Belluscura plc

("Belluscura" or the "Company" or "Group")

 Half Year Report

Unaudited Interim Results for the six months ended 30 June 2023

LONDON, U.K. AND PLANO, TX, U.S. (13 September 2023). Belluscura plc (AIM:BELL), a leading medical device developer focused on lightweight and portable oxygen enrichment technology, announces its unaudited half year results for the six months to 30 June 2023.

Financial Highlights:

·       Group revenue of $0.4m (2022 H1: $0.6m; FY 2022: $1.4m)

·       Adjusted EBITDA of $2.9m (2022 H1: $4.1m; FY 2022: $6.2m)

·       Basic loss per share of $0.052 (2022 H1: $0.039; 2022 FY: $0.068)

·       Inventory at 30 June 2023 of $8.8m (2022 H1: $5.7m; FY 2022: $8.4m)

·       The Company has raised net proceeds of £7.0m ($8.8m), through the issue of 10% Unsecured Convertible Loan Notes, via a Placing and Broker Option in January and February, to raise £4.2m ($5.3m) net of expenses, and an equity issue, via a Placing, a Subscription by certain Directors, and a Retail Offer in May, which raised £2.8m ($3.5m) net of expenses

·       Net cash as at 30 June 2023 of $3.8m (30 June 2022: $11.6m; 31 December 2022: $2.0m)

Operational highlights:

·       Continue to build significant US distribution and commenced international roll-out

·       Established high quality manufacturing facilities in both the US and China. Both the US in-house and China partner facilities provide outstanding quality, lower costs and increased capacity to support the Board's plans for scaling the business

·       Launched upgraded next generation X-PLOR^® in April 2023, which provides more oxygen by weight than any portable oxygen concentrator in its class and is gaining good momentum, with initial new standing purchase orders exceeding 1,000 units, as we lay foundations for international expansion

·       in March 2023 at Medtrade in Dallas, Texas, unveiled the new DISCOV-R^TM portable oxygen concentrator was awarded the Silver Award in the Best New Product category and commenced its premarket evaluation in Q2 2023

Post Period End:

Transformational Exclusive License and Royalty Generating Agreement with InnoMax

·       Belluscura exclusively licensed its proprietary technology to InnoMax in China, Hong Kong, Macau and Singapore in a deal valued at $55m in minimum royalties over the term of the license

Strong demand for DISCOV-R™

·       Orders for over 6,500 DISCOV-R received

Signed Distribution Agreement with Subsidiary of World's Largest Drug Distributor

·       X-PLOR® portable oxygen concentrator now available through the online catalogue of McKesson Medical-Surgical Corporation, one of the largest distributors of pharmaceuticals and medical devices in North America

Bob Rauker, Chief Executive Officer Belluscura, commented:

"I am very pleased with the substantial progress the Group has made this period.

"The signing of new distribution agreements, the strong reception and orders for DISCOV-R, the continuing progression of X-PLOR and the signing of the significant licensing agreement with Innomax sets a strong foundation for great progress next year and beyond.

"The Portable Oxygen Concentrator Market is predicted¹ to grow at a compound annual growth rate ("CAGR") of 14.0% from $1.63 billion in 2022 to $2.76 billion by 2026, making this is a very exciting time for Belluscura's category leading products."

Adam Reynolds, Chairman of Belluscura, commented:

"The team at Belluscura has made considerable headway which will enable significant momentum in the business.

"We believe the signing of the groundbreaking Exclusive License and Royalty Generating Agreement with InnoMax, an affiliate of the world's leading electronics manufacturing company, will be transformational for the Group.

"Belluscura is, therefore, well positioned to achieve its expectations in the coming years. The initial response from the market in the Group's products is hugely positive and, as we scale up the business, we expect substantial growth over the coming years, leaving the Board highly confident in Belluscura's future."  

 ¹ Source^: https://www.precedenceresearch.com/portable-oxygen-concentrators-market

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About Belluscura plc (www.belluscura.com)

Belluscura is a UK medical device company focused on developing oxygen enrichment technology spanning broad industries and therapies. Our innovative oxygen technologies are designed with a global purpose: to create improved health and economic outcomes for the patients, healthcare providers and insurance organisations.

CHAIRMAN'S STATEMENT

Introduction

I am pleased to present our Half Year Report, covering a period in which Belluscura has made significant progress:

·       Good momentum with X-PLOR^®, as we lay the foundations for international expansion

·      Released DISCOV-R^TM for Pre-Market Evaluation in June 2023 - significant pre-launch demand for DISCOV-R with over 125 distributors having requested access to the device which we expect to be covered by two Centers for Medicare and Medicaid Services ("CMS") codes making the device significantly more profitable for Durable Medical Equipment providers

·       Further strengthened the Board with the appointment of Robert Fary as Senior VP of Sales

Post period end

·      Signed transformational exclusive License and Royalty Generating Agreement with InnoMax in a deal valued at $55m in minimum royalties over the 10-year term of the license

·       Strong demand for DISCOV-R with orders for over 6,500 already received

·      Announced distribution agreement with McKesson Medical-Surgical, a division of McKesson, which delivers a third of all pharmaceuticals used in North America and operates the fourth-largest pharmacy chain in North America

Significant pre-launch demand for DISCOV-R

In March 2023, the Company unveiled its new DISCOV-R portable oxygen concentrator ("POC") at Medtrade in Dallas, Texas, and was awarded the Silver Award in the Best New Product category. This is a considerable achievement when taking account of the fact that most of the leading respiratory device companies were exhibiting at the show which is the largest home medical equipment ("HME") trade show and conference in the US.

The Company started it premarket evaluation of the DISCOV-R POC in Q2 2023, with full commercialisation anticipated in H2 2023.  DISCOV-R is the first ambulatory pulse-dose and two-litre continuous flow POC in the world. Weighing c.40% less than any comparable dual flow oxygen concentrator on the market, the DISCOV-R produces nearly three times the oxygen by weight than concentrators in its class. The DISCOV-R will also include the transformational NOMAD Biometric App.

The DISCOV-R was met with significant pre-launch demand with over 125 durable medical equipment providers and internet retailers already requesting access to this innovative device. We have now received purchase orders for over 6,500 for DISCOV-R, representing approximately $15 million of potential revenue, with initial production expected to begin by the end of this quarter.

With two litres of continuous flow and eight levels of pulse dose delivery, the Company anticipates the product being covered by both Centres for Medicare & Medicaid Services ("CMS") codes E1390 and E1392, for stationary and portable concentrators respectively. The DISCOV-R being covered by both CMS codes makes the device significantly more profitable for Durable Medical Equipment providers.

We believe the significant technical advantages of the DISCOV-R over its competitors, combined with the anticipated dual CMS reimbursement codes, will result in the DISCOV-R accounting for 70% of the Group's production volume and 80% to 85% of revenue by 2025. 

The Company has been focusing significant resources to bring the DISCOV-R to market as soon as possible and to increase production and manufacturing capacity in both the US and China where the product will be manufactured.

Good momentum with X-PLOR, as we lay foundations for international expansion

Having fine-tuned our X-PLOR product to suit the target market, the Company is pleased with the sales momentum we are now seeing of the latest generation X-PLOR portable oxygen concentrator released in April 2023, for which initial new standing purchase orders exceeding 1,000 units were secured.

Having begun its global expansion in December 2022 with sales of the X-PLOR in South Africa, Shenzhen Belluscura Technology Company Limited was registered in April 2023 in preparation for commercial launch of the X-PLOR in China later in 2023, once China National Medical Products Administration registration is received. The Company expects further global expansion from late 2023 and early 2024 once CE and UKCA marks are approved and anticipated regulatory clearances are received in Hong Kong, Europe, UK, Canada, Singapore and Australia.

In August 2023 we signed a distribution agreement with McKesson Medical-Surgical, a division of McKesson, the 9^th largest company by revenue in the US. McKesson delivers a third of all pharmaceuticals used in North America and operates the fourth-largest pharmacy chain in North America. The X-PLOR® portable oxygen concentrator is now available to McKesson's customers through their online catalogue.

Groundbreaking Exclusive License and Royalty Generating Agreement

On 29 August 2023 we entered into an Exclusive License, Marketing and Distribution Agreement ("Exclusive Agreement") with our global manufacturing partner, lnnoMax Medical Technology Ltd ("InnoMax"), which is a leading manufacturer and service provider of high-end medical devices in China. InnoMax, headquartered in Shenzhen, China, has acquired the exclusive right to manufacture and distribute Belluscura's award winning X-PLOR® portable oxygen concentrator in China, Hong Kong, Macau and Singapore ("the Territories").

Under the terms of the ten-year Agreement, effective from 1 October 2023, Belluscura is to receive annually increasing minimum cumulative royalties over the term of the Agreement. In addition to receiving royalties on licensed products (subject to annually increasing minimum amounts), Belluscura will receive a share of the net profits on sales of accessories. 

The Agreement will be exclusive for a minimum of 5 years, though if minimum sales quantities are not achieved, Belluscura and InnoMax can mutually agree to grant InnoMax a non-exclusive license for the remainder of the term. Minimum cumulative royalties over the term of the Agreement will therefore range from $27.5m if the license is converted to non-exclusive from year 6 and up to $55m in minimum cumulative royalties if the license remains exclusive for the entire term.

Licensed products include the X-PLOR and DISCOV-R portable oxygen concentrators when registration is received in the Territories.

Belluscura, under the terms of the Exclusive Agreement and to further promote Belluscura technology in China, will perform sales and marketing activities on behalf of InnoMax in the Territories, with both parties financially contributing to these marketing activities. The first product registration and initial sales are expected to take place in Q4 of this year. Belluscura will continue to sell and distribute its products outside the Territories.

InnoMax is a leading manufacturer and service provider of high-end medical devices in China, mainly engaged in the design, development, manufacturing and sales of in vitro diagnostic equipment, medical imaging devices, medical oxygen generating devices, respiratory AIDS, ophthalmic devices, intelligent rehabilitation devices and epidemic prevention products. Relying on the National Innovation Center For Advanced Medical Devices and Foxconn Technology Group, a global leader in electronics manufacturing, InnoMax is committed to "creating a global open high-end medical device manufacturing platform of innovation and industrial integration.

Further strengthened the Board and Global Sales

As announced in May 2023, the Board has decided to reinforce the executive team with the addition of relevant skills and expertise in global sales, by the appointment to the Board of Robert Fary as Executive Director, who joined the Company as Senior Vice President of Global Sales in January.

Robert's deep knowledge of the portable oxygen concentrator sector and its channels to market will be invaluable in driving sales of both the DISCOV-R and X-PLOR globally. He has thirty-years of experience in the respiratory industry where he has held leadership roles at major oxygen concentrator manufacturers and durable medical equipment companies. During the past two decades, Robert's industry leading team was directly responsible for or contributed to the sale of over 1 million portable oxygen concentrators, generating revenues in excess of $1 billion. He has already had a successful impact on sales of the X-PLOR, having secured standing purchase orders exceeding 1,000 units for the next generation X-PLOR following its launch in April 2023 and for the purchase orders for over 6,500 of its next-generation DISCOV-R portable oxygen concentrator.

Good progress to support future growth and market expansion 

The recent purchase orders follow the signing of several distribution agreements with medical device distributors and other home healthcare providers, including a distribution agreement with a division of McKesson (noted above) and a marketing agreement with GoodRx®, a leading digital healthcare platform, in February 2023. The Company has received multiple additional requests from leading oxygen homecare providers in the US to distribute the DISCOV-R. 

The Company continues to evaluate several proposals with third parties interested in white labelling the X-PLOR product for the US market. Such proposals will require the Company to evaluate the set up and potential additional production costs with the anticipated increased sales volume.

At the same time, the Company continues to progress its CE and UKCA registration mark application for its X-PLOR portable oxygen concentrator. Since resources in the US were redirected to completing the development and launch of the DISCOV-R, production of X-PLOR by our Chinese partner, InnoMax Medical Technology Ltd (InnoMax), has now progressed, with 1,500 units recently being manufactured and shipped to the US for distribution. 

The Company recently established a subsidiary and hired its first employees in Shenzhen, China as it prepares for the anticipated registration of the X-PLOR for sale and distribution in China and Hong Kong later this year. The Company and InnoMax believe there is a significant market opportunity in China, as noted above, with approximately 100 million people suffering from COPD¹, approximately six times the number of patients in the US.

Additionally, the Company continues to drive innovation in telemedicine and artificial intelligence with its proprietary NOMAD biometric app. The NOMAD app will allow users of the DISCOV-R to track performance data on their concentrator and connected devices such as an Apple® or Samsung® Watch, FitBit^® device or Nonin^® and Masimo^® pulse oximeters. The collective information can then be provided to a patient's healthcare provider in person or remotely.

The Company is already working on the next-generation NOMAD app that will alert patients when their blood oxygen saturation level has varied beyond parameters set by their doctor, which is expected to help patients better monitor their conditions, but also improve the efficiency of the device by delivering supplemental oxygen as needed.

¹Source:     ScienceDaily - https://www.sciencedaily.com/releases/2018/04/180409185331.htm

FINANCIAL REVIEW

Revenue for the period was $0.4m (2022 H1: $0.6m; FY 2022: $1.4m) reflecting the decision to fine-tune our X-PLOR product to suit the target market, pausing production for a period of time. Production re-commenced in June.

There was a small Gross Loss in the period $0.056m (2022 H1: $0.053m; FY 2022 Gross Profit: $0.068m). With the Group trying to establish its products in the market, pricing was deliberately competitive to establish early B2B sales combined with cost of goods sold reflecting the initial volume higher input costs.

Operating Loss for the period was $6.2m (2022 H1: $4.6m; FY2022: $8.1m). Total Comprehensive Loss was $4.4m (2022 H1: $8.1m; FY 2022: $12.0m).

Adjusted EBITDA Loss of $2.9m (2022 H1: $4.1m; FY 2022: $6.2m), (See note 16). The Board considers that Adjusted EBITDA to be an important key performance indicator, reflecting underlying business performance.

The basic and diluted loss per share was $0.052 (2022 H1: $0.039; FY 2022: $0.068).

The Group net assets at the end of the period were $25.2m (2022 H1: $23.8m; FY 2022: $20.4m). This comprised total assets of $27.2m (2022 H1: $26.9m; FY 2022: $23.6m) and total liabilities of $2.0m (2022 H1: $3.1m; FY 2022: $3.2m). The total assets included intangible assets (capitalised research and development costs), property, plant and equipment and right-of-use assets of $10.6m (2022 H1: $6.1m; FY 2022: $9.1m).

At the end of the period the Group had net cash of $3.8m (2022 H1: $11.6m; FY 2022: $2.0m). During the period, net cash inflow from funds raised in the period was $8.8m (2022 H1: $7.1m; FY 2022: $7.5m). Net cash outflow from operating activities was $4.9m (2022 H1: $9.2m; FY 2022: $14.9m).

Both the decision to bring our US manufacturing in-house from our contract manufacturer along with the initial support of the set-up of InnoMax manufacturing in China, resulted in significant investment in Raw Material Inventory which, at the end of the period, stood at $8.8m (2022 H1: $5.7m; FY 2022: $8.4m)

Since the beginning of 2023, the Company has raised net proceeds of £7.0m ($8.8m), through the issue of 10% Unsecured Convertible Loan Notes, via a Placing and Broker Option in January and February, to raise £4.2m ($5.3m) net of expenses, and an equity issue, via a Placing, a Subscription by certain Directors, and a Retail Offer in May, which raised £2.8m ($3.5m) net of expenses.

The Convertible Loan Note Instruments ("CLNs") are three-year £1.00 Convertible Unsecured Loan Notes issued at par. The CLNs are convertible into ordinary shares at a conversion price of 50 pence per share. Conversion is at the holder's election on the final business day of each quarter, commencing on 30 June 2023 and otherwise automatically at 3 years from the date of the Instrument subject to satisfaction of the conversion condition which the company is committed to satisfy upon election during the aforementioned period. The CLNs receive a Coupon of 10% per annum.

It is the Board's intention to fully convert the CLNs into shares and to capitalise the Coupon annually. Consequently, and pursuant to IAS32/IFRS9, the CLNs are treated as an equity instrument. Assuming all interest on the CLNs is capitalised, upon conversion of the CLNs, this will result in the issue, of up to 12,462,281 new ordinary shares of £0.01 each in the Company.

Outlook

We have made considerable progress with building the foundations for significant growth in the coming years.

Trading since the period end is in line with our expectations for the full year, which is significantly second half weighted. Demand for X-PLOR®, which is predominantly a Direct-to-Consumer unit, is growing, and we expect that our affiliation with GoodRX, and our own direct sales will lead to significantly higher Gross Margins as we utilise the Company's previously high inventory levels.

The demand and orders already received for DISCOV-R are very exciting, and we believe the signing of the groundbreaking Exclusive License and Royalty Generating Agreement with InnoMax, an affiliate of the world's leading electronics manufacturing company, will be transformational for the Group.

The Company is well positioned to deliver substantial growth in the coming years, and we look forward to the future with confidence.

Adam Reynolds

Chairman

13 September 2023

CONSOLIDATED STATEMENT OF PROFIT & LOSS AND OTHER COMPREHENSIVE INCOME

Adjusted EBITDA¹

1    Reconciliation to Adjusted EBITDA measure

Adjusted EBITDA is the Group's key adjusted profit measure. Total comprehensive loss for the period is adjusted to exclude; Foreign exchange translation differences along with unrealised and unrealised foreign exchange movements, depreciation and amortisation of product development, costs relating to fundraising activities, surrendered share options and share option taxes, minimum royalties in excess of sales royalties, share based payments, obsolete 1st generation X-PLOR inventory adjustments and contract manufacturer capacity costs.

2    Net foreign exchange movements

£Sterling strengthened against US$ by 5% during the period (1 January 2023 - $1.21:£1.00; 30 June 2023 - $1.27:£1.00). Due to the size of the Intercompany Loan from the PLC to the US subsidiary which is fixed in £Sterling, this creates an accounting presentational impact between Administration Expenses and Other Comprehensive Income, which to a large extent can be netted off against one another.  

·      Realised FX movements in administrative expenses arise from the revaluation of £Sterling cash balances into US$

·      Unrealised FX movements in administrative expenses arise from the revaluation of the Intercompany Loan fixed in £Sterling into US$

·      Foreign currency translation differences in Other Comprehensive Income arise from the revaluation of the PLC balance sheet into US$

3    Restated to reflect Minimum Royalties in excess of sales royalties and inventory adjustments.

CONSOLIDATED BALANCE SHEET

¹ Results are restated to reflect the consolidation of the Employee Benefit Trust into the Group Accounts