TIDMIRSH TIDMMSTY
Mainstay Medical International plc ("Mainstay" or the "Company",
Euronext Paris: MSTY.PA and Euronext Growth of Euronext Dublin:
MSTY.IE), a medical device company focused on bringing to market
ReActiv8(R) , an implantable restorative system to treat disabling
Chronic Low Back Pain, today provides a company update and reports
its financial results for the full year ended 31 December 2019.
Jason Hannon, CEO of Mainstay, said: "We continue to make
significant progress toward our key objectives. We have continued
our interactions with the FDA regarding our PMA filing for
ReActiv8, and we expect a decision regarding approval around the
end of 2020. The PMA included one-year data from 160 patients from
the ReActiv8-B clinical study. All of the remaining patients have
completed their one-year assessments, and we are pleased to see
that the data from the entire population are consistent with our
previously-reported one-year results, adding to the strength of the
long-term evidence supporting ReActiv8."
"We received regulatory approval for ReActiv8 in Australia, and
we are seeking inclusion on the Prostheses List to secure
reimbursement from all private health insurance funds in
Australia," continued Mr. Hannon. "We also continue to make
progress working with key physicians in Germany who are
incorporating ReActiv8 into their practices in order to validate
commercial adoption, refine patient selection strategies and follow
ongoing patient progress."
Business Update
-- In December 2019, Mainstay completed a Day 100 meeting with the U.S. FDA
regarding its PMA application submission for ReActiv8. The PMA was
accepted by the FDA for filing in October 2019, and a decision regarding
approval is expected around the end of 2020. The PMA application is based
upon the totality of the clinical data for ReActiv8, including the data
from its ReActiv8-B pivotal trial.
-- In December 2019, the Company received regulatory approval from the
Australian TGA for ReActiv8. This approval confirms inclusion of ReActiv8
in the Australian Register of Therapeutic Goods (ARTG), enabling
commercialization throughout Australia. The Company has submitted an
application for ReActiv8 to be included in the Prostheses List of
reimbursed products, with a reimbursement decision expected in the third
quarter of 2020. The Prostheses List identifies implantable devices
eligible for reimbursement from private health insurance funds in
Australia. Mainstay plans to launch ReActiv8 commercially in Australia
after securing a place on the Prostheses List.
-- In Germany, Mainstay's initial European market, the Company continues its
commercial validation efforts. Mainstay is solely dedicated to building a
small number of reference sites where high volumes of patients are
treated with ReActiv8, allowing the Company to gather associated clinical
data, refine patient selection processes for commercial markets, and gain
the learnings needed to accelerate commercial launch in future markets.
Mainstay achieved its goal of having 20 discrete implanting physicians in
Germany by the end of 2019.
Financial Update
-- During 2019, Mainstay conducted financing activities that resulted in
approximately $28 million of cash runway extension, consisting of:
-- In July 2019, Mainstay completed financing transactions consisting of the
issuance of 4,649,775 new ordinary shares at a purchase price of EUR3.00
per share and the drawdown of EUR3.0 million in additional debt from the
Company's existing lender, IPF Partners, resulting in aggregate gross
proceeds of EUR16.9 million (US$18.9 million).
-- In April 2019, Mainstay and its subsidiary, Mainstay Medical Limited,
entered into an amendment to their agreement with IPF Partners relating
to the existing debt facility. Pursuant to the amendment, all principal
and interest payments are deferred until 2021, the loan term was extended
to 2023 and the interest rate on all tranches was changed to 8%. The loan
is also convertible in certain circumstances, including FDA approval of
ReActiv8, to ordinary shares at a price of EUR8 per share. The Company
also granted 1.5 million warrants over ordinary shares to IPF Partners
with an exercise price of EUR6.
-- Revenue during the year ended 31 December 2019 was $1.1 million (2018:
$0.6 million). The 2019 figure does not include deferred revenue at 31
December 2019 of $0.049 million.
-- Operating expenses for the year ended 31 December 2019 were $19.2 million
(2018: $29.6 million). The decrease was driven primarily by reduced costs
relating to activities and personnel following the completion of all
implants in the ReActiv-8 B clinical trial.
-- Cash on hand as at 31 December 2019 was $17.4 million (31 December 2018:
$15.5 million).
-- End --
About Mainstay
Mainstay is a medical device company focused on commercializing
an innovative implantable restorative neurostimulation system,
ReActiv8(R) , for people with disabling Chronic Low Back Pain
(CLBP). The Company is headquartered in Dublin, Ireland. It has
subsidiaries operating in Ireland, the United States, Australia,
Germany and the Netherlands, and is listed on regulated market of
the Euronext Paris (MSTY.PA) and the Euronext Growth market of
Euronext Dublin (MSTY.IE).
About Chronic Low Back Pain
One of the root causes of CLBP is impaired control by the
nervous system of the muscles that dynamically stabilize the spine.
ReActiv8 is designed to electrically stimulate the nerves
responsible for contracting these muscles to improve dynamic spine
stability, allowing the body to recover from CLBP.
People with CLBP usually have a greatly reduced quality of life
and score significantly higher on scales for pain, disability,
depression, anxiety and sleep disorders. Their pain and disability
can persist despite the best available medical treatments, and only
a small percentage of cases result from an identified pathological
condition or anatomical defect that may be correctable with spine
surgery. Their ability to work or be productive is seriously
affected by the condition and the resulting days lost from work,
disability benefits and health resource utilization put a
significant burden on individuals, families, communities, industry
and governments.
Further information can be found at www.mainstay-medical.com
CAUTION -- in the United States, ReActiv8 is limited by federal
law to investigational use only.
PR and IR Enquiries:
LifeSci Advisors, LLC
Brian Ritchie
Tel: + 1 (212) 915-2578
Email: britchie@lifesciadvisors.com
FTI Consulting (for Ireland)
Jonathan Neilan or Patrick Berkery
Tel. : +353 1 765 0886
Email: mainstay@fticonsulting.com
Euronext Growth Advisers:
Davy
Fergal Meegan or Barry Murphy
Tel: +353 1 679 6363
Email: fergal.meegan@davy.ie or barry.murphy2@davy.ie
Forward looking statements
This announcement includes statements that are, or may be deemed
to be, forward looking statements. These forward looking statements
can be identified by the use of forward looking terminology,
including the terms "anticipates", "believes", "estimates",
"expects", "intends", "may", "plans", "projects", "should", "will",
or "explore" or, in each case, their negative or other variations
or comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These forward
looking statements include all matters that are not historical
facts. They appear throughout this announcement and include, but
are not limited to, statements regarding the Company's intentions,
beliefs or current expectations concerning, among other things, the
FDA's review of the Company's PMA application for ReActiv8, the
clinical data relating to ReActiv8, the potential for the FDA to
approve ReActiv8 for marketing in the United States, the Company's
expected cash runway and the Company's results of operations,
financial position, prospects, financing strategies, expectations
for product design and development, regulatory applications and
approvals, reimbursement arrangements, costs of sales and market
penetration and other commercial performance.
By their nature, forward looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward looking statements are not guarantees of future
performance, and the actual results of the Company's operations,
the development of its product, and the markets and the industry in
which the Company operates may differ materially from those
described in, or suggested by, the forward looking statements
contained in this announcement. In addition, even if the Company's
results of operations, financial position and growth, and the
development of its product and the markets and the industry in
which the Company operates are consistent with the forward looking
statements contained in this announcement, those results or
developments may not be indicative of results or developments in
subsequent periods. A number of factors could cause results and
developments of the Company to differ materially from those
expressed or implied by the forward looking statements, including,
without limitation, the outcome of the Company's interactions with
the FDA on the PMA application for ReActiv8, the final outcome of
the Company's ReActiv8-B clinical trial, the successful launch and
commercialization of ReActiv8, general economic and business
conditions, global medical device market conditions, industry
trends, competition, changes in law or regulation, changes in
taxation regimes, the availability and cost of capital, the time
required to commence and complete clinical trials, the time and
process required to obtain regulatory approvals, currency
fluctuations, changes in its business strategy, and political and
economic
uncertainty. The forward-looking statements herein speak only at
the date of this announcement.
Mainstay Medical International plc and its subsidiaries
Annual Report
for the year ended 31 December 2019
Mainstay Medical International plc
Table of contents
Corporate and shareholder information 1
Chairman's statement 4
Biographies of Directors 5
Directors' report 7
Corporate governance report 21
Risk factors 25
Directors' responsibilities statement 53
Independent auditor's report to the members of Mainstay Medical
International plc 55
Consolidated statement of profit or loss and other comprehensive income 60
Consolidated statement of financial position 61
Consolidated statement of changes in shareholders' equity 62
Consolidated statement of cash flows 63
Notes to the consolidated Financial Statements 64
Parent Company Financial Statements 90
Forward looking statements
This annual report includes statements that are, or may be
deemed to be, forward looking statements. These forward looking
statements can be identified by the use of forward looking
terminology, including the terms "anticipates", "believes",
"estimates", "expects", "intends", "may", "plans", "projects",
"should", "will", or "explore" or, in each case, their negative or
other variations or comparable terminology, or by discussions of
strategy, plans, objectives, goals, future events or intentions.
These forward looking statements include all matters that are not
historical facts. They appear throughout this report and include,
but are not limited to, statements regarding the Company's
intentions, beliefs or current expectations concerning, among other
things, the FDA's review of the Company's PMA application for
ReActiv8, the clinical data relating to ReActiv8, the potential for
the FDA to approve ReActiv8 for marketing in the United States, the
Company's expected cash runway and the Company's results of
operations, financial position, prospects, financing strategies,
expectations for product design and development, regulatory
applications and approvals, reimbursement arrangements, costs of
sales and market penetration and other commercial performance.
By their nature, forward looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward looking statements are not guarantees of future
performance, and the actual results of the Company's operations,
the development of its main product, and the markets and the
industry in which the Company operates may differ materially from
those described in, or suggested by, the forward looking statements
contained in this report. In addition, even if the Company's
results of operations, financial position and growth, and the
development of its main product and the markets and the industry in
which the Company operates, are consistent with the forward looking
statements contained in this annual report, those results or
developments may not be indicative of results or developments in
subsequent periods. A number of factors could cause results and
developments of the Company to differ materially from those
expressed or implied by the forward looking statements, including,
without limitation, the final outcome of the Company's ReActiv8-B
clinical study, the outcome of the Company's interactions with the
FDA on the PMA application for ReActiv8, the Company's cash
position, the successful launch and commercialization of ReActiv8,
general economic and business conditions, global medical device
market conditions, industry trends, competition, changes in law or
regulation, changes in taxation regimes, the availability and cost
of capital, the time required to commence and complete clinical
trials, the time and process required to obtain regulatory
approvals, currency fluctuations, changes in its business strategy,
and political and economic uncertainty. The forward-looking
statements herein speak only at the date of this annual report.
Mainstay Medical International plc
Corporate and shareholder information
Oern Stuge MD, Independent Non-Executive
Directors Chairman
Jason Hannon, Chief Executive Officer and
Executive Director
David Brabazon, Independent Non-Executive
Director
Greg Garfield, Non-Executive Director
Antoine Papiernik, Non-Executive Director
James Reinstein, Independent
Non-Executive Director
Dan Sachs MD, Non-Executive Director
Secretary Matthew Onaitis
Registered office 77 Sir John Rogerson's Quay
Block C, Grand Canal Docklands
Dublin 2, Ireland
Registered number 539688
Website www.mainstay-medical.com
ISIN / Symbol IE00BJYS1G50 / MSTY.PA (Paris) and
MSTY.IE
Solicitors/ Lawyers McCann FitzGerald
Riverside One
Sir John Rogerson's Quay
Dublin 2, Ireland
Latham & Watkins
885 3rd Avenue,
NY 10022, USA
Independent Auditor KPMG
Chartered Accountants
1 Stokes Place
St Stephen's Green
Dublin 2, Ireland
Principal Bankers HSBC
Bank of Ireland
Euronext Growth Adviser and Broker J&E Davy
Davy House
49 Dawson Street
Dublin 2, Ireland
Registrar Computershare Investor Services (Ireland)
Limited
Heron House
Corrig Road
Sandyford Industrial Estate
Dublin 18, Ireland
Paying Agent (in France) Caceis Corporate Trust
1/3, Place Valhubert
75013 Paris, France
Mainstay Medical International plc
Chairman's statement
Dear Shareholder
I am pleased to present the 2019 Annual Report for Mainstay
Medical and its subsidiaries. Based on the progress made by the
Company during 2019, we believe the Company is well positioned for
success in 2020 and beyond.
Business review
We announced headline results from the ReActiv8-B Clinical Trial
in November 2018. Whilst the difference between the treatment and
control groups on the primary endpoint of responder rate at 120
days was not statistically significant due to a higher than
expected response rate in the control group, we believe the overall
results from the trial represent solid evidence of the efficacy and
safety of ReActiv8. These overall results include additional,
pre-specified analyses of the primary efficacy endpoint, as well as
high responder rates in the patients that have reached one year
since implantation, and a significant reduction in the use of pain
medications by patients at one year.
We believe these results will continue to support commercial
validation efforts in Germany and other markets under our existing
CE Mark. These results also formed the basis for our submission of
a Pre-Market Approval ("PMA") Application for ReActiv8 with the
U.S. Food and Drug Administration (FDA) in August 2019.
A detailed review of the Company's corporate activity in 2019
can be found in the Directors' Report on page 7 of this Annual
Report.
Finance review
Cash on hand as at 31 December 2019 was $17.4 million (2018:
$15.5 million). Operating expenses were $19.2 million during the
year ended 31 December 2019 (2018: $29.6 million).
Outlook
Our corporate objectives for 2020 are to advance the PMA review
process with the FDA with a decision regarding approval expected
around the end of 2020; and to continue our commercial validation
efforts in Germany and other select markets by focussing on
building a limited number of high-volume ReActiv8 practices that
will allow us to gather associated clinical data, refine the
patient selection process and gain the learnings needed to
accelerate commercial launch in future markets.
Directors and Staff
I would like to thank our staff, consultants, clinical trial
investigators and all my fellow Directors for their support and
dedication, which has enabled the continued success of the Company.
Of course, we also owe a debt of gratitude to all those people who
agreed to be subjects in our Clinical Trials and helped to advance
ReActiv8 as an option for the millions of people suffering from
Chronic Low Back Pain. I look forward to the future with
optimism.
Yours faithfully,
Oern Stuge MD
Chairman
24 February 2020
Mainstay Medical International plc
Board of Directors
Biographies of Directors
Oern Stuge MD
Dr. Oern R. Stuge is the independent non-executive Chairman of
the Board. He is an international executive with 30 years of
experience in the life science sector. Dr Stuge is the owner of
ORSCO Life Sciences AG through which he holds several executive
& non-executive board memberships & advisory roles.
During the last 8 years, Dr. Stuge has participated in
Enterprise Development of different companies and successfully
sold/listed 7 companies.
Prior to founding ORSCO, Dr. Stuge worked for 12 years for
Medtronic, Inc. in different roles including Senior Vice President
("SVP") & President Europe & Central Asia, and SVP &
President Cardiac Surgery. He was a member of the Medtronic
Executive Committee & Operating Committee. Dr. Stuge led a
successful transformation of Medtronic's Cardiac Surgery business.
Under his leadership, Medtronic founded the Structural Heart
Division and launched the first commercially available percutaneous
heart valve in the world. Prior to this, he led business
acceleration of Medtronic's neurological and cardiovascular
business in Europe, Middle East & Africa.
Dr. Stuge earned an MD from University of Oslo, an MBA from IMD,
Switzerland and an INSEAD Certificate of Corporate Governance.
Jason Hannon
Mr. Jason Hannon joined Mainstay Medical as Chief Executive
Officer and as a Director in October 2017. Mr. Hannon has extensive
experience in the medical devices industry, particularly in the
areas most critical to the future success of Mainstay:
commercialization of new products, penetration of new markets,
product innovation, strategic and financial planning, raising
capital, regulatory and clinical management, and the building of a
high-performance culture. Mr. Hannon previously served as President
and Chief Operating Officer of NuVasive (NASDAQ:NUVA), a leading
medical device company focused on transforming spine surgery with
minimally disruptive, procedurally-integrated solutions. During his
12 years at the company, he helped grow NuVasive from a small
U.S.-centric business with a handful of products into the third
largest spine company in the world.
Mr. Hannon has a JD degree from Stanford University and a BA
degree from the University of California, Berkeley.
David Brabazon
Mr. David Brabazon is a non-executive director of Mainstay. Mr
Brabazon is a pharmaceutical industry executive who is a co-founder
and board member of AixThera since November 2019. He was a
co-founder, Chief Financial Officer and board member of Adapt
Pharma Limited from 2013 through May 2019. Both companies of which
are US focused specialty pharmaceutical businesses. Adapt Pharma
Limited was acquired by Emergent BioSolutions Inc. in October 2018.
Mr. Brabazon previously was a co-founder and Chief Financial
Officer of Azur Pharma plc, which merged with Jazz Pharmaceuticals
plc in early 2012. Mr. Brabazon continued to serve in the merged
business as Senior Vice President of Finance and Company Secretary
until late 2012. Prior to Azur Pharma, Mr. Brabazon served as Vice
President of Finance and Group Financial Controller of Elan
Corporation plc.
Mr. Brabazon is a chartered accountant and holds a Masters of
Accounting degree from University College Dublin, Ireland and a
Master of Business Administration degree from INSEAD, France. Mr.
Brabazon serves as a director of Headway (Ireland) Limited which
provides support and services to people affected by brain
injury.
Greg Garfield
Mr. Greg Garfield is a Non-Executive Director of the Company and
is the Senior Managing Director for KCK Medtech. Mr. Garfield
serves as a director on the boards of numerous private and public
companies in the healthcare industry. From 2006 to 2011, he had
various roles at Acclarent, Inc., a medical technology company,
including Chief Operating Officer and General Counsel. Acclarent,
Inc. was acquired by Johnson and Johnson at a valuation of
approximately $800 million cash in January 2010. From 1995 to 2006,
Mr. Garfield had various roles at Guidant Corporation, a medical
technology company, including Vice President of Business
Development and General Counsel. Guidant was acquired by Boston
Scientific Corporation in 2006 at a valuation of approximately $27
billion in cash and stock. Mr. Garfield has a Bachelor of Science
degree from California Polytechnic State University and a JD degree
from McGeorge School of Law, University of the Pacific.
Antoine Papiernik
Antoine Papiernik is a Non-Executive Director of Mainstay and a
Managing Partner at Sofinnova Partners, which he joined in
1997.
Mr. Papiernik has been an initial investor and active board
member in public companies like Actelion, ProQR, Shockwave Medical,
NovusPharma (then sold to CTI), Movetis (then sold to Shire),
Mainstay, Pixium Vision and Stentys, which went public respectively
on the Zürich stock exchange, the NASDAQ, the Milan Nuovo Mercato,
the Belgium Stock Exchange, and Euronext Paris, in Cotherix
(initially NASDAQ listed, then sold to Actelion), CoreValve (sold
to Medtronic), Fovea (sold to Sanofi Aventis), Ethical Oncology
Science (EOS, sold to Clovis Oncology), and Recor Medical (sold to
Otsuka). He has also invested in and is a board member of private
companies Reflexion Medical, Medday, Tissium, SafeHeal, Mnemo
Therapeutics, Ablacare, Corewave,Highlife and Rgenix. Mr. Papiernik
has an MBA from the Wharton School of Business, University of
Pennsylvania. In 2012 and 2011 he was selected by Forbes for its
"Midas List" of the world's top venture capital investors. Mr.
Papiernik is one of the only Europeans on the list, and one of the
few life science investors as well.
James Reinstein
James A. Reinstein is a Non-Executive Director of the Company
with more than 25 years of medical device experience. Mr. Reinstein
is a General Partner at Palo Alto Medtech Advisors (PAMTA), an
advisory firm assisting investment firms assess opportunities
within the medical device industry. PAMTA also advises medical
device companies with strategic planning, funding and all other
aspects to build and grow a business. He was the President, CEO and
board member of Cutera, Inc. a NASDAQ listed global device company
at the forefront of medical aesthetics industry until January 2019.
Just prior to Cutera, he was the President and CEO of Drawbridge
Health, a joint venture of GE Healthcare and GE Venture. Previous
to Drawbridge, Mr. Reinstein was the President and CEO of Aptus
Endosystems Inc., where he led the sale of the company to Medtronic
for over $100 million. Prior to joining Aptus, Mr. Reinstein served
as Executive Vice-President and Chief Commercial Officer at
Cyberonics, a neuromodulation company focused on helping patients
with epilepsy, depression and chronic heart failure. Mr. Reinstein
spent 17 years at Boston Scientific in various roles and functions
including business development, marketing and general management.
Most of his career at Boston Scientific was spent working and
living in Europe, Asia and Latin America.
Mr. Reinstein was employed by Procter and Gamble after
graduating with a BA in Marketing from the Terry College of
Business at the University of Georgia in Athens. He also completed
post graduate studies in management at INSEAD Business School in
Fontainebleau, France. Mr. Reinstein sits on the board of directors
of Pixium Vision, a publicly traded company based in Paris, France,
and Monteris Medical, a privately held company located in the
United States.
Dan Sachs MD
Dr. Dan Sachs is a Non-Executive Director and a founder of
Mainstay. Dr. Sachs is also the founder of KSpine Inc.,
Respicardia, Inc., and Amphora Medical, Inc., all venture-backed
medical device companies. Dr. Sachs serves as Co-Director of the
Innovation Fellows Program within the Institute for Engineering in
Medicine at the University of Minnesota, and on the Oversight
Committee of the Coulter Translational Research Program at the
University of Michigan. Dr. Sachs was previously a venture capital
investor with Investor Growth Capital and Spray Venture Partners,
for which he served on the board of directors of Neuronetics
(STIM), CoTherix (acquired), and CHF Solutions (acquired).
Dr. Sachs previously served as Instructor in Medicine on the
faculty of Harvard Medical School in the Division of Emergency
Medicine. Dr. Sachs earned an MD from the University of Michigan,
and an MBA from Harvard Business School.
Mainstay Medical International plc
Directors' report
The Board of Directors are pleased to report on the progress of
Mainstay Medical International plc ("Mainstay" or the "Company")
and present the Annual Report of the Company and its subsidiaries
(the "Group" or "we") for the year ended 31 December 2019.
Principal activities
Mainstay is a medical device company focused on commercializing
ReActiv8(R), an implantable restorative neurostimulation system
designed to treat an underlying cause of disabling Chronic Low Back
Pain (CLBP).
The Company is headquartered in Dublin, Ireland. It has
subsidiaries operating in Ireland, the United States, Australia,
the Netherlands and Germany, and its ordinary shares are admitted
to trading on Euronext Paris (MSTY.PA) and Euronext Growth operated
by Euronext Dublin (MSTY.IE).
As at 31 December 2019, the Company together with its operating
subsidiaries Mainstay Medical Limited, MML US, Inc., Mainstay
Medical (Australia) Pty Limited, Mainstay Medical Distribution
Limited, Mainstay Medical B.V. and Mainstay Medical GmbH, form the
Mainstay Medical Group.
Key performance indicators
Current key performance indicators, used by management to
measure performance and exercise control over operations are
summarized below:
Securing funds - The Group has financed its operations to date
principally through the issuance of equity securities and debt
funding. The management team continues to develop and strengthen
relationships to explore further financing options. These may
include debt funding, private placement or public offering of
equity or debt securities, and/or strategic partnering.
Effective monitoring of use of funds - Management prepares
budgets and rolling forecasts to track and monitor use of funds.
Actual expenditure is measured against budget and is reported to
and evaluated by the Directors on a monthly basis.
Achieving milestones - The Group has defined the strategic
activities and milestones leading to commercialization of ReActiv8.
These include:
-- Product design and development of ReActiv8
-- Conducting the ReActiv8-A Clinical Trial
-- Quality System certification
-- Obtaining CE Marking
-- European commercialization of ReActiv8
-- Obtaining approval for an Investigational Device Exemption (an "IDE")
from the US Food and Drug Administration (the "FDA") to conduct the
ReActiv8-B Trial, a clinical trial of ReActiv8 to support marketing
approval in the US
-- Conducting the ReActiv8-B Trial to generate data to file a Pre-Market
Approval Application (a "PMAA") with the FDA
-- Following Pre-Market Approval ("PMA"), starting the US commercialization
of ReActiv8.
Progress towards and achievement of these milestones is reported
by the management team to the Board on a regular basis. Outlined in
the following business and financial review sections of this
report, we describe our performance during the year ended 31
December 2019 on the relevant areas above, including updates on
progress towards milestones, and analysis of expenditure and use of
funds during the year.
Business review
Clinical and Regulatory Activities
US Pivotal ReActiv8-B Clinical Trial -- The ReActiv8-B Trial is
an international, multi-centre, prospective randomized sham
controlled triple blinded clinical trial with one-way crossover,
conducted under an IDE from the FDA. The ReActiv8-B Trial is
intended to gather data in support of the Company's PMA
application. Information about the Clinical Trial can be found at
https://clinicaltrials.gov/ct2/show/study/NCT02577354.
A total of 204 subjects were implanted with ReActiv8 at leading
clinical sites in the U.S., Europe and Australia and randomized 1:1
to therapy or control 14 days after implant. In the treatment
group, the ReActiv8 pulse generator was programmed to deliver
electrical stimulation expected to elicit contractions of the
multifidus muscle. In the control group, the ReActiv8 device was
programmed to provide a low level of electrical stimulation.
Following assessment of the primary endpoint at 120 days, subjects
in the control group crossed-over to receive levels of electrical
stimulation similar to those in the treatment group.
The subjects in the study had an average age of 47, and an
average duration of chronic low back pain of 14 years. This patient
population had tried many other treatment alternatives, including
physical therapy and drugs, with limited success, and 79% of the
subjects were on pain medication at baseline.
The primary efficacy endpoint of the study was a comparison of
responder rates between the treatment and control groups as
measured on the visual analog scale (VAS) of pain, consisting a
0-10 scale with 0 being no pain and 10 being the worse imaginable
pain. Responders were defined as having a 30% or greater
improvement on this measure between baseline and 120 days after
baseline, without any increase in pain medication and/or muscle
relaxants taken in the two weeks prior to the primary endpoint
assessment visit. The following table shows the result on the
primary efficacy endpoint:
Treatment Control Difference
Primary Efficacy Endpoint N=102 N=102 p-value
Responder (>=30% Reduction in Low Back Pain 10.4%
VAS and no Increase in Pain Medications) 57.1% 46.7% p=0.1377
The Investigational Plan for the study included a pre-specified
sensitivity analysis, assessing the impact of medication changes to
treat acute, unrelated pain conditions on the primary endpoint.
The Company, in consultation with statistical advisors,
determined that a valid way to handle the subjects with pain
medication increases for reasons unrelated to low back pain would
be to analyze the endpoint with these subjects removed, as pain
medication use for reasons unrelated to low back pain was an
exclusion criterion in the study. By doing so, inference is limited
to the population of subjects taking pain medication only for
reasons related to low back pain, as intended by the patient
selection criteria in the trial protocol.
Six subjects had increases in pain medications for reasons other
than low back pain. The following table presents the results of the
primary efficacy endpoint in the subjects not requiring an increase
in pain medications for reasons other than for low back pain,
showing a clinically-meaningful and statistically-significant
difference:
Treatment Control Difference
Primary Efficacy Endpoint N=96 N=102 p-value
Responder (>=30% Reduction in Low Back Pain 14.0%
VAS and no Increase in Pain Medications) 60.6% 46.7% p=0.048
The Investigational Plan for the study also included a
pre-specified analysis of the primary endpoint data examining the
cumulative proportion of responders, which is a comparison of ranks
and inherently preserves information over a dichotomized endpoint,
thereby improving statistical power. In that analysis, a
statistically significant difference between the treatment and
control groups was demonstrated, with the treatment group showing a
higher proportion of responders across all threshold levels.
Numerous secondary endpoints and supporting analyses were
collected to assess improvements in the treatment group as compared
to the control group at 120 days, including reduction from baseline
in pain as measured by both mean reduction in VAS and percent pain
relief (PPR), change from baseline in disability measured by the
Oswestry Disability Index (ODI), change from baseline in quality of
life measured by the European Quality of Life Score on Five
Dimensions (EQ-5D), subject global impression of change (SGIC),
clinician global impression of change (CGI), patient treatment
satisfaction as measured by the treatment satisfaction
questionnaire (TSQ) and pain resolution (defined as VAS <=2.5
cm). As shown in the following table, when evaluating the therapy
across multiple dimensions of subject outcomes, the treatment
effect is significant in seven of the eight secondary
endpoints/supporting analyses: mean reduction in VAS, PPR, ODI,
EQ-5D, SGIC, treatment satisfaction and CGI:
Treatment Control Difference
N=102 N=102 p-value
Mean +/- SD Mean +/- SD
(Min, Max) (Min, Max)
Endpoint N or N (%) N or N (%)
Change in Low back -3.3 +/- 2.7 -2.4 +/- 2.9 0.9
pain VAS 100 (-8.5, 3.0) 101 (-8.8, 3.5) p = 0.032
52 +/- 32 35 +/- 36 17
Percent Pain Relief 100 (0, 100) 101 (0, 100) p <= 0.001
-17.5 +/- 15.1 -12.2 +/- 14.6 5.4
Change in ODI 100 (-58.0, 20.0) 101 (-48.0, 32.0) p = 0.011
0.186 +/- 0.199 0.115 +/- 0.178 0.071
Change in EQ-5D 100 (-0.365, 0.782) 100 (-0.640, 0.665) p = 0.009
NA
Subject Global Impression of Change p = 0.003
Much better 100 32 (32%) 101 18 (18%)
Better 100 22 (22%) 101 16 (16%)
A little better 100 25 (25%) 101 29 (29%)
No change 100 10 (10%) 101 24 (24%)
A little worse 100 6 (6%) 101 5 (5%)
Worse 100 4 (4%) 101 6 (6%)
Much worse 100 1 (1%) 101 3 (3%)
NA
Satisfied with Treatment p <= 0.001
Definitely Yes 100 61 (61%) 101 40 (40%)
Maybe 100 29 (29%) 101 37 (37%)
Definitely Not 100 10 (10%) 101 24 (24%)
NA
Clinician Global Impression p <= 0.001
Much Better 100 57 (57%) 100 22 (22%)
Slightly Better 100 26 (26%) 100 29 (29%)
About the Same 100 16 (16%) 100 42 (42%)
Slightly Worse 100 1 (1%) 100 5 (5%)
Much Worse 100 0 (0%) 100 2 (2%)
Remitters (VAS <= 6.3%
2.5) 100 34 (34%) 101 28 (28%) p = 0.335
At the 120-day visit, subjects in the control group were allowed
to cross-over to receive stimulation at a therapeutic level. All
control subjects elected to cross-over at this timepoint. At the
time of filing of the PMA, 160 subjects had completed the 1-year
assessment visit, consisting of 80 in each group. In this
population, all efficacy outcomes for the treatment group and for
the control group post crossover progressively improved through the
1-year assessment visit, consistent with the rehabilitative nature
of the therapy (8 months of therapy for the crossover group).
Outcomes at 1 year (8 months of therapy for the crossover
group):
-- VAS Responders:
-- 69% in the treatment group
-- 63% in the crossover group
-- Change in VAS:
-- -4.4 in the treatment group
-- -4.4 in the crossover group
-- Average Percent Pain Relief:
-- 67% in the treatment group
-- 66% in the crossover group
-- Average ODI Change:
-- 21-point reduction in the treatment group
-- 20-point reduction in the crossover group
-- Average EQ-5D Change:
-- 0.218-point increase in the treatment group
-- 0.183-point increase in the crossover group
-- Average SGIC:
-- 76% Better or Much Better in the treatment group
-- 72% Better or Much Better in the crossover group
-- Average Treatment Satisfaction:
-- 82% Definitely Satisfied in the treatment group
-- 76% Definitely Satisfied in the crossover group
-- Average CGI:
-- 78% Much Better in the treatment group
-- 71% Much Better in the crossover group
Although the study was not designed to reduce medications after
the 120-day visit, subjects were allowed to change medications
after that time point. As the following table shows, of the 61
patients (treatment and crossover groups combined) who were on at
least one opioid-containing medication at baseline and had a 1-year
visit, 28% had discontinued use of opioids, and an additional 21%
had decreased opioid use, for an overall rate of 49% of patients
who decreased or discontinued opioids by the 1-year visit.
Opioid
Medication Change Status % (n/N)
Discontinued or Decreased 49% (30/61)
No Change 44% (27/61)
Increased or Added 7% (4/61)
Notably, patients who decreased or discontinued opioids had
similar efficacy results as the overall population. In addition,
97% of those who were not on an opioid at baseline and had a 1-year
visit remained off opioids.
All of the subjects remaining in the study have now completed
the 1-year assessment visit, consisting of 176 subjects, 87 in the
treatment group and 89 in the control group. For this population,
all of the efficacy and safety outcomes at one year were consistent
with the results presented above.
The incidence and type of adverse events (AEs), including
serious AEs, compares favourably to that of spinal cord stimulator
devices, with no unanticipated AEs related to the device, procedure
or stimulation.
ReActiv8-A Clinical Trial/PMCF Study -- The ReActiv8-A Clinical
Trial was an international, multi-center, prospective, single arm
clinical trial of ReActiv8 that formed the basis of our CE mark for
ReActiv8.
Following CE marking approval, a range of activities is required
for post market clinical follow up to gather additional data on the
long-term performance and safety of ReActiv8. The ReActiv8--A PMCF
Study is a continuation of the ReActiv8-A Clinical Trial (but using
CE Marked ReActiv8). Subjects enrolled in the ReActiv8--A Clinical
Trial in the UK were converted to the ReActiv8-A PMCF Study.
Physicians commenced with these implants in late 2017, and 43
implants were completed by the end of 2018 and we continue to
gather clinical data from these patients.
ReActiv8-C Registry -- In addition to the ReActiv8-A PMCF Study,
the Company is maintaining the ReActiv8-C Registry, an
international, multi-centre data collection registry. All centres
that use the product commercially are invited to participate in the
Registry program. All patients who are implanted with ReActiv8 at
the centres participating in the Registry will be invited to enroll
in the Registry until the target enrolment numbers have been
reached. The purpose of the Registry is to gather additional
summary data on long term performance of ReActiv8 in at least 50
patients.
PMA Submission -- In August 2019 the Company submitted a
pre-market approval (PMA) application to the FDA for ReActiv8. The
FDA notified the Company in October 2019 that it had made a
threshold determination that the application was sufficiently
complete to begin an in-depth review.
In December 2019 the Company completed a Day 100 meeting with
the FDA regarding the PMA application. Prior to the meeting, the
FDA provided us with its initial feedback on the PMA, consisting of
questions regarding the data included in the PMA and the
interpretation of such data. The Company currently has no plans to
conduct another premarket pivotal IDE trial for ReActiv8.
TGA Approval -- In December 2019, the Company received
regulatory approval from the Australian Therapeutic Goods
Administration (TGA) for ReActiv8. This approval confirms inclusion
of ReActiv8 in the Australian Register of Therapeutic Goods (ARTG),
enabling commercialization throughout Australia. The Company has
submitted an application for ReActiv8 to be included in the
Prostheses List of reimbursed products, with a reimbursement
decision expected in the third quarter of 2020. The Prostheses List
identifies implantable devices eligible for reimbursement from all
private health insurance funds in Australia.
Commercial Activities
Commercial Validation -- In Germany, Mainstay's initial European
market, the Company continued to make progress working with key
physician partners who are incorporating ReActiv8 into their
practises in order to validate commercial adoption. The Company is
focussed on building a limited number of reference sites where high
volumes of patients are treated with ReActiv8, allowing the Company
to gather associated clinical data, refine patient selection
processes for commercial markets, and gain the learnings needed to
accelerate commercial launch in future markets. Towards the end of
2019, we implanted our first patient in Switzerland and we plan to
launch commercial efforts in the United Kingdom in the first half
of 2020. We plan to launch ReActiv8 commercially in Australia after
securing a place on the Prostheses List.
Following receiving approval regulatory approval from the
Australian TGA for ReActiv8. we have applied for inclusion of
Reactiv8 on the Prostheses List of reimbursed products. We plan to
launch ReActiv8 commercially after securing a place on the
Prostheses List.
US Patents -- The total current number of issued US issued
Patents in the Mainstay portfolio is 17. Mainstay continues to add
to its portfolio of issued patents and pending patent
applications.
Financing Activities
Equity Offering -- On 29 July 2019, the Company completed
financing transactions to raise EUR16.9 million financing
(approximately $18.9 million). The financing transactions consisted
of the issuance of 4,649,775 new ordinary shares at a purchase
price of EUR3.00 per share and the drawdown of EUR3.0 million
(approximately $3.34 million) in additional debt from the Company's
existing lender. The funds are being used to support our regulatory
approval process in the U.S. and to advance our commercial
validation efforts for ReActiv8 in Germany and other markets.
On 25 October 2019, the Company announced the publication of a
prospectus (the Prospectus) in connection with the Placement and
admission to trading on ESM (now Euronext Growth) and Euronext
Paris.
The Prospectus comprises a Summary Document, a Securities Note
and a Registration Document. These documents are available on our
website www.mainstay-medical.com).
Debt Facility
On 18 April 2019, Mainstay Medical Limited entered into an
amendment to its agreement with IPF Partners relating to the
existing debt facility. Pursuant to the amendment:
-- The repayment schedule for the three existing tranches drawn under the
debt facility was amended such that no principal or interest will be
repaid until 2021, with the principal and accrued interest to be
amortized over the period from 1 January 2021 through 30 September 2023.
-- A new tranche of EUR3.0 million was made available to Mainstay, which was
drawn down on 29 July 2019. The repayment schedule for the new tranche is
the same as the amended repayment schedule for the three existing
tranches.
-- The interest rate for all tranches will be 8% per annum, with interest
accruing but capitalized prior to 1 January 2021.
-- The 5% repayment fee applicable to each existing tranche was eliminated.
-- All principal and accrued interest from all tranches will automatically
convert into ordinary shares of Mainstay Medical International plc at a
price per share of EUR8 upon the earlier of (a) FDA approval of
Mainstay's PMA application for ReActiv8, (b) the date by which at least
900,000 ordinary shares of Mainstay Medical International plc are
publicly sold on-market by non-affiliates of Mainstay after 18 April 2019
at a price per share of at least EUR8, or (c) IPF Partners' election to
undertake such conversion, in each case unless Mainstay elects to satisfy
such obligation in whole or in part in cash.
-- The minimum cash covenant was amended so that Mainstay is required to
hold cash at least equal to its projected cash expenditures for
operations and debt repayment for the next three months, and the covenant
relating to the achievement of commercial milestones was eliminated.
-- Mainstay Medical International plc also issued to IPF Partners a warrant
to purchase 1.5 million of its ordinary shares at a price per share of
EUR6 at any time prior to the 6th anniversary of the amendment date.
-- Medical International plc has issued further conditional warrants to IPF
Partners that will become exercisable only to the extent Mainstay elects
to repay the debt in cash rather than issue ordinary shares when a
conversion of the debt is triggered. As such, the conditional warrants
are intended to ensure that, notwithstanding any such election to repay
in cash, IPF Partners retains the right to subscribe for ordinary shares
of the Company on the terms and conditions that would otherwise have
applied.
All tranches under the facility will continue to be secured by
way of fixed and floating charges over the assets and undertakings
of Mainstay Medical Limited, and the fixed first charge created by
Mainstay Medical International plc in favor of IPF over its present
and future shares held in Mainstay Medical Limited continues in
effect.
Financial review
Income statement --Revenue during the twelve-month period ending
31 December 2019 was $1.1 million (2018: $0.7 million). Revenue was
generated from sales of ReActiv8 systems to customers in Germany,
the UK, Ireland and Switzerland.
Operating expenses related to on-going activities were $19.2
million during the year ended 31 December 2019 (2018: $29.6
million). On-going activities during the financial year included
research and development, clinical and regulatory activities,
selling, general and administrative activities.
Research and development expenditure during the 2019 period
included the salaries of engineers, technicians, and quality and
regulatory specialists; the cost of outsourced development and
manufacturing activities; biocompatibility and pre-clinical
studies; and quality costs including the maintenance of our quality
system. Research and development expenses were $2.9 million during
the year ended 31 December 2019 (2018: $3.5 million). A decrease of
$0.6 million is primarily driven by reduced payroll related costs
following a reduction in headcount in 2019.
Clinical and regulatory expenses were $3.9 million during the
year ended 31 December 2019 and decreased by $7.1 million from $11
million during the same period in 2018. This is primarily driven by
decreased direct trial costs relating to activities for the
ReActiv8-B Clinical Trial, following the announcement in July 2018
of the completion of all implants and reduced payroll related costs
following a reduction in headcount in 2019.
Our selling, general and administrative expenses were $12.4
million during year ended 31 December 2019, and $15.1 million
during the same period in 2018. The decrease of $2.7 million is
primarily driven by payroll related costs in addition to reduced
legal and professional fees incurred in 2019 versus 2018.
The loss for the year was $22.4 million (2018: $31 million).
Statement of financial position -- Total assets of the Group at
year end were $20.6 million (2018: $19.4 million). Cash on hand at
31 December 2019 was $17.4 million (2018: $15.5 million). Cash used
in operating activities was $15.6 million during the year ended 31
December 2019 (2018: $27.4 million). This operating cash outflow
reflects the cost of the research and development of ReActiv8,
undertaking our clinical trials, commercialization expenditure, the
ongoing costs of being a public company, and running the Group.
Principal risks and uncertainties
A summary of the principal risks relating to the Group and
Company and/or its industry include the following:
-- We have incurred significant operating losses and may not be able to
achieve or subsequently maintain profitability.
-- We expect to require additional funds in the future in order to meet our
capital and expenditure needs and further financing may not be available
when required or, if available, could be dilutive to current investors,
or require us to agree to terms which are specifically favourable to new
investors, or to restrictions significantly limiting our access to
additional capital.
-- Our future financial performance is entirely dependent on the commercial
success of ReActiv8, our only product as of the date of this Report,
obtaining adequate reimbursement for ReActiv8, and rates of product
adoption and market penetration.
-- Failure to comply with debt covenants or failure to make repayments on
our debt facility could have a material adverse effect.
-- We operate in a highly regulated environment and regulatory approval is
required before we can market or sell ReActiv8 in any market.
-- Seeking and obtaining regulatory approval for medical devices can be a
long and uncertain process. Strict or changing regulatory regimes,
government policies and legislation in any of our target markets may
delay, prohibit or reduce potential sales.
-- We are required to conduct clinical trials for regulatory approvals and
other purposes. Clinical trials carry substantial risks and are costly
and time consuming, with uncertain results.
-- Any inability to fully protect and exploit our intellectual property may
adversely impact our financial condition, business, prospects and results
of operations.
A more extensive description of the existing and future
potential risks to Mainstay's business and to the Company's
ordinary shares are outlined in the Risk Factors section of this
report, on pages 25 to 52, and should be considered carefully by
Shareholders and prospective investors.
Financial risk management
The Group is exposed to a variety of financial risks including
credit risks, liquidity risks, interest rate risks and foreign
currency risks. Further information can be reviewed in Note 21.
Risk management framework - Mainstay's Board of Directors has
overall responsibility for the establishment and oversight of the
Group's risk management framework. The Group's risk management
policies are established to identify and analyze the risks faced by
the Group, to set appropriate risk limits and controls and to
monitor risks and adherence to the limits. Risk management systems
and policies will be reviewed regularly as conditions affecting the
Group change.
The Group has no significant concentrations of financial risk
other than concentration of cash with individual banks. Other than
liquidity risk based on the Company's use of cash during the year,
there has been no significant change during the year or since the
year end to the types or quantum of financial risks faced by the
Group or the Group's approach to the management of those risks.
Liquidity risk - Liquidity risk is the risk that the Group will
not be able to meet its financial obligations as they fall due.
Since inception the Group has funded its operations primarily
through (i) the issuance of equity securities and (ii) debt
funding. The Group continues to explore funding strategies (e.g.:
equity, debt, partnering) to support its activities into the
future. Adequate additional financing may not be available on
acceptable terms, or at all. The Group's inability to raise capital
as and when needed would have a negative impact on the Group's
financial position and its ability to pursue its business
strategy.
Credit risk - Credit risk is the risk of financial loss to the
Group if a customer or counterparty to a financial instrument fails
to meet contractual obligations and arises principally from the
Group's cash and cash equivalents and trade and other receivables.
Credit risk is managed on a Group basis. The maximum exposure to
credit risk is represented by the carrying amount of each
asset.
Foreign currency risk - The Group's presentational currency is
the US Dollar. The Group's exposure to foreign currency risk arises
through expenditure incurred in Euro and Australian Dollars. The
Group's Australian subsidiary has an Australian Dollar functional
currency, and three of the Group's subsidiaries located in Ireland,
Germany and the Netherlands have a Euro functional currency.
Interest rate risk - The Group's cash balances are maintained in
short term access accounts and carry a floating rate of
interest.
The Company's loan originally carried a variable rate of 3-month
Euribor plus a margin ranging from 10.5% to 12.5%. The repayment
schedule for the three existing tranches drawn under the debt
facility, as well as the new tranche made available, was amended in
April 2019 such that no principal or interest will be repaid until
2021, with the principal and accrued interest to be amortized over
the period from 1 January 2021 through 30 September 2023. The
interest rate for all tranches is fixed at 8% per annum, with
interest accruing but capitalized prior to 1 January 2021.
Outlook and future developments
Our corporate objectives for 2020 are to advance the PMA review
process with the FDA with a decision regarding approval expected
around the end of 2020; and to continue our commercial validation
efforts in Germany and other select markets by focussing on
building a limited number of high-volume ReActiv8 practices that
will allow us to gather associated clinical data, refine patient
selection processes and gain the learnings needed to accelerate
commercial launch in future markets.
Directors and Secretary and their interests
The names of the persons who were Directors during the year are
set out as follows:
Oern Stuge MD, Independent Non-Executive Chairman
Jason Hannon, Chief Executive Officer and Executive Director
David Brabazon, Independent Non-Executive Director
Greg Garfield, Non-Executive Director
Antoine Papiernik, Non-Executive Director
James Reinstein, Independent Non-Executive Director
Dan Sachs MD, Non-Executive Director
Nael Karim Kassar, Non-Executive Director (resigned 20 September
2019)
It is the Board's current intention that one third of all
Directors will retire at each AGM, subject to any additional
requirements under Articles 90 to 94 of the Company's Articles of
Association.
Mr. Antoine Papiernik, Dr. Oern Stuge and Nael Karim Kassar
retired at the Company's Annual General Meeting ("AGM") held on 20
September 2019. Mr. Papiernik and Dr. Stuge submitted themselves
for re-election by the shareholders and Nael Karim Kassar notified
the Board that he would not offer himself for re-election. The
Board decided not to replace Mr. Kassar and therefore the size of
the Board was reduced from eight to seven Directors following the
resolutions to re-elect each Director being passed at the AGM.
Tom Maher ceased serving as Company Secretary on 30 January 2019
and Matthew Onaitis was appointed as Company Secretary on 30
January 2019.
The beneficial interest of the Directors and Company Secretary,
who held office at 31 December 2019, in the ordinary share capital
of the Company at the dates below were as follows:
Ordinary shares
At 31 December At 31 December
Name 2019 2018
Ordinary shares of
David Brabazon EUR0.001 each 212,828 57,828
Ordinary shares of
Dan Sachs MD EUR0.001 each 515,000 515,000
Ordinary shares of
Jason Hannon EUR0.001 each 30,000 30,000
Ordinary shares of
Greg Garfield EUR0.001 each 2,912 2,912
No. of No. of
ordinary ordinary
shares shares No. of
under under vested
Exercise option as option as options
Deemed price per at 31 at 31 as at 31
Share date of ordinary Expiry December December December
options grant share date 2019 2018 2019
10 years
Oern Stuge 23 Jan from
MD 2013 US$1.00 vesting 55,014 55,014 55,014
10 years
Oern Stuge 13 Dec from
MD 2016 EUR15.50 vesting 17,000 17,000 12,746
10 years
Jason 6 Sept from
Hannon 2017 EUR14.85 vesting 401,862 401,862 226,045
10 years
Jason 23 March from
Hannon 2018 EUR16.90 vesting 118,628 118,628 51,896
10 years
Jason 13 Aug from
Hannon 2019 EUR3.76 vesting 464,000 - -
10 years
David from
Brabazon 5 Dec 2013 US$1.00 vesting 18,427 18,427 18,427
10 years
David 13 Dec from
Brabazon 2016 EUR15.50 vesting 5,700 5,700 4,257
10 years
James A. from
Reinstein 2 Sep 2015 EUR16.87 vesting 20,000 20,000 20,000
10 years
James A. 13 Dec from
Reinstein 2016 EUR15.50 vesting 6,200 6,200 4,646
10 years
Matt 20 Aug from
Onaitis 2018 EUR15.00 vesting 100,000 100,000 33,332
10 years
Matt 13 Aug from
Onaitis 2019 EUR3.76 vesting 90,000 - -
RSU Deemed No. of Vesting
date of RSUs date
grant
Jason 1 Feb 2019 120,000 1 January
Hannon 2021
Matt 1 Feb 2019 40,000 1 January
Onaitis 2021
The Employee Incentive Plan was amended in 2019 to allow for the
issue of restricted stock units ("RSUs"), being rights to receive
Ordinary Shares at no cost to the relevant employee, director or
consultant.
Except as disclosed in this report, none of the Directors who
held office at 31 December 2019, had a beneficial interest in the
share capital of the Company or its subsidiaries and no such
interest, the existence of which is known or could with reasonable
diligence be ascertained by the relevant Director, is held by any
connected person.
Mr. Papiernik held no interest in the issued share capital of
the Company other than the interests that he is deemed to hold in
the Company by virtue of the interests that he holds in Sofinnova
Capital VI FCPR. At 31 December 2019, Sofinnova Capital VI FCPR
owned 2,949,146 ordinary shares amounting to approximately 22% of
the entire issued ordinary share capital of the Company. As at 31
December 2018, Sofinnova Capital VI FCPR owned 2,415,813 ordinary
shares amounting to approximately 27.5% of the entire issued
ordinary share capital of the Company.
Directors' remuneration
The following table shows the amount of remuneration paid and
benefits in kind granted to the Directors by the Group for services
in all capacities relating to 2019:
Annual Benefits in
2019: Fees Salary Incentive Kind Total
Executive Directors
Jason Hannon $40,000 $460,000 $217,500 $105,707 $823,207
Non-Executive Directors
Oern Stuge MD $103,906 - - - $103,906
David Brabazon $58,171 - - - $58,171
Greg Garfield - - - - -
Nael Karim Kassar
(resigned 20 September
2019) - - - - -
Antoine Papiernik - - - - -
James A. Reinstein $58,171 - - - $58,171
Dan Sachs MD - - - - -
Annual Benefits in
2018: Fees Salary Incentive Kind Total
Executive Directors
Jason Hannon $40,000 $473,474 - $83,167 $596,641
Non-Executive Directors
Oern Stuge MD $106,292 - - - $106,292
David Brabazon $61,417 - - - $61,417
Greg Garfield - - - - -
Nael Karim Kassar - - - - -
Antoine Papiernik - - - - -
James A. Reinstein $61,417 - - - $61,417
Manus Rogan PhD - - - - -
(resigned 24 September
2018)
Dan Sachs MD - - - - -
None of the directors exercised any share options in either 2019
or 2018.
Issued share capital
At 31 December 2019, the authorized share capital of the Company
was EUR75,000, comprised of 35,000,000 ordinary shares of EUR0.001
each and 40,000 deferred shares of EUR1.00 each. A full description
of the rights attached to the ordinary and deferred shares of the
Company is available in the Articles of Association on the
Company's website. Further information on share movements is
provided in Note 19.
On 20 September 2019, at the Company's 2019 AGM, the
Shareholders passed resolutions:
-- authorizing the Directors, pursuant to section 1021 of the Companies Act
2014, in substitution for all existing such authorities, to exercise all
powers of the Company to allot relevant securities (within the meaning of
section 1021 of the Companies Act 2014) up to an aggregate nominal amount
of EUR17,000 during the period commencing on the date of the passing of
the resolution and expiring on 20 September 2024 (being five years after
the date of passing of the resolution), provided that the Company may
before such expiry make an offer or agreement which would or might
require relevant securities to be allotted after such expiry and the
Directors may allot relevant securities in pursuance of such offer or
agreement as if the authority hereby conferred had not expired;
-- empowering the Directors, pursuant to section 1023 of the Companies Act
2014, in substitution for all existing such authorities, to allot equity
securities (within the meaning of section 1022 of the Companies Act 2014)
for cash pursuant to the authority conferred by the resolution above as
if sub-section (1) of section 1022 of the Companies Act 2014 did not
apply to any such allotment, provided that this power shall be limited:
-- to the allotment of equity securities in connection with a rights
issue, open offer or other invitation to or in favour of the
holders of ordinary shares in the Company where the equity
securities respectively attributable to the interests of such
holders are proportional (as nearly as may be) to the numbers of
ordinary shares in the Company held by them (but subject to such
exclusions or other arrangements as the Directors may deem
necessary or expedient to deal with fractional entitlements that
would otherwise arise or with legal or practical problems under
the laws of, or the requirements of any recognized regulatory body
or any stock exchange in, any territory, or otherwise howsoever);
and
-- to the allotment of equity securities up to an aggregate nominal
amount of EUR17,000,
and shall expire on 20 September 2024 (being five years after
the date of passing of the resolution), provided that the Company
may before such expiry make an offer or agreement which would or
might require equity securities to be allotted after such expiry
and the Directors may allot equity securities in pursuance of such
offer or agreement as if the power hereby conferred had not
expired.
-- increasing the Company's authorized share capital from EUR60,000 divided
into 20 million ordinary shares of EUR0.001 each and 40,000 deferred
shares of EUR1.00 each to EUR75,000 divided into 35 million ordinary
shares of EUR0.001 each and 40,000 deferred shares of EUR1.00 each, and
amending the Company's Memorandum and Articles of Association to reflect
such increase.
The Company is not aware of any agreements between holders of
securities that may result in restrictions in the transfer of
ordinary shares or voting rights over ordinary shares. The
Directors in their absolute discretion and without assigning any
reason therefor may decline to register any transfer of a deferred
share. The Company is authorized at any time to appoint any person
to execute on behalf of the holder(s) of deferred shares a transfer
thereof and/or an agreement to transfer the same, without making
any payment to the holder(s) thereof and persons so entitled, to
such person(s) as the Company may determine as holder(s) thereof
and beneficially entitled thereto.
At no time during 2019 were any ordinary or deferred shares in
the Company held or acquired by the Company or any subsidiary of
the Company.
Share Option Plan
The Group operates a share option plan (the "Plan"). As at 31
December 2019, the Plan allows for the Company to grant share
options or restricted stock units ("RSUs") to employees of the
Group companies, and other eligible persons. Shares are issued when
share options are exercised or RSUs are vested in accordance with
the Plan.
The Employee Incentive Plan was amended in 2019 to allow for the
issue of RSUs and the number of shares in the option pool were
increased by 1.5 million during 2019.
Memorandum and Articles of Association
The Company's Articles of Association detail the rights attached
to the shares; and the rules relating to the Directors, including
their appointment, retirement, re-election and powers. Changes to
the Articles of Association must be approved by the shareholders in
accordance with the legislation in force from time to time.
At the Company's 2019 AGM, a special resolution was passed to
amend the Memorandum and Articles of Association of the Company to
increase of the Company's authorized share capital from EUR60,000
divided into 20 million ordinary shares of EUR0.001 each and 40,000
deferred shares of EUR1.00 each to EUR75,000 divided into 35
million ordinary shares of EUR0.001 each and 40,000 deferred shares
of EUR1.00 each.
A copy of the Memorandum and Articles of Association can be
obtained from the Group's website.
Substantial shareholders
As at 31 December 2019 before publication of this Directors'
Report, in so far as was notified to the Company, the following
were holders of 3% or more of the Company's issued ordinary share
capital:
Shareholder No. of ordinary shares Percentage
Sofinnova Capital VI FCPR 2,949,146 22%
Fountain Healthcare Partners (Note 1). 2,268,553 16.9%
KCK Limited 2,236,418 16.7%
RICA UNIVERSAL S.A 1,064,935 7.9%
Seamus Mulligan (Note 2) 772,039 5.8%
The Ireland Strategic Investment Fund
(ISIF) 714,285 5.3%
Dan Sachs MD 515,000 3.8%
Notes:
1. Includes 935,220 Ordinary Shares held by Fountain Healthcare Partners
Fund 1, L.P. and 1,333,333 Ordinary Shares held by Fountain Healthcare
Partners Fund 3, L.P.
2. Includes Ordinary Shares held by Barrymore Investments Limited and Nerano
Capital Limited
Going concern
The Directors have evaluated whether there are conditions and
events, considered in aggregate, that raise doubt about the Group's
ability to continue as a going concern. The Directors note the
following relevant matters:
-- The Group had cash of $17.4 million as at 31 December 2019 ($15.5 million
as at 31 December 2018).
-- The Group had operating cash out-flows of $15.6 million for the year
ended 31 December 2019 (year ended 31 December 2018: $27.3 million).
-- Due to the phase of development of the Group, the Group expects to
continue to incur losses in the medium term due to the ongoing investment
required in research and development, clinical and commercial activities
and expects to continue to seek funding from investors or other finance
providers as required.
-- The Group has renegotiated its debt and raised additional equity finance
during the year to support the Group's activities for the foreseeable
future.
After making enquiries and having considered the conditions
noted above and the options available to the Group, the Directors
have a reasonable expectation that the Group can carefully monitor
its cash flows and has the ability to consider various strategies
for additional funding and budgets to manage cash to ensure that
the Group will have sufficient funds to be able to meet its
liabilities as they fall due for a period of at least 12 months
from the date of the Financial Statements and are satisfied that
the Financial Statements should be prepared on a going concern
basis.
Dividends
The Directors do not recommend the payment of a dividend.
Research and development
Certain Group undertakings are engaged in ongoing research and
development aimed at continuous improvement of the Group's product
and processes. Research and development expenditure is set forth in
Note 6 to the consolidated Financial Statements.
Related party transactions
Details of related party transactions that have taken place
during the reporting period are set forth in Note 26 to the
consolidated Financial Statements.
Political and charitable donations
During the year, the Group and Company made no donations
requiring disclosure.
Post balance sheet events
Details of important events affecting the Company which have
taken place since the end of the year are given in Note 29 to the
consolidated Financial Statements.
Subsidiary undertakings
At 31 December 2019, the Company (Mainstay Medical International
plc) had the following subsidiaries:
-- Mainstay Medical Limited ("MML") is registered in Ireland and its
principal activities include research, development, clinical and
regulatory activities and support services to other Group companies.
-- MML US, Inc. is registered in the United States of America and its
principal activity is the provision of support services to other Group
companies.
-- Mainstay Medical (Australia) Pty. Limited ("MMA") is registered in
Australia and its principal activity is the provision of support services
to other Group companies.
-- Mainstay Medical Distribution Limited ("MMD") was incorporated in Ireland
and its principal activity is the provision of sales and distribution
services.
-- Mainstay Medical GmbH ("MMG") is registered in Germany and its principal
activity is the provision of sales support services.
-- Mainstay Medical BV ("MMBV") is registered in the Netherlands and its
principal activity is the provision of management and sales support
services.
The Company owns 100% of the called-up share capital of each of
the above subsidiaries.
Accounting records
The Directors, through the use of appropriate procedures,
personnel and systems, have ensured that measures are in place to
secure compliance with the Company's and the Group's obligation to
keep adequate accounting records under section 281-285 of the
Companies Act 2014. The books of account of the Company and the
Group are maintained at its registered office.
Relevant audit information
The Directors believe they have taken all steps necessary to
make themselves aware of any relevant audit information and have
established that the Group's statutory auditors are aware of that
information. In so far as they are aware, there is no relevant
audit information of which the Group's statutory auditors are
unaware.
Audit Committee
The Company has established an Audit Committee. Please refer to
page 22 for further information.
Directors Compliance Statement:
The Directors, in accordance with Section 225(2) of the
Companies Act 2014, acknowledge that they are responsible for
securing the Company's compliance with the Relevant Obligations (as
defined by the Companies Act 2014), and the Directors confirm
that:
1. a compliance policy statement has been drawn up setting out the Company's
policies that are, in their opinion, appropriate with regard to such
compliance;
2. appropriate arrangements or structures are in place that are, in their
opinion, designed to provide reasonable assurance of compliance in all
material respects with those Relevant Obligations; and
3. a review has been conducted, during the financial year, of those
arrangements or structures.
European Communities (Takeover Bids (Directive 2004/25/EC))
Regulations 2006
The Company and a subsidiary of the company, MML, are party to a
Facility Agreement dated 24 August 2015 with IPF Fund I SCA
SICAV-FIS ("IPF") whereby IPF provided a debt facility to MML. On
18 April 2019, the Company, MML and IPF entered into an amendment
and restatement agreement to the Original IPF Facility Agreement
(the "IPF Amendment and Restatement Agreement") In certain
circumstances in the event of a change of control of the Company or
of MML, the debt facility may become immediately repayable at IPF's
option.
Auditor
The auditor, KPMG, Chartered Accountants, will continue in
office accordance with Section 383 (2) of the Companies Act
2014.
A resolution authorizing the Directors to fix the auditors
remuneration was passed at the Company's AGM on 20 September
2019.
On behalf of the Board on 24 February 2020,
Oern Stuge MD Jason Hannon
Chairman
CEO
Mainstay Medical International plc
Corporate governance report
The Board recognizes the importance of good governance in
supporting growth in long term shareholder value and is accordingly
committed to maintaining the highest standards of corporate
governance commensurate with the size and stage of the development
of the Group.
While there is no specific corporate governance regime mandated
in Ireland for companies listed on Euronext Growth of Euronext
Dublin nor is there any specific corporate governance regime
mandated in France for companies who are listed on Euronext but not
incorporated in France, the Company applies recognized corporate
governance principles to the extent they are appropriate for a
company of its size, stage of development and resources.
The Board will also take account of other institutional
shareholder governance guidelines on disclosure and shareholder
authorizations to the extent they are appropriate for a company of
its size, stage of development and resources.
The Board
The Board is responsible for the supervision and control of the
Company and is accountable to the Company. The Board has reserved
decision-making on a variety of matters, including determining
strategy for the Group, reviewing and monitoring executive
management performance and monitoring risks and controls.
The Board comprises seven Directors, including one Executive
Director, five Non-Executive Directors and the Non-Executive
Chairman. The roles of Chairman and Chief Executive Officer are not
exercised by the same individual.
The Board meets regularly (no less than four times per year) to
consider strategy, performance and the framework of internal
controls. The Directors have also established an Audit, Risk and
Compliance Committee, a Remuneration Committee, and a Nominations
Committee, each having formally delegated rules and
responsibilities. Each of the Committees currently comprises
Non-Executive Directors only.
The Board comprises a mix of the necessary skills, knowledge and
experience required to provide leadership, control and oversight of
the management of the Company and to contribute to the development
and implementation of the Company's strategy. In particular, the
Board combines a group of Directors with diverse backgrounds within
the medical device and related sectors, in both public and private
companies.
All the Directors bring independent judgment to bear on issues
affecting the Group and all have full and timely access to
information necessary to enable them to discharge their duties. The
Articles require each Director to retire at the annual general
meeting held in the third calendar year following the year in which
he was appointed or last re-appointed but unless he falls within
the next succeeding paragraph he shall be eligible for
re-appointment.
A Director shall also retire at any annual general meeting if he
has agreed to do so (whether in accordance with the terms of his
appointment or otherwise) and, unless the Directors have agreed
otherwise, he shall not be eligible for re-appointment.
Internal control
The Board acknowledges that it is responsible for maintaining
the Company's system of internal control and risk management
processes required to safeguard the Group's assets and intellectual
property. Such a system is designed to identify, manage and
mitigate financial, operational and compliance risks inherent to
the Company and the Group. The system is designed to manage rather
than eliminate the risk of failure to achieve business objectives
and can only provide reasonable, but not absolute assurance against
material misstatement or loss.
The main features of internal control and risk management
processes for preparing Financial Statements and financial
reporting include:
-- Board approval of the annual budget and strategy;
-- Monitoring of performance against the annual budget through monthly Board
reports detailing actual results versus budget, analysis of material
variances, and re-forecasting where required;
-- Finance function resourced to facilitate segregation of duties;
-- Audit, Risk and Compliance Committee review of the integrity of the
Annual Report and Half-Yearly Report;
-- Board review and approval of the Annual Report and Half-Yearly Report;
and
-- Board approved authorization limits and investment policy.
Board Committees
The Board has established a number of committees to deal with
specific matters. Brief particulars are set out below:
-- Audit, Risk and Compliance Committee -- Mr. David Brabazon (Independent
Chairman), Mr. James Reinstein (Independent) and Dr. Oern Stuge
(Independent);
-- Nominations Committee - Dr. Oern Stuge (Independent Chairman), Mr. David
Brabazon (Independent), Mr. Antoine Papiernik and Mr. James Reinstein
(Independent);
-- Remuneration Committee - Mr. James Reinstein (Independent Chairman), Mr.
David Brabazon (Independent), Mr. Antoine Papiernik and Dr. Oern Stuge
(Independent).
Audit, Risk and Compliance Committee
The Audit, Risk and Compliance Committee is chaired by Mr. David
Brabazon (the Audit, Risk and Compliance Committee Financial
Expert). The Chief Financial Officer and Chief Executive Officer
may also be invited to attend meetings of the Committee. It meets
at least two times a year and is responsible for ensuring that the
financial performance of the Group is properly monitored and
reported on. The Committee also meets with and reviews findings of
the audit with the external auditor. It meets with the auditors at
least once a year without any members of management being present
and is also responsible for considering and making recommendations
regarding the appointment and remuneration of such auditors.
Nominations Committee
The Nominations Committee is chaired by Dr. Oern Stuge. It meets
at least once a year and considers the selection and re-appointment
of Directors. It identifies and nominates candidates for all Board
vacancies and reviews regularly the structure, size and composition
(including the skills, knowledge and experience) of the Board and
makes recommendations to the Board with regard to any changes.
Remuneration Committee
The Remuneration Committee is chaired by Mr. James Reinstein. It
meets at least two times a year and considers and recommends to the
Board the framework for the remuneration of the Chief Executive
Officer, Chairman, Company Secretary, Chief Financial Officer,
executive Directors and such other officers as it is designated to
consider and, within the terms of the agreed policy, considers and
recommends to the Board the total individual remuneration package
of each executive Director including bonuses, incentive payments
and share awards. It reviews the design of all incentive plans for
approval by the Board and (if required) shareholders and, for each
such plan, recommends whether awards are made and, if so, the
overall amount of such awards, the individual awards to executive
Directors and the performance targets to be used. No Director is
involved in decisions concerning his/her own remuneration.
General meeting
The Company shall hold in each year a general meeting as its
annual general meeting in addition to any other meeting in that
year and shall specify the meeting as such in the notice calling
it. Not more than 15 months shall elapse between the date of one
annual general meeting and that of the next. All general meetings
other than annual general meetings shall be called extraordinary
general meetings.
The Directors may convene general meetings. Extraordinary
general meetings may also be convened on such requisition, or in
default may be convened by such requisitions and in such manner as
may be provided by the Companies Act 2014.
Subject to the provisions of the Companies Act 2014 allowing a
general meeting to be called by shorter notice, an annual general
meeting and an extraordinary general meeting shall be called by at
least 21 clear days' notice, except that an extraordinary general
meeting that is not called for the passing of a special resolution
may, subject to compliance with all applicable provisions of the
Companies Act 2014, be called by at least 14 clear days'
notice.
The Directors shall specify in the notice of a general meeting
the voting record date, being a date not more than 48 hours before
the general meeting to which it relates. A person shall be entered
on the register at the voting record date in order for that person
to exercise the right of a member to participate and vote at the
general meeting, and any change to an entry on the register after
the voting record date shall be disregarded in determining the
right of any person to attend and vote at the meeting.
No business other than the appointment of a chairman shall be
transacted at any general meeting unless a quorum of members is
present at the time when the meeting proceeds to business. Two
persons entitled to attend and to vote upon the business to be
transacted, each being a member or a proxy for a member, shall be a
quorum.
If such a quorum is not present within half an hour from the
time appointed for the meeting, the meeting, if convened upon the
requisition of members, shall be dissolved; in any other case the
meeting shall stand adjourned to the same day in the next week at
the same time and place, or to such other day and at such other
time and place as the Directors may determine.
All business shall be deemed special that is transacted at an
extraordinary general meeting. All business that is transacted at
an annual general meeting shall also be deemed special, with the
exception of declaring a dividend, the consideration of the
Company's statutory financial statements and reports of the
Directors and auditors, the appointment of Directors in the place
of those retiring, the appointment or re-appointment of the
auditors (subject to sections 380 and 382 to 385 of the Companies
Act 2014) and the fixing of the remuneration of the auditors.
Every member entitled to attend and vote at a general meeting
may appoint a proxy to attend, speak and vote on his behalf
provided, however, that:
-- a member may appoint more than one proxy provided that each proxy is
appointed to exercise the rights attached to shares held in different
securities accounts; and
-- a member acting as an intermediary on behalf of a client in relation to
shares may appoint that client or any third party designated by that
client as a proxy in relation to those shares,
subject to such requirements and restrictions as the Directors
may from time to time specify.
The Company's AGM gives shareholders the opportunity to question
the Directors. The Directors must answer any question a member asks
relating to the business being dealt with at the meeting unless
answering the question would interfere unduly with the preparation
for the general meeting or the confidentiality and business
interests of the Company, or the answer has already been given on a
website in the form of an answer to a question, or it appears to
the Chairman of the meeting that it is undesirable in the interests
of good order of the meeting that the question be answered.
The business of the Company is managed by the Directors who may
exercise all the powers of the Company, subject to the Companies
Act 2014, the Articles of Association and to any directions given
by the members by special resolution.
Votes
The Companies Act 2014 requires that resolutions of the general
meeting be passed by the majority of votes cast (ordinary
resolution) unless the Companies Act 2014 or the Company's Articles
of Association provide for 75% majority of votes cast (special
resolution). The Company's Articles of Association provide that the
Chairman has a casting vote in the event of a tie.
At meetings, unless a poll is demanded, all resolutions are
determined on a show of hands, with every shareholder who is
present in person or by proxy having one vote so that no individual
shall have more than one vote, and on a poll every member shall
have one vote for every share carrying rights of which he is the
holder. On a poll a member entitled to more than one vote need not
cast all his votes or cast all the votes he uses in the same way.
At the meeting, after each resolution has been dealt with, details
will be given of the level of proxy votes lodged for and against
that resolution and also the level of votes withheld on that
resolution.
Subject to the Companies Act 2014 and to such requirements and
restrictions as the Directors may, in accordance with the Companies
Act 2014 specify, the Company at its discretion may provide for
participation and voting in a general meeting by electronic
means.
Subject to the Companies Act 2014 and to such requirements and
restrictions as the Directors may, in accordance with the Companies
Act 2014 specify, the Company may at its discretion provide for
voting on a poll by correspondence. Where the Company permits votes
to be cast on a poll by correspondence, it shall be required to
count only those votes cast in advance by correspondence that are
received before the date and time specified by the Company for that
purpose, provided that such date and time is not more than 24 hours
before the time at which the vote is to be concluded.
Diversity Policy
The Board is keen to ensure the Group benefits from the
existence of a high-quality Board comprising of individuals with an
appropriate balance of skills and experience. In considering
nominations to the Board, the Nomination Committee takes into
account the benefit of Board diversity, including diversity of
business background, geographical diversity and gender
diversity.
The Board does not currently have a formal diversity policy in
place due to the early stage of development of the Group. During
2020 the Board will continue to focus attention on considering
nominations to the Board that re-affirms the Board's commitment to
diversity across the Group.
Mainstay Medical International plc
Risk factors
This section addresses the existing and future material risks to
Mainstay's business. However, the following does not set out an
exhaustive list or explanation of all risks that shareholders or
prospective investors may face when making an investment in the
ordinary shares and should be used as guidance only, as further
risks and uncertainties not currently known to the Board, or that
the Board currently deems immaterial, may also have an adverse
effect on the Company's or the Group's financial condition,
business, prospects and/or results of operations. In such a case,
the market price of ordinary shares could decline, and investors
may lose all or part of their investment.
Risks Relating to Our Business and Our Financial Position
We have incurred significant operating losses and may not be
able to achieve or subsequently maintain profitability
We have incurred significant net losses since we were founded.
For the years ended 31 December 2019 and 31 December 2018, we had a
comprehensive loss of $22.3 million and $31 million respectively.
We have funded our operations through equity capital and debt, and
have raised more than $139 million of equity capital and we have
drawn $18.3 million under our debt facility (the outstanding
principal on this debt is $12.8 million as at 31 December 2019). We
have devoted substantially all of our resources to the research and
development of ReActiv8, including completion of our feasibility
study in October 2012, progress on our ReActiv8-A Clinical Trial
(which commenced in 2014 and led to CE Marking in May 2016),
progress of our U.S. Pivotal ReActiv8-B Clinical Trial (the purpose
of which is to gather data in support of our application for
Pre-Market Approval ("PMA") from the U.S. Food and Drug
Administration ("FDA")), initial commercialisation, and expansion
of our intellectual property portfolio.
To implement our business strategy and generate revenue and
profit in the future, we need to, among other things, obtain
regulatory approvals for ReActiv8 (which on the date of this report
is our only product) in our target markets. We have obtained CE
Marking of ReActiv8, which allows for commercialisation of ReActiv8
in the European Economic Area (the "EEA", which includes the EU,
Iceland, Liechtenstein and Norway) and Switzerland.
In January 2017, we applied to the Australian Therapeutic Goods
Administration ("TGA") for ReActiv8 to be admitted to the
Australian Register of Therapeutic Goods ("ARTG") which would allow
for commercialisation in Australia. In April 2018, the TGA
requested additional clinical data with respect to ReActiv8 which
we submitted in June 2019. In December 2019, we received regulatory
approval from the TGA for ReActiv8, confirming inclusion of
ReActiv8 in the ARTG and enabling commercialization throughout
Australia. We have submitted an application for ReActiv8 to be
included in the Prostheses List of reimbursed products in
Australia, with a reimbursement decision expected in the third
quarter of 2020. The Prostheses List identifies implantable devices
eligible for reimbursement from all private health insurance funds
in Australia. We cannot be certain whether we will be successful in
securing inclusion of ReActiv8 on the Prostheses List. We do not
plan to commercialize ReActiv8 in Australia until inclusion on the
Prostheses List is secured.
There is no assurance that commercialisation in the EEA,
Switzerland or Australia (if inclusion of ReActiv8 on the
Prostheses List is secured) will be successful or will generate
sufficient revenue (and profits) to cover expenses or fund future
growth.
We have filed a PMA for ReActiv8 in the U.S., but we have not
yet obtained regulatory approval for ReActiv8 in the U.S. The U.S.
Pivotal ReActiv8-B Clinical Trial did not achieve statistical
significance on its primary endpoint, but it did achieve
statistical significance on two pre-specified alternative analyses
of that endpoint and on multiple secondary endpoints. We cannot be
certain whether the totality of the data from the U.S. Pivotal
ReActiv8-B Clinical Trial will be sufficient to demonstrate safety
and efficacy to the satisfaction of the FDA to allow for the
approval of our PMA application. If U.S. regulatory approval is not
obtained, then it will not be possible to commercialise ReActiv8 in
the U.S.
If we are unable to obtain additional regulatory approvals for
ReActiv8 in the U.S. and elsewhere, or if product development,
manufacture, marketing, sales or commercialisation of ReActiv8 is
delayed or abandoned, we may never generate significant revenue or
become profitable. Even if we do become profitable in the short
term, we may be unable to sustain or increase our profitability on
a quarterly or annual basis over the medium to long term. In any
case we will need to obtain additional capital to fund
commercialisation (including expanding reimbursement), to fund
continuing research and development, and to run additional clinical
trials. We expect to incur losses for the foreseeable future as we
continue to pursue these objectives.
We expect to require additional funds in the future in order to
meet our capital and expenditure needs and further financing may
not be available when required or, if available, could require us
to agree to terms which are specifically favourable to new
investors, or to restrictions significantly limiting our access to
additional capital
We expect to require additional funds in the future in order to
meet our capital and expenditure needs, including funds to pay our
financial obligations as they fall due, continue research and
development, conduct clinical trials, continue our work to obtain
regulatory approval and other activities necessary to bring
ReActiv8 to target markets and to establish marketing and sales
capabilities. However, we may not be able to obtain additional
financing on terms favourable to us, if at all, when needed. If we
are unable to obtain adequate financing or financing on terms
satisfactory to us, when we require it, we may cease to have
operations and may need to liquidate some or all of our assets,
being, at this point, the Group's intellectual property.
In addition, if we raise additional funds through further issues
of equity or debt or other forms of financing, existing
shareholders could suffer significant adverse financial
consequences, including dilution. Any new equity securities could
have rights, preferences and privileges superior to those of
current shareholders. Any debt financing secured by us in the
future could involve restrictive covenants relating to our capital
raising activities and other financial and operational matters,
which may make it more difficult for us to obtain any required
additional capital.
Our future financial performance is entirely dependent on the
commercial success of ReActiv8, our only product as of the date of
this report, obtaining adequate reimbursement for ReActiv8, and
rates of product adoption and market penetration
Our only product as of the date of this report, ReActiv8, is
designed to treat people suffering from chronic low back pain
("CLBP"), a serious and often debilitating medical condition. The
success of ReActiv8 may be negatively impacted by many factors,
including regulatory delays, adverse regulatory or legal actions,
problems arising from manufacturing, research and development,
rates of product adoption, lack of reimbursement and market
penetration and low sales in target markets. Because our business
currently relies on the success of a single product, any factors
that negatively impact the regulatory approval and
commercialisation of ReActiv8 would adversely affect our financial
condition, business, prospects and/or results of operations.
Failure to comply with debt covenants or failure to make
repayments on our debt facility could have a material adverse
effect
In August 2015, Mainstay Medical Limited entered into an
agreement for a debt facility of up to $15 million. In April 2019,
we agreed to an amended debt facility, and in July 2019 we
announced the drawdown of EUR3 million in additional debt from a
new tranche of the debt facility.
The repayment schedule for the three existing tranches drawn
under the debt facility was amended in April 2019 such that no
principal or interest will be repaid until 2021, with the principal
and accrued interest to be amortized over the period from 1 January
2021 through 30 September 2023. The repayment schedule for the new
tranche is the same as the amended repayment schedule for the three
existing tranches.
The interest rate for all tranches will be 8% per annum, with
interest accruing but capitalized prior to January 1, 2021. All
principal and accrued interest from all tranches will automatically
convert into ordinary shares of the Company at a price per share of
EUR8.00 upon the earlier of (a) FDA approval of the Company's PMA
application for ReActiv8, (b) the date by which at least 900,000
ordinary shares are publicly sold on-market by non-affiliates of
the Company since 18 April 2019 at a price per share of at least
EUR8.00 or (c) IPF's election to undertake such conversion, in each
case unless the Company elects to satisfy such obligation in whole
or in part in cash.
The terms of the agreement include covenants, including a
requirement that Mainstay Medical Limited hold cash at least equal
to its projected cash expenditures for operations and debt
repayment for each three-month period after 18 April 2019. In
addition, on 18 April 2019 the Company issued to IPF warrants to
purchase 1.5 million of its Ordinary Shares at a price per Ordinary
Share of EUR6.00 at any time prior to the 6th anniversary of the
amendment date (being 18 April 2019). The Company has issued
further conditional warrants to IPF that will become exercisable
only to the extent the Company elects to repay the debt in cash
rather than issue Ordinary Shares when a conversion of the debt is
triggered.
The facility is secured by way of fixed and floating charges
over the assets and undertakings of Mainstay Medical Limited, and
the debenture includes customary terms and conditions. In addition,
the Company created a first fixed charge in favour of IPF over its
present and future shares held in Mainstay Medical Limited.
If we fail to comply with the provisions included in the debt
facility, and/or the debt covenants, and/or fail to make repayments
of principal or interest, IPF might enforce their security, which
would have a material adverse effect on our financial condition,
business, prospects and/or results of operations.
There is no guarantee that the performance of ReActiv8 in
commercialisation will match the performance of ReActiv8 in
clinical trials
While the Company will take steps including physician training
and certification, and having company sales representatives or
field clinical specialists attend some or all implant procedures,
ReActiv8 clinical performance in commercialisation may be different
from the clinical performance observed during the clinical trials
for a number of reasons, including less control on the selection of
people suitable for use of the product, use by physicians with
different experience and/or training, and failure to adhere to a
follow up regimen in the absence of clinical trial oversight.
Furthermore, issues with product performance may subsequently be
identified once a product is in the market. Regulatory authorities
require medical device manufacturers to monitor and report certain
types of adverse events as part of the medical device reporting
("MDR") regulations so that safety issues can be identified and
addressed quickly. When such issues are identified, corrective
actions may be required -- such as modifying labelling or
instructions for use, improving training, or removing the device
from the market -- to ensure proper use or patient safety. Any of
these could result in significant time delays and/or expense and/or
may harm our reputation. Such issues may result in the need for our
product to be suspended from sale or withdrawn from the market. In
these circumstances our product may require substantial redesign
and/or re-engineering to address any identified issues. This may
result in the need to undertake further clinical trials to
re-establish the safety and efficacy of the revised product, which
would be costly and time consuming and may exceed our
resources.
Any of these circumstances may have a material adverse effect on
the timing and extent of our future revenues and profitability.
We only recently began commercializing ReActiv8 in the EEA and
have no history of commercializing ReActiv8 in the United States or
elsewhere
ReActiv8 has been CE Marked since 2016, enabling us to
commercialize it throughout the EEA. We have received TGA approval
for ReActiv8 in Australia, but we do not intend to begin
commercialisation activities there unless and until ReActiv8 is
included in the Prostheses List. We have not yet obtained approval
from the FDA to commercially market in the United States. As a
result, we have a limited history of commercializing ReActiv8
generally and no history of selling ReActiv8 in the United States
or elsewhere. As an organization, we have never commercially
launched a product in the United States, nor commenced a sales
representative training program or conducted a launch of a similar
expected size. A commercial launch and training program of this
size is a significant undertaking that requires substantial
financial and managerial resources. We may be unable to gain
broader market acceptance in the countries in which we have already
begun to commercialize ReActiv8 or successfully commercialize it in
the United States or elsewhere for a number of reasons,
including:
-- established alternatives to ReActiv8 with strong relationships with
customers, including physicians, hospitals and third-party suppliers;
-- limitations in our ability to demonstrate differentiation and advantages
of ReActiv8 compared to alternative methods for treating CLBP and the
relative safety, efficacy and ease of use of ReActiv8;
-- the limited size of our sales force and the learning curve required to
gain experience selling ReActiv8;
-- the inability to obtain sufficient supply of the components for the
ReActiv8 system or secure second-source suppliers if our main suppliers
are unable to fulfil our orders;
-- insufficient financial or other resources to support our
commercialization efforts necessary to reach profitability; and
-- the introduction and market acceptance of new, more effective or less
expensive competing products and technologies.
If we do not achieve significantly greater market acceptance of
our product, do not gain momentum in our sales activities, or fail
to significantly grow our market share, we will not be able to grow
our revenue and our business and financial condition will be
adversely affected.
There is no certainty that the market for ReActiv8 will develop
as currently anticipated by the Company, or at all
We believe that the potential number of people with CLBP who
could benefit from ReActiv8 is large, based on our estimate of
persons suffering with CLBP in our key target markets. However,
development of the market depends on several factors, including
regulatory approvals, availability and level of reimbursement,
acceptance of the treatment by the medical profession, product
performance after approval, emergence of other current and future
treatments for CLBP, as well as the global trend to reduce
healthcare costs. If, as a result of these factors, the market for
our product does not develop as currently anticipated, our ability
to generate revenue could be materially adversely affected.
If we fail to develop and retain an effective direct sales force
in the United States, Australia or other major new markets, our
business could suffer
In order to commercialize ReActiv8 in the United States,
Australia or other major new markets where we receive regulatory
approval and plan to commercialize, we will likely be required to
build a direct sales force. In any such case, we will initiate our
commercial launch and increase our marketing efforts, which would
require us to make significant investments to retain, develop and
grow the number of direct sales personnel that we employ. There is
significant competition for sales personnel experienced in relevant
medical device sales. Once hired, the training process is lengthy
because it requires significant education for new sales
representatives to achieve the level of clinical competency with
ReActiv8 expected by physicians. Upon completion of the training,
our sales representatives typically require lead time in the field
to grow their network of accounts and achieve the productivity
levels we expect them to reach in any individual territory.
Furthermore, the use of ReActiv8 often requires or benefits from
direct support from us. If we are unable to attract, motivate,
develop and retain a sufficient number of qualified sales
personnel, and if our sales representatives do not achieve the
productivity levels we expect them to reach, our revenue will not
grow at the rate we expect, and our financial performance will
suffer. Also, to the extent we hire personnel from other medical
device companies, we may have to wait until applicable
non-competition provisions have expired before deploying such
personnel in restricted territories or incur costs to relocate
personnel outside of such territories, and we may be subject to
allegations that these new hires have been improperly solicited, or
that they have divulged to us proprietary or other confidential
information of their former employers. Any of these risks may
adversely affect our business.
The success of ReActiv8 depends on its acceptance and adoption
by medical professionals
Our success will require acceptance and adoption by medical
professionals of ReActiv8 as a new treatment for people with CLBP.
Such acceptance will depend on medical professionals being
convinced of the clinical performance, benefits, safety and
cost-effectiveness of ReActiv8 and being prepared to undertake
special training in certain cases.
Acceptance of ReActiv8 depends on educating physicians as to the
distinctive characteristics, perceived benefits, safety and ease of
use of ReActiv8 as compared to alternative solutions and
communicating to physicians the proper application of ReActiv8. The
U.S. Pivotal ReActiv8-B Clinical Trial did not achieve statistical
significance on its primary endpoint, but it did achieve
statistical significance on two pre-specified alternative analyses
of that endpoint and on multiple secondary endpoints. We cannot be
certain whether the totality of the data from the U.S. Pivotal
ReActiv8-B Clinical Trial will be sufficient to demonstrate safety
and efficacy to the satisfaction of physicians. If we are not
successful in convincing physicians of the merits of ReActiv8 or
educating them on the use of ReActiv8, they may not use ReActiv8
and we may be unable to increase our sales, sustain our growth or
achieve profitability.
Even if the safety and efficacy of ReActiv8 is established,
medical professionals may be hesitant to change their medical
treatment practices or accept and adopt ReActiv8, including for the
following reasons:
-- general conservatism about adoption of new and innovative treatment
practices;
-- lack of awareness or acceptance of the role of inhibition of the
multifidus muscle in causing CLBP and the suitability of neurostimulation
therapy to address this inhibition;
-- lack of experience with ReActiv8 and with neurostimulation as a treatment
alternative;
-- perceived lack of long-term evidence, including that provided by the
results of our U.S. Pivotal ReActiv8-B Clinical Trial, supporting
additional patient benefits;
-- perceived clinical risk of a new treatment;
-- inability to convince key opinion leaders to provide recommendations
regarding ReActiv8, or to convince patients, physicians, or payers that
ReActiv8 is an attractive alternative to other products;
-- perceived liability risks associated with the use of a new product and
procedures;
-- limited or lack of reimbursement and coverage within healthcare payment
systems;
-- cost associated with the purchase of new product and equipment;
-- other procedures competing for physician time and attention; and
-- the time commitment that may be required for special training.
Economic, psychological, ethical or related concerns may limit
general acceptance and adoption of ReActiv8. Lack of acceptance and
adoption of ReActiv8 by a significant number of medical
professionals may limit our future revenues and profitability.
Our success will be heavily contingent on third party payment
from government providers, healthcare insurance providers or other
public or private sources
The existence of coverage and adequate reimbursement by
government and private payers will be critical to market adoption
for existing and future products, if any. Medical professionals and
hospitals will be unlikely to use ReActiv8, at all or to a great
extent, if they do not receive adequate reimbursement for the
procedures utilising our product, and potential patients may be
unwilling to pay for the product themselves.
With the global pressure on healthcare costs, payers are
attempting to contain costs by, for example, limiting coverage of,
and the level of reimbursement for, new therapies. Any limitations
on, decreases in or elimination of payments by third party payers
may have an adverse effect on our financial condition, business,
prospects and/or results of operations.
In many countries, a series of codes is used to classify
diagnoses and clinical procedures performed, and there are separate
coding systems for delivery of stationary (inpatient) and
ambulatory (outpatient) care. Payment for ReActiv8 is dependent on
classification of the procedure that utilises ReActiv8 within these
coding systems.
If coding is not yet in place or coverage of available coding is
insufficient in relevant markets, we will have to work with the
relevant parties to establish appropriate coding and reimbursement
levels. This can be a lengthy process (months to years) and there
is no guarantee that coding can be obtained at satisfactory levels,
or at all, or if obtained, that it will be adequate to enable us to
build a profitable business selling ReActiv8.
There are existing reimbursement codes applicable to ReActiv8,
which hospitals can use in Germany, Switzerland and Austria. In
Australia, we have submitted an application for ReActiv8 to be
included in the Prostheses List of reimbursed products, with a
reimbursement decision expected in the third quarter of 2020. The
Prostheses List identifies implantable devices eligible for
reimbursement from all private health insurance funds in Australia.
We cannot be certain whether we will be successful in securing
inclusion of ReActiv8 on the Prostheses List.
Securing adequate or attractive reimbursement often depends on
demonstrating the cost effectiveness of a product, for example with
a medical economics study. There is also no assurance that we will
be able to demonstrate cost effectiveness of ReActiv8 in a timely
manner or at all.
Failure to obtain attractive reimbursement from payers may have
a material adverse effect on our financial condition, business,
prospects and results of operations.
Active implantable medical devices such as ReActiv8 carry risks
associated with the surgical procedure for implant, removal or use
of the device, or failure of the device, or associated with the
therapy delivered by the device
All medical devices have associated risks. Regulatory
authorities regard AIMDs as the highest risk category of medical
devices, and accordingly AIMDs are subject to the highest level of
scrutiny when seeking regulatory approval. The risks include, among
others, (i) risks associated with any surgical procedure, such as
infection, allergic reaction, and consequences of anaesthesia and
(ii) risks associated with any implantable medical device, such as
device movement, lead dislodgement, lead breaks or fracture,
electromagnetic interference, device failure, tissue damage
including nerve damage, pain and psychological effects. A
comprehensive list of the risks associated with ReActiv8 is
included in the documentation (labelling) provided with the device
to both physicians and patients.
The design and development of an AIMD uses many disciplines,
including electrical, mechanical, software, biomaterials, and other
types of engineering. Engineers employed by us undertaking research
and development or manufacturing activities may make an incorrect
decision or make a decision during the engineering phase without
the benefit of long term experience, and the impact of such wrong
decisions may not be apparent until well into a product's life
cycle, which in either case may have a material adverse effect on
our financial condition, business, prospects and/or results of
operations.
Adverse events associated with these risks may lead some
patients to blame us, the physician or other parties for such
occurrences. This may result in product liability lawsuits, medical
malpractice lawsuits, investigations by regulatory authorities,
adverse publicity, criminal charges or other harmful circumstances
for us. Any of those circumstances may have a material adverse
effect on our ability to conduct our business, to sell ReActiv8, or
to develop future products (if any).
Our business exposes us to an inherent risk of potential product
liability claims relating to the manufacturing, clinical trials,
marketing and sale, or recall of an active implantable medical
device
Our product is an AIMD with complex electronic circuits and
software. It is not possible to design and build AIMDs which are
100% reliable, as all such devices carry a risk of failure or
malfunction.
Medical device manufacturers are exposed to the risk of
potential product liability claims arising from device failures and
malfunctions, product use and associated surgical procedures. A
product liability claim may be raised as a result of factors
outside our control, such as product failure, off-label use of our
product, or failure of the medical practitioners or patients to
follow the instructions for use. It is possible that a product
liability lawsuit may be lost through no fault of ours, which could
result in reputational risk, increased insurance premiums, and
depression of future sales, all of which may have an adverse effect
on our financial condition, business, prospects and/or results of
operations.
Device failures discovered during clinical trials may lead to
suspension or termination of the trial, which could have a material
adverse effect on the Group.
Following regulatory approval and market release, device
failures or malfunctions may result in a recall of the product,
which may be restricted to a specific manufacturing lot or may
impact all products in the field. Recalls may occur at any time
during the life cycle of a device once regulatory approval has been
obtained for the commercial distribution of the device. In most
markets including the U.S. and the EU, authorities may request a
manufacturer to carry out a recall, irrespective of whether the
manufacturer itself deems this is required. Recalls can impact our
business as they can be expensive, time consuming and can divert
resources and management from normal operations. Replacement of
products subject to recall can be free of charge under warranty and
is therefore a potential expense for us. In some cases, the cost of
a recall can include the cost of the surgical procedure to replace
or remove a product. In addition, a recall may impact our future
sales, or may lead to the loss of key suppliers or legal action
against us by people affected by a recall and/or regulatory
authorities whose role it is to supervise the distribution and sale
of medical devices.
Consolidation of product liability claims into a class action
lawsuit may require large dedication of resources for defence,
which will be time consuming, costly, and a major distraction from
the running of the business.
We have purchased product liability insurance at a level that we
believe to be appropriate for a company of our size and nature, to
help cover the costs of defence of product liability lawsuits and
for damages. For products used as part of a clinical trial,
clinical trial insurance helps cover defence of lawsuits relating
to the product and for damages, if awarded. We regularly review the
level and appropriateness of the product liability insurance in
place, but we may not be able to maintain or increase product
liability insurance on acceptable terms, and such insurance may not
provide adequate coverage against potential liabilities. A
successful claim brought against us in excess, or outside, of our
insurance coverage could have a material adverse effect on our
financial condition, business, prospects and/or results of
operations.
ReActiv8 may cause or contribute to adverse medical events or be
subject to failures or malfunctions that we are required to report
to regulatory authorities, and if we fail to do so, wee could be
subject to sanctions that could harm our reputation, business,
financial condition and results of operations. The discovery of
serious safety issues with ReActiv8, or a recall of ReActiv8 either
voluntarily or at the direction of a regulatory authority, could
have a negative impact on us.
If we obtain FDA approval, we will be subject to FDA's MDR
regulations, which require us to report to the FDA when we receive
or become aware of information that reasonably suggests that one or
more of our products may have caused or contributed to a death or
serious injury or malfunctioned in a way that, if the malfunction
were to recur, it could cause or contribute to a death or serious
injury. The timing of our obligation to report is triggered by the
date we become aware of the adverse event as well as the nature of
the event. We may fail to report adverse events of which we become
aware within the prescribed timeframe. We may also fail to
recognize that we have become aware of a reportable adverse event,
especially if it is not reported to us as an adverse event or if it
is an adverse event that is unexpected or removed in time from the
use of the product. If we fail to comply with our reporting
obligations, the FDA could take action, including warning letters,
untitled letters, administrative actions, criminal prosecution,
imposition of civil monetary penalties, revocation of our device
approval, seizure of our products or delay in clearance or approval
of future products.
The FDA and foreign regulatory bodies have the authority to
require the recall of commercialized products in the event of
material deficiencies or defects in design or manufacture of a
product or in the event that a product poses an unacceptable risk
to health. The FDA's authority to require a recall must be based on
a finding that there is reasonable probability that the device
could cause serious injury or death. We may also choose to
voluntarily recall a product if any material deficiency is found. A
government-mandated or voluntary recall by us could occur as a
result of an unacceptable risk to health, component failures,
malfunctions, manufacturing defects, labelling or design
deficiencies, packaging defects or other deficiencies or failures
to comply with applicable regulations. Product defects or other
errors may occur in the future.
Depending on the corrective action we take to redress a
product's deficiencies or defects, a regulatory authority may
require, or we may decide, that we will need to obtain new
approvals for the device before we may market or distribute the
corrected device. Seeking such approvals may delay our ability to
replace the recalled devices in a timely manner. Moreover, if we do
not adequately address problems associated with our devices, we may
face additional regulatory enforcement action, including warning
letters, product seizure, injunctions, administrative penalties or
civil or criminal fines.
Companies are required to maintain certain records of recalls
and corrections, even if they are not reportable to the FDA or
other regulatory authorities. We may initiate voluntary withdrawals
or corrections for ReActiv8 in the future that we determine do not
require notification of a regulatory authority. If a regulatory
authority disagrees with our determinations, it could require us to
report those actions as recalls and we may be subject to
enforcement action. A future recall announcement could harm our
reputation with customers, potentially lead to product liability
claims against us and negatively affect our sales. Any corrective
action, whether voluntary or involuntary, as well as defending
ourselves in a lawsuit, will require the dedication of our time and
capital, distract management from operating our business and may
harm our reputation and financial results.
Competition in the medical device industry is intense and
expected to increase
Competition from medical device companies is intense, and we
expect it to further increase. We may not be able to compete
successfully against our current and future competitors, including
competitors with larger financial capabilities. Whilst we are not
currently aware of a direct competitor product on the market,
potential competitors may develop new products or adapt existing
products or their uses for the same patient group targeted by our
product, which could present competition for ReActiv8.
Treatment for CLBP is potentially a very large market, and is
attracting potential competitors. Any potential competitors'
products currently in clinical trials, or in development, or
developed in the future, could have superior clinical results,
could be easier to implement clinically, could be more convenient
for patients and/or less expensive than our product or could reach
commercialisation before our product. Such occurrences could have a
material adverse effect on our ability to generate sufficient
revenues to sustain our business.
During a clinical trial for regulatory approval, products are
generally provided at no charge. Entry by a competitive product
into clinical trials, while our product is being commercialised,
could have an adverse effect on our sales (for example, where our
product is approved for use and released to the market and the
competitor is still in clinical development), or may inhibit timely
enrolment in our on-going clinical trials.
In addition, the commercial availability of any approved
competing product could potentially inhibit recruitment and
enrolment in our clinical trials. We may successfully conclude our
clinical trials and obtain regulatory approval or favourable
reimbursement treatment but may fail to compete against potential
competitors or alternative treatments for CLBP that may be
available or developed. Any inability by us to compete effectively
against other medical device companies or to effectively manage the
risks related to competition may have a material adverse effect on
our financial condition, business, prospects and/or results of
operations.
New or competing treatments for CLBP may emerge
ReActiv8 is an AIMD designed as treatment for people with CLBP.
Alternative therapies for this patient group may include, among
others, physical therapy (such as lumbar extensor strengthening
exercises), watchful waiting (i.e. no therapy), traction therapy,
the McKenzie Method of exercise therapy, lumbar stabilisation
exercises, massages, drugs (including analgesics, opioids, sleep
aids, muscle relaxants and anti-depressants), acupuncture, steroid
injections, back schools, various types of energy application
including ultrasound, transcutaneous electrical nerve stimulation
("TENS"), osteopathic therapy, and thermotherapy, spine surgery and
spinal cord stimulation ("SCS"). New treatment options, or
modifications of existing treatments or their uses, may emerge
which yield clinical results equal to, or better than, those
achieved with ReActiv8, possibly at a lower cost. Patients might
also prefer such new therapies to ReActiv8 therapy if such
therapies do not require the patient to undergo a surgical
procedure. Emergence of such new therapies may inhibit our ability
to develop and grow the market for ReActiv8, which would have a
material adverse effect on our financial condition, business,
prospects and results of operations.
Consolidation in the healthcare industry or group purchasing
organizations could lead to demands for price concessions, which
may affect our ability to sell ReActiv8 at prices necessary to
support our current business strategies.
Healthcare costs have risen significantly over the past decade,
which has resulted in or led to numerous cost reform initiatives by
legislators, regulators and third-party payers. Cost reform has
triggered a consolidation trend in the healthcare industry to
aggregate purchasing power, which may create more requests for
pricing concessions in the future. Additionally, group purchasing
organizations, independent delivery networks and large single
accounts may continue to use their market power to consolidate
purchasing decisions for hospitals. We expect that market demand,
government regulation, third-party coverage and reimbursement
policies and societal pressures will continue to change the
healthcare industry worldwide, resulting in further business
consolidations and alliances among our customers, which may exert
further downward pressure on the prices of ReActiv8.
Attracting physicians and patients to perform clinical trials
and meet clinical trial objectives is costly and uncertain
Performing clinical trials requires the engagement of many
hospitals, clinics, and clinicians. In particular, we must engage a
physician at each clinical trial centre to maintain overall
responsibility for the conduct of the clinical trial (the
"Investigator"). Each Investigator may have additional physicians
or other medical professionals working under his or her direction
to conduct a trial (e.g. to recruit clinical trial patients or
perform surgery or other procedures). We may not be able to attract
a sufficient number of qualified Investigators to conduct clinical
trials within an adequate time, and those Investigators may not be
able to attract or enrol a sufficient number of patients to meet
our clinical trial objectives.
Clinical trial patients may be sourced from the Investigator's
own practice clinic or hospital, or may be referred from another
physician. Potential clinical trial patients must sign an informed
consent before undergoing certain clinical tests to determine
whether the patient meets the enrolment criteria for the clinical
trial (inclusion and exclusion). Once a patient is enrolled in the
clinical trial, the patient must comply with the trial
requirements, including clinic visits, use of ReActiv8, and undergo
certain tests. Some patients may not comply with the requirements
of the trial, or could at any time withdraw from the trial, which
could lead to poor or unusable data, which may compromise the
results of the clinical trial.
Failure to attract a sufficient number of eligible clinical
trial patients may lead to time and cost overruns, poor quality
results, or inability to complete the clinical trial, all of which
may materially adversely affect our ability to achieve regulatory
approval, and thereby our ability to market our product and achieve
revenues and profits.
We depend on third party suppliers for the manufacture of
ReActiv8. Disruption of the supply chain or failure to achieve
economies of scale could have a material adverse effect
We depend on a limited number of third party suppliers for the
manufacture of ReActiv8 and the loss of one or more of these third
party suppliers or their inability or unwillingness to supply us
with adequate quantities of products could harm our business in the
future. Certain of our suppliers, including Oscor Inc. and CCC del
Uruguay S.A, are sole suppliers. These sole suppliers and any of
our other suppliers may be subject to circumstances which impact
our ability to supply, including enforcement action by regulatory
authorities, natural disasters (e.g., hurricanes and earthquakes),
industrial action (e.g., strikes), financial difficulties including
insolvency, pressure or demands on manufacturing capacity (e.g., by
products for other customers that compete for manufacturing
capacity), among a variety of other internal or external
factors.
If any of our existing suppliers are unable or unwilling to meet
our demand for product or components, or fail to respect their
contractual commitments to us, or if the components or finished
products that they supply do not meet quality and other
specifications, clinical trials or commercialisation of our product
could be delayed. Alternatively, if we have to switch to a
replacement manufacturer or replacement supplier for any of our
product components, or commence our own manufacturing to satisfy
market demand, we may face additional delays and other issues, and
the manufacture and delivery of ReActiv8 could be interrupted for
an extended period of time, which interruption could delay
completion of our clinical trials or commercialisation. Alternative
suppliers may be unavailable, may be unwilling to supply, may not
have the necessary regulatory approvals, or may not have in place
an adequate quality management system.
Establishing additional or replacement suppliers for any of
these materials, components or services, if required, could be
time-consuming and expensive, may result in interruptions in our
operations and product delivery, may affect the performance
specifications of ReActiv8 or could require that we modify its
design. Even if we are able to find replacement suppliers, we will
be required to verify that the new supplier maintains facilities,
procedures and operations that comply with our quality expectations
and applicable regulatory requirements. Any of these events could
require that we obtain a new regulatory authority approval before
we implement the change, which could result in further delay and
which may not be obtained at all.
Our suppliers, in turn, depend on their own suppliers and supply
chain. Any disruption of the supply chain could have a material
adverse effect on our financial condition, business, prospects
and/or results of operations.
Our suppliers may not be able to increase yields and/or decrease
manufacturing costs over time, and the cost of goods sold may not
decrease or may in fact increase, resulting in an adverse effect on
our financial condition, business, prospects and/or results of
operations.
In addition, our suppliers may discontinue supply of components
or materials upon which we rely before the end of the product life
of our product. The timing of the discontinuation may not allow us
sufficient time to develop and obtain regulatory approval for
replacement products or components before we exhaust our inventory.
If suppliers discontinue supply of components or materials, we may
have to pay premium prices to our suppliers to keep their
production lines open. We may have to obtain alternative suppliers,
or buy substantial inventory to last until the scheduled end of
life of our product or through such time as we have an alternative
product developed and approved by the regulatory authorities. We
may have to temporarily cease supplying our product once our
inventory of the discontinued materials or component is
exhausted.
Any of these interruptions to the supply of materials or
components could result in substantial reduction in our available
inventory and an increase in our production costs, which may have a
material adverse effect on our financial condition, business,
prospects and/or results of operations.
We are dependent on access to raw materials and products and
manufacturing of our product is not guaranteed by the third parties
with whom we contract
Although we do not manufacture our product, our third party
manufacturers are dependent on continuing supply of certain raw
materials. In particular, some raw materials such as biocompatible
polymers (plastics) may only be available from a sole supplier. If
the supplier of the raw material encounters problems, goes out of
business, refuses to supply certain materials, or dramatically
increases the prices of certain materials, it may disrupt the
ReActiv8 supply chain. Disruption in our supply chain via our third
party manufacturers may result in interruption of supply of our
product, which could have a material adverse impact on our ability
to proceed with commercialisation, begin or continue clinical
trials, and our financial condition, and could require product
redesign and/or engagement with alternative manufacturers, which
could be expensive and time consuming.
Manufacturing issues may arise that are detrimental to the
Group
We use external vendors to manufacture and supply ReActiv8.
Vendors are required by applicable laws and regulations to have in
place and implement appropriate quality management measures and are
generally subject to inspections by regulatory authorities. A
vendor may be unable to supply the quantity of products according
to our requirements, or may suffer internal delays or problems
which could impact the quality, delivery or compliance with the
specifications of ReActiv8. This may have a material adverse effect
on our financial condition, business, prospects and results of
operations.
Any identified manufacturing or quality issue may require
extensive rework of products or a complete scrapping of the
inventory of affected products, and could also require suspension
of distribution of products, or products to be returned from the
field for modification.
Compliance with regulations for quality systems for medical
device companies is difficult, time consuming and costly. We may be
found to be non-compliant, for example as a result of future
changes in or interpretation of the regulations regarding quality
systems in certain jurisdictions.
We have developed and maintained a Quality Management System
("QMS") to ensure quality of our product and activities. The QMS is
designed to be in compliance with regulations in many different
jurisdictions, including the Quality Systems Regulations ("QSR")
mandated by the FDA, and the requirements of the AIMD Directive,
including the international standard ISO 13485 required for
obtaining CE Marking. In some circumstances, the requirements of
regulations and standards may be different and may be mutually
exclusive.
Compliance with regulations for quality systems for medical
device companies is difficult, time consuming and costly, and it is
possible that we may be found to be non-compliant at any time. In
addition, we may be found to be non-compliant as a result of future
changes in, or interpretation of, the regulations for quality
systems. If we do not achieve compliance or subsequently become
non-compliant, the regulatory authorities may (i) require that we
take appropriate action to address non-conformance issues, (ii)
withdraw marketing clearance, (iii) require product recall, or (iv)
take other enforcement action.
Our external vendors must (in general) also comply with the QSR
and ISO 13485. Any of our external vendors may become non-compliant
with QSR or ISO 13485, which could result in enforcement action by
regulatory authorities, including, by way of example, a warning
letter from the FDA or a requirement to withdraw from the market or
suspend distribution, export or use of products manufactured by one
or more of our vendors. This may have a material adverse effect on
our financial condition, business, prospects and results of
operations.
Any change or modification to a device may require further
approvals (depending on the jurisdiction) and must be made in
compliance with appropriate regulations (QSR for the U.S. and the
AIMD Directive for Europe), which compliance may cause interruption
to or delays in the marketing and sale of our product. U.S.
federal, state and other laws regarding the manufacture and sale of
AIMDs are subject to future changes, as are administrative
interpretation and policies of regulatory agencies. If we fail to
comply with applicable laws where we would intend to market and
sell our product, we could be subject to enforcement action
including recall of our devices, withdrawal of approval or
clearance and civil and criminal penalties. If any of these events
occurs, there may be a material adverse effect on our financial
condition, business, prospects and/or results of operations.
In some markets we may depend on distributors for the market and
sale of ReActiv8 over which we have little or no control
For some markets our intended distribution strategy may be to
rely on third party distributors for ReActiv8.
In markets where we may depend on distributors, we would not
directly control the performance of a distributor. Thus the level
of sales we generate, and the profitability we achieve, in those
markets may depend on the efforts of others. A distributor's
failure to perform according to expectations and/or contractual
obligations may have an adverse effect on our reputation, financial
condition, business, prospects, and/or results of operations.
We may be unable to attract and retain management and other
personnel we need to succeed
We rely on the expertise and experience of our board of
directors, senior management and other key employees and
contractors in management, research and development, clinical and
regulatory matters, sales and marketing and other functions. The
retention and performance of our directors, senior management and
other key employees are therefore significant factors in our
ability to achieve our objectives. The departure of any of these
individuals without timely and adequate replacement, or the loss of
any of our senior management may have a material adverse effect on
our financial condition, business, prospects and results of
operations, and there can be no guarantee that we would be able to
find and attract other individuals with similar levels of expertise
and experience or similar relationships with commercial partners
and other market participants. In addition, our competitive
position could be materially adversely affected if a member of
senior management transferred to another company seeking to develop
a rival product. Further, we conducted a reduction in workforce in
early 2019, and as a result of this or other losses, working with
fewer employees and the loss of the expertise of our departed
employees may adversely affect our efficiency and ability to
achieve key objectives.
Our future growth will require hiring a number of qualified
clinical, scientific, commercial and administrative personnel. If
we are unable to identify, attract, retain and motivate these
highly skilled personnel, we may be unable to continue our
development, commercialisation or growth.
Pursuant to rights afforded to our directors and officers under
the Articles of Association, and as is customary for Irish
incorporated listed public companies, we have entered into
indemnification agreements with our directors and senior
management, including certain contractors. As a consequence of such
indemnification agreements, we may have to use our resources to
indemnify such persons, which could have an adverse effect on our
future financial performance.
We rely on third parties for management services, manufacturing,
marketing, regulatory advice and other services that are crucial to
our business
In order to carry out our business, we depend heavily on third
party consultants, contractors, distributors, manufacturers, agents
and numerous other partners for core and non-core services and
functions, including management functions (e.g., certain payroll
services), clinical studies, applications for regulatory approval,
commercial operations and other services and functions that may
involve interactions with government and quasi-government
authorities. As a result, if any of these parties fails to perform
as promised or intended or contracted, our business plans for
obtaining regulatory approval for ReActiv8 in targeted geographies
and commercialising ReActiv8 may suffer, and our business may be
materially adversely affected.
We may be at risk for non-compliance with applicable laws and
regulations
Doing business on a worldwide basis requires us to comply with
the laws and regulations of various jurisdictions. In particular,
our operations are subject to anticorruption laws and regulations,
which may include the U.S. Foreign Corrupt Practices Act of 1977
(the "FCPA"), the UK Bribery Act of 2010, the Criminal Justice
(Corruption Offences) Act 2018 and other Irish anti-bribery laws
and regulations, and anti-bribery laws and regulations in other
countries, including those having implemented the OECD Anti-Bribery
Convention. Anticorruption laws prohibit corporations and
individuals from paying, offering to pay, or authorizing the
payment of anything of value to another person, including but not
limited to a government official, government staff member,
political party, or political candidate in an attempt to obtain or
retain business or to otherwise improperly influence a person. The
laws are broad and many apply to private as well as public bribery
and also penalize the receipt as well as the giving of bribes. In
the course of establishing and expanding our commercial operations
and seeking regulatory approvals in the EU, the U.S., and
internationally, we will need to establish and expand business
relationships with various third parties and will interact more
frequently with various officials, including regulatory authorities
and physicians employed by state-run healthcare institutions who
may be deemed to be "foreign officials" under the FCPA or similar
laws, or who may otherwise be candidates for illicit payments in
exchange for improper benefits. We have implemented policies and
procedures designed to ensure compliance with the FCPA, UK
Bribery Act of 2010, the Criminal Justice (Corruption Offences)
Act 2018 and other Irish anti-bribery laws and other similar laws,
but acts or omissions of any of the parties we rely on, including
directors, executive officers, employees, third party consultants,
contractors, distributors, manufacturers, agents and numerous other
partners, could potentially cause us to incur liability under
applicable laws and regulations.
Our operations may also be subject to applicable laws and
regulations on economic sanctions and export controls, including
those administered by the U.S. and the EU, which are complex and
may be violated inadvertently.
In case of a violation of any of the anti-bribery, economic
sanctions or export control laws, we could be subject to fines,
confiscation of profits or legal sanctions, such as termination of
authorizations, licenses, concessions and financing agreements,
suspension of our operations, or prohibitions on contracting with
public authorities. Any such violation, even if prohibited by our
policies, could have a material adverse effect on our financial
condition, business, prospects and results of operations.
Information Technology ("IT") forms a key support requirement
within our business. Any failure of our IT systems could present a
substantial risk to our business continuity.
The efficient operation of our business depends on IT systems.
We rely on our IT systems to help manage our administration,
marketing, accounting and financial functions, clinical and
regulatory functions, manufacturing processes, and our research and
development functions.
The regulatory and legal environment of our industry requires us
to maintain records for long periods of time, sometimes
indefinitely. In most cases, those records are kept in electronic
form and without paper copies.
We use third party suppliers to provide computing,
communication, data storage and backup services, and failure of any
of those third party suppliers may have an adverse effect on our
ability to operate, which could have an adverse effect on our
financial condition, business, prospects and results of operations.
Although industry standard practices are in place for regular
information backup, failure of our IT systems infrastructure may
result in the inability to continue business until the records are
recreated, and this may have an adverse effect on our financial
performance or our financial condition, business, prospects and
results of operations.
Our employees and contractors often work from home offices, in
particular employees or contractors who need to be close to the
customer base to enable rapid support (for example, sales
representatives and field clinical specialists). This requires
strong IT infrastructure support (telephone, email, internet
access), which must be continuously maintained. Failure of our IT
infrastructure, a security breach by a malicious third party, or
loss of critical information may have an adverse effect on our
financial condition, business, prospects and results of
operations.
Our employees frequently utilise portable laptop or notebook
computers. Loss, theft or damage to a portable computer could
result in loss of key information (in some cases to a competitor),
which could have a material adverse effect on our financial
performance or our financial position.
U.S. "anti-inversion" tax laws could negatively affect our
results
Under rules contained in U.S. tax law (Section 7874 of the
Internal Revenue Code), a non-U.S. company, such as Mainstay
Medical, can be subject to tax as a U.S. corporation in the event
it acquires substantially all of the assets of a U.S. corporation
and the equity owners of that U.S. corporation own at least 80
percent of the non-U.S. company's stock by reason of their holding
stock in the U.S. corporation.
In 2014 the Group undertook the a corporate reorganisation
during which the Company acquired the assets (being shares in MML)
of Mainstay Medical Inc. ("MMI") (a U.S. corporation), and former
shareholders of MMI became shareholders of the Company. The
ownership of equity that former shareholders of MMI received in the
2014 reorganisation is substantially below the 80 percent standard
for application of the above U.S. rules. Accordingly, we do not
believe these rules should apply. There can, however, be no
assurance that the IRS will not challenge the determination that
these rules are inapplicable. In addition to the 2014
reorganisation, there was an earlier Group reorganisation
transaction in 2012. We do not believe integrated treatment of this
transaction with the 2014 reorganisation to be appropriate because
there are independent business reasons for undertaking these
transactions. In the event that the U.S. anti-inversion rules are
held to apply to us, we would be subject to U.S. federal income tax
on our worldwide income, which would negatively impact the cash
available for distribution and the value of the ordinary
shares.
The anti-tax avoidance directive could negatively affect our
results
The first Anti-Tax Avoidance Directive ("ATAD 1") was adopted as
Council Directive (EU) 2016/1164 on July 12, 2016 and was required,
for the most part, to be implemented by all EU member states by
January 1, 2019. The ATAD 1 was required to be transposed into
Irish law by January 1, 2019, with certain exceptions. The second
Anti-Tax Avoidance Directive, which together with ATAD 1 is
referred to as the ATADs, was adopted as Council Directive (EU)
2017/952 on May 29, 2017. Pursuant to the ATADs, the Irish Finance
Act 2019 has implemented measures to counteract cross-border tax
mismatches. None of the changes should affect the tax treatment of
our profits and therefore it is not currently envisaged that they
would impact upon the value of our ordinary shares.
We are exposed to foreign exchange risk
We are, and will in the future be increasingly, exposed to
exchange rate fluctuations including, among others, the Euro, U.S.
Dollar, Australian Dollar, Swiss Franc and Pound Sterling.
Fluctuations of exchange rates outside a budgeted range may affect
revenues, expenses, or our ability to raise future capital if it is
needed, and may have an adverse impact on our financial condition,
business, prospects and/or results of operations.
Risks Relating to Regulation of Our Industry
We operate in a highly regulated environment and regulatory
approval is required before we can market or sell ReActiv8 in any
market
ReActiv8 is an active implantable medical device ("AIMD"), which
requires regulatory approval before it can be marketed or sold by
us. At the date of this document, the only regulatory approvals we
have received are the CE conformity assessment, or CE Marking, for
ReActiv8, which allows commercialisation of ReActiv8 in the EEA and
in Switzerland, and the TGA approval for ReActiv8 to be admitted to
the ARTG, which allows for commercialisation throughout Australia.
We have submitted an application for ReActiv8 to be included in the
Prostheses List of reimbursed products in Australia, with a
reimbursement decision expected in the third quarter of 2020. The
Prostheses List identifies implantable devices eligible for
reimbursement from all private health insurance funds in Australia.
We cannot be certain whether we will be successful in securing
inclusion of ReActiv8 on the Prostheses List. We do not plan to
commercialize ReActiv8 in Australia until inclusion on the
Prostheses List is secured.
Regulatory approval in the U.S. is via a PMA issued by the FDA.
The U.S. Pivotal ReActiv8-B Clinical Trial did not achieve
statistical significance on its primary endpoint, but it did
achieve statistical significance on two pre-specified alternative
analyses of that endpoint and on multiple secondary endpoints. We
cannot be certain whether the totality of the data from the U.S.
Pivotal ReActiv8-B Clinical Trial will be sufficient to demonstrate
safety and efficacy to the satisfaction of the FDA to allow for the
granting of a PMA. The process typically takes significantly longer
than CE Marking. Once granted, the PMA does not have an expiry
date, however, regulatory approvals may be withdrawn if, for
example, a new and unexpected risk emerges that would make
continued marketing of our product no longer acceptable to the FDA.
There is no guarantee that further regulatory approval will be
obtained for ReActiv8 or any other product we develop, either now
or in the future. Any such regulatory approval may also experience
delays.
The regulatory approval process may delay or prevent the launch
of our product in our target markets, which would negatively impact
or prevent our ability to achieve our objectives. If we fail to
obtain further approval of ReActiv8 in a timely manner, or at all,
sales of ReActiv8 may be delayed or may not be achieved, thereby
adversely affecting our ability to generate revenues or fund our
on-going activities.
Seeking and obtaining regulatory approval for medical devices
can be a long and uncertain process. Strict or changing regulatory
regimes, government policies and legislation in any of our target
markets may delay, prohibit or reduce potential sales
We are primarily targeting commercialisation in markets in the
EEA, Switzerland, Australia and the U.S., and we must comply with
complex regulatory requirements in these markets before we can
market or sell our product in each market. Once initial regulatory
approval is gained for our product for a particular market, any
subsequent products or product modifications may also require
further regulatory approval before we can market the subsequent or
modified products.
In the EU, regulatory approval is obtained via CE Marking
according to the European Active Implantable Medical Devices
Directive 90/385/EEC and subsequent amendments (the "AIMD
Directive"), which provides approval for the EEA and is accepted by
certain other non-EEA countries, including Switzerland. We received
CE Marking in May 2016.
In May 2017, a package of European Union legislation entered
into force, replacing the existing regulatory framework for medical
devices in the EEA, including for AIMD (the "New EU Medical Device
Regulations"). The New EU Medical Device Regulations will apply as
of 2020.
The New EU Medical Device Regulations mean a more centralised
control of the European medical device market, and may increase the
amount of work, time, or cost of obtaining regulatory approval for
the marketing of medical devices in Europe. Under the new
regulatory framework, it is likely that (i) the regulatory
requirements for the design and manufacturing of AIMDs will be
applied more stringently than in the past, (ii) there will be
stricter requirements for clinical investigations and clinical
evidence, (iii) the obligations for manufacturers to monitor the
safety of their products, once placed on the market, will increase,
and (iv) manufacturers will be subject to increased scrutiny. The
New EU Medical Device Regulations will make the EU approval process
for AIMDs more similar to the U.S. PMA process. The new legislation
may also prevent or delay the EEA approval or clearance of any
future products we may develop or impact our ability to modify
currently EEA approved or cleared products on a timely basis. The
large increase in devices being assessed by Notified Bodies for
regulatory compliance, and delays as Notified Bodies interpret the
requirements of the new regulation for particular devices, may
impact timelines for regulatory approval. The specific impact of
the New EU Medical Device Regulations on existing products is
uncertain and could impact the approval of future products and/or
could require additional resources to maintain compliance with the
new regulations.
In the U.S., regulatory approval is obtained via a PMA issued by
the FDA. Regulatory approval can be a lengthy, expensive and
uncertain process. The process typically takes significantly longer
than obtaining CE Marking. Applications for regulatory approval
require extensive pre-clinical, clinical and technical testing, all
of which must be undertaken in accordance with the requirements of
regulations and guidance for the FDA. The U.S. Pivotal ReActiv8-B
Clinical Trial did not achieve statistical significance on its
primary endpoint, but it did achieve statistical significance on
two pre-specified alternative analyses of that endpoint and on
multiple secondary endpoints. We cannot be certain whether the
totality of the data from the U.S. Pivotal ReActiv8-B Clinical
Trial will be sufficient to demonstrate safety and efficacy to the
satisfaction of the FDA to allow for the granting of a PMA.
The regulations to which we are subject are complex and have
tended to become more stringent over time. In addition, ReActiv8 is
subject to extensive testing to international standards such as for
electrical safety and electromagnetic compatibility. Changes in
standards may require re-testing of our product, and there is no
assurance that compliance with an earlier standard will also mean
compliance with a more recent version of a standard. Further, the
exit from the Eurpoean Union of the United Kingdom, commonly known
as Brexit, could have an adverse impact on our ability to
efficiently maintain our CE Mark or manage our supply chain. If we
cannot comply with changed standards, we may have to redesign or
recall our products, either of which could have a material adverse
effect on our financial condition, business, prospects and/or
results of operations.
We are required to conduct clinical trials for regulatory
approvals and other purposes. Clinical trials carry substantial
risks and are costly and time consuming, with uncertain results
The outcomes of clinical trials are by their nature uncertain
and dependent on a number of variables inherent to clinical
research, such as the ability of the design of the clinical trial
to produce the anticipated result, the suitability of the clinical
trial patients for the therapy, the experience and the expertise of
the referring and implanting medical professionals, the ability and
willingness of the clinical trial patients to perform the
activities required from their participation in the trial, and the
quality of the clinical follow up.
Adverse events, both anticipated and unanticipated, and related
or unrelated to the device, occur in clinical trials. Significant
unanticipated adverse events associated with ReActiv8, and/or
errors in associating adverse events, could result in damage to our
reputation, lawsuits, suspension or delay of clinical trials,
and/or enrolment difficulties. Any delay or suspension of clinical
trials may delay the filings of regulatory submissions and
ultimately the ability to commercialise ReActiv8 and to generate
revenues.
The U.S. Pivotal ReActiv8-B Clinical Trial did not achieve
statistical significance on its primary endpoint, but it did
achieve statistical significance on two pre-specified alternative
analyses of that endpoint and on multiple secondary endpoints. We
cannot be certain whether the totality of the data from the U.S.
Pivotal ReActiv8-B Clinical Trial will be sufficient to demonstrate
safety and efficacy to the satisfaction of the FDA to allow for the
granting of a PMA or to the satisfaction of other regulatory
bodies. Failure to achieve FDA or other regulatory body approval
may require product redesign, new or additional clinical trials,
additional testing, and other measures which typically require
significant additional cost and time.
We are required to fund clinical trials. This typically includes
the payment of professional fees for physicians; hospital costs;
fees for one or more contract research organisations ("CROs"); data
collection; retention and management; fees for consultants to run
committees; and clinical trial insurance premiums. Medical device
companies are usually required to provide products and services at
no charge during clinical trials leading to regulatory submissions,
and therefore we will not generate revenue from product sales from
the use of ReActiv8 in such clinical trials. We may be required to
fund the cost of surgical procedures to replace or remove the
device in clinical patients. The costs of the clinical trials may
exceed the resources available to us, in the medium to long term,
possibly resulting in delayed completion, cost overruns, or failure
to complete.
Results of clinical trials are intended to be published after
the trial concludes. Some physicians or other parties may
prematurely publish clinical results prior to conclusion of the
trial, which may adversely affect future trial enrolment, have
adverse regulatory impact, prevent us from securing patent
protection, result in diminished competitive position or damage our
reputation.
We are required to conduct one or more post-approval studies
which could be expensive and fail to produce the desired
results
Following CE Marking, a range of activities is required for Post
Market Clinical Follow-Up ("PMCF") to gather additional data on
long term performance and safety of Re-Activ8, including
continuation of the ReActiv8-A Clinical Trial and implementation of
a Registry which may result in product recall, suspension of sales,
and/or restrictions on commercialisation. Such consequences could
have a material adverse effect on our business and financial
condition, business, prospects and/or results of operations.
As part of, or following, the FDA grant of a PMA for ReActiv8 in
the U.S. (if granted), the FDA may require us to conduct one or
more post-approval studies ("PAS"), which could be extensive,
expensive and time consuming.
The PAS may uncover problems with ReActiv8 and may result in a
need to redesign certain aspects of ReActiv8 and/or conduct
additional studies and may include possible suspension from sale.
Such consequences could have a material adverse effect on our
financial condition, business, prospects and/or results of
operations.
The misuse or off-label use of ReActiv8 may harm our reputation
in the marketplace, result in injuries that lead to product
liability suits or result in costly investigations, fines or
sanctions by regulatory bodies if we are deemed to have engaged in
the promotion of these uses, any of which could be costly to our
business.
ReActiv8 received a CE Mark for a specific indication for use,
and if ReActiv8 receives FDA approval, that approval will be
limited to specific indications for use. We train our current sales
and marketing personnel, and if ReActiv8 receives FDA approval we
will train any future U.S. marketing and sales personnel, to not
promote ReActiv8 for uses outside of the approved indications for
use, known as "off-label uses." We cannot, however, prevent a
physician from using ReActiv8 off-label, when in the physician's
independent professional medical judgment he or she deems it
appropriate. There may be increased risk of injury to patients if
physicians attempt to use our products off-label. Furthermore, the
use of ReActiv8 for indications other than those approved by the
FDA or approved by any foreign regulatory body may not effectively
treat such conditions, which could harm our reputation in the
marketplace among physicians and patients.
If the FDA or any foreign regulatory body determines that our
promotional materials or training constitute promotion of an
off-label use, it could request that we modify our training or
promotional materials or subject us to regulatory or enforcement
actions, including the issuance or imposition of an untitled
letter, which is used for violators that do not necessitate a
warning letter, injunction, seizure, civil fine or criminal
penalties. It is also possible that other federal, state or foreign
enforcement authorities might take action under other regulatory
authority, such as false claims laws, if they consider our business
activities to constitute promotion of an off-label use, which could
result in significant penalties, including, but not limited to,
criminal, civil and administrative penalties, damages, fines,
disgorgement, exclusion from participation in government healthcare
programs and the curtailment of our operations.
In addition, physicians may misuse ReActiv8 or use improper
techniques if they are not adequately trained, potentially leading
to injury and an increased risk of product liability. If ReActiv8
is misused or used with improper technique, we may become subject
to costly litigation by our customers or their patients. As
described below, product liability claims could divert management's
attention from our core business, be expensive to defend and result
in sizeable damage awards against us that may not be covered by
insurance.
Our use and disclosure of individually identifiable information,
including health information, is subject to privacy and security
regulations, and our failure to comply with those regulations or to
adequately secure the information we hold could result in
significant liability or reputational harm.
We are subject to regulation regarding the processing (including
disclosure and use) of personal data. We therefore must comply with
strict data protection and privacy laws and regulations, including
without limitation Regulation 2016/679 on the protection of natural
persons with regard to the processing of personal data and on the
free movement of such data (the "GDPR") which took effect from 25
May 2018 and is the primary legislation governing the use of
personal data in the E.U., and the U.S. Health Insurance
Portability and Accountability Act of 1996 ("HIPAA").
GDPR introduced substantial changes to data protection law,
including an increased emphasis on businesses being able to
demonstrate compliance with their data protection obligations,
which required investment by us in our compliance strategies. In
addition, relevant supervisory authorities are given the power to
issue fines of up to 4 percent of an undertaking's annual global
group turnover or EUR20 million (whichever is the greater) for
failure to comply with certain provisions of the GDPR.
HIPAA establishes a set of national privacy and security
standards for the protection of individually identifiable health
information, including what is known as protected health
information, by health plans, healthcare clearinghouses and
healthcare providers that submit certain covered transactions
electronically, or covered entities, and their "business
associates," which are persons or entities that perform certain
services for, or on behalf of, a covered entity that involve the
use or disclosure of protected health information. Failure to
comply with the HIPAA privacy and security standards can result in
civil monetary penalties and, in certain circumstances, criminal
penalties including fines and/or imprisonment. In addition, HIPAA
authorizes state attorneys general to file suit under HIPAA on
behalf of state residents. Courts can award damages, costs and
attorneys' fees related to violations of HIPAA in such cases. While
HIPAA does not create a private right of action allowing
individuals to sue us in civil court for HIPAA violations, its
standards have been used as the basis for a duty of care claim in
state civil suits such as those for negligence or recklessness in
the misuse or breach of protected health information.
Numerous other laws and regulations govern collection,
dissemination, use and confidentiality of personally identifiable
health information, including (i) U.S. state privacy and
confidentiality laws (including state laws requiring disclosure of
breaches); and (ii) European and other foreign data protection
laws, including the GDPR (as defined below). We therefore must
comply with strict data protection and privacy laws and
regulations, including the Data Protection Acts 1988 and 2003 and
the European Communities (Electronic Communications Networks and
Services) (Privacy and Electronic Communications) Regulations
2011.
We are also subject to evolving EU laws on data export, as we
may transfer personal data from the EU to other jurisdictions.
These obligations may be interpreted and applied in a manner that
is inconsistent from one jurisdiction to another and may conflict
with other requirements or our practices. In addition, these rules
are constantly under scrutiny. We rely on a mixture of mechanisms
to transfer personal data from our EU business to the United States
and could be impacted by changes in law as a result of a future
review of transfer mechanisms by European regulators under the
GDPR, as well as current challenges to these mechanisms in the
European courts.
Any failure or perceived failure by us to comply with privacy or
security laws, policies, legal obligations or industry standards or
any security incident that results in the unauthorized release or
transfer of personally identifiable information may result in
governmental enforcement actions and investigations, fines and
penalties, litigation and/or adverse publicity, including by
consumer advocacy groups, and could cause our customers to lose
trust in us, which could have an adverse effect on our reputation
and business. Such failures could have a material adverse effect on
our financial condition and operations. If the third parties we
work with violate applicable laws, contractual obligations or
suffer a security breach, such violations may also put us in breach
of our obligations under privacy laws and regulations and/or could
in turn have a material adverse effect on our business.
We are or will become subject to certain fraud and abuse laws
and transparency laws, which, if violated, could subject us to
substantial penalties. Additionally, any challenge to or
investigation into our practices under these laws could cause
adverse publicity and be costly to respond to, and thus could harm
our business.
We are or will become subject to healthcare fraud and abuse
regulation and enforcement, which could significantly impact our
business, particularly if we receive FDA approval of our PMA for
ReActiv8 and expand our U.S. operations. Fraud and abuse laws can
vary significantly by jurisdiction, complicating our compliance
effort. In the United States, the laws that may affect our ability
to operate include, but are not limited to:
-- the federal Anti-Kickback Statute, which prohibits, among other things,
persons and entities from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in cash or in
kind, in exchange for or to induce either the referral of an individual
for, or the purchase, lease, order or recommendation of, any good,
facility, item or service for which payment may be made, in whole or in
part, under federal healthcare programs such as Medicare and Medicaid. A
person or entity does not need to have actual knowledge of this statute
or specific intent to violate the Anti-Kickback statute itself to have
committed a violation. The U.S. government has interpreted this law
broadly to apply to the marketing and sales activities of manufacturers
and distributors like us. Violations of the federal Anti-Kickback Statute
may result in civil monetary penalties up to $74,792 for each violation,
plus up to three times the remuneration involved. Violations of the
federal Anti-Kickback Statute can also result in criminal penalties,
including criminal fines of up to $100,000 and imprisonment of up to 10
years. In addition, violations can result in exclusion from participation
in government healthcare programs, including Medicare and Medicaid;
-- federal civil and criminal false claims laws and civil monetary penalty
laws, that prohibit, among other things, knowingly presenting, or causing
to be presented, claims for payment or approval to the federal government
that are false or fraudulent, knowingly making a false statement material
to an obligation to pay or transmit money or property to the federal
government or knowingly concealing or knowingly and improperly avoiding
or decreasing an obligation to pay or transmit money or property to the
federal government. These laws may apply to manufacturers and
distributors who provide information on coverage, coding, and
reimbursement of their products to persons who do bill third-party
payers. When an entity is determined to have violated the federal civil
False Claims Act, the government may impose civil fines and penalties
ranging from $11,181 to $22,363 for each false claim, plus treble damages,
and exclude the entity from participation in Medicare, Medicaid and other
federal healthcare programs.
-- the federal HIPAA law, which created federal criminal laws that prohibit
executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters. A person or entity does
not need to have actual knowledge of these statutes or specific intent to
violate them to have committed a violation;
-- the federal Physician Sunshine Act requirements under the 2010 Patient
Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act, or, collectively, the ACA, which impose
reporting and disclosure requirements on device and drug manufacturers
for any "transfer of value" made or distributed by certain manufacturers
of drugs, devices, biologics, and medical supplies to physicians
(including doctors, dentists, optometrists, podiatrists and
chiropractors) and teaching hospitals, and ownership and investment
interests held by physicians and their immediate family members;
-- federal consumer protection and unfair competition laws, which broadly
regulate marketplace activities and activities that potentially harm
customers; and
-- state and foreign law equivalents of each of the above federal laws, such
as state anti-kickback and false claims laws that may apply to items or
services reimbursed by any third-party payer, including commercial
insurers; state laws that require device companies to comply with the
industry's voluntary compliance guidelines and the relevant compliance
guidance promulgated by the federal government, or otherwise restrict
payments that may be made to healthcare providers and other potential
referral sources; state laws that require device manufacturers to report
information related to payments and other transfers of value to
physicians and other healthcare providers or marketing expenditures,
pricing transparency laws, and permitting laws.
Similar laws apply to us and our operations in Europe and will
apply in other jurisdictions. These laws and regulations constrain
our promotional and other business activities by limiting the kinds
of financial interactions, including discount and other commercial
transactions, we may have with individuals or entities that use,
order, purchase or recommend ReActiv8 such as patients and
healthcare providers. The scope and enforcement of these laws are
uncertain and subject to change in the current environment of
healthcare reform, especially in light of the lack of applicable
precedent and regulations and vary by jurisdiction. Due to the
breadth of these laws, the narrowness of exceptions and/or safe
harbors available, and the range of interpretations to which the
laws are subject, it is possible that some of our current or future
practices might be challenged under one or more of these laws.
Enforcement bodies have increased their scrutiny of interactions
between healthcare companies and healthcare providers, which has
led to a number of investigations, prosecutions, convictions and
settlements in the healthcare industry. Responding to
investigations can be time-and resource-consuming and can divert
management's attention from the business. Any such investigation or
settlement could increase our costs or otherwise have an adverse
effect on our business. If our operations are found to be in
violation of any of the laws described above or any other
governmental regulations that apply to us now or in the future, we
may be subject to penalties, including civil and criminal
penalties, damages, fines, disgorgement, exclusion from
governmental health care programs, and the curtailment or
restructuring of our operations, any of which could adversely
affect our ability to operate our business and our financial
results.
Healthcare reform may have a material adverse effect on our
industry and our results of operations.
In March 2010, the ACA was signed into law in the United States.
The ACA made changes that significantly affected the healthcare
industry, including medical device manufacturers. The ACA included
new fees or taxes on certain health-related industries, including
medical device manufacturers. Beginning in 2013, entities that
manufacture, produce or import medical devices were required to pay
an excise tax in an amount equal to 2.3% of the price for which
such devices are sold in the United States. Through a series of
legislative amendments, the tax was suspended for 2016 through
2019, but is scheduled to return beginning in 2020, absent further
Congressional action. The ACA also included, among other things,
demonstrations to develop organizations that are paid under a new
payment methodology for voluntary coordination of care by groups of
providers, such as physicians and hospitals, and the establishment
of a new Patient-Centered Outcomes Research Institute to oversee,
identify priorities in and conduct comparative clinical
effectiveness research. The increased funding and focus on
comparative clinical effectiveness research, which compares and
evaluates the risks and benefits, clinical outcomes, effectiveness
and appropriateness of products, may result in lower reimbursements
by payers for ReActiv8 in the U.S., if ReActiv8 is approved by the
FDA, and decreased profits to us.
Other federal legislative changes have been proposed and adopted
since the ACA was enacted. These changes included an aggregate
reduction in Medicare payments to providers of 2% per fiscal year,
which went into effect on April 1, 2013 and will remain in effect
through 2027 unless additional Congressional action is taken. On
January 2, 2013, the American Taxpayer Relief Act of 2012 was
signed into law, which, among other things, further reduced
Medicare payments to several providers, including hospitals, and
increased the statute of limitations period for the government to
recover overpayments to providers from three to five years.
The full impact on our business of the ACA and other new laws,
including any outside of the U.S., is uncertain. Healthcare reform
measures that may be adopted in the future, singularly or in the
aggregate, could have a material adverse effect on our business,
financial condition and results of operations.
Risks Relating to Our Intellectual Property
Any inability to fully protect and exploit our intellectual
property may adversely impact our financial condition, business,
prospects and results of operations
Our success depends significantly on our ability to protect our
proprietary rights, including the intellectual property related to
and incorporated into ReActiv8. We rely on a combination of patent
protection, trademarks and trade secrets, and we use
confidentiality and other contractual agreements to protect our
intellectual property. We generally seek patent protection where
possible for those aspects of our technology and product that we
believe provide significant competitive advantages. Our patent
portfolio includes 17 granted U.S. patents, 57 patents outside the
U.S. and 31 U.S. and foreign patent applications in the patent
families. However, we may be unable to adequately protect our
intellectual property rights or may become subject to a claim of
infringement or misappropriation, which we may be unable to settle
on commercially acceptable terms. We cannot be certain that our
pending or future patent applications will result in issued
patents. In addition, we do not know whether any issued patents
will be upheld as valid or will be proven to be enforceable against
alleged infringers or that they will prevent the development of
competitive products or provide meaningful restriction against
potential competitors or against potential competitive
technologies.
The process of obtaining patent protection involves filing
applications in multiple jurisdictions and patent offices, and may
take many years. Success in one jurisdiction does not guarantee
success in another jurisdiction, particularly as different
jurisdictions may apply different legal principles. For example, it
is possible to obtain a patent for a medical method in the U.S.,
but such patents cannot be applied for in Europe. Therefore, there
may be circumstances where an invention is patented in one
jurisdiction but a patent cannot be obtained in one or more other
jurisdictions.
In responding to our patent application, a patent office may
reject one or more (or sometimes all) claims. This may lead to an
extensive dialogue between our patent attorneys and the patent
office in an effort to reach agreement and grant of a patent. There
is no assurance that such efforts will be successful, and thus no
assurance that all patent applications will result in an issued
patent.
In addition to the requirements of each patent office setting
forth the necessary characteristics of an invention in order to
enable the issuance of a patent, patents are issuable only to the
inventors of the invention covered or to their assignees. In some,
but not all, jurisdictions the law provides that inventions made by
employees during normal working hours and using employer resources
belong to the employer. We require our employees to enter into
proprietary information and inventions assignment agreements
assigning to us ownership of their inventions made in the course of
their employment. We also require consultants and vendors providing
services to us that could result in the creation of inventions to
enter into agreements with us to assign to us their inventions made
as a result of their relationships with us. If we fail to obtain
such an agreement from an employee in a jurisdiction where
ownership of employee inventions does not automatically vest in the
employer, or if we fail to obtain such an agreement from a
consultant or vendor, inventions made by these employees,
consultants or vendors might be owned by them and not by us. As a
result, we might not be entitled to a patent on any such invention
and we might not own such an invention. If such invention relates
to any of our products in development or on sale, we might be
required to cease such development or sale, and pay damages to the
owners.
There is no assurance that our intellectual property rights will
not be challenged, invalidated, circumvented or rendered
unenforceable. Parties seeking to compete with us (directly or
indirectly) or other third parties may successfully challenge and
invalidate or render unenforceable our issued patents, including
any patents that may be issued in the future, or could develop
competitor products to ReActiv8. This could prevent or limit our
ability to stop potential competitors from marketing products that
are identical or substantially equivalent to ours. In addition,
such parties may be able to design around our patents, obtain
competitive patents or other intellectual property rights
regardless of prior art in our patents or patent applications, or
develop products that provide outcomes that are comparable to our
product but that are not covered by our patents.
Much of our value is in our intellectual property, and any
challenge to our intellectual property portfolio (whether
successful or not) may impact the value of ReActiv8 and the
Company.
We could become subject to intellectual property litigation or
other disputes that could be costly, result in the diversion of
management's time and efforts, require us to pay damages, prevent
us from marketing ReActiv8 or other products and/or reduce the
margins for ReActiv8
Third party patents or other intellectual property may emerge
which may have a materially adverse effect on our ability to
commercialise ReActiv8, and there is no assurance that such third
party patents or intellectual property will not emerge.
The medical device industry is characterized by rapidly changing
products and technologies, and there is intense competition to
establish intellectual property and proprietary rights to use these
new products and the related technologies. This vigorous protection
and the pursuit of intellectual property rights and positions has
resulted and will continue to result in extensive litigation and
administrative proceedings over patent and other intellectual
property rights. Whether a product infringes a patent involves
complex legal and factual issues, and the determination is often
uncertain in advance. There may be existing or future patents that
ReActiv8 may inadvertently infringe. Potential competitors may have
or develop patents and other intellectual property that they assert
our product infringes.
Competitors may infringe our patents. To counter infringement or
unauthorized use, we may be required to file one or more lawsuits
and assert infringement claims, which can be expensive and
time-consuming. In addition, in an infringement proceeding, a court
may decide that a patent of ours is invalid or unenforceable or may
refuse to enjoin the other party from using the technology at issue
on the grounds that our patents do not cover the technology in
question. The standards that courts use to interpret patents are
not always applied predictably or uniformly and can change,
particularly in differing jurisdictions or as new technologies
develop. As a result, we cannot predict with certainty how much
protection, if any, will be given to our patents if we attempt to
enforce them and they are challenged in court. Further, even if we
prevail against an infringer in district court, there is always the
risk that the infringer will file an appeal and the district court
judgment will be overturned at the appeals court and/or that an
adverse decision will be issued by the appeals court relating to
the validity or enforceability of our patents. An adverse result in
any litigation proceeding could put one or more of our patents at
risk of being invalidated or interpreted in a manner insufficient
to achieve our business objectives.
Any infringement claim against us, even if without merit, may
cause us to incur substantial costs, and could place a significant
strain on our financial resources and/or divert the time and
efforts of management from our core business. In addition, any
potential intellectual property litigation could force us to do one
or more of the following: stop selling/using our product or using
technology that contains the allegedly infringing intellectual
property; forfeit the opportunity to license our technology to
others or to collect royalty payments based upon successful
protection and assertion of our intellectual property against
others; pay substantial damages to the party whose intellectual
property rights we may be found to be infringing; redesign those
products that contain or utilise the allegedly infringing
intellectual property; or attempt to obtain a license to the
relevant intellectual property from third parties, which may not be
available on reasonable terms or at all. Any of these circumstances
may have a material adverse effect on our financial condition,
business, prospects and results of operations.
Requirements to obtain licenses to third party intellectual
property rights may arise in the future. If we need to license any
third party intellectual property, we could be required to pay lump
sums or royalties on sales of our future products. In addition,
there can be no assurances that, if we are required to obtain
licenses to third party intellectual property, we will be able to
obtain such licenses on commercially reasonable terms or at all.
Our inability to obtain required third party intellectual property
licenses on commercially reasonable terms or at all could have a
material adverse impact on our business, results of operations,
financial condition or prospects.
Changes in patent law could diminish the value of patents in
general, thereby impairing our ability to protect our existing and
future products
Patent reform legislation could increase the uncertainties and
costs surrounding the prosecution of our patent applications and
the enforcement or defence of our issued patents. On 16 September
2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act,
was signed into law. The Leahy-Smith Act includes a number of
significant changes to U.S. patent law. These include provisions
that affect the way patent applications are prosecuted, redefine
prior art, may affect patent litigation, and switched the U.S.
patent system from a "first-to-invent" system to a "first-to-file"
system. Under a "first-to-file" system, assuming the other
requirements for patentability are met, the first inventor to file
a patent application generally will be entitled to the patent on an
invention regardless of whether another inventor had made the
invention earlier. The U.S. Patent and Trademark Office (the
"USPTO") developed new regulations and procedures to govern
administration of the Leahy-Smith Act, and many of the substantive
changes to patent law associated with the Leahy-Smith Act, in
particular, the first-to-file provisions, only became effective on
16 March 2013. The Leahy-Smith Act and its implementation could
increase the uncertainties and costs surrounding the prosecution of
our patent applications and the enforcement or defence of our
issued patents, all of which could have a material adverse effect
on financial condition, business, prospects and results of
operations.
In addition, patent reform legislation may pass in the future
that could lead to additional uncertainties and increased costs
surrounding the prosecution, enforcement and defence of our patents
and applications. Furthermore, the U.S. Supreme Court and the U.S.
Court of Appeals for the Federal Circuit have made, and will likely
continue to make, changes in how the patent laws of the U.S. are
interpreted. Similarly, foreign courts have made, and will likely
continue to make, changes in how the patent laws in their
respective jurisdictions are interpreted. We cannot predict future
changes in the interpretation of patent laws or changes to patent
laws that might be enacted into law by the U.S. or other countries.
Those changes may affect our patents or patent applications and our
ability to obtain additional patent protection in the future.
Obtaining and maintaining patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by government patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements
The USPTO and various other non-U.S. government patent agencies
require compliance with a number of procedural, documentary, fee
payment, and other similar provisions during the patent application
process. In addition, periodic maintenance fees on issued patents
often must be paid to the USPTO and other non-U.S. patent agencies
over the lifetime of the patent. While an unintentional lapse can
in many cases be cured by payment of a late fee or by other means
in accordance with the applicable rules, there are situations in
which non-compliance can result in abandonment or lapse of the
patent or patent application, resulting in partial or complete loss
of patent rights in the relevant jurisdiction. Non-compliance
events that could result in abandonment or lapse of a patent or
patent application include, but are not limited to, failure to
respond to official actions within prescribed time limits,
non-payment of fees and failure to properly legalize and submit
formal documents. If we fail to maintain the patents and patent
applications covering our product or procedures, we may not be able
to stop a potential competitor from marketing products that are the
same as, or similar, to our own, which could have a material
adverse effect on our financial condition, business, prospects and
results of operations.
We may not be able to adequately protect our intellectual
property rights throughout the world
Filing, prosecuting and defending patents on ReActiv8 in all
countries throughout the world would be prohibitively expensive.
The requirements for patentability may differ in certain countries,
particularly developing countries, and the breadth of patent claims
allowed can be inconsistent. In addition, the laws of some
countries may not protect our intellectual property rights to the
same extent as laws in the U.S. Consequently, we may not be able to
prevent third parties from practicing our inventions in some or all
countries outside the U.S. Potential competitors may use our
technologies in jurisdictions where we have not obtained patent
protection to develop their own products and, further, may export
otherwise infringing products to territories in which we have
patent protection that may not be sufficient to terminate
infringing activities.
We do not have patent rights in certain countries in which a
market for ReActiv8 may exist. Moreover, in some jurisdictions
where we do have patent rights, proceedings to enforce such rights
could result in substantial costs and divert our efforts and
attention from other aspects of our business, and could put our
patents at risk of being invalidated or interpreted narrowly, or
put our patent applications at risk of not issuing. Additionally,
such proceedings could provoke third parties to assert claims
against us. We may not prevail in any lawsuits that we initiate,
and the damages or other remedies awarded, if any, may not be
commercially meaningful, collectible or enforceable. Thus, we may
not be able to stop a competitor from marketing and selling in
certain countries products that are the same as or similar to our
products, and our competitive position in those countries could be
materially harmed.
We may not identify relevant third-party patents or may
incorrectly interpret the relevance, scope or expiration of a
third-party patent which might adversely affect our ability to
develop and market ReActiv8.
We cannot guarantee that any of our patent searches or analyses,
including the identification of relevant patents, the scope of
patent claims or the expiration of relevant patents, are accurate,
complete or thorough, nor can we be certain that we have identified
each and every third-party patent and pending application in the
United States and abroad that is relevant to or necessary for the
commercialization of ReActiv8 in any jurisdiction. For example,
U.S. patent applications filed before November 29, 2000 and certain
U.S. patent applications filed after that date that will not be
filed outside the United States remain confidential until patents
issue. Patent applications in the United States and elsewhere are
published approximately 18 months after the earliest filing for
which priority is claimed, with such earliest filing date being
commonly referred to as the priority date. Therefore, patent
applications covering our products could have been filed by others
without our knowledge. Additionally, pending patent applications
that have been published can, subject to certain limitations, be
later amended in a manner that could cover ReActiv8 or the use of
ReActiv8. The scope of a patent claim is determined by an
interpretation of the law, the written disclosure in a patent and
the patent's prosecution history. Our interpretation of the
relevance or the scope of a patent or a pending application may be
incorrect, which may negatively impact our ability to market
ReActiv8. We may incorrectly determine that ReActiv8 is not covered
by a third-party patent or may incorrectly predict whether a third
party's pending patent application will issue with claims of
relevant scope. Our determination of the expiration date of any
patent in the United States or abroad that we consider relevant may
be incorrect, which may negatively impact our ability to develop
and market our products and services. Our failure to identify and
correctly interpret relevant patents may negatively impact our
ability to develop and market our products and services.
If we fail to identify and correctly interpret relevant patents,
we may be subject to infringement claims. We cannot guarantee that
we will be able to successfully settle or otherwise resolve such
infringement claims. If we fail in any such dispute, in addition to
being forced to pay damages, we may be temporarily or permanently
prohibited from commercializing any of our products that are held
to be infringing. We might, if possible, also be forced to redesign
products or services so that we no longer infringe the third-party
intellectual property rights. Any of these events, even if we were
ultimately to prevail, could require us to divert substantial
financial and management resources that we would otherwise be able
to devote to our business.
The patent protection for ReActiv8 may expire before we are able
to maximize its commercial value, which may subject us to increased
competition and reduce or eliminate our opportunity to generate
product revenue.
Patents have a limited lifespan. In the United States, if all
maintenance fees are paid timely, the natural expiration of a
patent is generally 20 years from its earliest U.S. non-provisional
filing date. Various extensions may be available, but the life of a
patent, and the protection it affords, is limited. The patents for
ReActiv8 have varying expiration dates and, if these patents
expire, we may be subject to increased competition and we may not
be able to recover our development costs. For example, U.S. Patent
No. 8,606,358 is set to expire March 10, 2028, if all maintenance
fees are paid timely. Given the amount of time required for the
development, testing and regulatory review of new product
candidates, patents protecting such product candidates might expire
before or shortly after such product candidates are commercialized.
As a result, our patent rights may not provide us with sufficient
rights to exclude others from commercializing product candidates
similar or identical to ours.
We depend on confidentiality agreements with third parties to
maintain confidential information
We rely upon unpatented confidential and proprietary
information, including technical information, and other trade
secrets to develop and maintain our product and competitive
position. While we generally enter into confidentiality and
invention assignment agreements with our employees and other third
parties to protect our intellectual property, there can be no
assurance that they will provide meaningful protection for our
trade secrets and proprietary information, that those employees or
third parties will not breach such agreements or that adequate
remedies will be available in the event of an unauthorised use or
disclosure of such information. Unauthorised use or disclosure of
our confidential and proprietary information may have a material
adverse effect on our financial condition, business, prospects and
results of operations.
Intellectual property rights do not necessarily address all
potential threats to our business
Once granted, patents may remain open to invalidity challenges,
including opposition, interference, re-examination, post-grant
review, inter parties review, nullification or derivation action in
court or before patent offices or similar proceedings for a given
period after allowance or grant, during which time third parties
can raise objections against such grant. In the course of such
proceedings, which may continue for a protracted period of time,
the patent owner may be compelled to limit the scope of the
challenged allowed or granted claims or may lose the allowed or
granted claims altogether.
In addition, the degree of future protection afforded by our
intellectual property rights is uncertain because even granted
intellectual property rights have limitations and may not
adequately protect our business, provide a barrier to entry against
our competitors or potential competitors or permit us to maintain
our competitive advantage. Moreover, if a third party has
intellectual property rights that cover the practice of our
technology, we may not be able to fully exercise or extract value
from our intellectual property rights. The following examples are
illustrative:
-- others may be able to develop and/or practice technology that is the same
or similar to our technology or aspects of our technology, but that are
not covered by the claims of the patents that we own or control, assuming
such patents have issued or do issue, or otherwise infringe our other
intellectual property rights;
-- we or any future strategic partners might not have been the first to
conceive or reduce to practice the inventions covered by the issued
patents or pending patent applications that we own or have licensed;
-- we or any future strategic partners might not have been the first to file
patent applications covering certain of our inventions;
-- it is possible that our pending patent applications will not lead to
issued patents;
-- issued patents that we own or have licensed may not provide us with any
competitive advantage, or may be held invalid or unenforceable, as a
result of legal challenges by our competitors;
-- our competitors might conduct research and development activities in
countries where we do not have patent rights and then use the information
learned from such activities to develop competitive products for sale in
our major commercial markets;
-- third parties performing manufacturing or testing for us using our
products or technologies could use the intellectual property of others
without obtaining a proper license;
-- parties may assert an ownership interest in our intellectual property and,
if successful, such disputes may preclude us from exercising exclusive
rights over that intellectual property;
-- we may not develop or in-license additional proprietary technologies that
are patentable;
-- we may not be able to obtain and maintain necessary licenses on
commercially reasonable terms, or at all; and
-- the patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm
our business and results of operations.
We may be subject to claims that our employees, consultants or
independent contractors have wrongfully used or disclosed
confidential information of their former employers or other third
parties.
We do and may employ individuals who were previously employed at
universities or other medical device companies, including our
competitors or potential competitors. Although we try to ensure
that our employees, consultants and independent contractors do not
use the proprietary information or know-how of others in their work
for us, and we are not currently subject to any claims that our
employees, consultants or independent contractors have wrongfully
used or disclosed confidential information of third parties, we may
in the future be subject to such claims.
Litigation may be necessary to defend against these claims. If
we fail in defending against any such claims, in addition to paying
monetary damages, we may lose valuable intellectual property rights
or personnel. Such intellectual property rights could be awarded to
a third party, and we could be required to obtain a license from
such third party to commercialize our technology or products. Such
a license may not be available on commercially reasonable terms or
at all. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction
to management and other employees and could result in customers
seeking other sources for the technology, or in ceasing from doing
business with us.
We may not be successful in obtaining necessary intellectual
property rights to future products through acquisitions and
in-licenses.
Although we intend to develop products and technology through
our own internal research, we may also seek to acquire or
in-license technologies to grow our product offerings and
technology portfolio. We may be unable to acquire or in-license
intellectual property rights relating to, or necessary for, any
such products or technology from third parties on commercially
reasonable terms or at all. In that event, we may be unable to
develop or commercialize such products or technology. We may also
be unable to identify products or technology that we believe are an
appropriate strategic fit for our company and protect intellectual
property relating to, or necessary for, such products and
technology.
The in-licensing and acquisition of third-party intellectual
property rights for product candidates is a competitive area, and a
number of more established companies are also pursuing strategies
to in-license or acquire third-party intellectual property rights
for products that we may consider attractive or necessary. These
established companies may have a competitive advantage over us due
to their size, cash resources and greater clinical development and
commercialization capabilities. Furthermore, companies that
perceive us to be a competitor may be unwilling to assign or
license rights to us. If we are unable to successfully obtain
rights to additional technologies or products, our business,
financial condition, results of operations and prospects for growth
could suffer.
In addition, we expect that competition for the in-licensing or
acquisition of third-party intellectual property rights for
products and technologies that are attractive to us may increase in
the future, which may mean fewer suitable opportunities for us as
well as higher acquisition or licensing costs. We may be unable to
in-license or acquire the third-party intellectual property rights
for products or technology on terms that would allow us to make an
appropriate return on our investment.
If our trademarks and trade names are not adequately protected,
then we may not be able to build name recognition in our markets of
interest and our business may be adversely affected
Our registered or unregistered trademarks or trade names may be
challenged, infringed, circumvented, declared generic or determined
to be infringing on other marks.
We may not be able to protect our rights in our trademarks and
trade names, which we need in order to build name recognition with
potential partners or customers in our target markets. In addition,
third parties may have used trademarks similar and identical to our
trademarks in foreign jurisdictions and may have filed or may in
the future file for registration of such trademarks. If they
succeed in registering or developing common law rights in such
trademarks, and if we are not successful in challenging such
third-party rights, we may not be able to use these trademarks to
market ReActiv8 in those countries. In any case, if we are unable
to establish name recognition based on our trademarks and trade
names, then we may not be able to compete effectively, and our
business may be adversely affected.
Risks Relating to Our Ordinary Shares
Future issuances or exercise of ordinary shares, share options
or share warrants may affect the market price of the ordinary
shares and could dilute the interests of existing shareholders
We have incurred significant net losses since we were founded.
If we are unable to obtain regulatory approvals for ReActiv8 in the
U.S. or elsewhere, or if product development, manufacture,
marketing, sales or commercialisation of ReActiv8 is delayed or
abandoned, we may never generate significant revenue or become
profitable. Further, we expect to require additional funds in the
future in order to meet our capital and expenditure needs. To date
we have funded, and for the immediate future, we expect to continue
to fund, our operations through equity capital (by way of issuance
of new ordinary shares and/ or rights to subscribe for new ordinary
shares) and debt.
The shareholders have authorised the board of directors to allot
securities of the Company, without having regard to statutory
pre-emption rights, during the period ending on 20 September 2024
up to an aggregate nominal value amount of EUR17,000, without
seeking shareholder approval. The issue price per new ordinary
share will be as determined by the directors, provided that no
share be issued as a discount to its nominal value. If the Company
issues additional ordinary shares, it could cause dilution for the
holders of ordinary shares and could have a negative impact on the
price of ordinary shares.
Under the First Warrant Instrument with IPF, the Company has
granted rights to subscribe for 1,500,000 ordinary shares at an
exercise price of EUR6.00 per share. In addition, under the terms
of the IPF Amendment and Restatement Agreement and the Second
Warrant Instrument, the Company may be required to issue ordinary
shares at a price of EUR8.00 per share. As at 31 December 2019,
assuming the triggers for conversion under the IPF Amendment and
Restatement Agreement were met in the second half of 2020, this
could result in the issuance of approximately 1.7 million new
ordinary shares. If the existing subscription rights were to be
exercised or triggered, or if further rights to subscribe for
ordinary Shares were to be granted or exercised, this could cause
dilution for the holders of ordinary shares and could have a
negative impact on the price of ordinary shares.
From time to time, the Company has issued share options to its
employees, directors or consultants. Since the IPO, those share
options have been granted with an exercise price equal to the
market value of an ordinary share at the date of grant. The vast
majority of those share options have an exercise price that is
significantly in excess of the quoted price per ordinary share on
Euronext Growth of Euronext Dublin and Euronext Paris. The Employee
Incentive Plan was amended in January 2019 to allow for the issue
of RSUs, being rights to receive ordinary shares at no cost to the
relevant employee, director or consultant. Vesting of existing
share options or RSUs or the grant or vesting of share options or
RSUs in the future could cause dilution for the holders of ordinary
shares and could have a negative impact on the price of ordinary
shares.
The market price and/or liquidity of our securities may
fluctuate widely in response to various factors which may limit or
prevent investors from selling their ordinary shares
The market price and/or liquidity of ordinary shares could be
subject to wide fluctuations in response to many risk factors
listed in this section, beyond our control including (without
limitation):
-- actual or anticipated fluctuations in our financial condition and
operating results;
-- our failure to obtain regulatory approval for ReActiv8 beyond CE Marking
and TGA approval;
-- our failure to successfully commercialise ReActiv8;
-- adverse results or delays in our clinical trials;
-- actual or anticipated changes in our growth rate;
-- competition from existing products or new products that may emerge;
-- announcements by us, our collaborators or our potential competitors of
significant acquisitions, strategic partnerships, joint ventures,
strategic alliances, or capital commitments;
-- adverse regulatory decisions;
-- the inability to establish potential strategic alliances;
-- unanticipated serious safety concerns related to the use of our product;
-- failure to meet or exceed financial estimates and projections of the
investment community or that we provide to the public;
-- issuance of new or updated research or reports by securities analysts;
-- fluctuations in the valuation of companies perceived by investors to be
comparable to us;
-- price and volume fluctuations in trading of our ordinary shares on
Euronext Growth of Euronext Dublin or Euronext Paris;
-- additions or departures of key management or scientific personnel;
-- disputes or other developments related to proprietary rights, including
patents, litigation matters, and our ability to obtain patent protection
for our technologies;
-- our inability to obtain reimbursement by commercial third-party payers
and government payers and any announcements relating to coverage policies
or reimbursement levels;
-- announcement or expectation of additional debt or equity financing
efforts;
-- issuances by the Company of ordinary shares or transfers or sales of
ordinary shares by shareholders;
-- issue or exercise of share warrants or share options; and
-- general economic and market conditions.
The above and related market and industry factors may cause the
market price, demand and/or liquidity of our ordinary shares to
fluctuate substantially, regardless of our actual operating
performance, which may limit or prevent investors from readily
selling their ordinary shares. In addition, the stock market in
general, and development stage companies in particular, have
experienced extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of
these companies.
Our ordinary share ownership is concentrated in the hands of our
principal shareholders, who may be able to exercise a direct or
indirect controlling influence on us
Our seven largest shareholders together own approximately 78% of
our ordinary shares in issue at the date of this report. As a
result, these shareholders (or a combination of some of these
shareholders), if they were to act together, would have significant
influence over all matters that require approval by our ordinary
shareholders, including the election of directors and approval of
significant corporate transactions. Subject to customary
shareholder protections on takeovers and related party
transactions, corporate action might be taken even if other
ordinary shareholders oppose them. This concentration of ownership
might also have the effect of delaying or preventing a change of
control of our Company that other ordinary shareholders may view as
beneficial.
If our ordinary shares cease to be listed on the Euronext Growth
operated by Euronext Dublin, certain transfers of our ordinary
shares will be subject to Irish stamp duty.
Our ordinary shares are currently listed on the Euronext Growth
operated by Euronext Dublin. Under Irish law, stamp duty is
generally payable on transfers of shares of an Irish company (other
than transfers between spouses) whenever a document of transfer is
executed. Stamp duty is generally charged at a rate of 1%, rounded
to the nearest euro, and is payable by the transferee (or, in some
cases, all parties to the transfer). Under Irish law, transfers of
shares of Irish companies listed on the Euronext Growth operated by
Euronext Dublin are exempt from stamp duty. As a result, stamp duty
is not currently chargeable on transfers of our ordinary shares. If
our ordinary shares cease to be listed on the Euronext Growth
operated by Euronext Dublin, however, stamp duty would be payable
on such transfers to the extent they involve an instrument of
transfer, subject to certain exceptions.
If securities or industry analysts do not publish research or
publish unfavourable research about our business, the price of our
ordinary shares and trading volume could decline
The trading market for our ordinary shares depends in part on
the research and reports that securities or industry analysts
publish about us or our business. If few or no securities or
industry analysts cover us, the trading price for our ordinary
shares could be negatively impacted. If one or more of the analysts
who covers us downgrades this recommendation on our ordinary
shares, publishes unfavourable research about our business, ceases
coverage of our Company or fails to publish reports on us
regularly, demand for our ordinary shares could decrease, which
could cause the price of our ordinary shares or trading volume to
decline.
We do not currently intend to pay dividends, and, consequently,
the ability to achieve a return on investment will depend on
appreciation in the price of the ordinary shares
We have never declared or paid any cash dividends on our
ordinary shares and do not currently intend to do so for the
foreseeable future. We currently intend to invest our future
earnings, if any, to fund our growth. Therefore, you are not likely
to receive any dividends on your ordinary shares for the
foreseeable future and the success of an investment in ordinary
shares will depend upon any future appreciation in the value of the
Company. Consequently, investors may need to sell all or part of
their holdings of ordinary shares after price appreciation, which
may never occur, as the only way to realize any future gains on
their investment. Investors seeking cash dividends should not
purchase our ordinary shares.
We may be a passive foreign investment company ("PFIC") for 2019
or subsequent years, which could result in adverse U.S. federal
income tax consequences to U.S. investors
For U.S. federal income tax purposes, a non-U.S. corporation
will be considered a passive foreign investment company ("PFIC")
for any taxable year if either (1) at least 75% of its gross income
for such year is passive income or (2) at least 50% of the value of
its assets (based on an average of the quarterly values of the
assets during such year) is attributable to assets that produce or
are held for the production of passive income. If we are a PFIC for
any taxable year during which a U.S. holder holds shares, the U.S.
holder may be subject to adverse tax consequences, including (1)
the treatment of any gain on disposition as ordinary income, rather
than capital gain qualifying for preferential rates, (2) the
application of an interest charge with respect to such gain and
certain dividends and (3) compliance with certain reporting
requirements. We do not believe that the Company was a PFIC for its
2019 taxable year, although the U.S. Internal Revenue Service
("IRS") may disagree with this conclusion in the event it audits
any U.S. shareholder's tax reporting. Based on the value and
composition of our assets, we may, however, be a PFIC for 2020 and
potentially for future taxable years. The determination of PFIC
status is fact-specific, and a separate determination must be made
for each taxable year (after the close of each such taxable year).
Each U.S. shareholder is strongly urged to consult its tax advisors
regarding these issues.
Irish law may afford fewer remedies in the event shareholders
suffer losses compared to the U.S. or other jurisdictions
As an Irish company, we are governed by the Irish Companies Act
2014 and Irish company law generally, which differ in some material
respects from laws generally applicable to typical U.S.
corporations and other non-Irish corporations and their
shareholders, including, among others, differences relating to
interested director and officer transactions and shareholder
lawsuits. Likewise, the duties of directors and officers of an
Irish company generally are owed to the company only. Shareholders
of Irish companies generally do not have a personal right of action
against directors or other officers of the company and may exercise
such rights of action on behalf of the company only in limited
circumstances. You should also be aware that Irish law does not
allow for any terms of legal proceedings directly equivalent to the
class action available in U.S. courts. Accordingly, holders of our
shares may have more difficulty protecting their interests than
would holders of shares of a company organised in a jurisdiction of
the U.S.
A takeover bid for the Company's securities would be subject to
supervision by French and Irish regulatory authorities, which may
add complexity to, and delay completion of, any takeover bid for
the Company
As a company with its registered office in Ireland and whose
securities are admitted to trading on a regulated market (within
the meaning of point (21) of Article 4(1) of Directive 2014/65/EU)
in France only, the Company is, for the purposes of Directive
2004/25/EC of the European Parliament and the Council dated 21
April 2004 (the "Takeover Directive"), a shared jurisdiction
company. This means that a takeover bid for its securities would be
subject to the Irish Takeover Rules of the Irish Takeover Panel in
some respects, but also subject to the general regulation
(règlement général) (the "French Takeover Rules") of the Autorité
des marchés financiers (the "AMF") in most other respects.
In the case of a takeover bid for a shared jurisdiction company,
the Takeover Directive provides that matters relating to the
consideration offered in the case of a bid, in particular the
price, and matters relating to the bid procedure, in particular the
information on the offeror's decision to make a bid, the contents
of the offer document and the disclosure of the bid, shall be dealt
with in accordance with the rules of the EU member state in which
the securities of the company are admitted to trading on a
regulated market, in this case France. Matters relating to the
information to be provided to the employees of the offeree company
and matters relating to company law, in particular the percentage
of voting rights conferring "control" and any derogation from the
obligation to launch a bid, as well as the conditions under which
the board of the offeree company may undertake any action which
might result in frustration of the bid, shall be determined by the
rules of the EU member state in which the Company has its
registered office, in this case, Ireland.
We believe we are currently the only shared jurisdiction company
(current or previous) for the purposes of the Takeover Directive
where, in the case of a takeover bid, the relevant competent
authorities would be those of France and Ireland. Accordingly, a
takeover bid for the Company would be supervised by two competent
authorities, who would need to agree amongst themselves the correct
delineation, with respect to such takeover bid, between the
application of their respective takeover rules, as well as between
their respective responsibilities and powers. We believe that this
could lead to additional complexity in planning, making and/or
completing any such takeover bid, which in turn could result in an
extension of the transaction timetable and increased transaction
costs.
Future sales of ordinary shares by existing shareholders could
depress the market price of the ordinary shares
If our existing shareholders sell, or indicate an intent to
sell, substantial amounts of ordinary shares in the public market,
the trading price of the ordinary shares could decline
significantly.
Mainstay Medical International plc
Directors' responsibilities statement
Statement of the Directors in respect of the Annual Report and
Financial Statements
The directors are responsible for preparing the annual report
and the Group and Parent Company financial statements, in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Parent
Company financial statements for each financial year. Under that
law, the directors are required to prepare the Group financial
statements in accordance with IFRS as adopted by the European Union
and applicable law including Article 4 of the IAS Regulation. The
directors have elected to prepare the Parent Company financial
statements in accordance with IFRS as adopted by the European Union
as applied in accordance with the provisions of Companies Act
2014.
Under company law the directors must not approve the Group and
Parent Company financial statements unless they are satisfied that
they give a true and fair view of the assets, liabilities and
financial position of the Group and Parent Company and of the
Group's profit or loss for that year. In preparing each of the
Group and Parent Company financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
-- assess the Group and Parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
-- use the going concern basis of accounting unless they either intend to
liquidate the Group or Parent Company or to cease operations, or have no
realistic alternative but to do so.
The directors are also required by the Transparency (Directive
2004/109/EC) Regulations 2007 and the Transparency Rules of the
Central Bank of Ireland to include a management report containing a
fair review of the business and a description of the principal
risks and uncertainties facing the Group.
The directors are responsible for keeping adequate accounting
records which disclose with reasonable accuracy at any time the
assets, liabilities, financial position and profit or loss of the
Parent Company and which enable them to ensure that the financial
statements comply with the provision of the Companies Act 2014. The
directors are also responsible for taking all reasonable steps to
ensure such records are kept by its subsidiaries which enable them
to ensure that the financial statements of the Group comply with
the provisions of the Companies Act 2014 including Article 4 of the
IAS Regulation. They are responsible for such internal controls as
they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsible for safeguarding the
assets of the Group, and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. The
directors are also responsible for preparing a directors' report
that complies with the requirements of the Companies Act 2014.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group's
and Parent Company's website http://www.mainstay-medical.com.
Legislation in the Republic of Ireland concerning the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on
page 14 of this annual report, confirm that, to the best of each
person's knowledge and belief:
-- The Group financial statements, prepared in accordance with IFRS as
adopted by the European Union and the Parent Company financial statements
prepared in accordance with IFRS as adopted by the European Union as
applied in accordance with the provisions of Companies Act 2014, give a
true and fair view of the assets, liabilities, and financial position of
the Group and Parent Company at 31 December 2019 and of the loss of the
Group for the year then ended;
-- The Directors' report contained in the annual report includes a fair
review of the development and performance of the business and the
position of the Group and Parent Company, together with a description of
the principal risks and uncertainties that they face; and
-- The annual report and financial statements, taken as a whole, provides
the information necessary to assess the Group's performance, business
model and strategy and is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Parent Company's
position and performance, business model and strategy.
On behalf of the board on 24 February 2020,
Oern Stuge MD Jason Hannon
Chairman CEO
Independent auditor's report to the members of Mainstay Medical
International plc
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Mainstay Medical
International plc ('the Company') for the year ended 31 December
2019 set out on pages 60 to 94, which comprise the Consolidated
statement of profit or loss and other comprehensive income, the
Consolidated and Parent Company statements of financial position,
the Consolidated and Parent Company statements of changes in
shareholders' equity, the Consolidated and Parent Company
statements of cash flows, and related notes, including the summary
of significant accounting policies set out in note 3. The financial
reporting framework that has been applied in their preparation is
Irish Law and International Financial Reporting Standards (IFRS) as
adopted by the European Union and, as regards the Parent Company
financial statements, as applied in accordance with the provisions
of the Companies Act 2014.
In our opinion:
-- the financial statements give a true and fair view of the assets,
liabilities and financial position of the Group and Parent Company as at
31 December 2019 and of the Group's loss for the year then ended;
-- the Group financial statements have been properly prepared in accordance
with IFRS as adopted by the European Union;
-- the Parent Company financial statements have been properly prepared in
accordance with IFRS as adopted by the European Union, as applied in
accordance with the provisions of the Companies Act 2014; and
-- the Group and Parent Company financial statements have been properly
prepared in accordance with the requirements of the Companies Act 2014
and, as regards the Group financial statements, Article 4 of the IAS
Regulation.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable
law. Our responsibilities under those standards are further
described in the Auditor's Responsibilities section of our report.
We believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the audit committee.
We were appointed as auditor by the directors on 2 May 2014. The
period of total uninterrupted engagement is the 6 years ended 31
December 2019, of which the Company has been a public company for 5
years. We have fulfilled our ethical responsibilities under, and we
remained independent of the Group in accordance with, ethical
requirements applicable in Ireland, including the Ethical Standard
issued by the Irish Auditing and Accounting Supervisory Authority
(IAASA) as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters,
in decreasing order of audit significance, were as follows
(Substantial modification of loans and borrowings has been
identified as a key audit matter for the first time in 2019):
Revenue recognition $1.105 million (2018 - $0.663 million)
Refer to page 67 (accounting policy) and page 71 (financial
disclosures)
How the matter was addressed in our
The key audit matter audit
Revenue recognition contains an We obtained and documented our
inherent fraud risk relating to the understanding of the Group's revenue
judgement in respect of the timing of process, and tested the design and
revenue recognition related to the implementation of the relevant
transfer of control to the customer. controls therein, including anti-fraud
controls. Our substantive audit
procedures included, among others,
performing the following audit
procedures for a sample of
transactions selected based on
magnitude of the individual
transaction and/or the amount of
revenue recognised in the year: - We
tested the existence and accuracy of a
sample of revenue transactions in the
period, by agreeing revenues to
customer orders, invoices and cash
receipts where appropriate and
assessed the appropriateness of the
timing of transactions close to the
period end by agreeing individual
transactions to documents confirming
that the performance obligations had
been satisfied and that control had
been transferred to the customer; and
- We performed procedures to assess
the appropriate authorisation of
manual journals entries posted to the
revenue account. Based on the
procedures performed we identified no
material misstatements relating to
revenue.
Substantial modification of loans and borrowings $17.4 million
(2018 - $11.9 million)
Refer to page 69 (accounting policy) and pages 76, 77 and 80-86
(financial disclosures)
The key audit matter How the matter was addressed in our
audit
During 2019, the Company modified the Our audit procedures included, among
terms of its debt facilities. The others, the following: - We assessed
modification included the addition of the design and implementation of
a conversion option, the issue of controls over the significant unusual
warrants and changes to the interest transaction; - We assessed the
rate and repayment terms of the accounting treatment of the
facility. While we did not identify a transaction, including the
significant audit risk related to the classification of the modification as
modification, the complexity of the substantial and the financial
related accounting requirements and instrument classification requirements
the judgements and estimates in the of the components of the new debt; -
valuation of the financial instruments We performed procedures to assess the
resulted in a significant allocation significant inputs into the valuation
of resources in the course of our of the components of the new debt,
audit. which included involving our own
valuation specialist to assess the
significant judgements and estimates
relating to the valuation of the
conversion option and warrants; and -
We assessed the adequacy of the
financial statement disclosures
relating to the matter. Based on the
procedures performed we identified no
material misstatements and considered
the judgements and estimates used in
the valuation of the related financial
instruments to be reasonable. The
above matter, specifically the
valuation of the conversion option and
warrants, was the only key audit
matter related to our audit of the
Parent Company financial statements.
Our application of materiality and an overview of the scope of
our audit
The materiality for the Group Financial Statements as a whole
was set at $0.10 million (2018: $0.15 million). This was calculated
with reference to a benchmark of operating expenses. Materiality
represents 0.5% of this benchmark. We consider operating expenses
to be the benchmark that most influences the economic decisions of
users of the financial statements.
We report to the Audit Committee all corrected and uncorrected
misstatements we identified through our audit with a value in
excess of $0.02 million (2018: $0.02 million), in addition to other
audit misstatements below that threshold that we believe warrant
reporting on qualitative grounds.
Materiality for the Parent Company Financial Statements as a
whole was set at $0.10 million (2018: $0.15 million). This was
initially determined with reference to a benchmark of total assets,
of which it represents 0.5%, but restricted to the absolute amount
of Group materiality.
The Group audit team performed the audit of the Group as if it
was a single aggregated set of financial information. The audit was
performed using the materiality levels set out above.
We have nothing to report on going concern
We are required to report to you if:
-- we have anything material to add or draw attention to in relation to the
directors' statement in note 2 to the financial statements on the use of
the going concern basis of accounting with no material uncertainties that
may cast significant doubt over the Group and Parent Company's use of
that basis for a period of at least twelve months from the date of
approval of the financial statements.
We have nothing to report in these respects.
Other information
The directors are responsible for the preparation of the other
information presented in the Annual Report together with the
financial statements. The other information comprises the
information included in the Directors' report, Corporate and
shareholder information, Chairman's statement, Biographies of
Directors, Corporate governance report, and Risk factors.
The financial statements and our auditor's report thereon do not
comprise part of the other information. Our opinion on the
financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as
explicitly stated below, any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Based solely on our work on the other information we report
that, in those parts of the directors' report specified for our
consideration:
-- we have not identified material misstatements in the directors' report;
-- in our opinion, the information given in the directors' report is
consistent with the financial statements; and
-- in our opinion, the directors' report has been prepared in accordance
with the Companies Act 2014.
Other corporate governance disclosures
We are required to address the following items and report to you
in the following circumstances:
-- Fair, balanced and understandable: if we have identified material
inconsistencies between the knowledge we acquired during our financial
statements audit and the directors' statement that they consider that the
Annual Report and financial statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Group's position and performance, business
model and strategy;
-- Report of the Audit Committee: if the section of the Annual Report
describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We have nothing to report in these respects.
In addition as required by the Companies Act 2014, we report, in
relation to information given in the Corporate Governance Statement
on pages 21 to 24, that:
-- based on the work undertaken for our audit, in our opinion, the
description of the main features of internal control and risk management
systems in relation to the financial reporting process, and information
relating to voting rights and other matters required by the European
Communities (Takeover Bids (Directive 2004/EC) Regulations 2006 and
specified for our consideration, is consistent with the financial
statements and has been prepared in accordance with the Act;
-- based on our knowledge and understanding of the Parent Company and its
environment obtained in the course of our audit, we have not identified
any material misstatements in that information; and
-- the Corporate Governance Statement contains the information required by
the European Union (Disclosure of Non-Financial and Diversity Information
by certain large undertakings and groups) Regulations 2017.
We also report that, based on work undertaken for our audit, the
information required by the Act is contained in the Corporate
Governance Statement.
Our opinions on other matters prescribed by the Companies Act
2014 are unmodified
We have obtained all the information and explanations which we
consider necessary for the purpose of our audit.
In our opinion, the accounting records of the Parent Company
were sufficient to permit the financial statements to be readily
and properly audited and the financial statements are in agreement
with the accounting records.
We have nothing to report on other matters on which we are
required to report by exception
The Companies Act 2014 requires us to report to you if, in our
opinion, the disclosures of directors' remuneration and
transactions required by Sections 305 to 312 of the Act are not
made.
The Companies Act 2014 also requires us to report to you if, in
our opinion, the Company has not provided the information required
by section 5(2) to (7) of the European Union (Disclosure of
Non-Financial and Diversity Information by certain large
undertakings and groups) Regulations 2017 for the year ended 31
December 2019 as required by the European Union (Disclosure of
Non-Financial and Diversity Information by certain large
undertakings and groups) (amendment) Regulations 2018.
Respective responsibilities and restrictions on use
Directors' responsibilities
As explained more fully in their statement set out on page 53,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Group and Parent Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either
intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (Ireland) will always detect a material
misstatement when it exists. Misstatements can arise from fraud,
other irregularities or error and are considered material if,
individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the
financial statements. The risk of not detecting a material
misstatement resulting from fraud or other irregularities is higher
than for one resulting from error, as they may involve collusion,
forgery, intentional omissions, misrepresentations, or the override
of internal control and may involve any area of law and regulation
and not just those directly affecting the financial statements.
A fuller description of our responsibilities is provided on
IAASA's website at
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsiblities_for_audit.pdf.
The purpose of our audit work and to whom we owe our
responsibilities
Our report is made solely to the Company's members, as a body,
in accordance with Section 391 of the Companies Act 2014. Our audit
work has been undertaken so that we might state to the Company's
members those matters we are required to state to them in an
auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members, as a body,
for our audit work, for our report, or for the opinions we have
formed.
Sean O'Keefe 24 February 2020
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Stokes Place
St. Stephen's Green
Dublin 2
Mainstay Medical International plc
Consolidated statement of profit or loss and other comprehensive
income
for the year ended 31 December 2019
Year Year
ended 31 December ended 31 December
($'000) Notes 2019 2018
Revenue 5 1,105 663
Cost of sales (669) (359)
Gross profit 436 304
Operating expenses 6 (19,226) (29,589)
Operating loss (18,790) (29,285)
Finance expense 9 (3,475) (1,890)
Net finance expense (3,475) (1,890)
Loss before income taxes (22,265) (31,175)
Income taxes 11 (120) 98
Loss for the year (22,385) (31,077)
Net loss attributable to
equity holders (22,385) (31,077)
Basic and diluted loss per
share (in $) 10 ($2.08) ($3.65)
Other Comprehensive Income
Items that may be
reclassified subsequently to
the statement of profit or
loss:
Foreign currency translation
differences of foreign
operations 92 33
Total comprehensive loss for
the year (22,293) (31,044)
Total comprehensive loss
attributable to equity
holders (22,293) (31,044)
The accompanying notes form an integral part of these
consolidated Financial Statements.
Mainstay Medical International plc
Consolidated statement of financial position
at 31 December 2019
31 31
December December
($'000) Notes 2019 2018
Non-current assets
Property, plant and equipment 12 126 235
Right of use asset 18 290 -
Total non-current assets 416 235
Current assets
Trade and other receivables 13 866 813
Income tax receivable 118 213
Inventory 14 1,863 2,575
Cash and cash equivalents 15 17,398 15,545
Total current assets 20,245 19,146
Total assets 20,661 19,381
Equity
Share capital 19 72 67
Share premium 19 159,429 143,897
Share based payment reserve 22 15,677 11,716
Other reserves 20 4,718 4,626
Retained loss (179,863) (157,022)
Total equity 33 3,284
Non-current liabilities
Loans and borrowings 16 14,519 8,791
Lease liability 18 107 -
Total non-current liabilities 14,626 8,791
Current liabilities
Loans and borrowings 16 2,886 3,158
Lease liability 18 227 -
Income tax payable 141 18
Deferred revenue 49 -
Trade and other payables 17 2,699 4,130
Total current liabilities 6,002 7,306
Total liabilities 20,628 16,097
Total equity and liabilities 20,661 19,381
The accompanying notes form an integral part of these financial
statements.
On behalf of the Board on 24 February 2020,
Oern Stuge MD Jason Hannon
Chairman CEO
Mainstay Medical International plc
Consolidated statement of changes in shareholders' equity
for the year ended 31 December 2019
Unde- Foreign Share
nominated Reorgani currency based
Share Share capital -zation translation payment Retained Total
($'000) capital premium reserve reserve reserve reserve loss equity
Balance as at
1 January
2018 64 106,414 49,273 (44,573) (107) 7,613 (124,505) (5,821)
Loss for the
year - - - - - - (31,077) (31,077)
Other
comprehensive
income - - - - 33 - - 33
Total
comprehensive
loss for the
year - - - - 33 - (31,077) (31,044)
Transactions
with owners of
the Company:
Issue of
Shares 3 37,483 - - - - (1,440) 36,046
Share based
payments - - - - - 4,103 - 4,103
Balance at 31
December
2018 67 143,897 49,273 (44,573) (74) 11,716 (157,022) 3,284
Opening
adjustment on
initial
application
of IFRS 16 - - - - - - (51) (51)
Adjusted
balance as at
1 January
2019 67 143,897 49,273 (44,573) (74) 11,716 (157,073) 3,233
Loss for the
year - - - - - - (22,385) (22,385)
Other
comprehensive
income - - - - 92 - - 92
Total
comprehensive
loss for the
year - - - - 92 - (22,385) (22,293)
Transactions
with owners of
the Company:
Issue of
Shares 5 15,532 - - - - (405) 15,132
Share based
payments - - - - - 3,961 - 3,961
Balance at 31
December 2019 72 159,429 49,273 (44,573) 18 15,677 (179,863) 33
The undenominated capital reserve, reorganization reserve and
foreign currency translation reserve are shown as "other reserves"
in the consolidated statement of financial position and within Note
20.
The accompanying notes form an integral part of these
consolidated financial statements.
Mainstay Medical International plc
Consolidated statement of cash flows
for the year ended 31 December 2019
Year ended Year ended
31 31
December December
($'000) Notes 2019 2018
Cash flow from operating activities
Loss for the year (22,385) (31,077)
Add/(less) non-cash items
Depreciation 12,18 362 89
Finance expense 9 3,475 1,890
Share-based compensation 7,22 3,961 4,103
Income taxes 120 (98)
Add/(less) changes in working capital
Trade and other receivables (96) (242)
Inventory 642 (180)
Trade and other payables (1,295) (517)
Taxes paid (114) (188)
Interest paid (245) (1,133)
Net cash used in operations (15,573) (27,353)
Cash flow from investing activities
Acquisition of property, plant and equipment 12 (5) (123)
Net cash used in investing activities (5) (123)
Cash flow used in financing activities
Gross proceeds from issue of shares 19 15,537 37,486
Transaction costs on issue of shares 19 (405) (1,440)
Proceeds from loans and borrowings 16 3,341 -
Repayment of loans and borrowings 16 (750) (3,000)
Payment of lease liabilities 18 (290) -
Net cash from financing activities 28 17,433 33,046
Net increase in cash and cash equivalents 1,853 5,570
Cash and cash equivalents at beginning of
year 15,545 9,975
Cash and cash equivalents at end of year 16 17,398 15,545
Mainstay Medical International plc
Notes to the consolidated Financial Statements
1. General information and reporting entity
Mainstay Medical International plc (the "Company") is a public
limited company incorporated and registered in Ireland. Details of
the registered office, the officers and advisers to the Company are
presented on the Corporate and Shareholder Information page.
The Consolidated Financial Statements ("the Financial
Statements") for the years ended 31 December 2019 and 31 December
2018 comprise the results of the Company and of its subsidiaries
(together the "Group").
At 31 December 2019, the Group comprises the Company and its
operating subsidiaries Mainstay Medical Limited, MML US, Inc.,
Mainstay Medical (Australia) Pty. Limited, Mainstay Medical
Distribution Limited, Mainstay Medical BV and Mainstay Medical
GmbH.
The Company's shares are quoted on Euronext Paris and Euronext
Growth operated by Euronext Dublin.
Mainstay is a medical device company focused on commercializing
ReActiv8, an implantable restorative neurostimulation system
designed to treat an underlying cause of disabling Chronic Low Back
Pain.
2. Basis of preparation
Statement of compliance
The Financial Statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as issued by
the International Accounting Standards Board ("IASB"), as adopted
by the European Union ("EU") and in accordance with the Euronext
Growth rules of Euronext Dublin. The Company Financial Statements
have also been prepared in accordance with IFRS as adopted by the
EU, as applied in accordance with the Companies Act 2014 (the "2014
Act"), which permits a company that publishes its company and group
financial statements together to take advantage of the exemption in
Section 304 of the 2014 Act from presenting to its members both its
company statement of profit or loss and other comprehensive income
and related notes which form part of the approved company financial
statements.
The Financial Statements are available on the Group's
website.
The IFRSs adopted by the EU applied by the Group in the
preparation of these Financial Statements are those that were
effective for accounting periods beginning on or after 1 January
2019 with no early adoption of forthcoming requirements.
The Financial Statements were authorized for issue by the Board
of Directors on 21 February 2020.
Going concern
The Directors have evaluated whether there are conditions and
events, considered in aggregate, that raise doubt about the Group's
ability to continue as a going concern. The Directors note the
following relevant matters:
-- The Group had cash of $17.4 million as at 31 December 2019 ($15.5 million
as at 31 December 2018).
-- The Group had operating cash out-flows of $15.6 million for the year
ended 31 December 2019 (year ended 31 December 2018: $27.4 million).
-- Due to the phase of development of the Group, the Group expects to
continue to incur losses in the medium term due to the ongoing investment
required in research and development, clinical and commercial activities
and expects to continue to seek funding from investors or other finance
providers as required.
-- The Group has negotiated its debt and raised additional equity finance
during the year to support the Group's activities for the foreseeable
future.
After making enquiries and having considered the conditions
noted above and the options available to the Group, the Directors
have a reasonable expectation that the Group can carefully monitor
its cash flows and has the ability to consider various strategies
for additional funding and budgets to manage cash to ensure that
the Group will have sufficient funds to be able to meet its
liabilities as they fall due for a period of at least 12 months
from the date of the Financial Statements and are satisfied that
the Financial Statements should be prepared on a going concern
basis.
Basis of measurement
The Financial Statements are prepared on the historic cost
method, except for share based payments, which are initially
measured at grant date fair value, and the conversion option and
the warrants associated with the loan, which are carried at fair
value.
Currency
The Financial Statements are presented in US Dollars ("$"),
which is the functional and presentational currency of the Company.
Balances in the Financial Statements are rounded to the nearest
thousand ("$'000") except where otherwise indicated.
Use of estimates and judgements
The preparation of the Financial Statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions. Estimates are reviewed on an ongoing basis. The areas
where estimates have the most significant effect on amounts
recognized in the Financial Statements are initial fair value
measurement of equity-settled share-based payments (Note 22) and
the fair value of identifiable instruments relating to the
Company's convertible loan (Note 16).
Basis of consolidation
The Financial Statements comprise the consolidated results of
Mainstay Medical International plc and its subsidiaries.
3. Significant accounting policies
The Financial Statements have been prepared applying the
accounting policies as set out below. These have been applied
consistently for all years presented.
Adoption of newly effective accounting standards and
amendments
The Group applied the following standards for the first time in
the current year:
-- IFRS 16 - Leases (effective date 1 January 2019) (see further information
below)
-- IFRIC 23 - Uncertainty over Income Tax Treatments (effective date 1
January 2019)
-- Prepayment Features with Negative Compensation (Amendments to IFRS 9)
(effective date 1 January 2019)
-- Long-term interest in associates and joint ventures (Amendments to IAS
28) (effective date 1 January 2019)
-- Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
(effective date 1 January 2019)
-- Annual Improvements to IFRS Standards 2015- 2017 Cycle: Various standards
(effective date 1 January 2019)
The adoption of these new or amended standards did not have a
material impact on the Group's financial statements. The immaterial
impacts of the change in accounting policies arising from the
implementation of IFRS 16 are as follows:
IFRS 16 - Leases
The Group has initially adopted IFRS 16 from 1 January 2019.
IFRS 16 introduced a single, on-balance sheet accounting model for
lessees. As a result, the Group, as a lessee, has recognized
right-of-use assets representing its rights to use the underlying
assets and lease liabilities representing its obligation to make
lease payments.
The Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial application
is recognized in retained earnings at 1 January 2019 ($51,000).
Accordingly, the comparative information presented for 2018 has not
been restated. The details of the changes in accounting policies
are as follows:
Definition of a Lease
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Group recognizes right-of-use assets
and lease liabilities for leases.
The Group recognizes a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, and subsequently at cost less any accumulated
depreciation and impairment losses, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
Impact of IFRS 16 on transition:
The impact of the IFRS 16 transition on 1 January 2019 increased
non-current assets by $537,000, increased liabilities by $588,000
and reduced equity (retained loss) by $51,000.
When measuring lease liabilities for leases that were previously
classified as operating leases, the Group has discounted lease
payments using its incremental borrowing rate at 1 January 2019.
The discount rate applied for all leases was 12%.
Reconciliation of operating lease commitments under IAS 17 to opening 2019
lease liability under IFRS 16 $'000
Operating lease commitments as at 31 December 2018 disclosed in the
Group's consolidated financial statements 503
Discounted using the incremental borrowing rate at 1 January 2019 480
Extension options reasonably certain to be exercised 108
Lease liabilities recognized as at 1 January 2019 588
Of which are:
Current lease liability 254
Non-current lease liability 334
588
Impact of IFRS 16 in the year:
As at 31 December 2019 non-current assets increased by $290,000,
current liabilities increased by $227,000 and non-current
liabilities increased by $107,000. The Group has recognized
depreciation and interest expenses instead of operating lease
expenses in relation to those leases under IFRS 16. During the year
ended 31 December 2019, the Group recognized $247,000 of
depreciation expense and $38,000 of lease interest expense from
these leases in the consolidated statement of profit or loss.
Further information in relation to the Group's leases is
detailed in Note 18.
New standards and amendments not yet effective
A number of new standards and amendments to standards have an
effective date of 1 January 2020. These standards and amendments to
standards are not yet effective and have not been early
adopted.
-- Amendments to References to Conceptual Framework in IFRS Standards
-- Definition of a Business - Amendments to IFRS 3 (not yet endorsed by the
EU)
-- Definition of Material - Amendments to IAS 1 and IAS 8
-- Interest rate benchmark reform amendments to IFRS 9, IAS 39 and IFRS 7
-- Amendment to IAS 1 Presentation of Financial Statements Classification of
Liabilities as Current or Non-Current (effective 1 January 2021)
None of the above are expected to have a material impact on the
Group's implementation of its accounting policies or on its
reported results.
a) Revenue recognition
The Group recognizes revenue when it transfers control over a
product or service to a customer. This may arise on shipment, on
delivery or in accordance with specific terms and conditions agreed
with customers and provided there are no material remaining
performance obligations required of the Group.
Revenue is measured at the fair consideration
received/receivable for the sale of goods to external customers net
of value added tax and discounts. Expected discounts are estimated
and provided for as a reduction in revenue based on agreements with
customers, agreed promotional arrangements and accumulated
experience. Accumulated experience is used to estimate and provide
for the discounts, using the expected value method, and revenue is
only recognized to the extent that it can be reliably measured and
when it is probable that future economic benefits of the
transaction will flow to the Group. Service revenues (relating to
training and implant support) are recognized when the related
services are rendered. When a customer is invoiced, or cash is
received but conditions specified within the contract for
recognition of the related revenues have not been met, revenue is
deferred until all conditions are met. The Group occasionally sells
goods and services as a bundled arrangement. Such sales are
unbundled based on the relative fair value of the individual goods
and services components and each component is recognized separately
in accordance with the Group's recognition policy.
b) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect these returns through its power over the entity.
The financial statements of subsidiaries are included in the
Financial Statements from the date that control commences until the
date that control ceases. Intra-group balances and transactions,
and any unrealized income and expenses arising from intra-group
transactions, are eliminated on consolidation.
c) Pension costs
The Group provides pensions to its employees in Ireland and
Australia under defined contribution schemes. Obligations for
contributions to the defined contribution schemes are expensed as
the related service is provided.
d) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is calculated to write off the cost of
each asset over its estimated future life, as follows:
Computer and office equipment: 3 -- 5 years
e) Leases
Accounting policy in 2019, following adoption of IFRS 16
The Group recognizes a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, and subsequently at cost less any accumulated
depreciation and impairment losses, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
Accounting policy in 2018, prior to adoption of IFRS 16
Operating leases related to the Group's offices are charged to
profit or loss on a straight-line basis over the lease term. An
operating lease is one where the majority of risks and rewards of
the asset are not transferred to the Group over the lease term. The
Group has no finance leases.
f) Taxation
Tax expense comprises current and deferred tax. Current and
deferred taxes are recognized in the consolidated statement of
profit or loss and other comprehensive income except to the extent
that they relate to a business combination, or items recognized
directly in equity.
Current tax is the expected tax payable or receivable on the
taxable result for the year and any adjustments in relation to tax
payable or receivable in respect of the previous years.
Deferred tax is recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognized for:
-- temporary differences on the initial recognition of assets and
liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit; or
-- temporary differences related to subsidiaries to the extent that it is
probable that they will not reverse in the foreseeable future.
Deferred tax is measured at the tax rates at which the temporary
differences are expected to reverse, using tax rates enacted or
substantively enacted at the reporting date. Deferred tax assets
and liabilities are offset where the entity has a legally
enforceable right to set off current tax assets against current tax
liabilities and the deferred tax assets and liabilities related to
the same taxation authority. Deferred tax assets are recognized to
the extent that it is probable that there will be taxable profits
in the foreseeable future against which they can be utilized. The
Group has no recognized deferred tax asset as at 31 December
2019.
The Group recognizes tax credits as a component of income tax in
jurisdictions where the tax credit regime is not in substance a
government grant.
g) Foreign currency
Transactions in foreign currencies are recorded at the rate
prevailing at the date of the transactions. Any resulting monetary
assets and liabilities are translated at the exchange rate at the
reporting date and all exchange differences thereon are dealt with
in consolidated profit or loss.
-- The income statement and balance sheet of subsidiaries that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
-- assets and liabilities at each reporting date are translated at the
closing rate at the reporting date; and
-- income and expenses in the income statement and statement of
comprehensive income are translated at average exchange rates for the
year. Average exchange rates are only permissible if they approximate
actual rates.
-- All resulting exchange differences are recognized in other comprehensive
income and are taken to a separate currency reserve within equity, the
foreign currency translation reserve.
h) Financial instruments
Classification and measurement of financial assets and
liabilities
On initial recognition a financial asset is classified as
measured at Amortized Cost, or Fair Value Through Other
Comprehensive Income (FVOCI), or Fair Value Recognized Through
Profit and Loss (FVTPL). Financial assets are not reclassified
after initial recognition unless the related business model
changes. A financial asset is measured at amortized cost if it is
held in a business model whose objective is to hold assets to
collect contractual cashflows and its contractual terms give rise
on specific dates to cash flows that are solely payments of
principal or interest.
Trade and other receivables
Trade and other receivables are classified by the Group as
amortized cost assets under IFRS 9. These assets are recognized
initially at fair value. Subsequent to initial recognition, they
are measured at amortized cost using the effective interest method,
less any impairment losses.
Cash and cash equivalents
Cash and cash equivalents are classified by the Group as
amortized cost assets under IFRS 9. Cash and cash equivalents
comprise cash balances and call deposits with maturities of three
months or less, which are carried at amortized cost, less any
impairment losses.
Trade and other payables
Trade and other payables are classified by the Group as other
financial liabilities under IFRS 9. These liabilities are
recognized initially at fair value. Subsequent to initial
recognition, they are measured at amortized cost using the
effective interest method.
Interest-bearing borrowings
Interest-bearing borrowings are classified by the Group as other
financial liabilities under IFRS 9 and are recognized initially at
fair value including any attributable transaction costs. Subsequent
to initial recognition, interest-bearing borrowings are stated at
amortized cost using the effective interest method over the
contractual term.
Substantial modification of financial liabilities
When the terms of financial liabilities are substantially
modified, the Company de-recognizes the existing liability and
records any new liabilities at fair value on the date of
modification. Any difference between the previous carrying value
and the fair value of the new instruments is recorded in the
Statement of Profit or Loss and Other Comprehensive Income.
Expenses associated with the modification of debt are expensed as
incurred.
Derivative financial liabilities
Instruments to be settled in the Company's own shares are
recorded as derivative financial liabilities unless they qualify
for equity classification due to settlement arising by the exchange
of a fixed amount of cash for a fixed number of the Company's own
equity.
These instruments are initially recognized at fair value and any
subsequent changes in fair value are recorded in the Statement of
Profit or Loss and Other Comprehensive Income. The conversion
features and warrants issued as part of the Company's debt have
variability in the number of shares that may be required to be
issued and accordingly are recorded as derivative financial
liabilities carried at fair value.
Financial instruments separation
Financial instruments which the Company separates comprise
convertible notes issued by the Group that can be converted into
ordinary shares by the holder and which are automatically converted
in certain circumstances (see Note 16). These instruments were
separated into their components based on the fair value of each
component at the date of issue. The Company's debt contains the
following components:
-- Liability component, measured at amortized cost; and
-- Derivative component, measured at fair value
On conversion, any financial liabilities are reclassed to
equity.
i) Equity
Ordinary share capital is recognized directly in equity at fair
value on issue and is not subsequently re-measured.
j) Impairment
Non-financial assets
All non-financial assets other than deferred taxes are reviewed
at the reporting date to determine whether there is evidence of
impairment. If such indicators exist, then the asset's recoverable
value is determined. An impairment loss is recognized if the
carrying value exceeds the recoverable amount. Recoverable amount
is the greater of an asset's value in use and its fair value. In
assessing value in use, the estimated future cash flows associated
with the asset are discounted to their present value using a
pre-tax discount rate that reflects current market conditions.
Financial assets
At each reporting date, in accordance with IFRS 9, the Group
assesses whether its financial assets, comprising accounts
receivable and cash, are impaired. The Group evaluates customer
accounts with past-due outstanding balances, and analyses customer
credit worthiness, payment patterns and trends. Based upon a review
of these accounts and management's analysis and judgement, we
estimate the future cash flows expected to be recovered from these
receivables. As at 31 December 2019, our trade receivables balances
amounted to $0.24 million, and impairment losses are immaterial at
this time. Further information on the Group's credit risk is
detailed in Note 21. The Company measures loss allowances at an
amount equal to lifetime expected credit losses, except for cash
which is measured at 12-month expected credit losses. The maximum
period considered when estimating expected credit losses is the
maximum contractual period of exposure to credit risk.
k) Provisions
A provision is recognized if, as a result of a past event, the
Group has a present obligation that it is probable, will result in
an outflow of resources and can be estimated reliably.
l) Finance income and expense
Finance income comprises foreign exchange gains on financial
items and deposit interest. Interest income is recognized as it
accrues. Finance costs comprise interest on borrowings, movement in
the fair value of financial instruments and foreign exchange
losses.
m) Share based payments
The grant date fair value of equity-settled share-based awards
made to employees and non-employees is recognized as an expense,
with a corresponding adjustment to equity, over the vesting period
of the award. The amount recognized as an expense is adjusted to
reflect the number of awards for which the achievement of service
and non-market conditions is expected to be met, such that the
amount ultimately recognized represents only vested awards.
The grant-date fair value of share options granted to employees
is determined using a Black-Scholes model, details of which are
provided in Note 22. The grant-date fair value of share options
granted to non-employees is determined based on the fair value of
services received in return for the option, or where such a value
is not available, based on the same model as used for employee
options. Options can only be settled by way of share issues. The
grant date fair value of Restricted Stock Units (RSUs) granted to
employees is estimated based on the closing price of the Company's
common stock on the date of grant.
n) Warrants
Warrants issued alongside debt instruments other than those
issued as part of the current year's debt modification, which are
dealt with above, are initially recognized at fair value with a
corresponding reduction in the debt instrument liability whereon
this adjustment to the liability is amortized to the income
statement on an effective interest rate basis.
o) Earnings per ordinary share
Basic earnings per share are calculated by dividing net
profit/(loss) attributable to equity holders for the year by the
weighted average number of ordinary shares in issue during the
year.
Diluted earnings per share are calculated by dividing net profit
attributable to equity holders for the year by the weighted average
number of ordinary shares in issue during the year after adjusting
for the effects of all potential dilutive ordinary shares that were
outstanding during the financial period.
p) Research and development expenditure
Expenditure on research is charged to the income statement in
the year in which it is incurred.
Expenditure on development is charged to the income statement in
the year in which it is incurred, with the exception that
development expenditure is capitalized where expenditure is
incurred in the development of an asset for sale; is intended to be
developed for sale; and for which the likelihood of development and
sale is probable. No costs have been capitalized to date.
q) Inventories
Inventories are stated at the lower of cost and net realizable
value. The cost of inventories is based on the first in -- first
out principle and includes expenditure in acquiring the inventories
and bringing them to their existing location and condition. Net
realizable value is the estimated selling price less the estimated
costs of completion and the estimated costs necessary to make the
sale. Provision is made, where necessary, for aged, slow moving,
obsolete and defective inventories.
4. Segment reporting
Due to the current nature of the Group's current activities, the
Group considers there to be one operating segment, Active
Implantable Medical Devices ("AIMD"s). The results of the Group are
reported to the Chief Operating Decision Maker of the Group, the
Chief Executive Officer. There are no reconciling items between the
Group's reported consolidated statement of profit or loss and other
comprehensive income and statement of financial position and the
results of the AIMDs segment.
Geographic disclosures
The Group has operations in Europe, the US and Australia. The
non-current assets held in these jurisdictions are detailed
below:
31 December 31 December
($'000) 2019 2018
Ireland 132 101
Germany - 2
United States 284 132
Australia - -
Total non-current assets 416 235
The Group's total revenue by country is detailed below
(excluding deferred revenue of $0.049 million for 2019):
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Ireland 58 109
UK 152 -
Germany 875 536
Other Europe 20 18
Total revenue by country 1,105 663
5. Revenue
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Revenue arising from the sale of goods 1,105 663
Total revenue 1,105 663
This excludes deferred revenue at 31 December 2019 of $0.049
million. Revenues from two customers represented approximately
$422,000 of the Group's total revenues.
6. Operating expenses
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Research and development expenses 2,896 3,447
Clinical and regulatory expenses 3,893 11,047
Selling, general and administration expenses 12,437 15,095
Total operating expenses 19,226 29,589
7. Employee numbers and benefits
As of 31 December 2019, the Group's employees were based in
Ireland, Germany, the United States, the Netherlands and
Australia.
The table below sets out the number of employees of the Group
for each financial year shown, analyzed by category:
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Research and development and quality 5 12
Clinical and regulatory 1 9
Selling, general and administration 12 16
Total employee numbers 18 37
Parent company employees
Management and administration 3 4
The aggregate payroll costs of these employees, including
Directors, were as follows for each financial year shown:
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Wages and salaries 4,284 6,002
Other remuneration 732 474
Social security costs/ payroll taxes 304 441
Share based payments 3,961 4,103
Pension 25 84
9,306 11,104
8. Statutory information and Auditor's remuneration
The loss before income tax has been arrived at after charging
the following items for each financial year shown:
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Audit services 67 200
Other assurance services 78 125
Taxation advisory services 19 60
Total auditor's remuneration 164 385
Foreign exchange loss (187) (198)
Depreciation of plant and equipment 114 89
Research and development expenditure 2,896 3,447
9. Finance expense
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Finance expense
Foreign exchange loss (187) (198)
Lease interest (38) -
Finance expense associated with borrowings:
Interest expense (1,115) (1,692)
Impact of substantial modification of borrowings
(Note 16) (1,123) -
Fair value movement on conversion option (105) -
Fair value movement on warrants (907) -
Total finance expense (3,475) (1,890)
10. Earnings per share
As the Group is incurring operating losses, there is no
difference between basic and diluted earnings per share.
Year ended Year ended
31 December 31 December
2019 2018
Net Loss for the year ($'000) attributable to
equity holders 22,385 31,077
Weighted average number of ordinary shares in
issue 10,758,902 8,504,996
Loss per share $2.08 $3.65
In accordance with IFRS, share options, warrants, conversion
rights and RSUs are not included in the weighted average number of
ordinary shares for the purposes of calculating diluted earnings
per share as they are anti-dilutive. Refer to note 22 for
information on share options and RSUs outstanding as at 31 December
2019 and 31 December 2018.
11. Taxes
Current income tax assets and liabilities for the current and
prior years are measured at the amount expected to be recovered
from or paid to the relevant taxation authorities. The tax rates
and tax laws used to compute the amount are those used in Ireland,
the United States, Australia, the Netherlands and Germany.
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Irish income tax - -
Income tax in other jurisdictions:
Foreign current tax 156 94
Adjustments in respect of prior years (36) (192)
Total income tax charge/(credit) 120 (98)
Certain companies within the Group provide services to other
group companies, and consequently generate revenues and profits
that are subject to corporation tax in Australia, United States,
the Netherlands and Germany.
Reconciliation of effective tax rate
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Loss before tax (22,265) (31,175)
-
Taxed at tax rate in Ireland of 12.5% (2,783) (3,897)
Non-deductible expenses 517 690
Tax credits (115) (178)
Foreign rate differential 159 148
Adjustments in respect of prior periods (36) (192)
Unrecognized tax losses 2,378 3,331
Total income tax (credit)/charge 120 (98)
Unrecognized deferred tax assets
The Group has unrecognized potential deferred tax assets. These
potential assets are not recognized because future taxable profits
against which they can be utilized are not sufficiently certain.
The availability of these assets does not expire.
Capital allowances on intellectual property which is recognized
as an asset for tax purposes but is not capitalized under IFRS,
will be available should the Group generate relevant income in
future periods against which the capital allowances are
deductible.
The unrecognized deferred tax asset relating to share based
payments arises principally in our US subsidiary.
Adjustment Adjustment
At 1 Arising in respect At 31 Arising in respect At 31
Gross timing January in of prior December in of prior December
differences: 2018 year years 2018 year years 2019
Unrecognized
tax losses 80,627 26,648 387 107,662 19,031 (140) 126,553
Intangible
assets 15,000 - - 15,000 - - 15,000
Share based
payments 1,317 (401) - 916 (424) - 492
Derivative
financial
instrument
--
conversion
option - - - - 1,203 - 1,203
Derivative
financial
instrument
-- warrant - - - - 2,886 - 2,886
Total gross
temporary
differences 96,944 26,247 387 123,578 22,696 (140) 146,134
Unrecognized
deferred tax
asset
Unrecognized
tax losses 10,078 3,331 48 13,457 2,378 (17) 15,818
Intangible
assets 1,875 - - 1,875 - - 1,875
Share based
payments 290 (89) - 201 (93) - 108
Derivative
financial
instrument
--
conversion
option - - - - 150 - 150
Derivative
financial
instrument
-- warrant - - - - 360 - 360
Total
unrecognized
deferred tax
asset 12,243 3,242 48 15,533 2,795 (17) 18,311
12. Property, plant & equipment
Computer Computer and
and office office
equipment equipment
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Cost
At beginning of year 625 502
Additions 5 123
At end of year 630 625
Depreciation
At beginning of year 390 301
Charge for the year 114 89
At end of year 504 390
Carrying value at end of year 126 235
13. Trade and other receivables
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Trade receivables 245 143
VAT and sales tax receivable 170 169
Prepaid expenses and other current assets 451 501
Total trade and other receivables 866 813
Information about the Group's exposure to credit risks and
impairment losses for trade receivables is included in Note 21.
14. Inventory
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Raw Materials 79 52
Work in Progress 306 136
Finished Goods 1,478 2,387
Total inventory 1,863 2,575
There were no provisions netted against inventory as at 31
December 2019. The cost of inventory used in cost of sales during
2019 was $637,000 (2018: $344,000). During 2019, inventories were
reduced by $182,000 as a result of a write down to net realizable
value.
15. Cash and cash equivalents
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Cash in bank accounts -- USD 16,965 15,170
Cash in bank accounts -- EUR 272 187
Cash in bank accounts -- AUD 161 188
Total cash and cash equivalents 17,398 15,545
16. Interest bearing loans and borrowings
IPF Debt Financing
On 24 August 2015, MML entered into the IPF debt facility for up
to $15.0 million. The facility was drawn down in three tranches. In
April 2019 a new tranche of EUR3.0 million (approximately $3.34
million) was made available to Mainstay. On 29 July 2019 Mainstay
announced the drawdown of EUR3.0 million in additional debt from
the new tranche of the existing debt facility.
At the same time, the Company amended the terms of its existing
agreements such that all the principal and interest payments are
deferred until 2021, the loan term was extended to 2023 and the
interest rate on all tranches was changed to 8%. The loan is also
convertible in certain circumstances to ordinary shares at a price
of EUR8 per share.
The minimum cash covenant was amended so that Mainstay is
required to hold cash at least equal to its projected cash
expenditures for operations and debt repayment for the next three
months, and the covenant relating to the achievement of commercial
milestones was eliminated.
The Company considers the amendment represented a significant
modification of the terms of the original debt. Accordingly, the
previous loans and associated accruals were de-recognized and the
new loan and related warrants were recognized at fair value.
The agreement contains additional features and these features,
being the conversion options and warrants, require separation as
their economic characteristics and associated risks are not deemed
to be closely related to the host instrument (see note 21).
Year ended Year ended
Loans and Borrowings - current 31 December 31 December
($'000) 2019 2018
Term Loan - 3,000
Deferred finance costs - (90)
Accrued interest - 248
Derivative financial instrument -- warrant 2,886 -
Total 2,886 3,158
Year ended Year ended
Loans and Borrowings -- non current 31 December 31 December
($'000) 2019 2018
Term Loan 12,620 7,200
Deferred finance costs - (103)
Accrued interest 696 1,694
Conversion option 1,203 -
Total 14,519 8,791
Total loans and borrowings 17,405 11,949
17. Trade and other payables
Year ended Year ended
31 December 31 December
($'000) 2019 2018
Trade and other payables 1,534 1,789
Payroll tax liability 46 74
Accrued expenses 1,119 2,267
Total trade and other payables 2,699 4,130
18. Leases
The Group leases office facilities at two locations. These
leases are due to expire in August 2020 and August 2021. Previously
these leases were classified as operating leases under IAS 17.
Information about leases for which the Group is a lessee is
presented below.
Right-of-use assets
Year ended
31 December
($'000) 2019
Balance at 1 January 537
Depreciation charge for the year (247)
Additions to right-of-use assets -
Right-of-use assets 290
Amounts recognized in profit or loss
Year ended
31 December
($'000) 2019
Interest on lease liabilities 38
Total 38
Lease liability
Year ended
31 December
($'000) 2019
Balance at 1 January 588
Payments made on leased liabilities for the year (254)
Additions to right-of-use assets -
Lease liability 334
Year ended
31 December
($'000) 2019
Non-current lease liabilities 107
Current lease liabilities 227
Total 334
19. Called up share capital
The Company's ordinary shares are issued and quoted in Euro and
have been translated in US Dollars at the rates prevailing at the
date of issue.
Authorized and Issued Share Capital
31 December 31 December
2019 2018
Authorized EUR EUR
35,000,000 (2018: 20,000,000) ordinary shares of
EUR0.001 each 35,000 20,000
40,000 deferred shares of EUR1.00 each 40,000 40,000
75,000 60,000
2019 2018
Issued, called up and fully paid $ $
13,421,504 (2018: 8,770,229) ordinary shares of
EUR0.001 each 16,421 11,240
40,000 deferred shares of EUR1.00 each 55,268 55,268
71,689 66,508
In $'000 72 67
Details of movement in issued shares:
On 29 July 2019, Mainstay raised gross proceeds of EUR13.9
million (approximately $15.5 million) through a placement of
4,649,775 new ordinary shares. This issuance of new ordinary shares
was recorded in the Statement of Financial Position in USD at the
rate on the date of the transaction. Transaction costs directly
attributable to the issue of the new ordinary shares of
approximately $0.4 million have been offset against retained
earnings (in accordance with the Companies Act 2014).
Movement of shares
Number of shares Ordinary shares Deferred shares
At 1 January 2018 6,618,897 40,000
Issue of shares 2,151,332 -
Issue of ordinary shares on exercise of
share warrants - -
At 31 December 2018 8,770,229 40,000
At 1 January 2019 8,770,229 40,000
Issue of shares 4,649,775 -
Issue of ordinary shares on exercise of
share options 1,500 -
At 31 December 2019 13,421,504 40,000
Movement of shares
$'000 Share capital Share premium
At 1 January 2018 64 106,414
Issue of shares 3 37,483
Issue of ordinary shares on exercise of
share options - -
At 31 December 2018 67 143,897
At 1 January 2019 67 143,897
Issue of shares 5 15,531
Issue of ordinary shares on exercise of
share warrants - 1
At 31 December 2019 72 159,429
20. Other reserves
31 31
December December
($'000) 2019 2018
Reorganization reserve (44,573) (44,573)
Undenominated capital reserve 49,273 49,273
Foreign currency translation reserve 18 (74)
Total other reserves 4,718 4,626
Reorganization reserve
The reorganization reserve represents a reserve related to
requirements of Irish Companies Acts. It comprises (i) fair value
differences on ordinary shares arising as a result of group
restructurings in 2012 and 2014; and (ii) the pre-acquisition
retained losses of subsidiaries at the date of the 2012 and 2014
restructurings. Further information on these transactions are
available in our 2015 Annual Report and our 2014 IPO Prospectus,
available on the Group's website.
Undenominated capital reserve
The undenominated capital reserve represents the fair value
movement on embedded derivatives associated with preference shares
between the issue of the shares and their conversion (during 2014)
which does not meet the definition of Share Premium under the Irish
Companies Act. The Company therefore recorded this fair value
movement in a "Undenominated Capital Reserve" on conversion. This
reserve is not distributable. Further information on these
transactions are available in our 2015 Annual Report.
Foreign currency translation reserve
The currency reserve reflects the foreign exchange gains and
losses that arise on foreign operations that have a functional
currency that differs from the presentation currency of the
Company. The assets and liabilities of these subsidiaries are
translated at the closing rate at the reporting date, income and
expenses in the income statement are translated at the average rate
for the year and resulting exchange differences are taken to the
currency reserve within equity.
The Group has three subsidiary companies with a Euro functional
currency and one subsidiary company with an AUD functional
currency.
21. Financial instruments
A. Accounting classifications and fair value
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities as at 31 December
2019 and 31 December 2019:
Financial
assets and
liabilities Financial
2019 at Other instruments
amortized financial held at fair
($'000) cost liabilities value Fair value
Financial
assets
Cash and cash
equivalents 17,398 - - N/A
Trade and
other
receivables 245 - - N/A
Financial
liabilities
Trade and
other
payables - (2,610) - N/A
Interest
bearing
loans and
borrowings - (12,620) - (12,343)
Derivative
financial
instruments
--
conversion
option - - (1,203) (1,203)
Derivative
financial
instruments
- warrant - - (2,886) (2,886)
At December
2019 17,643 (15,230) (4,089) N/A
Financial
2018 assets at Other Total
amortized financial carrying
($'000) cost liabilities value Fair value
Financial
assets
Cash and cash
equivalents 15,545 - 15,545 N/A
Trade and
other
receivables 143 - 143 N/A
Financial
liabilities
Trade and
other
payables - (4,130) (4,130) N/A
Interest
bearing
loans and
borrowings - (11,949) (11,949) (11,988)
At December
2018 15,688 (16,079) (391) N/A
All financial instruments are Level 3.
B. Measurement of fair values
Valuation techniques and significant unobservable inputs
Items held at amortized cost where fair value is disclosed
We disclose the fair value of our financial instruments that are
measured at amortized cost using the following fair values
hierarchy for valuation inputs. The hierarchy prioritizes the
inputs into three levels based on the extent to which inputs used
in measuring fair value are observable in the market. Each fair
value measurement is reported in one of three levels which are
determined by the lowest level input that is significant to the
fair value measurement in its entirety. These levels are:
-- Level 1: Inputs are based upon quoted prices (unadjusted) in active
markets for identical assets or liabilities.
-- Level 2: Inputs are based upon other than quoted prices included in Level
1 that are observable for the asset or liability, either directly (i.e.
as prices) or indirectly (i.e. derived from prices).
-- Level 3: Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Cash and trade payables are settleable within 30 days and
accordingly fair value is deemed to be equal to carrying value.
The fair value of interest-bearing loans and borrowings is
calculated based on the present value of future contractual
principal plus interest cash flows discounted at appropriate market
rates of interest. These are classified as level 3 fair value
instruments.
There were no transfers into or out of any classification of
financial instruments in any period.
Details of key unobservable inputs and the methodologies used by
the Group in determining the fair value disclosures for financial
instruments as at 31 December 2019 are detailed in the table
below.
.
Valuation approach Key unobservable Interaction
inputs between key
unobservable
Type inputs and fair
value
Loans and Income approach Marked interest A 50 bps increase
borrowings rate (11% to 13%) in the interest
rate used would
decrease the fair
value by $141,000
A 50 bps decrease
in the interest
rate would
increase the fair
value by $139,000
Items held at fair value
The following table shows the valuation techniques used in
measuring the Company's financial instruments which are recorded at
fair value on the Company's statement of financial position as well
as the significant unobservable inputs:
Type Valuation Technique Significant Relationship
Unobservable Between Inputs and
Inputs Fair Value
Conversion option Black Scholes Term (9 months; to An extension of
Valuation Model expected FDA the term would
decision) increase the value
of the instrument
Volatility A higher
(128.81%) volatility would
increase the value
of the instrument
Warrants Black Scholes Term (5.3 years) An extension of
Valuation Model the term would
increase the value
of the instrument
Volatility A higher
(76.55%) volatility would
increase the value
of the instrument
On issuance of the above instruments on 18 April 2019 the
following were the significant unobservable inputs:
Conversion Option Warrants
Term 4 years 4 years
Volatility 58.95% 58.95%
The following table shows a reconciliation between the initial
and closing fair values of the above financial instruments:
($'000) Conversion Option Warrants
Balance at 1 January 2019 - -
Amount recognized on issue 1,098 1,979
Change in fair value recognized in statement of
profit and loss 105 907
Balance at 31 December 2019 1,203 2,866
Sensitivity Analysis
The following shows the impact of reasonable possible changes in
significant inputs on the value of the above instruments at 31
December 2019:
($'000) Conversion Option Warrants
Increase of term by 6 months 687 606
Increase in volatility of 10% 197 402
C. Financial risk management
In terms of financial risks, the Group has exposure to credit
risk, liquidity risk and market risk (comprising foreign currency
risk and interest rate risk). This note presents information about
the Group's exposure to each of the above risks together with the
Group's objectives, policies and processes for measuring and
managing those risks.
I. Risk management framework
Mainstay's Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework. The Group's risk management policies are established to
identify and analyze the risks faced by the Group, to set
appropriate risk limits and controls and to monitor risks and
adherence to the limits. Risk management systems and policies will
be reviewed regularly as the Group expands its activities and
resource base to take account of changing conditions.
The Group has no significant concentrations of financial risk
other than concentration of cash with individual banks. The Group
is also exposed to credit risk arising on trade receivables, with
further information provided under Credit risk below. Other than
liquidity risk based on the Company's use of cash during the year,
there has been no significant change during the year or since the
year end to the types or quantum of financial risks faced by the
Group or the Group's approach to the management of those risks.
II. Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
contractual obligations and arises principally from the Group's
cash and cash equivalents and trade and other receivables. Credit
risk is managed on a Group basis. The maximum exposure to credit
risk is represented by the carrying amount of each asset. The
carrying value of receivables is a reasonable approximation of fair
value.
Trade and other receivables
Trade receivables comprise amounts due from customers, all of
which were past due as at 31 December 2019 and 31 December 2018.
The Group's credit risk management policy and process in relation
to trade receivables involves carrying out credit checks where
appropriate, and by active credit management. The utilization of
credit limits is regularly monitored. In addition, it involves
periodically assessing the financial reliability of customers,
considering their financial position, experience and other
factors.
The Company does not have exposure to significantly different
categories of customers, and accordingly details of credit risk by
customer type or jurisdictions is not provided.
There were no material impairment losses recorded in the period
and the provision for expected credit losses recorded at 31
December 2019 is also immaterial. The carrying value of trade
receivables of $0.24 million at 31 December 2019 (2018: $0.1
million) represents the maximum exposure to credit risk.
The below table provides an analysis of aging of receivables as
at 31 December 2019.
2019 61 -- 90
($'000) Current 1 - 30 Days 31 - 60 Days Days
Trade and other receivables 17 94 51 83
2018 61 -- 90
($'000) Current 1 - 30 Days 31 - 60 Days Days
Trade and other receivables 93 50 - -
Cash and cash equivalents
The Group maintained its cash balances with its principal
financial institutions throughout the year, and the Group limits
its exposure to any one financial institution by holding cash
balances across several financial institutions. The cash and cash
equivalents are held with bank and financial institution
counterparties, which are rated BBB- to AA-, based on Moody and
Standard and Poor's ratings. The credit rating status of the
Group's principal financial institutions is reviewed by the Audit
Committee or the Board annually.
The cash balance is reported to the Board of Directors on a
monthly basis, and a monthly review of all cash balances held at
each institution is carried out by the CFO. The Group maintains
most of its cash in USD denominated accounts. The Group held cash
and cash equivalents of $17.4 million as at 31 December 2019.
Impairment on cash and cash equivalents has been measured on a
12-month expected loss basis and reflects the short maturities of
the exposures. The Group considers that its cash and cash
equivalents have low credit risk based on the external credit
ratings of the counterparties.
Guarantees
The Company has guaranteed the payment of the liabilities and
commitments of its subsidiaries in Ireland (as defined in section
357 of the Companies 2014 Act) for the years ended 31 December 2019
and 31 December 2018.
III. Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities as they fall due.
Since inception the Group has funded its operations primarily
through (i) the issuance of equity securities and (ii) debt
funding. The Group continues to explore funding strategies (e.g.:
equity, debt, partnering) to support its activities into the
future. Adequate additional financing may not be available on
acceptable terms, or at all. The Group's inability to raise capital
as and when needed would have a negative impact on the Group's
financial position and its ability to pursue its business
strategy.
The following is an analysis of the maturity of the contractual
(undiscounted) outflows associated with the Group's financial
liabilities at 31 December 2019 and as at 31 December 2018.
Carrying Cash flow Less than Between 1- Between 2-
($'000) value (total) 1 year 2 years 5 years
31 December 2019:
Financial Liabilities
Trade and other
payables 2,699 2,699 2,699 - -
Interest bearing loans
and borrowings 13,316 16,544 - 4,296 12,248
Derivative financial
instruments --
conversion option 1,203 - - - -
Derivative financial
instruments -
warrant 2,886 - - - -
Lease liability 334 390 265 125 -
At 31 December 2019 20,438 19,633 2,964 4,421 12,248
Carrying Cash flow Less than Between 1- Between 2-
($'000) value (total) 1 year 2 years 5 years
31 December 2018:
Non-derivative
financial Liabilities
Trade and other
payables 4,130 4,130 4,130 - -
Interest bearing loans
and borrowings 11,949 14,635 3,893 10,742 -
At 31 December 2018 16,079 18,765 8,023 10,742 -
The cashflows presented for interest bearing loans and
borrowings at 31 December 2019 are the cashflows only in the case
of non-conversion.
IV. Foreign currency risk
The Group is exposed to transactional foreign currency risk to
the extent that there is a mismatch between the currencies in which
sales, purchases, receivables and borrowings are denominated and
the respective functional currencies of Group companies. The
Group's reporting currency is the US Dollar. The Group's Australian
subsidiary has an Australian Dollar functional currency, and three
of the Group's subsidiaries located in Ireland, Germany and the
Netherlands have a Euro functional currency.
The following table sets forth, for the years indicated, certain
information concerning the exchange rate between: (i) the Euro and
the US Dollar; and (ii) the Australian Dollar and the US
Dollar:
Euro per USD1.00 End of year Average
Year ended 31 December 2018 1.145 1.18
Year ended 31 December 2019 1.123 1.12
Australian Dollar per USD1.00 End of year Average
Year ended 31 December 2018 0.706 0.745
Year ended 31 December 2019 0.702 0.696
The Group did not have material asset or liability amounts in
foreign currencies at year end, other than trade payables and
accruals (net of cash) of EUR160,000 (2018: EUR747,000) and the
debt, conversion options and warrants noted above.
Sensitivity analysis
A strengthening (or weakening) of the US Dollar against the Euro
of 5% would have (decreased)/ increased the loss for the year by
$10,000 (2018: $35,000). Any reasonable or likely movement between
the US Dollar and the Australian Dollar is considered not likely to
have a material impact on the Group's statement of profit or loss
and other comprehensive income.
V. Interest rate risk
As the Company's debt is now at fixed rates, changes in interest
rates would have no impact on finance expense other than immaterial
impacts on the fair value of derivative financial instruments.
The Group's cash balances are maintained in short term access
accounts and carry a floating rate of interest. A 50 basis points
change in the rate of interest applied to the cash balance held by
the Group would not have had a material impact on the Group's
statement of profit or loss in the year.
22. Share based payments
Stock Incentive Plan
The Group operates a share option plan (the "Plan"). As at 31
December 2019, the Plan allows for the Company to grant options
over ordinary shares of Mainstay Medical International plc to
employees of the Group companies, directors, consultants and other
contractors. As at 31 December 2019, 2,678,000 (2018: 1,784,000)
share options over ordinary shares of the Company that had been
granted under the Plan were outstanding.
Since the IPO, those share options have been granted with an
exercise price equal to the market value of an ordinary share at
the date of grant. As at the date of this report, the vast majority
of those share options have an exercise price that is significantly
in excess of the quoted price per ordinary share on Euronext Growth
and Euronext Paris. The Plan was amended in January 2019 to allow
for the issue of RSUs, being rights to receive ordinary shares at
no cost to the relevant employee, director or consultant. The
Company has granted 390,000 RSUs during 2019 and 351,000 are
outstanding as at 31 December 2019.
The Plan allows for flexibility in the grant conditions of each
individual option or RSU including variations on the amounts of
options or RSUs granted, the vesting requirements for each option
or RSU and the expiration terms of the options or RSUs.
Share Options
Details of RSU's and share options granted that are outstanding
as at 31 December 2019:
Number of instruments Contractual life of
(in thousands) options
Options granted in 2010 34 10 years from grant
Options granted in 2011 17 10 years from grant
Options granted in 2012 3 10 years from grant
Options granted in 2013 232 10 years from vesting
Options granted in 2014 85 10 years from vesting
Options granted in 2015 289 10 years from vesting
Options granted in 2016 228 10 years from vesting
Options granted in 2017 418 10 years from vesting
Options granted in 2018 428 10 years from vesting
Options granted in 2019 944 10 years from vesting
Total share options in
issue 2,678
RSU's granted in 2019 351
The above options all include service vesting conditions related
to employee and non-employee service and vest over periods ranging
from one to four years.
The following table provides a reconciliation of the total share
options in issue at the end of each year shown:
Year Weighted Weighted
ended average Year ended average
31 exercise 31 exercise
(Number of instruments in December price December price
thousands) 2019 2019 2018 2018
At beginning of year 1,784 EUR13.23 1,423 EUR12.53
Options granted during the
year 959 EUR3.76 448 EUR16.17
Options expired unexercised - - - -
Options forfeited (63) EUR14.18 (87) EUR16.47
Options exercised (2) EUR4.48 - -
Outstanding at end of year 2,678 EUR9.88 1,784 EUR13.23
Exercisable at end of year 1,237 EUR12.29 922 EUR10.95
Total non-cash expense charged to profit and loss in relation to
share options for the year ended 31 December 2019 was $4m (2018:
$4.1m).
The value of services received in return for the share options
granted to employees and non-employees was based on the fair value
of the options granted, measured using a Black-Scholes model with
the following inputs:
Year of Grant
2019 2018
Weighted average share price (EUR) 3.76 16.17
Weighted average exercise price (EUR) 3.76 16.17
Weighted average expected share volatility 63.25% 53.21%
Expected term (years) 7 7
Expected dividends - -
Risk free rate (average) 0.03% 0.03%
Fair value of option ($) 12.29 10.95
23. Contingencies
The Directors and management are not aware of any contingencies
that may have a significant impact on the financial position of the
Group.
Subsidiary guarantee
The Company has guaranteed the payment of the liabilities and
commitments of its subsidiaries in Ireland for the purposes of
section 357 of the Companies Act 2014 for the years ended 31
December 2019 and 31 December 2018.
24. Pension schemes
Defined contribution schemes
The Group operates defined contribution pension schemes for
certain employees in Ireland and Australia. The assets of the
schemes are held separately from those of the Group in
independently administered funds. The advice of a professionally
qualified pension consultant was taken in the setting up and
maintenance of the schemes.
Total pension costs of the defined contribution schemes for the
year ended 31 December 2019 amounted to $24,859 (2018: $83,570).
There were no accruals or prepayments in respect of the pension
costs at 31 December 2019 (2018: None).
25. Subsidiary undertakings
At 31 December 2019, the Company had the following subsidiaries
and owns 100% of the called up ordinary share capital of each such
subsidiary:
-- Mainstay Medical Limited is registered in Ireland.
-- MML US, Inc. is registered in the United States of America.
-- Mainstay Medical (Australia) Pty. Limited is registered in Australia.
-- Mainstay Medical Distribution Limited is registered in Ireland.
-- Mainstay Medical GmbH is registered in Germany.
-- Mainstay Medical BV is registered in the Netherlands.
26. Related party transactions
There were no balances due to or from related parties as at 31
December 2019 (2018: None).
Key management compensation and Directors' remuneration
The Group defines key management as its non-executive directors,
executive directors and senior management. Details of remuneration
for key management personnel are provided below:
31 December 31 December
($'000) 2019 2018
Salaries 1,197 1,958
Directors' fees 260 269
Other remuneration 599 915
Payroll taxes 51 130
Share based payments 2,654 3,591
Pension - 26
Total remuneration 4,761 6,889
Aggregate amount of emoluments paid to or receivable by the
Directors' during the year:
31 December 31 December
($'000) 2019 2018
Salaries 460 473
Directors' fees 260 269
Other remuneration 323 83
Payroll taxes 12 12
Share based payments 1,781 2,540
Total remuneration 2,836 3,377
Details of the shareholding interests and remuneration of the Directors of
the Company are included in the Directors' report on pages 14 to 16.
27. Capital management
Please refer to our disclosure relating to risk management
within Note 21.
28. Net cash from financing activities reconciliation
Reconciliation of term loan, leases and equity to cashflow:
Cashflow
Repayment
of
Cashflow borrowings
As at 1 Issue of / proceeds As at 31
January ord from December
2019 shares / borrowing/ Loss for 2019
Carrying issue lease Non Cash the Carrying
($'000) Value costs payments Adjustments year Value
Liabilities
Term Loan 10,200 - 2,591 4,614 - 17,405
Leases 588 (290) 36 334
Total 10,788 - 2,301 4,650 - 17,739
Equity
Share
Premium 143,897 15,532 - - - 159,429
Share
Capital 67 5 - - - 72
Retained
loss (156,989) (405) - - (22,293) (179,687)
Total (13,025) 15,132 - - (22,293) (20,186)
29. Events subsequent to 31 December 2019
There were no events subsequent to the year ended 31 December
2019 that would have a material impact on the Financial
Statements.
Parent Company Financial Statements
Mainstay Medical International plc
Company statement of financial position
At 31 December 2019
31 December 31 December
($'000) Notes 2019 2018
Non-current assets
Investment in subsidiary (d) 60,422 56,965
Current assets
Prepayments and other receivables (a) 213 131
Amounts due from subsidiary undertakings (c) - 81,380
Cash and cash equivalents (b) 13,283 6,189
Total current assets 13,496 87,700
Total assets 73,918 144,665
Equity
Share capital 19 72 67
Share premium 19 159,429 143,897
Share based payment reserve 22 15,677 11,716
Undenominated capital reserve 49,273 49,273
Retained loss (154,843) (61,780)
Surplus/(deficit) on shareholders' equity 69,608 143,173
Non-current liabilities
Loans and Borrowings 1,203 -
Total non-current liabilities 1,203 -
Current liabilities
Loans and Borrowings 2,886 -
Trade and other payables (e) 221 1,492
Total current liabilities 3,107 1,492
Total liabilities 4,310 1,492
Total equity and liabilities 73,918 144,665
On behalf of the Board on 24 February 2020,
Oern Stuge MD Jason Hannon
Chairman CEO
Company statement of changes in shareholder's equity
For the year ended 31 December 2019
Un- Share
denominated based
Share Share capital payment Retained Total
($'000) capital premium reserve reserve loss equity
Balance at 1
January 2018 64 106,414 49,273 7,613 (58,749) 104,615
Comprehensive
loss for the
year - - - - (1,591) (1,591)
Transactions
with owners of
the Company:
Issue of
Shares 3 37,483 - - (1,440) 36,046
Share based
payments - - - 4,103 - 4,103
Issue of
ordinary
shares on
exercise of
share options
and warrants - - - - - -
Balance at 31
December 2018 67 143,897 49,273 11,716 (61,780) 143,173
Balance at 1
January 2019 67 143,897 49,273 11,716 (61,780) 143,173
Comprehensive
loss for the
year - - - - (92,658) (92,658)
Transactions
with owners of
the Company:
Issue of
Shares 5 15,532 - - (405) 15,132
Share based
payments - - - 3,961 - 3,961
Balance at 31
December 2019 72 159,429 49,273 15,677 (154,843) 69,608
Company statement of cash flows
At 31 December 2019
Year ended Year ended
31 December 31 December
($'000) Notes 2019 2018
Cash flow from operating activities
Net loss attributable to equity holders (92,658) (1,591)
Add/(less) non-cash items
Share-based compensation 502 (9)
Reversal of impairment of receivables 81,380 -
Finance expense 4,319 -
Add/(less) changes in working capital
Prepayments and other receivables (82) (31,481)
Trade and other payables (1,499) 837
Net cash used in operations (8,038) (32,244)
Cash flow from financing activities
Gross proceeds from issue of shares 15,537 37,486
Transaction costs on issue of shares (405) (1,440)
Net cash from financing activities 15,132 36,046
Net increase in cash and cash equivalents 7,094 3,802
Cash and cash equivalents at beginning of
year (b) 6,189 2,387
Cash and cash equivalents at end of year 13,283 6,189
Notes to the Company Financial Statements
Notes 1, 2, 3, 22 and 29 to the Consolidated Financial
Statements (as provided earlier herein) also directly apply to the
Company Financial Statements. The accounting policies of the
Company are the same as the accounting policies of the Group as set
out in Note 3 to the consolidated Financial Statements, with the
exception of:
Business Combinations
The Company was incorporated to be the parent company of the
Group for the purposes of the initial public offering. This was
accounted for in accordance with IAS 27, whereby the Company
measured in its separate Financial Statements its interest in
subsidiaries at the fair value of the ordinary and preference
shares in issue by MML at 3 April 2014, the date of the 2014
Reorganization.
In addition, the following notes are specific to the Company
statement of financial position:
(a) Prepayments and other receivables
31 December 31 December
($'000) 2019 2018
Prepayments 135 118
VAT recoverable 78 13
213 131
(b) Cash and cash equivalents
31 December 31 December
($'000) 2019 2018
Cash in bank accounts -- USD 13,139 6,132
Cash in bank accounts -- Euro 144 57
13,283 6,189
(c) Amounts due from subsidiary undertakings (all due on
demand)
31 December 31 December
($'000) 2019 2018
Mainstay Medical Limited - 75,636
Mainstay Medical Distribution Limited - 4,546
Mainstay Medical BV - 1,198
Mainstay Medical GmBH - -
- 81,380
(d) Investment in subsidiary
31 December 31 December
($'000) 2019 2018
Opening balance 56,965 52,849
Investment in subsidiary - -
Effect of group share based payments 3,457 4,116
Closing balance 60,422 56,965
(e) Trade and other payables
31 December 31 December
($'000) 2019 2018
Trade and other payables 58 150
Payroll tax liability 9 23
Accrued expenses 154 1,319
221 1,492
(f) Financial instruments
The Company's policies for managing financial instruments risks
are the same as those for the Group. The Company's primary
financial instruments and their associated risks are as
follows:
Financial assets
The Company's only financial assets are cash and cash
equivalents (which are held in the currencies detailed in note
(b)). A 5% change in the exchange rate between the US dollar and
the Euro would have altered the Company's loss for the year by
$7,000 (31 December 2018: $290,000). The carrying value of the
Company's cash is the same as its fair value.
Financial liabilities
The Company's only financial liabilities are warrants,
conversion options, trade and other payables, payroll tax
liabilities and accruals as set out in Note (e). The carrying value
represents the fair value of these liabilities.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20200224005896/en/
CONTACT:
Mainstay Medical International plc
SOURCE: Mainstay Medical International plc
Copyright Business Wire 2020
(END) Dow Jones Newswires
February 25, 2020 02:00 ET (07:00 GMT)
Mainstay Medical (LSE:0QUD)
Historical Stock Chart
From Aug 2024 to Sep 2024
Mainstay Medical (LSE:0QUD)
Historical Stock Chart
From Sep 2023 to Sep 2024