Creo Medical Interim Results

Creo Medical Group plc

 

Maiden interim results for six months to 31 December 2016

 

Excellent strategic, operational and financial progress culminating in IPO

 

Chepstow, South Wales, 30 March 2017 - Creo Medical Group plc (AIM: CREO) ("Creo" or "the Company"), a medical device company focused on the emerging field of surgical endoscopy, announces its unaudited half year results for the six months to 31 December 2016.

 

Operational Highlights

 

·      Initial Public Offering ("IPO") on the Alternative Investment Market ("AIM") of the London Stock Exchange in December 2016 raised £20m before expenses via a placing of new ordinary shares

·      Continued support from existing angel shareholder base with a pre IPO fundraising of £1.4m

·      Board strengthened through appointments of Charles Spicer as Non-Executive Chairman and John Bradshaw as Non-Executive Director

·      First in human study data

o  Successfully demonstrated safety and efficacy of the application of microwave energy to coagulate bleeds in the colon in 30 patients

o  Represents the first device to use microwave energy in combination with radiofrequency

o  Study publication has been accepted for Digestive Disease Week® (DDW)

 

Financial Highlights

 

·      Cash and cash equivalents of £18.8m (4 months to 30 June 2016: £0.8m), following the successful AIM IPO and pre IPO fundraising

·      Operating loss of £4.7m (4 months to 30 Jun 2016: £1.9m).  Significant items impacting the result for the six-month period include £1.3m of expenses relating to the IPO (non-recurring) and £0.3m share based payments

·      Underlying operating loss of £2.6m as expected (4 months to 30 Jun 2016: £1.6m)

o  Increase due to additional expenditure on product development and clinical costs associated with submission of CROMA and Speedboat RS2 CE Mark application, as well as continued progress for FDA clearance processes including clinical studies

o  Staff-related expenditures, including new appointments, also contributed to the increase in the period

·      Net cash outflow from operating activities of £2.0m (4 months to 30 Jun 2016: £1.6m)

·      Net assets of £17.7m (30 June 2016: £1.6m)

 

Post-Period Highlights

 

·      CE Mark awarded to Speedboat RS2 for microwave energy

·      Participation in Horizon 2020 SUMCASTEC research programme with key European partners

 

Craig Gulliford, Chief Executive Officer, commented:

 

"I am pleased to announce our first set of financial results since we listed on AIM in December.  The £20 million raised enables us to pursue Creo's vision of becoming a leading advanced energy, minimally invasive, medical device company.  We were delighted to announce that our Speedboat RS2 received CE Mark approval last week.  This is the first device in a portfolio of products from our late stage development programmes targeting, initially, the upper and lower gastrointestinal (GI) endoscopy markets in the EU.  We remain on track to initiate the soft launch of the Speedboat product later this year and anticipate full EU and US market authorisation of our first product in lower GI in the first half of 2018."

 

Contacts
Creo Medical:	Cenkos:	FTI Consulting:
Roseanne Varner +44 (0)129 160 6005 [email protected]	Ivonne Cantu / Camilla Hume (NOMAD) Michael Johnson / Russell Kerr (Sales) +44 (0)207 397 8900	Brett Pollard / Mo Noonan +44 (0)203 727 1000 [email protected]

 

Notes to Editors

 

About Creo Medical

 

Creo Medical, founded in 2003, is a medical device company focused on the development and commercialisation of minimally invasive surgical devices, by bringing advanced energy to endoscopy.  The Company's mission is to improve patient outcomes by applying microwave and radiowave energy to surgical endoscopy.  Creo has developed CROMA, an electrosurgical platform that combines bipolar radiofrequency for precise localised cutting and microwave for controlled coagulation.  This technology provides physicians with flexible, accurate and controlled surgical solutions.

 

The Company's strategy is to bring the CROMA surgical system to market through a suite of medical instruments which the Company has designed, initially for GI therapeutic endoscopy, an area with high unmet needs.  The CROMA system will be developed further for bronchoscopy and laparoscopy procedures.  The Company believes its technology can impact the landscape of surgery and endoscopy by providing safer, less-invasive and more cost-efficient option of treatment.

 

For more information about Creo medical please see our website, www.creomedical.com.

 

 

Interim Results for six months ended 31 December 2016

 

1.    Overview

 

Creo Medical is developing a suite of products based on its CROMA electrosurgery platform for the emerging field of surgical endoscopy.  It will initially launch this energy system into the field of GI therapeutic endoscopy, and later into a broader range of areas including bronchoscopy and laparoscopy.

 

Endoscopy has been a rapidly expanding practice due to the advent of colorectal cancer screening in most healthcare systems.  This has driven growth in equipment and devices to enhance the ability to screen and detect early stage and pre-cancerous lesions in the GI tract. In the US, over 16 million colonoscopies are performed annually. Of these, 1.1 million 350,000 are likely to find a lesion requiring treatment, approximately half of which are surgically removed.  Traditional colorectal surgery is associated with a 6 per cent mortality rate at 30 days because of the risks of puncturing the colonic wall when using traditional surgical blades.

 

Surgery is carried out in increasingly minimally invasive environments and this necessitates long, flexible devices and the need for precision and control. CROMA's combination of radiofrequency and microwave energy in a single platform enables a combined ability to cut, coagulate and ablate, which the Directors believe is the next generation of minimally invasive surgery. Given that its product has not been launched commercially, the Company has not yet established business units along market lines so has not initiated segmental reporting in the current period.

 

2.    Operational Review

 

The last six months have been transformational for Creo, culminating with an Initial Public Offering ("IPO") on the Alternative Investment Market ("AIM") of the London Stock Exchange in December 2016.  Building on the success of the Company's products CROMA and Speedboat RS2, Creo raised £20 million through its IPO.

 

These funds provide the Company with the financial strength to complete the development and regulatory clearance of CROMA and Speedboat RS2 in Europe and continue regulatory clearance progress in the US; as well as development of lung ablation devices through to early stage regulatory clearance in Europe and the USA.

 

In clinical studies, the Speedboat RS2 has successfully demonstrated safety and efficacy of the application of microwave energy in combination with radiofrequency to coagulate bleeds in the colon in 30 patients.  The study publication has been accepted for Digestive Disease Week® (DDW), the world's largest medical meeting of physicians, researchers and industry in the fields of gastroenterology, hepatology, endoscopy and gastrointestinal surgery.

 

On 24 March 2017, Creo announced that the Company's Speedboat RS2 received CE Mark approval for microwave energy.  This adds to the device's previously received CE Mark for radiofrequency, making it the first device to use microwave energy in combination with radiofrequency.

 

The Company intends to commercialise CROMA and Speedboat RS2 in Europe itself in order to retain the full value of the product, reflecting a small, focused target clinical user base.  Training and placement of these products in Europe targeted during 2017 remains on track. 

 

Creo continues to progress discussions with the US Food and Drug Administration ("FDA") regarding the requirements for the registration programme for CROMA and Speedboat RS2.  Creo expects to conclude regulatory clearance with the FDA within the 2018 financial year. 

 

In March 2017, the Company was selected as one of six European partners to participate in the Semiconductor-based Ultrawideband Micromanipulation of Cancer Stem Cells ("SUMCASTEC") H2020 FET OPEN research programme, led by the XLIM Research Institute at the University of Limoges in France.  The study aims to develop a novel micro-optofluidic lab-on-chip platform deploying semi-conductor technology to neutralize cancer stem cells associated with some of the most aggressive brain tumours, specifically Glioblastoma Multiforme and Medulloblastoma, with electromagnetic waves.  The consortium has been awarded a €4 million (£3.4 million) grant, €530,000 (£450,000) of which is allocated to Creo.

 

We strengthened the Board through the appointment of Charles Spicer as Non-Executive Chairman and John Bradshaw as Non-Executive Director.  Together, they bring extensive industry expertise and guidance at an important stage of Creo's development.

 

3.    Financial Review

 

Operating expenses are in line with expectations, reflecting the increased clinical and development activities together with investment in headcount and business infrastructure to support the transition of the business to a fully integrated specialty medical devices manufacturer with product origination, development and commercialisation capabilities.  This continued investment in the business will support its anticipated growth and development in the coming periods.

 

During the period all of the Company's focus was on product development activity which can be analysed between research and development expenditure and administrative expenditure.

 

The research and development expenditure for the period was £1.8m (4 months to 30 Jun 2016: £1.0m).  Expenditure on product development and clinical costs increased in the period as momentum was maintained by the Company for submission of the CROMA and Speedboat RS2 CE mark application as well as continued progress for FDA clearance processes including clinical studies.  Staff-related expenditure and the appointment of new staff also contributed to the increase in the period.

 

Administrative expenses for the period were £3.0m (4 months to 30 Jun 2016: £1.0m).  The increase is a result of share based payment expenses of £0.3m (4 months to 30 Jun 2016: £nil) and one-off costs in the period incurred on the IPO of £1.3m (4 months to 30 Jun 2016: £nil) which will not be repeated.  A further £1.5m (4 months to 30 Jun 2016: £nil) of fees paid in connection with the fundraising are shown as a deduction from share premium.

 

Operating loss

The operating loss for the period increased to £4.7m (4 months to 30 Jun 2016: £1.9m), reflecting the increased operating expenses outlined above.

 

The underlying operating loss for the period increased to £2.6m (4 months to 30 Jun 2016: £1.6m).  This is a non-statutory measure which adjusts the operating loss as follows;

 

 

*Underlying operating loss is calculated by adjusting operating loss for share based payments, depreciation and amortisation, R&D tax credits and expenses of the IPO.

 

Tax

The Company has not recognised any deferred tax assets in respect of trading losses arising in the current financial period.  At present, the Company recognises tax assets in respect of claims under the UK research and development Small or Medium-sized Enterprise ("SME") scheme, accrued in line with costs with any adjustments being made on submission of a claim.

 

Where claims have been made under the RDEC scheme these are recognised as other income in line with IAS20 Accounting for government grants.

 

Earnings per share

Loss per share was 11 pence (4 months to 30 Jun 2016: 5 pence).  Removing the significant non-recurring costs in relation to the IPO of £1.3m the loss per share is 8 pence.

 

Cash flow and Balance Sheet

Net cash used in operating activities was £2.0m (4 months to 30 Jun 2016: £1.6m), driven by the planned increase in investment in research and development during the period.  Net cash generated from share issue was £20.0m (4 months to 30 Jun 2016: £nil) reflecting the net proceeds of the issue of shares in the IPO and Pre-IPO rounds of fundraising.

 

Total assets increased to £20.3m (30 Jun 2016: £2.4m), reflecting the increase in cash arising from the issue of new ordinary shares at the IPO and pre IPO rounds, offset by the operating cash outflow for the period. Cash and cash equivalents at 31 December 2016 was £18.8m (30 Jun 2016: £0.8m). Net assets were £17.7m (30 Jun 2016: £1.6m).

 

4.    Current Trading and Outlook

 

The Company made excellent strategic, operational and financial progress in the period and has a clear vision and roadmap for the continuing growth and development of the business.  Progress in the second half has commenced well and the Board remains confident that the Company is on track to deliver full year financial results and milestones in line with expectations.

 

In 2017, Creo will initiate a clinical study designed to demonstrate superior patient and economic outcomes of Endoscopic Submucosal Dissection ("ESD") with Speedboat versus surgery.  We expect to generate clinical data, allowing for medical industry recognition and validation of our technology.  We also expect to place generators in the EU and commence training of Key Opinion Leaders and general physicians on the platform and accompanying devices.

 

In addition, Hoya Pentax Medical is expected to initiate the regulatory procedures for entry into the Asia-Pacific region during 2017.  We will also plan to have a pre-submission meeting with the US FDA in relation to Creo's lung ablation device.

 

The completion of our successful IPO was a very significant landmark event for the Company and signals the start of the next stage of the Creo story.  The Board would like to express its thanks to our employees, collaborators and fellow shareholders during this transformational period and looks forward to charting the Company's progress.

 

Craig Gulliford

Chief Executive

 

 

 

 

 

 

 

 

 

 

Notes to the interim financial statements

 

1.  Basis of preparation

 

This interim report, which is unaudited, does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006.  These interim financial statements have been prepared in accordance with the AIM rules, and IAS 34 has not been adopted. 

 

This is the first interim financial report of the Company since the incorporation of Creo Medical Group plc on 12 September 2016 and the subsequent acquisition of Creo Medical Limited via a share for share exchange on 9 November 2016.  The accounts of Creo Medical Limited for the period ended 30 June 2016, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("adopted IFRSs"), have been delivered to the Registrar of Companies.  Those accounts were unaudited as the Company was entitled to exemption from audit under section 477 of the Companies Act 2006. 

 

This interim financial report for the six-month period ended 31 December 2016 (including comparatives for the 4 months ended 30 June 2016) was approved by the Board of Directors on 29 March 2017. 

 

The funding raised as a result of the listing on AIM on 9 December 2016 has provided the financial resources required to support the Company's ongoing operations as well as its future development and growth.  Net assets as at 31 December 2016 of £17.7m (30 June 2016: £1.6m) include cash and cash equivalents of £18.8m (30 June 2016: £0.8m).  Although there cannot be absolute certainty that the Company will complete the development and regulatory clearances required, the Board remains confident of its ability to continue with the development, the process of obtaining regulatory approvals and the commercialisation of its products.  On this basis, the Company has prepared detailed forecasts and projections taking into account the available funding and its planned activities up to and beyond June 2018 when it is expected to launch product sales.  On the basis of these financial projections the Directors are satisfied that the Company will have adequate resources to continue in operational existence for the foreseeable future and for a period of not less than 12 months from the date of signing these accounts.  Thus, they continue to adopt the going concern basis of accounting in preparing the interim financial report.    

 

Comparative information

 

The comparative figures for the financial period ended 30 June 2016 have been extracted from the statutory accounts of Creo Medical Limited for that period.  As discussed below under Business Combinations, the Company has applied the principles of book value accounting in the presentation of its consolidated accounts for the comparative period.  In doing so the comparative period shows the results of the acquired entity (Creo Medical Limited) along with the share capital structure of the parent Company (Creo Medical Group plc).  Further, the consolidated share capital and share premium presented for the comparative period is that which was in existence immediately following the share for share exchange which occurred on 9 November 2016.

 

Accounting policies

 

The same accounting policies and basis of measurement are followed in the interim financial report as per published by Creo Medical Limited in its statutory accounts for the period ended 30 June 2016 as delivered to the registrar of companies.  The following accounting policies have also been applied and are considered key to the information presented in these interim financial statements. 

 

Business combinations

 

On 9 November 2017 Creo Medical Group plc offered a share for share exchange to the shareholders of Creo Medical Limited.  As a result of this transaction, Creo Medical Group plc then becomes the parent entity of Creo Medical Limited. 

 

On the basis that there was no change in control following the share for share exchange, this is considered a common control transaction. 

 

Therefore, within the parent accounts the acquisition of Creo Medical Limited has been treated in accordance with IAS 27 Separate Financial Statements and so has been acquired at book value.  Within the consolidated financial statements, the acquisition of Creo Medical Limited is considered to be a company reorganisation among entities under common control and as such IFRS 3 is not considered to apply, therefore book value accounting has been applied to the acquisition.  The directors have chosen to restate the comparatives for the Group prior to the acquisition date to show the combination as though it has occurred prior to the start of the earliest period presented.  This is deemed to provide the user with a truer view of the Company's performance through the period.

 

Critical accounting judgments and key sources of estimation uncertainty

 

In application of the accounting policies, the directors are required to make judgments, estimates and assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources.  The estimates and assumptions are based on historical experience and other factors that are considered to be relevant.  Actual results may differ from these estimates.

 

Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

 

Share-based payments

 

Equity-settled share options are granted to certain officers and employees.  Each tranche in an award is considered a separate award with its own vesting period and grant date fair value.  Fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model.  Compensation expense is recognised over the tranche's vesting period based on the number of awards expected to vest, through an increase to equity.  The number of awards expected to vest is reviewed over the vesting period, with any forfeitures recognised immediately.

 

Research and development costs

 

The Company's principal activity is the research and development of electrosurgical medical devices relating to the emerging field of surgical endoscopy.  Expenditure on research and development activities is recognised in the statement of profit or loss as incurred.  Although the Company has to date developed an electrosurgical platform, significant know-how and intellectual property, the Company is currently in the process of obtaining regulatory approval for its products, following which it will commence commercialisation activities.

 

Based on the product development milestones still to be achieved, the directors have concluded that all the recognition criteria of IAS 38 to capitalise an internally generated intangible asset has not yet been achieved and therefore continue to expense the related expenditure as incurred.  Where Creo are engaging specific external OEM providers to develop products on a standalone basis then the development of each product and the costs per the milestone agreement will be considered on a case by case basis.  As such when a product is being developed that could be a standalone product and be licensed as such then the costs will be capitalised as long as the milestones are being achieved and the future benefit can be determined and reliably measured.

 

2.    Earnings per share

 

 

Earnings per share has been calculated in accordance with IAS 33 - Earnings Per Share using for the loss for the period after tax, divided by the weighted average number of shares in issue.

 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares. The potential ordinary shares are considered to be antidilutive on the basis that they reduce the loss per share and are such are not included in the Company's EPS calculation, meaning that diluted EPS is the same as basic EPS. 

 

3.    Share capital

 

 

On 6 October 2016 1,922 £0.01 ordinary shares were issued. On 4 November 2016 1,683,050 deferred shares were cancelled.  On 9 November 2016 for every one share held an additional 35 shares were issued.   The ordinary shares were then sub divided by 10 giving 33,903,000 £0.001 total ordinary shares.  On 9 December 2016 the preferred ordinary shares were converted to 18,501,480 £0.001 ordinary shares and the Company listed on AIM, where a further 28,307,265 £0.001 ordinary shares were issued.

 

4.    Cash from operations

 

 

 

5.    Cash from share issue