Final Results

RNS Number : 7516F

AorTech International PLC

17 July 2019

 

AorTech International plc

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

Final results for the year ended 31 March 2019

AorTech International plc (AIM: AOR), the biomaterials IP and medical device development company, announces its audited final results for the year ended 31 March 2019.

Highlights:

·      Transformational year: new Board in place executing an exciting, funded business plan

·      Polymer IP business unit performing strongly: license fee and royalty income grew stongly increasing by 15% to £463k

·      Year end cash balance: increased to £2,412k (2018: £422k)

·   Medical device development business established: key partnership agreements signed for development of polymeric heart valves, vascular grafts and soft tissue patches

·   Good progress made on R&D projects: design phase nearing completion and progression to prototype manufacture in current period

·      Overheads remain tightly controlled: all R&D costs charged to profit

·      Key milestones: expect to reach a number of key milestones in coming year

For further information contact:

AorTech International plc                                                            Tel: [phone]

Bill Brown, Executive Chairman                                                   

Shore Capital                                                                            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 its behalf by Biomerics LLC in Utah, USA. 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. With over 6 million implants and over 10 years of successful clinical use AorTech polymers are proven in long term life enabling applications.

In addition to continuing to exploit AorTech's Intellectual Property related to the world class biomaterial -

Elast-Eon™, AorTech is now incorporating this material into a number of medical devices of our own design. Elast-Eon™ has first class long term blood contacting properties and as a result, all of the initial products being developed are for the cardio vascular field. Each device is being designed to have improved clinical outcomes over current device technology,eliminating the use of animal sourced material whilst allowing procedures to remain the same, therefore avoiding the need of having to retrain surgeons in new ways of operating.

CHAIRMAN'S STATEMENT

The past year has been transformational for AorTech - a strategy review was undertaken, a new business plan adopted, an equity fundraising succesfully concluded, the Board of Directors strengthened by the appointment of three exceptional individuals and partnership agreements entered into with development partners to assist in bringing our portfolio of medical devices to market.

In addition to continuing to exploit AorTech's Intellectual Property ('IP') related to the world class biomaterial, Elast-Eon™, we are now looking to use this material in a number of medical devices of our own design. Elast-Eon™ has first class long term blood contacting properties and, as a result, all of the initial products being developed are for the cardiovascular field. Each device is being designed to have improved clinical outcomes over current device technology but allowing procedures to remain the same, therefore avoiding the need to retrain surgeons in new ways of operating.

Trading for Year

As previously announced, the presentational currency of these accounts has been changed from US$ to Sterling. While revenues from licensing our polymer technology continues to be earned in US$, with the new product development work all being undertaken in the UK, the switch to reporting in Sterling better reflects the currency of the primary economic environment in which the Group now operates. This results in the figures which are provided within the financial statements for the year to 31 March 2018 being re-statements of US$ amounts.

Revenues from License Fees and Royalties grew during the year, increasing from £404,034 to £463,244, a rise of 15%. In the previous year, the Company benefited from an exceptional gain of £254,737 relating to the net gain on settlement of a legal dispute resulting in a pre exceptionals loss of £289,000 being reduced to £33,814. The reported loss for the year amounts to £609,403 with Administrative costs having increased to £840,687 (2018: £473,669). All of the Research and Development costs relating to new products has been expensed to the profit and loss account rather than capitalised as an intangible asset explaining the rise in costs over the year.

During the year, AorTech raised net new capital of £2.54 million by way of a placing and open offer of new shares at 30p per share to fund product development costs. At the year end, the Group's cash position remained strong at £2,412,145 (2018: £422,007).

Polymer Business

AorTech owns a valuable IP portfolio covering a family of medical grade polymers Elast-Eon™. These polymers are fully approved for long term human implant and to date over 6 million patients' lives depend on devices enabled by Elast-Eon™. Elast-Eon™ has an FDA Masterfile and testing data has demonstrated the material to have the following desirable characteristics: non-inflammatory (release of fluid into tissue); non-thrombogenic (does not produce blood clots); non-calcific (does not encourage calcium build up); biostable (chemically stable in body);  biocompatible (non-harmful to living tissue); durable (maintains mechanical properties long term); and abrasion resistant (wearing down of material). AorTech seeks to exploit this polymer IP by adopting a licensing model. A manufacturing partner, Biomerics, has licensed the rights to make and sell Elast-Eon™ in exchange for a share of gross margin. In addition, medical device companies are licensed to incorporate Elast-Eon™ into their products and Biomerics only sells to companies with the rights to use Elast-Eon™. This business area has seen positive growth over the past year and is performing in line with the Board's expectations. We are currently considering some new licensing opportunities which, if succesful, could further build on the success of the polymer.

Research and Development

AorTech has identified two growth platforms and three key device products that are being developed utilising the key properties of the Elast-Eon™ polymer and building upon the Group's £60 million of historic research and development expenditure. The platforms are Implantable Fabrics and Medical Textiles, within which initial products will be cardiac patches and vascular grafts and Polymeric Heart Valves. Development work on each project commenced in the months after the fundraising was concluded and good progress has been made on each.  A summary of activities is set out below:-

Polymer Heart Valve

AorTech had previously developed four generations of a polymeric heart valve, known internally as Medlink, 8500, M95C and RM95C. Each design was an improvement on previous generations and testing of these valves has demonstrated the concept of a polymer valve to possess the key qualities to become a disruptive alternative to current technologies. We are confident that an Elast-Eon™ thin leaflet valve will not calcify, thus avoiding one of the primary reasons for failure of current animal tissue valves. Additionally, the polymeric valve should be low thrombogenic, thus avoiding the need for a patient to be on life long anti-coagulation treatment. The costs of a machine making a polymer valve are a fraction of the costs of current valve technology, providing the third major competetive advantage. The design objectives of making a valve that lasts longer than current biologic valves, does not require anti-coagulation treatment and can be made highly efficiently and cost effectively is supported by the work previously undertaken by AorTech and considerable time has been spent reviewing these technical files.

In order to progress the heart valve project, we engaged with Vascular Flow Technologies ('VFT') to progress the development of the valve.  We decided that as computational design tools had progressed so far and computational modelling is not only now recognised by the regulators but expected, that rather than jump in and make what had been made before, the design should be optimised and verified using the latest technology whilst in parallel considering the best way to consistently manufacture a valve. All work undertaken required to be fully documented and to be repeatable. The first phase succesfully completed was the development of proprietory "leaflet builder" software that enables the shape and length of the valve leaflets to be designed and optimised. This new software is able to replicate historic designs and then optimise the design by changing parameters, undertaking computational modelling and feeding the changes in performance back into the design loop. The computational modelling previously undertaken by AorTech had used software designed for modelling crashes in automotive design and a number of untested or verified assumptions were present in the model. As a result, whilst the model could produce colourful images, there was no scientific basis upon which to judge whether the model would accurately predict what happens in the heart.

The VFT team has reproduced the computational model utilising modern tools and replicated the model of the RM95C valve to a much higher standard than previously produced. This now allows the true impact of design changes to be accurately modelled before incurring the not insubstantial costs of commissioning tooling.

In parallel with the design optimisation process, the manufacturing process is being redesigned and optimised with the objective of reducing design limitations dictated by the method of manufacture. Material has now been ordered to undertake test manufacturing to confirm the anticipated potential of the method.

More time has been spent on design processes and optimisation than originally anticipated as using historic design tools and methods would have compromised the ability to optimise the valve. This has been time well spent, however, as it will save time by reducing tooling requirements and enable faster manufacture turnaround times.

Medical Textiles

Unlike the valve project, the designs of the textile products are much closer to the current technology available in the market. Current polyester grafts are either very tightly woven to limit leakage, but have poor handling properties in surgery, or are sealed by animal derived products. The AorTech innovation is to create a family of grafts and patches that have the handling properties preferred by surgeons whilst eliminating the requirement for animal by-products. The current technology on the market is approaching 40 years old and, over that time, the available technology for manufacturing precision textiles has improved together with the the ability to design a bespoke yarn specifically for the intended use in grafts and patches. Similarly, polymeric coating technology that can coat and seal in layers down to a few microns has been developed and is commercially available.

AorTech is partnering with RUA Medical Devices Ltd ('RUA') to incorporate Elast-Eon™ sealants to a new generation of grafts and patches that have the desired surgical requirements without relying on animal by-products.  The  grafts will be similar to current technology and are designed to be a straight replacement without the need for any change in surgical technique, but with additional benefits of enhanced healing and avoidance of incidents of seroma.

RUA's focus has been on identifying the best yarn, the qualities of the fabric, the best version of Elast-Eon™ for sealing and planning the manufacturing process to ensure it can be validated from a regulatory perspective. RUA Medical has undertaken a detailed process of preparing for manufacture which started with the development and manufacture of a unique yarn on which the patches and grafts will be manufactured. A bespoke cleanroom for the processing of implantable fabrics is currently under construction and equipment is being purchased and designed to allow the textiles products to be manufactured using the latest technologies.

Once the cleanroom is operational, the first coated grafts will be manufactured and testing will commence with the aim of seeking regulatory approval. The technology utilised in the grafts will automaticaly be applied to the patches which will follow as prototypes shortly after the grafts.

Quality Assurance and Regulatory Affairs

The medical device industry is highly regulated with differing regimes in different parts of the world. The regulatory regime in Europe is complicated, particularly from a UK perspective with the ongoing uncertainty over Brexit.  New regulations and requirements have been incorporated into law with a time horizon that currently appears impossible for the notified bodies to implement.

We are working closely with our regulatory team at Compliance Solutions and, although we face the same issues as every other device company with regards to gaining approval in Europe, we will be concentrating our initial product launch efforts on the US markets which not only command higher pricing, but now offer a simpler path to approval.

Corporate Governance

Historically, AorTech did not subscribe to any particular governance code, but in line with most AIM quoted companies has elected to adopt the QCA Code. In the annual report and accounts, I have set out my statement on Corporate Governance which I hope provides shareholders with a better understanding of how AorTech is run and how important decisions are made. Given its stage of development, there are certain aspects of AorTech's structure that do not quite fit in with the QCA Code. This mainly relates to my position of Executive Chairman. I hope that the Corporate Governance Statement adequately address any concern in that respect.

What does Corporate Governance mean to AorTech? 

In simple terms, it is about our core values, corporate behaviour and decision making processes and communicating those to stakeholders. Over the past year, AorTech has transformed from a medical polymer IP business to one developing medical devices. All the devices being developed by AorTech are intended to be long term implants to support and sustain the life of patients. One of my co-directors (John Ely) recently summed up our priorities as: "Our eyes, in my opinion, must always be on the patient.  Only when we serve the patient first do we serve the shareholder.  Unfortunately, in our world, this is a long-term proposition not a short-term one and many investors may not have the patience for that.  I think we have a really great mix of experience and talent on this board and I believe we can deliver for the shareholder when we focus first on the patient."

Outlook

The new and existing shareholders who supported the equity fundraising during the year have enabled AorTech to make significant progress over the past year and I thank those supporters for the trust placed in the business plan and the new Board of Directors. Developing new medical devices is not a short term process for either the engineers and clinicians involved or the providers of capital.

Progress has been good over the past year with no change in our expectations of the timelines to having products ready for seeking regulatory approval. I expect the current year to reach a number of milestones in the development of  the polymeric heart valve, tissue patches and the large bore vascular grafts with the planning, product design and preparation for manufacturing allowing prototypes to be manufactured and trials commencing.

William Brown

Executive Chairman

Consolidated income statement

		Year ended 31 March 2019			Year ended 31 March 2018
		Pre-exceptional items	Exceptional items	Total	Pre-exceptional items	Exceptional items	Total
		GB£000	GB£000	GB£000	GB£000	GB£000	GB£000
Revenue		463	-	463	404	-	404
Other income		7	-	7	-	255	255
Administrative expenses		(835)	(6)	(841)	(474)	-	(474)
Other expenses: share-based payments		(42)	-	(42)	-	-	-
Other expenses - amortisation of intangible assets		(218)		(218)	(219)	-	(219)
Operating loss		(625)	(6)	(631)	(289)	255	(34)
Finance (expense) / income		22	-	22	-	-	-
Loss from continuing operations attributable to owners of the parent company		(603)	(6)	(609)	(289)	255	(34)
Loss attributable to owners of the parent company		(603)	(6)	(609)	(289)	255	(34)
Loss per share
Basic and diluted (GB Pence per share)				(4.72)			(0.61)

Consolidated statement of comprehensive income

	Year ended  31 March 2019		Year ended  31 March 2018
	GB£000		GB£000
Loss for the year	(609)		(34)
Other comprehensive income:
I Items that will not be reclassified subsequently to profit and loss	-		-
Items that will be reclassified subsequently to profit and loss	-		-
Other comprehensive income for the year, net of tax	-		-
Total comprehensive income for the year, attributable    to owners of the parent company	(609)		(34)

Consolidated balance sheet

				31 March 2019		31 March                        2018
				GB£000		GB£000
Assets
Non current assets
	Intangible assets			448		527
	Tangible assets			1
Total non current assets				449		527
Current assets
	Trade and other receivables			238		134
	Cash and cash equivalents			2,412		422
Total current assets				2,650		556
Total assets				3,099		1,083
Liabilities
Current liabilities
	Trade and other payables			(99)		(67)
Total current liabilities				(99)		(67)
Total liabilities				(99)		(67)
Net assets				3,000		1,016
Equity
	Issued capital			12,574		12,118
	Share premium			4,550		2,500
	Other reserve			(1,916)		(2,003)
	Profit and loss account			(12,208)		(11,599)
Total equity attributable to equity holders of the parent				3,000		1,016

 

Consolidated statement of changes in equity
	Issued share capital GB£000	Share premium GB£000	Other reserve GB£000	Profit and loss account GB£000	Total equity GB£000
Balance at 31 March 2017	12,118	2,500	(2,003)	(11,565)	1,050
Transactions with owners	-	-	-	-	-
Loss for the year	-	-	-	(34)	(34)
Total comprehensive income for the year	-	-	-	(34)	(34)
Balance at 31 March 2018	12,118	2,500	(2,003)	(11,599)	1,016
Share-based payments	-	-	42	-	42
Share Warrants	-	(45)	45	-	-
Issue of equity share capital (net of issue costs)	456	2,095	-	-	2,551
Transactions with owners	456	2,050	87	-	2,593
Loss for the year	-	-	-	(609)	(609)
Other comprehensive income	-	-	-	-	-
Total comprehensive income for the year	-	-	-	(609)	(609)
Balance at 31 March 2019	12,574	4,550	(1,916)	(12,208)	3,000

Consolidated cash flow statement

		Year ended  31 March 2019		Year  ended  31 March 2018
		GB£000		GB£000
Cash flows from operating activities
	Group loss after tax	(609)		(34)
Adjustments for:
	Amortisation of intangible assets	218		219
	Share-based payments	42		-
	Finance expense / (income)	-		-
	Effect of exchange rate during the year	-		-
	(Increase) / decrease in trade and other receivables	(104)		176
	Increase / (decrease) in trade and other payables	31		(14)
Net cash flow from continuing operations		(422)		347
Net cash flow from operating activities
Cash flows from investing activities
	Purchase of equipment	(1)		-
	Purchase of intangible assets	-		(16)
	Acquisition of subsidiary	(139)		-
Net cash flow from investing activities		(140)		(16)
Net cash flow from financing activities
Proceeds of issue of share capital, net of issue costs		2,552		-
Net increase / (decrease) in cash and cash equivalents		1,990		331
Cash and cash equivalents at beginning of year		422		91
Cash and cash equivalents at end of year		2,412		422

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of preparation

The consolidated financial statements are for the year ended 31 March 2019. 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 2020 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 2019, 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 2019 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 2018 did not contain statements under sections 498(2) or 498(3) of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2018 have been delivered to the Registrar of Companies. The 31 March 2019 accounts were approved by the Directors on 16 July 2019, but have not yet been delivered to the Registrar of Companies.

4. Earnings per share

The basic and diluted loss per ordinary share of 4.72 pence (2018: loss of 0.61 pence) is calculated on the loss of the Group of £609k (2018: loss of £34k) and on 12,910,847 (2018: 5,557,695) equity shares, being the weighted average number of shares in issue during the year.

5. Presentational currency

The Group's revenues, profits and cash flows have historically been generated in US$ and reported as such. Whilst the majority of the Group's income continues to be derived in US$, the majority of costs are derived in the UK and as such Aortech has reverted to reporting its annual report in Sterling. This change recognises the evolving business model and development of devices in the UK.  Prior year values have therefore been restated from US$ to GB£.

Posting and availability of accounts

      The annual report and accounts for the year ended 31 March 2019 will be sent by post or electronically to all registered shareholders on 29 July 2019.  Additional copies will be available for a month thereafter from the Company's head office at Unit 26 Prospect House, Gemini Crescent, Dundee, DD2 1TY. Alternatively, the document may be viewed on, or downloaded from, the Company's website: www.aortech.net.

Notice of Annual General Meeting

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

Report and Accounts and will be held at the offices of Davidson Chalmers Stewart LLP, 163 Bath Street, Glasgow G2 4SQ on Monday, 19 August 2019 at 11:00am.

 

END

 

 

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