Ventracor growth sends annual loss up 68%

Artificial heart company Ventracor (ASX:VCR) has posted a net loss of $AUD26.6 million for 2004-05, up 68 per cent from $15.9 million in the previous financial year.

CEO Colin Sutton said that the increased loss was due to the company "building a facility here in Sydney, we've manufactured products for our clinical trials, and we are well into our clinical trialling. We're now in the process of building a business, no longer just building a product," he said.

At June 30, 2005 the company had cash reserves of $32.9 million, nearly half of what it had at the end of the previous financial year.

In 2004-05 the company's cash burn was $29.4 million compared with $18.8 million in the previous corresponding year. Cash inflows of $66.3 million in 2003-04, reflected $67.9 million raised from a share placement and rights issue. This compared with $1.4 million in cash inflows for 2004-05.

"We're burning about $2.4 million per month -- of that about $1.8 million is our underlying structure and overheads and the remaining $600,000 has been on capital expenditure and building stock for our clinical trials," said Sutton.

Asked if the company would need to raise capital in the near future, Sutton said Ventracor had "significant funds ahead" but that "we will begin the process later this year."

Sutton also said that if recruitment in the CE Mark trials for the company's VentrAssist is completed by year end, then CE Mark approval will probably occur in mid 2006. "At that moment we'll be selling," he said. "Our current burn rate will see us to that point."

Legal costs up

Management and administration expenditure increased to $4.8 million in 2004-05 ($4.6 million in 2003-04). Included in that expenditure are the costs of the legal action initiated against rival artificial heart device company Heartware (ASX:HTW) and money spent on protecting intellectual property with a new US patent granted on March 18, 2005.

The company did not specifically itemise the cost of the legal action because "it's ongoing", said Sutton.

In its report, Ventracor indicated that "it is not considered possible to reliably estimate the outcome of the ongoing dispute with Heartware and therefore it is not possible to determine the likely financial impact of the litigation. Accordingly, no provision for any liability which may arise from the Heartware dispute has been made in the financial statements."

"Our prior cash consumption accommodated the Heartware suit costs," said Sutton, "and the forecast also allows for pursuing that litigation, for as long as we need to. We'd like to get it behind us but we're committed to defending our IP and that's what initiated all of this."

Ventracor's research and development costs increased from $4.8 million in the previous corresponding year to $5.8 million in 2004-05, due to the preparation and successful submission of the company's investigational device exemption (IDE) to the US Food and Drug Administration (FDA) in December 2004 and additional resources allocated to analysis of returned explanted plants from current clinical trials.

Manufacturing engineering spending for the year almost tripled from $865,000 in 2003-04 to $2.5 million in 2004-05, as Ventracor bought a number of outsourced production processes in-house (such as sterilisation, laser welding and diamond coating), optimised manufacturing processes and validated pre-existing internal processes.

Production and quality assurance expenditure doubled from $5.6 million in the previous financial year to $11.3 million in 2004-05 due to the company commissioning five new computer-controlled mills at a cost of $1.1 million and increasing production in anticipation of prospective clinical trials and ongoing research, with $6.2 million spent on inventory.

Ventracor increased spending both on regulatory and clinical affairs, and marketing and clinical support, from $3.0 million in 2003-04 to $4.9 million in 2004-05 with a pilot trial completed at the Alfred Hospital, the commencement of patient enrolment in September 2004 of a CE mark trial and approval to begin a US feasibility study, with the first patient implanted on July 18, 2005.

The company's property, plant and equipment increased from $4.4 million in 2003-04 to $7.6 million in 2004-05 reflecting a capital works program commenced in the previous financial year.

"We'll have completed our capital works program by year end. So it's only about another $5 million to be spent out of that $10 million program. And we envisage that our burn rate will stabilise or may even come down after we've finished capital works," said Sutton.

Ventracor's total revenue for the 2004-05 year was $2.7 million comprising mainly of interest on cash deposits and bank bills and down from the 2003-04 year.

Key events in Ventracor's for 2004-05 financial year:

• Commissioned five new computer-controlled mills, 260sqm clean room and a sterilisation chamber and room.
• Concluded pilot trial to evaluate safety of the VentrAssist device at the Alfred Hospital on September 2004.
• Commenced patient enrolment of the VentrAssist CE mark trial in September 2004, with first European implant completed at Papworth Hospital, England on May 24, 2005.
• Conditional approval granted by US FDA to begin a US feasibility study for 10 bridge-to-transplant patients.
• Company appointed a US-based chief operating officer, Peter Crosby, in February 2005.
• Legal action initiated against Heartware for alleged patent infringement.