Mainstay Medical Announces Half Year Financial Results

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Mainstay Medical International plc (“Mainstay” or the “Company” listed on Euronext Paris: MSTY.PA and ESM of the Irish Stock Exchange: MSTY.IE), a medical device company focused on bringing to market ReActiv8®, a new implantable neurostimulation system to treat disabling Chronic Low Back Pain (“CLBP”), today announced the publication of its report for the half year ended 30 June 2015.

Highlights

  • On 31 August 2015, the Company announced positive clinical results of the ReActiv8-A Clinical Trial, which the Company plans to use to support its submission for CE Mark approval, after which commercialization in Europe can commence. The detailed Clinical Results announcement is available on the Company’s website at http://www.mainstay-medical.com/news/press_releases.
  • On 24 August 2015, Mainstay announced the closing of debt financing for up to $15 million. The secured debt facility is non-dilutive to existing shareholders, and is being provided by IPF Partners, a leading financing provider focused on the European healthcare sector.

    The facility can be drawn in three tranches, and an initial tranche of $4.5 million has been called. The second and third tranches can be drawn upon achievement of milestones related to progress through the CE Mark process for ReActiv8.

  • In July and August 2015, Mainstay announced the issuance of three new U.S. Patents:
    • U.S. Patent No. 9,072,897 entitled “Systems and Methods for Restoring Muscle Function to the Lumbar Spine”
    • U.S. Patent No. 9,079,019 entitled “Apparatus and Methods for Anchoring Electrode Leads for Use with Implantable Neuromuscular Electrical Stimulator”.
    • U.S. Patent No. 9,108,053 entitled “Apparatus and Methods for Rehabilitating a Muscle And Assessing Progress of Rehabilitation”
  • In May 2015, Mainstay announced it had received approval from the United States Food and Drug Administration (“FDA”) to begin a clinical trial of ReActiv8 under an Investigational Device Exemption (“IDE”). The FDA approval is for the planned ReActiv8-B Clinical Trial, an international, multi-centre, prospective randomized sham-controlled trial designed to evaluate the safety and efficacy of ReActiv8 for the treatment of adults with CLBP and no prior back surgery.

    The approval is to conduct the ReActiv8-B Clinical Trial at up to 40 clinical trial sites and for 128 randomized subjects to be implanted with ReActiv8 in the pivotal cohort. The IDE approval allows the Company to engage with investigators, clinical trial sites, and Institutional Review Boards (“IRBs” or “Ethics Committees”) leading towards the first subject recruitment and implant. Upon successful completion of the ReActiv8-B Clinical Trial and if the results support it, the Company plans to submit an application for a Pre-Market Approval (“PMA”) which is required to allow the start of commercialization in the United States.

  • Operating expenses were $6.3 million during the period and have increased by $1.5 million compared to 1H14 due to costs associated with increased activity in the ReActiv8-A Clinical Trial, and the expansion of our team.
  • Cash on hand at 30 June 2015 was $12.5 million and operating cash out flows for the period were $5.7 million.

-     End    -

About Mainstay

Mainstay is a medical device company which is developing an innovative implantable neurostimulation system, ReActiv8®, 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 and Australia, and is listed on Euronext Paris (MSTY.PA) and the ESM of the Irish Stock Exchange (MSTY.IE).

About the ReActiv8-A Trial

The ReActiv8-A Clinical Trial, is a prospective single arm clinical trial with up to 96 subjects at sites in Australia and Europe. Outcome measures for the ReActiv8-A Clinical Trial are assessed at a three month endpoint after activation of stimulation and compared to baseline prior to implant. Further details can be obtained at https://clinicaltrials.gov/show/NCT01985230.

About Chronic Low Back Pain

One of the recognised root causes of CLBP is impaired control by the nervous system of the muscles that dynamically stabilise the spine in the lower back, and an unstable spine can lead to back pain. ReActiv8 is designed to electrically stimulate the nerves responsible for contracting these muscles and thereby help to restore muscle control and 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 utilisation put a significant burden on individuals, families, communities, industry and governments.

Further information can be found at www.mainstay-medical.com

ReActiv8 is an investigational device and is not approved for commercialisation anywhere in the world.

CAUTION – in the United States, ReActiv8 is limited by federal law to investigational use only.

The Company will host a live conference call and webcast (in English) for analysts and investors on Monday, 31 August, 2015 at 2:30pm Dublin-London time (3:30pm Paris; 09:30am New York).

Dial in details for this call are outlined below:

Ireland Toll Free Number:     1800 936 842
France Toll Free Number: 0805 101 988
Finland Toll Free Number: 0800 523 133
Netherlands Toll Free Number: 0800 265 8619
USA Toll Free Number: 1866 928 7517
International Non Toll Free Number: +44 203 139 4830

Passcode:

70678930#

 

The live webcast will be available on the “Investors” section of Mainstay Medical website at: http://www.mainstay-medical.com/investors

Media Enquiries:

Chris Gardner, Mary-Jane Elliott, Matthew Neal, Hendrik Thys, Consilium Strategic Communications
(international strategic communications - business and trade media)
Tel: +44 203 709 5700 / +44 7921 697 654
Email: mainstaymedical@consilium-comms.com

Jonathan Neilan, FTI Consulting (for Ireland)
Tel: +353 1 663 3686
Email: jonathan.neilan@fticonsulting.com

Astrid Villette, FTI Consulting (French language enquiries)
Tel: +33 1 47 03 69 51
Email: Astrid.Villette@fticonsulting.com

Investor relations:

Jillian Connell, The Trout Group LLC
Tel: +1 646 378 2956 / +1 617 309 8349
Email: jconnell@troutgroup.com

ESM Advisers:

Fergal Meegan or Barry Murphy, Davy
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” or “will”, 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 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.

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, and the development of 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 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, general economic and business conditions, the 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, currency fluctuations, changes in its business strategy, political and economic uncertainty. The forward-looking statements herein speak only at the date of this announcement.

 

Mainstay Medical International plc and its subsidiaries

Half Year Financial Report comprising Interim Management Report and condensed consolidated Financial Statements

for the half year ended 30 June 2015

 

Mainstay Medical International plc

       

Table of contents

 
Corporate and shareholder information 3
Interim Management Report 4
Directors’ Responsibilities Statement 6
Condensed consolidated statement of profit or loss and other comprehensive income 7
Condensed consolidated statement of financial position 8
Condensed consolidated statement of changes in shareholders’ equity 9
Condensed consolidated statement of cash flows 10
Notes to the condensed consolidated Financial Statements 11
 

Forward looking statements

This Half Year 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” or “will”, 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 Half Year Report and include, but are not limited to, statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, 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.

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, and the development of 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 Half Year Report. In addition, even if the Company’s results of operations, financial position and growth, and the development of the markets and the industry in which the Company operates, are consistent with the forward looking statements contained in this Half Year 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, general economic and business conditions, the 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, currency fluctuations, changes in its business strategy, political and economic uncertainty. The forward-looking statements herein speak only at the date of this Half Year Report.

Mainstay Medical International plc
Corporate and shareholder information

Directors

        Oern Stuge MD, Independent Non-Executive Chairman
Peter Crosby, Chief Executive Officer and Executive Director
David Brabazon, Independent Non-Executive Director
Antoine Papiernik, Non-Executive Director
James A. Reinstein, Independent Non-Executive Director
Manus Rogan PhD, Non-Executive Director
Dan Sachs MD, Non-Executive Director
 

Secretary

Tom Maher
 

Registered office

Clonmel House
Forster Way
Swords, K67F2K3
County Dublin, Ireland
 

Registered number

539688
 

Website

www.mainstay-medical.com

 

ISIN / Symbol

IE00BJYS1G50 / MSTY.PA (Paris) and MSTY.IE
 

Solicitors/ Legal Advisors

McCann FitzGerald
Riverside One
Sir John Rogerson’s Quay
Dublin 2, Ireland
 
Jones Day
2, rue Saint-Florentin
75001 Paris, France
 

Independent Auditor

KPMG
Chartered Accountants
1 Stokes Place
St Stephen’s Green
Dublin 2, Ireland
 

Principal Bankers

HSBC
Bank of Ireland
 

ESM 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
Interim Management Report

We are pleased to report on the progress of Mainstay Medical International plc (“Mainstay” or the “Company”) and present the half year report of the Company and its subsidiaries (the “Group”) for the half year ended 30 June 2015.

Principal activities

Mainstay is a medical device company focused on bringing to market ReActiv8®, a new implantable neurostimulation system to treat disabling Chronic Low Back Pain (“CLBP”).

The Company is incorporated and registered in Ireland as a public limited company. The Company together with its operating subsidiaries Mainstay Medical Limited, MML US, Inc. and Mainstay Medical (Australia) Pty. Limited form the Mainstay Medical Group.

Business review

ReActiv8-A trial - On 31 August 2015, the Company announced positive clinical results of the ReActiv8-A Clinical Trial, which the Company plans to use to support its submission for CE Mark approval, after which commercialization in Europe can commence. The detailed Clinical Results announcement is available on the Company’s website at http://www.mainstay-medical.com/news/press_releases.

US clinical trial and regulatory process - In January 2015, the Company submitted an application to the United States Food and Drug Administration (“FDA”) for approval to start a clinical trial of ReActiv8 under an Investigational Device Exemption (“IDE”).

In May 2015, Mainstay announced it had received approval from the FDA to begin a clinical trial of ReActiv8 under an IDE. The FDA approval is for the planned ReActiv8-B Clinical Trial, an international, multi-centre, prospective randomized sham-controlled trial designed to evaluate the safety and efficacy of ReActiv8 for the treatment of adults with CLBP and no prior back surgery.

The approval is to conduct the ReActiv8-B Clinical Trial at up to 40 clinical trial sites and for 128 randomized subjects to be implanted with ReActiv8 in the pivotal cohort. The IDE approval allows the Company to engage with investigators, clinical trial sites, and Institutional Review Boards (“IRBs” or “Ethics Committees”) leading towards the first subject recruitment and implant. Upon successful completion of the ReActiv8-B Clinical Trial and if the results support it, the Company plans to submit an application for a Pre-Market Approval (“PMA”) which is required to allow the start of commercialisation in the United States.

In the approval letter, the FDA provided some helpful study design recommendations and the Company is engaging with the FDA in relation to these comments.

US Patent Filing - In July and August 2015, Mainstay announced the issuance of three new U.S. Patents:

  • U.S. Patent No. 9,072,897 entitled “Systems and Methods for Restoring Muscle Function to the Lumbar Spine”
  • U.S. Patent No. 9,079,019 entitled “Apparatus and Methods for Anchoring Electrode Leads for Use with Implantable Neuromuscular Electrical Stimulator”.
  • U.S. Patent No. 9,108,053 entitled Apparatus and Methods for Rehabilitating a Muscle And Assessing Progress of Rehabilitation

Financial review

Income statement – Mainstay is at a pre-revenue stage. Operating expenses related to on-going activities were $6.3 million during the period ended 30 June 2015 (30 June 2014: $4.8 million before exceptional items). On-going activities include clinical and regulatory activities, research and development, and general and administrative expenses.

Research and development expenses reflect costs incurred for research, design and development of the Group’s product ReActiv8. Research and development expenses were $1.2 million during the period ended 30 June 2015 (30 June 2014: $1.2 million). Clinical and regulatory expenses relate to the ongoing ReActiv8-A Clinical Trial and regulatory activities. Clinical and regulatory expenses were $2.3 million during the period ended 30 June 2015 (30 June 2014: $1.7 million). Non-cash expense in relation to share options for the period ended 30 June 2015 was $0.8 million increased from $0.2 million for the period ended 30 June 2014 due to the increase in the Company’s share price with the IPO.

Statement of financial position – Cash on hand at 30 June 2015 was $12.5 million (31 December 2014: $18.3 million). Operating cash out flows for the period ended 30 June 2015 were $5.7 million (30 June 2014: $6.2 million). Total assets of the Group were $13.2 million (31 December 2014: $18.8 million).

On 24 August 2015, Mainstay announced the closing of debt financing for up to $15 million. The secured debt facility is non-dilutive to existing shareholders, and is being provided by IPF Partners, a leading financing provider focused on the European healthcare sector.

The facility can be drawn in three tranches, and an initial tranche of $4.5 million has been called. The second and third tranches can be drawn upon achievement of milestones related to progress through the CE Mark process for ReActiv8.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group for the remaining six months of 2015 remain substantially unchanged from the disclosures included in the 2014 Annual Report. Those risks and uncertainties should be read in conjunction with this report and the Company’s press releases and other public disclosures (copies of which can be found on the Company’s website).

Related party transactions

Refer to note 14.

Outlook and future developments

Mainstay looks forward to continuing to work towards obtaining CE Mark and commencing commercialization in Europe.

Going concern

The Group has incurred losses of $67.9 million to date (includes the losses of Mainstay Medical Limited and MML, US Inc. incurred prior to the incorporation of Mainstay Medical International plc and includes losses attributable to the Company’s 2014 Corporate Reorganisation). As at 30 June 2015, the Group reported shareholders’ equity of $11.4 million and cash of $12.5 million. As detailed in the Financial Review above the Group is at a pre-revenue stage in the development of ReActiv8 and expects to incur further losses in the medium term. Progress on the development of ReActiv8 is detailed in the Business Review and the Company’s press release in respect of results of the ReActiv8-A Clinical Trial released on 31 August 2015.

To fund the further development of ReActiv8 the Group has raised debt and equity and it continues to explore funding strategies (e.g.: equity, debt, partnering) to support the Group’s activities into the future. The Group is carefully monitoring its cash flows and has the ability to consider alternative strategies and budgets 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 approval of these Interim Financial Statements.

Accordingly the Directors believe it is appropriate that these Interim Financial Statements are prepared on the going concern basis.

Auditors

The condensed Interim Financial Statements have not been reviewed by the Company’s auditors.

On behalf of the Board on 29 August 2015,

 

Oern Stuge

         

MD Peter Crosby

Chairman

CEO

 

Mainstay Medical International plc
Directors’ responsibilities statement

Statement of the Directors in respect of Half Year Financial Report

Each of the Directors of the Company (the “Directors”), whose names and functions are listed in the Corporate and Shareholder Information, confirm that, to the best of each person’s knowledge and belief:

(a) the condensed consolidated interim financial statements comprising the condensed consolidated statement of profit or loss and other comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes 1 to 15 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

(b) the interim management report includes a fair review of the information required by:

a. Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b. Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Mainstay Medical International plc
Condensed consolidated statement of profit or loss and other comprehensive income
for the half year ended 30 June 2015

($'000)       Notes   6 month period to 30 June 2015   Before exceptional items

2014

  Exceptional items

2014

  6 month

period to 30 June 2014

Unaudited Unaudited Unaudited Unaudited
 
Revenue - - - -
Operating expenses 5 (6,280) (4,780) - (4,780)
IPO related expenses 6 - -  

(4,040)

  (4,040)
Operating loss (6,280) (4,780)   (4,040)   (8,820)
 
Finance income - 20 - 20
Fair value (loss)/ gain on derivative financial instruments 6 - - (66,468) (66,468)
Finance expense (15) (734)   -   (734)
Net finance expense (15) (714)   (66,468)   (67,182)
 
Loss before income taxes (6,295) (5,494) (70,508) (76,002)
Income taxes 8 (61) (2)   96   94
Loss for the period and comprehensive loss for the period (6,356) (5,496)   (70,412)   (75,908)
 
Net loss attributable to equity holders (6,356) (5,496)   (70,412)   (75,908)
 
Basic and diluted loss per share (in $) 7 (1.48) (3.54)   (45.31)   (48.85)

The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

Mainstay Medical International plc
Condensed consolidated statement of financial position
at 30 June 2015

($'000)       Notes   30 June

2015

  31 December 2014
Unaudited Audited
Non-current assets
Property, plant and equipment 236 72
 
Current assets
Prepayments and other receivables 325 263
Income tax receivable 8 141 150
Cash and cash equivalents 12,530 18,283
Total current assets 12,996 18,696
   
Total assets 13,232 18,768
 
 
Equity
Share capital 61 61
Share premium 72,584 72,584
Share based payment reserve 13 1,976 1,162
Other reserves 11 4,700 4,700
Retained loss (67,937) (61,581)
Surplus/(deficit) on shareholders' equity 11,384 16,926
 
Current liabilities
Trade and other payables 1,848 1,842
Total current liabilities 1,848 1,842
 
Total liabilities 1,848 1,842
   
Total equity and liabilities 13,232 18,768

The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

Mainstay Medical International plc
Condensed consolidated statement of changes in shareholders’ equity
for the half year ended 30 June 2015

($'000)     Share capital Share premium Capital conversion reserve Reorgani-sation reserve Share based payment reserve Retained loss Total equity
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
 
Balance at 1 January 2014 1 250 - (9,609) 534 (13,146) (21,970)
Loss for the period - - - - - (75,908) (75,908)
Share based payments - - - - 232 - 232
 
Effect of reorganisation 55 879 - (34,964) - 34,030 -
 
Effect of IPO:
Issue of shares 1 23,922 - - - - 23,923
Conversion of preference shares 4 47,533 49,273 - - - 96,810
Balance as at 30 June 2014 61 72,584 49,273 (44,573) 766 (55,024) 23,087
 
Loss for the period - - - - - (6,557) (6,557)
Share based payments - - - - 396 - 396
Balance at 31 December 2014 61 72,584 49,273 (44,573) 1,162 (61,581) 16,926
 
Balance at 1 January 2015 61 72,584 49,273 (44,573) 1,162 (61,581) 16,926
Loss for the period - - - - - (6,356) (6,356)
Share based payments - - - - 814 - 814
Balance at 30 June 2015 61 72,584 49,273 (44,573) 1,976 (67,937) 11,384

The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

Mainstay Medical International plc
Condensed consolidated statement of cash flows
for the half year ended 30 June 2015

($'000)       Notes   6 month period to 30 June 2015   6 month

period to 30 June 2014

Unaudited Unaudited
 
Cash flow from operating activities
Net loss attributable to equity holders (6,356) (75,908)
Add/(less) non-cash items
Depreciation 24 12
Fair value of derivative financial instruments - 66,468
Finance income - (20)
Finance expense 15 734
Income taxes 8 61 (94)
Share-based compensation 13 814 232
Add/(less) changes in working capital
Prepayments and other receivables (56) (116)
Trade and other payables (118) (509)
 
Initial public offering and reserves related expenses 6 - 3,003
Taxes paid (73) -
Interest paid - (18)
Net cash used in operations (5,689) (6,216)
 
Cash flow from investing activities
Acquisition of property and equipment (64) (15)
Net cash used in investing activities (64) (15)
 
Cash flow from financing activities
Net proceeds from issue of shares - 20,919
Repayment of borrowings 9 - (800)
Net cash from financing activities - 20,119
 
Net (decrease)/ increase in cash and cash equivalents (5,753) 13,888
Cash and cash equivalents at beginning of period 18,283 9,590
Cash and cash equivalents at end of period 12,530 23,478

The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

Mainstay Medical International plc
Notes to the condensed consolidated Financial Statements

1 General information and reporting entity

Mainstay Medical International plc is a 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 half year report and Condensed Consolidated Interim Financial Statements (“the Interim Financial Statements”) in this report for the six month period ended 30 June 2015 comprise the results of the Company and of its subsidiaries (together the “Group”). At 30 June 2015, the Group comprises the Company and its operating subsidiaries Mainstay Medical Limited, MML US, Inc. and Mainstay Medical (Australia) Pty. Limited.

The Company shares are quoted on Euronext Paris and ESM of the Irish Stock Exchange.

Mainstay is a medical device company focused on bringing to market ReActiv8®, a new implantable neurostimulation system to treat disabling Chronic Low Back Pain (“CLBP”).

2 Basis of preparation

Statement of compliance

The Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all the information and disclosures necessary for a complete set of IFRS Financial Statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2014.

The Interim Financial Statements have been prepared applying the accounting policies that were applied in the preparation of the Group’s published consolidated financial information for the year ended 31 December 2014 prepared in accordance with IFRS, as adopted by the EU and available from the Company’s website (www.mainstay-medical.com).

The comparative information provided in the Interim Financial Statements relating to the periods ended 30 June 2014 and 31 December 2014 does not comprise the statutory financial statements of the Group. Those statutory financial statements for the year ended 31 December 2014 on which the auditors gave an unqualified audit opinion, have been delivered to the Registrar of Companies.

In addition, the following new standards were adopted by the Company for the first time in the current accounting period: Through the Annual Improvements to IFRSs 2011-2013 Cycle, the amendments to IFRS 3, IFRS 13 and IAS 40. None of these had a material impact on the Group’s financial results.

There are no significant or material changes to judgements or estimates used in these Interim Financial Statements versus those used in the full Financial Statements for the year ended 31 December 2014.

The Interim Financial Statements were authorised for issue by the Board of Directors on 31 August 2015.

Going concern

The Group has incurred losses of $67.9 million to date (including the losses of Mainstay Medical Limited and MML, US Inc. incurred prior to the incorporation of Mainstay Medical International plc). As at 30 June 2015, the Group reported shareholders’ equity of $11.4 million and cash of $12.5 million. As detailed in the Interim Management Report the Group is at a pre-revenue stage in the development of ReActiv8 and expects to incur further losses in the medium term. Progress on the development of ReActiv8 is detailed in the Interim Management Report and the Company’s press release in respect of results of the ReActiv8-A Clinical Trial released on 31 August 2015.

To fund the further development of ReActiv8 the Group has raised debt and equity and it continues to explore funding strategies (e.g.: equity, debt, partnering) to support the Group’s activities into the future. The Group is carefully monitoring its cash flows and has the ability to consider alternative strategies and budgets 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 approval of these Interim Financial Statements.

Accordingly the Directors believe it is appropriate that these Interim Financial Statements are prepared on the going concern basis.

Currency

The Financial Statements are presented in US Dollars (“$”), which is the functional and presentational currency of the Company. Balances in the Financial Statements are rounded to the neared thousand (“$’000”) except where otherwise indicated.

Basis of consolidation

The introduction of Mainstay Medical International plc as the new parent company in the Group during 2014 was accounted for as a continuation of Mainstay Medical Limited’s business. Consequently the comparative financial information presented represents that of the Group headed by Mainstay Medical Limited for the period from 1 January 2014 to 2 April 2014 and of the Group headed by the Company for the period from 3 April 2014 to 30 June 2014 and for the period from 1 January 2015 to 30 June 2015. Further information is provided in Note 3 below.

3 2014 Corporate reorganisation

This note provides information on the Corporate Reorganisation which occurred during the 6 month period to 30 June 2014.

On 3 April 2014, the Company acquired all outstanding ordinary and preference shares in Mainstay Medical Limited in exchange for issuing 793,425 series A shares, 1,967,177 series B shares, 500,000 series Z shares and 81,400 ordinary shares to former shareholders in Mainstay Medical Limited, in each case on the basis of one share in the Company in place of 20 shares of the same class in Mainstay Medical Limited.

Both prior to and subsequent to the 2014 Corporate Reorganisation no individual shareholder or party had control of the Group. As the 2014 Corporate Reorganisation effectively changed the parent company of the Group from a legal perspective only, no business combination in accordance with IFRS 3 was deemed to have occurred.

As IFRS 3 Business Combinations did not apply to the 2014 Corporate Reorganisation, the Company, as referred by IAS 8, used guidance set by other standard-setting bodies and adopted merger accounting treatment. As a result, the Company accounted for the introduction of Mainstay Medical International plc as a continuation of the business of Mainstay Medical Limited. Consequently, even though the Company was not incorporated until 17 February 2014 and did not become a Group company until 3 April 2014, the disclosures in the Financial Statements include the consolidated financial statements of Mainstay Medical Limited prior to the date of the 2014 Corporate Reorganisation.

In addition, in accordance with the provisions of section 149(5) of the Companies Acts 1963, the Directors determined that the pre-acquisition losses of subsidiaries should be transferred to a reorganisation reserve on consolidation in the Group accounts.

As a result, in the consolidated financial statements of the Group, the difference between the carrying amount of preference shares and other equity items, including retained losses previously held by Mainstay Medical Limited and MML US, Inc, and the fair value of the shares issued by the Company is reflected in the Statement of Changes in Equity where it is recorded in the reorganisation reserve.

The impact of the above on the reorganisation reserve was a transfer of $34,030,000 from retained losses, representing the accumulated losses of Mainstay Medical Limited and MML US, Inc at 3 April 2014, and a fair value increase in ordinary shares in issue of $934,000, resulting in a total transfer to the reorganisation reserve of $34,964,000. This classification within a reorganisation reserve in the Group’s consolidated financial statements does not impact on the distributable reserves of any individual subsidiary. See note 11 for further information.

4 Segment reporting

Due to the nature of the Group’s current activities, the Company considers there to be one operating segment, active implantable medical devices (AIMDs). The results of the Group are reported on a consolidated basis to the Chief Operating Decision Maker of the Group, the Chief Executive Officer. There are no reconciling items between the Group’s reported condensed consolidated statement of profit or loss and other comprehensive income and statement of financial position and the results of the AIMDs segment.

The Group has operations in Europe, the US and Australia. The non-current assets held in these jurisdictions are detailed below:

($'000)       30 June

2015

  31 December 2014
Europe 196 35
United States 40 37
Australia - -
Total non-current assets 236 72

5 Operating expenses

($'000)       Period ended

30 June 2015

  Period ended

30 June 2014

Research and development expenses 1,219 1,242
Clinical and regulatory expenses 2,258 1,663
General and administration expenses 1,989 1,643
Share-based compensation expenses 814 232
Total operating expenses 6,280 4,780

6 Exceptional items

For the period ended 30 June 2015 there are no matters presented as exceptional.

For the period ended 30 June 2014, the Directors presented the following matters as exceptional as they relate to matters arising as a result of the Company’s IPO on 2 May 2014.

($'000)       Period ended

30 June 2015

  Period ended

30 June 2014

Fair value adjustment of derivative financial instruments - 66,468
IPO related expenses - 4,040
- 70,508
 

On 3 April 2014, pursuant to the 2014 Company Reorganisation (refer to note 3) the Company acquired all outstanding ordinary and preference shares in Mainstay Medical Limited. The preference shares having equivalent rights in Mainstay Medical Limited had been classified as non-current liabilities and derivative financial instruments in the statement of financial position of the Group at 31 December 2013. Immediately prior to the reorganisation, a fair value expense adjustment of $17,193,978 was recorded in Mainstay Medical Limited’s statement of profit or loss representing the difference between the carrying value at 31 December 2013 and the carrying value at 3 April 2014. There was a corresponding change in the derivative liability.

Immediately prior to completion of the IPO, all issued Series A, Series B and Series Z preference shares in the Company converted on a one-for-one basis into ordinary shares of €0.001 in the Company. Prior to the conversion of the preference shares in the Company to ordinary shares, a fair value adjustment was recorded in the statement of profit or loss of $49,273,644 representing the difference between the carrying value at 3 April 2014 and the fair value as at 28 April 2014. There was a corresponding change in the derivative liability.

On conversion of the preference shares to ordinary shares, the debt and derivative components of the preference shares were then derecognised from the statement of financial position as the Company’s liability had been settled. The fair value of the preference shares as at 28 April 2014 was allocated to share premium and capital conversion reserve based on the carrying value of the preference shares pre and post the acquisition of these shares by the Company on 3 April 2014.

The combined impact of the above events resulted in a total fair value expense adjustment of $66,467,622 recorded in the Group statement of profit or loss. Following conversion of all preference shares during the period to 30 June 2014, the Company will not incur such fair value movements through the statement of profit or loss in future periods in relation to these preference shares.

Expenses directly associated with the Company listing its existing shares on the ESM and Euronext Paris of $4,039,681 were charged directly to profit or loss during the period ended 30 June 2014.

The adjustment for initial public offering and reserves related expenses of $3,003,000 in the cash flow statement includes these IPO expenses and the impact of the 2014 Corporate Reorganisation expenses (accounted for in share premium). In the Half Year report published on 28 August 2014, the impact of the 2014 Corporate Reorganisation expenses was included in the movement in prepayments and other receivables.

7 Earnings per share

Earnings/ losses per share are calculated by dividing net loss attributable to equity holders for the period by the weighted average number of ordinary shares outstanding during the period. As the Group is incurring operating losses, there is no difference between the basic and the diluted earnings per share.

The weighted average number of ordinary shares for the period ended 30 June 2015 (denominator) amounted to 4,294,141 (30 June 2014: 1,553,957, the weighted average during this period reflects the number of ordinary shares in issue pre and post the Company’s IPO). There are no adjustments between reported profit or loss from continuing operations and earnings used for the purposes of earnings per share.

The loss per share before exceptional items for the period ended 30 June 2015 was $1.48 (30 June 2014: $3.54). The loss per share for the period ended 30 June 2015 after exceptional items was $1.48 (30 June 2014: $48.85).

8 Taxes

Current income tax assets and liabilities for the current and prior period are measured at the amount expected to be recovered from or paid to the relevant taxation authorities. The tax charge has been prepared based on the Group’s best estimate of the weighted average tax rate that is expected for the full financial year. The tax rates and tax laws used to compute the amount are those used in Ireland, the United States and Australia.

       
($'000) Period ended

30 June 2015

Period ended

30 June 2014

Irish tax - -
Income tax in other jurisdictions 61 2
Deferred tax - (96)
Total income tax charge/(credit) 61 (94)
 

Certain companies within the Group provide services on a “cost plus” basis to other group companies, and consequently generate profits that are subject to corporation tax in the United States and Australia.

Tax receivable was classified within prepayments and other receivables as at 31 December 2014. The Company has included this disclosure on to a separate line in the Balance Sheet in the current report.

9 Borrowings

On 2 December 2011, Silicon Valley Bank provided the Group with a loan of $2,000,000 with a fixed annual interest rate of 10% to be serviced by interest-only payments until 1 July 2012, followed by monthly principal and interest payments until 1 December 2014. The bank loan was repaid in full on 7 March 2014.

In connection with these borrowings, MML issued immediately exercisable warrants to purchase up to 13,000 shares at $7.70 per share with an expiration date of 2 December 2021. The fair value of these warrants on the date of issue was $69,000.

10 Called up share capital

The Company’s ordinary shares are quoted in Euro and have been translated into US Dollars at the rates ruling at the date of transactions. On 2 May 2014, the Company listed its ordinary shares on the ESM of the Irish Stock Exchange and on 5 May 2014, the Company listed its ordinary shares on the Euronext Paris. As at 5 May 2014, the issued share capital of the Company consisted of 4,294,141 ordinary shares of €0.001 each (which carry voting rights) and 40,000 deferred shares of €1.00 each (which do not carry voting rights, are not entitled to receive any dividend or distribution and have in effect no right to a return of capital on a winding up).

         

Authorised

30 June 2015

30 June 2014

20,000,000 ordinary shares of €0.001 each (Note 1) 20,000 10,000
40,000 deferred shares of €1.00 each 40,000   40,000
60,000   50,000
 
2015 2014
Issued, called up and fully paid $ $
4,294,141 ordinary shares of €0.001 each 5,949 5,949
40,000 deferred shares of €1.00 each 55,268   55,268
61,217   61,217
 

Note 1:

At the Company’s 2015 AGM on 18 June 2015, the authorised share capital of the Company was increased from €50,000 divided into 10,000,000 ordinary shares of €0.001 each and 40,000 deferred shares of €1.00 each, to €60,000 divided into 20,000,000 ordinary shares of €0.001 each and 40,000 deferred shares of €1.00 each following the passing of Resolution 4, set out in the Company’s 2015 Notice of AGM.

Authority to allot shares

At the Company’s 2015 AGM held on 18 June 2015:

  • the Directors were authorised, pursuant to Section 1021 of the Companies Act 2014 (“2014 Act”), to allot “relevant securities” (essentially ordinary shares, or rights to subscribe for, or convert into, ordinary shares of the Company) up to an aggregate nominal value of €10,000 representing approximately 233% of the Company’s issued share capital as at 18 June 2015. This authority will expire on 18 June 2020, being five years from the date on which the resolution was passed;
  • the Directors were authorised, pursuant to Section 1023 of the 2014 Act, to dis-apply statutory pre-emption provisions in the event of a rights issue or other pro rata offer of equity securities to shareholders for cash; or other issue of equity securities for cash up to an aggregate nominal value of €10,000 representing approximately 233% of the Company’s issued share capital as at 18 June 2015. This authority will expire on 18 June 2020, being five years form the date on which the resolution was passed.

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.

Details of movement in issued shares:

    Number of shares
Ordinary shares   Deferred shares   Series A shares   Series B shares   Series Z shares
At 1 January 2014 1,628,000 - 15,868,520 39,343,640 10,000,000
Effect of reorganisation:
Deconsolidation of Mainstay Medical Limited shares (1,628,000) - (15,868,520) (39,343,640) (10,000,000)
Issue of Mainstay Medical International plc shares 102,400 40,000 793,425 2,008,877 500,000
 
Effect of IPO
Issue of new shares 889,439 - - - -
Conversion of pref. shares to ordinary shares 3,302,302   -   (793,425)   (2,008,877)   (500,000)
At 30 June 2014 4,294,141   40,000   -   -   -
                 
At 31 December 2014 4,294,141   40,000   -   -   -
                 
At 30 June 2015 4,294,141   40,000   -   -   -
 

Series A, Series B and Series Z shares were classified as non-current liabilities and derivative financial instruments as at 1 January 2014. Immediately prior to the Company’s IPO, all Series A, Series B, and Series Z preference shares converted on a one-for-one basis into ordinary shares of €0.001 each in the Company.

11 Other reserves

($'000)         30 June 2015   31 December 2014
Reorganisation reserve (44,573) (44,573)
Capital conversion reserve 49,273 49,273
Total other reserves 4,700 4,700
 

The reorganisation reserve represents (i) fair value differences arising as a result of group restructurings in 2012 and 2014; and (ii) the pre-acquisition historical losses of subsidiaries at the date of the 2012 and 2014 restructurings. This classification within a reorganisation reserve in the Group’s consolidated financial statements does not impact on the distributable reserves of any individual subsidiary. All pre-acquisition losses of individual subsidiaries will need to be offset by sufficient subsequent distributable profits before subsidiaries will be in a position to make distributions.

The capital conversion reserve represents fair value uplifts in preference shares between issue and conversion. This reserve is not distributable.

12 Financial instruments

The Group’s financial risk management strategy is described in the annual Consolidated Financial Statements for the year ended 31 December 2014. There have been no changes to the risk management procedures or policies since the 2014 year end.

As at 30 June 2015 the Group’s only financial instruments were trade payables and cash which can be settled within 30 days. The fair value of these items is equivalent to their carrying value in accordance with IFRS 13.

Credit risk

The Group’s only exposure to significant credit risk relates to cash on deposit. The Group maintained its cash balances with its principal financial institutions throughout the period. The Group’s principal financial institutions carry investment grade rating.

Foreign currency risk

The Group’s reporting 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 AUD functional currency. The translation differences on the Australian subsidiary are not material.

The Group did not have material asset or liability amounts in foreign currencies at 30 June 2015 other than €18,000 and AUD$5,800 held in cash. A strengthening (or weakening) of the US Dollar against Euro of 5 per cent would have (decreased)/ increased the loss for the period by $1,000 (30 June 2014: $35,000). Any reasonable or likely movement between the US Dollar and the Australian Dollar are considered not likely to have a material impact on the Group’s statement of profit or loss and other comprehensive income.

Interest rate risk

The Group’s cash balances are maintained in short term access accounts and carry a floating rate of interest. A 50bps change in the rate of interest would not have had a material impact on the Group’s statement of profit or loss and other comprehensive income in the period.

13 Share based payments

Stock Incentive Plan

The Group operates an employee share option plan (the “Plan”). As at 30 June 2015, the Plan allows for the Company to grant various classes of share options to employees of the Group companies, Directors, consultants and other contractors. As at 30 June 2015, 533,020 share options over ordinary shares of the Company have been granted under the Plan.

The Plan allows for flexibility in the grant conditions of each individual option, including variations on the amounts of options granted, the vesting requirements for each option and the expiration terms of the options.

Share Options

Details of share options granted as at 30 June 2015.

    Number of instruments in thousands     Contractual life of options
Options granted in 2010 41 10 years from vesting
Options granted in 2011 17 10 years from vesting
Options granted in 2012 3 10 years from vesting
Options granted in 2013 242 10 years from vesting
Options granted in 2014 91 10 years from vesting
Options granted in 2015 139 10 years from vesting
Total share options in issue 533
 

Total non-cash expense charged to profit and loss in relation to share options for the period ended 30 June 2015 was $814,000 (30 June 2014: $232,000).

No share options have expired unexercised or have been exercised during the period ended 30 June 2015. No share options have been forfeited during the period ended 30 June 2015. The above options all include service vesting conditions and vest over periods ranging from one to four years.

Options granted prior to 2013 have an exercise price of $0.80. Options granted in 2013 have an exercise price of $1.00. Options granted in 2014 have exercise prices of either $1.00 or in the range of €14.90 to €18.51. Options granted in 2015 have exercise prices of €14.90.

At 30 June 2015, 221,938 options were exercisable.

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:

      2015   2014   2013   2012   2011
Weighted average share price ($) 17.53 3.00 – 25.05 3.60 0.80 0.80
Weighted average exercise price ($) 17.53 3.00 – 25.05 1.00 0.80 0.80
Weighted average expected share volatility 60% 60% 60% 60% 60%
Expected term (years) 7 7 7 7 7
Expected dividends - - - - -
Risk free rate (average) 0.50% 0.86% 1.60% 0.85% 0.85%
Fair value of option ($) 10.17 3.00 – 14.80 3.00 0.40 0.40
 

14 Related party transactions

During the period to 30 June 2015, the Group purchased services of $33,364 (30 June 2014: $36,527) from Orsco Life Sciences AG, a company controlled by Oern Stuge MD, a Director of Mainstay.

There were no balances outstanding to/from Orsco Life Sciences AG as at 30 June 2015 (31 December 2014: Nil).

Key management compensation and Directors’ remuneration

The Group defines key management as its executive Directors, non-executive Directors and senior management. Details of remuneration for key management personnel are provided below:

($'000)       Period ended

30 June 2015

  Period ended

30 June 2014

Salaries and fees 850 808
Other remuneration 249 221
Share based payments 645 183
Pension 11 5
Total remuneration 1,755 1,217
 

15 Events subsequent to 30 June 2015

As referred to in the Interim Management Report, on 24 August 2015 Mainstay announced the closing of debt financing for up to $15 million. The secured debt facility is non-dilutive to existing shareholders, and is being provided by IPF Partners, a leading financing provider focused on the European healthcare sector.

The facility can be drawn in three tranches, and an initial tranche of $4.5 million has been called. The second and third tranches can be drawn upon achievement of milestones related to progress through the CE Mark process for ReActiv8.

Short Name: Mainstay Medical Intl. PLC
Category Code: IR
Sequence Number: 482013
Time of Receipt (offset from UTC): 20150830T161657+0100

Contacts

Mainstay Medical International plc

Contacts

Mainstay Medical International plc