2007-03-20 12:32:00 CET
2008-01-17 12:34:27 CET
REGULATED INFORMATION
Inion Oyj - Half Year financial report
Preliminary Results for the Year ended 31 December 2006
Inion Oy
Preliminary Results for the Year ended 31 December 2006
and Presentation of
Strategic Review
Tampere, Finland and Takeley, UK. 20 March 2007…Inion (LSE: IIN.L) (“Inion” or
the “Company”), a company focused on the development of novel biodegradable
medical implants, today announces its preliminary results for the year ended 31
December 2006.
The Company will be presenting its full year results and the conclusions of its
Strategic Review at a meeting for analysts to be held at 09.30hrs on 20 March
2007 at the offices of Piper Jaffray Ltd, One South Place, London EC2M 2RB.
Please contact Mark Swallow, Helena Galilee or Amber Bielecka at Citigate Dewe
Rogerson on 020 7638 9571 for further information.
Financial summary
Sales decreased 25% to €5.7 million (2005: €7.6 million) driven mainly by lower
sales in South America and to certain key distributors in the US
Sales of Inion S-1™ Biodegradable Anterior Cervical Fusion system, which was
launched in the Spinal market towards the end of 2005, more than doubled to €1.1
million (2005: €0.5 million)
R&D expenditure before one-off items up 17% to €5.6 million (2005: €4.8
million). Increased spending primarily on the continuing development of Inion
OptimaPLUS™ bioactive and biodegradable materials platform
General and administrative costs before one-off items were down 10% to €3.7
million (2005: €4.1 million). Including one-off items of €0.8 million relating
mainly to reorganisation, these costs were €4.5 million
Operating loss before one-off items rose 4% to €10.8 million (2005: €10.4
million). Including one-off items, operating loss increased to €14.1 million
Cash, cash equivalents and short-term investments of €30.4 million at 31
December 2006 (2005: €43.1 million)
Operational summary
Programme of significant restructuring and cost management undertaken as
precursor to full strategic review due to complete by end of March 2007
Clinical programme with Inion OptimaPLUS™ bioactive material to determine proof
of principle continued to progress - results for the accelerated bone growth and
bone quality studies are expected in the second half of 2007
Patent position strengthened for next-generation bioactive products through six
granted US patents
Board and senior management changes
Dr Göran Ando appointed as Non-Executive Director and elected as Chairman
Mr James R. Beery appointed as Non-Executive Director
Mr Chris Lee appointed as Chief Commercial Officer and CEO Designate - proposed
appointment as Director at the AGM and subject to shareholder approval, election
to CEO by the Board
Dr Auvo Kaikkonen to transition to CSO
Mr Julien Cotta appointed as CFO and Director
Resignation of Dr Antti Keränen, Chairman, Mr Göran Carstedt, Non-Executive
Director and Mr Jari Kortesluoma, CFO and Director
Recent events
Current Non-Executive Directors Peter Gibson and Paul Garvey have stated their
intention not to stand for re-appointment to the Board at the AGM
Three new Non-Executive Directors to be proposed at AGM
Peter Allen, David Anderson and Peter Jensen
Dr Göran Ando, Inion's Chairman, commented: “Inion had a very difficult year in
2006. We see growing evidence of increasing demand for biodegradable medical
implants in the orthopaedics markets we target, but we are struggling to grow
our sales. This represents a serious risk to Inion's future and it has been
necessary therefore to instigate a number of significant changes in the
Company's structure, as well as in its strategy for commercialising its
products. The conclusions of the Company's strategic review are presented today
and the board is confident that this new focused commercial strategy will enable
Inion to better leverage its unique technologies and to create the long-term
value that its biomaterials technology has the potential to deliver. The
implementation of the process will begin immediately and we hope to see Inion's
position strengthen as key strategic elements are put in place, which will be
reflected in long-term revenue growth of our focused products in target
markets.”
-Ends-
For further information please contact:
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| Inion Oy | Tel: +44 1279 874 222 |
| Dr Goran Ando, Non-Executive Chairman | |
| Dr Auvo Kaikkonen, Chief Executive | |
| Officer | |
| Chris Lee, Chief Commercial Officer | |
| Julien Cotta, Chief Financial Officer | |
| | |
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| Citigate Dewe Rogerson | Tel: +44 207 638 9571 |
| Mark Swallow / David Dible / Helena | |
| Galilee | |
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About Inion
Inion Oy is a medical devices company focused on the development and successful
commercialisation of innovative biodegradable and bioactive implants in key
target markets. The Company's target segments are Spine and Specialty
Orthopaedics.
Inion's core expertise and technology lies in the design and manufacture of
innovative biodegradable plates, screws, pins and membranes, which are used to
enhance the healing of bone or soft tissue injuries to the skeleton, such as
those caused by trauma or by reconstructive surgery. Inion implants are made
from its proprietary Inion Optima™ family of biomaterials, with properties
tailored for specific surgical applications, in terms of strength, flexibility
and rate of degradation.
Inion is also focused on developing proprietary new bioactive and biodegradable
biomaterials that promote bone healing and accelerate patient rehabilitation.
Inion was incorporated in early 2000 and listed on the Official List of the UK
Listing Authority in December 2004. The Company has an office and an R&D
facility in the UK and head office, R&D and production facilities in Tampere,
Finland.
About the nominated Non-Executive Directors
Mr Peter Allen (51) is a UK Chartered Accountant and is Chief Financial Officer
at Abacus Group plc, a leading European electronic component distributor since
2005. Prior to this he was Deputy Chief Executive Officer and CFO at Celltech
Group plc, which he joined in 1992, until it was acquired by UCB in 2004. Mr
Allen holds non-executive roles at Chroma Therapeutics (Chairman and Chairman of
the Audit Committee) and Prostrakan Group plc (Chairman of the Audit Committee,
LSE: PSK). At Abacus, Mr Allen has overseen two transforming acquisitions
(Deltron Electronics plc and Axess Technology) and is responsible for managing
finance, HR, legal and IT functions as well as operational management of the
manufacturing businesses. During his 12 years at Celltech, Mr Allen's principal
responsibilities were the management of finance, investor relations, business
development, legal, company secretary, IT and administration functions as well
as manufacturing. Previously Mr Allen was Financial Controller at Associated
British Ports and L'Oreal (UK) Ltd.
Mr David W. Anderson (54) is currently President and Chief Executive Officer of
Gentis, Inc. a clinical stage spinal implant company. Mr Anderson has been a
successful serial entrepreneur in the medical device field for 20 years. The
focus of his career has been orthopaedics and he has been a part of the creation
and growth of four orthopaedic organisations; Osteotech (Executive Vice
President), Bionx Implants (CEO), Replication Medical (Founder and Director) and
Gentis (CEO). In addition to his orthopaedic experience, Mr Anderson also served
as CEO of Kensey Nash (Cardiology) and Sterilox Technologies (Disinfection).
Over his 20 years as a hands-on manager in start-up operations, he has raised
over $150 million in venture capital, taken a company through IPO onto Nasdaq
and has been involved with multiple M&A transactions. Mr Anderson began his
medical technology career with Schering Plough in operations and general
management. He currently serves as a Non-Executive Director for PhotoMedex
(PHMD: NASDAQ), Vision Sciences (VSCI: NASDAQ) and Orteq Ltd. Mr Anderson
received a BS in Chemical Engineering from Cornell University and is a US
citizen.
Mr Peter Jensen (56) has extensive corporate management experience, gained
primarily during his 21 years at GlaxoSmithKline/SmithKline Beecham, where most
recently he was President Worldwide Supply Operations (1998-2000). Prior to that
Mr Jensen held a number of other senior roles including Chairman Consumer
Healthcare Europe (1992-1998) and Managing Director Health & Personal Care UK
(1986-1992). He has a strong track record identifying strategy, developing
businesses and leading teams internationally. Mr Jensen has experience in a
number of boards across a range of different markets and sectors and currently
holds non-executive directorships at Genetix Group plc (Chairman Audit
Committee, LSE: GTX), Newmarket Racecourses Limited and Domino Printing Sciences
plc (Chairman Remuneration Committee, LSE: DNO). Mr Jensen's previous
non-executive directorships are Excapsa Software plc, Glenmorangie plc and the
European Business Forum Limited. Before he joined GlaxoSmithKline, Mr Jensen
spent seven years as Marketing Controller for Sterling Health Products UK and
before this as Brand Manager for Johnson and Johnson. Born in the UK, Mr Jensen
is a Fellow of the Marketing Society of Great Britain.
This announcement includes "forward-looking statements" which include all
statements other than statements of historical facts, including, without
limitation, those regarding the Group's financial position, business strategy,
plans and objectives of management for future operations (including development
plans and objectives relating to the Group's products), and any statements
preceded by, followed by or that include forward-looking terminology such as the
words "targets", "believes", "estimates", "expects", "aims", "intends", "will",
"can", "may", "anticipates", "would", "should", "could" or similar expressions
or the negative thereof. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors beyond the Group's
control that could cause the actual results, performance or achievements of the
Group to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Such
forward-looking statements are based on numerous assumptions regarding the
Group's present and future business strategies and the environment in which the
Group will operate in the future. Among the important factors that could cause
the Group's actual results, performance or achievements to differ materially
from those in forward-looking statements include those relating to Inion's
funding requirements, regulatory approvals, reliance on third parties,
intellectual property, key personnel and other factors. These forward-looking
statements speak only as at the date of this announcement. The Group expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statements contained in this announcement to reflect any
change in the Group's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statements are based. As a result
of these factors, prospective investors are cautioned not to rely on any
forward-looking statement.
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
Chairman's statement
Inion had a very difficult year in 2006. Operationally, the Company has
struggled to manage its large and diverse portfolio of products and its broad
network of distributors. This has had a significant negative impact on sales
revenues, which are down 25% on 2005 revenues, and a consequent reduction in the
share price to well below its listing price in 2004.
The Company has recognised that the commercial strategy it has employed since
its founding will not provide the growth and profitability that the Company and
its shareholders expect.
This is particularly disappointing as the biodegradable implant segments of the
markets Inion currently targets are growing at a rate considerably faster than
that of the sector as a whole. This represents a great opportunity for Inion,
and one we risk failing to capitalise on without making radical changes.
Strategic review
During the course of 2006, therefore, Inion has undertaken a programme of
significant restructuring and cost management as a precursor to a full strategic
review. The aims of the review are to analyse every aspect of Inion's current
business and to provide a focused operational strategy that will enable it to
achieve the long-term value that its biomaterials technology has the potential
to deliver. Details of the review are discussed below.
Building the right team for the future
The first action Inion has taken has been the restructuring of the Company's
Board and senior management to bring in additional valuable skills and sector
experience.
At an extraordinary general meeting (EGM) held in August, Jim Beery and I were
elected to the Board as Non-Executive Directors replacing Göran Carstedt and
Antti Keränen (Chairman), respectively. In addition, the senior management has
been strengthened and more commercially focused.
Chris Lee joined as Chief Commercial Officer and CEO Designate in January. It is
proposed that he is appointed as a Director at the AGM in May and, if approved
by shareholders, will be elected CEO by the Board. Chris has more than 20 years'
commercial experience in the medical devices sector most recently holding senior
roles at Johnson & Johnson's devices subsidiaries. We are very pleased to have
attracted someone of Chris' calibre to the Company and are confident that he
will make a major contribution to the strategic review and its successful
implementation.
Dr Auvo Kaikkonen, CEO, will transition to Chief Scientific Officer on Chris
Lee's election as CEO. Auvo's great strength is his ability to develop and drive
new Inion products and technology to market. In particular, he will play a key
role in the development of Inion's next-generation bioactive and biodegradable
platforms. This new platform will enable the Company to develop medical implants
that accelerate the healing process, thereby providing a significant technology
advantage and long-term value driver for the Company.
Julien Cotta joined the Company at the end of May as CFO following the departure
of Jari Kortesluoma. Julien qualified as a Chartered Accountant with Coopers &
Lybrand (now PricewaterhouseCoopers) and brings 14 years' financial experience
from companies within the pharmaceutical and life sciences sector. He will be
instrumental in establishing best financial practice and effective financial
management processes for the Company.
These changes have already made a major impact to the business and will be
crucial in beginning the implementation on the new strategy. Looking forward, it
is a priority that we continue to strengthen our commercial team in relevant
areas during 2007 to ensure we have the best chance possible of executing this
strategy successfully.
In terms of the Board, we have identified three highly experienced candidates,
who, it is considered, would provide valuable guidance to Inion towards
achieving its commercial objectives. Peter Allen, David Anderson and Peter
Jensen, will be proposed for appointment as Non-Executive Directors at the
Company's AGM in May.
Peter Allen is CFO at Abacus Group plc, a leading European electronic component
distributor. Prior to this, he was Deputy CEO and CFO at Celltech Group plc,
where he worked from 1992 until it was acquired by UCB in 2004. David Anderson
is currently President and CEO of Gentis, Inc., a clinical stage spinal implant
company. David Anderson has more than 20 years' experience in the medical
devices field, mostly focused on orthopaedics, where he has been a part of the
creation and growth of four orthopaedic organisations; Osteotech (Executive Vice
President), Bionx Implants (CEO), Replication Medical (Founder and Director) and
Gentis (CEO). Peter Jensen has extensive corporate management experience, gained
primarily during his 21 years at GlaxoSmithKline/SmithKline Beecham, where most
recently he was President Worldwide Supply Operations.
I am very pleased we have been able to attract people of such high calibre to
Inion and look forward to their contribution and support as the business
implements its new and focused commercial strategy.
Importantly, we have also begun a plan of restructuring across the rest of the
organisation, which has involved both appointments and redundancies, and is
designed to provide a better balance of research and product development,
quality control, regulatory and sales and marketing capabilities. In December,
we announced that we had entered into cooperation talks with the trade unions.
There will be a significant reduction in headcount, which will be implemented
during the course of the year now that these talks have been completed.
Finally, I would like to thank Paul Garvey and Peter Gibson, who have stated
their intention not to stand for re-appointment to the Board at the Company's
AGM in May. Paul and Peter have contributed a great deal to the Company over
their time on the Board, and particularly during the past few months in support
of the strategic review process. We wish them both well for the future.
New product development
In addition to these changes, Inion made some encouraging progress during the
year. Following the launch of our first biodegradable implant for spinal
fixation, the Inion S-1™, sales have more than doubled to €1.1 million. We are
particularly excited about the prospects of this new system as it targets a
large and growing market where biodegradable implants are particularly well
suited as they can reduce the necessity and hence risks of repeat surgery in
this part of the body. The Inion S-1™ System is the first of a range of spinal
systems we plan to introduce over the next few years.
Inion has also introduced important new products for orthopaedic applications:
the Inion Anchron™ Plus suture anchor gained 510(k) regulatory clearance for
marketing in the USA in December and the equivalent European clearance in
January. This biodegradable system is used for attaching torn tendons or
ligaments to bone as a result of injuries to the shoulder or other joints.
More recently, the Inion FreedomPlate™ received 510(k) clearance for marketing
in the USA. This biodegradable implant system can be used to fix fractures or
osteotomies involving a wide range of bones across the entire skeleton, except
the spine.
Research & development
Inion still has a strong focus on R&D and investment in this area during 2006
increased 17% to €5.6 million. This increased investment was based mainly on the
continued development of next-generation biodegradable and bioactive materials
that accelerate healing. During the year, Inion has continued to advance its R&D
programmes with its Inion OptimaPLUS™ material and has generated substantial
preclinical evidence demonstrating a doubling in the rates of bone growth
compared to implants with no bioactivity.
At its R&D centre in Cambridge, UK, the Company is also investigating other
small molecule compounds that exhibit bone and tissue growth potential for
incorporation into the Inion Optima™ biomaterials for future development as
medical implants and devices. The Company has further extended its intellectual
property position in this area with the grant of a number of important US
patents.
Inion believes that next-generation bioactive and biodegradable medical
materials will be used increasingly for the manufacture of innovative medical
implants for a broad range of clinical applications. As such this area remains
an important focus for Inion and represents a significant value driver for the
business.
Outlook
It is the Board's strong belief that Inion's innovative biomaterials
technologies - those in use now and its next-generation bioactive materials in
development - combined with its ability to rapidly develop and launch new
biodegradable medical implants, represent real and valuable assets.
The actions taken during 2006 have strengthened the Company's long-term ability
to deliver the potential value generated by these assets to shareholders.
The strategic review is anticipated to provide additional commercial focus and
enhance Inion's ability to capture an increasing share of its target markets.
I would like to thank Inion's employees in Finland and the UK for their
continued hard work and our shareholders for their patience and support during
this difficult period. The completion of the strategic review marks the start of
a new chapter in Inion's development and I hope that it will also begin a more
positive period for the Company, which will be reflected in long-term revenue
growth of our focused products in target markets.
Dr Göran Ando
Non-Executive Chairman
19 March 2007
Results of the strategic review
Inion's core objective is to be a medical devices company focused on the
development and successful commercialisation of innovative biodegradable and
bioactive medical implants in key target markets.
Inion believes strongly in the potential of its core biodegradable technologies
to develop successful clinically driven products that offer significant clinical
benefits to patients. The Company also believes that as the market acceptance
and use of such implants increases, they will gradually replace traditional
materials (metals) where appropriate, and that this represents a major
commercial opportunity, which will be missed unless the Company undertakes major
organisational and strategic changes.
During the course of 2006, therefore, Inion has undertaken a programme of
significant restructuring and cost management as a precursor to a full strategic
review. The strategic review has enabled the Company to redefine its commercial
strategy as a key step towards achieving its core objective.
The key points are as follows:
Market segmentation strategy
Inion will refocus its product offering from five to two key areas: Spine and
Specialty Orthopaedics (targeting foot and ankle, and injuries to the upper
extremity, i.e. hand, wrist and elbow).
The strategic review identified these segments as attractive as they are
high-value, have an increasing acceptance of innovation and therefore have a
high growth potential for biodegradable implants. Furthermore, there are clear
and established channels to customers, which Inion intends to exploit as it
strategically grows its product portfolio targeting these areas. Overall the
Company believes Spine and Specialty Orthopaedics segments fit well with Inion's
core technologies and present multiple new product opportunities that will
enable Inion to capture a greater share of these important market segments.
Inion will seek to dispose of non-core businesses (Cranio-maxillofacial and
Dental) over the next 12-15 months.
Distribution strategy
Inion has no doubt of the potential and demand for its technology and products -
surveys continue to show that, if offered the choice, patients prefer
biodegradable implants over traditional metal implants if available, and where
the correct distribution channel is in place, Inion products sell very well.
Distribution is clearly crucial to the successful implementation of Inion's
commercial strategy.
The distribution strategy needs to be better targeted - currently Inion has 57
active distributors in 38 countries selling its five product ranges - too many
for a company of Inion's size to effectively manage. During 2007, therefore,
Inion will assess its global distributor network and focus it on key segments
and in key markets, exiting markets and/or distributor partnerships where
necessary.
Inion's priority market going forward will be the USA where it will build a
network of specialist independent local distributors and/or small orthopaedic
companies with their own specialty sales forces to reach customers.
A key objective in 2007 is to recruit key senior people to drive this commercial
operation in the US, including a General Manager to head the group supported by
four regional sales managers.
For select markets in Europe and the Rest of the World, Inion aims to develop
its distribution network with established orthopaedic-focused distributors with
excellent local relationships.
Commercial operations outside the US will be run by a new Chief Commercial
Officer, who will be recruited in 2007, to replace Chris Lee, who will be
proposed for appointment as a Director at the AGM in May and, if approved by
shareholders, will be elected CEO by the Board.
Research & development
Inion will maintain a strong focus on R&D, which will be realigned with its
commercial objectives.
New Product Development
Short-term value will be created by new product development in its target
segments of Spine and Specialty Orthopaedics. The company expects to launch four
new products in these areas during 2007. These will be products designed to
enhance the Spinal implant range, including the Inion S-1™ two-layer fusion
system and a biodegradable lumbar fusion system.
Further product development will be determined through consultation with key
opinion leaders in their respective fields and rigorous market analysis to
validate the commercial opportunity.
Inion OptimaPLUS™
Inion OptimaPLUS™ is the key medium-to-long term value driver for the Company,
and its continued development will become a priority to the extent that research
on all other bioactive programmes will cease until 2008.
Bioactive biomaterials offer a significant clinical benefit in their ability to
accelerate bone healing. The successful development of Inion OptimaPLUS™ will
provide Inion with a clearly differentiated product from existing competitor
products and an opportunity to increase market share.
Important proof-of-principle clinical trials are due to complete in 2007 and
designed to demonstrate accelerated bone growth. Pending positive outcomes in
this trial, label claim studies are planned to begin in 2008 after which the
Company will look to gradually incorporate Inion OptimaPLUS™ across its entire
product line.
Building the organisation
The Company has already undergone significant changes to its Board, senior
management and across the organisation with the intention of building a company
with necessary skills and experience to successfully drive its new commercial
strategy.
Further key appointments are intended to strengthen the organisation's
commercial capabilities and the Company is already in the process of recruiting
a General Manager USA and Chief Commercial Officer. These roles are expected to
be filled by mid-2007, which will be followed by the realignment of their
respective commercial teams.
Inion has a strong belief in the potential of its core biodegradable
technologies to develop successful clinically driven products in high value
markets and segments, which will ultimately deliver value for its shareholders.
Financial review
Sales during 2006 fell significantly short of expectation, however, via
pro-active management the total cash outflow in 2006 has been contained to a
similar level to 2005.
The presentation of the income statement and areas of judgment on the balance
sheet have also been the subject of review and analysis. The face of the income
statement has been modified with the inclusion of gross profit. The nature of
this change is discussed in more detail under the heading “gross profit”. In
addition, grant income has been shown gross in 2006. In 2005, this was netted
off against research and development costs. Prior year figures have been
adjusted to reflect this change. None of these changes affects the loss for the
year reported in 2005.
The balance sheet was reviewed at the end of 2006 following which one-off costs
of €7.0 million were announced in January 2007. Included in this figure were
several areas of judgment on which the Board has taken a conservative view and
which are discussed below. The income statement below identifies the underlying
results before the one-off items of €7.8 million to aid comparison with the
prior year. The figures in the right hand column are those which appear in the
income statement. Of the €7.8 million, €0.8 million arose as a result of
reorganisation costs in the first half of the year.
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| | Before | One-off items | Income |
| | one-off items | €'000 | statement |
| | €'000 | | €'000 |
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| Revenue | 5,714 | - | 5,714 |
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| Cost of sales | (4,104) | (671) | (4,775) |
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| Gross profit | 1,610 | (671) | 939 |
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| Other operating income | 707 | - | 707 |
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| Research & development | (5,596) | (139) | (5,735) |
| costs | | | |
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| Sales & marketing | (3,797) | (1,710) | (5,507) |
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| Administrative expenses | (3,713) | (833) | (4,546) |
--------------------------------------------------------------------------------
| Operating loss | (10,789) | (3,353) | (14,142) |
--------------------------------------------------------------------------------
| Finance income & expense | 44 | (380) | (336) |
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| Loss before income tax | (10,745) | (3,733) | (14,478) |
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| Income tax | (73) | (4,047) | (4,120) |
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| Loss for the year | (10,818) | (7,780) | (18,598) |
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Revenue
Inion's revenue decreased by 25% to €5.7 million (2005: €7.6 million) in 2006.
Revenue from each of the product segments was as follows: Spine €1.1 million
(2005: €0.5 million), CPS €2.1 million (2005: €3.1 million), OTPS €1.3 million
(2005: €2.5 million), Sports medicine €0.7 million (2005: €1.1 million) and
Dental €0.5 million (2005: €0.4 million).
The decrease of €1.9 million was driven mainly by lower sales in 2006 especially
in South America and to certain key distributors particularly in the US. This
was offset by a more than doubling of sales of the S-1™ Biodegradable Anterior
Cervical Fusion System, which was launched in the Spinal market towards the end
of 2005.
Gross profit
The reporting of gross profit in the income statement has been modified. In
previous years, costs for quality assurance and quality control were included
within administrative expenses. These costs have been re-allocated to research
and development costs and to cost of sales as appropriate to reflect the true
costs of these functions. Prior year figures have been re-stated to reflect this
accounting change.
The gross profit before one-off items was €1.6 million (2005: €2.3 million).
Gross margin was 28% (2005: 30%). After one-off items, gross profit was €0.9
million (2005: €2.3 million) with a gross margin of 16% (2005: 30%). One-off
items included provisions for obsolete stock and reorganisation costs.
The low gross margins, by industry standards, reflect high production capacity,
built mainly in 2005, in anticipation of significantly higher sales volumes.
More than 50% of the staff lost through the reorganisation announced in early
2007 worked in production.
Operating loss
In 2006, the operating loss before one-off items rose 4% to €10.8 million (2005:
€10.4 million). Including one-off items of €3.3 million, operating loss
increased to €14.1 million.
The main reason for this increase was the lower gross profit combined with
increased investment in R&D as a result of the development of the Inion
OptimaPLUS™ biodegradable material. This was offset by a lower underlying spend
in sales and marketing and administrative costs.
Before one-off items, investment in R&D increased by 17% to €5.6 million (2005:
€4.8 million). One-off items of €0.1 million in 2006 related to redundancy
costs. This increase is mainly due to the opening of the Cambridge site in the
last quarter of 2005 where the development of the third-generation Inion
OptimaPLUS™ biodegradable and bioactive range of biomaterials is taking place.
Sales and marketing costs before one-off items were down to €3.8 million (2005:
€4.0 million). Including one-off items, costs were €5.5 million. The one-off
items of €1.7 million related mainly to provisions for doubtful debts and
reorganisation costs.
Administrative expenses before one-off items were €3.7 million (2005: €4.1
million). Costs including one-off items were €4.5 million (2005: €4.1 million).
One-off costs of €0.8 million related mainly to reorganisation.
Other operating income for the year was €0.7 million (2005: €0.2 million). This
represents grant income which subsidises R&D expenditure on the OptimaPLUS™
biodegradable and bioactive range of biomaterials. The grant was awarded by
Tekes (Finnish National Technology Agency) for the reimbursement of €1.9 million
of a total €3.8 million of qualifying expenditure.
Finance income and expense
Net finance expense for the year was €0.3 million (2005: net finance income €0.7
million). This has arisen as a result of lower interest income on the Group's
lower average cash balances, unrealised foreign exchange losses arising from a
weakening dollar and the write off of a foreign exchange item relating to
previous years.
Income tax expense
The income tax expense of €4.1 million relates mainly to the write off of all
deferred tax arising on utilisation of brought forward losses. This write off
reflects the prudent position of the Board.
Loss per share
The loss per share for the year ended 31 December 2006 is €0.25 per share up
from €0.14 per share for the same period in 2005.
Dividend
The Board does not recommend the payment of a dividend for the year.
Balance sheet and cash flow
Cash, cash equivalents and short-term investments at the end of the year were
€30.4 million (2005: €43.1 million). The total debt, including finance leases,
on the balance sheet at the end of 2006 is €11.8 million. This is made up of
capital loans €2.3 million, bank borrowings €6.4 million and finance lease
liabilities €3.1 million. Since the year end, the non-amortising loan of US$6.0
million was repaid in February 2007, thus reducing bank borrowings by €4.7
million.
Total cash spent in the year was €13.3 million (2005: €13.6 million). This
decrease is mainly due to tight controls over expenditure and significantly
lower capital investment. Purchase of property plant and equipment in the year
was €0.1 million (2005: €1.2 million). The much higher capital investment in
2005 was in production facilities in anticipation of higher sales volumes.
Subsequent events
There have been no reportable events subsequent to the balance sheet date.
Julien Cotta
Chief Financial Officer
19 March 2007
--------------------------------------------------------------------------------
| Consolidated income statement | Notes | 2006 | 2005 |
| Year ended 31 December 2006 | | €'000 | Re-stated1 |
| | | | €'000 |
--------------------------------------------------------------------------------
| Revenue | 3 | 5,714 | 7,553 |
--------------------------------------------------------------------------------
| Cost of sales | | (4,775) | (5,261) |
--------------------------------------------------------------------------------
| Gross profit | | 939 | 2,292 |
--------------------------------------------------------------------------------
| Other operating income | | 707 | 186 |
--------------------------------------------------------------------------------
| Research & development costs | | (5,735) | (4,781) |
--------------------------------------------------------------------------------
| Sales & marketing | | (5,507) | (4,008) |
--------------------------------------------------------------------------------
| Administrative expenses | | (4,546) | (4,079) |
--------------------------------------------------------------------------------
| Operating loss | | (14,142) | (10,390) |
--------------------------------------------------------------------------------
| Finance (expense)/income | | (336) | 661 |
--------------------------------------------------------------------------------
| Loss before income tax | | (14,478) | (9,729) |
--------------------------------------------------------------------------------
| Income tax | 4 | (4,120) | (210) |
--------------------------------------------------------------------------------
| Loss for the year | | (18,598) | (9,939) |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Loss per share (€ per share) | | | |
--------------------------------------------------------------------------------
| Basic and diluted | 5 | (0.25) | (0.14) |
--------------------------------------------------------------------------------
1See note 2
--------------------------------------------------------------------------------
| Statement of recognised income and | Notes | 2006 | 2005 |
| expense | | €'000 | €'000 |
| for the year ended 31 December 2006 | | | |
--------------------------------------------------------------------------------
| Loss for the year | | (18,598) | (9,939) |
--------------------------------------------------------------------------------
| Net exchange adjustment | | 567 | (621) |
--------------------------------------------------------------------------------
| Financial expenses | | - | (92) |
--------------------------------------------------------------------------------
| Deferred tax on financial expenses | | - | 14 |
--------------------------------------------------------------------------------
| Deferred tax written off to share | | (1,085) | - |
| premium | | | |
--------------------------------------------------------------------------------
| Net loss not recognised in income | | (518) | (699) |
| statement | | | |
--------------------------------------------------------------------------------
| Total recognised expense for the | | (19,116) | (10,638) |
| year | | | |
--------------------------------------------------------------------------------
The notes on pages 16 to 18 form an integral part of the preliminary
announcement.
--------------------------------------------------------------------------------
| Consolidated balance sheet | Notes | 2006 | 2005 |
| As at 31 December 2006 | | €'000 | €'000 |
--------------------------------------------------------------------------------
| Assets | | | |
--------------------------------------------------------------------------------
| Intangible assets | | 1,046 | 917 |
--------------------------------------------------------------------------------
| Property, plant & equipment | | 5,359 | 5,977 |
--------------------------------------------------------------------------------
| Deferred tax assets | | 279 | 5,477 |
--------------------------------------------------------------------------------
| Total non-current assets | | 6,684 | 12,371 |
--------------------------------------------------------------------------------
| Current assets | | | |
--------------------------------------------------------------------------------
| Inventories | | 2,410 | 2,521 |
--------------------------------------------------------------------------------
| Trade receivables | | 1,780 | 4,132 |
--------------------------------------------------------------------------------
| Other receivables & prepaid | | 1,903 | 1,315 |
| expenses | | | |
--------------------------------------------------------------------------------
| Other financial assets at fair | | 26,308 | 37,131 |
| value | | | |
--------------------------------------------------------------------------------
| Cash & cash equivalents | | 4,118 | 5,961 |
--------------------------------------------------------------------------------
| Total current assets | | 36,519 | 51,060 |
--------------------------------------------------------------------------------
| Total assets | | 43,203 | 63,431 |
--------------------------------------------------------------------------------
| Equity | | | |
--------------------------------------------------------------------------------
| Share capital | 6 | 2,239 | 2,200 |
--------------------------------------------------------------------------------
| Share issue | 6 | 5 | 8 |
--------------------------------------------------------------------------------
| Share premium | 6 | 80,598 | 81,683 |
--------------------------------------------------------------------------------
| Fair value gain and other reserves | 6 | 2,313 | 2,114 |
--------------------------------------------------------------------------------
| Translation differences | 6 | 829 | 262 |
--------------------------------------------------------------------------------
| Retained earnings | 6 | (58,324) | (39,726) |
--------------------------------------------------------------------------------
| Total equity | 6 | 27,660 | 46,541 |
--------------------------------------------------------------------------------
| Non-current liabilities | | | |
--------------------------------------------------------------------------------
| Capital loans | | 2,342 | 2,291 |
--------------------------------------------------------------------------------
| Borrowings | | 700 | 6,538 |
--------------------------------------------------------------------------------
| Finance lease liabilities | | 2,432 | 2,981 |
--------------------------------------------------------------------------------
| Other long term liabilities | | 356 | 287 |
--------------------------------------------------------------------------------
| Total non-current liabilities | | 5,830 | 12,097 |
--------------------------------------------------------------------------------
| Current liabilities | | | |
--------------------------------------------------------------------------------
| Trade payables | | 1,576 | 1,569 |
--------------------------------------------------------------------------------
| Borrowings | | 5,653 | 1,183 |
--------------------------------------------------------------------------------
| Finance lease liabilities | | 688 | 612 |
--------------------------------------------------------------------------------
| Other short term liabilities | | 1,663 | 1,429 |
--------------------------------------------------------------------------------
| Provisions | | 133 | - |
--------------------------------------------------------------------------------
| Total current liabilities | | 9,713 | 4,793 |
--------------------------------------------------------------------------------
| Total liabilities | | 15,543 | 16,890 |
--------------------------------------------------------------------------------
| Total shareholders' equity and | | 43,203 | 63,431 |
| liabilities | | | |
--------------------------------------------------------------------------------
The notes on pages 16 to 18 form an integral part of the preliminary
announcement.
The financial statements were approved by the Board on 19 March 2007 and signed
on its behalf by:
Göran Ando Julien Cotta
Chairman CFO
--------------------------------------------------------------------------------
| Consolidated cash flow statement | Notes | 2006 | 2005 |
| Year ended 31 December 2006 | | €'000 | €'000 |
--------------------------------------------------------------------------------
| Cash flows from operating activities | | | |
--------------------------------------------------------------------------------
| Cash used in operations | 7 | (11,318) | (11,186) |
--------------------------------------------------------------------------------
| Interest received | | 377 | 484 |
--------------------------------------------------------------------------------
| Interest paid | | (365) | (258) |
--------------------------------------------------------------------------------
| Net cash flow used in operating | | (11,306) | (10,960) |
| activities | | | |
--------------------------------------------------------------------------------
| Cash flows from investing activities | | | |
--------------------------------------------------------------------------------
| Purchase of property, plant & equipment | | (112) | (1,215) |
--------------------------------------------------------------------------------
| Purchase of intangible fixed assets | | (257) | (203) |
--------------------------------------------------------------------------------
| Purchase of other financial assets at | | - | (54,392) |
| fair value though profit or loss | | | |
--------------------------------------------------------------------------------
| Disposal of other financial assets at | | 11,510 | 18,510 |
| fair value though profit or loss | | | |
--------------------------------------------------------------------------------
| Net cash flow from investing activities | | 11,141 | (37,300) |
--------------------------------------------------------------------------------
| Cash flows from financing activities | | | |
--------------------------------------------------------------------------------
| Proceeds from issue of ordinary shares | | 36 | 18 |
--------------------------------------------------------------------------------
| Costs directly attributable to the issue | | - | (91) |
| of new shares | | | |
--------------------------------------------------------------------------------
| Proceeds from capital loans | | 51 | 18 |
--------------------------------------------------------------------------------
| Proceeds from borrowings | | - | 4,568 |
--------------------------------------------------------------------------------
| Repayment of borrowings | | (837) | (311) |
--------------------------------------------------------------------------------
| Finance lease principal payments | | (914) | (876) |
--------------------------------------------------------------------------------
| Net cash flow from financing activities | | (1,664) | 3,326 |
--------------------------------------------------------------------------------
| Decrease in cash and cash equivalents | | (1,829) | (44,934) |
--------------------------------------------------------------------------------
| Cash and cash equivalents at 1 January | | 5,961 | 50,890 |
--------------------------------------------------------------------------------
| Exchange movements | | (14) | 5 |
--------------------------------------------------------------------------------
| Cash and cash equivalents as at 31 | | 4,118 | 5,961 |
| December | | | |
--------------------------------------------------------------------------------
The notes on pages 16 to 18 form an integral part of the preliminary
announcement.
Notes to the accounts
Basis of preparation
The preliminary financial statements have been prepared in accordance with the
accounting policies set out in the Annual Report for the year ended 31 December
2005.
Re-stated prior year figures
The reporting of gross profit in the income statement has been modified. In
previous years, costs for quality assurance and quality control had been
included within administrative expenses. These costs have been re-allocated to
research and development costs and to cost of sales as appropriate, to reflect
the true costs of these functions. In addition, grant income is now shown gross
under the heading “other operating income”. In 2005, this was netted off against
research and development expenditure. Prior year figures have been re-stated to
reflect this accounting change. These changes have no effect on the loss for the
year reported in 2005.
Segmental analysis
Primary reporting format - business segments
The Group is organised into five operating segments. The operating segments are
Spine, CMF (Cranio-maxillofacial), Orthopaedic trauma, Sports, Dental. These
business segments are aggregated into one reportable business segment being the
manufacture and sale of biodegradable implants.
Secondary reporting format - geographical segments
The Group operates in three main geographical areas. The following table
provides geographical information regarding sales to external customers. Sales
are presented by destination:
--------------------------------------------------------------------------------
| Year ended 31 December 2006 | 2006 | 2005 |
| | €'000 | €'000 |
--------------------------------------------------------------------------------
| Europe | 1,914 | 2,188 |
--------------------------------------------------------------------------------
| Americas | 1,963 | 3,729 |
--------------------------------------------------------------------------------
| RoW | 1,837 | 1,636 |
--------------------------------------------------------------------------------
| Total | 5,714 | 7,553 |
--------------------------------------------------------------------------------
Taxation
--------------------------------------------------------------------------------
| Year ended 31 December | 2006 | 2005 |
| | €'000 | €'000 |
--------------------------------------------------------------------------------
| Income tax - current year | 7 | - |
--------------------------------------------------------------------------------
| Deferred tax charge | 4,113 | 210 |
--------------------------------------------------------------------------------
| Total tax charge | 4,120 | 210 |
--------------------------------------------------------------------------------
The deferred tax charge includes €4,047,000 deferred tax arising on losses
brought forward which has been written off to the income statement. This
reflects the prudent position of the Board.
Loss per share
The calculation of basic loss per share is based on the loss attributable to
equity shareholders and the weighted average number of ordinary shares
outstanding during the year. The calculation for diluted loss per share is based
on loss attributable to equity shareholders and the weighted average number of
ordinary shares including share options outstanding during the year.
As inclusion of the options has an anti-dilutive effect on the loss per share
calculation (i.e reduces the loss per share), the basic and diluted loss per
share is the same as the basic loss per share calculation. The calculation is
shown below.
--------------------------------------------------------------------------------
| | 2006 | 2005 |
| | €'000 | €'000 |
--------------------------------------------------------------------------------
| Loss for the year | (18,598) | (9,939) |
--------------------------------------------------------------------------------
| | Number | Number |
--------------------------------------------------------------------------------
| Basic and diluted weighted average number of | 74,090,837 | 73,316,887 |
| shares | | |
--------------------------------------------------------------------------------
| Effect of anti-dilutive outstanding stock | 2,371,077 | 2,337,133 |
| options | | |
--------------------------------------------------------------------------------
| Anti-diluted weighted average number of | 76,461,914 | 75,654,020 |
| shares | | |
--------------------------------------------------------------------------------
Statement of changes in shareholders' equity
--------------------------------------------------------------------------------
| | Share | Share | Share | Other | Translat | Retaine | Total |
| | capit | issue | premi | reserv | ion | d | €'000 |
| | al | €'000 | um | es | differen | earning | |
| | €'000 | | €'000 | €'000 | ces | s | |
| | | | | | €'000 | €'000 | |
--------------------------------------------------------------------------------
| At 1 January | 2,197 | - | 81,75 | 1,202 | 883 | (29,787 | 56,249 |
| 2005 | | | 4 | | | ) | |
--------------------------------------------------------------------------------
| Translation | - | - | - | - | (621) | - | (621) |
| differences | | | | | | | |
--------------------------------------------------------------------------------
| Other net | - | - | (78) | - | - | - | (78) |
| decreases | | | | | | | |
--------------------------------------------------------------------------------
| Loss for the | - | - | | - | - | (9,939) | (9,939 |
| year | | | | | | | ) |
--------------------------------------------------------------------------------
| Employee | - | - | - | 912 | - | - | 912 |
| services - | | | | | | | |
| share option | | | | | | | |
| scheme | | | | | | | |
--------------------------------------------------------------------------------
| Proceeds from | 3 | 8 | 7 | - | - | - | 18 |
| shares issued | | | | | | | |
| - share | | | | | | | |
| option scheme | | | | | | | |
--------------------------------------------------------------------------------
| At 31 | 2,200 | 8 | 81,68 | 2,114 | 262 | (39,726 | 46,541 |
| December 2005 | | | 3 | | | ) | |
--------------------------------------------------------------------------------
| Translation | - | - | - | - | 567 | - | 567 |
| differences | | | | | | | |
--------------------------------------------------------------------------------
| Other net | - | - | (1,08 | - | - | - | (1,085 |
| decreases | | | 5) | | | | ) |
--------------------------------------------------------------------------------
| Loss for the | - | - | - | - | - | (18,598 | (18,59 |
| year | | | | | | ) | 8) |
--------------------------------------------------------------------------------
| Employee | - | - | - | 199 | - | - | 199 |
| services - | | | | | | | |
| share option | | | | | | | |
| scheme | | | | | | | |
--------------------------------------------------------------------------------
| Proceeds from | 39 | (3) | - | - | - | - | 36 |
| shares issued | | | | | | | |
| - share | | | | | | | |
| option scheme | | | | | | | |
--------------------------------------------------------------------------------
| At 31 | 2,239 | 5 | 80,59 | 2,313 | 829 | (58,324 | 27,660 |
| December 2006 | | | 8 | | | ) | |
--------------------------------------------------------------------------------
Reconciliation of loss for the year to cash used in operations
--------------------------------------------------------------------------------
| | 2006 | 2005 |
| | €'000 | €'000 |
--------------------------------------------------------------------------------
| Loss for the year | (18,598) | (9,939) |
--------------------------------------------------------------------------------
| Deferred tax | 4,113 | 210 |
--------------------------------------------------------------------------------
| Depreciation | 1,028 | 879 |
--------------------------------------------------------------------------------
| Share based compensation | 199 | 912 |
--------------------------------------------------------------------------------
| Other adjustments | 846 | 193 |
--------------------------------------------------------------------------------
| Fair value gains on other financial | (687) | (723) |
| instruments | | |
--------------------------------------------------------------------------------
| Fair value loss on derivative financial | 102 | - |
| instruments | | |
--------------------------------------------------------------------------------
| Interest expense/(income) | 55 | (189) |
--------------------------------------------------------------------------------
| Exchange gain | (299) | (308) |
--------------------------------------------------------------------------------
| Decrease in inventory | 111 | 223 |
--------------------------------------------------------------------------------
| Decrease/(increase) in current receivables | 1,533 | (2,987) |
--------------------------------------------------------------------------------
| Increase in non-interest bearing liabilities | 279 | 543 |
--------------------------------------------------------------------------------
| Cash used in operations | (11,318) | (11,186) |
--------------------------------------------------------------------------------
The principal non-cash transactions are related to the acquisition of property,
plant and equipment using finance leases.
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