Advanced Medical : Interim Report – 2022

AMS is a world-leading independent developer and manufacturer of innovative tissue-healing

Financial Highlights

technology, focused on quality outcomes for patients and value for payers. AMS has a wide range of surgical products including tissue adhesives, sutures, haemostats, internal fixation devices and internal sealants, which it markets under its brands LiquiBand®, RESORBA®, LiquiBandFix8® and Seal-G®. AMS also supplies wound care dressings such as silver alginates, alginates and foams through its ActivHeal® brand as well as under white label.

AMS's products, manufactured in the UK, Germany, France, the Netherlands, the Czech Republic and Israel, are sold globally via a network of multinational or regional partners and distributors, as well as via AMS's own direct sales forces in the UK, Germany, Austria, the Czech Republic and Russia. The Group has R&D innovation hubs in the UK, Germany, France and Israel. Established in 1991,

Group Revenue (£ million)

£58.3m

2021: £50.2m

Reported change: +16% (+16% at constant currency)1

Adjusted² profit before tax

(%)

23.4%

2021: 24.6%

Reported change: -1.2pp

Adjusted² profit before tax (£ million)

£13.6m

2021: £12.4m

Reported change: +10%

Adjusted² diluted earnings per share (p)

5.01p

2021: 4.64p

Reported change: +8%

the Group has more than 700 employees.

Contents

01 Business Highlights

£12.3m

2021: £11.2m

Reported change: +10%

Diluted earnings per share (p)

4.42p

2021: 4.10p

Reported change: +8%

21.2%

2021: 22.3%

Reported change: -1.1pp

Net operating cash flow (£ million)

£12.5m

2021: £13.7m

Reported change: -8%

• Revenue increased by 16% to £58.3 million (2021 H1: £50.2 million) predominately driven by commercial progress and increased pricing to recover inflationary cost increases.
• Gross margins increased to 58.9% (2021 H1: 55.9%) as a result of increased volumes.
• Total investment in R&D increased to £5.4 million (2021 H1: £4.4 million), representing 9.3% (2021 H1: 8.7%) of revenue, as progress was made on key projects across the Group.
• The Group reports a 10% increase in adjusted profit before tax to £13.6 million (2021 H1: £12.4 million) despite increased investment in R&D. Adjusted profit before tax margin of 23.4% remains in line with that generated for the full year 2021.
• Net cash increased to £75.3 million (FY 2021: £73.0 million) driven by strong trading and operational cash flow, partly offset by the acquisition of AFS Medical.
• Surgical Business Unit revenues increased to £35.9 million (2021 H1: £30.4 million), an increase of 18% at constant currency.
• Woundcare Business Unit revenues increased to £22.4 million (2021 H1: £19.8 million), an increase of 11% at constant currency.
• Given the Group's strong net cash position and reflecting the Board's continued confidence in the future, the interim dividend is increased to 0.64p per share (2021 H1: 0.58p).

• As announced in May 2022, the LiquiBand® XL 510(k) approval has been received and initial orders have been fulfilled in Q3. This approval provides access to a new $60m, long wound sealant market in the US and strengthens our market share across the entire LiquiBand® product portfolio.
• The acquisition of AFS Medical was completed in the period and integration is going well. The Board remains excited about the commercial synergies that this acquisition provides. Financial performance continues to be in line with initial expectations.
• As previously reported, recruitment for the US clinical trial of LiquiBandFix8® has now been completed and the Premarket Approval (PMA) filing remains on track for H2 2022 once all the patients have completed their 12-month follow up.
• The Seal-G® and Seal-G® MIST human clinical trials have continued and more than half of the total 160 patient procedures have now been completed. Patient recruitment has been slower than initially planned but is now ramping up. With nine sites now actively recruiting patients, procedures are expected to be completed in H1 2023.

Surgical Business Unit

The Surgical Business Unit includes tissue adhesives, sutures, biosurgical devices and internal fixation devices marketed under the AMS brands LiquiBand®, RESORBA® and LiquiBandFix8®.

Significant revenue growth in the Surgical Business Unit was driven by commercial progress, increased pricing and ongoing stock building by some partners. Revenue increased by 18% in the period to £35.9 million (2021 H1: £30.4 million) on a reported and constant currency basis.

Overall elective surgery volumes in our key markets continue to be restricted by hospital capacity and remain below pre-pandemic norms and as a result, the backlog of patients awaiting elective surgery is at record levels.

Advanced Closure

LiquiBand® is a range of topical skin adhesives, incorporating medical grade cyanoacrylate in combination with purpose-built applicators. These products are used to close and protect a broad variety of surgical and traumatic wounds.

Revenues increased to £17.9 million (2021 H1: £15.2 million) representing growth of 18% on a reported basis and 15% on a constant currency basis.

US LiquiBand® growth was strong as LiquiBand® Rapid continued to make good progress in the market. As previously reported, there has been a level of stock building by our partners as they recover from the COVID-19 pandemic, which continued and was completed in the period.

LiquiBand® XL is now being sold in additional European territories following its launch in the UK in late 2021 and initial sales have also been made into Australia and Japan.

The 510(k) for LiquiBand® XL was received in the period and initial orders to the US are being fulfilled in Q3 2022. This approval provides access to a new $60 million market and unlocks further growth potential in the LiquiBand® business with all partners.

Internal Fixation and Sealants

LiquiBandFix8® is used to fix hernia meshes placed inside the body with accurately delivered individual drops of cyanoacrylate adhesive, instead of traditional tacks and staples. Revenues increased by 37% on a reported basis to £1.6 million (2021 H1: £1.2 million) and 39% on a constant currency basis due to commercial progress, increasing volumes of hernia surgery and, to a lesser extent, the acquisition of AFS Medical which increases the Group's end sales of the product. Encouraging growth has been seen in the UK following recommendation from the National Institute for Clinical Excellence (NICE) to consider the use of cyanoacrylate adhesives in place of invasive tackers.

The acquisition of AFS Medical, who are specialist distributors of LiquiBandFix8®, will strengthen our ability to further penetrate into existing markets and will complement our existing sales expertise.

The US clinical trial for LiquiBandFix8® continues to progress well with completed patient procedure numbers on track to submit the clinical module of the Premarket Approval (PMA) filing in

H2 2022, after the 12-month patient follow-up. AMS continues to be encouraged about the long-term prospects for the LiquiBandFix8® portfolio with entry into the US being a significant milestone for the Group.

In the period, the clinical trials for both Seal-G® MIST (laparoscopic surgery) and Seal-G® (open surgery) progressed with nine sites now being used in the trial and about half of the 160 procedures now complete. Recruitment into the trial has been slower than initially expected but is ramping up and completion is now anticipated in H1 2023. We continue to develop our relationships with Key Opinion Leaders and potential partners and remain positive about the opportunity that this product presents to answer a high unmet patient need for an effective GI sealant. Follow-on pivotal clinical trial design is now underway, with a view to starting in 2023.

Traditional Closure

RESORBA® branded Absorbable and Non-Absorbable Suture ranges are used in general surgery and a wide range of surgical specialties including dental and ophthalmic surgery. Revenue increased by 10% to £8.0 million and by 12% at constant currency (2021 H1: £7.3 million) with significant growth in sales of dental sutures into the US.

Biosurgical Devices

The Biosurgical Devices category comprises antibiotic-loaded collagen sponges, collagen membranes and cones, oxidised cellulose, synthetic bone substitutes and bio-absorbable screws. Revenue increased by 15% to £7.7 million (2021 H1: £6.7 million) and by 18% at constant currency driven by demand for collagens both with and without antibiotics.

The Group is working towards its first collagen approval in the US with a 510(k) submission expected in H1 2023 for a dental application to support haemostasis and healing following tooth extraction.

Sales of our RESORBA® branded bone substitutes range in Germany, the Czech Republic and elsewhere continued to grow since launching in 2020.

The Group intends to launch into the US Bone Substitutes market in the next 12 months via an Independent Rep model. This will initially incorporate a number of existing Biomatlante products and in time is expected to be supplemented by adding our more innovative Freeze-Dried Bone Substitute range that requires more development and regulatory work before it can be commercialised.

Other Distributed Products

The Other Distributed category comprises products distributed by AFS Medical, including minimally invasive access ports and laparoscopic instruments, following its acquisition in the period. This category excludes sales of LiquiBandFix8® which are recorded within the Internal Fixation and Sealants category. Since acquisition trading has been in line with expectations.

Plymouth facility expansion

The construction phase of the Plymouth facility expansion started in the period and the two-year project remains on track. The extension will significantly increase the manufacturing capacity for Seal-G®, Fix8® and LiquiBand® as well as provide more R&D laboratory space.

Woundcare Business Unit

The Woundcare Business Unit is comprised of the Group's multi-product portfolio of advanced woundcare dressings sold under its partners' brands and the ActivHeal® label, plus a portfolio of specialist medical bulk materials and multi-layer woundcare products.

The Woundcare Business Unit delivered growth due to higher ordering from OEM partners, growth in increased ActivHeal® sales overseas and royalties as well as increased pricing to recover inflationary cost increases. Revenue increased by 13% in the period to £22.4 million (2021 H1: £19.8 million) and by 11% on a constant currency basis.

Infection Management

The Infection Management category comprises advanced woundcare dressings that incorporate antimicrobials such as Silver and Polyhexamethylene Biguanide (PHMB). Revenue increased by 6% on a reported basis and by 4% on a constant currency basis to £7.2 million (2021 H1: £6.7 million) due to sales growth with a number of OEM partners and ActivHeal® growth in the Gulf States. Sales of PHMB were adversely impacted, however, due to a raw material supply issue which has since been resolved in the second half of the year.

Following the receipt of an enhanced 510(k) approval for our Silver High Performance Dressing incorporating an antimicrobial indication in the prior year, we have continued to penetrate both the US and the Middle East antimicrobial gelling fibre markets with this patent-protected technology.

The Group's CE marked Silicone PHMB foam range, previously sold at low levels into the MEA region, was launched into the UK and a number of other European countries in the period. US and APAC launches are expected to follow in 2023.

AMS submitted a 510(k) application for its high gelling antimicrobial product, in the period. We have received, and are working through, FDA questions and anticipate approval at around the end of 2022 with commercial launch now expected in 2023.

AMS continues to invest in its R&D pipeline to develop the next generation of advanced woundcare products and our reputation for innovative solutions and expertise means we are regularly approached by partners seeking to collaborate with AMS.

Exudate Management

Exudate Management comprises advanced woundcare dressings and gels which do not incorporate any antimicrobial elements. Revenue increased by 11% on a reported and constant currency basis to £11.1 million (2021 H1: £10.0 million) due to increased orders from OEM partners and ActivHeal® growth driven by a tender win in the Republic of Ireland.

Following the acquisition of Raleigh, the AMS and Raleigh woundcare teams have worked closely together to develop next generation products and evaluate commercial opportunities for Raleigh products. Progress has also been made with the in- sourcing of elements of the woundcare manufacturing process which commenced in the first half of 2022, albeit at lower levels than planned due to supply chain challenges.

AMS has continued to appoint new ActivHeal® distribution partners in markets where its key partners have no or low presence but the demand for a high quality, cost effective woundcare dressing range still exists. Several new contracts have been signed in the first half of the year, expanding the Group's branded distribution network, with launches planned in the second half of the year and into 2023 upon receipt of market registrations.

Having gained regulatory approvals for its Mechanical Debridement product in 2021, AMS is currently in discussions with a number of potential commercial partners with launch expected in 2023.

AMS has applied its biosurgical collagen technology into developing a tissue scaffold designed to treat hard to heal and stalled wounds such as diabetic foot ulcers and venous leg ulcers. A 510(k) submission was made in the period and the Group continues

to evaluate the optimal commercial strategy.

AMS continues to develop a customer-specific negative pressure dressing and expects to record initial sales in the second half of 2022 as our partner continues with its 510(k) process. In addition, we expect to start work on the partner's next generation device in the near future. The Group sees considerable medium-term potential in the negative pressure wound treatment space.

As part of the Medical Devices Regulation (MDR) transition we have been able to add a number of claims to existing products during the period including an extended wear claim for Silicone Wound Contact Layer as well as a claim to use under negative pressure wound therapy and bony prominences. A pressure injury prevention claim has also been added for the Silicone Foam range.