
Post year-end, we are pleased to announce that we have signed non-binding heads
of terms with a distribution partner for the UBA product. We will make a fuller
announcement once details have been finalised.
Two further potential applications of Permacol(R) Injection are currently under
development - treatment of anal fistulae and wrinkles or guttering around
stomas.
In respect of anal fistulae, in vivo studies have shown promising clinical
results. In addition, further work is being carried out independently into the
seeding of Permacol(R) Injection with cells, also for the treatment of fistulae.
The Company intends to seek a PMA for this product indication in the US.
The bulking agent has also been used successfully in the correction of wrinkles
and guttering around stomas. This is a common condition associated with stomas
causing leakage which can lead to local skin abrasion and infection of the stoma
site. The bulking agent is injected sub-dermally to smooth-out wrinkling and
other deformities restoring the seal between stoma and colostomy bag. This
potentially avoids the need for more extensive surgery to re-site or repair the
stoma.
Permacol(R) Injection - Dermal Filler
We reported in December on the outcome of the 79 patient clinical study of our
dermal filler injection in lips. The initial results are very pleasing and
demonstrated equivalence in product performance to current market leading
products. Further analysis of these results will be published in 2006. We will
now conduct a further study into the use of the product for facial wrinkles. Our
strategy will be to identify a marketing partner with whom we can jointly
progress the marketing and regulatory clinical studies for access to the US
market.
NEW PRODUCT DEVELOPMENT
A core element of our strategy for future growth is the application of our
manufacturing technology to other porcine tissues - bone, ligament and blood
vessels. We have now defined each of these projects, allocated internal
resources and accelerated the development work. In each case we will take the
projects through to pre-clinical proof of principle before seeking marketing
partners.
Bone: Treated porcine bone will be used to develop bone blocks and fillers that
will provide a scaffold to aid vascularisation, integration and repair in bone
graft procedures. Our aim is to produce products with superior performance
characteristics to those currently available and early development work is
promising. In vivo studies have indicated that our potential product is
biocompatible and non-allergenic.
Ligaments: Work has progressed with in vivo studies also producing good results
in terms of biocompatibility and non-allergenicity. Our aim is to produce
replacement ligaments for procedures such as Anterior Cruciate Ligament repair -
a common sporting injury with 250,000 ACL repairs performed annually in the US
alone.
Blood Vessels: Early development work has shown that the integrity and
elasticity of porcine blood vessels is maintained when the TSL manufacturing
process is applied. The target is to develop replacement blood vessels for
procedures such as arterio-venous access for dialysis patients, treatment of
peripheral vascular disease and ultimately coronary heart bypass grafts.
I look forward to updating shareholders on our progress with these projects in
the coming months.
MANUFACTURING AND OPERATIONS
The scale-up of our manufacturing operations in the first half of the year led
to an increase in unit manufacturing costs as the new teams were brought up to
normal operating efficiency. As planned, our objective for the year was to build
product inventories to support our US sales teams and marketing partners.
We have recruited additional quality assurance, compliance and support staff in
the year and have established appropriate development, laboratory and office
facilities for our staff in Leeds as planned.
In July, we completed the acquisition of a new industrial unit located within a
short distance of our current facilities in Leeds. This 30,000 square feet
facility will be the subject of a phased investment over a 2-3 year period as
longer term business growth demands additional manufacturing capacity, office
and laboratory facilities. Our current facilities will meet our business needs
over the medium-term.
REGULATORY
Through its regulatory activity in the year, TSL gained access to additional
markets, received approval for product line extensions and provided dedicated
regulatory support to our sales teams and marketing partners. For Permacol(R),
regulatory access was gained for Canada, Turkey and for additional product sizes
in the Korean market. In addition, product approvals were obtained in Europe for
PelviLaceTM trans-obdurator (surgical procedure) support system and further
submissions have been made for certain Eastern European markets for PelvicolTM,
PelviSoftTM and PelviLaceTM. Approvals were also granted in the US in respect of
colorectal procedure-related products.
SUMMARY AND OUTLOOK
In 2005, we set out our strategy for achieving the growth and development of the
Company, raising new finance to fund the next stage of development. The
appointment of a new Canadian distributor, the signing of a non-binding
agreement with a distribution partner for the UBA and the growing sales
contribution of our new US direct sales team in general surgery is an
encouraging start to 2006, We remain confident that the major investments that
we are making in sales and marketing resource, clinical studies and new product
development will continue to drive revenue growth and offer enhanced shareholder
value.
Martin Hunt
Chief Executive
Tissue Science Laboratories plc
Consolidated Profit & Loss Account for the Year Ended 31 December 2005
Note Year Ended Year Ended
31 December 31 December
2005 2004
(Audited) (Audited)
#000s #000s
TURNOVER: 2 10,171 8,681
Cost of Sales (5,071) (3,658)
Gross Profit 5,100 5,023
Selling & Distribution costs (1,882) (1,187)
Administrative Expenses
Research and development costs (1,297) (1,410)
Other administrative costs (4,564) (3,210)
---------- ----------
(5,861) (4,620)
Operating Loss (2,643) (784)
Interest Receivable 293 94
Interest Payable & similar charges
Bank & finance lease interest (94) (64)
---------- ----------
LOSS ON ORDINARY ACTIVITIES BEFORE
TAXATION (2,444) (754)
Taxation 140 173
---------- ----------
RETAINED LOSS ON ORDINARY
ACTIVITIES AFTER TAXATION (2,304) (581)
========== ==========
Basic loss per ordinary share 3 8.1p 2.4p
========== ==========
All amounts relate to continuing operations.
There were no recognised gains and losses for the current or preceding 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.
Tissue Science Laboratories plc
Consolidated Balance Sheet as at 31 December 2005
31 December 31 December
2005 2004
(Audited) (Audited)
#000s #000s
Fixed Assets
Tangible assets 3,340 1,725
Current Assets
Stocks 2,301 1,550
Debtors 2,713 1,887
Cash at bank and in hand 6,842 3,472
----------- ---------
11,856 6,909
Creditors: amounts falling due within one year (2,482) (2,652)
----------- ---------
NET CURRENT ASSETS 9,374 4,257
Total assets less current liabilities 12,714 5,982
----------- ---------
Creditors: amounts falling due after more than
one year (1,554) (212)
----------- ---------
NET ASSETS 11,160 5,770
=========== =========
CAPITAL & RESERVES
Called up share capital 2,946 2,463
Share premium account 22,075 14,864
Shares to be issued 167 175
Merger reserve 545 545
Profit & loss account (14,573) (12,277)
----------- ----------
EQUITY SHAREHOLDERS' FUNDS 11,160 5,770
=========== ==========
Tissue Science Laboratories plc
Consolidated Cash Flow Statement for Year Ended 31 December 2005
Note Year Ended Year Ended
31 December 31 December
2005 2004
(Audited) (Audited)
#000s #000s
Net cash outflow from operating activities 4 (3,301) (956)
Returns on investment and servicing of Finance 196 22
Taxation (32) 173
Capital expenditure & financial investment (2,144) (372)
Cash outflow before use of liquid resources &
financing
(5,281) (1,133)
Financing
Net cash inflow from financing 8,651 2,176
---------- ---------
Increase in cash in the period 3,370 1,043
========== =========
RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET
FUNDS
Increase in cash in the period 3,370 1,043
Cash outflow from movement in debt & lease
financing 343 386
Change in net funds resulting from cash flows 3,713 1,429
New finance leases (393) (28)
Currency translation difference 18 (30)
Bank loan (1,300) -
---------- ----------
Movement in net funds in the period 2,038 1,371
Net funds brought forward 2,928 1,557
---------- ----------
Net funds carried forward 4,966 2,928
========== ==========
Tissue Science Laboratories plc
Notes
1. ACCOUNTING POLICIES AND BASIS OF PREPARATION
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 31 December 2005 or for the year
ended 31 December 2004, but is derived from those accounts. Statutory accounts
for the year ended 31 December 2004 have been delivered to the Registrar of
Companies and those for the year ended 31 December 2005 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.
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:
Year Ended Year Ended
31 December 31 December
2005 2004
(Audited) (Audited)
#000s #000s
A geographical analysis of turnover by destination is
as follows:
United Kingdom 1,201 1,057
Europe 1,465 1,047
USA 7,413 6,536
Rest of World 92 41
---------- ---------
10,171 8,681
========== =========
An analysis of turnover by class of business is as
follows:
Product sales 10,117 8,630
Milestone income 54 51
---------- ----------
10,171 8,681
========== ==========
3. LOSS PER SHARE
Loss per ordinary share has been calculated based on the weighted-average of
ordinary shares in issue during the period.
Year Ended Year Ended
31 December 31 December
2005 2004
(Audited) (Audited)
#000s #000s
Loss for the period (2304) (581)
Weighted average number of ordinary shares 28,296,310 24,019,019
Loss per share 8.1p 2.4p
========== ==========
4. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING
ACTIVITIES
Year Ended Year Ended
31 December 31 December
2005 2004
(Audited) (Audited)
#000s #000s
Operating loss (2,643) (784)
Depreciation of tangible fixed assets 922 756
Increase in debtors (633) (512)
Increase in stocks (751) (951)
(Decrease)/Increase in creditors (178) 521
Profit on disposal of fixed assets - (45)
Foreign exchange loss/(gain) (18) 30
Shares to be issued - 29
---------- ----------
(3,301) (956)
========== ==========
This information is provided by RNS
The company news service from the London Stock Exchange
END
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