TIDMSPHR
RNS Number : 9941X
Sphere Medical Holding plc
28 February 2017
28 February 2017
Sphere Medical Holding plc
("Sphere Medical" or "Sphere" or the "Company")
Results for the year ended 31 December 2016
Sphere Medical Holding plc (AIM: SPHR.L), an innovative
point-of-care monitoring and diagnostic devices company, announces
its results for the year ended 31 December 2016.
Business highlights for 2016 and post year-end
-- Successful commercial launch of Proxima 4 in mid-December
2016 in Europe with encouraging early market reaction
-- First sales of Proxima 4 achieved
-- Over 20 hospitals have requested evaluations of Proxima 4
-- 4 hospitals have monitored patients with Proxima 4
-- First paediatric patients monitored
-- Key Proxima 4 milestones met:
-- CE mark certification completed
-- Distribution partners appointed in Italy and Spain
-- >20% reduction in time to results demonstrated by
University Hospital Southampton clinical study
-- Improved connectivity between Proxima and hospital data management systems
-- New production facilities established and operational in Wales
Financial summary
-- Reduced loss after taxation GBP4.5 million (2015: GBP5.5 million)
-- Reduced loss per share 3.2 pence (2015: 4.8 pence)
-- Operating expenses contained below budget
-- Total operating expenses reduced to GBP5.1 million (2015: GBP6.1 million)
-- Product development costs capitalised GBP2.1 million (2015: GBP0.9 million)
-- Revenue doubled to GBP30,000 (2015: GBP15,000)
-- R&D tax credit received GBP0.6 million (2015: GBP0.6 million)
-- Cash and short-term investments at year end of GBP3.2 million (2015: GBP10.0 million)
-- Additional GBP3.0 million loan facility secured post year end
-- GBP1.5 million cash drawn in January 2017
-- GBP1.5 million conditionally available to draw until March 2018
Commenting on today's announcement, Dr Wolfgang Rencken, Chief
Executive Officer of Sphere Medical, said: "We are pleased to have
launched Proxima 4 and are very encouraged by the early market
reaction to it. As we build a growing customer base, who routinely
use Proxima, more patients will be able to benefit from being
managed with the system. We continue to advance distributor
negotiations to expand Proxima 4's commercial launch with the aim
to make it available to a wider patient population across
Europe."
For further information, please contact:
Sphere Medical Holding Tel: +44 (0)1223 875
plc 222
Dr Wolfgang Rencken, Chief
Executive Officer
Richard Wright, Chief
Financial Officer
Panmure Gordon Tel: +44 (0) 20 7886
2500
Freddy Crossley (Corporate
Finance)
Duncan Monteith (Corporate
Finance)
Tom Salvesen (Corporate
Broking)
Consilium Strategic Tel: +44 (0) 20 3709
Communications 5700
Mary-Jane Elliott spheremedical@consilium-comms.com
Ivar Milligan
Hendrik Thys
Notes for Editors
About Sphere Medical (AIM: SPHR.L)
Sphere Medical is an innovative point-of-care medical device
company. Its Proxima platform measures blood gases, electrolytes
and metabolites at the patient's bedside and aims to improve
patient care and reduce health system costs. The device is
currently sold directly to the critical care market via Sphere
Medical's sales force in the UK, Germany, The Netherlands and
Belgium and via distributors in Italy and Spain.
For further information, please visit www.spheremedical.com
Strategic Report
INTRODUCTION
A number of significant milestones were achieved with Proxima 4
in 2016. We received CE mark certification in September and, in
December, launched Proxima 4 in Europe, enabling us to commence
marketing the product directly in the UK, Germany, Belgium and The
Netherlands, and in Italy and Spain via our distribution partners.
In 2017, we are now focussing our efforts on marketing Proxima 4,
generating sales and building a regular customer base. Market
reaction to Proxima 4 has been encouraging, building on the
interest established with Proxima 3. As well as the key addition of
glucose to the analyte panel, other changes such as a quicker set
up and expansion of the patient pool to include children, have been
very well received. Importantly, these changes increase the
addressable market 4x to around GBP130m in Europe. Four hospitals
have monitored patients using Proxima 4 and sales have already been
made in the UK and to our newly appointed Italian distributor.
COMMERCIALISATION STRATEGY
Sphere Medical's strategy is focussed on leveraging the Proxima
platform. Proxima 3 was the first generation approved for human use
and has been in the market for two years. This has enabled us to
gain market intelligence, which was successfully incorporated into
Proxima 4. Proxima is the only commercially available
patient-attached microanalyser device worldwide with the ability to
monitor 13 key parameters. This product update incorporates a
number of improvements that were based on feedback from clinicians
on Proxima 3 and is now applicable to around 40% of critical care
patients.
Looking further ahead, we plan to increase the applicable market
for the Proxima platform by adding additional analytes, improving
usability and expanding its use to neonatal patients. We also plan
to launch Proxima in other major markets, such as the USA and
Japan, in the next few years.
SALES PROGRESS
One of the main aims of launching Proxima 3 was to secure
feedback on the product and to learn about the sales process and
any potential barriers to adoption. Through 2016 hospitals
continued to evaluate Proxima 3. Over 80 patient connections were
made in the year, more than in the previous year. The feedback
received has been very helpful in shaping the development of
Proxima 4 so that we can convert more hospitals into regular users
of the system.
By adding glucose to the analyte panel in Proxima 4 the
addressable market is expanded fourfold from around 10% to around
40% of critical care patients. It is expected that this will
increase adoption. In addition there are a number of other
improvements to the system, including simpler and faster set-up and
improved connectivity with hospital data systems.
In the first few weeks since Proxima 4 launched we have
experienced increasing traction. Over 20 hospitals have requested
evaluations of Proxima 4, including some paediatric centres which
were unable to use Proxima 3 due to restrictions on adult-only use.
We believe sales traction will continue to accelerate through
2017.
We have established a direct sales presence in the UK, Germany,
The Netherlands and Belgium. Having a direct sales presence has
been valuable in enabling us to receive feedback direct from
customers.
An important component of building the revenue from Proxima is
increasing its geographic presence. The most economical way of
doing this beyond our direct markets is through distributors who
have access to the appropriate customers. We have appointed Burke
and Burke in Italy and Prhoinsa in Spain as regional distributors
of Proxima. Both of these distributors are well placed within their
markets to sell Proxima. Burke and Burke received their first
Proxima 4 shipment in December 2016, as soon as Proxima 4 was
launched. Prhoinsa will get underway in the second quarter of 2017.
We are in discussions with distributors in other European markets
and are targeting a sales presence in 60% of the European Union by
the end of 2017.
PRODUCT DEVELOPMENT
As well as the addition of glucose to the panel of analytes,
Proxima is now suitable for use with children weighing 15kg and
over. Together these changes expand the addressable market fourfold
to around GBP130m in Europe.
Proxima also has improved connectivity to hospital information
systems, an important issue for many hospitals. Connectivity is now
available between Proxima and Conworx and Clinisys data management
systems, which are used extensively in European hospitals and
beyond. This enables the seamless transfer of test results from
Proxima into patient records and laboratory information systems. We
are also working on connectivity to other leading hospital data
management systems and expect to introduce this over the coming
months.
A number of improvements in the user experience have also been
introduced in Proxima 4, with more in development. The system set
up process has been simplified and the time required to complete
the set up significantly reduced. We are also currently developing
a software update that will allow results to be presented
graphically as a trend, rather than just at one point in time. This
enhancement will bring added value and provide a further point of
difference between Proxima and traditional blood gas analysers.
Another piece of feedback on Proxima 3 was a request for some
scheduling functionality to remind users when the next reading is
due to be taken. It is intended to incorporate this in the next
software update.
Beyond Proxima 4, the plan is to add lactate and make more
improvements in the functionality and usability of the system,
including automating the set up process, and in time adapt the
system for use with neonates.
TIME AND MOTION STUDY
In conjunction with University Hospital Southampton, we have
conducted a time and motion study to examine the workflow impacts
of Proxima. Results were presented at the British Association of
Critical Care Nurses annual conference in September 2016. The study
involved 20 patients and showed a statistically significant
reduction of over 20% in total time taken to deliver results to the
bedside by comparing Proxima with the existing standard process in
a highly optimised, well equipped cardiac ICU involving
near-patient benchtop blood gas analysers.
The results of this study confirmed the significant workflow
benefits from using Proxima on unstable patients requiring frequent
blood gas measurements.
PRODUCTION
In preparation for increased demand for Proxima, we have been
expanding our manufacturing capability. In February 2016, we opened
our new manufacturing facility in St Asaph, north Wales, which
should give us adequate capacity to meet our manufacturing needs
for the next few years. Production of Proxima components at St
Asaph has commenced on plan and we are in the process of a phased
transfer of more elements of the manufacturing process from our
site at Harston, Cambridge to St Asaph.
INTELLECTUAL PROPERTY
Our intellectual property portfolio is a key asset and we
continue to invest in the maintenance and development of our IP
estate. We have a variety of patents registered or applied for over
the past two decades, with a range of expiry dates up to 2033. We
currently have 20 patents either granted or in application,
covering chip and sensor design and manufacture, design of
analytical systems, methods for chemical assay and methods for
sensor calibration. We have an ongoing process of reviewing the
patent register in order to focus our financial support on our core
patent families and any new intellectual property.
KEY PERFORMANCE INDICATORS
The Group measures its performance according to a wide range of
key performance indicators, which during 2016 were as below. A set
of similarly challenging measures has been defined for 2017.
Key Performance Comment
Indicator
----------------------- ------------------------------------------------------------------
Development milestones
* Proxima 4 received CE mark certification
* A number of minor updates to Proxima 3 were developed
and rolled out during the year
----------------------- ------------------------------------------------------------------
Revenue indicators
and lead indicators * First Proxima 3 sales achieved in Germany and Belgium
* First Proxima 4 sales achieved
* A growing number of leads being generated and
hospital evaluations being undertaken
* Proxima 3 patient connections up to more than 170
----------------------- ------------------------------------------------------------------
Production
* Throughout the period we have maintained a sufficient
supply of product
----------------------- ------------------------------------------------------------------
Management of
cash resources * The Group's cash and short-term investments totalled
GBP3.2 million at 31 December 2016, better than
budget.
* A GBP3 million loan facility was put in place in
January 2017, from which a GBP1.5 million loan has
been drawn.
----------------------- ------------------------------------------------------------------
FINANCIAL REVIEW
Revenue for the year ended 31 December 2016 was GBP30,000 (2015:
GBP15,000).
Operating expenses before amortisation were GBP5.1 million
(2015: GBP6.1 million). Selling and marketing expenses increased
from GBP1.0 million to GBP1.3 million, and production overheads
increased from GBP1.3 million to GBP1.4 million reflecting the move
towards commercialisation of Proxima. Administration costs reduced
from GBP2.2 million to GBP1.7 million. GBP0.7 million (2015: GBP1.7
million) of product development costs were expensed in the period
and GBP2.1 million (2015: GBP0.9 million) of product development
costs were capitalised.
Net finance income was GBP72,000 (2015: GBP91,000), primarily
representing interest earned on cash deposits.
During the year, GBP0.6 million was received in respect of
research and development tax claims for 2015 (2015: GBP0.6 million
based on 2014 claims). No accrual has been made for any research
and development tax claim for the 2016 year.
The post-tax loss for the year was GBP4.5 million (2015: GBP5.5
million). The basic and fully diluted loss per share for the year
was 3.2 pence (2015: 4.8 pence). The number of ordinary shares in
issue was unchanged throught the year at 141.8 million.
Cash and short-term investments as at the end of the year were
GBP3.2 million (2015: GBP10.0 million). In January 2017 a GBP3.0
million loan facility was put in place and an initial GBP1.5
million loan was drawn. A further GBP1.5 million loan is
conditionally available until March 2018. The loans are repayable
by 2020. The Company is exploring the best financing options to
support its working capital requirements through the on-going
commercialisation of Proxima.
THE TEAM AT SPHERE MEDICAL
There were no changes to the Board during 2016 or
subsequently.
The Group continues to be supported by a very strong Medical
Advisory Board (MAB), which comprises leading critical care
clinicians from across Europe. In January 2016 Dr Michael Grocott
joined the MAB. Professor Grocott is the Professor of Anaesthesia
and Critical Care Medicine at the University of Southampton (UoS)
and heads the UoS Centre for Human Integrative Physiology. His
research interests include human responses to hypoxia, measuring
and improving outcome following surgery, lung injury, and fluid
therapy.
Sphere Medical continues to benefit from the hard work and
expertise of its employees who, with the Board, are fully committed
to the success of Proxima. The Board would like to take this
opportunity to thank all our employees for their continued
commitment.
OUTLOOK
We are pleased to have launched Proxima 4 as planned and early
market reaction is very encouraging. The Board remains committed to
pursuing the further development and full commercialisation of the
Proxima platform and is exploring its financing options to ensure
the Company has sufficent working capital to continue this strategy
and to maximise value for shareholders.
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Notes 2016 2015
GBP000 GBP000
------------ ------------
Revenue 30 15
Cost of sales (20) (2)
____________ ____________
Gross profit 10 13
Selling and marketing expenses (1,327) (978)
Production overheads (1,392) (1,279)
Product development (727) (1,675)
Administrative expenses (1,705) (2,194)
Operating expenses (net) (5,151) (6,126)
Operating loss (5,141) (6,113)
Finance income 72 91
Loss before taxation (5,069) (6,022)
Tax credit 556 557
Loss and total comprehensive
income for the period attributable
to the equity holders of the
parent (4,513) (5,465)
Loss per share attributable
to the equity holders of the
parent
Basic and diluted 2 (3.2p) (4.8p)
Consolidated statement of financial position
at 31 December 2016
Notes 2016 2015
GBP000 GBP000
-------- --------
ASSETS
Non-current assets
Property, plant and equipment 3 189 103
Intangible assets 4 2,928 896
3,117 999
Current assets
Inventories 427 384
Trade and other receivables 181 127
Cash and cash equivalents 3,241 10,028
Total assets 6,966 11,538
EQUITY
Called up share capital 5 1,418 1,418
Share premium account 58,031 58,102
Other reserve 2,705 2,786
Profit and loss account (55,945) (51,693)
Equity shareholders' funds 6,209 10,613
LIABILITIES
Current liabilities
Trade and other payables 757 925
Total liabilities 757 925
Total equity and liabilities 6,966 11,538
Consolidated statement of cash flow
for the year ended 31 December 2016
Notes 2016 2015
GBP000 GBP000
------- -------
Operating activities 6 (4,521) (5,117)
Cash flows from investing
activities
Purchase of property, plant
and equipment (183) (101)
Purchase of intangible assets (2,089) (892)
Sale of property, plant and
equipment 5 -
Interest received 72 91
(2,195) (902)
Cash flows from financing
activities
Issue of share capital - 13,176
Issue expenses (71) (830)
Discharge of finance lease
liabilities - (2)
(71) 12,344
Net change in cash and cash
equivalents in the year (6,787) 6,325
Cash and cash equivalents
at beginning of year 10,028 3,703
Cash and cash equivalents
at end of year 3,241 10,028
Consolidated statement of changes in equity
For the year ended 31 December 2016
Share Share Other Retained Total
capital premium reserve loss equity
GBP000 GBP000 GBP000 GBP000 GBP000
-------- -------- -------- -------- -------
Balance as at 31 December
2014 594 46,580 2,933 (46,503) 3,604
Loss for the year ended
31 December 2015 - - - (5,465) (5,465)
Total comprehensive
income for the period - - - (5,465) (5,465)
Issue of share capital 824 12,352 - - 13,176
Issue expenses - (830) - - (830)
Employee share-based
compensation - - 128 - 128
Reclassification following
lapse of options - - (275) 275 -
Transactions with owners 824 11,522 (147) 275 12,474
Balance as at 31 December
2015 1,418 58,102 2,786 (51,693) 10,613
Loss for the year ended
31 December 2016 - - - (4,513) (4,513)
Total comprehensive
income for the period - - - (4,513) (4,513)
Issue expenses - (71) - - (71)
Employee share-based
compensation - - 180 - 180
Reclassification following
lapse of options - - (261) 261 -
Transactions with owners - (71) (81) 261 109
Balance as at 31 December
2016 1,418 58,031 2,705 (55,945) 6,209
Notes
1. Basis of preparation
The financial information set out in the announcement does not
constitute the Group's statutory accounts for the year ended 31
December 2016 or 31 December 2015. The auditor has confirmed that
the auditor's report that is required to be contained in the Annual
Report and Accounts 2016 includes an unmodified opinion together
with an emphasis of matter paragraph on going concern relating to
the potential need to raise additional finance, as described in the
Going Concern paragraph below. The statutory accounts for the year
ended 31 December 2016 have not yet been delivered to the Registrar
of Companies. The statutory accounts for the year ended 31 December
2015 were delivered to the Registrar of Companies as published on
the Group's website on 23 March 2016.
Going concern
At 31 December 2016 the cash balance available to the Group was
GBP3.2m while for the year the cash outflow from operating
activities was GBP4.5m. In January 2017 the Group agreed a GBP3.0m
loan facility with Silicon Valley Bank and drew an initial GBP1.5m
loan.
The Board's confidence that the commercialisation of the Group's
principal product, Proxima, will prove to be successful has been
reinforced by the launch of Proxima 4 into the European market, and
by the positive reception it has received, including the first
sales and the appointment of distributors in Italy and Spain.
However, the Group's revenues from sales of products are expected
not to be sufficient for the Group to become cash generative from
commercial operations over the next 12 months.
The Group is intending to raise additional finance and has a
good track record of being able to do so finance when it has needed
to do so.
The Board of Directors has concluded that the combination of
these circumstances represents a material uncertainty which may
cast significant doubt about the Group's ability to continue as a
going concern and, therefore that it may be unable to realise its
assets and discharge its liabilities in the normal course of
business.
Nonetheless, with GBP3.2m of cash as at 31 December 2016, the
GBP1.5m additional cash funding in January 2017, a clear 2017
budget approved by the Board of Directors, a strong business plan
for the next several years and the Group's track record of raising
additional finance, the Board of Directors have reasonable
expectation that the business will be able to continue in operation
for at least 12 months from the date of approval of these financial
statements. For these reasons, the Board of Directors continue to
adopt the going concern basis of accounting in preparing these
financial statements.
2. Loss per share
Fully diluted loss per share is calculated after showing the
effect of outstanding options in issue. As the effect of the
options would be to reduce the loss per share, the diluted loss per
share is the same as the undiluted loss per share.
Calculation of loss per share is based on the following loss and
numbers of shares:
2016 2015
GBP000 GBP000
-------------- --------------
Loss attributable to equity
holders in the Company (4,513) (5,465)
Number ('000) Number ('000)
-------------- --------------
Weighted average number
of equity shares in issue
for basic loss per share 141,758 114,457
Loss per Loss per
share (pence) share (pence)
--------------- ---------------
Basic and diluted loss per
share (3.2) (4.8)
3. Property, plant and equipment
2016 2015
Plant and equipment GBP000 GBP000
-------- --------
Cost:
At start of year 1,674 1,754
Additions 183 101
Disposals (5) (181)
At end of year 1,852 1,674
Depreciation:
At start of year 1,571 1,646
Disposals (3) (181)
Provided in the year 95 106
At end of year 1,663 1,571
Net book value:
At end of year 189 103
At end of previous year 103 108
4. Intangible assets
Capitalised 2016 2015
Software Development Total Total
GBP000 GBP000 GBP000 GBP000
----------- -------------- -------- --------
Cost:
At start of year 135 888 1,023 131
Additions 5 2,084 2,089 892
At end of year 140 2,972 3,112 1,023
Amortisation:
At start of year 127 - 127 119
Provided in the year 10 47 57 8
At end of year 137 47 184 127
Net book value:
At end of year 3 2,925 2,928 896
At end of previous
year 8 888 896 12
5. Share capital
2016 2015
---------------------------- --------------------------
Start End of Start End of
of period period of period
period
Issued and fully paid
Ordinary Shares (number)
of GBP0.01 141,757,872 141,757,872 59,208,660 141,757,872
Ordinary Shares (nominal) GBP1,417,579 GBP1,417,579 GBP592,087 GBP1,417,579
of GBP0.01
Share issue
No shares were issued during the period (2015: 82,352,582)
6. Reconciliation of operating loss to operating cash flows
2016 2015
GBP000 GBP000
-------- ---------
Operating activities -
loss for the period before
interest and tax (5,141) (6,113)
Depreciation 92 106
Amortisation 57 8
Share-based payments 180 128
Increase in inventory (43) (169)
(Increase)/decrease in
trade and other receivables (54) 77
(Decrease)/increase in
trade and other payables (168) 289
Taxes received 556 557
(4,521) (5,117)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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