Mainstay Medical Mainstay Medical Provides Company Update and Reports 2019 Half Year Financial Results

 
TIDMIRSH 
 
 

Mainstay Medical International plc ("Mainstay" or the "Company", Euronext Paris: MSTY.PA and Euronext Growth of Euronext Dublin: MSTY.IE), a medical device company focused on bringing to market ReActiv8®, an implantable neurostimulation system to treat disabling Chronic Low Back Pain, today provides a company update and reports its financial results for the half year ended 30 June 2019.

Jason Hannon, CEO of Mainstay, said: "We continue to make significant progress on our key corporate objectives of pursuing regulatory approval in the U.S. and advancing the commercial validation effort in Germany and other select European markets. I am pleased to report that we submitted the pre-market approval (PMA) application for ReActiv8 to the U.S. Food and Drug Administration (FDA) in August. Pending the FDA's acceptance of the PMA for review, anticipated in October 2019, we expect a decision regarding approval around the end of 2020. We also continue to make progress working with key physician partners in Germany who are incorporating ReActiv8 into their practices in order to validate commercial adoption, refine patient selection strategies and follow ongoing patient progress."

Business Update

 
 
    -- In August 2019, Mainstay submitted the PMA application to the FDA based upon the totality of its clinical data for ReActiv8. Pending acceptance of the submission by the FDA, anticipated in October 2019, a decision regarding approval is expected around the end of 2020. The pivotal clinical trial upon which the PMA submission was based is the 204-patient ReActiv8-B clinical study. A summary of the clinical trial results is as follows: The primary efficacy endpoint of the study was a comparison of responder rates between the treatment and control groups as measured on the visual analog scale (VAS) of pain, with responders defined as having a 30% or greater improvement on this measure between baseline and 120 days after randomization, without any increase in pain medication and/or muscle relaxants taken in the two weeks prior to the primary endpoint assessment visit. In the treatment group the responder rate at 120 days was 57%, compared to 47% in the control group, resulting in a difference that is not statistically significant. The protocol included a pre-specified analysis of the primary endpoint data examining the cumulative proportion of responders, which is a comparison of ranks and inherently preserves information over a dichotomized endpoint, thereby improving statistical power. In that analysis, a statistically significant difference between the treatment and control groups was demonstrated, with the treatment group showing a higher proportion of responders across all threshold levels. The protocol also included a pre-specified analysis of the primary endpoint where Mainstay adjusted for patients who increased their pain medications for reasons unrelated to their back pain. In that analysis, the responder rate at 120 days in the treatment group was 61%, compared to 47% in the control group, resulting in a difference that is statistically significant. Statistically significant differences on a number of key secondary endpoints and supplemental analyses were observed in the treatment group as compared to the control group at 120 days, including reduction from baseline in pain as measured by both mean reduction in VAS and percent of pain relief (PPR), change from baseline in disability measured by the Oswestry Disability Index (ODI), change from baseline in quality of life measured by the European Quality of Life Score on Five Dimensions (EQ-5D), subject global impression of change (SGIC), clinician global impression of change (CGI) and patient treatment satisfaction as measured by the treatment satisfaction questionnaire (TSQ). Improvements in the percentage of patients reporting pain reduction continued beyond the 120-day assessment through one year for both groups. The percentage of the 160 patients in the treatment and control groups that had completed the one-year assessment having a 30% or greater reduction in low back pain VAS at that assessment without a significant increase in pain medication was 66%. These data are subject to change as the remaining patients reach the one-year assessment. The protocol permitted patients to adjust their back pain medication usage after the 120-day assessment point. At one year, 49% of the 61 patients in both groups combined who were on opioids at baseline had discontinued or decreased their use of opioids. These results are subject to change as the remaining patients reach the one-year assessment. The incidence and type of adverse events (AEs), including serious AEs, compares favorably to that of spinal cord stimulator devices, with no unanticipated AEs related to the device, procedure or stimulation. 
 
    -- In Germany, Mainstay's initial European market, the Company's re-focusing of its commercial validation efforts was undertaken throughout 2018. Mainstay is now solely dedicated to building a small number of reference sites where high volumes of patients are treated with ReActiv8, allowing the Company to gather associated clinical data, refine patient selection processes for commercial markets, and gain the learnings needed to accelerate commercial launch in future markets. 
 

Financial Update

 
 
    -- Since the beginning of 2019, Mainstay has conducted financing activities that have resulted in approximately $28 million of cash runway extension: On 29 July 2019, Mainstay completed financing transactions consisting of the issuance of 4,649,775 new ordinary shares at a purchase price of EUR3.00 per share and the drawdown of EUR3.0 million in additional debt from the Company's existing lender, IPF Partners, resulting in aggregate gross proceeds of EUR16.9 million (US$18.9 million). On 18 April 2019, Mainstay and its subsidiary, Mainstay Medical Limited, entered into an amendment to their agreement with IPF Partners relating to the existing debt facility. Pursuant to the amendment: The repayment schedule for the three existing tranches drawn under the debt facility was amended such that no principal or interest will be repaid until 2021, with the principal and accrued interest to be amortized over the period from January 1, 2021 through September 30, 2023. A new tranche of EUR3.0 million (approximately $3.34 million) was made available to Mainstay, which was drawn down by Mainstay on 29 July 2019. The repayment schedule for the new tranche will be the same as the amended repayment schedule for the three existing tranches. The interest rate for all tranches will be 8% per annum, with interest accruing but capitalized prior to January 1, 2021. The interest rates previously applicable to the initial three tranches ranged from 10.5% to 12.5%. The 5% repayment fee applicable to each existing tranche was eliminated. All principal and accrued interest from all tranches will automatically convert into ordinary shares of the Company at a price per share of EUR8 upon the earlier of (a) FDA approval of Mainstay's PMA application for ReActiv8, (b) the date by which at least 900,000 ordinary shares of the Company are publicly sold on-market by non-affiliates of Mainstay since April 2019 at a price per share of at least EUR8, or (c) IPF Partners' election to undertake such conversion, in each case unless the Company elects to satisfy such obligation in whole or in part in cash. The minimum cash covenant was amended so that Mainstay is required to hold cash at least equal to its projected cash expenditures for operations and debt repayment for the next three months, and the covenant relating to the achievement of commercial milestones was eliminated. Mainstay issued to IPF Partners warrants to purchase 1.5 million of its ordinary shares at a price per share of EUR6 at any time prior to the 6th anniversary of the amendment date. 
 
 
    -- Revenue during the six-month period ended 30 June 2019 was $0.6 million ($0.36 million in 1H18). 
 
    -- Operating expenses for the six-month period ended 30 June 2019 were $9.5 million ($15.8 million in 1H18). The decrease was driven primarily by reduced costs relating to activities for the ReActiv-8 B clinical trial following the completion of all implants, as well as a decrease in payroll related costs following a reduction in headcount within 2019. 
 
    -- Cash on hand as at 30 June 2019 was $5.8 million (31 December 2018: $29.7 million). Cash on hand at 31 July 2019 was $23.5 million. 
 

Details of ReActiv8-B Clinical Trial

The ReActiv8-B clinical trial is an international, multi-center, prospective, randomized, active sham-controlled, blinded trial with one-way cross-over, conducted under an IDE from the FDA. A total of 204 patients with chronic low back pain refractory to physical therapy were implanted with ReActiv8 at leading clinical sites in the U.S., Europe and Australia and randomized 1:1 to therapy or control. In the treatment group, the ReActiv8 pulse generator was programmed to deliver electrical stimulation expected to elicit episodic contractions of the multifidus muscle. In the control group, the ReActiv8 device was programmed to provide a low level of electrical stimulation. Following assessment of the primary endpoint at 120 days, patients in the control group crossed-over to receive levels of electrical stimulation similar to those in the treatment group. The FDA's review of the PMA may result in the FDA not agreeing with Mainstay's interpretation of its clinical data, including whether statistical significance was achieved for one or more endpoints.

Investor Conference Call

Jason Hannon, Chief Executive Officer, and Matthew Onaitis, Chief Financial Officer, will host a conference call and Q&A for analysts and investors at 13:00 BST (08:00 EDT, 14:00 CEST) on 20 September 2019. The call will be conducted in English and a replay will be available for 30 days. Dial-in details for the call are:

Europe: [phone]

Ireland: [phone]

France: [phone]

Germany: [phone]

USA: [phone]

Participant PIN: 34020721#

- End

This announcement contains inside information within the meaning of the EU Market Abuse Regulation 596/2014.

About Mainstay

Mainstay is a medical device company focused on commercializing an innovative implantable restorative 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, Australia, Germany and the Netherlands, and is listed on regulated market of the Euronext Paris (MSTY.PA) and the Euronext Growth market of Euronext Dublin (MSTY.IE).

About Chronic Low Back Pain

One of the root causes of CLBP is impaired control by the nervous system of the muscles that dynamically stabilize the spine. ReActiv8 is designed to electrically stimulate the nerves responsible for contracting these muscles to 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 utilization put a significant burden on individuals, families, communities, industry and governments.

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

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

PR and IR Enquiries: LifeSci Advisors, LLC Brian RitchieTel: + 1 [phone]Email: [e-mail]

FTI Consulting (for Ireland) Jonathan Neilan or Patrick BerkeryTel. : [phone]Email: [e-mail]

Euronext Growth Advisers: Davy Fergal Meegan or Barry MurphyTel: [phone]Email: [e-mail] or [e-mail]

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", "will", or "explore" 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 FDA's review of the Company's PMA application for ReActiv8, the clinical data relating to ReActiv8, the potential for the FDA to approve ReActiv8 for marketing in the United States, the Company's expected cash runway and 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 and other commercial performance.

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, the development of its main product, and 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 its main product and 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, the final outcome of the Company's ReActiv8-B clinical trial, the outcome of the Company's interactions with the FDA on the PMA application for ReActiv8, the successful launch and commercialization of ReActiv8, general economic and business conditions, 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, the time and process required to obtain regulatory approvals, currency fluctuations, changes in its business strategy, and 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 Report comprising Interim Management 
Report and condensed consolidated 
Financial Statements for the half year ended 30 June 2019 
 
 

Mainstay Medical International plcTable of contents

 
Corporate and shareholder information                                 3 
Interim Management Report                                             4 
Director's Responsibilities Statement                                 11 
Condensed consolidated statement of profit                            12 
or loss and other comprehensive income 
Condensed consolidated statement of financial position                13 
Condensed consolidated statement of changes in shareholders' equity   14 
Condensed consolidated statement of cash flows                        15 
Notes to the condensed consolidated Financial Statements              16 
 
 

Forward looking statements

This 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", "will", or "explore" 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 report and include, but are not limited to, statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the FDA's review of the Company's PMA application for ReActiv8, the clinical data relating to ReActiv8, the potential for the FDA to approve ReActiv8 for marketing in the United States, the Company's expected cash runway and 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 and other commercial performance.

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, the development of its main product, and 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 report. In addition, even if the Company's results of operations, financial position and growth, and the development of its main product and the markets and the industry in which the Company operates, are consistent with the forward looking statements contained in this 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, the final outcome of the Company's ReActiv8-B clinical study, the outcome of the Company's interactions with the FDA on a PMA application for ReActiv8, the Company's cash position, the successful launch and commercialization of ReActiv8, general economic and business conditions, 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, the time and process required to obtain regulatory approvals, currency fluctuations, changes in its business strategy, and political and economic uncertainty. The forward-looking statements herein speak only at the date of this report.

Mainstay Medical International plcCorporate and shareholder information

 
Directors                  Oern Stuge MD, Independent 
                           Non-Executive Chairman 
                           Jason Hannon, Chief Executive Officer 
                           and Executive Director 
                           David Brabazon, Independent 
                           Non-Executive Director 
                           Greg Garfield, Non-Executive Director 
                           Nael Karim Kassar, Non-Executive Director 
                           Antoine Papiernik, Non-Executive Director 
                           James Reinstein, Independent 
                           Non-Executive Director 
                           Dan Sachs MD, Non-Executive Director 
Secretary                  Matthew Onaitis 
Registered office          77 Sir John Rogerson's Quay 
                           Block C, Grand Canal Docklands 
                           Dublin 2, Ireland 
Registered number          539688 
Website                    www.mainstay-medical.com 
ISIN / Symbol              IE00BJYS1G50 / MSTY.PA (Paris) and MSTY.IE 
Solicitors/ Lawyers        McCann FitzGerald 
                           Riverside One 
                           Sir John Rogerson's Quay 
                           Dublin 2, Ireland 
                           Latham Watkins 
                           885 3rd Avenue, 
                           NY 10022, USA 
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 plcInterim Management Report

The Board of Directors is pleased to report on the progress of Mainstay Medical International plc (Mainstay or the Company) and present the Half Year Report for the half year ended 30 June 2019 of the Company and its subsidiaries (the Group or we).

Principal activities

Mainstay is a medical device company focused on commercializing ReActiv8®, an implantable restorative neurostimulation system designed to treat an underlying cause of disabling Chronic Low Back Pain (CLBP).

The Company is headquartered in Dublin, Ireland. It has subsidiaries operating in Ireland, the United States, Australia, the Netherlands and Germany, and its ordinary shares are admitted to trading on Euronext Paris (MSTY.PA) and Euronext Growth operated by Euronext Dublin (MSTY.IE). As at 30 June 2019, the Company together with its operating subsidiaries Mainstay Medical Limited, MML US, Inc., Mainstay Medical (Australia) Pty Limited, Mainstay Medical Distribution Limited, Mainstay Medical B.V. and Mainstay Medical GmbH, form the Mainstay Medical Group.

Business update

In August 2019, the Company submitted a pre-market approval (PMA) application to the United States Food & Drug Administration (FDA) for ReActiv8. Assuming acceptance of the submission by the FDA in October 2019, a decision on approval is expected in late 2020. The FDA's review of the PMA may result in the FDA not agreeing with the Company's interpretation of its clinical data, including whether statistical significance was achieved for one or more endpoints.

The pivotal clinical trial upon which the PMA submission was based is the ReActiv8-B clinical trial is an international, multi-center, prospective randomized sham controlled triple blinded trial with one-way crossover, conducted under an IDE from the FDA. Information about the Clinical Trial can be found at https://clinicaltrials.gov/ct2/show/study/NCT02577354.

A total of 204 subjects were implanted with ReActiv8 at leading clinical sites in the U.S., Europe and Australia and randomized 1:1 to therapy or control 14 days after implant. In the treatment group, the ReActiv8 pulse generator was programmed to deliver electrical stimulation expected to elicit episodic contractions of the multifidus muscle. In the control group, the ReActiv8 device was programmed only to provide a low level of electrical stimulation. Following assessment of the primary endpoint at 120 days, subjects in the control group crossed-over to receive levels of electrical stimulation similar to those in the treatment group.

The subjects in the study had an average age of 47, and an average duration of chronic low back pain of 14 years. This patient population had tried many other treatment alternatives, including physical therapy and drugs, with limited success, and 79% of the subjects were on pain medication at baseline.

The primary efficacy endpoint of the study was a comparison of responder rates between the treatment and control groups as measured on the visual analog scale (VAS) of pain, consisting a 0-10 scale with 0 being no pain and 10 being the worst imaginable pain. Responders are defined as having a 30% or greater improvement on this measure between baseline and 120 days after baseline, without any increase in pain medication and/or muscle relaxants taken in the two weeks prior to the primary endpoint assessment visit. The following table shows the result on the primary efficacy endpoint:

 
Primary Efficacy Endpoint  TreatmentN=102 ControlN=102 Differencep-value 
Responder (=30% Reduction  57.1%          46.6%        10.4%p=0.138 
in Low Back Pain 
VAS and no Increase in 
Pain Medications) 
 
 

The same data as above, presented in a cumulative proportion of responders analysis that was pre-specified in the investigational plan, demonstrated a statistically significant difference (p<0.05) between the treatment and control groups, with the treatment group showing a higher proportion of responders across all threshold levels. This analysis, which is a comparison of ranks, inherently preserves information over a dichotomized endpoint, thereby improving statistical power.

In addition, the analysis of difference in mean low back pain VAS reduction between the treatment group and the control group was statistically significant (p<0.05) at the 120-day visit.

The investigational plan for the study also includes a pre-specified analysis, assessing the impact of medication and/or muscle relaxant increases to treat acute, unrelated pain conditions on the primary endpoint. Such patients, as a result of increasing pain medication and/or muscle relaxants, are deemed non-responders under the study protocol.

The specific implementing methods of this supplementary analysis were defined by the independent statistician advisors prior to the unblinding of the data. In consultation with its advisors, the Company determined that a valid way to handle the subjects with pain medication increases for reasons unrelated to low back pain would be to analyze the endpoint with these subjects removed, as pain medication use for reasons unrelated to low back pain was an exclusion criterion in the study. By doing so, inference is limited to the population of subjects taking pain medication only for reasons related to low back pain, as intended by the patient selection criteria in the trial protocol.

Six subjects had increases in pain medications for reasons other than low back pain. The following table presents the results of the primary efficacy endpoint in the subjects not requiring an increase in pain medications for reasons other than for low back pain, showing a clinically-meaningful and statistically-significant difference:

 
Primary Efficacy Endpoint  TreatmentN=96 ControlN=102 Differencep-value 
Responder (=30% Reduction  60.6%         46.7%        14.0%p=0.048 
in Low Back Pain 
VAS and no Increase in 
Pain Medications) 
 
 

Numerous secondary endpoints and supporting analyses were collected to assess improvements in the treatment group as compared to the control group at 120 days, including reduction from baseline in pain as measured by both mean reduction in VAS and percent pain relief (PPR), change from baseline in disability measured by the Oswestry Disability Index (ODI), change from baseline in quality of life measured by the European Quality of Life Score on Five Dimensions (EQ-5D), subject global impression of change (SGIC), clinician global impression of change (CGI), patient treatment satisfaction as measured by the treatment satisfaction questionnaire (TSQ) and pain resolution (VAS =2.5 cm). As shown in the following table, when evaluating the therapy across multiple dimensions of subject outcomes, the treatment effect is significant in seven of the eight secondary endpoints/supporting analyses: mean reduction in VAS, PPR, ODI, EQ-5D, SGIC, treatment satisfaction and CGI:

 
            TreatmentN=102                   ControlN=102                     Differencep-value 
Endpoint    N   Mean ± SD(Min, Max)or N (%)  N   Mean ± SD(Min, Max)or N (%) 
Change      100 -3.3 ± 2.7(-8.5, 3.0)        101 -2.4 ± 2.9(-8.8, 3.5)        0.9p = 0.032 
in 
Low 
back 
pain 
VAS 
Percent     100 52 ± 32(0, 100)              101 35 ± 36(0, 100)              17p = 0.001 
Pain 
Relief 
Change      100 -17.5 ± 15.1(-58.0, 20.0)    101 -12.2 ± 14.6(-48.0, 32.0)    5.4p = 0.011 
in 
ODI 
Change      100 0.186 ± 0.199(-0.365, 0.782) 100 0.115 ± 0.178(-0.640, 0.665) 0.071p = 0.009 
in 
EQ-5D 
Subject                                                                       NAp = 0.003 
Global 
Impression 
of 
Change 

Much        100 32 (32%)                     101 18 (18%) 
better 
Better      100 22 (22%)                     101 16 (16%) 
A           100 25 (25%)                     101 29 (29%) 
little 
better 
No          100 10 (10%)                     101 24 (24%) 
change 
A           100 6 (6%)                       101 5 (5%) 
little 
worse 
Worse       100 4 (4%)                       101 6 (6%) 
Much        100 1 (1%)                       101 3 (3%) 
worse 
Satisfied                                                                     NAp = 0.001 
with 
Treatment 
Definitely  100 61 (61%)                     101 40 (40%) 
Yes 
Maybe       100 29 (29%)                     101 37 (37%) 
Definitely  100 10 (10%)                     101 24 (24%) 
Not 
Clinician                                                                     NAp = 0.001 
Global 
Impression 
Much        100 57 (57%)                     100 22 (22%) 
Better 
Slightly    100 26 (26%)                     100 29 (29%) 
Better 
About       100 16 (16%)                     100 42 (42%) 
the 
Same 
Slightly    100 1 (1%)                       100 5 (5%) 
Worse 
Much        100 0 (0%)                       100 2 (2%) 
Worse 
Remitters   100 34 (34%)                     101 28 (28%)                     6.3% 
(VAS                                                                          p = 0.335 
= 
2.5) 
 
 

At the 120-day visit, subjects in the control group were allowed to cross-over to receive stimulation at a therapeutic level. All control subjects elected to cross-over at this timepoint. At the time of filing of the PMA, 160 subjects had completed the 1-year assessment visit, consisting of 80 in each group. In this population, all efficacy outcomes for the treatment group and for the control group post crossover progressively improved through the 1-year assessment visit, consistent with the rehabilitative nature of the therapy (8 months of therapy for the crossover group). These results are subject to change as additional subjects complete the 1-year assessment visit.

Outcomes at 1 year (8 months of therapy for the crossover group):

 
 
    -- VAS Responders: 69% in the treatment group 63% in the crossover group 
 
    -- Change in VAS: -4.4 in the treatment group -4.4 in the crossover group 
 
    -- Average Percent Pain Relief: 67% in the treatment group 66% in the crossover group 
 
 
    -- Average ODI Change: 21-point reduction in the treatment group 20-point reduction in the crossover group 
 
    -- Average EQ-5D Change: 0.218-point increase in the treatment group 0.183-point increase in the crossover group 
 
    -- Average SGIC: 76% Better or Much Better in the treatment group 72% Better or Much Better in the crossover group 
 
    -- Average Treatment Satisfaction: 82% Definitely Satisfied in the treatment group 76% Definitely Satisfied in the crossover group 
 
    -- Average CGI: 78% Much Better in the treatment group 71% Much Better in the crossover group 
 

Although the study was not designed to reduce medications after the 120-day visit, subjects were allowed to change medications after that timepoint. As the following table shows, of the 61 patients (treatment and crossover groups combined) who were on at least one opioid-containing medication at baseline and had a 1-year visit, 28% had discontinued use of opioids, and an additional 21% had decreased opioid use, for an overall rate of 49% of patients who decreased or discontinued opioids by the 1-year visit.

 
Medication Change Status   Opioid 
                           % (n/N) 
Discontinued or Decreased  49% (30/61) 
No Change                  44% (27/61) 
Increased or Added         7% (4/61) 
 
 

Notably, patients who decreased or discontinued opioids had similar efficacy results as the overall population. In addition, 97% of those who were not on an opioid at baseline and had a 1-year visit remained off opioids.

The incidence and type of adverse events (AEs), including serious AEs, compares favorably to that of spinal cord stimulator devices, with no unanticipated AEs related to the device, procedure or stimulation.

Funding - On 29 July 2019, we announced the completion of a EUR16.9 million financing (approximately $18.9 million). The financing transactions consist of the issuance of 4,649,775 new ordinary shares at a purchase price of EUR3.00 per New Share and the drawdown of EUR3.0 million (approximately $3.34 million) in additional debt from the Company's existing lender, IPF Partners. The funds are being used to advance the PMA review process with the FDA and continue the commercial validation effort in Germany and other select European markets.

On 18 April 2019, the Company and its subsidiary, Mainstay Medical Limited, entered into an amendment to its agreement with IPF Partners relating to their existing debt facility. Pursuant to the amendment:

 
 
    -- The repayment schedule for the three existing tranches drawn under the debt facility was amended such that no principal or interest will be repaid until 2021, with the principal and accrued interest to be amortized over the period from January 1, 2021 through September 30, 2023. 
 
    -- A new tranche of EUR3.0 million (approximately $3.34 million) was made available to the Company, conditioned upon the Company raising at least $10 million in gross proceeds from one or more offerings of equity prior to 30 June 2019, which date was amended to 31 July 2019. The repayment schedule for the new tranche will be the same as the amended repayment schedule for the three existing tranches. 
 
    -- The interest rate for all tranches is 8% per annum. 
 
    -- The 5% repayment fee applicable to each existing tranche was eliminated. 
 
    -- All principal and accrued interest from all tranches will automatically convert into ordinary shares of the Company at a price per share of EUR8 upon the earlier of (a) FDA approval of the Company's PMA application for ReActiv8, (b) the date by which at least 900,000 ordinary shares of the Company are publicly sold on-market by non-affiliates of the Company since 18 April 2019 at a price per share of at least EUR8, or (c) IPF Partners' election to undertake such conversion, in each case unless the Company elects to satisfy such obligation in whole or in part in cash. 
 
    -- The minimum cash covenant was amended so that the Company is required to hold cash at least equal to its projected cash expenditures for operations and debt repayment for the next three months, and the covenant relating to the achievement of commercial milestones was eliminated. 
 
    -- The Company issued to IPF Partners warrants to purchase 1.5 million of its ordinary shares at a price per share of EUR6 at any time prior to the 6th anniversary of the amendment date. The Company has issued further conditional warrants to IPF Partners that will become exercisable only to the extent the Company elects to repay the debt in cash rather than issue ordinary shares when a conversion of the debt is triggered. As such, the conditional warrants are intended to ensure that, notwithstanding any such election to repay in cash, IPF Partners retains the right to subscribe for ordinary shares of the Company on the terms and conditions that would otherwise have applied. 
 

Commercialization - In Germany, the Company's initial European market, commercial repositioning efforts in order to better focus efforts on key physician targets were undertaken throughout 2018. The Company continues to focus on commercial validation by working with key physician partners who identify appropriate ReActiv8 patients in their centres in order to validate commercial adoption, refine patient selection strategies and follow ongoing patient progress.

Financial review

Income Statement - Revenue during the six-month period ending 30 June 2019 was $0.6 million ($0.4 million during the same period in 2018). Revenue was generated from sales of ReActiv8 systems to customers in Germany, Ireland and the UK.

Operating expenses related to on-going activities were $9.5 million during the half year ended 30 June 2019 (same period in 2018: $15.8 million). On-going activities during the financial year included research and development, clinical and regulatory activities, selling, general and administrative activities.

Research and development expenses were $1 million during the six-month period ended 30 June 2019 ($2 million during the same period in 2018). The decrease of $1 million is primarily driven by reduced payroll related costs following a reduction in headcount in 2019.

Clinical and regulatory expenses were $2.9 million during the six-month period ended 30 June 2019 ($7.2 million during the same period in 2018). The decrease of $4.3 million is primarily driven by decreased direct trial costs relating to activities for the ReActiv-8 B clinical trial, following the announcement in July 2018 of the completion of all implants.

Selling, general and administrative expenses were $5.6 million during the half year ended 30 June 2019 ($6.6 million during the half year ended 30 June 2018). The decrease of $1 million is primarily driven by the reduction in recruitment fees, travel and training costs, as well as certain marketing and market research costs.

Statement of financial position - Total assets of the Group at 30 June 2019 were $9.7 million (31 December 2018: $19.4 million). Cash on hand at 30 June 2019 was $5.8 million (31 December 2018: $15.5 million). Cash used in operating activities was $8.8 million during the period (30 June 2018: $14.8 million) and is reflective of our decreased operating expenses.

Since inception the Group has funded its operations primarily through the issuance of equity securities and debt funding. The Group intend to continue to explore funding strategies (e.g., equity, debt, partnering) to support its activities into the future.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group and/or its industry for the remaining six months of 2019 remain unchanged from the risks disclosed in the 2018 Annual Report, which is available on our website.

A summary of the principal risks relating to the Company and/or its industry include the following:

 
 
    -- We have incurred significant operating losses and cash outflows and may not be able to achieve or subsequently maintain profitability. 
 
    -- We expect to require additional funds in the future in order to meet our capital and expenditure needs and further financing may not be available when required or, if available, could require us to agree to terms which are which are dilutive to current investors, specifically favorable to new investors, or to restrictions significantly limiting our access to additional capital or other activities. 
 
    -- Our future financial performance is entirely dependent on the commercial success of ReActiv8, our only product as of the date of this Report, obtaining adequate reimbursement for ReActiv8, and rates of product adoption and market penetration. 
 
    -- We operate in a highly regulated environment and regulatory approval is required before we can market or sell ReActiv8 in any market. 
 
    -- To date, the only regulatory approval to the market ReActiv8 is our CE Mark relating to the European Economic Area, or EEA, and Switzerland. Seeking and obtaining regulatory approval for medical devices in the United States and elsewhere can be a long and uncertain process. The failure to achieve regulatory approval in the United States or in other key markets, the loss of our CE Mark, or strict or changing regulatory regimes, government policies and legislation in any of our target markets may delay, prohibit or reduce potential sales. 
 
    -- Failure to comply with debt covenants or failure to make repayments on our debt facility could have a material adverse effect. 
 
    -- We are required to conduct clinical trials for regulatory approvals and other purposes. Clinical trials carry substantial risks and are costly and time consuming, with uncertain results. 
 
    -- Any inability to fully protect and exploit our intellectual property may adversely impact our financial condition, business, prospects and results of operations. 
 

A more extensive description of the existing and future potential risks to Mainstay's business and to the Company's ordinary shares are outlined in the Risk Factors section of the Annual Report, on pages 24 to 56, and should be considered carefully by shareholders and prospective investors.

Outlook and future developments

Our objectives for the remainder of 2019 and into 2020 are to advance the PMA review process with the FDA following filing in August 2019; and to continue the commercial validation effort in Germany and other select European markets by working with key physician partners who identify appropriate ReActiv8 patients in their centers in order to validate commercial adoption, refine patient selection strategies and follow ongoing patient progress.

Related party transactions

Refer to note 11.

Going concern

The Directors have evaluated whether there are conditions and events, considered in aggregate, that raise doubt about the Group's ability to continue as a going concern within one year of the date of issue of the consolidated financial statements. The Directors note the following relevant matters:

 
 
    -- The Group had cash of $5.8 million as at 30 June 2019 ($15.5 million as at 31 December 2018). 
 
    -- The Group had operating cash out-flows of $8.8 million for the 6 months ended 30 June 2019 (year ended 31 December 2018: $27.3 million). 
 
    -- Due to the phase of development of the Group, the Group expects to continue to incur losses in the medium term due to the ongoing investment required in research and development, clinical and commercial activities and expects to continue to seek funding from investors or other finance providers as required. 
 
    -- The Group has an accumulated retained loss reserve of $168.2 million and a reorganization reserve of $44.6 million as at 30 June 2019 (31 December 2018: $157 million and $44.6 million, respectively). 
 
    -- The Group has funded operations to date through the proceeds of equity funding of approximately $123.5 million and as at 30 June 2019, debt with an outstanding principal of $9.45 million. 
 
    -- On 29 July 2019, we announced the completion of a EUR16.9 million financing (approximately $18.9 million). The financing transactions consist of the issuance of 4,649,775 new ordinary shares at a purchase price of EUR3.00 per share and the drawdown of EUR3.0 million (approximately $3.34 million) in additional debt from the Company's existing lender. 
 

The Directors have considered the conditions noted above and other factors, and believe 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 the Financial Statements and are satisfied that the Financial Statements should be prepared on a going concern basis.

Auditors

The condensed consolidated Financial Statements have not been reviewed by the Company's auditors.

Mainstay Medical International plcDirectors' 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 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 12 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:

On behalf of the Board on 19 September 2019,

 
Oern Stuge MD   Jason Hannon 
 
Chairman        CEO 
 
 

Mainstay Medical International plcCondensed consolidated statement of profit or loss and other comprehensive incomefor the half year ended 30 June 2019

 
($'000)                 Notes Half year ended  Half year ended 30 June 2018 
                              30 June 2019 
                              Unaudited        Unaudited 
Revenue                 4     552              358 
Cost of sales                 (316)            (170) 
Gross profit                  236              188 
Operating expenses            (9,559)          (15,849) 
Operating loss                (9,323)          (15,661) 
Finance expense (net)                          (1,018) 
                              (1,760) 
Net finance expense           (1,760)          (1,018) 
Loss before income            (11,083)         (16,679) 
taxes 
Income taxes            6     (63)             156 
Loss for the half year        (11,146)         (16,523) 
Net loss attributable         (11,146)         (16,523) 
to equity holders 
Basic and diluted loss  5     (1.27)           (2.01) 
per share (in $) 
Other Comprehensive 
Income 
Items that are or may 
be reclassified 
subsequently 
to the statement of 
profit or loss: 
Foreign currency              (20)             56 
translation 
differences 
of foreign operations 
Total comprehensive           (11,166)         (16,467) 
loss 
for the half year 
Total comprehensive           (11,166)         (16,467) 
loss attributable 
to equity holders 
 
 

The accompanying notes form an integral part of these condensed consolidated interim Financial Statements.

Mainstay Medical International plcCondensed consolidated statement of financial positionat 30 June 2019

 
($'000)                           Notes 30 June 2019  31 December 2018 
                                        Unaudited     Audited 
Non-current assets 
Property, plant and equipment           191           235 
Right of use asset                      414           - 
Total non-current assets                605           235 
Current assets 
Inventory                               2,251         2,575 
Trade and other receivables             871           813 
Income tax receivable                   212           213 
Cash and cash equivalents               5,806         15,545 
Total current assets                    9,140         19,146 
Total assets                            9,745         19,381 
Equity 
Share capital                     8     67            67 
Share premium                           143,898       143,897 
Other reserves                          4,606         4,626 
Share based payment reserve             15,797        11,716 
Retained loss                           (168,219)     (157,022) 
Surplus/ (deficit) on                   (3,851)       3,284 
shareholders' equity 
Non-current liabilities 
Loans and borrowings              7     9,684         8,791 
Derivative financial instruments  7     1,098         - 
Total non-current liabilities           10,782        8,791 
Current liabilities 
Loans and borrowings              7     215           3,158 
Income tax payable                      64            18 
Deferred revenue                        62            - 
Trade and other payables                2,473         4,130 
Total current liabilities               2,814         7,306 
Total liabilities                       13,596        16,097 
Total equity and liabilities            9,745         19,381 
 
 

The accompanying notes form an integral part of these condensed consolidated interim Financial Statements.

Mainstay Medical International plcCondensed consolidated statement of changes in shareholders' equityfor the half year ended 30 June 2019

 
($'000)        Share capital Share premium Other    Share based Retained loss Total equity 
                                           Reserves payment 
                                                    reserve 
Balance        64            106,414       4,593    7,613       (124,505)     (5,821) 
as 
at 1 
January 
2018 
Loss for       -             -             -        -           (16,523)      (16,523) 
the 
half 
year 
Other          -             -             56       -           -             56 
comprehensive 
income 
for the 
half 
year 
Total          -             -             56       -           (16,523)      (16,467) 
comprehensive 
loss 
for the 
half 
year 
Transactions 
with 
owners 
of 
the 
Company: 
Share          -             -             -        1,852       -             1,852 
based 
payments 
Issue of       3             37,483        -        -           (1,440)       36,046 
shares 
on 
exercise 
of 
share 
options 
or 
warrants 
Balance        67            143,897       4,649    9,465       (142,468)     15,610 
at 
30 June 
2018 
(Unaudited) 
Loss for       -             -             -        -           (14,554)      (14,554) 
the 
half 
year 
Other          -             -             (23)     -           -             (23) 
comprehensive 
income 
Total          -             -             (23)     -           (14,554)      (14,577) 
comprehensive 
loss 
for the 
half 
year 
Transactions 
with 
owners 
of 
the 
Company: 
Share          -             -             -        2,251       -             2,251 
based 
payments 
Issue of       -             -             -        -           -             - 
shares 
on 
exercise 
of 
share 
options 
or 
warrants 
Balance        67            143,897       4,626    11,716      (157,022)     3,284 
at 31 
December 
2018 
Opening        -             -             -        -           (51)          (51) 
adjustment 
on 
initial 
application 
of IFRS 
16 
Adjusted       67            143,897       4,626    11,716      (157,073)     3,233 
balance 
at 
1 
January 
2019 
Loss for       -             -             -        -           (11,146)      (11,146) 
the 
half 
year 
Other          -             -             (20)     -           -             (20) 
comprehensive 
income 
for the 
half 
year 
Total          -             -             (20)     -           (11,146)      (11,166) 
comprehensive 
loss 
for the 
half 
year 
Transactions 
with 
owners 
of 
the 
Company: 
Share          -             -             -        4,081       -             4,081 
based 
payments 
Issue of       -             1             -        -           -             1 
shares 
Balance        67            143,898       4,606    15,797      (168,219)     (3,851) 
at 
30 June 
2019 
(Unaudited) 
 
 

The accompanying notes form an integral part of these condensed consolidated interim Financial Statements.

Mainstay Medical International plcCondensed consolidated statement of cash flowsfor the half year ended 30 June 2019

 
($'000)                    Notes Half year ended  Half year ended 
                                 30 June 2019     30 June 2018 
                                 Unaudited        Unaudited 
Cash flow from operating 
activities 
Net loss for the                 (11,146)         (16,523) 
half year 
Add/(less) non-cash items 
Depreciation                     174              50 
Finance expense                  1,760            1,018 
Share-based compensation   10    2,102            1,852 
Income taxes               6     63               (156) 
Add/(less) changes 
in working capital 
Trade and other                  (58)             (306) 
receivables 
Inventory                        324              (80) 
Trade and other payables         (1,793)          76 
Taxes paid                       (16)             (112) 
Interest paid                    (245)            (603) 
Net cash used in                 (8,835)          (14,784) 
operations 
Cash flow from investing 
activities 
Acquisition of property          (6)              (26) 
and equipment 
Net cash used                    (6)              (26) 
in investing 
activities 
Cash flow from financing 
activities 
Gross proceeds from              -                37,486 
issue of shares 
Transaction costs on             -                (1,440) 
issue of shares 
Repayment of borrowings    7     (750)            (1,500) 
Payment of lease           7     (148)            - 
liabilities 
Net cash (outflow)/inflow        (898)            34,546 
from 
financing activities 
Net (decrease)/increase          (9,739)          19,736 
in 
cash and cash equivalents 
Cash and cash equivalents        15,545           9,975 
at beginning of period 
Cash and cash equivalents        5,806            29,711 
at 30 June 2019 
 
 

The accompanying notes form an integral part of these condensed consolidated interim Financial Statements.

Mainstay Medical International plcNotes to the condensed consolidated Financial Statements

1. General information and reporting entity

Mainstay Medical International plc (the Company) 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 Financial Statements for the periods ended 30 June 2019 and 30 June 2018 comprise the results of the Company and of its subsidiaries (together the Group).

At 30 June 2019, the Group comprises the Company and its operating subsidiaries Mainstay Medical Limited, Mainstay Medical Distribution Limited, Mainstay Medical GmbH, Mainstay Medical B.V., MML US, Inc. and Mainstay Medical (Australia) Pty. Limited.

The Company's shares are quoted on Euronext Paris and Euronext Growth operated by Euronext Dublin.

Mainstay is a medical device company focused on commercializing ReActiv8®, an implantable restorative neurostimulation system designed to treat an underlying cause of disabling Chronic Low Back Pain (CLBP).

2. Basis of preparation

Statement of compliance

The condensed consolidated 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 2018.

The comparative information provided in the condensed consolidated Financial Statements relating to the periods ended 30 June 2018 and 31 December 2018 does not comprise the statutory financial statements of the Group. Those statutory financial statements for the year ended 31 December 2018 on which the auditors gave an unqualified audit opinion, have been delivered to the Companies Registry Office.

There are no significant or material changes to judgements or estimates used in these condensed consolidated Financial Statements compared with those used in the consolidated Financial Statements for the year ended 31 December 2018.

The condensed consolidated Financial Statements were authorized for issue by the Board of Directors, on 19 September 2019.

Going concern

The Directors have evaluated whether there are conditions and events, considered in aggregate, that raise doubt about the Group's ability to continue as a going concern within one year of the date of issue of the consolidated financial statements. The Directors note the following relevant matters:

 
 
    -- The Group had cash of $5.8 million as at 30 June 2019 ($15.5 million as at 31 December 2018). 
 
    -- The Group had operating cash out-flows of $8.8 million for the 6 months ended 30 June 2019 (year ended 31 December 2018: $27.3 million). 
 
    -- Due to the phase of development of the Group, the Group expects to continue to incur losses in the medium term due to the ongoing investment required in research and development, clinical and commercial activities and expects to continue to seek funding from investors or other finance providers as required. 
 
    -- The Group has an accumulated retained loss reserve of $168.2 million and a reorganization reserve of $44.6 million as at 30 June 2019 (31 December 2018: $157 million and $44.6 million, respectively). 
 
    -- The Group has funded operations to date through the proceeds of equity funding of approximately $123.5 million and as at 30 June 2019, debt with an outstanding principal of $9.45 million. 
 
    -- On 29 July 2019, Mainstay announced the completion of a EUR16.9 million financing (approximately $18.9 million). The financing transactions consist of the issuance of 4,649,775 new ordinary shares at a purchase price of EUR3.00 per share and the drawdown of EUR3.0 million (approximately $3.34 million) in additional debt from the Company's existing lender. 
 

The Directors have considered the conditions noted above and other factors, and believe 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 the Financial Statements and are satisfied that the Financial Statements should be prepared on a going concern basis.

Currency

The condensed consolidated Financial Statements are presented in US Dollars ($), which is the functional and presentational currency of the Company. Balances in the condensed consolidated Financial Statements are rounded to the nearest thousand ($'000) except where otherwise indicated.

Basis of consolidation

The condensed consolidated Financial Statements comprise the consolidated results of Mainstay Medical International plc and its subsidiaries.

Significant accounting policies

With the exception of the newly implemented policies noted below, the condensed consolidated Financial Statements have been prepared applying the accounting policies that were applied in the preparation of the Group's consolidated Financial Statements for the year ended 31 December 2018, which were prepared in accordance with IFRS and are available on the Company's website (www.mainstay-medical.com). These accounting policies have been applied consistently for all periods presented.

The Group has initially adopted IFRS 16 Leases from 1 January 2019. A number of other new standards are effective from 1 January 2019, but they do not have a material effect on the Group's financial statements

a) Leases

The Group has initially adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments.

The Group has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been restated. The details of the changes in accounting policies are disclosed below.

Definition of a Lease

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognizes right-of-use assets and lease liabilities for leases. The Group has elected not to recognize right-of-use assets and lease liabilities for some leases of low-value assets and has applied the exemption not to recognize right-of-use assets and liabilities for leases with less than 12 months of lease term.

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

3. Segment reporting

Due to the nature of the Group's current activities, the Group 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 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 2019  31 December 2018 
Ireland                   227           101 
Germany                   2             2 
United States             376           132 
Total non-current assets  605           235 
 
 

The Group's total revenue by country is detailed below:

 
($'000)                   Half year ended  Half year ended 30 June 2018 
                          30 June 2019 
Ireland                   39               90 
Germany                   387              250 
Other Europe              126              18 
Total revenue by country  552              358 
 
 

4. Revenue

 
($'000)                                 Half year ended  Half year ended 
                                        30 June 2019     30 June 2018 
Revenue arising from the sale of goods  552              358 
                                        552              358 
 
 

5. Earnings per share

As the Group is incurring operating losses, there is no difference between basic and diluted earnings per share.

 
                            Half year ended  Half year ended 
                            30 June 2019     30 June 2018 
Weighted average number of  8,771,472        8,235,367 
ordinary shares in issue 
Loss per share              1.27             2.01 
 
 
 

6. Taxes

Current income tax assets and liabilities for the current and prior periods 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, Germany, the Netherlands, the United States and Australia.

7. Interest bearing loans and borrowings

On 24 August 2015, MML entered into the IPF debt facility for up to $15.0 million. The facility was drawn down in three tranches. As at 31 December 2018 and 30 June 2019, the principal outstanding was $10.2 million and $9.45 million respectively. In April 2019 a new tranche of EUR3.0 million (approximately $3.34 million) was made available to Mainstay, conditional upon Mainstay raising at least $10 million in gross proceeds from one or more offerings of equity prior to June 30, 2019. This deadline was extended to July 31, 2019 by agreement with IPF. On 29 July Mainstay completed an equity offering, raising gross proceeds of EUR13.9 million, and announced the drawdown of EUR3.0 million in additional debt from the new tranche of the existing debt facility.

In April 2019, the Company and IPF amended the terms of their existing agreements such that all the principal and interest payments are deferred until 2021, the loan term was extended to 2023 and the interest rate on all tranches was changed to 8%. The loan is also convertible in certain circumstances to ordinary shares at a price of EUR8 per share.

The Company considers the amendment to be a significant modification of the terms of the debt. Accordingly the previous loans and associated accruals were de-recognized and the new loan was recognized at fair value, resulting in a loss recognized in the period of $1.1 million. The Company accounts for the conversion option as a derivative financial instrument carried at fair value through the statement of profit or loss.

The fair value of the conversion option is determined using a Black-Scholes model whose principal assumptions at 30 June 2019 were:

 
Stock price ($)         4.14 
Exercise price (EUR)      8 
Volatility              58.95% 
Expected term (years)   4 
 
 

In connection with the amendment to the debt facility, the Company also granted 1.5 million warrants over ordinary shares to IPF with an exercise price of EUR6. The fair value of the warrants on the grant date of $1.9 million, which was also calculated using a Black-Scholes model, was recognized in finance costs as part of the net cost of modification of the debt.

 
($'000)                                               31 December 2018 
                                        30 June 2019 
Loans and borrowings - current 
Term loan                               -             3,000 
Deferred finance cost                   -             (90) 
Accrued interest                        -             248 
Lease liabilities                       215           - 
Total current loans and borrowings      215           3,158 
Loans and borrowings - non-current 
Term loan                               9,247         7,200 
Deferred finance cost                   -             (103) 
Accrued interest                        190           1,694 
Lease liabilities                       247           - 
Total non-current loans and borrowings  9,684         8,791 
Total loans and borrowings              9,899         11,949 
 
 

8. Called up share capital

The Company's ordinary shares are quoted in Euro and have been translated in US Dollars at the rates prevailing at the date of issue.

Authorized and Issued Share Capital

 
Authorized                                 30 June 2019  31 December 2018 
                                           EUR             EUR 
20,000,000 ordinary shares of EUR0.001 each  20,000        20,000 
40,000 deferred shares of EUR1.00 each       40,000        40,000 
                                           60,000        60,000 
Issued, called up and fully paid           2019          2018 
                                           $             $ 
8,771,729 (31 December 2018: 8,770,229)    11,242        11,240 
ordinary shares of EUR0.001 each 
40,000 deferred shares of EUR1.00 each       55,268        55,268 
                                           66,510        66,508 
In $'000                                   67            67 
 
 

9. Financial instruments

Financial risk management

In terms of financial risks, the Group has exposure to credit and financial risk, liquidity risk and market risk (comprising foreign currency risk and interest rate risk). This note presents information about the Group's exposure to each of the above risks together with the Group's objectives, policies and processes for measuring and managing those risks.

Risk management framework

Mainstay's Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to the limits. Risk management systems and policies will be reviewed regularly as the Group expands its activities and resource base to take account of changing conditions.

The Group has no significant concentrations of financial risk other than concentration of cash with individual banks. The Group is also exposed to credit risk arising on trade receivables, with further information provided below. There has been no other significant change during the half year or since the end of the half year to the types or quantum of financial risks faced by the Group or the Group's approach to the management of those risks, other than in connection with the revised terms negotiated with IPF as disclosed in note 7.

Credit and financial risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet contractual obligations and arises principally from the Group's cash and cash equivalents and trade and other receivables. Credit risk is managed on a Group basis. The maximum exposure to credit risk is represented by the carrying amount of each asset. The carrying value of receivables is a reasonable approximation of fair value.

Trade and other receivables

Trade receivables comprise amounts due from customers, all of which were current at 30 June 2019 and 31 December 2018. The Group's credit risk management policy and process in relation to trade receivables involves carrying out credit checks where appropriate, and by active credit management. The utilization of credit limits is regularly monitored. In addition, it involves periodically assessing the financial reliability of customers, considering their financial position, past experience and other factors.

The Company does not have exposure to significantly different categories of customer and accordingly details of credit risk by customer type or jurisdictions is not provided.

There were no material impairment losses recorded in the period and the provision for expected credit losses at 30 June 2019 is immaterial. The carrying value of trade receivables of $0.2 million at 30 June 2019 ($0.1 million at 31 December 2018) represents the maximum exposure to credit risk.

Cash and cash equivalents

The Group maintained its cash balances with its principal financial institutions throughout the year, and the Group limits its exposure to any one financial institution by holding cash balances across several financial institutions. The Group's principal financial institutions have investment grade ratings at 30 June 2019. The credit rating status of the Group's principal financial institutions is reviewed by the Audit Committee or the Board annually. The cash balance is reported to the Board of Directors on a monthly basis, and a monthly review of all cash balances held at each institution is carried out by the CFO. The Group maintains most of its cash in USD denominated accounts. The Group held cash and cash equivalents of $5.8 million as at 30 June 2019.

Guarantees

The Company has guaranteed the payment of the liabilities and commitments of its subsidiaries in Ireland (as defined in section 357 of the Companies 2014 Act) for the years ended 31 December 2018 and 31 December 2017.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Since inception the Group has funded its operations primarily through the issuance of equity securities and debt funding. The Group intends to continue to explore funding strategies (e.g., equity, debt, partnering) to support its activities into the future. Adequate additional financing may not be available on acceptable terms, or at all. The Group's inability to raise capital as and when needed would have a negative impact on the Group's financial position and its ability to pursue its business strategy.

Foreign currency risk

The Group's reporting currency is the US Dollar. The Group's exposure to foreign currency risk arises through expenditures incurred in Euros and Australian Dollars.

The Group's Australian subsidiary has an Australian Dollar functional currency and three of the Group's subsidiaries located in Ireland, Germany and the Netherlands have a Euro functional currency.

Interest rate risk

The Group's cash balances are maintained in short term access accounts and carry a floating rate of interest. A 50 basis points change in the rate of interest applied to the cash balance held by the Group would not have had a material impact on the Group's statement of profit or loss in the half year ended.

At 30 June 2019, the principal outstanding on MML's loan from IPF was $9,450,000. The repayment schedule for the four existing tranches drawn under the debt facility is such that no principal or interest will be repaid until 2021, with the principal and accrued interest to be amortized over the period from 1 January 2021 through 30 September 2023. The interest rate for all tranches will be 8% per annum, with interest accruing but capitalized prior to January 1, 2021.

10. Share based payments

Share Options

The terms and conditions of the Group's share option plan are disclosed in the 2018 Annual Report. The charge of $2.1 million for the half year ended 30 June 2019 (30 June 2018: $1.9 million) is the grant date fair value of various share options and RSUs granted in the current and prior years, which are being recognized within the statement of profit or loss and other comprehensive income over the vesting period related to service. 7,500 options were granted in the six months ended 30 June 2019 (30 June 2018: 279,878 options). The Company also recognized $1.9 million in the profit and loss related to the fair value of warrants granted to IPF as disclosed in Note 7. This amount has been recorded in finance expense as it related to the modification of the debt.

The Employee Incentive Plan was amended in January 2019 to allow for the issue of RSUs, being rights to receive Ordinary Shares at no cost to the relevant employee, director or consultant. The Company has granted 381,000 RSUs as at 30 June 2019.

11. Contingencies

The Directors and management are not aware of any contingencies that may have a significant impact on the financial position of the Group.

12. Related party transactions

There were no balances due to or from related parties as at 30 June 2019 and 30 June 2018.

Key management compensation and Directors' remuneration

The Group defines key management as its non-executive directors, executive directors and senior management. Details of remuneration for key management personnel for the six-month reporting period are provided below:

 
($'000)                        30 June 2019  30 June 2018 
Salaries                       604           428 
Non-executive directors' fees  130           135 
Other remuneration             65            223 
Payroll taxes                  27            23 
Share based payments           1,288         1,609 
Pension                        -             - 
Total remuneration             2,114         2,418 
 
 

13. Events subsequent to 30 June 2019

On 29 July 2019, we announced the completion of a EUR16.9 million financing (approximately $18.9 million). The financing transactions consist of the issuance of 4,649,775 new ordinary shares at a purchase price of EUR3.00 per share and the drawdown of EUR3.0 million (approximately $3.34 million) in additional debt from the Company's existing lender.

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(END) Dow Jones Newswires

September 20, 2019 02:00 ET (06:00 GMT)