AorTech Announces Interim Report

RNS Number : 9359T

AorTech International PLC

14 December 2011

 



AORTECH INTERNATIONAL PLC

INTERIM REPORT 2011

For the six months ended 30 September 2011

CHAIRMAN'S STATEMENT

The past six months have seen considerable change in the AorTech business principally due to the relocation of our manufacturing facility from Australia to the Minneapolis St Paul area of Minnesota ('MN'). As announced earlier this year, this move was facilitated by a restructuring of an existing licence which will generate $4.2 million in revenues this financial year and also includes the sale of heavily depreciated fixed assets to the licensee for a sum of $300k. The Group has received $2.2 million of these licence fees during the six month period to 30 September 2011 with the balance of $2 million due to be paid during the six month period to 31 March 2012.

Financial Results

As announced at the year end, we are now reporting our results in US $ and, as a result, all historical numbers have been restated in the new reporting currency.

During the six month period, Group revenue rose to $2.64 million from the $1.03 million recorded during the corresponding period of the previous Financial Year. Operating expenses for the half-year decreased by 4% to $2,65m; this included $818,000 of development expenditure (H1 2010: $1,057,000) and $149,000 amortisation of intangible assets (H1 2010: $175,000). As a result of revenues increasing from the restructured license deal, it is pleasing that the Group has produced a pre-tax profit of $626,000 before exceptional items compared to a loss of $1,619,000 last year.  The profit after exceptional costs of $464,000 and finance income received of $122,000 was $284,000. Period end cash balances stood at $2,258,000 at 30 September 2011.

Operations Update

Your Board believes that it would be helpful to shareholders to provide an update on the development of your Company over recent times and I set out below a summary of the status of AorTech's major projects.

Co- Development Project - $32 million

In July 2007, we announced a licensing and supply agreement for the evaluation of Elast-Eon™ by a global device company. This agreement allowed the licensee to acquire certain AorTech intellectual property rights and encompassed potential milestone payments of up to $32 million.  The Agreement between AorTech and the licensee has recently been terminated by mutual consent with AorTech re-acquiring all of its Patents and it's Intellectual Property at the end of the notice period on 1 March 2012. Your Board believes that it is in the long term interests of the Company and its shareholders to take ownership of this Intellectual Property which is one of the key drivers to creating shareholder value. Later in this report I will explain the Group's strategy to benefit fully from the value of AorTech's Intellectual Property.

St Jude Medical - Pacing Leads

Shareholders may well be aware of the success St Jude Medical ('SJM') is achieving in the Cardiac Rhythm Management market by having converted the insulation of all of their pacing products to Elast-Eon™ (re-branded by St Jude as Optim™). A recent Credit Suisse note on SJM (8 November 2011) increased the target valuation of St Jude by $1.6 billion due to the success of the durability performance of Optim™ insulated leads. We view this development as very positive as it demonstrates to not only the medical device industry but also the financial markets the value that can be added to a medical device by utilising AorTech's Elast-Eon™ material, and this provides a significant marketing opportunity for us.

The validation of the performance of Elast-Eon™ in the lead application, as is the case in many long-term, life-sustaining implants, required several years and a large number of implants. To date, AorTech has not been informed of any Elast-Eon™ related failures in lead (or any other) products.

AorTech is capitalising on this highly-publicised success with its polymers by focusing on expansion in the related areas of headers (the part of the pacemaker or neurostimulation device into which the lead is inserted) and the insulation of neurostimulation leads. A number of evaluations are currently underway in both of these application areas.

Applications for our Technology

The development of medical devices can be a lengthy process with our licensees having to design products incorporating our material, undergo testing on these devices and then bring those products to market. We receive revenues from a combination of material supply sales, licence fees and in some cases royalty payments. We anticipate the revenues from our existing deals to increase during the next few years.  However the future cash generation of the Group and its future profitability will also depend upon generating further new business. With a number of evaluation projects currently underway we hope some of these will mature into revenue-generating accounts.

Elast-Eon™ material is currently being evaluated and tested in areas including long term indwelling catheters, coronary artery grafts, AV fistula, pacemaker headers and neurovascular implants. The use of Elast-Eon™ has expanded beyond the applications for which it was originally developed. These original applications were typically ones where very high biostability and fatigue resistance were required.

Drug elution is one of the newer applications. This programme required the formulation of a proprietary polymer capable of eluting a combination of the licensee's drugs at a specific rate. This drug/Elast-Eon™ dispersion must also demonstrate an adequate bond to the licensee's catheter. Both of these criteria have now been successfully demonstrated in pre-clinical testing.

Another area holding promise for the expansion of applications for the Elast-Eon™ and ECSil™ polymers is in the area of devices requiring specific gas and water vapour transmission rates. One large high volume licence -  in the field of sensors - emerging from this work was recently announced. The Breast Implant agreement also depends in part upon these properties. Other customer projects requiring implantable or blood contacting polymers with these specific properties are currently active.

Relocation to Rogers MN.

The relocation of AorTech's production facility from Melbourne, Australia to Rogers, MN is progressing satisfactorily. This move, as previously mentioned, was facilitated by a restructuring of existing licence agreements and the sale of certain fixed assets.  The facility now employs 15 staff, all of whom are experienced in either the medical devices sector or polymer manufacturing. AorTech will continue to work to keep its perfect on time delivery and quality record intact.

Strategy for Creating Value

Our move to North America is of strategic importance as it has placed the Group's operations at the heart of the medical device industry and has opened many opportunities to increase the penetration of our materials into the medical device industries.

The short term focus of our executive team is to actively pursue the opportunities available to us to increase the revenue potential of the business.

As mentioned above, we will be re-acquiring the rights to one of our device Patents and IP. This Intellectual Property relates to AorTech's potentially high value product the Elast-Eon™ Tri-Leaflet Heart Valve.

Our polymer valves have undergone rigorous testing over the years and have demonstrated strong durability, efficient fluid dynamics and regurgitation, and have been free of thrombosis.

We are currently evaluating options for future development of our heart valve Intellectual Property with a view to capitalising on this for our shareholders.

Developing the heart valves ourselves would require a substantial sum of capital and we will consider how best to secure the potential with the creation of shareholder value in mind. There are a number of options to explore including licensing, forming a joint venture development company and raising capital through a special purpose vehicle set up for the project. The US market has provided capital to a number of early stage heart valve companies and our move to the US has increased the options available to us.

The Board therefore believes that the Company has the potential to develop into a strong materials and components business, and the executive management will continue to pursue these goals on behalf of the Company.

We recognise that in generating shareholder value over the medium term will require a change in the scale of our business and customer base, which our move to America is an important step in achieving.  We also recognise that a simple valuation of the Company based purely on discounted cash flow valuation of future revenue streams does not necessarily reflect the true value of our IP. The recent broker's note on St Jude and the impact it has had on the valuation of that company as a result of the benefits of our material has demonstrated the value of our Intellectual Property in one application alone.  In addition, our heart valve technology is well positioned, particularly in the field of trans-catheter delivery mechanisms and as a cost-effective solution for developing markets. In other areas, our portfolio includes a number of patents for both material manufacture and device design and is the core platform on which we will generate value for our shareholders.

The Board recognises that the Group's intellectual property portfolio and its applications will be of increasing interest to a number of other medical companies.

I would like to take the opportunity to thank our dedicated staff for their skill and energy which enabled the successful transfer of our research, development and manufacturing from Melbourne to Rogers, MN.

Jon Pither

Chairman

-Ends-

For further information please contact:

AorTech International plc

Frank Maguire, Chief Executive Officer

Tel: + 1 801 201 4336

Bill Brown, non-Executive Director

Tel:  + 44 20 7400 0494

Sarah Price, Media Relations

Tel: + 1 801 649 4163

e-mail [e-mail]

Evolution Securities

Stuart Andrews

Tel: [phone]

About AorTech:  AorTech develops and manufactures biostable, implantable polymers, including Elast-Eon™ and ECSil™, the world's leading long-term implantable co-polymers, as well as proprietary processing methods for various devices, including small part RIM manufacturing.  With more than 3 million implants and five years of successful clinical use, AorTech polymers are in use or have been selected for cardiology and urological applications, including pacing leads, cardiac cannulae and bilary stents.  Devices manufactured from AorTech polymers have numerous US FDA PMA approvals, 510k's, CE Marks, Australian TGA and Japanese Ministry of Health approvals.

Elast-Eon™ and ECSil's™ biostability is comparable to silicone while exhibiting excellent mechanical, blood contacting and flex-fatigue properties. Our polymers can be processed using conventional thermoplastic extrusion and molding techniques. AorTech provides a range of materials in a variety of application-specific formulations for use in medical devices and components.

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
Six months ended 30 September 2011
	(Unaudited)		Six months to 30 Sept 2011				Restated Six months to 30 Sept 2010		Restated  Twelve months to 31 March 2011
			US$000				US$000		US$000
Revenue			2,638				1,028		2,440
Other income - grants received			641				122		510
	Cost of sales		(232)				(255)		(555)
	Administrative expenses		(1,454)				(1,282)		(3,399)
	Other expenses - development expenditure		(818)				(1,057)		(2,071)
	Other expenses - impairment of property, plant and equipment		-				-		(708)
	Other expenses - amortisation of intangible assets		(149)				(175)		(236)
Operating profit / (loss) before exceptional item			626				(1,619)		(4,019)
Exceptional item:
	Cost of transfer of operations to USA		(464)				-		-
Operating profit / (loss) after exceptional item			162				(1,619)		(4,019)
	Finance income		122				73		132
Profit / (loss) before taxation			284				(1,546)		(3,887)
	Taxation		-				-		-
Profit / (loss) attributable to equity holders of the parent company			284				(1,546)		(3,887)
Earnings / (loss) per share (basic and diluted) - US cents			5.88				(31.99)		(80.43)

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
		Six months to 30 Sept 2011		Restated Six months to           30 Sept 2010		Restated Twelve months to         31 March 2011
		US$000		US$000		US$000
Profit / (loss) for the period		284		(1,546)		(3,887)
Other comprehensive income:
	Exchange differences on translating foreign operations	(234)		387		734
	Income tax relating to other comprehensive income	-		-		-
Other comprehensive income for the period, net of tax		(234)		387		734
Total comprehensive income for the period, attributable to equity holders of the parent		50		(1,159)		(3,153)

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
(Unaudited)		30 Sept 2011		Restated 30 Sept 2010		Restated 31 March 2011
		US$000		US$000		US$000
Assets
Non current assets
	Property, plant and equipment	500		1,068		346
	Intangible assets	1,920		2,173		2,188
Total non current assets		2,420		3,241		2,534
Current assets
	Inventories	262		192		234
	Trade and other receivables	889		976		1,081
	Cash and cash equivalents	2,258		3,557		2,214
Total current assets		3,409		4,725		3,529
Total assets		5,829		7,966		6,063
Liabilities
Current liabilities
	Trade and other payables	(774)		(967)		(1,058)
Total liabilities		(774)		(967)		(1,058)
Net assets		5,055		6,999		5,005
Equity
	Issued capital	18,825		19,175		19,370
	Share premium	3,646		3,714		3,751
	Other reserve	(3,121)		(3,179)		(3,211)
	Foreign exchange reserve	5,067		4,594		4,741
	Profit and loss account	(19,362)		(17,305)		(19,646)
Equity shareholders' funds		5,055		6,999		5,005

CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT
(Unaudited)		Six months to 30 Sept 2011		Restated Six months to 30 Sept 2010			Restated Twelve months to 31 March 2011
		US$000		US$000			US$000
Cash flows from operating activities
	Group profit / (loss) after tax	284		(1,546)			(3,887)
Adjustments for:
	Depreciation of property, plant and equipment	40		154			351
	Impairment of property, plant and equipment	-		-			707
	Amortisation of intangible assets	149		175			236
	Loss on disposal of property, plant and equipment	24		-			-
	Interest income	(122)		(73)			(132)
	Deferred income released	-		(64)			-
	Decrease in trade and other receivables	192		372			287
	(Increase)/decrease in inventories	(28)		44			6
	(Decrease)/increase in trade payables	(284)		(21)			57
Net cash flow from operating activities		255		(959)			(2,375)
Cash flows from investing activities
	Purchase of property, plant and equipment	(500)		(73)			(205)
	Proceeds from disposal of property, plant and equipment	309		-			-
	Interest received	122		73			132
Net cash flow from investing activities		(69)		-			(73)
Net cash flow from financing activities		-		-			-
Net increase/(decrease) in cash and cash equivalents		186		(959)			(2,448)
Foreign exchange movements		(142)		168			314
Cash and cash equivalents at beginning of period		2,214		4,348			4,348
Cash and cash equivalents at end of period		2,258		3,557			2,214

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
(Unaudited)		Share capital		Share premium account		Other reserve		Foreign exchange reserve		Profit and loss account			Total equity
		US$000		US$000		US$000		US$000		US$000			US$000
Balance at 1 April 2010		18,210		3,527		(3,019)		5,199		(15,759)			8,158
Transactions with owners		-		-		-		-		-			-
Loss for the period		-		-		-		-		(1,546)			(1,546)
Other comprehensive income
Exchange difference on translating  foreign operations		965		187		(160)		(605)		-			387
Total comprehensive income for the period		965		187		(160)		(605)		(1,546)			(1,159)
Balance at 30 September 2010		19,175		3,714		(3,179)		4,594		(17,305)			6,999
Transactions with owners		-		-		-		-		-			-
Loss for the period		-		-		-		-		(2,341)			(2,341)
Other comprehensive income
Exchange difference on translating  foreign operations		195		37		(32)		147		-			347
Total comprehensive income for the period		195		37		(32)		147		(2,341)			(1,994)
Balance at 31 March 2011		19,370		3,751		(3,211)		4,741		(19,646)			5,005
Transactions with owners		-		-		-		-		-			-
Profit for the period		-		-		-		-		284			284
Other comprehensive income
Exchange difference on translating  foreign operations		(545)		(105)		90		326		-			(234)
Total comprehensive income for the period		(545)		(105)		90		326		284			50
Balance at 30 September 2011		18,825		3,646		(3,121)		5,067		(19,362)			5,055

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

2.  SEGMENTAL REPORTING
The principal activity of the AorTech International Plc Group currently is the development and exploitation of a range of innovative biomaterials.
All revenue during the first six months of financial year 2011/12 originated in Australia.
(Unaudited)
		Six months to 30 Sept 2011		Restated Six months to 30 Sept 2010			Restated Twelve months to  31 March 2011
		US$000		US$000			US$000
Analysis of revenue by destination
Geographical segments
	United Kingdom	6		5			6
	Australia	-		-			2
	United States of America	2,632		1,023			2,432
		2,638		1,028			2,440
Analysis of result - operating profit / (loss)
Geographical segments
	United Kingdom	(448)		(312)			(633)
	Australia	1,713		(921)			(2,605)
	United States of America	(639)		(386)			(781)
Operating profit / (loss) before exceptional item		626		(1,619)			(4,019)
Exceptional item:
	Cost of transfer of operations to USA	(464)		-			-
Operating profit / (loss) after exceptional item		162		(1,619)			(4,019)

3.  INTANGIBLE ASSETS
The following table shows the impact of exchange rate adjustments and amortisation on intangible assets.
	(unaudited)		Intellectual property
			US$000
	At 1 April 2010		2,146
	Exchange rate adjustment		202
	Amortisation		(175)
	At 30 September 2010		2,173
	Exchange rate adjustment		76
	Amortisation		(61)
	At 1 April 2011		2,188
	Exchange rate adjustment		(119)
	Amortisation		(149)
	At 30 September 2011		1,920

Corporate information and advisors

Directors

Jon Pither non-Executive Chairman

Frank Maguire Chief Executive

Eddie McDaid Finance Director

Bill Brown non-Executive Director

Gordon Wright non-Executive Director

Company Secretary

David Parsons ACIS

Registered Office

c/o Brodies LLP

2 Blythswood Square

Glasgow G2 4AD

UK Head Office

Level Two

Springfield House

23 Oatlands Drive

Weybridge

Surrey  KT13 9LZ

web:  www.aortech.com

email: [e-mail]

Nominated Adviser and Broker

Evolution Securities Limited

100 Wood Street

London EC2V 7AN

Registrars

Equniti Limited

1st Floor
34 South Gyle Crescent
South Gyle Business Park
Edinburgh  EH12 9EB

Independent Auditor

Grant Thornton UK LLP

Statutory Auditors

Chartered Accountants

Regent House

80 Regent Road

Leicester LE1 7NH

Registered in Scotland, Company No.170071

Interim results will be circulated to Shareholders and copies of the announcement will be made available from the Company's registered office. Dealings permitted on Alternative Investment Market (AIM) of the London Stock Exchange.

 

END

 

 

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