RUA Life Sciences plc

("RUA Life Sciences", the "Company" or the "Group")

Final results for the year ended 31 March 2023

RUA Life Sciences, the holding company of a group of medical device businesses focused on the exploitation of the world's leading long-term implantable biostable polymer (Elast-Eon^TM), announces its audited final results for the year ended 31 March 2023.

 Highlights:

·      Revenue growth of 34% to £2,179,000 (2022: £1,625,000)

·      Recruitment of high-calibre people with 26% headcount increase

·      Despite continued investment, loss after tax reduced 3% to £2,003,000 (2022:£2,067,000)

·      RUA Biomaterials enjoyed 14% revenue growth to £554,000 (2022: £487,000)

·      RUA Contract Manufacture strong year with 43% revenue growth and 78% growth in operating profit to £794,000 (2022: £447,000)

·      Regulatory pathway for RUA Vascular agreed with FDA and global distribution agreement concluded

·      Structural Heart achieved outstanding results on testing of novel heart valve leaflet material.

·      Year-end cash £1,484,000 (2022: £2,963,000)

Bill Brown, Chairman of RUA Life Sciences, commented: "RUA has a portfolio of four businesses, all of which have made good progress during the period. The mature businesses of Biomaterials and Contract Manufacture are growing revenue and generating attractive net margins and the development business segments of Vascular and Structural Heart have made good regulatory and technological progress respectively on relatively low levels of investment".

For further information contact:

RUA Life Sciences

Bill Brown, Chairman                                                                              Tel: +44 (0)1294 317073  

Caroline Stretton, Group Managing Director                                            Tel: +44 (0)1294 317073

Cenkos Securities plc (Nominated Advisor and Stockbroker)               Tel: +44 (0)20 7397 8900

Max Gould (Corporate Finance)

Giles Balleny (Corporate Finance)

Michael Johnson (Sales)

About RUA Life Sciences

RUA Life Sciences plc is the ultimate parent company of the Group, whose principal activities comprise exploiting the value of its IP & know-how, medical device contract manufacturing and development of cardiovascular devices.

Our vision is to improve the lives of millions of patients by enabling medical devices with Elast-Eon^TM, the world's leading long-term implantable polyurethane.

Whether it is licensing Elast-Eon^TM, manufacturing a device or component, or developing next generation medical devices, a RUA Life Sciences business unit is pursuing our vision.

Elast-Eon™'s biostability is comparable to silicone while exhibiting excellent mechanical, blood contacting and flex-fatigue properties. These polymers can be processed using conventional thermoplastic extrusion and moulding techniques. With over 8 million implants and 15 years of successful clinical use, RUA's polymers are proven in long-term life enabling applications.

The Group's four business units are:

A copy of this announcement will be available shortly at www.rualifesciences.com/investor-relations/regulatory-news-alerts.

CHAIRMAN'S STATEMENT

On behalf of the Board, I am pleased to present the Company's results for the year ended 31 March 2023.

 Trading for Year

Trading during the period was positive with strong revenue growth of 34% year on year resulting in revenue for the year of £2,179k (2022: £1,625k).

We have continued to invest in the growth and development of the business as demonstrated by the 26% increase in the average employee numbers from 38 last year to 48 in the current year. Despite this investment in people during the development stages of the Group, it is pleasing that Group loss before tax reduced marginally from £2,360k to £2,322k. At the post tax level, the reduction in loss was greater as R&D tax credits increased.

Cash was tightly controlled with total cash burn of £1,479k resulting in a halving of cash balances from £2,963k to £1,484k.

Our Portfolio

The RUA Group has a portfolio of four medical device businesses and during the year, we changed the basis of reporting on these businesses as part of a review of segmental reporting and analysis. The four businesses are Biomaterials, Contract Manufacture, Vascular and Structural Heart. The Group Managing Director's Report provides detailed analysis on each of the businesses, but I am pleased to set out below the key valuation metrics and opportunities for the constituent parts.

RUA Biomaterials is the owner of our biostable polymer technology being exploited through a licensing model. Revenues for the year amounted to £554k (2022: £487k) and due to the limited costs associated with the business it enjoys an operating profit margin of 89% (2022: 86%) and contributed £493k (2022: £418k) to the group operating loss. RUA considers the cash flows from the business segment as a "growing perpetuity" which at a discount rate of 12% and growth of rate 5% would value this business segment at around £7 million.

RUA Contract Manufacture was acquired as part of the £2.45 million acquisition of RUA Medical in April 2020. During the year the business grew revenues strongly to £1,625k (2022: £1,138k) and has an operating profit margin of 49% (2022: 39%) contributing £794k (2022: £447k) to the Group operating loss. New and existing customers are actively reviewing projects with RUA that could double the current scale of the business over a two-year period. The purchase of RUA Contract Manufacture represents a multiple of contribution of around 3 times which is proving to be attractive when compared to revenue multiples of 7 times paid in the sector. Given the growth opportunities available to the business and the potential for multiple expansion, the contract manufacturing business has the potential to add significant value.

Subsequent to the financial year end, we announced that the Group had undertaken a reorganisation of its R&D development activities with the hive down of the vascular graft business to RUA Vascular Limited (a 100% subsidiary of the Company) and the hive down of the heart valve business to RUA Structural Heart Limited (also a 100% subsidiary).

RUA Vascular is the business unit developing the large bore vascular graft range. This part of the business disappointed by failing to meet the KPI's set for it at the start of the period. The pre-sub process with the FDA has highlighted supplemental pre-clinical testing that is required in addition to the clinical trial itself. As a result, there have been further delays to the commencement of the clinical trial and subsequent applications for regulatory approvals. Despite this set back, a review of the project demonstrates how much has been achieved to date with the development of the polymerically sealed graft range, a regulatory pathway agreed with regulators, significant biocompatibility testing, improvements in manufacturability of the graft and establishment of commercial manufacturing capabilities required to meet initial launch demand, and agreement reached to ensure global distribution. These not inconsiderable achievements have been done on a relatively small budget with investment of around £4.4million. Further investment will be required for RUA Vascular to reach its potential, including the clinical trials agreed with the FDA as part of the pre-sub 510k process, and plans to facilitate this funding are being explored.

As part of the review of the holding values for RUA Vascular, financial forecasts have been prepared. This demonstrates that the pilot plant has the capacity to generate revenues of over £6 million and a net contribution of over 70%. Valuation metrics in the vascular graft sector would appear to be based on revenue multiples. Comparative transactions have been at revenue multiples of 4 and above. Applying these multiples to RUA Vascular based on pilot plant capacity values the business at £25 million representing an EBITDA multiple of 5.4 times. After factoring in the anticipated costs of completing the project, the Internal Rate of Return is a very attractive 43%.

RUA Structural Heart, the business unit developing next generation heart valves and materials is estimated to have had around £3.1million of investment since the business was restarted in financial year 2019. The key objective for the period was to evaluate heart valve leaflet material and compare the performance of 100% polymeric valves with a novel composite developed by the Group. The computational modelling of the composite material at the design stage suggested that its mechanical properties would be ideal for heart valve leaflets and that there should not be a risk of delamination. The team within the Structural Heart business segment has very recently achieved the initial milestones set for the composite material.  We are delighted to report that after 200 million cycles the material shows no signs of delamination and cut edges remain unchanged as a result of flex fatigue testing undertaken in house. From a performance perspective, the composite material is very thin and flexible and little energy is required to open a valve, and once opened does not restrict blood flow with a good EOA (Effective Orifice Area). Comparing the EOA with published data on current biological valves suggests that the EOA of the RUA design is up to two times greater for equivalent valve size. Testing has also demonstrated that the properties of the composite restrict crack propagation.

100% polymeric valves rely in part on the leaflet design to reduce stress and operate within the performance window of the polymer, meaning that the polymer would not work in all designs. The composite material retains the blood contacting properties of Elast-Eon^TM but is significantly stronger. Suture retention testing shows the composite is highly resistant to pull through. Given these properties the RUA composite may be appropriate for valve designs that 100% polymer would not be appropriate for, allowing a like for like swap of RUA composite for the biological tissue used in currently marketed designs. This creates the opportunity for RUA Structural Heart to become a supplier of heart valve leaflets to other companies to incorporate in current designs.

The opportunity to broaden the business model for the Structural Heart business not only increases the potential value of the business unit but reduces the timeframe to be able to realise this value. The Structural Heart business has always had the potential to generate substantial value for the Group but with recent developments has increased the chances of achieving its potential. The major medical device companies have always been prepared to buy in novel technology and we believe we are getting much closer to having a commercialisable offering.

Conclusion

RUA has a portfolio of four businesses, all of which have made substantial progress during the period. The mature businesses are growing revenue and generating attractive operating margins and the development business segments of Vascular and Structural Heart have made good regulatory and technological progress respectively on relatively low levels of investment. The stability of Biomaterials coupled with the long term contractual but growth opportunities of Contract Manufacture more than support the valuation of the Group and still provide attractive upside. The developing businesses of Vascular and Structural Heart both require further investment to achieve their considerable potential and funding options are currently being explored to provide this investment. The progress of Structural Heart over the past year has more than compensated for the delay to the Vascular clinical trial.

William Brown

Chairman

25 July 2023

GROUP MANAGING DIRECTOR'S REPORT 

"This period has seen continuing sales growth from our two highly profitable and cash generative business units, RUA Biomaterials and RUA Contract Manufacture, which underpin current Group valuation. We have continued to de-risk the regulatory process and formalised the route to market for RUA Vascular's large bore graft range, and identified additional positive properties within RUA Structural Heart's polymeric heart valve technology platform."

Caroline Stretton

GROUP MANAGING DIRECTOR

Sales performance has surpassed expectations

Contract manufacturing and polymer licensing business units are performing ahead of expectations. Total revenue of £2,179,000 (2022: £1,625,000) represents an increase of 34% over the same period in the previous year (2022: 6%). The strategic changes that we made to business processes and working practices during the period have transitioned the business from a narrowly focused contract developer and manufacturer to a fully-fledged medical device manufacturing business that is focused on  bringing our pipeline products to market. Key to this is our continuing investment and commitment to Research and Development activities, with R&D spend increasing 19% to £1,072,000 (2022: £903,000).  Loss before tax for the period has decreased marginally to £2,322,000 (2022: £2,360,000) as a result of increased growth from our two cash generative businesses.

RUA Biomaterials

The Group's platform technology is based upon Elast-Eon, and RUA Biomaterials owns all the Elast-Eon IP, and licenses use of Elast-Eon to medical device companies. Elast-Eon has been proven to have all of the characteristics necessary for a long-term implantable biomaterial, and has been the enabling technology behind over 8 million life-sustaining devices over the last 15 years. Elast-Eon polymer licence and royalty income of £554,000 (£2022: £487,000) represents growth of 14% during the period. This increased uptake is due to successfully promoting the Elast-Eon polymer as a world leading material to the medical device industry. RUA Biomaterials is akin to an annuity business, and maintains a high operating profit margin (89%) (2022: 86%), since its only real outlays are IP costs. The Group continues to use the Elast-Eon polymer within its vascular and heart valve product pipelines, with the aim of improving device performance and eliminating the risks of animal-derived material in cardiovascular devices.

RUA Contract Manufacture

Third party contract manufacturing revenue surpassed expectations by increasing 43% to £1,625,000 (2022: £1,138,000). This was due to our continued focus on quality and delivery leading to increased demand from existing customers and the onboarding of  a new global medical technology company and resultant long term manufacturing and supply contract. Significant process efficiencies and effective cost control measures have been realised during the period, resulting in an attractive operating profit margin of 49% (2022: 39%), 100% on-time-in-full (OTIF) service levels were maintained during the entire period, and a recent customer satisfaction survey scored an average of 98%, which reflects the organisation's commitment to quality and service.

All business development activities during the period have focused on long term high value strategic opportunities, and significant headway has been made with plans to increase Original Equipment Manufacturer (OEM) customer demand to create a high growth business. As well as onboarding the new global medical technology customer during the period, an opportunity pipeline with Request For Quote (RFQ) values of c£2m in annualised revenue over the next 2-3 years is in place.

RUA Vascular

RUA Vascular is focused on the $1billion global vascular graft market, where polyester vascular grafts have been available on the market for over 50 years with little innovation. Many of these grafts contain animal-derived sealants. RUA Vascular's Elast-Eon-enabled products for open surgical repair are an innovative solution addressing the many risks associated with animal-derived tissue (supply chain constraints, cross-species contamination, environmental concerns, and ethical/patient choice). With a growing acceptance in the surgical community of an inevitable switch away from animal-sourced products, RUA Vascular has a real opportunity to become a significant player in the open surgical graft market.

During this period, all R&D efforts have been focused on the first launch from the vascular pipeline, a large bore straight graft, which will also be the enabler for the development of more complex products in the vascular graft portfolio. Whilst the regulatory pathway was being addressed, we also took the opportunity to further improve the product and significant progress has been made on product development activities, as well as the necessary precursor activities required for market launch.

Data collection on the large bore graft continues with in-vivo and in-vitro trials, which has provided a level of certainty around graft design, bench performance and biocompatibility. A number of pre-submissions, or Q-subs, have allowed interactive discussions between the Group and FDA to determine the regulatory path to approval in the US, which will increase the certainty of market clearance through the less onerous 510K route.  During these discussions, a Good Laboratory Practice (GLP) in-vivo study design and a clinical trial design was agreed for demonstration of the safety and efficacy of Elast-Eon as a graft sealant, and which aligns with FDA's expectations. The clinical trial is a performance goal study rather than a complex randomised trial, and will involve 121 patients, with a primary end point at 6 months post operation to study graft performance, safety, and clinical efficacy. With the trial being non-blinded, we will have sight of early clinical results well before the end point. Recruitment of the first patient is anticipated in 2024, with regulatory submissions planned to allow entry into the US market upon completion. The data generated in the trial will be utilised to support further marketing applications in multiple geographic regions including Europe.

Significant work has been completed on manufacturing process refinements and efficiencies of the existing pilot production line. Manufacturing methodology has ensured consistent batch to batch sealing of the graft by machines, eliminating the use of toxic chemicals used during the manufacturing process. Initial production capacity plans indicate that this pilot line is capable of meeting the volumes and margins required for the launch of the large bore vascular grafts. The new facility purchased in November 2021 to accommodate a high output cleanroom facility, to support scale up manufacturing of the vascular graft range and associated support functions, will further allow for future growth but will require further investment.

To be a leading player in the vascular graft market, it was felt that a route to market would be much more efficient and cost effective through a distribution model where existing and experienced sales teams would be leveraged. The Group was therefore delighted to sign an agreement in January 2023 with Corcym, a global medical device company focussed on the structural heart area, which provides a clear path to a global market for the range of large bore vascular grafts. Corcym have an excellent sales network in place, currently selling to cardiothoracic surgeons in over 100 countries, and RUA Vascular's grafts are complementary to their existing product portfolio. To allow Corcym the necessary flexibility to maximise market penetration, a novel pricing model was agreed whereby rather than agree specific price points by territory, the partnership ethos of the agreement will see RUA and Corcym share the gross principal margin achieved on global sales on a 50:50 basis. This agreement validates not only the design benefits of RUA's product offering but also the regulatory pathway that has been adopted, and first revenues through the Corcym sales outlet are expected upon clearance to market from the FDA.

In parallel with the Corcym distribution route to market, interest continues to be strong for OEM component supply of the RUA vascular graft to be used as part of another device. These additional opportunities are also being advanced and discussions will continue within the coming year.

RUA Structural Heart

Through incorporation of Elast-Eon polymer technology into a novel leaflet system, the Group believes both valve failure and the need for lifetime anticoagulant treatment (associated with currently marketed aortic heart valves) will be avoided.

Alternative leaflet material is becoming much more important to the industry, and polymeric valves are being talked about as the future.  The heart valve market is dominated by a small number of very large companies, but much of the recent innovation in the sector has been undertaken by start-ups. RUA recognises that a route to market which involves a partnership/license for future regulatory testing, clinical trial and launch to be more realistic than seeking to compete directly. A second route to market, namely OEM component supply of the proprietary composite material to major Heart Valve companies as a replacement for biologic material in their transcatheter aortic valves, has also been identified during the period. This strategy of seeking to "own" the leaflet material of choice may allow faster commercialisation with revenues generated during the customer development phase. 

During the current period, two heart valve programmes were running in parallel - one with a 100% polymer leaflet and the other a textile polymer composite leaflet. Both designs have been developed, tested and de-risked to a stage where the design which ensured the most resilient and appropriate technology, and greatest potential, was prioritised. Our chosen lead design was the textile polymer composite leaflet, which is very thin and flexible, yet demonstrates tear resistance many times greater than a simple polymeric sheet, whilst retaining the blood contacting properties of Elast-Eon.

The valve manufacturing process has been refined, and valves of sufficient quality have been produced that are able to withstand durability testing via an Accelerated Wear Tester (where the valve is subjected to accelerated conditions as if it had been implanted in a heart). Hydro dynamic performance (which replicates conditions within the heart) has also been very promising, with low opening and closing pressure gradients and orifice areas. Fatigue testing capability has now been brought in-house, and a major milestone of c200 million cycles has been achieved without any indication of delamination or change to the structure of the material. Testing of the lead designs (valve and leaflet) will be further advanced and if benefits are demonstrated as anticipated, following on, proof of concept in vivo trials to assess functionality, durability, thrombosis and calcification deposition.

Novel IP on valve design and method of manufacture has also been created.

Quality Management System

The Group extended scope of its ISO 13485:2016 certification in support of its Quality Management System (QMS) to include the entire Group of companies and to meet Medical Device Manufacturer requirements. This is the second year in a row that no non-conformities were noted during the ISO 13485 audit by our Notified Body, which reflects the increasing expertise within the Quality department. Electronic QMS software implementation has begun which will enable the business to operate a modern, efficient and compliant QMS to support future business growth.

Outlook

Continuing sales growth from our two highly profitable and cash generative business units have exceeded expectations, and our two pre-revenue business units continue to de-risk the regulatory process and make good technological progress. A clear route to market has been agreed for RUA Vascular's large bore graft upon market clearance via Corcym, and we are progressing additionality within our polymeric heart valve technology platform. We have worked hard to build the solid foundations required by a fully fledged medical device manufacturing business, and to empower staff within the business with the necessary experience, knowledge and skillsets to help deliver on RUA's ambitious plans. The Group looks forward to continuing to maximise revenues, alongside further product development, in the coming year, and ultimately delivering on our strategy to disrupt the cardiovascular market with innovative products and grow shareholder value.

CAROLINE STRETTON

Group Managing Director

25 July 2023

STRATEGY

The mission of the Group is to enhance patients' lives through the development of pioneering innovative cardiovascular medical devices using Elast-Eon™, the world leading long-term implantable biostable polyurethane This is being undertaken through:

·      International growth via licensing Elast-Eon™ to third parties through RUA Biomaterials;

·      International growth through RUA Contract Manufacture; becoming a centre of excellence for designing, developing and manufacturing Elast-Eon™ based medical devices, whilst continuing to serve and expand its current OEM customer base;

·      Developing and launching a range of Elast-Eon™ sealed vascular grafts through RUA Vascular; and

·      Developing innovative Elast-Eon™ polymeric heart valve and leaflet technology through RUA Structural Heart.

RUA Life Sciences will seek to maximise shareholder value by growing each business to achieve attractive levels of profitability or disposing of business areas if the valuations are attractive.

There was no other comprehensive income for 2023 (2022: £Nil)

Summarised consolidated statement of financial position

 Summarised consolidated cash flow statement

NOTES TO THE EXTRACTS FROM THE CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of preparation

The extracts from the Consolidated financial statements are for the year ended 31 March 2023. The Consolidated financial statements have been prepared in compliance with UK-adopted International Accounting Standards.

The Consolidated financial statements have been prepared under the historical cost convention, with the exception of fair value adjustments made in connection with the acquisition of RUA Medical.

The accounting policies remain unchanged from the previous year.

2. Going concern

The Board has to consider that the Going Concern principle is appropriate for the preparation of these accounts. At 31 March 2023, the Group had cash and cash equivalents of £1.48m (2022: £2.96m) and, as at the date of signing these Financial Statements, the cash balance was £0.9m.

RUA Life Sciences has two cash-generative units (RUA Biomaterials and RUA Contract Manufacture). These cash-generating units provide a healthy Gross Margin (89% and 49%), and contributions to Group operating loss were £493,000 and £794,000. The Group has two cash-consuming units (RUA Vascular and RUA Structural Heart), and both these units require further investment before commercialisation and cash generation can be achieved. The investment will chiefly be for a GLP animal study and Human Clinical Trials for RUA Vascular. The Board anticipates the requirement for additional funding over the course of the financial year as the internal cash generation will not cover the additional investment required.

The Board has considered the current cash position, reviewed budgets and profit and cash flow forecasts over the going concern period (to October 2024) along with sensitivity analyses and made appropriate enquiries. The Board has concluded that further financing is required and has taken advice from the Company's Nomad and Broker on the current state of the equity market and the chances of a successful fundraise. The Board has formed a judgement at the time of approving the financial statements that the Group will have access to adequate resources, including new financing, to continue in operational existence for the period of the going concern assessment. If finance is not successful, which management see as unlikely, management have a number of mitigating actions which can be taken. There is a level of uncertainty around the ability of management to implement the mitigations during the going concern period, for this reason management have concluded a material uncertainty is appropriate. For this reason, the Board considers that the adoption of the going concern basis in preparing the consolidated financial statements is appropriate.

The Financial Statements have been prepared on a going concern basis and do not include the adjustments that would result if the Group was unable to continue as a going concern. Due to the factors described above, specifically the uncertainty around the ability to raise new financing and the ability to implement mitigating actions, a material uncertainty exists, which may cast significant doubt on the Group and the Company's ability to continue as a going concern.

3. Preliminary announcement

The summary accounts set out above do not constitute statutory accounts as defined by section 434 of the UK Companies Act 2006. The summarised consolidated statement of financial position at 31 March 2023, the summarised consolidated income statement, the summarised consolidated cash flow statement and the summarised consolidated statement of changes in equity for the year then ended have been extracted from the Group's statutory financial statements for the year ended 31 March 2023 upon which the auditor's opinion includes reference to material uncertainty relating to going concern but is unqualified and did not contain a statement under either sections 498(2) or 498(3) of the Companies Act 2006. The audit report for the year ended 31 March 2023 did not contain statements under sections 498(2) or 498(3) of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2022 have been delivered to the Registrar of Companies. The 31 March 2023 accounts were approved by the Directors on 25 July 2023, but have not yet been delivered to the Registrar of Companies.

4. Earnings per share

The basic loss per ordinary share of 9.03 pence (2022: loss of 9.32 pence) is calculated on the loss of the Group of £2,003,000 (2022: loss of £2,067,000) and on 22,184,798 (2021: 22,184,798) ordinary shares, being the weighted average number of shares in issue during the year.  Diluted earnings per share have not been calculated as the Group is loss making.

Posting and availability of accounts

The annual report and accounts for the year ended 31 March 2023 will be sent by post or electronically to all registered shareholders on 28 July 2022.  Additional copies will be available for a month thereafter from the Company's office 2 Drummond Crescent, Riverside Business Park, Irvine, Ayrshire KA11 5AN. Alternatively, the document may be viewed on, or downloaded from, the Company's website: www.rualifesciences.com.

Notice of Annual General Meeting

Notice of the twenty-sixth Annual General Meeting of RUA Life Sciences plc will be posted with the Annual Report and Accounts and will be held at Gailes Hotel, Marine Drive, Irvine, Ayrshire KA11 5AE on Tuesday, 22 August 2023 at 11:00am.

FORMAT OF THE AGM

The AGM will be a physical meeting. The Board encourages all shareholders who are unable to, or do not wish to, attend the AGM in person to vote by proxy.

If you wish to attend the AGM in person, it would assist the Company's planning if you could please notify the Company in advance by email to kate.full@rualifesciences.com, including your name as shown on the Company's Register of Members.

Any changes to these arrangements will be published on the Company's website as soon as possible before the date of the meeting and will also be circulated via a Regulatory Information Service.

Further details of the AGM will be included in the Annual Report and will published on the Company's website at www.rualifesciences.com.