RNS Number:3963J
Medical Solutions PLC
31 March 2003
For Immediate Release: 07.00, Monday 31 March 2003
MEDICAL SOLUTIONS PLC
Preliminary Results for the year to 31 December 2002
Medical Solutions, the specialist healthcare company, announces preliminary
results for the year to 31 December 2002.
* Turnover increased 4% to #16.8 million (2001: #16.1 million)
* Operating profit #43,000, before amortisation of goodwill and know-how,
and termination costs (2001: loss #258,000)
* EBITDA* #634,000 (2001: #165,000)
* Operating loss #1.4 million (2001: #1.5 million)
* Disposals complete and cash ahead of expectations
* Significant strengthening of Main Board
* Going Forward: Clear Focus & Strategy in place
o cancer diagnosis and pathology
o drug discovery services
* Technology division ahead of expectations
* Service division - growth continues
Sir Gareth Roberts, Chairman, Medical Solutions plc, commented:
"The disposal of the Pharmaceutical division provides the Group with the
resources to develop our cancer-based businesses. Medical Solutions now has a
unique combination of the best pathologists in the world, comprehensive
bioanalytical systems for the evaluation of fully consented human tissue, and
world-beating imaging technology.
"Our aim is to develop the new Nottingham facility into a world-renowned centre
of excellence in cancer diagnosis and drug discovery services within the next
three to five years. Your Board remains confident regarding the prospects for
the Group and I, personally, am very excited about what the future holds for
Medical."
ENQUIRIES:
Medical Solutions On 31.03.03 Tel: +44 (0) 207 466 5000
Charles Green, Chief Executive Officer Thereafter Tel: +44 (0) 115 973 9010
Andy Longstaffe, Finance Director
Buchanan Communications Tel: +44 (0) 207 466 5000
Nicola How / Louise Bolton
* Before exceptional items - see note 3 for basis of calculation
Chairman's Statement
The last year has been busy and has seen a significant change in Group
structure. It is your Board's belief that now, being a company focused entirely
on cancer and related services, we will see rapid expansion and progress during
2003 and beyond. During the year we have successfully refocused the Business,
strengthened the Board and post year end, won a very significant contract
broadening our cancer services so that while continuing to service the National
Health Service ("NHS") and the hospital sector, Medical will also now work for
the pharmaceutical industry aiding it with drug discovery.
It was agreed, during 2002, to sell Adams Healthcare and concentrate on the
Cancer Diagnosis and Pathology business. As a result of the recent successful
sale of Adams to EcoLab, Medical Solutions is now cash rich and the Directors
look forward, over the next few months, to making several modest acquisitions/
investments. Since the year end we have relocated the key technology to the
Group's new Nottingham Head Office. Our intention is that this will become a
world-renowned centre of excellence for cancer diagnosis and drug discovery
services over the next five years.
The development of PathLore, Medical's remote locum service, since its start in
June 2001 has been impressive. It has now established a solid business, based
on the provision of pathology services to the NHS. These services are
underpinned by the imaging technologies provided by Medical's other
subsidiaries, Fairfield and Kinetic. However, it should also be pointed out
that both imaging divisions also have excellent order books in their own right.
In November 2002 Peterborough Cellular Pathology Services ("PCPS") (tissue
banking) was acquired and has proved successful in providing a launch pad for
PathLore's services in supporting the huge demand for characterised biomaterials
used in new drug discovery and proteomic based research. The combination of
PCPS's comprehensive bioanalytical systems for evaluation of fully consented
human tissue, expert pathologist analysis provided by Pathlore and Fairfield and
Kinetics technology is unique. This combination of technologies is likely to be
in considerable demand by both public and private sectors over the next decade -
putting Medical in a unique position that we aim to exploit.
The remarkable progress in understanding the molecular biology of cancer has
provided an enormous range of targets for novel drugs. Innovative methods of
clinical development are being sought by the pharmaceutical industry to
dramatically accelerate bench to market times. This requires good access to
carefully controlled clinical samples of cancer and normal tissue. New patient
information networks comprising personal and clinical data together with
pathology and radiology images will be created to deliver better, more targeted
medicines. Our unique combination of technologies is likely to be in
considerable demand by both public and private sectors over the next decade.
During the last quarter of 2002 a considerable marketing programme was carried
out, aimed at the world's major pharmaceutical companies. The efforts of our
marketing team culminated in the award of our first contract, from AstraZeneca -
as announced in January this year. We continue to retain significant interest
from a range of other "Big Pharma", and believe that the next level of contract
will be substantially larger. The interest we are receiving, proves that our
services fill a remarkable niche that even the largest of pharmaceutical
companies are struggling to handle. The availability of ethically assured, well
documented, fresh clinical samples with expert reference histopathology and
novel image transmission technologies is an exciting prospect for cancer drug
developers.
Over the last year the Board has been strengthened. On the Executive team,
Charles Green was appointed as Chief Executive and as announced last week, Dr
Ian Ellis has been promoted to the role of Medical Director. We were also
delighted to appoint Professor Karol Sikora, a leading cancer specialist, as
Non-Executive Director - his very relevant experience and contacts are already
proving immensely useful to Medical. We seek a further non-executive director
and hope to be able to announce this during 2003. I would like to take this
opportunity to say that I am grateful to the entire Board for their support
during the past few months, and would like to particularly thank Dr Rod Adams
whose resignation was received following the sale of Adams Healthcare.
In summary, Medical Solutions now has a unique combination of world renowned
pathologists and leading edge imaging technologies in its PathLore, PCPS,
Fairfield Imaging and Kinetic Imaging businesses. These services and
technologies are in great demand from the public and private healthcare systems
in the UK and selected overseas market, and by the Big Pharma and Biotechnology
companies worldwide. The convergence of world-renowned expertise, state of the
art reference laboratory facilities and innovative image analysis and
quantitation technology ensures that we provide the high quality of validated
data required for accelerating drug development and clinical trials.
Review of Operations
Overview:
During 2002 we built on PathLore's now established position, establishing and
marketing a new range of services, whilst achieving a financial performance in
line with expectations. EBITDA* for 2002 was #634,000 (2001: #165,000). We also
disposed of the businesses outside our core cancer diagnosis and pathology
strategy, resulting a strong cash rich position, at the close of the year.
Our Technology Division, comprising the imaging technologies in Fairfield and
Kinetic, has an excellent order book. The network of seven PathSight
telepathology systems, centred around Edinburgh, expected last year, will be
delivered and invoiced in the first quarter of 2003. This delay was as a result
of internal purchasing procedures covering several Health Authorities. In
addition, Kinetic's sales in 2002 were depressed through delays in the supply of
microscopes, however Kinetic employed two new sales professionals in the second
half of last year and consequently its order book is now extremely healthy. We
incurred significant costs in marketing SurePath liquid based cytology, the new
system for preparation of smear tests, in 2002 ahead of the expected
implementation in the second half of 2003, when we hope to achieve a healthy
share of the UK market where over 5 million tests are performed each year.
The Technology Division will increasingly provide support and technology to our
Services Division, particularly in the area of scanning and quantitative
analysis for our drug discovery clients.
Our Services Division now has a strong base centred around our remote locum
service, Pathlore. During 2003 we aim to double the number of remote locum cases
to 80,000 per annum. PathLore's Reference Laboratory is on track to meet
expectations based purely on the provision of HER2 tests. This test is used to
establish a patient's receptiveness to Herceptin, the breast cancer drug. PCPS,
acquired in November 2002, is in line with full year expectations, on the basis
of tissue acquired from Peterborough only and we will roll out this successful
model to a further five major teaching hospitals during 2003. As announced in
February, we have received our first significant Pharmaceutical drug discovery
contract. Although our forecasts for this area of business are modest, we did
invest heavily in the last quarter of 2002 in market research and marketing of
our unique services in this arena, and we hope this spend will bear fruit in due
course.
Services Division:
Remote Locum Service - PathLore
In the first six months of 2002 there were several changes made in PathLore's
organisation and substantial investments in people and the operations
infrastructure. It is felt that this has led to the consolidation of PathLore's
position as a premier provider of Pathology Services. There has also been
significant commercial activity in the Cancer Diagnosis and Pathology Division
which gives the Board much confidence for the future. Our strategy therefore is
to build on the Group's leading position in a number of niche areas, in Cancer
Diagnosis and Pathology.
PathLore's annualised turnover is now in excess of #1.2 million, and is growing
rapidly, month on month. PathLore currently has 60 consultant pathologists
providing specialist remote locum services.
There are currently approximately 300 vacancies out of a total requirement of
1,300 consultant histopathologists in the UK, as a result of a manpower planning
error several years ago. Our service is identified as the remote specialist
locum service.
Reference Laboratory - PathLore
The Reference Laboratory in Nottingham was completed during 2002 enabling it to
prepare and analyse a comprehensive range of tests, provide prognostic profiling
for the selection of appropriate adjuvant therapy, tissue preparation and
evaluation for drug development and clinical trial evaluation and cervical
screening and general cytology. Molecular biology and genomics will continue to
increase our understanding of disease, provide routes to new therapies and
diagnostics and increase our ability to tailor treatment to individual patients.
Increasingly, specific drugs will require more specific diagnostics. The
PathLore Reference Laboratory is one of only three reference facilities set up
in the UK to assess HER2 status. We have considerable experience and expertise
in determining HER2 expression and other prognostic and diagnostic markers. This
expertise is made commercially available to NHS Trusts and private healthcare
institutions for clinical pathology testing, and to biotechnology and
pharmaceutical companies for research and development and clinical trials.
Tissue Banking - Peterborough Cellular Pathology Services (PCPS)
PCPS had approximately 80 customers including all of the major pharmaceutical
and biotechnology companies. Until recently however, it did not have access to
enough tissue and did not have some tissue types at all. To this end, we are
rolling out the Peterborough model to five other major teaching hospitals to
alleviate this problem during 2003. This will provide a much wider supply of
tissue, in terms of value and type.
Looking ahead, and using the Peterborough model, Medical Solutions is developing
a centralised biomaterials processing and distribution facility served by six
tissue acquisition centres located across the UK which have access to cancer,
cardiovascular, respiratory and urological as well as general surgical patients.
Rapidly changing technologies has highlighted the need for well characterised
high grade human biomaterials linked with associated clinical and treatment
outcome information. The Pathlore Biomaterials Resource has been established to
provide support for research conducted by the academic community and the Biotech
/Pharmaceutical Industry for the study of cancer biology and treatment
development as well as new drug discovery. Medical will facilitate the
collection, storage and analysis of ethically gathered surplus surgical and
Cadaveric human biomaterials. The Pathlore Biomaterials Resource offers its
clients rapid and flexible access to a plethora of ethically sourced human
biomaterials with full donor consent. All human tissue samples are obtained
through partnership with medical intermediaries, hospitals and tissue banks
based on the model developed by Peterborough Hospitals NHS Trust.
The Pathlore Biomaterials Resource is supported by a fully integrated inventory
management and web based ordering system. Its primary purpose is to allow the
routine collection, processing, storage and analysis of high grade molecular
class biomaterials products linked to disease specific demographic, clinical,
pathological and outcome information. This will be achieved through building
infrastructure and workforce capability in collection, storage and analysis of
characterised frozen and paraffin-embedded tissue - linked to virtual
microscopical images, pathological, disease specific clinical and outcome
information collected prospectively in accordance with the requirements of its
growing client base.
Technology Division:
Imaging - Fairfield
Fairfield has developed software image analysis management systems for cancer
diagnosis, prognosis and telepathology. These systems allow tissue samples to
be examined at high resolution under the control of a clinician operating from a
remote location. This system is ideally suited to the organization of NHS
cancer networks in the UK, and the support of drug research by pharmaceutical
and biotech companies. The order book for telepathology is excellent.
Fairfield's PathSight Telepathology system allows the provision of a networked
pathology system for hospitals. The single most important factor in improving
cancer survival is early diagnosis and this networking of experts in different
hospitals makes a significant contribution to team based patient management with
the best information possible being available. It reduces the need for experts
to travel between hospitals, a problem exacerbated by the staffing shortages in
pathology. Fairfield have received orders to supply three Automatic Ploidy
systems as a result of the New England Journal of Medicine paper published at
the end of last year.
Fairfields' Virtual Microscope technology will be used to support our drug
discovery services, networking the research centres of the major pharmaceutical
companies worldwide.
Imaging - Kinetic
Kinetic is a leader in fluorescent imaging with its Komet product, measuring
DNA damage in cells, and Live Cell Imaging products, and has many major cancer
research establishments as customers. The Komet assay is becoming a standard
FDA requirement for all new drug trials.
The Kinetic Imaging Histometrix system, a quantitative method employing image
analysis, will be used in a significant new contract to provide an assay for
the selection of patients for future clinical trials based on the expression of
the molecular markers. A database for the storage of the expression information
in conjunction with demographic, clinical and histopatholigical data will also
be developed. There is an as yet unmet demand centered around Research Triangle
Park, North Carolina, USA for Kinetics products and services based on expert
analysis using the Kinetic products in support of drug discovery. To that end
Kinetic will be establishing an operation in R.T.P. headed up by Mark Browne,
Kinetics founder and MD.
SurePath
The SurePath (formerly Autocyte) liquid based cytololgy (LBC) (new smear test
technology) business is about to expand rapidly. We understand that the NHS
English pilots for LBC have been completed, however no results will be made
public before NICE (National Institute of Clinical Excellence) report in the
summer of 2003. We believe that the results from our SurePath system have been
very positive both in the high quality of the slides produced and the level of
acceptance by pathologists and cytology screeners.
The original basis for the NICE recommendation to proceed with pilot studies was
the economic benefit provided by LBC. The switch to LBC is predicted to reduce
the level of unreadable slides from 9% down to 2%. This would prevent
approximately 400,000 anxious women having to be recalled for repeat smears in
England and Wales each year. The Health Secretary's budget statement earlier
this year committed the Government to the establishment of 80 LBC screening
centres by the end of 2004. In Scotland, LBC implementation is to be completed
by April 2004.
SurePath is one of only two FDA approved liquid based cytology (smear test)
systems which have been trialed by NHS and NICE, for implementation in the UK.
There are currently 4.7 million smear tests a year in England and Wales. Our
consumables are sold at #2.50 per test, which provides significantly better
value than those of our competitor.
Prospects
2002 has been an exciting and challenging year - however it is the belief of
your Board that the building blocks are now firmly in place for us to take
advantage of our unique position within the cancer arena. 2003 is set to be a
fast moving and rewarding year for the Group, which is well positioned for
expansion, both organically and through appropriate acquisitions. It remains
our key aim to create innovative partnerships through the provision of novel
technology which will herald a new era of benefits to cancer patients
world-wide.
Cancer is a growing global problem. The UK Government is committed to improving
the early diagnosis of cancer. We are able to provide a unique offering to the
worldwide drug discovery market and are therefore confident that our strategy,
which is self financing, will result in a high growth, profitable, and cash
generative Group.
Consolidated profit and loss account
For the year ended 31 December 2002
2002 2001
#'000 #'000
Turnover
Continuing operations 2,295 1,870
Discontinued operations 14,490 14,230
__________ __________
16,785 16,100
Operating (loss)/profit
Continuing operations (2,113) (1,502)
Discontinued operations 721 30
__________ __________
(1,392) (1,472)
Operating profit/(loss) before goodwill amortisation and
termination costs 43 (258)
Goodwill and know-how amortisation (1,217) (1,214)
Termination costs (218) -
__________ __________
(1,392) (1,472)
Profit on disposal of fixed assets, discontinued operations 76 -
Loss on disposal of discontinued operations (8,678) -
__________ __________
Loss on ordinary activities before finance charges (9,994) (1,472)
Finance charges (net) (201) (136)
__________ __________
Loss on ordinary activities before taxation (10,195) (1,608)
Tax on loss on ordinary activities 35 509
Tax on sale of discontinued activities (2,128) -
Total tax on loss ordinary activities (2,093) 509
Loss for the financial year (12,288) (1,099)
___________ __________
Loss per ordinary share (15.51)p (1.39)p
Diluted loss per ordinary share (15.51)p (1.39)p
__________ __________
Consolidated Balance Sheet
31 December 2002
2002 2001
#'000 #'000
Fixed assets
Development costs and know-how 1,563 3,349
Goodwill 2,447 19,565
________ ________
Intangible assets 4,010 22,914
Tangible assets 1,144 3,851
Investments - 11
________ ________
5,154 26,776
________ ________
Current assets
Stocks 1,027 2,238
Debtors 1,302 3,450
Cash at bank and in hand 16,320 4,276
________ ________
18,649 9,964
________ ________
Creditors: Amounts falling due within one year (5,420) (6,101)
________ ________
Net current assets 13,229 3,863
________ ________
Total assets less current liabilities 18,383 30,639
Creditors: Amounts falling due after
more than one year (2,355) (2,421)
________ ________
Net assets 16,028 28,218
________ ________
Capital and reserves
Called-up share capital 1,588 1,579
Share premium account 25,059 24,970
Merger reserve 1,267 1,267
Other reserve 1,136 1,136
Profit and loss account (13,022) (734)
________ ________
Equity shareholders' funds 16,028 28,218
________ ________
Consolidated cash flow statement
For the year ended 31 December 2002
2002 2001
#'000 #'000
Net cash (outflow) inflow from operating activities (36) 154
Returns on investments and servicing of finance (198) (136)
Capital expenditure and financial investment (1,381) (2,119)
Acquisitions and disposals 12,611 (315)
________ ________
Cash inflow(outflow) before management of liquid resources
and financing 10,996 (2,416)
Financing 69 615
________ ________
Increase (decrease) in cash in the year 11,065 (1,801)
_________ _________
Reconciliation of net cash flow to movement in net funds
For the year ended 31 December 2002
2002 2001
#'000 #'000
Increase(decrease) in cash in the year 11,065 (1,801)
Cash (inflow) outflow from (increase) decrease
in debt and lease financing (69) (615)
10,996 (2,416)
Finance leases disposed with subsidiaries 130 -
New finance leases - (133)
Movement in net funds in the year 11,126 (2,549)
Net funds at 1 January 792 3,341
Net funds at 31 December 11,918 792
Reconciliation of operating loss to operating cash (outflow) inflow
For the year ended 31 December 2002
2002 2001
#'000 #'000
Operating (loss) (1,392) (1,472)
Goodwill amortisation 1,067 1,063
Depreciation charges 591 423
Amortisation of development costs and know-how 333 300
Increase in stocks (732) (65)
(Increase) decrease in debtors (737) 759
Increase (decrease) in creditors 834 (854)
__________ __________
Net cash (outflow) inflow from operating activities (36) 154
__________ __________
1. Turnover and segmental analysis
Turnover by business segment:
2002 2001
Total Total
#'000 #'000
Technology 1,192 1,680
Services 1,103 190
Discontinued 14,490 14,230
16,785 16,100
Turnover by destination:
2002 2001
Total Total
#'000 #'000
United Kingdom and Republic of Ireland 14,170 13,716
Other European Union 835 941
Rest of Europe 206 372
The Americas 228 122
Africa 51 84
Asia 462 281
Other 833 584
16,785 16,100
2. Loss per ordinary share
The loss per ordinary 2p share calculated on the group loss after taxation of
#12,288,000 (2001: #1,099,000) and a weighted average number of shares in issue
during the year of 79,187,442 (2000: 78,956,232) is 15.51p (2001: 1.39p).
3. Calculation of EBITDA before exceptional items
2002 2001
Total Total
#'000 #'000
Operating Profit before amortisation of goodwill and
knowhow, and termination costs 43 (258)
Depreciation 591 423
634 165
The financial information set out in the announcement does not constitute the
group's statutory financial statements for the years ended 31 December 2002 and
2001. The financial information for the year ended 31 December 2001 is derived
from the statutory financial statements for that year, which have been delivered
to the Registrar of Companies. The auditors reported on those financial
statements; their report was unqualified and did not contain a statement under
s237(2) or (3) of the Companies Act 1985. The statutory accounts for the year
ended 31 December 2002 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and will
be delivered to the Registrar of Companies following the company's annual
general meeting.
The financial information set out above has been prepared on the basis of the
accounting policies as stated in the financial statements for the year ended 31
December 2001, with the exception of the policy for deferred taxation, where FRS
19 'Deferred tax' has been implemented during the year. No adjustment was
required in respect of this implementation.
This information is provided by RNS
The company news service from the London Stock Exchange
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