7th Apr 2008 07:01
Deltex Medical Group PLC07 April 2008 Deltex Medical Group plc Preliminary results for the year ended 31 December 2007 7 April 2008 - Deltex Medical Group plc ("Deltex Medical" or "Company"), theUK's leading haemodynamic monitoring company, today announces its preliminaryresults for the year ended 31 December 2007. Financial Highlights •Turnover increased by 18.7% to £4,168,000 (2006: £3,511,000), with growth in all key territories •UK surgical probe sales up over 50% •USA probe sales up nearly 50% •Recurring orders from key International distributors up 45% •Gross margin improved to 70.0% from 66.3% •Operating loss after investment in gearing up for next stage of growth £2.2million (2006: £2.0million) •Cash of £763,000 •Next phase of US expansion to be financed by £666,667 of committed new equity capital from a US development fund at 22.0p per share Operating Highlights •CardioQ(TM) established as a standard of care in fast-track surgery in two key London teaching hospitals •UK surgical probe sales overtook intensive care probes sales in the second half •CardioQ at the top of the UK NHS innovation agenda •Rapid implementation recommended by UK health minister •First physician payments made under new reimbursement regime in USA •Largest and most successful implementation project ever undertaken completed in USA •Colorectal surgeons in Spain embark on the largest audit of CardioQ in fast-track surgery •Probe manufacturing capacity doubled •New "I2" awake patient probe launched - significantly expanding opportunity Nigel Keen, Chairman of Deltex Medical, said: "Deltex Medical made significant progress during 2007 in all its key markets,with major milestones in market development achieved in the USA. "The momentum driving sales growth in 2007 has been maintained into 2008 and thefirst quarter of 2008 has seen a number of significant events that will enablethe Company to sustain and build upon 2007's progress throughout 2008. Not leastof these is the first reimbursement of doctors for use of the CardioQ inoperating theatres in the United States." For further information, please contact:- Deltex Medical Group plc 01243 774 837Nigel Keen, Chairman [email protected] Hill, Chief Executive [email protected] Phillips, Finance Director [email protected] Gavin Anderson & Company 0207 554 1400Deborah Walter [email protected] Speed [email protected] Macaulay [email protected] Charles Stanley SecuritiesNominated Advisors 020 7149 6000Philip Davies [email protected] Cook [email protected] Notes for Editors Deltex Medical manufactures and markets the CardioQ monitor, which usesdisposable ultra-sound probes inserted into the oesophagus to determine theamount of blood being pumped around the body - 'circulating blood volume'.Reduced circulating blood volume is known as hypovolaemia, which leads toinsufficient oxygen being delivered to the organs. This causes medicalcomplications including peripheral and major organ failure which can lead todeath. Hypovolaemia, which is akin to severe dehydration, affects virtuallyevery patient having surgery because of the combined effects of pre-operativestarvation, the impact of the anaesthetic agents and trauma from the surgeryitself. Using fluids and drugs, guided by the CardioQ, to optimise the amount ofcirculating blood significantly reduces post-operative complications allowingpatients to make a faster, more complete recovery and return home earlier. The CardioQ incorporates the Company's proprietary software and a smalldiameter, easy-to-use, minimally invasive, disposable oesophageal probe that isused for transmitting and receiving an ultra-sound signal. By using thistechnology, the CardioQ provides clinicians with the ability to optimisecritically ill patients and those undergoing routine moderate to major surgerythrough the controlled administration of fluid and drugs. Haemodynamicoptimisation has been proven to improve the speed and quality of patientrecovery and reduce hospital stay. There are already around 1,500 CardioQs currently in use in hospitals worldwideand distribution arrangements are in place in over 30 countries. In addition,there are currently more than 90 clinical publications on the use of the CardioQwhich have repeatedly:- •Validated the results of the Monitor against known standards for measuring cardiac output, demonstrating that the technology works •Proved that the CardioQ works in a wide range of surgical procedures •Demonstrated that the Company's technology provides significant health and economic benefits by helping to reduce post-operative complications and length of hospital stays of between 30 and 40 per cent for a wide range of patients. The SupraQ is an entirely non-invasive device which uses an ultrasound probeheld at the base of the patient's neck to track the flow of blood in the aorta;it presents the same data as the CardioQ in a similar format and is used fortaking snapshots or monitoring over short periods. Chairman's Statement Deltex Medical made significant progress in 2007, achieving sustained andaccelerating growth in each of its key markets. Revenue for the Group increasedby just under 19% from £3,511,000 in 2006 to £4,168,000. Sales of disposable probes which amounted to £3,185,000 accounted for 76% oftotal revenue. In the second half of the year in the UK, our home market, salesof surgical probes overtook those for intensive care for the first time. The UKsurgical probe business grew by approximately 55% over 2006. Cash at the year-end and operating losses for the period were in line withexpectations at £763,000 and £2,223,000 respectively. Cash consumption for theyear was also in line with the Company's expectations as the Company started toreconfigure its operations in anticipation of its next phase of growth. Group Summary Deltex Medical's CardioQ(TM) oesophageal Doppler monitor (ODM) is changing theway doctors care for patients having major surgery or who are in intensive care.Scientific evidence of the highest quality from independently conducted,randomised controlled clinical trials, is being translated into routine clinicalpractice in leading hospitals around the world and as a consequence patients arerecovering from their surgery faster and leaving hospital sooner and in betterhealth than they otherwise would do. The weight of evidence supporting the routine use of the CardioQ is sooverwhelming that a US Government-commissioned technology assessment publishedearly in 2007 stated that its use in surgery leads to a "clinically significantreduction in major complications", "a clinically significant reduction in thetotal number of complications" and "to a reduction in hospital stay". Theevidence supporting each of these conclusions was considered to be "strong".Strong in the setting of a formal technology assessment is defined as: "Evidencesupporting the qualitative conclusion is convincing. It is highly unlikely thatnew evidence will lead to a change in this conclusion". Based on this technology assessment, the US Government agency responsible forhealthcare for the elderly and the poor, the Centers for Medicare and MedicaidServices (CMS), determined that use of the CardioQ was "reasonable andnecessary" and that the proven benefits warranted doctors being paid("reimbursed") for using it in Medicare and Medicaid patients. Already, privateinsurers are following the CMS lead and are reimbursing doctors that managetheir patients using the CardioQ. In the UK, two world-renowned London teaching hospitals have made use of theCardioQ routine practice (that is, a standard of care) within their enhancedsurgical recovery programmes for patients having major bowel surgery. Similarcare packages are being developed for other major surgical procedures performedat these hospitals. Many other hospitals, district general and large teachinginstutions alike, are working towards implementation of surgical care packagesthat incorporate routine use of the CardioQ. Doctors and healthcare administrators around the world are increasingly aware ofthe potential health and economic benefits of wide-scale adoption of the CardioQin their hospitals. Our primary role is to faciliate implementation of theCardioQ as a standard of care through a programme of structured education,training and post-implementation support that enables doctors to help theirpatients recover more fully and more quickly from their surgery and hospitalmanagers to provide a better quality of care more efficiently and more costeffectively. The CardioQ helps patients by enabling doctors to reduce the complications thatarise from a medical condition that is common to almost all patients havingsurgery and many others in intensive care or arriving in the accident andemergency department. This condition is known as hypovolaemia - a reduction incirculating blood volume - and in surgical patients arises as a directconsequence of the combined effects of pre-operative starvation, the anaestheticagents used to put the patient to sleep and the blood and fluid lossesassociated with the surgical procedure itself. Hypovolaemia means that the bodystruggles to get sufficient blood to the tissues and vital organs which areconsequently starved of essential oxygen. This can cause medical complicationsincluding peripheral and major organ failure, which if not dealt with quicklycan lead to severe compromise or even death. The body compensates for developing hypovolaemia through the sequential shutdown of the circulatory system and diversion of blood to critical organs. Thishelps to maintain blood pressure at normal levels and preserve oxygen deliveryto those organs at the expense of other systems. The CardioQ uses disposableultrasound probes placed in the oesophagus to measure real-time blood flow whichis an earlier and much more sensitive indicator of changes in circulating bloodvolume than blood pressure. This allows the doctor to detect and deal rapidlywith the early stages of hypovlaemia before it becomes a clinical problem. Incontrast, blood pressure-based monitoring systems, however sophisticated, areunable to detect hypvolaemia until it is so severe that the body's compensatorymechanism begins to fail, at which point the patient is in a critical condition. Trading Results Sales 2007 2007 2007 2007 2007 2007 2006 2006 2006 2006 2006 2006 Probes Monitors Probes Monitors Other Total Probes Monitors Probes Monitors Other Total units units £'000 £'000 £'000 £'000 units units £'000 £'000 £'000 £'000Directmarkets UK CardioQ 25,730 60 2,041 398 135 2,574 24,075 53 1,837 324 124 2,285UK SupraQ - 3 - 60 - 60 - 14 - 280 - 280 -----------------------------------------------------------------------------------------------------UK total 25,730 63 2,041 458 135 2,634 24,075 67 1,837 604 124 2,565USA 7,075 12 518 63 6 587 4,760 11 349 58 5 412Spain 520 9 50 85 1 136 110 - 12 - - 12 Distributormarkets Europe 9,400 25 436 102 6 544 5,515 6 264 25 11 300Far East &Latin 4,240 36 140 122 5 267 4,730 15 170 51 1 222America ----------------------------------------------------------------------------------------------------- 46,965 145 3,185 830 153 4,168 39,190 99 2,632 738 141 3,511 ----------------------------------------------------------------------------------------------------- Sales Revenue for the group in 2007 was £4,168,000 compared to £3,511,000 in 2006, anincrease of almost 19%. Revenue derived from sales of disposable probes wasahead by 21% over the prior period (2007: £3,185,000; 2006: £2,632,000). Theseresults demonstrate continued strong growth in demand and uptake of theCardioQ's offering. Revenue generated from sales of CardioQ monitors was up by 68% from £458,000 in2006 to £770,000 in 2007, with a notable increase in larger, multiple monitorinstallations as hospitals seek to implement use of the CardioQ as a standard ofcare in major surgical procedures and in intensive care. The Company continued its policy of selling SupraQs to hospitals willing andable to undertake research into establishing potential markets for this whollynon-invasive technology as part of the the development programme. ExcludingSupraQ sales, Group sales grew by 27% year on year. Cash Cash on hand at the end of the period was £763,000. Cash consumption in thesecond half of the year and the underlying rate of cash burn going into 2008were in line with the Company's plans. The sales growth delivered in theCompanies key markets equated to an increase of an average £64,000 per month inthe revenue run-rate: these increases in invoiced sales translate in due courseinto larger regular cash in-flows. Over the year the Company made a smallnumber of selective increases in the underlying cost base (i.e. the normalisedrun-rate of costs): net of areas where the Company reduced its cost base, theseincreases were considerably lower than the increase in the underlying revenuerun-rate, meaning the Company made significant continued progress towardseliminating its underlying cash burn. After taking account of the cash needed tofund the remaining underlying cash burn, the Company continued to use theremaining cash available to it to invest in development projects and one-offitems aimed at creating longer term value. Despite this continued reduction in underlying cash burn, total cash consumptionbefore financing was £2,231,000, £529,000 higher than in 2006 (£1,702,000). Cash consumption included a net increase in working capital of £302,000 andexpenditure on a number of key projects aimed at positioning the Company for itsnext phase of growth. These included the costs of developing and launching thenew I2 range of probes; developing the next generation monitor, theCardioQ-ODM(TM), which is to be released shortly; extending the clean room inwhich we build probes so as to double its capacity; developing and buildingprototypes of the next generation SupraQ monitor; bringing in-house the first ofa series of sub-assembly processes as the Company moves towards increasedautomation of probe manufacture and undertaking a project to totally redesign the probe ultrasound componentry to make it more suited to mass production aswell as continuing the trend towards increased margins. The Directors expect to continue to invest in these and other important mediumand long-term projects over time depending on the cash and other resourcesavailable to the Company at any given point. The Company announces today that it has accepted an irrevocable undertaking fromNexus Medical Partners II, LP to subscribe for 3,030,303 ordinary shares of 1peach at a price of 22.0p per share to raise £666,667. The funds to be investedare specifically for use in expanding the US market, including the hiring ofadditional management and field staff in key locations to manage and support thegrowing demand for the Company's products. The funds are managed by NexusMedical Partners on behalf of a US State Government to promote economicdevelopment. The undertaking has been accepted by the Company subject to appropriateapprovals being obtained at the Company's forthcoming Annual General Meeting andassumes no material adverse changes in the Company's business prior to theshares being issued. Ed Snape, a non-executive director of Deltex Medical, isalso a principal of Nexus Medical Partners. The shares will rank pari passu with the existing issued shares of the Company.This allotment is conditional on the appropriate authorities being received atthe next general meeting of the Company. Following the issue of these newshares, subject to no changes, the Company will have a total of 95,931,956ordinary shares in issue. This total includes an allotment of 413,746 newordinary shares which are also subject to approval at the next general meetingof the Company as announced on 25 January 2008. Application will be made forthese shares to be admitted to trading on the Alternative Investment Market. Operating results Operating losses for the year were £2,223,000 compared to £2,014,000 in 2006. Aswell as the impact of the one-off longer term investment projects noted above,this operating result is after a number of non-cash accounting charges,including £328,000 for share based payment, £244,000 charges in respect ofresearch work undertaken by hospitals under barter arrangements and movements onall provisions of £89,000. Markets Deltex Medical sells its products directly to hospitals, using its own team ofsales people and clinical trainers in the United Kingdom, the United States ofAmerica and in Spain. Early in 2008 we took the first step towards establishinga "direct" presence in Germany, taking in-house responsibility for sales andtraining while engaging the help of a distributor for regulatory and logisticalsupport. In all other territories we work with a network of distributors whichwe support through a small UK-based sales and clinical training team. Our goal is to achieve market leadership in the provision of systems forhaemodynamic management through successful sales operations in each of the UK,USA, France, Germany and Japan - the leading healthcare markets in the worldtoday - and become recognised as a leading global medical technology companythrough innovation both in technology and in delivering that technology to theend user. United Kingdom Sales of CardioQ monitors specifically for use in operating theatres were aheadof the prior year despite the UK NHS focusing its efforts on restricting spendin March in response to political pressure to produce a surplus at the year-end.Sales of surgical probes in 2007 reflected the accelerating adoption of routineuse in the operating theatre and in particular as part of emerging enhancedrecovery surgical care protocols. In the second half of the year surgical probesales volumes overtook intensive care probe volumes for the first time. In 2007 we sold 14,415 surgical probes compared to 10,440 in 2006, an increaseof 38% in the number of patients treated. The underlying increase in surgicalprobe sales run-rate, the amount of probes sold each month, over the course ofthe year was in excess of 50% - a remarkably strong performance in a verydifficult market. In the UK critical care market, the Company saw a decline in its probe sales ofapproximately £128,000. This was caused primarily by a trend amongst UK doctorsto try to keep patients awake and spontaneously breathing as much as possiblewhile in intensive care. The I2 probe range launched in September 2007 has meantthe CardioQ can now be used on those patients in intensive care who are nowawake but would previously have been sedated. Despite this fall in probe volumesthe CardioQ remains the cardiac output monitoring technology of choice in amajority of UK intensive care units: indeed the Company expects the forthcomingresults of a survey of critical care units in England and Wales to show that theCompany has further extended its leading position in this market. During 2007 use of the CardioQ has been established as part of the writtenstandard treatment protocols in colorectal surgery at two of London's mostimportant teaching hospitals: University College London Hospital (UCLH) and StThomas' Hospital. The CardioQ has played a central role in the success to dateof the "ESTREP" enhanced recovery programme jointly developed between surgeonsat the two sites. After six months ESTREP had already delivered reductions inaverage lengths of hospital stay of nearly a half for colorectal surgery. Bothsites are in the process of rolling the ESTREP programme out into other surgicaldisciplines. Applying a similar programme to that developed at UCLH and St Thomas' Hospital,surgeons and anaesthetists from Darent Valley hospital in Kent have seenmaterial reductions in length of hospital stay and the time patients take to getback to normal function after major bowel surgery. Patients treated using acombination of minimally invasive surgical techniques and the CardioQ in thecontext of an enhanced recovery programme left hospital on average after fivedays and reported themselves feeling fully recovered after a further seven days:a total of 12 days. By contrast patients treated with open surgery, no CardioQand outside the enhanced recovery programme only left hospital after an averageof 11 days (compared to an NHS average of 13 days), before needing another 29days to feel fully recovered from the surgery: a total of 40 days. This meansthat on average a patient treated under this new surgical protocol is "back tonormal" (i.e back at work) before the average patient in the NHS has even beendischarged from hospital. While the CardioQ is only responsible for some of thistransformational change, it is better supported by clinical evidence than eitherenhanced recovery techniques or laparoscopic surgery and the cost of treating apatient with the CardioQ is only a fraction of the cost of laparoscopic surgery. Despite the many practical issues facing UK doctors and healthcare managerswishing to implement routine use of any new medical device technology as astandard of care we have seen consistent and sustained growth in our operatingtheatre business since its launch in 2003 and the Directors believe that ourshas been the fastest growing new broad application technology in NHS hospitalssince at least 2003. It is the Directors' opinion that the success of our efforts in growing thisbusiness on the basis of both compelling clinical and economic stories hasresulted in the CardioQ being chosen as a "trailblazer" technology for two newinitiatives established by the Department of Health and the NHS - the Centre forEvidence-based Purchasing and the National Technology Adoption Hub. The Centre for Evidence-based Purchasing (CEP) aims to evaluate new technologiesand determine their merit based on objective analysis of published clinical datathrough a process of technology assessment similar to that undertaken onoesophageal Doppler monitoring in the USA by the Agency for Health Research andPolicy (AHRQ). It is anticipated that CEP will become the medical deviceequivalent of the National Institute for Health and Clinical Excellence (NICE)and that its recommendations will drive accelerated uptake of proventechnologies within the NHS. CEP has commissioned a technology assessment ofoesophageal Doppler monitoring from the Health Economic Research Unit atAberdeen University and is expected to publish its recommendations in 2008. TheAberdeen report is currently scheduled for publication in October and CEP haveindicated that their own report may be published earlier than this. In parallel with the CEP initiative, the Department of Health and NHSestablished the NHS National Technology Adoption Hub in 2007. This body aims toexamine and recommend ways to overcome the practical issues that slow theimplementation of proven new medical technologies at the operational levelwithin the NHS. The mission of the NTAH is: "...to work directly with the NHS at a clinical, managerial and procurementlevel to identify and overcome the barriers to adoption for innovativetechnologies which have already demonstrated clear benefits to patients and willimprove system efficiency." In selecting CardioQ as one of its first ever wave of projects, the NTAH projectselection panel initially considered a list of 24 technologies put forward by avariety of NHS bodies including CEP, NICE, UKHTA (the UK Government's healthtechnology assessment agency), the NHS National Innovation Centre and the NHSInstitute for Innovation and Improvement. After an initial review thesetechnologies were reduced to a shortlist of six technologies from which thefirst wave of four was selected after comprehensive due diligence. The CardioQwas the only technology used for hospital in-patients to be selected. The NTAH plans to project manage and audit implementation projects with threeNHS Trusts with a view to producing guidance on effective implementation of theCardioQ for other NHS Trusts to follow. In March 2008, the first of theseTrusts, the Whittington in London, purchased four additional monitors in orderto expand significantly its CardioQ usage in operating theatres. Of the threesites, the Whittington is both the smallest hospital and the most establishedexisting CardioQ user. Since the year end UK sales have continued to demonstrate strong growth, withsales of both CardioQ monitors and probes comfortably ahead of the correspondingmonths in 2007. Sales of probes for use during surgery have continued to grow atthe rates experienced in 2007 and sales of probes into critical care units havealso been satisfactory. The Company's pipeline continues to grow strongly. United States of America The United States of America is the largest healthcare market in the world andis a strategic imperative for any medical technology company with aspirations tobe truly global player. Once a medical technology is proven and approved forsale, the single most important factor for success in this market is physicianreimbursement - the payment to the doctor using the technology for the effortand expertise involved. It is important to note that physician reimbursement iswholly unrelated to payment to the manufacturer for the technology, which isdealt with by the hospital. In 2007 sales of probes were almost 50% higher than in the prior year (2007:7,075 units; 2006: 4,760 units). Our most successful hospital start-up to date,in San Diego, California, where we tested our new US implementation model, wasan important contributor to this growth. Sales of probes in the USA in 2007 was a reflection of changes in clinicalpractice driven by a wider acceptance and understanding of the publishedclinical data. The ability to claim reimbursement for use of the CardioQ isanticipated to accelerate future adoption, but had no impact on sales in 2007. In mid-2007 the US Government body responsible for the provision of healthcareto the elderly and the poor, and the "bellwether" for reimbursement that privateinsurance companies invariably follow - the Centers for Medicare and MedicaidServices (CMS) - published a memorandum stating that the use of oesophagealDoppler monitoring in surgical patients requiring fluid optimisation and forcardiac output monitoring of ventilated patients in the intensive care unitwould be reimbursed. The breadth of this coverage determination is a testament to the wealth ofclinical data supporting the use of the CardioQ reviewed by the US governmentAgency for Health Research and Quality and published as a technology assessmentearly in 2007 as part of the reimbursement decision process. Physician reimbursement is dependent upon three elements: firstly, the proceduremust be recognised by CMS as being reasonable and necessary for its patients inorder to be reimbursable ("covered"); secondly, the procedure must have areference code allocated to it to allow processing through the reimbursementsystem and; thirdly, the code must be allocated a value that is then translatedinto dollars in the physician's pocket once the claim is processed by regionalCMS payer. Conservatively, this coverage determination is applicable to some 5,000,000patients every year in the USA and represents a major milestone for DeltexMedical. Since the year end the Company has been notified by a small number of cliniciansthat they have received reimbursement from private health providers and that thevast majority of such payments have been towards the top of the range ofphysician expectations. First claims have been filed with CMS by physicians froma number of hospitals, although the Company has not yet been notified of anypayments actually made. Early in 2007 we began working with one of the largest groups of anaesthetistsin the US who were seeking to establish use of the CardioQ as a standard of carein surgery and in intensive care. This group provides services to 12 acutesurgical hospitals in southern California and is responsible for the care ofaround 50,000 patients each year having surgery who could benefit frommanagement using the CardioQ. Through our new implementation model, pioneered in the USA, we were able to takethe first of the group's hospitals from zero usage to treating around 25% of itsmajor surgical patients (more than 100 patients each month) in eight weeks offocused, multidisciplinary education and training. During the training processwe hired a dedicated clinical trainer to provide ongoing support at the hospitaland we have continued to see probe usage grow in both surgery and in intensivecare. Early indications are that physician reimbursements recently made by keyprivate insurers will further increase usage over time. Early in 2008 we embarked on the roll out the education phase of theimplementation model to the next two hospitals serviced by the anaestheticgroup. Monitors have been delivered to the second hospital ahead of formaltraining being undertaken. It is our expectation that we will see the percentage of patients treated usingthe CardioQ in each of these sites expand as reimbursement in CMS patients isfinalised with the regional CMS contract payer. Already we are seeing an interest in expanding adoption in existing hospitalsand a marked increase in interest from new hospitals wishing to embark on aprogramme to make use of the CardioQ standard clinical practice. International Sales in our international markets were significantly ahead of those in 2006 asthe benefits of our programme to restructure key distribution arrangementscontinued. Growth has been sustained in each of our key internationalterritories with overall underlying growth of around 30% year on year. Direct International Markets Through our new direct sales operation in Spain we have been working with thehead of the Spanish Society of Surgeons to establish use of the CardioQ as astandard of care in colorectal surgery. This pilot project involves seven keyhospitals undertaking an audit of patient outcomes under a care protocol basedon the University College London Hospital and St Thomas' Hospital's ESTREPprogramme. The results of this audit are expected to be presented to thenational colorectal surgery meeting in Spain late in 2008. If the results of theaudit mirror those seen elsewhere, the surgeons leading the project haveinformed the Company that they expect to see the protocol established asstandard practice across Spain where in excess of 200 hospitals performcolorectal surgery. In January 2008 we changed our distribution arrangements in Germany andestablished a small semi-direct sales operation. In the semi-direct model athird-party distributor provides logistics and customer services, regulatory andtender management support, while Deltex Medical is responsible for all sales,marketing and clinical training. Our focus in Germany in 2008 is the continueddevelopment of relationships with key anaesthetists, surgeons and hospitaladministrators and establishing use of the CardioQ as a protocolised standard ofcare in one of the country's leading teaching hospitals ahead of a wider rolloutin 2009. Since the year-end the Charite hospital in Berlin, one of the largest teachinghospitals in Europe, has embarked on a programme of evaluation and small,focused clinical trials intended to establish the best way to incorporateroutine use of the CardioQ into a range of surgical procedures at the hospital. Distributed International Markets We continue to work with distributors in all the other international markets andhave seen particularly encouraging results since our decision to move the keydistributors on to monthly ordering patterns for probes following a stockreduction exercise undertaken the first half of 2006. The run-rate of probes sold across those territories on monthly orderingschedules increased over the year from 550 to 800 probes per month. We have only focused minimal time and effort on the Japanese market because,although we have had approval to sell for some time, the level of reimbursementnegotiated by our former distributor (in this case to the hospital to cover thecost of the probe) was inadequate. In 2007 we secured our right to sell in Japanin our own name and will return to this market as and when it is appropriate andfeasible to do so. Clinical Publications Meta analysis The technique of meta-analysis (a systematic scientific review which considersrelated evidence as a whole) underpins many of the conclusions of HealthTechnology Assessments (HTAs). It is also used heavily by doctors withinclinical circles to determine technologies and interventions which should beestablished as standards of care. The first independent meta-analysis of the randomised controlled clinicaloutcome trials of ODM was undertaken by an eminent group of UK doctors and itsresults were first presented in September 2006. It concluded that ODM reducespost-operative complications and reduces length of hospital stay by an averageof nearly three days. The results of this review were presented at a number ofimportant clinical meetings over 2007 and the Directors understand that theauthors intend to submit it to a leading medical journal for publication in2008. In January 2008, a second meta-analysis, undertaken by doctors in New Zealand,was published which concluded that ODM "use for monitoring and optimisation offlow-related haemodynamic variables improves short-term outcome in patientsundergoing major abdominal surgery". This meta-analysis has just been publishedin the journal Anaesthesia and is therefore the first meta-analysis to bepublished in a leading peer-reviewed journal. In March 2008, a third meta-analysis was published in a peer-reviewed journal.This meta-analysis was conducted by doctors from the departments of surgery andanaesthesia at the Cambridge University Hospitals NHS Trust. The analysisexamined results from the four previously published randomised controlledclinical trials into the use of ODM in abdominal surgery that involved a totalof almost 400 patients. The authors reported that use of ODM in abdominal surgery, based on the pooleddata analysed, resulted in significantly fewer post-operative complications anda consequent significant reduction in length of hospital stay. The directors are not aware of any randomised controlled study, either publishedor pending publication, which shows any technology other than ODM to have beenused successfully to direct fluid administration during surgery to improvepatient outcomes and reduce hospital lengths of stay. Alternative approaches tohaemodynamic monitoring use derived rather than direct measurements of bloodflow and are unable to report changes in flow either as quickly or assensitively as ODM. In July 2007 in his report "A Framework for Action", prepared for Healthcare forLondon a consultation group led by London's 31 NHS Primary Care Trusts,Professor Sir Ara Darzi (now Lord Darzi, a UK Government health minister) notedof the CardioQ: "Seven randomised trials have shown simple use of cheap ultrasound technology toreduce length of stay consistently by 2-3 days in elective abdominal surgery.The evidence is clear here and changes should be rapidly implemented". Research and Development Our research and development efforts in 2007 focused on two key areas: providinga monitoring solution for the conscious patient and an upgrade of the CardioQmonitor. The conscious patient solution has two elements, the SupraQ, a whollynon-invasive monitor for intermittent spot-checking of cardiac function and thenew I2 range of oesophageal probes. The second generation SupraQ project continues to make good progress and willenter the clinical evaluation phase of its development later in 2008, subject tofinalisation of clinical protocols and ethics committee approval at theinvestigating hospital. The I2 probe allows doctors to extend the use of the CardioQ beyond patients whoare under general anaesthetic or deeply sedated to those who are fully awake.Originally intended for short-term post-operative management of patients wakingup after surgery, the probe has proven so well tolerated that its use has beenextended successfully to fully conscious patients in a variety of clinicalsettings, including major surgery under spinal anaesthesia, the accident andemergency department and on the ward. In the second quarter of 2008 we will launch the CardioQ-ODM, an upgradedversion of the CardioQ, in the UK and key international markets. We anticipatesubmitting a request for approval to sell this new monitor in the USA to the USFood and Drug Administration (FDA) during the second quarter of this year. The new lighter-weight CardioQ-ODM upgrades a number of key components andallows us to take advantage of newer technologies that provide faster processingcapabilities, larger memory capacity, easier and faster data downloading andbetter screen resolution. The software interface has been refined to offerimproved ease of use, customisable screen layouts and a series of tools to helpdoctors target patient therapy more effectively. Board membership In May 2007 Peter Smedvig chose not to stand for reelection to the board ofdirectors after many years of valuable service to the Company. Today we are ableto announce that Julian Cazalet will be joining the board of directors effective7 April 2008. Julian recently retired after 34 years at Cazenove, a leading UKinvestment bank, where he advised many listed companies and acted in theflotation of a number of new companies on the London Stock Exchange. Mostrecently he was Managing Director - Corporate Finance at JPMorgan Cazenove. Prospects Deltex Medical made significant progress during 2007 in all its key markets,with major milestones in market development achieved in the USA. The momentumdriving sales growth in 2007 has been maintained into 2008 and the first quarterof 2008 has seen a number of significant events that will enable the Company tosustain and build upon 2007's progress throughout 2008. Not least of these isthe first reimbursement of doctors for use of the CardioQ in operating theatresin the United States. Routine use of the CardioQ represents the translation of evidence-based medicineinto evidence-based practice - the goal of all developed healthcare systemsaround the world. The publication of independently conducted analyses of theoverwhelming body of evidence supporting the use of oesophageal Doppler-guidedhaemodynamic management can only accelerate the adoption of the CardioQ. We remain confident in our ability to deliver increasing and sustainable valuefor our shareholders as we help more and more hospitals establish use of theCardioQ as a standard of care for all patients undergoing major surgery or inintensive care and as we develop new and innovative ways of providing the uniquebenefits of Doppler-guided haemodynamic management to all patients who need it,wherever they may be in the healthcare system. Nigel KeenChairman7 April 2008 Consolidated Income Statementfor the year ended 31 December 2007 Unaudited Unaudited Unaudited Unaudited 2007 2007 2006 2006 £'000 £'000 £'000 £'000 Revenue 4,168 3,511Cost of sales (1,250) (1,182) ------- -------Gross profit 2,918 2,329Administrative expenses 2,334 1,916Sales and distribution costs 2,525 2,186Research and development costs 282 241 ------ ------ ----- ------- (5,141) (4,343) ------- -------Operating loss (2,223) (2,014)Finance income 33 8Finance costs (21) (11) ------- --------Loss before taxation (2,211) (2,017)Tax on loss 23 23 ------- --------Loss for the year (2,188) (1,994) ======= ========Loss per share - basic anddiluted (2.5p) (2.6p) ======= ======== Consolidated statement of recognised income and expensefor the year ended 31 December 2007 Unaudited Unaudited 2007 2006 £'000 £'000 Exchange differences taken to reserves 8 (9)Loss for the year (2,188) (1,994) --------- ---------Total recognised expense for the year (2,180) (2,003) ========= ========= Consolidated Balance Sheetat 31 December 2007 Unaudited Unaudited 2007 2006 £'000 £'000AssetsNon - current assetsProperty, plant and equipment 37 47Trade and other receivables 20 52Intangible assets 190 91 ---- ----Total non-current assets 247 190 Current assetsInventories 441 383Trade and other receivables 1,570 1,241Current income tax recoverable 47 45Cash and cash equivalents 763 418 ----- -----Total current assets 2,821 2,087 ----- -----Total assets 3,068 2,277 ----- -----LiabilitiesCurrent liabilitiesBorrowings (407) (297)Trade and other payables (1,204) (1,160)Provisions for other liabilities and charges (77) (50) ------- -------Total liabilities (1,688) (1,507) ------- -------Net assets 1,380 770 ------- ------- EquityShare capital 925 800Share premium 16,423 14,086Capital redemption reserve 17,476 17,476Other reserves 1,342 1,014Translation reserve (1) (9)Retained earnings (34,785) (32,597) -------- --------Total equity 1,380 770 -------- -------- Consolidated Statement of Cash Flowsfor the year ended 31 December 2007 Unaudited Unaudited 2007 2006 £'000 £'000 ----- -----Cash flows from operating activitiesOperating loss (2,223) (2,014)Depreciation of property, plant & equipment 38 49Amortisation of intangibles 2 2Loss on disposal of fixed asset (1) -Impairment of trade acquisition - 62 ------ ------Earnings before interest, tax, depreciation andamortisation (2,184) (1,901)Cost of equity settled share schemes 328 246 -------- -------Operating cash flows before movements in workingcapital (1,856) (1,655)Decrease in inventories 41 73Increase in debtors (293) (307)(Decrease)/increase in creditors (50) 307Increase in provisions 27 16 ------- -------Cash used in operations (2,131) (1,566)Interest paid (21) (11)Income taxes received 23 32 ------- -------Net cash used in operating activities (2,129) (1,545) ------- -------Cash flows from investing activitiesPurchase of property, plant & equipment (29) (12)Acquisition of trade - (62)Capitalised development expenditure (101) (90)Interest received 28 7 ------- -------Net cash used in investing activities (102) (157) ------- ------- Cash flows from financing activitiesIssue of ordinary share capital 2,613 1,491Expenses in connection with share issue (151) (43)Proceeds from increase in borrowings 110 78Repayment of obligations under finance leases - (6) ------- -------Net cash generated from financing activities 2,572 1,520 ------- -------Net increase/(decrease) in cash and cash equivalents 341 (182)Cash and cash equivalents at beginning of the year 418 606Effect of exchange rate fluctuations on cash held 4 (6) ------- -------Cash and cash equivalents at end of the year 763 418 ========= ========= 1 Nature of the financial information The financial statements for Deltex Medical Group plc have yet to be approvedfor the year ended 31 December 2007. The financial information set out in thisannouncement does not constitute the Company's statutory accounts for the yearended 31 December 2007 or 31 December 2006. The financial information for theyear ended 31 December 2006 is derived from the statutory accounts for that yearwhich have been delivered to the Registrar of Companies except for therestatement of comparatives for the first time adoption of InternationalFinancial Reporting Standards. The auditors reported on those accounts; theirreport was unqualified and did not contain a statement under either Section 237(2) or Section 237 (3) of the Companies Act 1985. The statutory accounts for theyear ended 31 December 2007 are expected to be finalised on the basis of thefinancial information presented by the directors in this preliminaryannouncement and will be delivered to the Registrar of Companies following theCompany's Annual General meeting. The preliminary results have been prepared in accordance with applicableaccounting standards under International Financial Reporting Standards (IFRS).All relevant financial comparatives for the year ended 31 December 2006 havealso been presented on an IFRS basis. The financial information does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The transition to International Financial Reporting Standards and the effect onthe Company's results was previously announced with the 2007 interim results on27 September 2007. 2 Turnover and segmental analysis The segment results for the year ended 31 December 2007 are as follows: Unaudited -------------------------------------------------------- -------------------------------------------------------- UK USA International Unallocated Total £'000 £'000 £'000 £'000 £'000 --------------------------------------------------------Total segment revenue 2,892 587 947 - 4,426Inter segment revenue (258) - - - (258) --------------------------------------------------------Group revenue 2,634 587 947 - 4,168 --------------------------------------------------------Segment/operating 379 (52) (210) (2,340) (2,223)result --------------------------------------------------------Finance income 33Finance costs (21) --------Loss before taxation (2,211)Tax on loss 23 ------------------Loss for the financial (2,188)year ------------------ 3 Dividends The directors do not recommend payment of a dividend (2006: nil). 4 Loss per share Basic loss per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares issuedduring the year. The Group had no dilutive potential ordinary shares in eitheryear, which would serve to increase the loss per ordinary share. Therefore thereis no difference between the loss per ordinary share and the diluted loss perordinary share. The loss per share calculation for 2007 is based on the loss of £2,188,000 andweighted average number of shares in issue of 87,737,746. For 2006 the loss pershare calculation was based upon the restated loss of £1,994,000 and weightedaverage number of shares in issue of 74,181,000. 5 Distribution of announcement Copies of this announcement are being sent to all shareholders and will beavailable for collection free of charge from the Company's registered office atTerminus Road, Chichester, West Sussex PO19 8TX. Copies of the Report andAccounts for the year ended 31 December 2007 will be sent to shareholders in duecourse. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Deltex Medical