12 December 2022

RUA Life Sciences plc

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

Interim Results

RUA Life Sciences, the holding company of a group of medical device businesses focused on the exploitation of the world's leading long-term implantable biostable polymer (Elast-Eon^TM), today announces its unaudited interim results for the six months ended 30 September 2022.

Highlights:

·      56% increase in revenues to £1,104,000 (H1 FY2022: £708,000)

·      Gross profit £875,000 - margin 79% up from H1 FY2022 75%

·      15% reduction in loss to £1,143,000 (H1 FY2022: £1,311,000)

·      Strong cash position at £2.5 million (30 September 2021: £4.8 million, 31 March 2022: £3 million)

·      Investment in development projects increased 7% to £908,000 (H1 FY2022: £849,000)

·      Progress made in regulatory pathway for Vascular business segment

·      Increased commercial opportunities within Contract Manufacturing business segment

Bill Brown, Chairman of RUA Life Sciences, commented:

"The period has seen good progress made across the four business segments. Biomaterials has continued its steady growth, Contract Manufacturing has outperformed our expectations by delivering increases in sales of 66% at improved margins. The Vascular business has made good progress with its regulatory objectives whilst building on the foundations for a viable commercial business. Structural Heart has identified a solution to the key risks associated with polymeric heart valve leaflets and further strengthened the Group's IP in this area. All business segments are primed for further growth in value over the next few years."

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

For further information contact:

RUA Life Sciences

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

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

Cenkos Securities plc  (Nominated Adviser and Broker)      Tel: +44 (0)20 7397 8900

Giles Balleny / Max Gould (Corporate Finance)

Michael Johnson (Sales)

About RUA Life Sciences

The RUA Life Sciences group was created in April 2020 when RUA Life Sciences Plc (formerly known as AorTech International Plc) acquired RUA Medical Devices Limited to create a fully formed medical device business. RUA Life Sciences is the holding company of the Group's four trading businesses, each exploiting the Group's patented polymer technology.

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

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

Elast-Eon™'s biostability is comparable to silicone while exhibiting excellent mechanical, blood contacting and flex-fatigue properties. These polymers can be processed using conventional thermoplastic extrusion and moulding techniques. With over 8 million implants and 16 years of successful clinical use, RUA's polymers are proven in long-term life enabling applications.

The Group's four business segments are:

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

CHAIRMAN'S STATEMENT

I am pleased to set out below an overview of the unaudited interim results of RUA Life Sciences Plc for the six months to 30 September 2022. The period has seen progress in all four business units and for the first time, the segmental reporting of the business now reflects the split amongst Biomaterials, Contract Manufacture, Vascular and Structural Heart.

Unaudited interim results for the six months to 30 September 2022

The results below are the consolidated figures for the entire group and are further analysed in the relevant segmental update. The Group has maintained the level of revenue growth seen from the first to the second half of the year to March 2022. In the six months to September 2022 revenues of £1,104,000 were achieved representing an increase of £396,000 or 56% over revenues in the six months to September 2021.

Gross margins remained high at 79% resulting in gross profit of £875,000 being reported against the £528,000 achieved last year thus contributing an additional £347,000, an uplift of 66%. Investment in the talent base of the business continued which contributed to the increase in administrative expenses from £1,658,000 last year to £1,889,000. This increase includes further investment into the Vascular business unit in particular.

The net impact of growth in turnover together with increased investment resulted in a £168,000 reduction of the group loss to £1,143,000.

Working capital continues to be tightly managed with cash at the period end amounting to £2,509,000 a reduction of £454,000 from the previous year end. Not included in this cash flow or results for the interim period is the claim for R&D Tax Credits for the year to 31 March 2022. Our policy is to account for R&D Tax Credits on a cash basis and the £328,000 claimed has yet to be received from HMRC.

Biomaterials

The Biomaterials business segment is the part of the business that holds the Intellectual Property relating to Elast-Eon^TM and related polymers, and licences that IP to other medical device companies. The clinical performance of Elast-Eon products continues to be excellent, particularly in the area of Cardiac Rhythm Management leads, where over 8 million have been implanted since 2006. The most recently published data indicate that the presence of Elast-Eon lead insulation dramatically reduces the probability of abrasion malfunction in tachycardia leads at 15 years by 80%, from around 5% probability to only 1%.

The Biomaterials business saw royalty and license fee income increase by 20% compared to the first half of last year rising from £156,000 to £187,000 with the growth driven by increased volumes of Elast-Eon being purchased by licensees. The Biomaterials business is however very much second half weighted as a result of the timings of when royalty fees are recognised. In the financial year ended March 2022, 68% of Biomaterials revenue was recognised in the second half of the year.

Net margins in Biomaterials remain high with the contribution to the Group increasing from £116,000 (74%) last year to £154,000 (82%) in the current period.

Contract Manufacturing

The Contract Manufacturing business segment is the end to end, third party contract developer and manufacturer of medical devices that formed part of the RUA Medical acquisition in 2020. This business has had a very successful period growing revenues from £552,000 in the first half of last year to £917,000, an increase of 66%. We do not specifically report on the gross margins achieved in this business area but the net contribution to the group during the period amounted to £384,000 being a net contribution of 42%.

We have implemented price increases within Contract Manufacturing for the first time in almost ten years but the major growth driver was a result of increased demand for product from the major customer. This increase in itself was a result of two factors, one being the post Covid increase in hospital procedures in the key US market in particular and the other being a stock build for European markets in advance of the transition from MDD to MDR regulations. During the second half year, we anticipate a continued growth in US orders and maintaining steady levels of European orders whilst MDR stock build is fully initiated.

Business development has progressed well within the Contract Manufacturing business, with a new manufacturing contract signed with a global business for the processing and supply of two components for its medical device portfolio. First sales have now been achieved with the first batches manufactured, passed QC and shipped to the customer under the terms of the supply agreement. There will be a gradual ramp up in volumes over the next 12 months with sales expected to stabilise between £10,000 and £12,000 a month. In addition, the business is currently working on a number of requests for quotations for both components and completed devices. These quotations are for devices that are currently in the market and as such could convert to manufacturing revenue in a relatively short period of time compared to development projects. The annualised revenue potential from these quotations could more than double the current scale of the Contract Manufacturing business.

Vascular

The Vascular business segment is currently in the development stages of commercialising the Group's range of Elast-Eon sealed vascular grafts and related products. Expensed investment into this area amounted to £619,000 during the period compared to £532,000 last year reflecting an increase in investment for regulatory planning, manufacturing process and commercial preparation.

Regulatory progress has been positive but time consuming. Data had previously been submitted to the FDA on the large bore grafts which demonstrated that there was a difference in the healing process to predicate textile grafts currently in the market. These differences are arguably beneficial due to a lower inflammatory response and little or no adhesion to the device when tested in vivo. However, they were different enough for the FDA to want to have a better understanding of the healing process before allowing the devices to be marketed. Rather than convert the device to the longer and more costly PMA process, the FDA has agreed to a continuance of the 510k pre-market notification process but with additional work designed around providing additional information on the healing process. The in vivo work historically undertaken had data collected at the six-month end point and comparisons made with the predicate device. At this point, the competitor grafts were adhered to the perivascular tissue whereas the RUA grafts were encapsulated but were not adhered to the perivascular tissue. In order to provide more information on this healing process, further in vivo work will be undertaken to clarify the healing process at one and three months in addition to the six-month end point. Having agreed this process, the requirements for a human clinical study were much reduced from what they could have been and in broad terms the study will be of limited scale and utilise a single arm Performance Goal design, with the primary end point of the trial being measured at six months post operation. The regulatory team is currently working towards setting up this trial and finalising the budget. While the preliminary in vivo work is currently underway, we continue to assess the best time to start the clinical trial. RUA will advise in more detail on the expected costs and revised timescales in due course but in the meantime is actively exploring opportunities to finance at least part of the clinical stages through non-dilutive funding routes and grant finance.

Product development and the manufacturing process has made significant strides over the period. The Quality Management System is in the process of being transferred to a digital eQMS system along with the purchasing process, providing both greater control and cost efficiencies that should increase with the scale of the business. Importantly, the RUA ISO 13485 quality management certification has been expanded to cover the entire group and the scope has been expanded from contract manufacture to legal device manufacturer. This is a major achievement in itself. With regard to manufacturing efficiencies, a thorough review of process steps has resulted in a significant improvement in manufacturing yield. These efficiencies should enable the current clean rooms at Irvine to have sufficient capacity to provide for anticipated launch volume requirements for straight grafts together with demand of up to 10% market share in North America. The lessons learnt from this process are now being applied to optimising the design of the larger cleanroom at the second Irvine facility.

On the commercial developments, product costings indicate that after allowing for distributor margin, RUA should be able to achieve a gross margin of around 80% on products sold. Average selling prices into hospitals range from around $900 to $3,000 depending on the type of device. With regards to the sale of grafts into hospitals in both the US and other key markets, it has always been our strategy to work with distributors rather than establish a direct sales force. We have been in discussions with a number of parties and are confident that not only is our strategy correct but there is serious interest in partnership opportunities.

Structural Heart

This is the business segment responsible for developing the Group's polymeric heart valve technology. Expensed investment  in this area amounted to £289,000, a 9% reduction on the same period last year. The reduction in spend has come about through increasing the capacity of the in-house team being more than offset by undertaking fewer tasks with outside contractors.

The focus over the past six months has been risk review and mitigation. All biological valves fail and the medical profession even has a name for it - Structural Valve Deterioration (SVD). In SVD however, the failure mode is slow, and patients develop symptoms to allow the SVD to be recognised and treated. Unlike biological valves, the failure rate of mechanical valves is very low, the problem however is the failure can be catastrophic. This phenomenon was witnessed during the 1980's with the unfortunate death of a small number of patients implanted with the Bjork Shiley mechanical valve, leading to closure of the Shiley valve business and ultimately to the market dominance of the biological valve. Testing has shown that Elast-Eon is exceptionally biostable, non-calcific and non-thrombogenic and as such has the desirable properties to avoid or at least reduce the incidence of SVD. The major task for a polymeric valve (assuming the polymer is suitable for long term implantation) is to persuade regulators, surgeons and most importantly patients that the valve should not be subject to catastrophic failure. Polymer valves have been shown to pass long term durability testing yet there remains a "fear of the new" that will need to be overcome. RUA has made major steps in improving the manufacture of 100% polymeric leaflets but has been concentrating this year on a safer, more durable alternative.

The in vivo studies carried out on the vascular grafts indicated that Elast-Eon coating the fabric of the graft performed in an identical manner to what would have been expected of pure Elast-Eon. The fatigue properties and tear resistance of the graft material were however many times better than the base Elast-Eon polymer. Based on this discovery, RUA has taken the coating technology developed for the graft and, building upon that core IP, developed a method of creating a true composite material that retains the proven blood contacting properties of Elast-Eon with much improved mechanical properties. Finite Element Analysis (FEA) modelling of the material has been very promising, indicating the material should have the necessary flexibility without the risk of delamination. The valve design developed for the 100% Elast-Eon leaflets has been evolved to take advantage of the new material properties and the initial prototypes have demonstrated very encouraging hydrodynamic results, particularly with regards to the energy required to open the valve. The final stage is to complete the engineering work on the manufacture of the valves to replace the manual manufacturing process and allow sufficient numbers of the desired quality to undergo durability testing.

Conclusion and Outlook

All four business units within the RUA portfolio have made good progress over the year to date. Biomaterials has seen revenues grow in the half year with the expectation of a similar second half weighting to performance as enjoyed last year. The Contract Manufacturing business has successfully increased unit pricing to customers and been able to increase volumes without having to increase head count. Business development has resulted in first shipments to a new global customer and the business has been asked to quote for further new business which, if successful, could more than double turnover in this area. The Vascular business has overcome the regulatory hurdles of last year and has worked closely with the FDA towards a clear regulatory plan. The time taken has been used to establish a robust manufacturing process from which the cost of manufacture will allow a very attractive margin even from the pilot plant. The commercial opportunity is in active discussion and our partnering strategy will be the subject of future updates. Structural Heart has undertaken some true inventive steps in the year to date and the device envisaged is being designed to eliminate all of the objections that have been made about polymeric heart valves.

RUA Life Sciences still has a way to go to meet all of its strategic objectives but in considering the progress of each segment of the business, each one has added value in the year to date and we look forward to this continuing in the future.

Bill Brown, Chairman

12 December 2022

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

Six months ended 30 September 2022

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

At 30 September 2022

CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.   BASIS OF PREPARATION

General information

RUA Life Sciences plc is the ultimate parent company of the Group, whose principal activities are contract design and manufacture of medical devices and exploiting the value of its IP and know-how.

RUA Life Sciences plc is incorporated and domiciled in the UK and its registered office is c/o Davidson Chalmers Stewart LLP, 163 Bath Street, Glasgow, G2 4SQ.

Basis of preparation

These condensed consolidated interim financial statements are for the six months ended 30 September 2022 and have been prepared with regard to the requirements of IAS 34 on "Interim Financial Reporting".  They do not include all of the information required for full financial statements and should be read in conjunction with the audited consolidated financial statements of the Group for the year ended 31 March 2022.

The financial information for the six months ended 30 September 2022 and the comparative figures for the six months ended 30 September 2021 are unaudited.  They have been prepared on the basis of the accounting policies set out in the consolidated financial statements of the Group for the year ended 31 March 2022 and, on the recognition, and measurement principles of IFRS in issue as effective at 30 September 2022. The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.

The figures for the year ended 31 March 2022 have been extracted from the audited statutory accounts which were approved by the Board of Directors on 8 July 2022, prepared under IFRS. The Independent Auditor's Report on the Report and Financial Statements for the year ended 31 March 2022 was unqualified but did draw attention to Note 1 of those financial statements which explains that the Group and Parent Company's ability to continue as a going concern is dependent on the execution of its business plan together with its ability to raise sufficient capital to meet capital and liquidity requirements.  The auditors report did not contain any statements under sections 498(2) or 498(3) of the Companies Act 2006.

These condensed consolidated interim financial statements were approved for issue by the Board of Directors on 9 December 2022.

Going concern

The 2022 Annual Report audit report drew attention to the material uncertainty relating to going concern as follows:

"We draw attention to the going concern accounting policy in note 1 of the financial statements, which states that the RUA Life Sciences Group is loss-making and cash-consumptive, and its revenue streams have been impacted by the COVID-19 pandemic and the resulting macro-economic uncertainty and the setback of a regulatory delay for the Vascular Graft Range. These events and conditions may result in lower than forecasted revenues and increased costs associated with the regulatory delay. This increases the risk that the group will not be able to execute its business plan, which could adversely impact its ability to generate profit or raise sufficient capital to meet capital and liquidity requirements. As stated in note 1, these events or conditions, together with the requirement for financing indicate that a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern. Our opinion is not modified in respect of this matter."

The Board and management have prepared and reviewed financial forecasts and cashflow requirements. The review included key assumptions, sensitivities, and contingency plans to cover eventualities, including the associated cash flow projections. The review has been updated and also taken into consideration the potential impact of changing market conditions and other risks and uncertainty, paying particular attention to the impact of potential delays in the regulatory process of our Vascular grafts.

The Directors concluded that given the combination of the cash balance of £2.5m at 30 September 2022 and the forecast monthly cash utilisation, the Group has sufficient liquidity throughout a period of at least 12 months from the date of approval of this interim financial report.

As a result, the Directors have a reasonable expectation that the Group as a whole has adequate resources to continue in operational existence for a period of at least 12 months from the date of this interim financial report. For this reason, they continue to adopt the going concern basis in preparing the unaudited interim report for the half year ended 30 September 2022.

The financial statements do not include any adjustments that would be necessary if the group or company was unable to continue as a going concern.

Principal Risks and Uncertainties

The principal risks and uncertainties affecting the business activities of the Group remain those detailed on pages 19-22 of the Annual Report 2022, a copy of which is available on the Company's website www.rualifesciences.com 

Loss per share

Loss per share has been calculated on the basis of the result for the period after tax, divided by the weighted average number of ordinary shares in issue in the period of 22,184,798.  (30 September 2021: 22,184,798 and 31 March 2022: 22,184,798).

2.   SEGMENTAL REPORTING

The principal activity of the RUA Life Sciences Group comprise exploiting the value of its IP & know-how, medical device contract manufacturing and development of cardiovascular devices.

Following the acquisition of RUA Medical Devices Ltd and an internal organisation and reporting review, the Board has decided the business will report by business unit segments, namely royalty and license income (Biomaterials), Contract Manufacturing, product development (Vascular) & product innovation (Structural Heart), rather than trading entities, which is consistent with both how the business will be managed and reported internally in the future.

The following analysis by segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Chief Operating Decision Maker (considered to be the executive chairman of the board) to assess performance and make strategic decisions about the allocation of resources. Segmental results are calculated on an IFRS basis.

A brief description of the segments of the business is as follows:

• Biomaterials - Licensor of Elast-Eon^TM polymers to the medical device industry.

• Contract Manufacturing - End-to-end contract developer and manufacturer of medical devices and implantable fabric specialist.

• Vascular - Development and commercialisation of the Group's Elast-Eon sealed Vascular Graft products.

• Structural Heart - Development of the Group's tri leaflet polymeric heart valves.

Operating results which cannot be allocated to an individual segment are recorded as central and unallocated.

The Group's revenue for six months to 30 September 2022 is segmented as follows:

Restatement of Analysis of revenue by income stream six month to 30 September 2021 is as follows:

Restatement of Segment Analysis six month to 30 September 2021 is as follows:

3.     GOODWILL

The final valuation following the acquisition of RUA Medical Devices Limited gave rise to adjustments being required to the value of intangibles recognised in the Interim Report for the six months ended 30 September 2020 (as noted in note 5 below), and lead to the following goodwill being recognised:

No impairment review has been carried out in the six-month period.

4.     INTANGIBLE ASSETS

5.   PROPERTY, PLANT AND EQUIPMENT

Included in the net carrying amount of property plant and equipment are right-of-use assets as follows:

7.  ISSUED SHARE CAPITAL

The Company's issued share capital at 30 September 2022 comprises 22,184,798 Ordinary Shares of which none are held in treasury.

8.  INTERIM ANNOUNCEMENT

The interim results announcement was released on 12 December 2022.  A copy of this Interim Report is also available on the Company's website www.rualifesciences.com.