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Commercial Highlights
Successful introduction of the LiDCOrapid into the US$800m per annum surgical hemodynamic monitoring market
New distributors added for: USA, Russia, Israel, Canada, Turkey, Middle East, Portugal, Bulgaria & Argentina
137 LiDCOrapid monitors sold/placed in first three months of sales
LiDCOplus & rapid monitors installed base up 12% in the period to 1,329
Monitors sold or placed in the period were up 69% to 157 – (2007: 93)
Selected as technology to be used for two US multi-centre patient studies on improving outcomes in transplantation donors and major surgery patients
Financial Highlights
Revenue up 3% to £2.02m (2007: £1.97m)
Operating loss increased by 2% to £1.09m (2007: £1.07m)
Monitor revenues up 6% (£0.92m vs. £0.87m)
Sensors, Smartcard and fees-per-use volumes up 2% to 13,788 units; consumables sales value increased 3% to £1.10m
Gross profit margin increased to 67% (2007: 65%)
Product margins maintained at 75% on monitors and 87% on disposables
Admin and distribution expenses increased by 4% to £2.44m (2007: £2.35m)
Loss per share 0.71p (2007: 0.82p)
Good progress to profitability made over the last 5 years with H1 sales up 121%, costs down 16%, loss down 56%
Cash balance £975,000. Laurus loan facility replaced with a £1.25m combined overdraft and invoice financing facility with Royal Bank of Scotland (RBS)
Commenting on the results Terry O’Brien, Chief Executive, said:
“I am pleased with the progress LiDCO has made over the last six months to strengthen our product range, maintain margins and increase the total installed user base of our monitors. We have further expanded our network of distribution partners, including a major deal with KOL Bio Medical Instruments (KOL) in the East Coast of the United States. Overall we have increased both the market opportunity for our products and improved our access to that market while continuing to keep good control on costs. “
This has been a significant period for LiDCO. Our commercial strategy has been to strengthen our product range, broaden our network of distributors and accelerate growth of the installed user base of our minimally invasive hemodynamic monitoring products. The recent launch of the LiDCOrapid Monitorwas therefore an important milestone for the Company and has had an excellent initial market acceptance resulting in us seeing good demand for the product. Although still at an early stage, the strategy to access the surgery market in order to more swiftly grow the installed base and secure a faster growing recurring revenue stream is already showing much promise.
Launch of the LiDCOrapid
Our objective for the period was to introduce the LiDCOrapid successfully into the surgical market in order to access an additional and fast growing surgical market revenue stream. We are pleased to report that the LiDCOrapid was launched in April on time and within budget.
The LiDCOrapid is the first hemodynamic monitoring product specifically designed for use in the highly demanding high-risk surgical market. The potential size of this market is estimated at US$800m per annum. The LiDCOrapid is state-of-the-art technology that at the same time is simple to set-up and easy-to-use, providing better monitoring during the surgical procedure. Once a standard arterial line is inserted in the wrist of the patient, the LiDCOrapid can be up and running in less than a minute. Use of the LiDCOrapid during surgery to maintain blood flow should reduce the build up of an oxygen debt that has been shown to result in complications and death. More patients require being monitored in surgery, compared to the intensive care unit, so the surgical market represents the biggest potential revenue stream for our technology.
The marketplace
LiDCO is well placed to benefit from Medicare’s recent decision to no longer pay hospitals for the cost of treatment of catheter and surgery related complications and infections. Medicare is the USA’s largest health insurer, covering nearly 40 million Americans over the age of 65. This will mean that hospitals will be forced to absorb any financial loss resulting from the treatment of such complications and infections. This and other market forces continue to drive hemodynamic monitoring away from the use of older invasive catheter products. There is an increased demand for less invasive technology, that has been demonstrated to reduce these costly complications and infections. Previously we have reported that a trial at St George’s Hospital, London, on 122 patients undergoing high-risk surgical procedures, had shown that the use of our technology reduces complications by more than one third1, costs by £4,800 and hospital stay per patient by an average of 12 days. Following this trial, St George’s adopted the routine use of our technology for hemodynamically driven goal directed therapy of all high-risk post surgical patients admitted to the intensive care unit. The hospital’s own cost benefit analysis estimated that using our technology would save them £2m pounds per year. The introduction of the LiDCOrapid expands the use of our products to the surgical intra operative period and not just to the patients that receive post operative intensive care. Better monitoring for more surgical patients both during and after surgery means that further improvements in outcome and cost savings can be targeted. The emerging body of evidence demonstrating the clinical and economic benefits from using our technology has resulted in LiDCO being chosen (discussed in detail later) for two USA, multi-centre clinical trials in surgery and transplantation patients.
1 Early goal-directed therapy after major surgery reduces complications and duration of hospital stay. A randomised, controlled trial, Critical Care 2005, 9:R687-R693doi:10.1186/cc3887
Turnover in the six months ended 31 July 2008, increased by 3% to £2.02m (2007: £1.97m). Although modest, this increase in revenue includes a very encouraging start and excellent initial market launch of the LiDCOrapid.
As a result of the launch of the LiDCOrapid, we had anticipated a realignment in our sales focus, and that of our distributors, from being exclusively on intensive care and towards both surgery and intensive care. This modification of our focus has resulted in a higher overall placement of monitors. During the period, overall monitor sales/placements were up 69% at 157 units (20 plus and 137 rapids) (2007: 93 units). The LiDCOrapid monitor sells for less than half the price of the LiDCOplus monitor, so despite greater monitor sales, monitor income grew by 6% to £0.92m (2007: £0.87m). As the LiDCOrapid was launched at the end of April, the increase in the installed monitor base occurred too late to significantly influence disposable sales in the first half of the year which increased by 2% from 13,582 units to 13,788 units.
Product margins against external procurement costs (excluding payments to Med One) continue to average about 75% on monitors and 87% on disposables. Excluding the payments to Med One, the overall reported gross margin on sales improved to 79% (2007: 76%). Including payments in the period of £253,000 to Med One the overall gross profit margin on sales was 67% (2007: 65%).
During this period and while incurring the costs of introducing the LiDCOrapid, theoperating loss for the period was steady at £1.09m (2007: £1.07m) and broadly in line with the Company’s expectations. Despite the additional costs invariably associated with the launch of the LiDCOrapid, our aim was to limit the administration and distribution costs to an inflationary increase. Because of the relatively low investment required to introduce the LiDCOrapid to the market we were successful in keeping operating costs under good control with an increase of just 4% (from £2.35m to £2.44m).
As a result of launching the LiDCOrapid monitor as an additional mainstream product, stock levels increased by £200,000 compared with January 2008 which, together with the losses during the period, resulted in cash balances reducing by £1.26m during the period to £975,000. As noted in the 2008 Annual Report and Accounts, the $2m Laurus loan facility reached the end of its term in August and this was replaced with a £250,000 overdraft facility and a £1m invoice financing discount facility with Royal Bank of Scotland.
LiDCOrapid disposable revenue streams
The LIDCOrapid has a pay-per-use disposable smart card. The Smart card carries the data of a single patient and a new card must be used for each individual. Our pay-to-use approach has a number of advantages for the Company and the customer. For example, the Smart card allows costs to be identified with a patient, does not require any particular storage conditions and has an extended shelf life. The lower capital cost of the monitor allows customers to purchase the technology more cost effectively than the LiDCOplus Monitor. Most importantly, it had minimal development, scale-up and production costs. Overall the LiDCOrapid fits well with our strategy to introduce new products that leverage the investments already made in our manufacturing facility, quality certifications and route to market.
Although early days, we have seen progress with the acceptance of the Smart card revenue model which involves a fee-for-use billing approach, rather than the more traditional sale of a sterile disposable. Accordingly, we have achieved our target pricing and margins for the Smart card with product margins already exceeding those achieved for the existing LiDCOplus lithium disposables. I am pleased to report that in trading since the end of the summer we have seen significant revenue from the sale of Smart cards for the LiDCOrapid monitors starting to occur. For example in September we sold 510 LiDCOrapid disposables.
In line with our strategy we have expanded our sales reach by broadening our network of distribution partners. In July we announced that LiDCO had signed an exclusive distribution agreement with KOL Bio Medical Instruments (KOL) for the sale of the LiDCOrapid Monitor in the eastern side of the US. This significantly enlarged sales force gives LiDCO access to more than 40% of US market. The combined sales and nurse educator sales force of LiDCO and KOL is now 20 people, approximately four times that of last year. We are expecting good growth in sales from the US. In other territories, as anticipated, we have added distributors in Continental Europe and the Rest of the World territories – see section – Regional Sales Performance. These additional sales teams will contribute to sales and revenue growth in the second half and beyond. We expect further appointments to the distributor network later this year and into next year.
Outlook
In the results of the first half’s trading we can see that accelerated growth in the monitor installed base has occurred. This has been driven by the launch of a new product, the LiDCOrapid, into the surgical market. Second half revenues should grow supported by an increasing contribution as the new product gains acceptance and the distribution network continues to expand. The focus necessary to launch the LiDCOrapid has, as expected, had a knock-on effect on the growth and capital revenues from sales of our ICU product - the LiDCOplus monitor. Nevertheless, although the LiDCOplus monitor installed base grew at a slower rate than last year – expectations are that the LiDCOplus installed base will continue to grow in the intensive care market (ICU). In support of that belief further endorsement of the usefulness of this product has come from the USA where the LiDCOplus Monitor has been chosen as the monitor of choice for two multi-centre trials designed to evaluate the effectiveness of improved hemodynamic care in organ donor and high-risk surgery patients.
The LiDCO brand strengths of safe minimally invasive monitoring, accuracy and now ease of use are increasingly being accepted by the clinical community. This is evidenced by the choice of our technology for use in key outcome studies and the expansion of our customer base. We now have products that address both the surgical and intensive care markets. Over the last five years trading we have increased our first half sales revenues by 121%, reduced our costs by 16% and our loss by 56% and thus made further progress to profitability. We continue to be able to control our costs while expanding our market opportunity and revenues. With the launch of the LiDCOrapid and expansion of distribution partners we have the product and structure to progress further.
Business Review - Summary Table
6 months
to 31 July
2008
6 months to
31 July
2007
Increase/
(decrease)
Increase/
(decrease)
%
Sales by type (£’000)
- Monitors
918
866
52
6%
- Sensors/Smartcards/Fee per Use
1,104
1,069
35
3%
- Licence Fees
0
35
(35)
(100%)
Total
2,022
1,970
52
3%
Monitors sold/placed (Units)
157
93
64
69%
Sensor, Smartcard and Fee per Use Sales (Units)
13,788
13,582
206
2%
Installed Base (end period)
1,329
1,128
201
18%
Regional Sales Performance
UK
Core LiDCOplus business grown across period
Sales revenue up 25% to £1,063,000 (2007: £848,000)
Monitor sales revenue up 72% to £420,000 (2007: £244,000)
Sensor, Smartcard and, fee for use sales of £643,000 up 6% (2007: £604,000)
Launch of the LiDCOrapid with pricing / margins in line with expectations
USA
Distributor (KOL) appointed for Eastern half of the USA – 15 sales staff
Lower pricing for LiDCOrapid reduces overall revenue to £348,000 (2007:£468,000)
LiDCOrapid launch occurred too late to contribute significantly to disposables sales revenues during the period - Sensor, fee for use & rental sales down 4% to £252,000 (2007: £263,000)
Significant order for 12 LiDCO monitors ($250,000) received in September – biggest customer now has 28 monitors
Launch of the LiDCOrapid with pricing / margins in line with expectations
Continental Europe
Focus on launching LiDCOrapid into our EU distributor network
Overall sales revenue down by 7% to £484,000 (2007: £523,000)
Revenues affected by a transition of capital sales towards the lower priced LiDCOrapid
Monitor sales revenue of £303,000 (2007: £341,000)
DEVELOPMENT OF SUPPORTIVE CLINICAL & BUSINESS CASES
While the market’s transition to minimally invasive monitoring gathers pace, our ambition is to be able to present customers with a compelling clinical and business case linked to the use of our products. To that end improved outcomes have already been demonstrated in two different intensive care populations:
in a post operative surgical intensive care setting, where treated patients hospital stay was reduced by 12 days and complications by more than one third.
in severely ill patients with shock and sepsis, where the use of LiDCO technology substantially reduced mortality to 12% of patients treated, compared with 32% in the invasive catheter treated group
Since the preliminary results presentation in April, I am pleased to announce that LiDCO has been chosen as the exclusive technology for use in two further significant multi-centre outcome trials in the USA. Both studies will be coordinated by doctors working at the University of Pittsburgh and will use LiDCOplus monitors. They are summarised below:
Prospective trial improving outcomes in high-risk surgery
The first study is a 200 patient randomised controlled trial looking at the application of oxygen delivery mediated, goal-directed therapy in high-risk surgery patients. This takes the treatment protocol previously established in the original St George’s hospital trial and goes one step further. Patients in the trial will be hemodynamically managed both during and after surgery with the LiDCOplus technology.
In the previous study conducted at St George’s Hospital, patients were ‘optimised’ only in the post operative period while in an intensive care unit bed. The intent of that was to assess the effectiveness of a post surgical pay-back of the oxygen debt accumulated during surgery.
The new study will investigate whether outcomes can be improved still further through the combination of both intra- and post-operative targeting of oxygen levels. This protocol will seek to demonstrate that LiDCO’s earlier use during surgery is an additional preventative step limiting the pay back of oxygen required after surgery, and that the maintenance of higher oxygen levels throughout the intra- and post-operative period will be the most effective way to abolish or reduce surgical oxygen debt. The investigators are hoping to demonstrate greater reductions of complications, length of stay and mortality rates compared to conventional monitoring. In addition, patients will be contacted three months after their operation to assess whether their subsequent quality of life has been improved by this approach. This trial may well establish a new standard of care in the highest-risk surgery patient population.
USA “Monitor” multi-centre randomised transplantation donor optimization study
The second trial we have been chosen for is in the field of organ transplantation. The trial has been funded by the US Government and is known as MOnIToR (Monitoring Organ donors to Improve Transplantation Results). The background to this study is that despite efforts to increase organ donation, there remains a critical shortage in both the numbers of organ donors and with the numbers of organs procured per donor. There are several reasons why not all potential organs are donated, one of the most important reasons is hemodynamic instability of the donor. Inadequate resuscitation can lead to a reduction in organ yield due to a mounting oxygen debt, inflammation and consequently damage to vital tissues. In an effort to improve donor outcomes, LiDCO has worked over the last two years with an Organ Procurement Organization (OPO) in the USA in Chicago and with the University of Pittsburgh to develop an effective and simple-to-use organ donor resuscitation protocol, driven through use of the LiDCOplus monitor. It has been shown that donors who are adequately fluid resuscitated provided a significantly higher number (3.7 compared with 2) of organs per donor that are deemed suitable for transplant. Donors who had inadequate volume resuscitation have a higher inflammatory response and patients transplanted with organs from poorly resuscitated patients had higher readmission rates back to hospital after surgery.
Taken together, these results have generated considerable interest within the US transplantation community and significant funding has now been awarded to the University of Pittsburgh in order to conduct a much expanded USA multi-centre randomised transplantation donor optimisation study, using our technology in 960 subjects. In this study donors will be resuscitated conventionally, or with a protocol targeting fluids and cardiac output using the LiDCOplus monitor. Success will be judged as a 0.5 increase in the numbers of organs per donor transplanted as compared to the control group. Nevertheless, if only successful to the tune of 0.5 extra organs per donor and implemented throughout the USA this would represent a 17% increase in the numbers of organs available – from around 22,500 to 26,250 per annum. As there are currently 98,000 people on the U.S. organ waiting list the success of this study would be very welcome news.
Terry O’Brien
Chief Executive Officer
30 October 2008
LiDCO Ltd. Sales and Marketing, Unit M South Cambridge Business Park, Babraham Road, Sawston, Cambridge CB22 3JH, UK Telephone: +44 (0) 1223 830666 Fax: +44 (0) 1223 837241 VAT number 672 4757 08
