Final Results

RNS Number : 2268V

AorTech International PLC

20 July 2018

 

AorTech International plc

("AorTech", the "Company" or the "Group")

Final results for the year ended 31 March 2018

AorTech International plc (AIM: AOR), the biomaterials and medical device IP company, today announces its audited final results for the year ended 31 March 2018.

Highlights:

·      Satisfactory settlement of litigation proceedings: resulting in net receipts of $339k after costs.

·      Loss for the year down 81%: loss from continuing operations reduced to $44k (2017 $237k).

·      Year end cash balance: increased significantly to $591k (2017: $114k).

·      Successful, oversubscribed fundraising post-year end: £2.6m raised before expenses enabling the execution of a new business plan by a new team and partners.

For further information contact:

AorTech International plc                                                            Tel: [phone]

Bill Brown, Executive Chairman                                                    

Stockdale Scurities Limited                                                        Tel: [phone]

Tom Griffiths / David Coaten                                                         

A copy of this announcement will be available shortly at www.aortech.net/investor-relations/regulatory-news-alerts.

About AorTech:

AorTech has developed biostable, implantable polymers, including Elast-Eon™ and ECSil™ the world's leading long-term implantable co-polymers, now manufactured on their behalf by Biomerics LLC in Utah, USA.  With several million implants and seven years of successful clinical use, AorTech polymers are being developed and used in cardiology and urological applications, including pacing leads, cardiac cannulae, stents and neuro stimulation devices. 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. These polymers can be processed using conventional thermoplastic extrusion and moulding techniques. A range of materials in a variety of application-specific formulations for use in medical devices and components are available.

In addition to the licensing of biostable polymers, AorTech is now developing medical devices utilising the key properties of its world class polymers.

 

CHAIRMAN'S STATEMENT

The Company on which I report today has changed beyond all recognition from the AorTech I reported on last year. A year ago, AorTech was embroiled in litigation with its former Chief Executive and, as such, the focus of the Company was on historic events. Resolving the litigation has allowed AorTech to switch focus to its very exciting future and the execution of a new business plan by a new team and partners. I discuss below the operating results for the year ended 31 March 2018, but given the transformation of the Company, the recent changes are of much more significance to its future success.

Strategy Review

In the Company's interim results announced last December, it was stated that a strategy was being considered as to how to commercialise AorTech's platform technology. This strategy is now in place following the recent oversubscribed fundraising.

In reviewing AorTech's portfolio of intellectual property ('IP'), it became very clear to the Board that the family of biostable polymers was exceptional in long-term performance and is well suited for use in blood contacting devices and particularly in the cardiovascular system. AorTech has licensed device manufacturers to use Elast-Eon™ in this area and to date over 5 million devices have been implanted which depend upon the use of Elast-Eon™ for their success. The challenge for AorTech is to achieve greater value from the benefits Elast-Eon™ brings to medical devices.

The strategy adopted is therefore to continue to pursue licensing and supply business through our manufacturing partner Biomerics LLC, to advance development of AorTech's IP portfolio by moving further up the value chain and to develop medical devices of our own design.

AorTech is now transitioning to become a medical device business with a portfolio of devices in the cardiovascular field.

Initial Product Focus

AorTech has identified two growth platforms and three key device products that can be developed utilising the key properties of the Elast-Eon™ polymer and build upon the £60 million of historic research and development expenditure. The platforms are Polymeric Heart Valves and Medical Textiles within which initial products will be cardiac patches and vascular grafts. Each product is described below:

Polymeric Heart Valves

AorTech has the opportunity to transform the global treatment of heart disease by delivering a synthetic heart valve that will be durable, so reducing the need for future replacement and should not require lifelong drug treatment. As well as these clear clinical advantages, the manufacturing costs of a synthetic valve will be considerably less than those of current valve technology making this a potentially disruptive advance in heart valve surgery. AorTech's historic investment and progress to date dramatically reduces both the time and cost of preparing a novel valve for human trial.

When it initially developed a synthetic valve, AorTech was ahead of the market, but the global heart valve market (valued at some US$5 billion) is now in need of new technology, enhancing the opportunities available to AorTech.

Medical Textiles

AorTech has identified two device categories that currently rely on abattoir-sourced animal by-products. These are pericardial patches and large bore vascular grafts. Replacing animal tissue with a world leading bio-stable polymer will reduce manufacturing costs, eliminate animal by-product sourcing risk and improve product sterilisation options and performance. The initial products to be developed are targeted to be ready for human use within two years due to the acceptance of Elast-Eon™ in long-term implants.

Patches

The currently available technology comprises either animal tissue or textile (PTFE) material. Each material is compromised by either suffering from calcification or subject to tissue ingrowth leading to adhesion. AorTech will develop an Elast-Eon™ based product that should avoid these problems and address a market that is suffering a lack of supply of animal sourced products.

Vascular Grafts

The currently available technology comprises tightly woven PTFE grafts or softer polyester grafts sealed with animal-sourced material, limiting sterilisation options. AorTech will develop new graft technology replicating current graft performance, but utilising Elast-Eon™ as a sealing agent. The graft will be made available as a direct surgical implant and as a component to other medical device companies, particularly for incorporation into valved conduits for tissue based valves that require wet sterilisation.

Business Model

The medical device industry is highly regulated and requires a significant amount of infrastructure to operate to the various standards required. Setting up a development facility with a view to manufacturing devices would require not only substantial investment in people but a lengthy time commitment in obtaining certification and establishing systems.

AorTech had previously made a strategic decision to exit polymer manufacture and the relationship with Biomerics enabled a more attractive manufacturing model to be put in place. Having found this business model to operate well, AorTech has sought to develop its business by working in partnership with well-established businesses that not only have the necessary infrastructure in place but can develop our new products more economically and faster than the Company could by setting up itself. The business model is, therefore, to keep corporate infrastructure costs to a minimum by outsourcing to experts, thus minimising risk and maximising return on investment.

Partnership Arrangements

Building upon the model adopted with Biomerics for polymer manufacture and supply, AorTech has established relationships with three Scottish-based businesses to provide the technology, people and regulatory environment to develop the new devices business. For the synthetic heart valve, we are partnering with Vascular Flow Technologies Limited ("VFT") based in Dundee. VFT is Europe's leading expert in medical imaging guided Computational Fluid Dynamics and Finite Element Analysis. Together, VFT and AorTech will optimise the heart valve design, manufacturing process and undertake the regulatory testing required to ready the valve for human trials. For the textiles-based products, AorTech is partnering with RUA Medical ("RUA") operating from two FDA-registered facilities in Ayrshire.  RUA are experts in textile based implantable devices and have a strong track record of developing, commercialising and manufacturing devices. RUA will assist in bringing both the patches and grafts to market. Regulatory assistance and oversight is of critical importance and the workplan for three initial products would be a challenge for in-house resources. We will therefore be drawing upon support from Edwin Lindsay's team of 12 consultants at Compliance Solutions (Life Sciences) Limited for this key activity.

Board Changes

The new strategy and product development plans require a greater level of expertise at Board level in order to create the platform for commercial success. I am therefore delighted to welcome three recent appointments to the Board in John Ely, Geoff Berg and David Richmond. John Ely is a veteran of the heart valve industry with 7 approved cardiac surgery implant devices under his belt and for a period of seven years ran a team at the FDA that was responsible for approval of cardiovascular devices. Geoff Berg was a leading heart surgeon and having carried out over 3,000 valve implantations has the ultimate end-user experience of all the devices that AorTech is developing. David Richmond has over 14 years' expertise in medical textiles devices and founded RUA Medical; he brings substantial experience in manufacturing methods, commercialisation and product development.

John McKenna has recently moved from a non-executive role to become an executive Director. John has been at the forefront of marketing and bringing new cardiovascular products to market and is widely recognised for his contribution to the industry. As well as his in-depth device knowledge, one of John's key responsibilities will be in establishing distribution channels for AorTech's new devices and leveraging relationships particularly with the key opinion leading surgeons.

As we transition to a device company, the contacts Gordon Wright has with very senior executives at the global device companies will be invaluable. Gordon was instrumental in working alongside the founders of both St Jude Medical and ATS (now Medtronic) both to manufacture their heart valves and to launch them in Europe.

I have now become full time Executive Chairman of AorTech and am very proud of the quality of the team. I very much look forward to developing the Company with their help and guidance.

Corporate Actions

In order to finance the new strategic plans for the Company, AorTech recently undertook a fundraising exercise with the assistance of our new stockbrokers, Stockdale Securities Limited. Your Board was delighted with the level of support from both new and existing shareholders and £2.1 million was raised by way of a placing and subscription together with a further £500,000 in a heavily oversubscribed open offer. In total, therefore, £2.6 million was raised before the expenses of the issue, providing the necessary funds for the Company's next two years' development plans.

Litigation Settlement

During the year, we were pleased to settle the Company's long-running dispute with its former Chief Executive and related parties. AorTech fortunately had the proceeds from an insurance policy to finance 90 per cent of the costs incurred up to a policy limit of £2 million. Due to litigation tactics, the case was very long-running and AorTech was close to the expiry of the cover available, which could have resulted in AorTech being unable to continue to prosecute the case, and the risks to our IP associated with that. Having to play the hand we had been dealt, I am pleased that we were able to announce that "the parties have amicably resolved their dispute and the terms of settlement have been incorporated into a confidential settlement agreement." The confidentiality terms limit our ability to fully disclose the terms of the settlement. However, we are satisfied with the outcome and our ongoing IP position. Under Exceptional items in the Consolidated income statement, a net receipt of $339,000 has been disclosed. This relates to the dispute settlement, but is after making reimbursements to our insurer; settling additional fees with our attorneys and other advisers, and making payments incurred on a contingency basis to current and past Board members for considerable time commitments during the course of the litigation process.

Results and Shareholder Reporting

Revenues from polymer licence and royalty activities were lower at $538,000 (2017: $614,000), due to the $76,000 reduction in accrued revenues on the polymer supply contract where we recognised $76,000 less than the licensee paid to AorTech. Administrative expenses of $629,000 were incurred during the year. However within this amount were exchange rate charges as a result of translating Intangible Assets with a Sterling holding cost into the reporting currency of US$. Adjusting for these differences, the Company was broadly break even before amortisation of Intangible Assets. An exceptional profit of $339,000 was reported as a result of the settlement of the long-running litigation. Cash at the year end increased from $114,000 to $591,000 demonstrating cash generation even allowing for the proceeds from litigation.  The Board is not recommending the payment of a dividend.

These accounts have been prepared in US$ which is a historical throwback to the time when almost all revenue and expenditure was dollar-denominated. With the new business model and development of devices in the UK, it would only confuse the reader and management to continue to report in US$ so in the future AorTech will revert to reporting its annual results in Sterling.

Other future changes to Corporate Reporting relate to the Corporate Governance regime. AorTech did not subscribe to any particular governance code, but now that the business has been restructured and the Board enhanced, the adoption of a recognised code is now a positive tool in developing strong relationships with our shareholder base. Therefore in line with AIM Notice 50, I am happy to report that from 28 September 2018, the Board proposes to adopt the recommendations set out in the QCA Corporate Governance Code for small and mid-sized quoted companies published by the Quoted Companies Alliance in full and will comply or explain in detail any departure from that code and the reasons for doing so.

Outlook

The past year has been transformational. Historic disputes having been resolved has enabled a new strategy and business model to be adopted and a succesful fundraising completed. A re-invigorated Board is now in place and world class business partners working to develop exciting new medical devices. The current year will be one of investment in product development and closely managing each project to ensure the best return on that investment.

Bill Brown

Executive Chairman

19 July 2018

Consolidated income statement

		Year ended 31 March 2018			Year ended 31 March 2017
		Pre-exceptional items	Exceptional items	Total	Pre-exceptional items	Exceptional items	Total
		US$000	US$000	US$000	US$000	US$000	US$000
Revenue		538	-	538	614	-	614
Other income		-	339	339	-	-	-
Administrative expenses		(629)	-	(629)	(571)	12	(559)
Other expenses - amortisation of intangible assets		(292)	-	(292)	(292)	-	(292)
Operating loss		(383)	339	(44)	(249)	12	(237)
Finance (expense) / income		-	-	-	-	-	-
Loss from continuing operations attributable to owners of the parent company		(383)	339	(44)	(249)	12	(237)
Loss attributable to owners of the parent company		(383)	339	(44)	(249)	12	(237)
Loss per share
Basic and diluted (US cents per share)				(0.79)			(4.27)

Consolidated statement of comprehensive income

	Year ended  31 March 2018		Year ended  31 March 2017
	US$000		US$000
Loss for the year	(44)		(237)
Other comprehensive income:
I Items that will not be reclassified subsequently to profit and loss
Exchange differences	1,863		(2,329)
Items that will be reclassified subsequently to profit and loss
Exchange differences	(1,716)		2,125
Other comprehensive income for the year, net of tax	147		(204)
Total comprehensive income for the year, attributable    to owners of the parent company	103		(441)

Consolidated balance sheet

				31 March 2018		31 March                        2017
				US$000		US$000
Assets
Non current assets
	Intangible assets			737		914
Total non current assets				737		914
Current assets
	Trade and other receivables			188		392
	Cash and cash equivalents			591		114
Total current assets				779		506
Total assets				1,516		1,420
Liabilities
Current liabilities
	Trade and other payables			(95)		(102)
Total current liabilities				(95)		(102)
Total liabilities				(95)		(102)
Net assets				1,421		1,318
Equity
	Issued capital			16,979		15,189
	Share premium			3,502		3,133
	Other reserve			(2,807)		(2,511)
	Foreign exchange reserve			7,036		8,752
	Profit and loss account			(23,289)		(23,245)
Total equity attributable to equity holders of the parent				1,421		1,318

Consolidated cash flow statement

		Year ended  31 March 2018		Year  ended  31 March 2017
		US$000		US$000
Cash flows from operating activities
	Group loss after tax	(44)		(237)
Adjustments for:
	Amortisation of intangible assets	292		292
	Finance expense / (income)	-		-
	Effect of exchange rate during the year	54		(43)
	(Increase) / decrease in trade and other receivables	204		(149)
	Increase / (decrease) in trade and other payables	(7)		(63)
Net cash flow from continuing operations		499		(200)
Net cash flow from operating activities		499		(200)
Cash flows from investing activities
	Purchase of intangible assets	(22)		-
Net cash flow from continuing operations		(22)		-
Net cash flow from investing activities		(22)		-
Net cash flow from financing activities		-		-
Net increase / (decrease) in cash and cash equivalents		477		(200)
Cash and cash equivalents at beginning of year		114		314
Cash and cash equivalents at end of year		591		114

Consolidated statement of changes in equity

Issued Share capital

Share premium

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 31 March 2016

17,426

3,595

(2,881)

6,627

(23,008)

1,759

Transactions with owners	-		-		-		-		-		-
Loss for the year	-		-		-		-		(237)		(237)
Other comprehensive income
Exchange difference on translating foreign operations	(2,237)		(462)		370		2,125		-		(204)
Total comprehensive income for the year	(2,237)		(462)		370		2,125		(237)		(441)
Balance at 31 March 2017	15,189		3,133		(2,511)		8,752		(23,245)		1,318

Transactions with owners	-		-		-		-		-		-
Loss for the year	-		-		-		-		(44)		(44)
Other comprehensive income
Exchange difference on translating foreign operations	1,790		369		(296)		(1,716)		-		147
Total comprehensive income for the year	1,790		369		(296)		(1,716)		(44)		103
Balance at 31 March 2018	16,979		3,502		(2,807)		7,036		(23,289)		1,421

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of preparation

The consolidated financial statements are for the year ended 31 March 2018. They have been prepared in compliance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union as at 31 March 2018.

The consolidated financial statements have been prepared under the historical cost convention.

The accounting policies remain unchanged from the previous year.

2.   Going concern

After considering the year end cash position and taking into account the recent £2.6 million fund raising, making appropriate enquiries and reviewing budgets and profit and cash flow forecasts to 31 December 2019 which incorporate planned investment in new product development, the Directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that the Group has sufficient resources to continue in operational existence for the foreseeable future. For this reason the Directors consider that the adoption of the going concern basis in preparing the consolidated financial statements is appropriate.

3. Preliminary announcement

The summary accounts set out above do not constitute statutory accounts as defined by section 434 of the UK Companies Act 2006. The summarised consolidated balance sheet at 31 March 2018, the summarised consolidated income statement, the summarised consolidated statement of comprehensive income, the summarised consolidated statement of changes in equity and the summarised consolidated cash flow statement for the year then ended have been extracted from the Group's statutory financial statements for the year ended 31 March 2018 upon which the auditor's opinion is unqualified and did not contain a statement under either sections 498(2) or 498(3) of the Companies Act 2006. The audit report for the year ended 31 March 2017 did not contain statements under section 498(2) or section 498(3) of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2017 have been delivered to the Registrar of Companies. The 31 March 2018 accounts were approved by the Directors on 18 July 2018, but have not yet been delivered to the Registrar of Companies.

4. Earnings per share

The basic loss per ordinary share of 0.79 US cents (2017: loss of 4.27 US cents) is calculated on the loss of the Group of US$44,000 (2017: loss of US$237,000) and on 5,557,695 (2017: 5,557,695) equity shares, being the weighted average number of shares in issue during the year.

The diluted loss per share does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33.

5.  Current operations

On 1 October 2013, the Group signed an agreement with Biomerics LLC for the manufacture and distribution of our patented materials, including to our existing licensees.  In the opinion of the Directors, the Biomerics transaction transformed the Group into a pure intellectual property company. During the current year ending 31 March 2019 however, a fundraising was successfully completed for the purpose of also enabling AorTech to transition to become a medical device business with a portfolio of devices in the cardiovascular field.

Notice of Annual General Meeting

Notice of the twenty-first Annual General Meeting of AorTech International Plc will be posted with the Annual

Report and Accounts and will be held at the offices of Kergan Stewart LLP, 163 Bath Street, Glasgow G2 4SQ

on Thursday, 23 August 2018 at 11:00am.

Posting and availability of accounts

      The annual report and accounts for the year ended 31 March 2018 will be sent by post or electronically to all registered shareholders on 31 July 2018.  Additional copies will be available for a month thereafter from the Company's head office at Level Two, Springfield House, 23 Oatlands Drive, Weybridge, Surrey, KT13 9LZ. Alternatively, the document may be viewed on, or downloaded from, the Company's website: www.aortech.net.

 

END

 

 

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