TIDMLMT
RNS Number : 9682B
Lombard Medical Technologies PLC
11 March 2014
Press Information
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR
INDIRECTLY, IN OR INTO THE UNITED STATES OR ANY OTHER JURISDICTION
IN WHICH THE DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL.
Lombard Medical Technologies PLC
("Lombard Medical" or "the Company")
Results for the Year ended 31 December 2013
US FDA approval and launch of Aorfix(TM) leads transformational
year for Company
London, UK 11 March, 2014 - Lombard Medical Technologies PLC
(AIM: LMT), the specialist medical device company focused on
endovascular aortic repair ("EVAR") of abdominal aortic aneurysms
("AAAs"), today announces its results for the year ended 31
December 2013.
Operational highlights
-- US FDA approval of Aorfix(TM) for the endovascular repair of AAAs in February 2013
o Only endovascular stent graft approved by the US for use in
cases with neck angulation up to 90 degrees
-- US FDA approval of Aorflex(TM), the next generation delivery system for Aorfix in June 2013
-- Official US launch of Aorfix together with Aorflex at the
VEITH Symposium in New York in November 2013
-- Following US Aorfix approval, recruited and trained a US
direct sales force of 20 individuals, including two regional
managers
-- Trained 244 physicians in the US to use Aorfix between July and December 2013
-- Appointment of Raymond W. Cohen as Non-Executive Chairman in July 2013
Financial highlights
-- Total revenue increased by 13% to $7.0m (2012: $6.2m)
-- Aorfix commercial revenue increased 23% to $6.1m (2012: $5.0m)
o Aorfix revenue in main EU markets increased 8% to $3.9m (2012:
$3.6m)
o Aorfix revenue in the US was $0.5m following launch in H2
2013
-- Operating loss increased to $20.0m (2012: $13.1m) due to
increases in sales and marketing headcount and activity in the
US
-- Cash and cash equivalents of $40.9m as at December 31, 2013
(December 31, 2012: $4.5m), increased primarily through the receipt
of $53.2m (GBP34.4m) from equity fundraisings
-- Financing:
o US approval of Aorfix in February 2013, which triggered
receipt of the $20.4m (net of expenses) second tranche of the two
tranche April 2011 fundraising
o US approval of Aorfix triggered Company's ability to draw down
$2.5m from the $5.0m loan facility granted by our exclusive
Japanese distribution partner, Medico's Hirata Inc.
o Raised an additional $32.8m (net of expenses) in June 2013
through a placing, subscription and offer for new shares
Post period events
-- Live case demonstration using Aorfix at
o 2014 Leipzig Interventional Course (LINC) in Germany
o iCON 2014, a meeting of the International Society of
Endovascular Specialists in Phoenix, Arizona
-- Approval for Aorfix in Japan continues to be anticipated in 2014
This press release does not constitute an offer of any
securities for sale. As a result of regulations applying to the
Company after the filing of a Form F-1 Registration Statement with
the US Securities and Exchange Commission on 10 March 2014, this
press release does not include comments on Outlook or by our Chief
Executive Officer.
-Ends-
For further information:
Lombard Medical Technologies PLC Tel: +44 (0)1235 750 800
Simon Hubbert, Chief Executive
Officer
Ian Ardill, Chief Financial Officer
Canaccord Genuity Limited (Nomad) Tel: +44 (0)20 7523 8000
Lucy Tilley / Tim Redfern / Henry
Fitzgerald O'Connor / Dr Julian
Feneley
FTI Consulting (UK) Tel: +44 (0)20 7831 3113
Simon Conway / Stephanie Cuthbert
/ Victoria Foster Mitchell
About Abdominal Aortic Aneurysms
AAAs are a balloon-like enlargement of the aorta which, if left
untreated, may rupture and cause death. Approximately 4.5 million
people are living with AAAs in the developed world and each year
over 500,000 new cases are diagnosed. In the US, aortic aneurysm
disease is among the leading causes of death and it is estimated
that 1.7 million people over the age of 55 have an abdominal aortic
aneurysm.
About Lombard Medical
Lombard Medical Technologies PLC (AIM: LMT) is a medical device
company focused on device solutions for the abdominal aortic
aneurysm ("AAA") repair market. The Company's lead product,
Aorfix(TM), is an endovascular stent graft which has been
specifically designed to solve the problems that exist in treating
complex tortuous anatomy, which is often present in advanced AAA
disease. Aorfix is the only stent graft approved for AAA neck
angulations of up to 90 degrees and is currently being
commercialized worldwide. Aorfix is the first AAA stent graft not
of US origin to gain US FDA approval. The Company is headquartered
in Oxfordshire, England with US operations in Irvine, CA.
Further background on the Company can be found at
www.lombardmedical.com.
FORWARD-LOOKING STATEMENTS
This announcement may contain forward-looking statements that
reflect the Company's current expectations regarding future events,
including the commercialization and regulatory clearance of the
Company's products, the Group's liquidity and results of
operations, as well as the Group's future capital raising
activities. Forward-looking statements involve risks and
uncertainties. Actual events could differ materially from those
projected herein and depend on a number of factors, including the
success of the Company's research and development and
commercialization strategies, the uncertainties related to the
regulatory process and the acceptance of the Company's products by
hospitals and other medical professionals.
CHIEF EXECUTIVE'S REVIEW
Overview
2013 was a particularly significant year in Lombard Medical's
history with the US Food and Drug Administration ("FDA") approval
of Aorfix for the endovascular aortic repair of abdominal aortic
aneurysms granted in February 2013. The approval includes a unique
label indication for the treatment of patients with angulations at
the neck of the aneurysm up to and including 90 degrees. This gives
Aorfix the broadest label for such a device on the US market, and
makes it the only endovascular stent graft approved for use in high
angle (>60 degrees) cases, providing a strong platform for
growth in the world's largest EVAR market. The worldwide EVAR
market was estimated to be approximately $1.4 billion in 2013, with
the U.S. market estimated at approximately $680 million.
During the period, in June 2013, the Company also received US
FDA approval for Aorflex, the Company's next generation delivery
system. Aorfix was officially launched in the US at the 40(th)
Annual Symposium on Vascular and Endovascular Issues (VEITH
Symposium) in New York in November 2013. The Aorfix stent-graft has
been successfully used to treat patients in the US since the FDA
approval.
We generated revenue of $7.0 million in the year ended December
31, 2013 (2012: $6.2 million), with $0.5 million attributable to
the US post launch. We reported an operating loss of $20.0 million
in the year ended December 31, 2013 (2012: $13.1 million).
As of December 31, 2013, we had cash and cash equivalents of
$40.9 million. We achieved this cash position primarily through the
receipt of $53.2 million (GBP34.4 million) from equity fundraisings
during the year ended December 31, 2013.
Aorfix Regulatory Approval in the US and launch
As part of the US launch, we are focusing on the 300 higher
volume US centers, where approximately 50% of the EVAR procedures
in the US are performed. Our US commercial headquarters have been
moved to Irvine, California. Our US sales and marketing team have
significant experience in the healthcare industry and in vascular
sales and marketing in particular. We have recruited and trained a
field sales force of 20 individuals, including two regional
managers. The sales representatives come from a large pool of
experienced sales representatives and have experience in EVAR,
peripheral vascular sales or related fields, and have received
in-depth training in the Aorfix implant and the procedure itself.
We intend to more than double the size of our direct sales force in
the US by the end of 2014.
The initial step in our US roll-out of Aorfix consists of
training physicians seeking to use Aorfix. We have a number of
experienced technical proctors in our US team who conduct physician
training between July and December 2013 we trained 244
physicians.
Post period end, in February, a team of surgeons led by
Venkatesh Ramaiah, M.D. of The Arizona Heart Institute in Phoenix,
Arizona successfully performed a live case demonstration of a
challenging AAA repair using Aorfix to more than 150 physicians at
iCON 2014, a meeting of the International Society of Endovascular
Specialists in Phoenix, Arizona. This case was performed using a
percutaneous approach. During the procedure, which was broadcast
live from The Arizona Heart Hospital in Phoenix, a panel of
prominent vascular surgeons engaged in a dialogue with the surgical
team focused on the deployment and placement of the Aorfix device
during the AAA procedure. The panel was chaired by Edward
Diethrich, M.D., the Program Chairman.
RoW Aorfix Update
European live case demonstration using Aorfix
In January 2014, a team of surgeons, led by Dr. Andrej Schmidt,
Oberarzt (Senior Physician) Angiologie, Leipzig Park-Krankenhaus,
successfully performed a live case demonstration of a challenging
AAA repair using Aorfix to over 500 physicians at the 2014 Leipzig
Interventional Course (LINC), Leipziger Messe, Leipzig, Germany.
Prior to the live case Dr Schmidt demonstrated the Company's new
simulation technology, developed in conjunction with Simbionix USA
Corporation, which uses a patient CT scan to allow physicians to
practice the procedure on a simulation of that particular patient's
AAA anatomy ahead of the actual surgery. During the procedure,
which was broadcast live from Park Hospital Leipzig, a panel of
prominent vascular surgeons, interventional radiologists and
interventional cardiologists, chaired by Professor Vicente Riambau,
Professor and Chief of Vascular Surgery, Hospital Clinic of
Barcelona, gave a series of presentations discussing their
experiences of Aorfix utilization in complex AAA anatomy.
Japan
Through our relationship with our exclusive Japanese
distribution partner, Medico's Hirata Inc,we are confident of
securing Aorfix approval in Japan in 2014, which will allow us to
access the second largest single market for this device. Medico's
Hirata remains in dialogue with the Pharmaceuticals and Medical
Devices Agency (PMDA) to achieve this. Medico's Hirata is a leading
supplier of vascular products in Japan. Through its existing and
established sales force, the Company believes it will be able to
maximize the potential of Aorfix in this important and growing
market, which in 2013 was estimated to account for approximately
$140m or 10% of the global EVAR market.
Manufacturing update
To meet growing demand for Aorfix in the US, address growing
sales in Europe and be ready for the anticipated regulatory
approval of Aorfix in Japan in 2014, we announced the expansion of
our manufacturing facilities in Didcot by c.10,000 square feet to
approximately 32,000 square feet in October 2013. This expansion
involves the construction of a new cleanroom and materials handling
space. We are currently in the validation phase and expect to be
manufacturing clinical product in the second quarter of 2014. This
expansion will allow us to meet Aorfix demand for the global market
for the foreseeable future.
New product development
Delivery System
We are developing new versions of the Aorfix stent-graft
delivery system to allow physicians to use Aorfix to treat patients
with narrow access vessels through a low profile design that
reduces vessel trauma and to reposition the top of the graft to
further enhance physician accuracy in placing the stent-graft. We
intend to work closely with the regulatory bodies in the US and the
European Union to plan the optimal route to market.
Thoracic Stent-Graft
We are also developing a stent-graft system to treat thoracic
aortic aneurysms ("TAAs"). Within the thoracic endovascular aortic
repair ("TEVAR") market, we believe that there are benefits from
having a highly flexible stent-graft, we have built prototype TEVAR
devices that have this characteristic. We expect these designs to
demonstrate benefits in treating the severe curvature of the aortic
arch in a similar manner to the benefits demonstrated by Aorfix in
treating angulated AAAs. The thoracic stent-graft we are developing
may additionally have potential applications in treating patients
with dissections and partial transections of the thoracic
aorta.
Aorfix Size Range
We have made significant progress toward expanding the size
range of Aorfix, thereby addressing the needs of patients with AAAs
with aortic neck diameters either too large or too small for the
current product size range. Based on published clinical data, we
estimate that this expanded patient group could constitute up to
25% of the total AAA patient population, representing a significant
incremental market opportunity. We anticipate commencing a clinical
study to support regulatory approval of the most widely used
combinations of sizes in the expanded size range in late 2014.
Currently, in Europe, larger sizes of Aorfix can be made to a
physician's special prescription and patients have already been
treated with custom made Aorfix devices.
The Board
After two years of service as Lombard Medical's Chairman and
following the achievement of gaining FDA approval for Aorfix in the
US, John Rush announced in April 2013 that he would step down as
Non-executive Chairman of the Company, pending completion of a
comprehensive search for his successor. John remains an active and
committed member of the Board as a Non-executive Director.
In July 2013, the Board appointed Raymond W. Cohen as
Non-executive Chairman. Ray, a US national, has extensive
international medical device experience having held several
Chairman and CEO positions on the boards of both publicly listed
and private life sciences companies in the US and Europe. Ray
served as Chief Executive Officer of Vessix Vascular, Inc., a
developer of a renal denervation system used to treat uncontrolled
hypertension. During his tenure as CEO, the company was acquired by
Boston Scientific Corporation in a structured transaction valued at
up to $425 million.
Post period end, in February 2014, Professor Martin Rothman
resigned from the Board with immediate effect, having served as a
Non-executive Director of the Company since 2005. The Board thanks
Professor Rothman for his commitment and long service to the
Company and wishes him well in his future endeavors.
FINANCIAL REVIEW
The financial information for all the periods presented has been
prepared in accordance with International Accounting Standards as
issued by the IASB. The financial information is unaudited and
presented in US dollars as extracted from a registration statement
on Form F-1 that the Company has filed with the United States
Securities and Exchange Commission. Such financial information is
being presented to comply with Rule 10 of the AIM Rules for
Companies. They do not constitute statutory accounts within the
meaning of section 434 of the Companies Act 2006. This information
does not constitute an offer of any securities for sale.
Revenue
Revenue increased by $0.8 million or 13%, to $7.0 million for
the year ended December 31, 2013 (2012: $6.2 million). Aorfix
commercial revenue increased 23% to $6.1 million in the year ended
December 31, 2013 (2012: $5.0 million).
In our four main European markets, the United Kingdom, Germany,
Italy and Spain, revenue increased 8% to $3.9 million for the year
ended December 31, 2013 (2012: $3.6 million). Revenue in Germany
increased by 38% offsetting the effect of EVAR center consolidation
in the United Kingdom.. Outside our main European markets, revenue
from distributors increased 27% to $1.7 million for the year ended
December 31, 2013 (2012: $1.4 million). In addition to Aorfix
revenue, revenue generated from the OEM business based on
Prestwick, Scotland decreased 28% to $0.8 million for the year
ended December 31, 2013 from $1.1 million for the year ended
December 31, 2012. On December 20, 2013 we completed the
divestiture of this business for GBP0.6 million or $1.0 million at
the exchange rate at December 20, 2013. This is not considered to
be discontinued operations in accordance with IFRS.
In the US market, revenue was $0.5 million, which consisted of
patients treated following FDA approval for Aorfix, the majority of
which arose in the fourth quarter..
Cost of sales
Cost of sales increased to $4.3 million for the year ended
December 31, 2013 (2012: $4.0 million). This was due primarily to
the increase in the volume of units sold over the equivalent
period. Cost of sales of Aorfix increased to $4.0 million for the
year ended December 31, 2013 (2012: $3.5 million). Cost of sales
for the year ended December 31, 2012 included initial unanticipated
costs from the transfer of the Aorflex delivery system into
production.
Operating expenses
Selling, marketing and distribution expenses increased by $6.0
million, or 136%, to $10.5 million for the year ended December 31,
2013 (2012: $4.4 million), due to increases in sales and marketing
expenses of $5.8 million in the US following FDA approval of Aorfix
in February 2013.
Research and development expenses decreased by $0.3 million, or
5%, to $7.0 million for the year ended December 31, 2013 (2012:
$7.3 million) as our expenditures relating to Aorfix clinical
development decreased significantly due to the end of the trial,
but development expenses increased following the FDA approval in
February 2013.
Administrative expenses increased by $1.7 million, or 47% to
$5.3 million for the year ended December 31, 2013 (2012: $3.6
million). This increase can be attributed primarily to a 2013 share
option charge of $1.2 million, which resulted from changes made to
the performance criteria in June 2013, compared with a credit of
$0.4 million in 2012.
Taxation
The tax credit of $1.1 million in the year ended December 31,
2013, (2012: $0.6 million), represents an estimate of $0.9 million
for the research and development tax credit arising in the period
in addition to a credit of $0.2m in relation to an adjustment of
the research and development tax credit in the 2012 accounts, which
was revised.
Cash outflow from operating activities
Net cash outflow from operating activities increased by 49% to
$17.8 million for the year ended December 31, 2013 (2012: $11.9
million), principally due to increased expenditure on sales and
marketing activities, which increased by $6.0 million, the majority
of which was incurred in the US. In addition, there were decreased
working capital requirements of $0.6 million compared to a decrease
in working capital requirements in 2012 of $0.1 million. This was
principally due to an increase in payables during 2013 as the
company invested in sales and marketing and its manufacturing and
development facilities ahead of growth in revenues.
Cash flows from investing activities
Net cash used in investing activities increased to $3.9 million
for the year ended December 31, 2013 (2012: $0.2 million), due to
our purchase of sales and marketing equipment to support the US
launch of Aorfix and development mold tooling for the next
generation of Aorfix products. In addition, there was an initial
payment for the acquisition of a license to a US patent from
Medtronic.
Cash flows from financing activities
Net cash flows from financing activities were $55.7 million for
the year ended December 31, 2013 (2012: $4.5 million) and consisted
of the following:
-- US approval of Aorfix in February 2013, which triggered our
receipt of the $20.4 million (net of expenses) second tranche of
the two tranche April 2011 fundraising.
-- Aorfix approval also triggered our ability to draw down $2.5
million from the $5.0 million loan facility granted by our
exclusive Japanese distribution partner, Medico's Hirata Inc.
-- In June, the Company raised an additional $32.8 million (net
of expenses) through an offer, subscription and placing of new
shares.
LOMBARD MEDICAL TECHNOLOGIES PLC
CONSOLIDATED FINANCIAL INFORMATION
Consolidated Balance Sheets
as at December 31, 2012 and 2013
2012 2013
Note $'000 $'000
Assets
Intangible assets 3 3,621 5,722
Property, plant and equipment 4 955 2,411
Trade and other receivables 7 - 523
Non-current assets 4,576 8,656
Inventories 6 3,173 3,361
Trade and other receivables 7 1,844 3,444
Taxation recoverable 922 2,143
Cash and cash equivalents 4,450 40,866
Current assets 10,389 49,814
Total assets 14,965 58,470
Liabilities
Borrowings 8 (4,473) -
Trade and other payables 9 (3,763) (6,579)
Current liabilities (8,236) (6,579)
Borrowings - (2,558)
----------- -----------
Non-current liabilities - (2,558)
----------- -----------
Total Liabilities (8,236) (9,137)
Net assets 6,729 49,333
Equity
Called up share capital 11 44,800 52,406
Share premium account 11 84,041 134,305
Other reserves 11 19,594 19,087
Translation reserve 1,284 4,192
Accumulated loss (142,990) (160,657)
Total equity 6,729 49,333
The accompanying notes form part of this financial
information.
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2011, 2012 and 2013
2011 2012 2013
Note $'000 $'000 $'000
----------
Revenue 12 6,425 6,175 6,960
Cost of sales (3,259) (3,952) (4,315)
Gross profit 3,166 2,223 2,645
Selling, marketing and distribution
expenses (4,636) (4,433) (10,452)
Research and development expenses (10,524) (7,300) (6,963)
Administrative expenses (6,337) (3,576) (5,264)
Total operating expenses (21,497) (15,309) (22,679)
Operating loss 13 (18,331) (13,086) (20,034)
Finance income-interest receivable 94 37 164
Finance costs 14 - (669) (449)
Loss before taxation (18,237) (13,718) (20,319)
Taxation 17 2,053 556 1,115
Loss for the year (16,184) (13,162) (19,204)
Other comprehensive income:
Items that will not be reclassified
to profit or loss
Currency translation differences (805) 724 2,908
Total comprehensive loss for
the year (16,989) (12,438) (16,296)
Basic and diluted loss per
ordinary share (cents)
From continuing operations 18 (99.2) (65.3) (53.5)
The accompanying notes form part of this financial
information.
Consolidated Statements of Changes in Equity
for the years ended December 31, 2011, 2012 and 2013
Share
Share Premium Other Translation Accumulated Total
Capital Account Reserves reserve loss Equity
Note $'000 $'000 $'000 $'000 $'000 $'000
At January
1, 2011 41,739 66,991 19,087 1,365 (113,651) 15,531
Loss for
the year - - - - (16,184) (16,184)
Share-based
compensation 19 - - - - 417 417
Issue of
ordinary
shares 3,061 18,361 - - - 21,422
Currency
translation - - - (805) - (805)
Share issue
expenses - (1,311) - - - (1,311)
At January
1, 2012 44,800 84,041 19,087 560 (129,418) 19,070
Loss for
the year - - - - (13,162) (13,162)
Share-based
compensation 19 - - - - (410) (410)
Currency
translation - - - 724 - 724
Equity component
of convertible
loan notes
(net of
issue expenses) - - 507 - - 507
At December
31, 2012 44,800 84,041 19,594 1,284 (142,990) 6,729
Loss for
the year - - - - (19,204) (19,204)
Share-based
compensation 19 - - - - 1,176 1,176
Currency
translation - - - 2,908 - 2,908
Issue of
ordinary
shares 6,933 48,408 - - - 55,341
Share issue
expenses - (2,180) - - - (2,180)
Conversion
of convertible
loan note 8 673 4,036 (507) - 361 4,563
At December
31, 2013 52,406 134,305 19,087 4,192 (160,657) 49,333
The accompanying notes form part of this financial
information.
Consolidated Cash Flow Statements
for the years ended December 31, 2011, 2012 and 2013
2011 2012 2013
Note $'000 $'000 $'000
----------
Cash outflow from operating activities
Cash used in operations 20 (17,364) (13,137) (17,728)
Interest paid - (289) (161)
Interest received 94 37 124
Research and development tax credits
/ (income tax paid) 1,332 1,478 (27)
Net cash outflow from operating activities (15,938) (11,911) (17,792)
Cash flows from investing activities
Purchase of property, plant and equipment (842) (218) (1,807)
Purchase of intangible assets -- -- (2,070)
Net cash flows used in investing
activities (842) (218) (3,877)
Cash flows from financing activities
Proceeds from issue of convertible
loan notes - 4,784 2,500
Convertible loan notes issue expenses - (250) -
Proceeds from issue of ordinary shares 21,422 - 55,341
Share issue expenses (1,311) - (2,180)
Net cash flows from financing activities 20,111 4,534 55,661
Increase/(decrease) in cash and cash
equivalents 3,331 (7,595) 33,992
Cash and cash equivalents at beginning
of year 9,012 11,620 4,450
Effects of exchange rates on cash
and cash equivalents (723) 425 2,424
Cash and cash equivalents at end
of year 11,620 4,450 40,866
The accompanying notes form part of this financial
information.
Notes to the Consolidated Financial Information
1 Accounting Policies
Basis of Preparation
Lombard Medical Technologies plc (the "Company" or the "Group")
is a medical technology company specializing in developing,
manufacturing, and marketing endovascular stent-grafts used in the
repair of aortic aneurysms. The Company's lead product, Aorfix, is
used in the treatment of abdominal aortic aneurysms. The financial
information as of December 31, 2012 and 2013 and for the three
years ended December 31, 2013 have been prepared and approved by
the Directors in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board
(IASB) and the International Financial Reporting Standards
Interpretations Committee (IFRIC), collectively 'IFRSs'.
The financial information for all periods presented is unaudited
and presented in US dollars as extracted from a registration
statement on Form F-1 that the Company has filed with the United
States Securities and Exchange Commission. Such financial
information is being presented to comply with Rule 10 of the AIM
Rules for Companies.They do not constitute statutory accounts
within the meaning of section 434 of the Companies Act 2006. The
financial information was approved for issuance by the Board on
March 10, 2014.
The financial information has been prepared on the historical
cost basis, revised for use of fair values where required by
applicable IFRS. The consolidated financial information is
presented in US dollars to the nearest thousand ($000), except
where otherwise indicated. The principal accounting policies
adopted are set out below.
Assets and liabilities of foreign operations where the
functional currency is other than the US dollar were translated
into US dollars at the relevant closing rates of exchange. Non-US
dollar trading results were translated into US dollars at the
average rates of exchange for those periods. Differences arising
from the retranslation of the opening net assets and the results
for the year have been taken to other comprehensive income.
The exchange rates relevant for each period were as follows:
2011 2012 2013
------ ------ ----
Sterling/US dollar exchange rate
Closing rate 1.54 1.62 1.65
Average rate 1.60 1.59 1.56
These policies have been applied consistently throughout the
year except where otherwise indicated.
Basis of Preparation-Financing
The financial information has been prepared on the going concern
basis, which assumes that the Group will continue in operational
existence for the foreseeable future. The Group has incurred
significant losses and negative cash flows from operations. At
December 31, 2013, the Group had an accumulated deficit of
$160,657,000 and cash and cash equivalents of $40,866,000.
The Group obtained regulatory approval in the United States for
Aorfix on February 14, 2013 but still expects to absorb cash until
sales reach an appropriate level.
The Company's management believes that its currently available
resources will provide sufficient funds to enable the Company to
meet its obligations through at least December 31, 2014. Based on
current forecasts the Company's management expect to have to raise
additional funding prior to the period when the Group becomes cash
generative through these increased sales levels. Additional funding
may not be available to the Company on acceptable terms, or at all.
The Company's management are confident, based on the combination of
the US approval, a large market for the product, a unique product
indication, near term cash funding and supportive major
shareholders that they will be able to raise suitable additional
funding and based on this the going concern basis has been adopted
in the preparation of this financial information.
Basis of Consolidation
The consolidated annual financial information comprises the
financial information of the Company and its subsidiaries at
December 31 each year. The purchase method of accounting is used
for the acquisition of subsidiaries.
Subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date
on which control is transferred out of the Group.
An investor controls an investee when it has power over the
relevant activities, exposure to variable returns from the investee
and the ability to affect those returns through its power over the
investee.
The financial information of subsidiaries is prepared for the
same reporting year as the Company using consistent accounting
policies. Adjustments are made to bring into line any dissimilar
accounting policies that may exist. All inter-company balances and
transactions, including unrealized profits arising from intra-group
transactions, have been eliminated in full.
Critical Accounting Estimates and Assumptions
The key sources of estimation uncertainty that have a
significant risk of causing material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are the measurement and impairment of indefinite life intangible
assets (including goodwill), the estimation of share-based
compensation expense and the treatment of R&D expenditure in
line with the relevant accounting policy.
Intangible Assets-Goodwill on Acquisition
The Group determines whether indefinite-life intangible assets
are impaired on an annual basis and this requires the estimation of
the fair value less costs of disposal of the cash generating units
to which the intangible assets are allocated which in turn involves
estimation of premiums paid for control of public companies and the
costs that would be incurred in a sale (see note 3).
Share-Based Compensation Expenses
The estimation of share-based compensation expense requires the
selection of an appropriate valuation model, consideration as to
the inputs necessary for the valuation model chosen and the
estimation of the number of awards that will ultimately vest,
inputs based on judgments relating to the probability of meeting
performance conditions and the continuing participation of
employees (see note 19).
Research and Development Expenditure
The treatment of research and development expenditure requires
an assessment of the expenditure in order to determine whether or
not it is appropriate to capitalize costs and recognize as an asset
on the balance sheet in accordance with IAS 38.
Revenue Recognition
Revenue represents the amount receivable from the sale of
medical devices and the licensing of technology, net of trade
discounts and sales-related taxes. Revenue is recognized as
follows:
Product Sales
Product sales to direct customers are recognized when goods are
delivered to customers and are net of any provision for estimated
returns. Products provided for a particular procedure include a
range of medical devices that may not all be used; where this is
the case an estimation of the number of unused devices to be
returned is made and provided for. Where our sales are made through
distributors, such sales are recognized on delivery to the
distributor as returns of stocking orders are not generally
accepted under the distributor agreements. In the case of products
provided for a particular medical procedure and sold through a
distributor, an estimate of the returns of unused parts is made and
provided for. Sales include products used in clinical trials
provided the supply is under a separate contract and payment
arrangements.
Royalty and Licence Income
Income arising from a license agreement is recognized when
receivable under the terms of a contract and when all related
obligations have been fulfilled. Royalty income is recognized on a
received basis and represents income earned as a percentage of
product sales in accordance with the terms of the relevant
agreement.
Cost of Sales
Cost of sales includes all costs relating to the manufacture of
the medical devices.
Research & Development Expenditure
Research and development expenditure is charged to the statement
of comprehensive income in the period in which it is incurred. The
Group considers that the regulatory, technical and market
uncertainties inherent in the development and commercialization of
new products mean that development costs incurred to date have not
yet met the relevant capitalization criteria and so should not be
capitalized as intangible assets and consequently expenditure on
research and development has been expensed as incurred.
Goodwill
Goodwill was recognized under UK GAAP prior to the adoption of
IFRS. Upon adoption of IFRS on January 1, 2006 the Goodwill was
carried over and is stated at net book value at that date. Goodwill
arising on the acquisition of subsidiary or associate undertakings
and business subsequent to January 1, 2006, representing any excess
of the fair value of the consideration given over the fair value of
the identifiable assets and liabilities acquired, is capitalized.
Goodwill is not amortized but is reviewed for impairment
annually.
Intangible Assets-Intellectual Property and Licences
Separately acquired intellectual property and license fee
payments made to third parties are recognized at cost. Intangible
assets for intellectual property are amortized on a straight-line
basis over the expected useful life
of the patents on the related products or processes. The life used for this purpose is ten years.
Intangible assets recognized for licence payments are amortized
over a straight-line basis over the licence agreement period. The
carrying value of intangible assets is reviewed for impairment
whenever events or circumstances indicate that the carrying value
may not be recoverable.
Intangible Assets-Software
Software is recognized at cost and amortized on a straight-line
basis over the expected useful life. The economic life used for
this purpose is three years.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of
depreciation. Cost includes the original purchase price of the
asset and the costs attributable to bringing the asset to its
working condition for its intended use. Depreciation is provided on
all property, plant and equipment at rates calculated to write off
the cost of each asset over its expected useful life as
follows:
-- Plant and equipment - three to ten years
Impairment of Assets
The carrying values of non-current assets are reviewed for
impairment where there is an indication that the assets might be
impaired. First-year and annual impairment reviews are conducted
for acquired goodwill. Impairment is determined by reference to the
higher of fair value less cost of disposal and value in use. Any
provision for impairment is charged in the statement of
comprehensive income for the year. Non-financial assets other than
goodwill which have suffered an impairment are reviewed for
possible reversal of the impairment at each reporting date.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in hand together with
short-term highly liquid investments that are readily convertible
to cash.
Financial assets-investments
Financial assets are stated at fair value where this can be
determined by reference to an active market. Investments in
unlisted equity instruments are measured at cost, less any
provision for impairment in value, as their fair value cannot be
reliably measured. Losses relating to impairment are immediately
recognized as an expense in the statement of comprehensive
income.
Foreign Currencies
Group undertakings have functional currencies of the Sterling
and the Euro that are different to the Group's presentational
currency of US dollars.
Monetary assets and liabilities of subsidiary undertakings in
foreign currencies are translated at the closing rates of exchange
for the year. Differences on exchange arising from the
retranslation of the opening net investment in subsidiary
companies, and from the translation of the results of those
companies at average rate, are taken to reserves and, where
material, are reported in the statement of changes in equity.
Transactions denominated in foreign currencies are translated
into functional currencies and recorded at the rate ruling at the
date of the transaction. Monetary balances, at the year-end, are
translated into functional currencies at the closing rate of
exchange. Exchange differences are taken to the income statement in
the period in which they arise.
Operating Leases
Leases in which a significant portion of the risks and rewards
of ownership are retained by the lessor are classified as operating
leases. Costs in respect of operating leases are charged on a
straight line basis over the lease term.
Inventories
Inventories are stated at the lower of cost and net realizable
value. Cost is determined on a first-in, first-out basis and
includes transport and handling costs. In the case of manufactured
products, cost includes all direct expenditure including production
overheads. Where necessary, provision is made for obsolete,
slow-moving and defective inventories.
Trade and Other Receivables
Trade and other receivables are recognized and carried at the
lower of their original invoiced value and recoverable amount.
Provision is made when there is objective evidence that the Group
will not be able to recover balances in full. Balances are written
off when the probability of recovery is assessed as remote.
Trade and Other Payables
Trade and other payables are obligations to pay for goods or
services that have been acquired in the ordinary course of business
from suppliers. Trade and other payables are classified as current
liabilities if payment is due within one year or less. If not, they
are classified as non-current liabilities. Trade and other payables
are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method.
Pensions
The Group operates a defined contribution pension scheme for
some of its employees. Contributions payable during the year are
charged to the statement of comprehensive income.
Taxation
Taxation on the profit or loss for the year comprises current
and deferred tax including tax on capital gains. Current tax is the
expected tax payable, or recoverable, on the taxable profit/loss
and any adjustment to tax payable or receivable in respect of prior
years. Research and development tax credits are recognized when it
is probable they will be received.
Deferred tax is accounted for using the balance sheet liability
method in respect of temporary differences arising from differences
between the carrying amount of assets and liabilities in the
financial information and the corresponding tax bases used in the
computation of taxable profit or loss.
Deferred tax assets are recognized to the extent that it is
probable that future taxable profits will be available against
which the temporary differences can be utilized. Their carrying
amount is reviewed at each balance sheet date on the same basis.
Deferred tax is measured on an undiscounted basis and at the tax
rates expected to apply in the period in which the asset or
liability is settled. It is recognized in the statement of
comprehensive income except when it relates to items credited or
charged directly to equity, in which case the deferred tax is also
dealt with in equity.
Financial and Capital Instruments
The fair value of the liability portion of a convertible
instrument is determined using a market interest rate for an
equivalent non-convertible instrument. This amount is recorded as a
liability on an amortized cost basis until extinguished on
conversion or maturity of the instrument. The remainder of the
proceeds is allocated to the conversion option; this is recognized
and included in shareholders' equity.
Capital instruments are included at fair value and measured at
amortized cost. Costs associated with the issue of capital
instruments offset against the proceeds of the instrument.
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are taken to the
share premium account and shown in equity as a deduction from the
proceeds.
Share-Based Payments
The Group operates a number of executive share option schemes
and has issued a warrant instrument in lieu of professional fees
related to the placing of preference shares. In accordance with
IFRS 2, the cost of equity-settled transactions is measured by
reference to their fair value at the date at which they are
granted, with fair value determined using the Black-Scholes model.
The cost of equity-settled transactions is recognized over the
period until the award vests. No expense is recognized for awards
that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting
irrespective of whether or not the market condition is satisfied.
Modified options are measured at fair value on the date of
modification and the difference between the fair value of the
original option on that date and themodified fair value is
recognized over the vesting period of the modified option. At each
reporting date, the cumulative expense recognized for equity-based
transactions reflects the extent to which the vesting period has
expired and the number of awards that, in the opinion of the
Directors at that date, will ultimately vest.
Segmental reporting
Operating segments are reported on a basis consistent with the
internal reporting used by the chief operating decision makers.
These have been identified as the Executive Management team which
makes operating decisions.
Standards and Interpretations
In preparing the consolidated financial information for the
current year the Group has adopted the following new IFRS,
amendments to IFRS and International Financial Reporting
Interpretations Committee ("IFRIC") interpretations, which have not
had a significant effect on the results or net assets of the
Group:
-- IFRS 10, Consolidated financial statements.
-- IFRS 11, Joint arrangements.
-- IFRS 12, Disclosures of interests in other entities.
-- IFRS 13, Fair value measurement.
-- IFRS 7 (Amendment), Financial instruments: disclosures.
-- IFRS 10 (Amendments), Consolidated financial statements.
-- Amendments to IFRS 10, 11 and 12 on transition guidance.
-- IAS 19, Employee benefits.
-- IAS 27 (Revised 2011), Separate financial statements.
-- IAS 28 (Revised 2011), Associates and joint ventures.
-- IAS 1 (Amendment), Presentation of financial statements.
-- 2009 - 2011 Cycle-Annual Improvements to IFRSs.
At the date of authorization of these consolidated accounts, the
following standards, amendments and interpretations, which have not
been applied in this financial information, were in issue but not
yet effective:
-- IAS 32 (Amendment), Financial instruments: presentation (effective January 1, 2014).
-- IAS 36 (Amendment), Impairment of assets (effective January 1, 2014).
-- IAS 39 (Amendment), Financial instruments: recognition and
measurement (effective January 1, 2014).
-- Amendments to IFRS10, 12 and IAS 27 Investment Entities (effective January 1, 2014).
-- IFRS 9, Financial instruments (effective January 1, 2015).
Under present circumstances, none of these is expected to have a
material impact on the Group's financial information.
2 General Information
The Company is a public limited company listed on the
Alternative Investment Market of the London Stock Exchange since
December 13, 2005 and is incorporated and domiciled in the UK. The
address of the registered office is 4 Trident Park, Didcot,
Oxfordshire OX11 7HJ.
3 Intangible Assets
Intellectual
Goodwill Property
on and
Acquisition Licenses SoFTWARE Total
$'000 $'000 $'000 $'000
Cost
At January 1, 2012 3,268 747 - 4,015
Currency translation 170 39 - 209
At December 31, 2012 3,438 786 - 4,224
Currency translation 63 122 7 192
Additions - 1,945 125 2,070
At December 31, 2013 3,501 2,853 132 6,486
Accumulated amortization
At January 1, 2012 - 511 - 511
Currency translation - 28 - 28
Charge for the year - 64 - 64
At December 31, 2012 - 603 - 603
Currency translation - 17 1 18
Charge for the year - 116 27 143
At December 31, 2013 736 28 764
Net book value
At December 31, 2013 3,501 2,117 104 5,722
At December 31, 2012 3,438 183 - 3,621
At January 1, 2012 3,268 236 - 3,504
License additions during the year are for a non-exclusive
license granted by Medtronic for the US patent No. 6,306,141
("Jervis" patent), which will be amortised over 9 years and has a
net book value at December 31, 2013 of $1,993,000 (2012: nil).
Impairment Test for Goodwill on Acquisition
The recoverable amount of goodwill has been determined based on
the fair value less costs of disposal calculation using valuation
methods based on the Company as a whole as there is a single
segment and cash generating unit. Management reviewed the Company's
recent share price and applied a typical premium for control to
various measures of the share price (average and volume weighted
average share prices over one, three and six month periods) to
derive a range of acquisition values. A percentage allowance for
the selling costs was deducted from the valuations. The valuations
were also compared to the target prices from the models of the
Analysts following the Company, to provide further comfort as to
the range. The current market value of the Company and the range of
valuations, representing the recoverable amount of the Goodwill on
Acquisition were significantly in excess of the carrying value of
the Goodwill.
4 Property, Plant and Equipment
Plant and
equipment
$'000
Cost
At January 1, 2012 2,683
Currency translation 144
Additions 218
At December 31, 2012 3,045
Currency translation 138
Additions 1,807
Disposals (322)
At December 31, 2013 4,668
Accumulated depreciation
At January 1, 2012 1,747
Currency translation 97
Charge for the year 246
At December 31, 2012 2,090
Currency translation 43
Charge for the year 430
Disposals (306)
At December 31, 2013 2,257
Net book value
At December 31, 2013 2,411
At December 31, 2012 955
At January 1, 2012 936
5 Interests in Group undertakings
The following subsidiary undertakings have been included in the
Group consolidation. All interests are held directly in the form of
ordinary shares.
Name of undertaking Principal area of activity Country of incorporation
----------------------------- ---------------------------- --------------------------
Lombard Medical Limited Medical implants Great Britain
PolyBioMed Limited Dormant from December
1, 2009 Great Britain
LionMedical Limited Investment holding company Great Britain
Lombard Medical Technologies,
Inc. Medical implants USA
Lombard Medical Scotland
Ltd Medical fabrics Great Britain
Lombard Medical Technologies
GmbH Medical implants Germany
All of the subsidiaries are wholly owned by Lombard Medical
Technologies PLC. The above companies operate principally in their
country of incorporation.
6 Inventories
2012 2013
$'000 $'000
Raw materials 1,567 1,523
Finished goods 1,606 1,838
3,173 3,361
Costs of inventories recognized as expenses were cost of sales
$3,044,000 (2012: $3,053,000; 2011: $2,562,000); selling, marketing
and distribution expenses $546,000 (2012: $1,170,000; 2011:
$979,000) and research and development expenses $258,000 (2012:
$521,000; 2011: $693,000).
7 Trade and Other Receivables
2012 2013
$'000 $'000
Amounts falling due within one year:
Trade receivables 1,452 1,378
Other receivables 105 813
Prepayments and accrued income 287 1,776
1,844 3,967
Less non-current portion:
Other receivables - (523)
1,844 3,444
========= =========
Trade receivables are stated net of an impairment provision of
$0 (2012: $83,000). Debtor days at the year-end were 51 days (2012:
70 days). Provisions of $0 (2012: $0) were utilized and $83,000
released (2012: $11,000 released) in the year.
All non-current receivables are due within five years from the
end of the reporting period and relate to the deferred
consideration from the sale of the OEM business. The fair value of
other receivables are based on cash flows discounted using a rate
of 12.5%. The fair values are within level 3 of the fair value
hierarchy.
Trade receivables are individually assessed for impairment. The
maximum exposure to credit risk at the reporting date is the
carrying value of the receivable. The customer base is split
between public sector and distributors and is such that payment
terms can be exceeded. It is considered that the majority of past
due debt is still likely to be collected. The ageing of trade
receivables including past due but not impaired is:
2012 2013
$'000 $'000
Not past due 1,168 1,304
Past due 284 74
1,452 1,378
8 Borrowings
Convertible loan notes with a face value of $4.86m were issued
to Invesco, the Company's largest shareholder, on March 30, 2012.
The loan notes paid interest of 8% per annum and were repayable at
the Company's discretion at any time until July 1, 2013; and were
repayable or convertible at the holder's discretion at any time
between July 1, 2013 and September 1, 2013 or on certain other
events as noted in the shareholder circular dated March 9, 2012. In
the case of conversion, the conversion share price was 140 pence
per share.
On May 24, 2013, as part of the placing, subscription and offer,
the Company and Invesco agreed to vary the convertible loan to
allow for earlier conversion, this did not impact the valuation of
the note. Notice of conversion was received from Invesco on June 6,
2013. As a result, on June 17, 2013 the Company issued 2,142,857
ordinary shares of 20 pence to Invesco and retired the Convertible
Loan Notes.
At December 31, 2013, there was no balance outstanding:
$'000
Liability component at January 1, 2013 4,473
Interest expense 391
Interest paid (159)
Currency translation difference (142)
Converted to equity (4,563)
-
The outstanding liability on the convertible loan notes was
valued at a discount rate of 18%, considered a market rate for an
equivalent non-convertible loan and the excess liability has been
treated as an equity component and credited to other reserves. On
conversion, the difference between the outstanding value and the
face value was charged to accumulated losses and the equity
component was transferred to accumulated losses from other
reserves.
Medico's Hirata convertible loan
On March 28, 2013 the Company received $2.5m from the total $5m
convertible loan facility granted by its exclusive distribution
partner in Japan, Medico's Hirata Inc. The loan accrues interest of
3% per annum, payable when the loan is repaid or converted. The
term is for a period of seven years from the receipt of regulatory
approval for Aorfix in Japan, anticipated to be granted in 2014.
Conversion of the loan is at Medico's Hirata Inc.'s discretion and
will be based on the share price at the time of conversion.
At December 31, 2013, the amount outstanding comprised:
$'000
Face value of convertible loan notes issued
on March 28, 2013 2,500
Interest expense 58
Included in non-current liabilities 2,558
The convertible loan note is considered a financial liability
with no equity component as there is a contractual obligation to
deliver a variable number of shares at the market price if the loan
note is converted. The fair value of the loan note is therefore the
same whether the settlement of the obligation is made in cash or in
shares at the time of repayment.
9 Trade and Other Payables
2012 2013
$'000 $'000
Current liabilities
Trade payables 1,305 1,846
Other taxation and social security 170 297
Other payables 212 168
Accruals and deferred income 2,076 4,268
3,763 6,579
Pension contributions of $43,000 (2012: $38,000) are included in
other payables.
10 Financial Instruments
Capital Management
The Group considers capital to comprise the total equity and
reserves of the group and long term debt financing, including
convertible loans issued. The Group's objectives are to manage
capital as a primary source of funding in conjunction with the
ability to remain as a going concern.
Treasury Policy
The Group has financed its operations by a mixture of
shareholders' funds, bank and other borrowings and loan notes, as
required. The Group's objective has been to obtain sufficient
funding to meet development activities and initial
commercialization costs until the Group becomes profitable. During
2013 and for the foreseeable future the Group's objective in using
financial instruments is to safeguard the principal for funds held
on deposit and to minimize exchange-rate risk where
appropriate.
The Group currently has no derivatives and there were no
derivatives for the periods presented. It is not the Group policy
to actively trade in derivatives.
Interest Rate Risk
The Group currently has outstanding fixed-rate loan notes with a
principal of $2.5m and invests its surplus funds in money market
and short-term bank deposits. In the past it has used a variety of
fixed rate loans and floating rate debt as funding sources. The
Group would review the balance between fixed and floating rate debt
if it takes on any future debt.
Liquidity Risk
The Group prepares periodic working capital forecasts for the
foreseeable future, allowing an assessment of the cash requirements
of the Group, to manage liquidity risk. The Group also ensures that
sufficient funds are available on 24 hours' notice to fund the
Group's immediate needs (see note 1 - Basis of Preparation).
Currency Risk
The Group is currently exposed to limited currency risk through
foreign currency transactions. As the Group's level of foreign
currency transactions increases the currency risk will be managed
by holding foreign currency deposits and seeking to hedge
significant transactional exposures.
At 31 December 2013, if the GB Pound had weakened/strengthened
by 5% against the US Dollar with all other variables held constant,
post-tax loss for the year, in the primary functional currency used
in the group, would have been approximately GBP89,000
higher/GBP80,000 lower (2012: GBP29,000 higher/GBP26,000 lower), as
a net result of foreign exchange gains/losses on translation of US
Dollar-denominated cash and cash equivalents, foreign exchange
gains/losses on translation of US Dollar-denominated trade
receivables, foreign exchange losses/gains on translation of US
Dollar-denominated trade payables and increased/decreased losses
from the translation of the US subsidiary's post-tax loss. At the
annual exchange rates for each period this equates to $139,000
higher/$125,000 lower (2012: $46,000 higher/$41,000 lower).
At 31 December 2013, if the GB Pound had weakened/strengthened
by 5% against the Euro with all other variables held constant,
post-tax loss for the year, in the primary functional currency used
in the group, would have been approximately GBP31,000
lower/GBP28,000 higher (2012: GBP37,000 lower/GBP34,000 higher), as
a net result of foreign exchange gains/losses on translation of
Euro-denominated cash and cash equivalents, foreign exchange
gains/losses on translation of Euro-denominated trade receivables,
foreign exchange losses/gains on translation of Euro-denominated
trade payables and increased/decreased losses from the translation
of the German subsidiary's post-tax loss. At the annual exchange
rates for each period this equates to $48,000 lower/$44,000 higher
(2012: $59,000 lower/$54,000 higher).
Credit Risk
The Group is exposed to credit risk from two sources: its cash
investments and its customers. The Group minimizes the former risk
by placing its cash deposits only with established financial
institutions with a minimum credit rating of A- as defined by the
three major credit rating agencies. It minimizes the latter risk by
reviewing available information on the customer and closely
monitoring the payment history and the age of the debts.
Interest Rate Risk of Financial Assets
2012 2013
Cash at Bank and in Hand $'000 $'000
Floating rate-USD 846 4,721
Floating rate-EUR 787 1,429
Floating rate-GBP 2,817 34,716
4,450 40,866
The cash and bank balances earn interest at the prevailing
short-term market interest rates.
Fair Values of Financial Assets and Financial Liabilities
The fair value of financial assets and liabilities is the same
as the carrying value at the period end.
Cash deposits-the majority of the cash holdings are with two
institutions which have a minimum short-term credit rating of A-,
as defined by the three major credit rating agencies.
11 Equity
On March 22, 2013 and following the satisfaction of certain
conditions, the Company issued 10,040,000 ordinary shares of 20
pence each to the investors in the second tranche of the May 2011
fundraising. The shares were priced at 140 pence each, being the
lower of 140 pence (following the 2012 reverse stock split) and the
prevailing market price on the day the second tranche was drawn
down by the Company. Total proceeds were $21.2m before fundraising
expenses.
On June 17, 2013, the Company issued 12,398,518 ordinary shares
of 20 pence each to the investors in a placing, subscription and
offer to qualifying participants. The shares were priced at 175
pence each, raising total proceeds of $34.1m before fundraising
expenses.
Combined proceeds from issuing shares were therefore $55.3m in
the year before expenses.
As part of the placing, subscription and offer, the Company
agreed with Invesco, its largest shareholder, to a variation of the
terms of the $4.8m of 8% Convertible Loan Notes issued on March 30,
2012. The variation allowed for the earlier conversion of the
Convertible Loan Notes and notice of conversion was received from
Invesco on June 6, 2013. As a result, on June 17, 2013 the Company
issued 2,142,857 ordinary shares of 20 pence to Invesco and retired
the Convertible Loan Notes.
i) Share Capital
2013
2012 2012 Number 2013
Number of Nominal of Nominal
Shares Value Shares Value
000s $'000 000s $'000
Allotted, called up and
fully paid
Ordinary shares of 20
pence each 20,162 6,425 44,743 14,031
A Deferred shares of 0.862
pence each 373,857 5,533 373,857 5,533
B Deferred shares of 1
pence each 136,186 2,562 136,186 2,562
C Deferred shares of 0.9
pence each 2,174,695 30,280 2,174,695 30,280
2,704,900 44,800 2,729,481 52,406
Rights-Ordinary Shares
Voting: in a show of hands every holder has one vote and in a
poll each share has one vote.
Dividends: each ordinary share has the right to receive
dividends.
Return on capital: each ordinary share has the right to share in
a liquidation of the Company's assets.
Rights-Deferred Shares
Voting: deferred shares do not entitle the holders to attend or
vote at any general meeting of the Company.
Dividends: deferred shares do not entitle the holder to receive
any dividend or other distribution.
Return on capital: on a winding up the holders of deferred
shares are only entitled to the amount paid up on each deferred
share after the holders of the ordinary shares have received the
sum of GBP1m for each ordinary share.
ii) Share Premium Account
This consists of the proceeds from the issue of shares in excess
of their par value less associated issue costs.
iii) Other Reserves
This arose on the conversion of convertible preference shares to
ordinary shares.
iv) Dividends
Dividends would be declared and paid in Sterling.
12 Segmental Information
The Group is engaged in a single business activity of
cardiovascular devices and medical fabrics and the Group does not
have multiple operating segments. The Group's cardiovascular
devices and medical fabrics business consists of the development
and commercialization of these products. The Executive Management
team is the Group's chief operating decision-making body, as
defined by IFRS 8, and all significant operating decisions are
taken by the Executive Management team. In assessing performance,
the Executive Management team reviews financial information on an
integrated basis for the Group as a whole, substantially in the
form of, and on the same basis as, the Group's IFRS financial
information.
Geographical Areas
Geographical analysis based on the country in which the customer
is located is as follows:
2011 2012 2013
$'000 $'000 $'000
------
Revenue by Destination
United Kingdom 2,020 2,016 1,808
Germany 667 872 1,205
Rest of Europe 2,588 2,509 2,540
United States of America 245 70 530
Rest of World 905 708 877
6,425 6,175 6,960
Revenue by Type
Product sales 6,415 6,165 6,950
Royalty and license income 10 10 10
6,425 6,175 6,960
The total of non-current assets located in the United Kingdom is
$8,103,000 (2012: $4,576,000) and the total of non-current assets
located in other countries is $553,000 (2012: nil).
13 Operating Loss
2011 2012 2013
$'000 $'000 $'000
------
Operating loss is stated after charging/(crediting):
Depreciation of property, plant and equipment
(note 4) 162 246 430
Amortization of licenses and software (note
3) 67 64 143
Research and development expenditure 10,524 7,300 6,963
Grant income (53) - -
Foreign exchange loss 123 52 95
Operating lease rentals
* Motor vehicles 72 111 136
* Land and buildings 332 283 347
* Other assets 6 8 29
Share-based compensation expense/(credit) 417 (410) 1,176
Impairment provision-investment 1,361 - -
Gain on disposal of OEM business (note
7) - - (653)
On December 20, 2013 the company sold the trade and assets of
its OEM business, which resulted in a gain on disposal of $653,000.
Deferred consideration totals $990,000, which falls due in four
equal annual instalments starting on the anniversary of the sale
until December 20, 2017. The consideration has been discounted (see
note 7).
In the year ended December 31, 2011, due to uncertainties
regarding the after tax profitability of an investment held in an
unlisted entity and the investment not being readily realizable,
the value of the investment was fully provided for.
14 Finance Costs
2011 2012 2013
$'000 $'000 $'000
------
Convertible loan notes - 666 449
Other interest payable - 3 -
- 669 449
15 Directors' Compensation
2011 2012 2013
$'000 $'000 $'000
------
Fees 370 283 319
Salary 701 699 729
Bonuses 253 214 263
Compensation for loss of office 29 - --
Pension contributions 80 68 73
Benefits 58 51 56
1,491 1,315 1,440
The above disclosure includes all executive and non-executive
directors of the company, three of which are also included in the
key management personnel disclosed in note 16.
The highest paid Director received compensation of $449,556
(2012: $401,686) and pension contributions of $29,573 (2012:
$28,578).
The remuneration of the Executive Directors is set by the
Remuneration Committee.
Three (2012: Three) Directors are accruing benefits under money
purchase pension schemes.
16 Employee Information
The average monthly number of people (including Executive
Directors) employed by the Group is as follows
2011 2012 2013
By activity NUMBER Number Number
---------
Manufacture 35 33 36
Selling, marketing and distribution 12 17 34
Research and development 28 35 27
Administration 13 12 14
88 97 111
Staff costs for the above persons were:
2011 2012 2013
$'000 $'000 $'000
------
Wages and salaries 7,495 7,632 11,128
Social security costs 617 826 1,091
Pensions costs 280 264 338
Termination cost 146 62 313
Share-based compensation (credit)/expense 417 (410) 1,176
8,955 8,374 14,046
2011 2012 2013
Key Management Compensation $'000 $'000 $'000
-------
Salaries and short-term benefits 1,219 1,307 1,279
Post-employment benefits 70 68 77
Share-based compensation expense 96 - 611
1,385 1,375 1,967
Key Management consists of the Chief Executive Officer, Chief
Financial Officer, Chief Technology Officer and Chief Operating
Officer.
17 Taxation on Loss on Ordinary Activities
The credit comprises:
2011 2012 2013
$'000 $'000 $'000
------
UK research and development claim:
For the current year 1,841 913 938
For prior years 274 (341) 233
2,115 572 1,171
Overseas taxation charge (62) (16) (56)
Total tax credit 2,053 556 1,115
The UK research and development claim relates to the utilization
of UK tax losses from research and development expenditure.
Taxation losses carried forward at the end of the year amounted
to approximately $107.7m (2012: $92.3m) and the unrecognized
deferred tax asset at 20% (2012: 23%) is approximately $21.5m
(2012: $21.1m). No deferred tax asset has been recognized in
respect of these losses as the Directors consider it is, as yet,
uncertain whether the losses will be utilized. Tax losses would be
utilized in future periods against trading profits. The
unrecognized deferred tax asset in respect of other temporary
differences is $0.7m (2012: $0.6m).
During the year there was a change in the UK main corporation
tax rate to 23%, which was effective from April 1, 2013. Further
reductions to the UK corporation tax rate were announced in the
March 2013 Budget, which will reduce the rate to 21% by April 1,
2014 and 20% by April 1, 2015.
The UK tax credit of $1,115,000 (2012: $556,000; 2011:
$2,053,000) is higher than the standard UK corporation rate of
23.25% (2012: 24.5%; 2011: 26.5%) applied to the loss for the year.
The differences are explained below:
2011 2012 2013
$'000 $'000 $'000
---------
Loss before tax for the period at 23.25%
(2012: 24.5%; 2011: 26.5%) (4,833) (3,361) (4,724)
Additional deduction for research and development
expenditure (1,859) (1,145) (1,185)
Amounts not deductible for tax purposes 557 27 530
R&D credit recoverable at a lower effective
rate of 11% (2012: 11.375%; 2011: 12.88%) 2,047 1,172 944
Losses not recognised 2,247 2,394 3,497
Overseas taxation charge 62 16 56
Adjustments in respect of prior years (274) 341 (233)
Tax credit for year (2,053) (556) (1,115)
18 Loss per Share
Basic loss per share is calculated by dividing the loss
attributable to ordinary shareholders by the weighted average
number of ordinary shares. A, B and C deferred shares are not
included in the calculation as holders have no right to receive any
dividend or other distribution. The diluted earnings per ordinary
share are identical to those used for the basic earnings per
ordinary share as the exercise of share options and warrants or
conversion of convertible loan would have the effect of reducing
the loss per ordinary share and are therefore not dilutive.
The calculations for Loss per Share are set out below:
2011 2012 2013
--------
Loss for the financial year $'000 (16,184) (13,162) (19,204)
Weighted average number of shares ('000) 16,319 20,162 35,889
Basic and diluted loss per share (cents) (99.2) (65.3) (53.5)
The weighted average number of shares figure for 2012 reflects
the 2012 reverse stock split of one new ordinary share for every
200 existing ordinary shares. The 2011 comparative has been recast
retrospectively for the effect of the reverse stock split, to allow
comparability.
19 Share Options
Options
The Company's Directors, officers, employees and certain former
employees and former Directors hold options under the Lombard
Medical Technologies PLC Share Option Plan (2005), known as the
"2005 Plan", to subscribe for ordinary shares in the Company as
shown below.
2011 2012 2013
------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Shares Exercise Shares Exercise Shares
Price Under Price Under Price Under
(pence) Option (pence) Option (pence) Option
At beginning
of year 1.121 277,034,097 0.808 446,591,287 160 2,334,830
Options granted
(0.1p ordinary
shares) 0.715 401,653,514 - - - --
Options lapsed/cancelled
(0.1p ordinary
shares) 1.022 (232,096,324) 0.771 (7,123,541) -- ---
Options consolidated
for reverse
stock split
(0.1p ordinary
shares) - - - (437,270,422) --- ----
Options granted
(20p ordinary
shares) - - 145 201,618 176 4,037,141
Options lapsed/cancelled
(20p ordinary
shares) - - 187 (64,112) 172 (476,265)
At end of
year 0.808 446,591,287 160 2,334,830 170 5,895,706
The outstanding options at December 31, 2013 were granted as
follows:
Exercise Exercise
Price post Price pre Exercise 2011
Date of Grant split (pence) split (pence) Period Numbers 2012 Numbers 2013 Numbers
July 17, 2007 4,600 23.0000 2010-2017 401,087 2,005 -
January 28, 2009 225 1.1250 2012-2019 29,862,500 139,010 137,510
February 5, 2010 208 1.0420 2012-2020 51,189,061 220,377 183,510
June 21, 2010 205 1.0250 2012-2020 10,873,475 54,367 54,367
September 22,
2010 200 1.0000 2012-2020 1,000,000 5,000 -
August 26, 2011 140 0.7000 2012-2021 243,957,823 1,188,419 898,921
September 8,
2011 150 0.7500 2012-2021 104,266,888 498,832 428,971
October 3, 2011 136 0.6800 2012-2021 5,040,453 25,202 25,202
April 5, 2012 145 2012-2022 - 201,618 201,618
June 13, 2013. 177.5 2013-2023 - - 3,137,860
September 25,
2013 168 2013-2023 - - 783,004
November 6, 2013 202 2013-2023 - - 44,743
446,591,287 2,334,830 5,895,706
Weighted average remaining contractual 9.3 years
life 8.4 years 8.8 years
The options were consolidated during 2012 in line with the 1 for
200 share reverse stock split.
None (2012: 2,005) of the outstanding options were exercisable
at December 31, 2013 at a weighted average exercise price of nil
(2012: 4,600 pence).
Due to FDA approval for Aorfix being received later than
anticipated, the previous performance conditions were deemed to be
no longer achievable. As a result, in June 2013 the performance
conditions for the existing outstanding options were amended by the
remuneration committee, following consultation with the Company's
major shareholders, to reflect the Company's current and future
business plans, these performance conditions are based on the
achievement by the company of a majority of budgeted revenue in
each of the financial years 2013 to 2015.
The majority of the outstanding options will vest in three equal
installments based on the achievement by the Company of a majority
of budgeted revenue in each of 2013, 2014 and 2015. The 2013
performance condition was achieved and the first third will vest on
April 1, 2014.
The Board has discretion to amend the performance conditions if
events occur which cause the Board to consider that any of the
terms of the Exercise Condition have become unfair or impractical,
provided such discretion is exercised fairly and reasonably and
provided that any terms which are so amended or relaxed are not
more difficult to satisfy than the existing terms.
The fair value of the options was determined using the
Black-Scholes pricing model in 2013 and Hull-White in prior years.
The share-based compensation expense for the year is $1,176,000
(2012: $410,000 credit; 2011: expense $417,000). The main
assumptions used in the fair value calculations are noted in the
tables below;
Year of grant
2005 Plan 2011 2012 2013
Weighted average share price of grants
during the year 0.715p 145p 176p
Weighted average fair value of share
options issued during the year 0.4p 48p 32p
Expected volatility 50-80% 46% 19-27%
Option life Ten years Ten years Ten years
Expected dividends None None None
Risk-free interest rate 2.8-4.5% 1.36% 0.41-1.1%
Estimated life to exercise 4.6 to 8.3 to 8.5 1.4 to 3.8
8.2 years years years
Expected volatility has been calculated by reference to the
Company's historic share price and industry norms. The risk-free
interest rate is calculated by reference to UK government bonds.
Expectation of the cancellation of options has been considered in
determining the fair value expense charge in the statement of
comprehensive income.
20 Reconciliation of Loss before Taxation to Net Cash Outflow
from Operating Activities
2011 2012 2013
$'000 $'000 $'000
--------
Loss before taxation (18,237) (13,718) (20,319)
Depreciation and amortization of licenses,
software and property plant and equipment 229 310 573
Share-based compensation credit/(expense) 417 (410) 1,176
Impairment provision-investment 1,361 - -
Net finance expense/(income) (94) 632 285
Decrease/(increase) in inventories (991) 560 (122)
Decrease/(increase) in receivables (638) 519 (1,922)
(Decrease)/increase in payables 589 (1,030) 2,601
Net cash used in operating activities (17,364) (13,137) (17,728)
21 Related Party Disclosures
Fundraising
Timothy Haines had an interest in the VC Subscription Agreement
as a Director of Abingworth LLP ('Abingworth'). On March 22, 2013
Abingworth subscribed for 3,200,000 ordinary shares of 20 pence
each, as part of the second tranche of the May 2011 fundraising.
The shares were priced at 140 pence each, being the lower of 140
pence and the prevailing market price on the day the second tranche
was drawn down by the Company. Subsequently, Abingworth subscribed
for 2,270,440 ordinary shares at a price of 175 pence as part of
the placing on June 17, 2013.
On March 22, 2013, other Directors of the Company subscribed for
22,000 ordinary shares of 20 pence, as part of the second tranche
of the May 2011 fundraising. Subsequently, other Directors of the
Company subscribed for 41,428 ordinary shares at a price of 175
pence as part of the placing on June 17, 2013.
Borrowings
Convertible loan notes with a face value of $4.86m were issued
to Invesco, the Company's largest shareholder (holding 39% of the
Company's shares), on March 30, 2012. The loan notes pay interest
of 8% per annum and are repayable at the Company's discretion at
any time until July 1, 2013. The loan notes are repayable or
convertible at the holder's discretion at any time between July 1,
2013 and September 1, 2013 or on certain other events as noted in
the shareholder circular dated March 9, 2012. In the case of
conversion, the conversion share price is 140 pence per share.
On May 24, 2013, as part of the placing, subscription and offer,
the Company and Invesco agreed to vary the convertible loan to
allow for earlier conversion, this did not impact the valuation of
the note. Notice of conversion was received from Invesco on June 6,
2013. As a result, on June 17, 2013 the Company issued 2,142,857
ordinary shares of 20 pence to Invesco and retired the Convertible
Loan Notes.
Interest of $159,000 (2012: $289,000) was paid during the year
and the remaining principal of the loan at the year end was $0
(2012: $4,860,000).
22 Financial Commitments and Contingent Liabilities
At December 31, 2013, the Group was committed to make the
following aggregate minimum payments in respect of non-cancellable
operating leases:
2011 2012 2013
------------------
Land and Land and Land and
Buildings Other Buildings Other Buildings Other
$'000 $'000 $'000 $'000 $'000 $'000
No later than
one year 169 55 277 24 420 165
1-5 years - 49 384 81 451 61
169 104 661 105 871 226
23 Capital Commitments
At December 31, 2013, the Group had capital commitments of
$78,000 (2012: $241,000; 2011: $353,000).
24 Post Balance Sheet Events
There are no post balance sheet events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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