Conditional Placing and Open Offer

RNS Number : 7590H

Deltex Medical Group PLC

22 May 2014

 

Deltex Medical Group plc

Conditional Placing to raise £4 million (the "Placing")  and an open offer (the "Open Offer")  to raise a maximum of £1.04 million by the issue of New Ordinary Shares at 11 pence per share

22 May 2014- Deltex Medical Group plc ("Deltex Medical" or the "Company"), the global leader in oesophageal Doppler monitoring ("ODM"), announces today that it proposes to raise approximately £4 million (before expenses) by way of a placing of 36,363,636 New Ordinary Shares at 11 pence per share with institutional and other shareholders. In addition, up to a maximum of £1.04 million will be raised by an Open Offer to Qualifying Shareholders of up to 9,496,063 new Ordinary Shares ("New Ordinary Shares") on the basis of 1 New Ordinary Share for every 18 existing ordinary shares of 1p each in the Company ("Ordinary Shares"), at 11p per New Ordinary Share (together the "Placing and Open Offer").

Further details of the Placing and Open Offer will be described in a circular which is intended to be posted, along with Application Form(s), to shareholders on or around Friday 23 May 2014 (the "Circular"). The net proceeds of the Placing and Open Offer are expected to be between approximately £3.7 and £4.7 million.

The Placing and Open Offer is subject to the approval of shareholders at a general meeting of the Company (the "General Meeting"). The General Meeting is intended to be convened for Monday 9 June 2014 at which a resolution to enable the Placing and Open Offer to proceed will be proposed.

Application will be made to the London Stock Exchange for the New Ordinary Shares subscribed for in the Placing and Open Offer to be admitted to trading on AIM ("Admission"). It is expected that Admission will become effective and that dealings in the New Ordinary Shares will commence at 8.00 a.m. on 10 June 2014.

Terms of the Open Offer

Under the Open Offer, qualifying shareholders will be invited to apply for New Ordinary Shares pro rata to their existing shareholdings on the basis of 1 New Ordinary Share for every 18 Existing Ordinary Shares held as at the record date, being 5 p.m. on 21 May 2014, at a price of 11 pence per New Ordinary Share, payable in full on application and free of all expenses.

Excess applications for New Ordinary Shares over and above the qualifying shareholders' pro-rata entitlements will be accepted from such holders to the extent that other shareholders do not take up their entitlements. If such excess applications, together with the applications under the Open Offer, exceed the number of New Ordinary Shares which are the subject of the Open Offer, then excess applications will be scaled back at the discretion of the Company.

The Open Offer will allow the Company's existing Shareholders to participate in the fundraising on the same terms as the Placing. The Placing and Open Offer will be conditional, inter alia, upon approval by shareholders and admission of the New Ordinary Shares to trading on AIM of the London Stock Exchange.

All of the shares issued pursuant to the Placing have been conditionally placed with institutional and other shareholders.

Use of Proceeds

The Company has received approaches from ten new US hospitals, some part of larger systems, since the start of this year. The proceeds from the Placing and Open Offer will fund the expansion of the Company's sales and clinical education team in the USA to support expansion resulting from these approaches. The high quality of the leads received since the start of 2014 have exceeded the Company's expectations and indicate a growing recognition in the USA of the patient outcome and cost saving benefits of implementing evidence based approaches to fluid management. To date we have been deploying our current US and UK resources to support these opportunities in addition to supporting growth in our existing customers and geographic focus areas in the USA.  In order to adequately support the current interest levels, we will need to recruit two further sales people and three additional clinical trainers. This would enable the Company to fully staff its current three sales territories and add two additional territories where we have the potential to build local critical mass within 12 to 18 months. Further 'dedicated' trainers will be deployed as and when potential dedicated trainer accounts move from evaluation to implementation. The Company is also planning to invest in e-learning and customer relationship management systems to enable the Company to expand its training and sales infrastructure to meet demand as it accelerates. The total cost of this investment in US expansion is estimated at £1.7 million.

A further £0.9 million will be used to support a number of operational projects aimed at improving margins, supporting expansion and increasing the breadth of application of the Company's products. These operational improvements include probe-manufacturing changes that are expected to improve margins materially and accelerate product development to meet developing market needs. The Company requires additional investment and working capital of £0.9 million to pursue these initiatives, this sum includes the cost to move premises in order to create the manufacturing capacity for identified probe improvement and cost reduction initiatives. Finally, the balance of the funding will be set aside to strengthen the balance sheet and address working capital needs of the business as it expands.

Current trading

The Company is making satisfactory progress in each of its UK, USA and International market segments with consumption of surgical probes growing in almost all focus accounts in our direct markets. Our distributors are reporting increases in end user sales of our products in the majority of our more important target markets including France, Scandinavia, Germany, Austria and Peru. These increases are expected to flow through to increased surgical probe sales in all segments over the course of the year.

As noted in the AGM statement issued on 7 May 2014, probe sales in the UK, as opposed to consumption in focus accounts, have been held back in the year to date by wide-scale NHS de-stocking. While there have been encouraging signs in May of this starting to reverse, the majority of the impact of such de-stocking is unlikely to unwind until the second half of the year. Accordingly we expect 2014's UK surgical probe growth to come through in the second half of the year with a relatively flat first half of the year.

We also expect stronger second than first half growth in the USA both from expansion of the dedicated trainer programme and because changes in procurement policy at our largest account are expected to remove permanently over one month's sales from the hospital's stock.

Future Prospects

The Directors expect that the additional investment set out above under "Use of Proceeds" will increase losses in both 2014 and 2015 against current expectations, but that the Company will have significantly higher revenue run-rates by the end of 2015. The positive impact of this will be reflected in 2016. If US expansion is delivered according to plan, our expectation would be to have a solid platform at the end of that period from which to drive subsequent national roll-out of ODM. By then we would have expanded our number of sales territories in the USA from three to at least seven and have established a core group of hospitals who have adopted or are adopting ODM at scale. We would expect our cash-generative UK and International distributor businesses to have grown solidly with modest additional investment. Operational investments are planned to reduce probe manufacturing costs incrementally from 2015 through to 2018 to deliver increased gross margin. Additional investment should increase the clinical applicability of our products and create additional consumable revenue streams whilst modernising the look and feel of our monitors and screens.

Directors' Intentions

Messrs Keen and Cazalet, Non-executive Directors of the Company, intend to subscribe or procure subscription for a total of £200,000 in the Placing, representing 1,818,181 New Ordinary Shares.

Each of the Directors has confirmed their intention to vote in favour of the resolution(s) being proposed at the General Meeting in respect of their holdings which in aggregate total 13,956,951 Existing Ordinary Shares, representing 8.2 per cent. of the Existing Share Capital.

Deltex Medical's chairman, Nigel Keen, commented:

"The successful completion of the fund-raising is a significant step in allowing the Company to pursue its strategy in the rapidly developing US market. I am pleased to offer existing shareholders the opportunity to participate in the fund-raising through the Open Offer to give our shareholders an opportunity to increase their stake in the Company and its development on the same terms as the institutional placing. This additional funding will allow the Company to pursue a number of other operational improvements and expand more aggressively in the USA."

For further information, please contact:-

Deltex Medical Group plc	01243 774 837 [e-mail]
Nigel Keen, Chairman
Ewan Phillips, Chief Executive
Paul Mitchell, Finance Director
Nominated Adviser & Broker
Arden Partners plc	020 7614 5900
Chris Hardie
Joint Broker Zeus Capital Limited Dominic Wilson John Goold	020 7533 7727
Financial Public Relations
Newgate Threadneedle	020 7653 9850
Caroline Forde
Heather Armstrong

Notes for Editors

Deltex Medical manufactures and markets CardioQ-ODMÔ Oesophageal Doppler Monitoring ('ODM') systems. ODM is the only therapy to measure blood flow in the central circulation in real time. Minimally invasive, easy to set up and quick to focus, the technology generates a low-frequency ultrasound signal, which is highly sensitive to changes in flow and measures them immediately. Randomised, controlled trials using Doppler have demonstrated that early fluid management intervention will reduce post-operative complications, reduce intensive care admissions, and reduce the length of hospital stay.

The CardioQ-ODM has two distinct established clinical applications: firstly, to guide fluid management during surgery and secondly, to monitor cardiac output in critical care settings.

Surgical market

In March 2011 the National Institute for Health & Clinical Excellence ('NICE') recommended that CardioQ-ODM be considered for use in patients undergoing major and high risk surgery and in high risk patients undergoing intermediate risk surgery. NICE estimated the applicable number of such patients in the NHS in England alone to be over 800,000 each year. CardioQ-ODM has been shown to be effective in both elective and emergency surgery and with both general and regional anaesthetics. This recommendation was specific to CardioQ-ODM and was based on the robust evidence base that supports its use.

Subsequent to the NICE guidance, the NHS in England announced its selection of ODM as a high impact innovation to be rolled out across the system fully, at pace and scale with significant financial penalties starting in the NHS 2013/14 financial year ending 31 March 2014.

The NICE evaluation and recommendation confirms that the potential global market for CardioQ-ODM in surgery includes tens of millions of patients, even if confined to developed health economies: the most conservative estimate of the potential value of the market opportunity Deltex Medical has created is in excess of £1 billion per annum. The Company's core focus is on building market leading positions in this surgical market, both geographically and by type of surgery.

Critical care market

In critical care settings, well-equipped hospitals will often have more than one cardiac output monitoring technology available. In this environment, ODM's strengths are that it is quick to set up, easy to use, safe, low cost and the ideal technology for a patient in crisis requiring rapid or frequent intervention. The potential market for cardiac output monitoring in critical care is a fraction of the size of that for intra-operative fluid management.

Through the 2012 launch of the CardioQ-ODM+, Deltex Medical has added the Pulse Pressure Waveform Analysis ('PPWA') approach to monitoring cardiac output to ODM functionality. Doing this has improved Deltex Medical's offer for monitoring applications as well as providing doctors and nurses with a choice of clinical strategies appropriate to individual patients in different clinical settings.

Company goal

Our goal is to make oesophageal Doppler monitoring (ODM) a standard of care for patients in both these markets. We believe that, in most modern health systems, it is essential to have a robust evidence base of both clinical benefit and cost effectiveness in order to achieve system-wide adoption of a new medical technology. Deltex Medical is one of the very first medical technology companies to have completed the investment necessary to build such an evidence base: as a result, use of ODM during surgery has the proven potential to deliver both clinical and economic benefits that are material at each of patient, hospital and system level.

The Company is currently in the implementation phase of achieving this goal in a number of territories worldwide and there are already over 3,000 CardioQ-ODM systems in use in hospitals worldwide. Distribution arrangements are in place in over 30 countries.

 

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