Advanced Medical : Interim Report – 2021

Interim Report 2021

Creating quality outcomes through our innovative surgical and woundcare products

Advanced Medical Solutions Group plc  Interim Report 2021

About AMS

Financial Highlights

AMS is a world-leading independent developer and manufacturer of innovative and technologically advanced products for the global surgical and woundcare markets, focused on quality outcomes for patients and value for payers. AMS has a wide range of surgical products including tissue adhesives, sutures, haemostats, internal fixation devices and internal sealants, which it markets under its brands LiquiBand®, RESORBA®, LiquiBandFix8® and Seal-G®. AMS also supplies wound care dressings such as silver alginates, alginates and foams through its ActivHeal® brand as well as under white label.

AMS's products, manufactured in the UK, Germany, France, the Netherlands, the Czech Republic and Israel, are sold globally via a network of multinational or regional partners and distributors, as well as via AMS's own direct sales forces in the UK, Germany, the Czech Republic and Russia. The Group has R&D innovation hubs in the UK, Germany, France and Israel. Established in 1991, the Group has more than 700 employees.

Group revenue (£ million)

£50.2m

2020: £39.3m

Reported change: +28% (+31% at constant currency)1

Adjusted² profit before tax

(%)

24.6%

2020: 13.5%

Reported change: +11.1pp

Profit before tax (£ million)

Adjusted² profit before tax (£ million)

£12.4m

2020: £5.3m

Reported change: +133%

Adjusted² diluted earnings per share (p)

4.64p

2020: 2.16p

Reported change: +115%

Profit before tax (%)

		£11.2m	22.3%
		2020: £4.3m	2020: 10.8%
Inside this report	Reported change: +163%		Reported change: +11.5pp
01	Business Highlights	Diluted earnings		Net operating cash flow
02	Chief Executive's Review	per share (p)		(£ million)
05 Financial Review	4.10p		£13.7m
07	Condensed Consolidated Income Statement

07 Condensed Consolidated Statement

	of Comprehensive Income	2020: 1.68p	2020: £8.8m
08	Condensed Consolidated Statement	Reported change: +144%	Reported change: +55%
	of Financial Position
09	Condensed Consolidated Statement	Net cash3 (million)	Interim dividend per share (p)
	of Changes in Equity	£61.1m	0.58p
10	of Cash Flows
Condensed Consolidated Statement

11 Notes Forming Part of the Consolidated

Financial Statements	2020: £67.9m	2020: 0.50p
	Reported change: -10%	Reported change: +16%

Business Highlights (including post period end):

AMS is pleased to report interim results with strong revenue growth, profitability and cash generation despite the residual impacts of COVID-19. The Group made significant regulatory and clinical progress in the period and continued to invest in developing next-generation products.

• Revenue increased to £50.2 million (2020 H1: £39.3 million) as the impact of COVID-19 continues to reduce and many key markets rebuild towards more routine levels of elective surgery. This represents an increase of 28% on a reported basis and 31% on a constant currency1 basis
• The Group reports a 133% increase in adjusted profit before tax to £12.4 million (2020 H1: £5.3 million) with a significant improvement in operational leverage resulting from the increased sales volumes
• Net cash increased to £61.1 million from a year-end position of £53.8 million (2020 H1: £67.9 million) driven by improved trading and good operational cash flow
• Investment in R&D increased to £4.4 million (2020 H1: £3.8 million), representing 8.7% of revenue, as progress was made on key projects across the Group
• The US clinical trial to support the Premarket Approval (PMA) for LiquiBandFix8® continues to progress well with patient procedure volumes now sufficient to prepare and submit the PMA clinical module. FDA filing for the device is on track for 2022

• The LiquiBand® XL 510(k) application was submitted in the period with approval expected by the end of 2021
• As previously announced, Seal-G® and Seal-G® MIST were awarded CE marks and the first human clinical trials commenced for both products in the period. Interim study results are expected in early 2022 to support the full commercial European launch planned for 2022
• Good progress was made in integrating Raleigh, acquired in November 2020. Revenues continue to perform in line with initial expectations and it is expected to be earnings enhancing in 2021
• Given the Group's strong net cash position and reflecting the Board's continued confidence in the future, the interim dividend is increased to 0.58p per share (2020 H1: 0.50p)
• Post period end - Chris Locke was appointed as Chief Technology Officer and Douglas Le Fort was appointed as an independent Non-Executive Director

Commenting on the interim results, Chris Meredith, Chief Executive Officer of AMS, said:

"I am pleased to report the continued growth of the business as demand returns towards pre-pandemic levels. During the period, AMS delivered strong revenue growth, profitability and cash generation, alongside significant regulatory and clinical progress in developing the next generation of innovative products that we expect to drive further growth over the coming years. AMS is in robust financial health to deliver organic and acquisitive growth, and reflecting the confidence of the Board, the interim dividend is being increased for the half year. The addition of Chris Locke and Douglas Le Fort to our team adds considerable R&D and commercial experience that will be valuable as we deliver on our significant growth opportunities."

Chris Meredith

Chief Executive Officer

Notes

1. Constant currency adjusts for the effect of currency movements by re-translating the current period's performance at the previous period's exchange rates.
2. Adjusted profit before tax is shown before exceptional items which, in 2021 H1 were £nil (2020 H1: £nil), before amortisation of acquired intangible assets which, in 2021
   H1, were £1.6 million (2020 H1: £1.1 million) and change in long-term liabilities credit of £0.4 million (2020 H1: credit of £0.03 million) as defined in the Financial Review. Adjusted operating margin is shown before exceptional items and amortisation of acquired intangible assets.
3. Net cash in 2021 H1 was £61.1 million (2020 H1: £67.9 million) defined as cash and cash equivalents of £61.1 million (2020 H1: £68.4 million) plus short-term investments
   less financial liabilities and bank loans in 2021 H1 of £nil (2020 H1: £0.5 million).

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Advanced Medical Solutions Group plc  Interim Report 2021

Chief Executive's Review

Surgical Business Unit

The Surgical Business Unit includes tissue adhesives, sutures, biosurgical devices and internal fixation devices marketed under the AMS brands LiquiBand®, RESORBA® and LiquiBandFix8®.

The ongoing recovery of global elective surgery volumes drove significant revenue growth in the Surgical Business Unit but demand remains below pre-pandemic levels as COVID-19 continues to impact surgical volumes and hospital access, restricting business development activities in all categories. Revenue increased by 42% in the period to £30.4 million (2020 H1: £21.4 million) and by 45% on a constant currency basis.

				Growth at
	2021 H1	2020 H1	Reported	constant
Surgical Business Unit	£'000	£'000	Growth	currency
Advanced Closure	15,194	8,875	71%	79%
Internal Fixation
and Sealants	1,193	967	23%	23%
Traditional Closure	7,265	6,188	17%	18%
Biosurgical Devices	6,725	5,398	25%	24%
TOTAL	30,377	21,428	42%	45%

Advanced Closure

LiquiBand® is a range of topical skin adhesives, incorporating medical grade cyanoacrylate in combination with purpose- built applicators. These products are used to close and protect a broad variety of surgical and traumatic wounds.

				Growth at
	2021 H1	2020 H1	Reported	constant
Advanced Closure	£'000	£'000	Growth	currency
Americas	10,372	5,094	104%	117%
UK/Germany	2,846	1,956	46%	45%
Rest of World	1,976	1,825	8%	9%
TOTAL	15,194	8,875	71%	79%

Revenues increased to £15.2 million (2020 H1: £8.9 million) representing growth of 71% on a reported basis and 79% on a constant currency basis.

US LiquiBand® growth was especially strong driven by increased end sales demand and by the Group's partners now replenishing inventory levels that were reduced during the COVID-19 crisis. Sales of LiquiBand® Rapid, our new accelerated Topical Skin Adhesive technology, continue to grow despite the challenges of COVID-19, including the first major Integrated Delivery Network (IDN) conversion with this technology.

The 510(k) for LiquiBand® XL was submitted to the FDA in the period and the product remains on schedule for approval by the end of the year. Approval would provide access to a new $50 million market and unlock further growth potential in the LiquiBand® business with all partners.

The Group has also continued to leverage the LiquiBand® brand in new geographies and has selected a partner in India following approval in 2020, with launch shipments due to be made in the second half of 2021.

Internal Fixation and Sealants

LiquiBandFix8® is used to fix hernia meshes placed inside the body with accurately delivered individual drops of cyanoacrylate adhesive, instead of traditional tacks and staples. Revenues increased by 23% to £1.2 million (2020 H1: £1.0 million) with demand continuing to improve despite remaining heavily suppressed in comparison to pre-pandemic levels, reflecting the non-essential nature of the majority of hernia surgery.

The US clinical trial for LiquiBandFix8® continues to progress well with completed patient procedure volumes now sufficient to prepare and submit the clinical module and Premarket Approval (PMA) filing on track for 2022 after the 12-month patient follow-up. AMS continues to be excited about the long-term prospects for the LiquiBandFix8® portfolio with entry into the US being a significant milestone for the Group.

In the period, AMS obtained CE mark approval for Seal-G® MIST (laparoscopic surgery) and expanded the CE mark for Seal-G® (open surgery) to include a colourant to aid surgeon visibility. In addition, the Group started the first human clinical trials for both products with interim study results expected in early 2022. First commercial sales are expected in H2

2021 ahead of a full European commercial launch in 2022 to be supported by clinical study results. Key Opinion Leader feedback continues to be very positive and AMS remains confident that the device is a good solution to the high unmet patient need for an effective GI sealant.

Traditional Closure

RESORBA® branded Absorbable and Non-Absorbable Suture ranges are used in general surgery and a wide range of surgical specialties including dental and ophthalmic surgery. Revenue increased by 17% to £7.3 million and by 18% at constant currency (2020 H1: £6.2 million).

To enhance our competitive edge in the tendering process, AMS continues to develop line extensions to complement our range of specialist products. We have recently expanded our suture portfolio by adding ranges with self-anchoring barbed needles and also with special needles optimised for cardio-vascular surgery. Both products were soft launched in June 2021.

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Biosurgical Devices

The Biosurgical Devices category comprises antibiotic- loaded collagen sponges, collagen membranes and cones, oxidised cellulose, synthetic bone substitutes and bio-absorbable screws. Revenues increased by 25% to £6.7 million (2020 H1: £5.4 million) and by 24% at constant currency.

Included within Biosurgical Devices are revenues for Biomatlante, which increased by 20% to £2.0 million in the period incorporating sales of the new RESORBA® branded bone substitutes range in Germany, the Czech Republic and elsewhere.

Antibiotic-loaded collagens, used to locally deliver antibiotics and significantly reduce the catastrophic risks that can be caused by severe localised infections, are a key part of our biosurgical portfolio. Gentamycin loaded collagen is sold under CE mark in Europe and Vancomycin loaded collagen is sold at low volumes via prescription in Germany. AMS has extended the CE mark for Gentamycin under the Medical Devices Directive (MDD) and is progressing with the work required for Medical Device Regulation (MDR) approval and is also exploring avenues for potential US certification which would require Premarket Approval. In addition, the Group

is progressing with MDR submission work to obtain a CE mark for Vancomycin that would enable broader promotion and sales.

Furthermore, the Group is exploring the new FDA Breakthrough Device designation as a mechanism for obtaining US approval for the Group's antibiotic-loaded collagen pacemaker pouch, also currently sold at very low levels via prescription in Germany.

AMS is also working towards its first collagen approval in the US with a 510(k) submission expected in 2022 for a dental application which supports haemostasis and healing following tooth extraction.

The Group's newly developed freeze-dried bone substitute (FDBS), which can be mixed with fluids and moulded for optimal placement in orthopaedic and spine surgery, is expected to open up longer-term opportunities for the Group relating to the addition of active ingredients such as platelets, stem cells or synthetic peptides. US approval with limited indications is expected in 2022 with additional claims in the US and European approval under MDR expected to follow in the coming years.

Woundcare Business Unit

The Woundcare Business Unit is comprised of the Group's multi-product portfolio of advanced woundcare dressings sold under its partners' brands and the ActivHeal® label, plus a portfolio of specialist medical bulk materials including multi-layer woundcare and bio-diagnostics products following the acquisition of Raleigh in late 2020.

The Business Unit delivered growth as global wound treatment volumes gradually recover towards pre-pandemic levels despite some business development activities continuing to be impacted by COVID-19 restrictions. Revenue increased by 11% in the period to £19.8 million (2020 H1: £17.9 million) and by 14% on a constant currency basis.

				Growth at
	2021 H1	2020 H1	Reported	constant
Woundcare Business Unit	£'000	£'000	Growth	currency
Infection Management	6,724	7,281	(8%)	(5%)
Exudate Management	10,011	7,205	39%	41%
Other Woundcare	3,091	3,368	(8%)	(3%)
TOTAL	19,826	17,854	11%	14%

Infection Management

The Infection Management category comprises advanced woundcare dressings that incorporate antimicrobials such as Silver and Polyhexamethylene Biguanide (PHMB). Revenue reduced by 8% on a reported basis and by 5% on a constant currency basis to £6.7 million (2020 H1: £7.3 million).

As previously reported, an exclusive five-year agreement for one of the Group's silver alginates was not initially extended at December 2020 which impacted sales in the period.

AMS is now pleased to report that a new five-year contract has been agreed that provides ongoing supply for this customer's demand. This new agreement also allows AMS to promote the product directly in many markets which has already resulted in the Group securing new business. In the short-term, the Group expects to record lower revenues in comparison to the annual minimum of the previous contract. In the medium-term, the Group expects the combined value from direct sales and sales to the partner to return

to historical levels.

AMS obtained enhanced 510(k) approval for our Silver High Performance Dressing, incorporating an antimicrobial indication which is important for commercial success. This patent-protected technology provides the potential for deeper penetration into the US antimicrobial gelling fibre market and the Group is in discussions with interested strategic partners.

Existing partners' sales of Moisture Wicking Fabric, used to manage skin fold issues, have temporarily been restricted by COVID-19. However, a number of new partners have indicated interest in the product which will also be marketed on a 'direct to patient' basis in the US on Amazon.com from around the end of 2021.

AMS continues to invest in its R&D pipeline which includes an antimicrobial high gelling product with anti-biofilm activity, which is expected to launch in the US in 2022.

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