Interim results for six months to 31 December 2017

Creo Medical Group plc

 

Interim results for six months to 31 December 2017

 

FDA clearance for Speedboat RS2 and CROMA platform

European training programme commenced for leading clinicians, with first UK patients treated 

 

 

Chepstow, Wales, 20 March 2018 - 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 2017.

 

Creo is a medical device company focused on the emerging field of surgical endoscopy, having developed its ground-breaking CROMA electrosurgery advanced energy platform ("CROMA platform") which applies microwave and bi-polar radiofrequency ("RF") energy via its Speedboat RS2 device to cut, coagulate and ablate with precision. Early applications focus on Gastrointestinal ("GI") surgery where Creo's technology is expected to improve patient outcomes (shorter procedures, hospital stays and recovery times), reduce risk and make procedures easier to perform.

 

Operational and Recent Highlights

 

·      Food and Drug Administration ("FDA") 510(K) clearance received for Speedboat RS2 and the CROMA platform in August 2017 ahead of the Board's expectations

·      Moved into a new facility in Chepstow, providing the engineering development capability and manufacturing capacity to support the commercial phase

·      European soft launch of first product, Speedboat RS2, on track

o  Speedboat and CROMA platform installed at two NHS sites in the UK

o  Creo European Training Academy programme underway

o  A number of patients have been successfully treated with Creo's Speedboat RS2 device, powered by the CROMA platform

 

Financial Highlights

 

·      Cash and cash equivalents of £8.6m at 31 December 2017 (H1 2016: £18.8m)

·      Operating loss of £5.1m (H1 2016: £4.7m) including £0.5m share based payments, in line with management expectations

·      Underlying operating loss of £3.4m (H1 2016: £2.6m) reflecting:

o  Accelerated investment in product development and clinical costs associated with continued progress for FDA clearance

o  New staff appointments to support scaling of business

·      Net cash outflow from operating activities of £4.4m (H1 2016: £2m) includes £0.4m of one off costs associated with office relocation

·      Net assets of £11.1m (H1 2016: £17.7m)

 

Craig Gulliford, Chief Executive Officer, commented:

 

"I am pleased with the progress we have made against all our strategic objectives, not only in the first half of FY 2018, but over the last twelve months.  Since we listed in December 2016, we have achieved CE marking and FDA clearance ahead of schedule for our first product, Speedboat RS2, in Europe and the US.  We are executing against our training led commercialisation plan, targeting selected clinicians and key opinion leaders to drive clinical adoption.  Significantly, the first patients in the UK have been treated using our Speedboat RS2 device powered by our CROMA platform. Furthermore, our technology has been deployed and utilised at a second NHS site.  The advances that we have made in our pipeline positions us well to become a leading advanced energy, minimally invasive, medical device company.  We remain on track for full commercial launch in 2019."

 

Contacts
Creo Medical:	Cenkos:	FTI Consulting:
Craig Gulliford (CEO) Richard Rees (CFO) +44 (0)129 160 6005	Camilla Hume/Mark Connelly (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 RF energy to surgical endoscopy.  Creo has developed CROMA, an electrosurgical advanced energy platform that combines bipolar radiofrequency for precise localised cutting and microwave for controlled coagulation.  This technology provides clinicians with flexible, accurate and controlled surgical solutions.

 

The Company's strategy is to bring its CROMA platform to market through a suite of medical devices which the Company has designed, initially for the emerging field of GI therapeutic endoscopy, an area with high unmet needs.  The CROMA platform will be developed further for bronchoscopy and laparoscopy procedures.  The Company believes its technology can impact the landscape of surgery and endoscopy by providing a 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 2017

 

Chief Executive Review

 

Overview

 

Creo Medical Group plc ("Creo" or the "Company") is developing a suite of products based on its CROMA electrosurgery advanced energy platform ("CROMA platform") for the emerging field of surgical endoscopy.  It will initially launch this energy system into the field of Gastrointestinal ("GI") therapeutic endoscopy.

 

Endoscopy has been a rapidly expanding practice due to the advent of colorectal cancer screening in most healthcare systems.  This has driven the development of equipment and devices to enhance the ability to screen and detect early stage and pre-cancerous lesions in the GI tract. In the US, 16 million colonoscopies are performed annually¹ and of these 1.1 million lesions will require treatment² with approximately half of those lesions being surgically removed.  Advanced therapeutic endoscopy has the potential to reduce the risk of complications from such surgical procedures, with mortality rates improved to negligible levels - current mortality rates from upper GI bleeding are up to 15%³, and traditional colorectal surgery is associated with a 6 per cent mortality rate at 30 days⁴.  Furthermore, in contrast to the need for a long hospital stay and a general anaesthetic associated with traditional surgery, endoscopy procedures can be performed in an out-patient clinic with the patient being sedated (as is being demonstrated through the clinical use of our products).  This requires long, flexible endoscopic devices and the need for precision and control.

 

Creo's CROMA platform's combination of radiofrequency and microwave energy in a single platform enables a combined ability to cut, coagulate and ablate, which management believe that together with the suite of devices under development, is the next generation of minimally invasive surgery.

 

¹ US surgical procedures volumes 2010, Millennium Research, RPUS435SV10, Feb 2010

² Gastrointest Endosc 2014; 80-133-43

³ Annals of Hepatology, Vol. 10 No.3, 2011: 287-295

⁴ Ann R Coll Surg Engi 2011; 96: 445-450

 

 

Operational Review

 

During the period under review, Creo has continued to build on the progress achieved since its Initial Public Offering ("IPO") on the Alternative Investment Market ("AIM") of the London Stock Exchange in December 2016.

 

The funds raised at IPO provided the Company with the financial strength to progress clinical development across its CROMA platform, gain regulatory clearance and begin training of the first clinicians to use its first device, Speedboat RS2.

 

Regulatory progress

The Company completed the development required to receive CE Mark for the CROMA platform and Speedboat RS2 in Europe earlier in 2017.  To ensure best patient outcomes, Creo is committed to a training led commercial programme and since receiving regulatory clearance, the Company has invested in training a small and focused clinical user base.  With the establishment of Creo's European Training Academy and the development of our repeatable and robust education programme, to date we have successfully trained 15 key clinicians to use the Speedboat RS2, each with differing backgrounds and experience in endoscopy.

 

In November 2017, Speedboat RS2 was successfully used by a second Gastroenterologist at a second NHS site. This follows the first cases at St Mark's Hospital in London.  Importantly, feedback from these initial cases confirmed the removal of lesions under sedation with a procedure time of under one hour. The patients were discharged on the same day for routine follow-up and monitoring.

 

The success of these early procedures is key to the placement of the CROMA platform and Speedboat RS2 in Europe which we have targeted during calendar year 2018 and for which, management is of the opinion that, we remain on track. 

 

Ahead of management's expectations, the Company received 510(K) clearance from the FDA for its CROMA platform and Speedboat RS2 device in August 2017.  The FDA clearance was received approximately six months ahead of schedule, with the FDA review process being completed in 49 calendar days from submission.  As in Europe, the Company intends to commence a training-centric commercialisation programme in the US during calendar year 2018. 

 

Pipeline update

The CROMA platform has been designed with a single accessory port compatible with a suite of single-use devices that use the microwave and RF energy for cutting, coagulating and ablating in various procedures. The Company's development of a suite of endoscopic products for use with the CROMA platform remains on track, with management aiming to launch a suite of devices during 2019.  Creo's flexible ablation device has progressed through to early stage regulatory clearance in Europe, and following discussions, the FDA has confirmed 510(K) submission pathway for clearance in the US. 

 

Management and Employees

Since IPO the Company has successfully recruited a number of employees to strengthen its team to allow the business to scale.  Our employees bring with them significant experience from a variety of different sectors and disciplines, with many having significant prior experience in the medical device sector including the commercialisation of new and innovative medical device products.  Management believe that the breadth of support and expertise available to the Company gives Creo the right platform to scale its operations both directly and through a carefully selected group of distribution partners throughout the world.

 

Roseanne Varner has stepped down from her role as Creo's Chief Commercial Officer to allow her to pursue other opportunities.  The Board would like to thank Roseanne for her work, contribution and commitment to the Company and wishes her well for the future.

 

Current Trading and Outlook

The Company made good strategic, operational and financial progress in the period and has a clear vision and roadmap for the continuing growth and corporate 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 operational milestones in line with expectations.

 

By December 2018, Creo plans to generate clinical data, allowing for recognition and validation of our technology with the continued placing of our CROMA platform in hospitals in Europe and the USA and continued training of key opinion leaders and clinicians on the platform and accompanying devices.  We will continue to select the clinicians and supervise them carefully, and aim to increase from a small number of clinicians in Europe to a carefully selected wider group of clinicians who are able to deliver good quality clinical outcomes in Europe and the US over the next twelve to eighteen months.

 

The Board thanks its employees, collaborators and fellow shareholders for their continued support and focus on achieving Creo's aim of becoming a leading advanced energy, minimally invasive, medical device company and is looking to the future with confidence.

 

Craig Gulliford

Chief Executive

 

 

 

 

Financial Review

 

The Company's financial performance is in line with management's expectations. Operating expenses reflect the increased clinical and development activities of the Company during the period, 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.

 

Research and development expenditure for the period was £2.2m (6 months to 31 December 2016: £1.8m, 12 months to 30 June 2017: £3.8m).  Expenditure on product development and clinical costs increased during the period as the business continued to invest in the expansion of its portfolio of products.

 

Administrative expenses for the period were £3m (6 months to 31 December 2016: £3m, 12 months to 30 June 2017: £5.4m).

 

Operating loss

 

The operating loss for the period of £5.1m (6 months to 31 December 2016: £4.7m, 12 months to 30 June 2017: £8.9m), reflected the increased operating expenses outlined above.

 

The underlying operating loss for the period is £3.4m (6 months to 31 December 2016: £2.6m, 12 months to 30 June 2017: £5.6m).  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 5 pence (6 months to 31 December 2016: 11 pence, 12 months to 30 June 2017: 13 pence).

 

Cash flow and Balance Sheet

 

Net cash used in operating activities was £4.4m (6 months to 31 December 2016: £2m, 12 months to 30 June 2017: £6.9m), driven by the increase in investment in research and development during the period.  Net cash generated from share issues was £0.02m (6 months to 31 December 2016: £20m, 12 months to 30 June 2017: £20m) reflecting the net proceeds from the issue of shares relating to the exercise of share options.

 

Total assets decreased to £12.8m (6 months to 31 December 2016: £20.3m, 12 months to 30 June 2017: £16.1m), reflecting the increase in operating cash outflow for the period. Cash and cash equivalents at 31 December 2017 was £8.6m (6 months to 31 December 2016: £18.8m, 12 months to 30 June 2017: £13.7m). Net assets were £11.1m (6 months to 31 December 2016: £17.7m, 12 months to 30 June 2017: £14.7m).

 

At 31 December 2017, the debtor position in relation to R&D Tax Credits was £2.5m, with cash received during January 2018 of £0.3m and a further £1.4m expected during March 2018.  Adjusting for the receipt of cash in relation to R&D Tax Credits, the underlying cash position at 31 December 2017 is £10.3m.

 

Increase of £0.6m in property, plant and equipment at 31 December 2017 is as a result of the new facility in Chepstow of £0.4m and other key asset purchases that will support development of £0.2m.

 

 

 

 

Consolidated statement of profit and loss and other comprehensive income

 

 

 

 

 

Consolidated statement of financial position

 

 

 

 

 

Consolidated statement of changes in equity

 

 

 

 

 

 

Consolidated statement of cash flows

 

 

 

 

 

 

Notes to the interim financial statements

 

1.  Basis of preparation

 

This interim financial 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 the IAS 34.

 

The accounts of Creo Medical Group plc for the period ended 30 June 2017, 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 prepared and audited as required by the Companies Act 2006. 

 

This interim financial report for the six-month period ended 31 December 2017 (including comparatives for the 6 months ended 31 December 2016 and the 12 months ended 30 June 2017) was approved by the Board of Directors on 19 March 2017. 

 

The Company has prepared detailed forecasts and projections taking into account the available funding and its planned activities up to and beyond June 2019.  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 this interim financial report.  Thus, they continue to adopt the going concern basis of accounting in preparing the interim financial report.    

 

Accounting policies

 

The same accounting policies and basis of measurement are followed in this interim financial report as published by Creo Medical Group plc in its statutory accounts for the period ended 30 June 2017, as delivered to the registrar of companies.

 

Changes in accounting policies

 

·      IFRS 9 Financial Instruments (effective 1 January 2018).

The Group has not adopted IFRS 9 early.  The Group does not expect a significant impact on its accounting policies for financial instruments.  Up to and including 31 December 2017 the Group predominantly enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities like trade and other accounts receivable and payable, loans from other third parties, loans to related parties and investments in non-puttable financial instruments.

 

·      IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018).

The Group has not adopted IFRS 15 early.  The Group is pre-revenue and as such there are no significant changes or quantitative impacts to be accounted for in relation to periods up to and including 31 December 2017.

 

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.

 

Principal risks and uncertainties

 

The principal risks and uncertainties impacting the Group are described in our 2017 Annual Report and remain unchanged at 31 December 2017.

 

The risks and uncertainties in relation to the UK's exit from the European Union have been reviewed as part of a wider review into all the risks and uncertainties for the Group at 31 December 2017.  Due to the continued uncertainty regarding the terms of the exit from the European Union, our position remains unchanged; we cannot be certain of any impact at this juncture but continue to ensure that we mitigate any potential risk where possible.

 

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.  The Company has to date developed and obtained FDA clearance for its Speedboat RS2 device and the CROMA platform, whilst continuing to develop further minimally invasive surgical devices in the field of surgical endoscopy. The Company continues with its commercialisation activities of those regulatory cleared products.

 

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 have not yet been achieved and therefore continue to expense the related expenditure as incurred.  Where Creo has contracted with specific external OEM providers to develop products on a standalone basis then the development of each product and the costs in accordance with the milestone agreement will be considered on a case by case basis.  When a product is being developed that could be a standalone product and be licensed as such then the costs will be capitalised provided the milestones are being achieved and the future commercial 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

 

 

 

 

 

 

4.    Cash from share issue