Lifeline Scientific, Inc Final Results (6948F)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Lifeline Sci. S	LSE:LSI	London	Ordinary Share		COM SHS USD0.01 (REG S)

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

Lifeline Sci. S (LSE:LSI)
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RNS Number : 6948F

Lifeline Scientific, Inc

29 April 2014

Lifeline Scientific, Inc.

("Lifeline" or the "Company")

Results for the Twelve Months Ended 31 December 2013

Lifeline Scientific (AIM: LSIC, LSI), the transplantation technology company, announces results for the year ended 31 December 2013, a strong year of growth with revenues and operating profits ahead of previous market expectations.

Financial Highlights

   --      Transplantation products and services revenues up 11.1% US$32.4m (2012: US$29.1m)

-- LifePort(R)single-use consumable sales up 13.9% to US$18.4m (2012: US$16.1m)

-- North American revenues up 2% to US$24.3m (2012: US$23.8m)

-- Revenues outside of North America up 52% to US$8.0m (2012: US$5.3m) - with solid growth in Brazil and China

   --      Gross profit up 8.7% to US$19.9m (2012: US$18.3m)

-- Operating profit increased to US$1.9m (2012:US$0.1m), or US$0.9m before non-recurring items*

   --      Net income increased to US$2.9m (2012:US$0.2m loss), or US$0.9m before non-recurring items 
   --      Cash of US$3.0m as of 31 December 2013 (as of 30 June 2013: US$3.0m)

*adjustment of US$1.0m favourable legal settlement

adjustment for legal settlement and for release of US$1.0m deferred tax valuation allowance

Operational Highlights

   --      Strong geographical expansion outside of the US:

-- Sales to strategic Europe up 25% to US$4.9m (2012: US$3.9m)

-- A French national tender win

-- Product sales in Brazil up 51% to US$1.9m (2012: US$1.3m)

-- Sales to China reaching US$1.3m (2012: US$0.1m)

-- Further clinical evidence published supports the clinical and economic benefits of LifePort Kidney Transporter

   --      New product innovations continue with further progress to the LifePort Liver Transporter

David Kravitz, Chief Executive Officer of Lifeline, said:

"The strong second half trading in 2013 has provided the business with solid momentum going into the new financial year. I am optimistic about the prospects of the business for 2014, both in terms of potential for delivering continued growth in operating profits and shareholder return, but also offering meaningful technology innovations in support of surgeons worldwide in their daily mission of providing life-saving transplants to patients with end-stage organ disease."

 
 Lifeline Scientific, Inc.                                       www.lifeline-scientific.com 
 David Kravitz, CEO                                                     Tel: +1 847 294 0300 
 Lisa Kieres, CFO                                                       Tel: +1 847 294 0300 
 
 Panmure Gordon (UK) Limited                                        Tel: +44 (0)20 7886 2500 
 Freddy Crossley/Fred Walsh (Corporate 
  Finance) 
 Adam Pollock (Corporate Broking) 
 
                                         Tel: +44 (0)20 7933 8780 or lifeline@walbrookpr.com 
 
   Walbrook 
 Paul McManus                                                       Mob: +44 (0)7980 541 893 
 Mike Wort                                                          Mob: +44 (0)7900 608 002

Upcoming events

Expected mailing date for the annual report: 23 May 2014. It will also be available on the Company website, www.lifeline-scientific.com.

Date of Annual General Meeting: 19 June 2014

About Lifeline Scientific Inc.

Lifeline Scientific, Inc. is a Chicago-based global medical technology company with regional offices in Brussels and Sao Paulo. The Company's focus is the development of innovative products that improve transplant outcomes and lower the overall costs of transplantation. Its lead product is the market-leading and clinically validated LifePort Kidney Transporter. LifePorts and novel solutions designed for preservation of other organs are in development, with LifePort Liver Transporter next in line for commercial launch. For more information please visit www.lifeline-scientific.com

About LifePort Kidney Transporter

Created with the challenges of organ recovery and transport in mind, LifePort Kidney Transporter is a proprietary medical device designed to provide improved kidney preservation, evaluation and transport prior to transplantation. Today, it is widely recognised as the world's leading machine preservation device for kidneys. Employed by surgeons in over 165 leading transplant centres in 27 countries worldwide, LifePorts have successfully preserved over 47,000 kidneys indicated for clinical transplant. For more information please visit www.organ-recovery.com

Lifeline Scientific, Inc. Shares

As a US Company listed on the London Stock Exchange's AIM exchange, Lifeline Scientific, Inc. trades under two lines of stock, AIM: LSIC (unrestricted shares), LSI (restricted shares). While affiliates of the Company are required to hold restricted (RegS) shares, all others may hold restricted or unrestricted shares. Unrestricted shares may be electronically traded through the CREST system. Both lines of stock have identical rights, preferences and privileges. Non-affiliates may transfer restricted shares to the unrestricted line after purchase through the Company's registrar. Total shares outstanding for the Company at this time are 19,446,720, with 12,973,680 shares in issue under the LSIC line and 6,473,040 shares in issue under the LSI line.

Chairman's Statement

I am delighted to report that 2013 has been another year of solid growth, with the positive momentum seen in the first half of the year continued into the second. As a result, we are reporting full year revenues ahead of previous expectations and operating profit well ahead of previous market expectations. We continue to be very well positioned in our home US market, and combined with good progress in key emerging markets, we expect to see strong demand for our products and services continue in 2014.

Full year revenues grew by nearly 10.2% to US$33.2m (2012: US$30.2m). Transplantation products and services revenues increased 11.1% to US$32.4m (2012: US$29.1m), with much of the growth driven by significant orders from Brazil and China for our flagship LifePort Kidney Transporter and related products in the second half.

Revenues from single-use consumables, which also includes flush and preservation solutions, increased by 6%. A key measure of our performance is the sale of our proprietary singleuse consumables for the LifePort Kidney Transporter. Sales of these higher margin products increased by 13.9% compared to last year tof US$18.4m (2012: US$16.1m). Sales of proprietary consumables associated with the LifePort Kidney Transporter now represent 56.7% of transplantation related revenues (2012: 55.3%).

Revenues from our more mature North American home market rose 2% to US$24.3m (2012: US$23.8m). Sales outside of this core market rose 52% to US$8.0m (2012: US$5.3m), with sales in Brazil and China more than doubling to US$3.18m (2012: US$1.4m).

Gross profit increased by 8.7% to US$19.9m (2012: US$18.3m) with a Gross margin of 59.8% in line with last year (2012: 60.6%) due in part to strong sales of the Company's LifePort Kidney Transporters of US$1.7m (2012: US $0.6m) and the resulting business mix.

Operating profit improved significantly to US$1.9m (2012: US$0.1m), due to sales growth, the result of a non-recurring legal settlement, and a reduction in research and development for the year. Operating profit adjusted for non-recurring items is US$0.9m (2012: US$0.1m). This adjustment is namely the recognition of a favourable US$1.0m legal settlement from a third party, further details of which are given below. Adjusted Pre-tax profit (Income before income taxes) increased to US$0.9m (2012: US$0.05m), with a reported Pre-tax profit of

US$1.9m. The Company will report Basic earnings per share of US$0.15 (2012: US$0.01 loss).

The cash position of the Company remains healthy, with cash balances as at 31 December 2013 of US$3.0m (30 June 2013: US$3.0m), reflecting investments in both working capital to support growth, and development costs associated with our LifePort Liver Transporter. Overall R&D spending reduced slightly to US$2.9m (2012: US$3.2m). Net cash used in operating activities came to US$0.4m (2012: US$1.5m), reflecting a large increase in receivables due following significant orders received at the end of the year, as well as an investment in inventory to support the strong order pipeline from China, Brazil, and the French tender win.

As outlined at the Half Year Results, the Company settled a dispute with a third party during the year. Under the settlement, the Company is owed US$1.0m, payable through April 2015. The Company has recognised the settlement amount as a reduction to selling, general, and administrative expenses in the consolidated statements of operations. As of 31 December 2013, the Company has received payments of US$391,301 related to this settlement.

Revenues for the period since the year end have been encouraging and are in line with our expectations for the first quarter. We have seen continued strong demand from our core markets in the US and Europe, and we remain confident about the future growth prospects in Brazil and China.

I would like to thank the Board and staff for their excellent work throughout the year and their valuable contribution to the strong performance of the business. We start 2014 well positioned to advance on the opportunities available to us and I look forward to reporting on the continued success of the Group over the coming year.

John Garcia

Chairman

Chief Executive Officer's review

Our 2013 performance reflects the continued success of extending our expertise within the North American transplant market to key growth territories abroad. Most significantly, in the second half of this year strong demand for our flagship LifePort Kidney Transporter and related products resulted in significant orders from Brazil and China. We also experienced strong growth in revenues from Europe throughout the year.

We are immensely grateful as a company that transplant professionals worldwide now have access to the LifePort Kidney Transporter; a product shown to improve transplant outcomes and help increase the number of kidneys available for transplantation.

At the end of the financial year we had an installed base of LifePorts at 160 transplant centres in 27 countries, with LifePort adopted for machine preservation in 19 new transplant programmes during the year.

Geographical expansion

We continue to achieve steady revenues from transplantation products within our core North American market. The region is presently the largest contributor to revenues, accounting for just over 75% of worldwide revenues.

Our long-term strategic initiative to invest in geographic expansion continues to pay off as the installed base of LifePorts increased in key growth territories, particularly in the EU, Brazil, and China, driving incremental sales of our proprietary LifePort Kidney Transporter consumables. With transporter sales worldwide nearly tripling in the period to US$1.7m (2012: US$0.6m) we expect to see additional benefits from the pull through of higher margin single use consumable items in 2014.

Strategic Europe/Rest of World (ROW)

Sales in Strategic Europe (ROW), which we define as sales from outside of the Americas and China, were very encouraging, having increased by nearly 25% to US$4.9m (2012: US$3.9m). During the period, CE mark certification renewal was secured for our LifePort Kidney Transporter family of single-use disposable products.

Among the largest markets in Europe for kidney transplants is France with a reported 2,687 renal transplant procedures from deceased donors performed in 2012. During 2013 the French transplant authorities concluded an extensive clinical, logistical and technical review of LifePort Kidney Transporter, as part of the French health ministry's competitive national tender for machine preservation products. Soon after calendar year end 2013, we were very pleased to announce our winning of the national tender to exclusively supply LifePort Kidney Transporters and related products to kidney transplant centres across 23 public hospitals in France. This is a significant contract in terms of our European expansion, and as mentioned in our Outlook, it provides an important contribution to our Company's growth in 2014.

Market access negotiations in Germany continued to advance with the aim of establishing contract terms and a harmonized national clinical protocol for Germany's formal evaluation and potential national implementation of LifePort reimbursement.

Brazil

Brazil represents a significant market opportunity for the Company, with an estimated 135 transplant programmes performing a reported 4,500 kidney transplants annually from deceased donors. The country also reports a rapidly growing trend of end-stage renal disease, with chronic dialysis or transplant as the only therapies.

We continue to work closely with the Brazilian Government to develop a pragmatic solution to challenges associated with the importation of our products, chief among them being long cycle times from institutional order placement to successful importation and delivery. The solutions under consideration include a national purchase contract wherein the federal government would acquire LifePorts on behalf of Brazilian state or federal government hospitals. We will provide an update as talks progress during 2014.

In mid 2012 we received ANVISA regulatory approval for commercial sale of our full suite of products in Brazil. Revenues from LifePort Kidney Transporters and related consumables increased by 51% in 2013 to US$1.9m (2012: US$1.3m).

To date, over 600 LifePorted kidneys have been transplanted at eight leading transplant centres in Brazil. Excellent post-transplant results have been reported by clinicians and we expect this number to increase in 2014. We are also in process of securing ANVISA regulatory approval for our new LifePort 1.1 with embedded GPS/GPRS, among several other meaningful new features.

China

Over the last several years, China's national transplant system has been undergoing transformational improvements. This initiative is based upon an adaptation of North America's successful model for organ donation, procurement management, and algorithm-based donor organ allocation, and is fully backed by China's national health ministry. Based upon progress to date, in the coming years this region may become one of the largest national venues for the Company's products and services.

Today China reports having a network of over 165 licensed renal transplant centres with dozens more centres anticipated to be developed due to rising demand. Chinese health authorities have described a growing trend in end-stage renal disease, which in turn drives increased needs for kidney transplantation. In concert with the nation's comprehensive transplant system overhaul, the Company has made considerable investments in establishing key national distributor and transplant centre relationships. These efforts are showing promise as we achieved a significant uplift in revenues over the year to US$1.3m (2012: US$0.1m).

The full commercial launch of LifePort Kidney Transporter in China will be driven by the timing of Chinese regulatory approvals. Our products have been in the process of registration with China's FDA for the last two years and we remain optimistic these approvals will come in 2014. We are confident that positive results recently reported from the inaugural seven centre, 100 patient LifePort feasibility study, and subsequent successful follow-on single centre studies, will help accelerate the regulatory approval process.

Presently, LifePort Kidney Transporter is imported to China under a research protocol. This has been a successful interim measure, as seen by the sales uplift described above, and by encouraging outcomes data reported by clinicians at China Society of Transplantation congresses over the last few years. We are also very encouraged by recent public presentations and statements by Huang Jiefu, Head of the National Organ Transplantation Committee, and other surgeon leadership, regarding progress of the new national policy for deceased organ donation, which includes the recognition that machine preservation technologies have a considerable positive impact on the success of organ transplant procedures. This momentum suggests we may potentially see robust nationwide adoption of our products following Chinese regulatory approval and full commercial launch.

New Clinical Evidence

The body of scientific publications providing clinical and economic evidence in support of hypothermic machine preservation continued to grow over the year. New data was produced from the landmark European Machine Preservation Trial (MPT), an independent, multi-national, randomised, controlled trial comparing outcomes of LifePort machine preserved kidneys with the traditional method of static cold storage (ice-box preservation).

Study results of three year outcomes data from the MPT, demonstrated a significant long term benefit for organ survival following the use of LifePort in expanded criteria donor kidney ('ECD') transplantation. The study was published in the March, 2013 edition of Transplant International. Notably, the data showed that only 32.9% of ECD kidneys with Delayed Graft Function (DGF) survived if statically stored , compared with 68.7% of kidneys preserved on LifePort. DGF often occurs in ECD kidneys, and is known to adversely impact near and long term graft performance and survival rates.

In January 2014, the medical journal, Transplantation, published a retrospective analysis of the impact of machine preservation on close to 95,000 renal transplants in the USA between 2000 and 2011. The study, conducted by University of British Columbia transplant specialists, concluded that machine preservation leads to improved patient outcomes by reducing DGF over cold static storage.

New Product Innovations

Universal SealRing Cannula

Our new Universal SealRing Cannula with innovative ease-of-use features was successfully launched during the year and drew favourable reviews from transplant surgeons and organ procurement professionals. Initial observations suggest the new cannula allows a broader range of renal vascular access and LifePort connectivity which should enable more kidneys to be indicated for LifePort vs. the box of ice. This invention also uniquely enables LifePort use with living donor kidneys, a potential new market.

LifePort Liver Transporter

The development of our proprietary LifePort Liver Transporter has progressed in line with expectations. As highlighted above R&D costs reduced slightly in the year, reflecting the end of LifePort Liver Transporter's major R&D spend phase and the focus on pre-commercial launch market activities.

Our LifePort Liver Transporter commercial prototype received favourable reviews in its US debut at the American Transplant Congress in 2013. Data from initial clinical liver transplants using LifePort's early prototype and proprietary new solution at New York's Columbia Medical University were encouraging, suggesting that LifePort could provide unique clinical and cost benefits. Initially observed were improvements in patient outcomes, as well as a lowering of the overall cost of near-term post transplant care, compared to the status quo of ice box storage. These observations were based upon results from a cohort study of 42 clinical transplantation procedures, including 31 expanded criteria livers that had been rejected upon offer by other centres within the region.

The process of regulatory registration is well underway for both the US and EU. While timing for achieving regulatory clearances cannot be predicted, we continue to aim for commercial availability late in 2014.

Recently, we were gratified to receive initial interest for the LifePort Liver Transporter from key opinion leaders within the Chinese liver transplant surgical community. End-stage liver disease is a significant and growing problem in China. We are currently in discussions with our Chinese colleagues to explore ways in which the LifePort Liver Transporter might be clinically employed under humanitarian use or research protocols prior to full regulatory approval.

LifePort Rolling Transport Cover

Designed to add additional protection and mobility for LifePort logistics management, the new rolling transport cover also allows for user friendly storage of key documentation and other elements required to be stored during organ recovery and transport from the point of donation to recipient bedside. This innovation further supports LifePort's ability to travel as unattended cargo while fully operational.

Research Innovations

Recognising that innovation from independent investigators has always been an important part of transplant medicine, the Company sponsors a number of strategically selected academic research programmes aimed to advance the state of the art of organ, tissue, and cell preservation for transplantation. While not material to our overall budget, our sponsorship is most often provided through transfers of our products or support services in exchange for certain intellectual property rights. We are also party to several third party institutional grant funded research projects.

Our research focus follows published priorities of the major US and European clinical transplant societies in three main areas: Basic Science, Translational Science (including pre-clinical models designed to advance translation of validated mechanistic discoveries to clinical applications), and Clinical Science. Our most potentially promising and important research programmes include:

Basic Science

-- Development and validation of perfusate derived biomarkers of renal and hepatic graft dysfunction

Translational Science

-- Development and validation of surrogate markers for long-term outcomes in kidney and liver allografts

-- Studies to determine the effects of ice-free cryopreservation on protective immunity in allogeneic tissue for transplantation

-- Adherence monitoring to help define predictors of chronic rejection, cancer and infections after transplant, including epigenetic influences in determining transplant outcomes

-- Development of patient point of care assays for remote monitoring and measurement of immunosuppressant drug levels and key biomarkers of patient health

Clinical Science

   --     Reducing post-transplant complications in renal and liver allografts 
   --     Optimising organ utilisation by improving organ viability through machine perfusion based interventions in the pre-transplant period including ex vivo conditioning

-- Improving the post-transplant patient experience and clinician support thereof, by addressing the challenges of therapy adherence

Solutions

We are a market leading provider of preservation solutions used in transplantation. With anticipated regulatory clearance for our SPS-1 UW preservation solution expected in China and EU in the second half of 2014, we look forward to continued growth from our solutions products in 2014.

Intellectual Property

During the period 50 new patents were issued covering LifePort organ preservation and related technology, along with our cell and tissue preservation innovations. The Company's IP portfolio now includes 59 US issued and 39 US pending patents, and 102 international issued and 113 international pending patent applications. The strategic planning and management of our intellectual property portfolio is a key initiative of the Company, aimed to strengthen its market leadership with IP as a competitive barrier to market entry.

Outlook

The strong second half trading in 2013 has provided the business with solid momentum going into the new financial year. Geographic expansion will remain a key initiative of the Company. Adoption of our LifePort products in Brazil and China has continued in the first quarter of the year and we expect that regulatory approval in China will drive further advancements in 2014.

Our confidence in delivering continued growth in 2014 has been strengthened by the award of a major national tender to supply LifePort Kidney Transporters and related products to 23 renal transplant programmes in France. This is the first national tender award in the EU for the Company and provides a solid platform for driving sales in one of Europe's largest national markets for kidney transplantations.

Supported by strategic inventory build during second half of 2013, we entered 2014 well prepared for continued sales growth.

Our pipeline of product introductions will also allow us to address new areas of clinical need and to provide technology that will bring additional benefits to both kidney and liver transplantation. Key milestones targeted for new and existing products include US and EU regulatory approvals for our LifePort Liver Transporter, EU regulatory renewal for SPS-1, and broad regulatory clearances in China.

I am optimistic about the prospects of our business for 2014, both in terms of potential for delivering continued growth in operating profits and shareholder return, and in offering meaningful technology innovations in support of surgeons worldwide in their daily mission to bring life-saving transplants to thousands of patients suffering from end-stage organ disease.

I would like to thank my colleagues for their constancy and hard work, as well as our shareholders and customers for their support over the course of 2013. We are encouraged by positive momentum starting the new year, and look forward to another solid performance in 2014 for Lifeline Scientific.

David Kravitz

Chief Executive Officer

Consolidated Balance Sheets

31 December 2013 and 2012

 
                                                                  2013           2012 
                                                                   US$            US$ 
-------------------------------------------------------  -------------  ------------- 
Current Assets 
Cash and cash equivalents                                    3,022,140      5,746,406 
Receivables 
      Customers (Net of allowance for doubtful 
       accounts of US$0 and US$2,693 as of 31 December 
       2013 and 2012, respectively)                          8,156,638      5,444,416 
      Employees                                                  4,283          1,014 
      Grant                                                     55,884         67,752 
Inventories                                                  5,341,207      4,409,579 
Deferred tax assets                                             97,472         16,285 
Prepaid expenses, deposits, and other                        1,128,148      1,066,717 
Total Current Assets                                        17,805,772     16,752,169 
-------------------------------------------------------  -------------  ------------- 
Non-current Assets 
Property and equipment (Net of accumulated 
 depreciation and amortisation)                              2,807,084      2,501,349 
Intangibles (Net of accumulated amortisation)                3,615,149      2,812,820 
Deferred tax assets                                          1,942,213      1,023,400 
Goodwill                                                        64,710         64,710 
 Other                                                         256,102        123,805 
-------------------------------------------------------  -------------  ------------- 
Total Non-current Assets                                     8,685,258      6,526,084 
-------------------------------------------------------  -------------  ------------- 
Total Assets                                                26,491,030     23,278,253 
-------------------------------------------------------  -------------  ------------- 
 
  Current Liabilities 
Accounts payable                                             2,124,571      2,438,654 
Long-term debt due within one year                             434,834        181,568 
Capital lease obligations due within one 
 year                                                            9,914         26,316 
Accrued expenses 
      Interest due within one year                             148,462              - 
      Salaries and other compensation                          969,079      1,149,918 
      Other                                                  1,399,397        502,412 
Income taxes payable                                           162,340        103,043 
Deferred rent                                                   74,669         44,989 
Deferred revenue                                                78,122        307,148 
-------------------------------------------------------  -------------  ------------- 
Total Current Liabilities                                    5,401,388      4,754,048 
-------------------------------------------------------  -------------  ------------- 
Non-current Liabilities 
Long-term debt (Net of portion included 
 in current liabilities)                                       801,310      1,189,336 
 Deferred rent (Net of portion included in 
  current liabilities)                                         348,512        271,399 
Accrued interest (Net of portion included 
 in current liabilities)                                       197,239        330,380 
Capital leases (Net of portion included 
 in current liabilities)                                        57,383          2,625 
-------------------------------------------------------  -------------  ------------- 
Total Non-current Liabilities                                1,404,444      1,793,740 
-------------------------------------------------------  -------------  ------------- 
Total Liabilities                                            6,805,832      6,547,788 
-------------------------------------------------------  -------------  ------------- 
 
  Lifeline Scientific, Inc. Stockholders' 
  Equity 
Common stock, US$0.01 par value; authorised 
 - 30,000,000 shares as of 31 December 2013 
 and 2012; issued and outstanding 19,446,720 
 and 19,424,959 shares as of 31 December 
 2013 and 2012, respectively                                   194,467        194,249 
Additional paid-in capital                                  94,326,509     94,045,479 
Other accumulated comprehensive loss                         (253,710)      (250,283) 
Accumulated deficit                                       (73,502,632)   (76,359,173) 
-------------------------------------------------------  -------------  ------------- 
Total Lifeline Scientific, Inc. Stockholders' 
 Equity                                                     20,764,634     17,630,272 
Non-controlling interest                                   (1,079,436)      (899,807) 
-------------------------------------------------------  -------------  ------------- 
Total Stockholders' Equity                                  19,685,198     16,730,465 
-------------------------------------------------------  -------------  ------------- 
Total Liabilities and Stockholders' Equity                  26,491,030     23,278,253 
-------------------------------------------------------  -------------  -------------