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Date: 12 November 2003 The Medical House PLC Preliminary results for the year ended 30 June 2003 Summary · Drug Delivery Division: · Drug Tariff approval in November 2002 for mhi-500 needle free device (for insulin). The first needle-free injection system for liquid pharmaceuticals available on the Drug Tariff · New needle-free device agreement signed in June 2002. CE Mark status achieved in May 2003 · Series of territory distribution agreements agreed for the new needle-free device · Group has now developed a range of drug delivery devices including needle-free for commercialisation with pharmaceutical companies and direct to reseller distributors · Orthopaedic Division: · Ongoing investment programme resulted in 20% new capacity completed on time and on budget with additional potential for further significant capacity increases. · Achieved preferred supplier status with one of the world’s leading orthopaedic companies DePuy Orthopaedics (a subsidiary of Johnson & Johnson) · Major benefits of expansion expected to start to come through in 2nd half of current year · Industry forecasts continue to predict double-digit growth rates in the orthopaedic market · The Group’s results are in line with expectations including the costs of the successful development of the drug delivery business and the expansion of the orthopaedics manufacturing capacity. The Group’s operating loss before interest and exceptional items was £343,000 on turnover of £5.2 million. The operating loss before tax and interest was £590,000 (2002: loss before tax of £294,000). Loss after tax was £353,000 (2002: £351,000)
The Medical House PLC Chairman’s Statement During the year under review we have expanded our manufacturing capability in Eurocut and further invested in the development of new drug delivery systems. These steps have been taken due to market demand for our orthopaedic division’s products and the progress we have made in the drug delivery division in the past year. The level of investment has been modest by industry standards but significant in terms of achievement. Funding for this investment, the major part of which is now behind us, has come partly from the profits generated at Eurocut and partly from two section 95 placings of new ordinary shares effected in June and September 2003, which raised a total of £1.25 million before expenses. The current level of demand for our orthopaedic products should enable us to take full advantage of an increase in manufacturing capacity of approximately 20% which will become available to us during this month. The prospects for Eurocut are good and should also allow us to continue our strategy of financing a significant element of new product development from the profits generated by this division. The year under review has also been significant for our drug delivery division. In addition to the mhi-500 being the first needle-free insulin delivery system to achieve drug tariff approval in the UK, we have also signed distribution deals for six overseas territories. Our primary focus, however, is to create additional relationships with pharmaceutical companies to enable them to improve the means of drug delivery and thereby differentiate their products. In order to achieve this we needed to invest in an improved needle-free device which can be sold without restrictions relating to product or area. We anticipate that this product will be on sale shortly and we believe it will enable the Group to continue to improve its position in the needle-free drug delivery market. Additionally we are developing a range of drug delivery systems in order to cover a wider range of applications. Due to the level of investment required to fund the expansion of Eurocut and the development of the new drug delivery devices, the Board has reached the conclusion that it is in the best interests of the Group to seek partners for further development of the Hyperlyser breath test device. With so much of the Group’s focus and investment currently being directed towards orthopaedics and drug delivery systems, your Board believes that this is the most prudent way of advancing this particular technology. Our superb new premises will be of significant assistance in presenting the Group’s operations to major healthcare companies and I would like to invite all shareholders to see the premises at first hand by attending the AGM on 19 December 2003.
I am pleased to report that trading levels for the first four months of the current financial year are in line with the Board’s expectations. Bryan Bodek
The year just ended has been both challenging and rewarding. The challenges have been in continuing to progress our drug delivery division in a difficult market and also to rebuild the orthopaedics order book during the economic uncertainties brought about by the Iraq War. The rewards are that we are being successful in our efforts on both fronts and I shall now expand on that for both our trading divisions. Orthopaedic Division 2003: Operating Profit £605,000 (2002: Operating Profit £885,000) We were pleased to announce in October that the planned expansion of the Eurocut manufacturing facility has been completed on time and to budget. During the course of this month, as new machinery is installed at the new facility, we will increase manufacturing capacity by around 20%. As our order book grows this additional production capability will be further increased as more machines are purchased. The value of new machines purchased will relate entirely to the make up of the order book; however all machines are purchased using our asset finance facility which spreads payment over five years. It is inevitable that there will be some disruption to production as the new facility is commissioned but this should be short lived. The major benefits of the expansion are expected to start to come through in the second half of the current year. The outlook for the orthopaedic instrument sector continues to be good and we continue to be closely involved with orthopaedic companies in the development of new instrument ranges. New surgical techniques are requiring ever more complex instruments which in itself provides our workforce with increasing challenges at all levels. New developments tend not to be as profitable as repeat orders and as the period under review had a higher proportion of new developments operating margins fell to 39% from 44% achieved in the year ended 30 June 2002. As we are continually developing new relationships with orthopaedic companies in order to take advantage of our additional capacity we expect to receive a high proportion of new developments in the immediate future. During the year we achieved preferred supplier status with one of the world’s leading orthopaedic companies DePuy Orthopaedics (a subsidiary of Johnson & Johnson) making Eurocut one of only six companies worldwide fortunate enough to achieve this. This is a highly prized achievement and should present many new opportunities in the years to come. As a result of this accolade we also now have full- time representation in the U.S., which covers both our orthopaedic and drug delivery interests. In order to develop into a sizeable world player in our markets it is essential that we have a permanent presence in the U.S. The current order book for the orthopaedic division is higher than it has been for some time and accounts for over four months’ work. In order to achieve the desired expansion we will need to reduce lead times which we hope to achieve through improved production planning. The Board believes that the prospects for growth within Eurocut are as good as at anytime in its 15-year history; however it is up to all our managers and employees to capitalise on this environment and I am confident that we have the capability to do so. Drug Delivery Division 2003: Operating Loss £388,000 (2002: Operating Loss £300,000) As will be clear from the announcements we have made in the last 12 months the year under review has been one of significant achievement. The Board believes that during the year The Medical House has progressed into arguably one of Europe’s leading providers of drug delivery solutions. The strategy of the drug delivery division is to conclude partnerships with pharmaceutical companies on a global basis by fulfilling their drug delivery requirements. These requirements clearly include needle-free systems but the innovative skills within The Medical House are such that we are not limited solely to this area. We can provide a range of solutions within the framework of drug delivery devices. The proposals currently being discussed with pharmaceutical companies involve reaching a development agreement followed by a supply agreement. Typically agreements are expected to follow the structure of the Biopartners Agreement whereby we receive licence fees followed by income from devices which, depending on volumes, may or may not be made within the Group. However shareholders need to be aware that concluding deals for new products is likely to have lengthy and unpredictable timescales. We are currently in discussions with a number of pharmaceutical companies on a range of different solutions. This in itself is testament to the progress made and the credence placed on our achievements to date by the pharmaceutical industry. It is also hard for us not to feel proud of this achievement particularly when compared to other medical device companies who have had far larger sums of money at their disposal. Our success in this area is due partly to our achievements to date and partly due to the 15 years of manufacturing experience which sets us apart from many of the other companies who compete with us in this area. In short, the designers at The Medical House only design devices which can be made relatively easily and cost effectively. All of our solutions, whether complete or under development fit this criteria and the Board believes that this is the single most important reason why pharmaceutical companies are increasingly considering The Medical House to resolve their problems. A solution which merely looks good and performs well at prototype stage is not sufficient. The solution must be capable of cost effective and simple manufacture. There are very few sectors where the phrase “keep it simple” is more appropriate. Added to this we have made and continue to make milestone achievements over the last 12 months, these include: · November 2002 - Achieved Drug Tariff approval for the
mhi-500. The first needle-free insulin delivery system to achieve
this in the UK. We welcome all our new distributors and partners and very much look forward to a successful future with them all. All these agreements are building blocks for this division which can now look forward to a growing level of sales from around the world in insulin and growth hormone markets. The second part of our strategy is to enter into additional distribution agreements for the sale of our new needle-free system for insulin. Currently we are in discussions with a number of additional potential distributors and hopefully some of these will result in solid sales for the division in the not too distant future. The World Health Organisation predicts diabetes to increase to 300 million people by 2025. This market clearly has tremendous potential for the Group and our distributor network now delivers access to over 5 million people with diabetes in the countries for which distributors have been engaged The initial reaction to our new device from markets around the world has been very encouraging and we expect our network to steadily expand as the device achieves more exposure in each market. However, although the concept of needle-free injections is highly desirable we still need to reassure clinicians worldwide of the efficacy of the system. This is a slow process, one which we have started in the UK and which is achieving success through increased recognition for the device. Following admission to the Drug Tariff as from January of this year the number of devices sold has increased and we have now distributed around 1,000 mhi-500 devices. We have a relatively prudent marketing budget in the UK and consequently growth here is likely to be good rather than spectacular. It is also likely that a distributor will be appointed for the UK in due course as we step back from dealing directly with the public. At our current stage of development we have need to prioritise investment and operate within our budget. We have preferred to invest the significant part of our resources in the new drug delivery systems which, as they are proprietary technologies, will provide us with devices which can be sold worldwide for a variety of indications. This contrasts with the mhi-500 which can only be sold for insulin and dental applications within Europe. The strategy is progressing well and we are confident that this will show enhanced benefits to shareholders in due course. Hyperlyser. As shareholders are aware we have not been able to commit large resources to both drug delivery devices and the Hyperlyser breath test and consequently we have only made modest progress on the Hyperlyser in the last 12 months. The Board has now taken the decision to seek partners to assist in the development of this technology. We believe that with the Group’s commitment to the orthopaedic and drug delivery markets this is the correct decision in order to fully realise the potential of the Hyperlyser.
There is no difference between the loss for the period stated
above and its historical cost equivalent. There is no difference between the loss for the period stated above and its historical cost equivalent. Audited Consolidated Statement of Recognised Gains and Losses
Audited Consolidated Balance Sheet at 30 June 2003
Audited Consolidated Cash Flow Statement For the year ended 30 June 2003
Notes to the Financial Statements for the year ended 30 June 2003 1. Loss per Share
Loss per share is calculated by dividing the weighted average number of ordinary shares in issue into the loss after taxation for the year attributable to ordinary shareholders. Diluted earnings per share are calculated using 53,230,898 shares (2002: 52,127,054) being the weighted average number of shares in issue including the dilutive effects of the shares held under the Group's share option schemes. 2. Reconciliation of Operating Loss to Net Cash Outflow from Operating Activities
3. Reconciliation of Net Cash Movement to Net Debt
4. The financial information set out above does not constitute the Company’s statutory accounts for the years ended 30 June 2003 or 2002. The financial information for 2002 is derived from the statutory accounts for 2002 which have been delivered to the registrar of companies. The auditors have reported on the 2002 accounts; their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The statutory accounts for 2003 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies following the Company’s annual general meeting. |
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