Chairman’s Statement

Introduction

Since Integumen’s  admission to trading on AIM in April 2017, the integration of multiple isolated and diverse business units covering oral-care, cosmetics, wound care and supported by an animal-free laboratory grown human skin testing technology, has overcome many hurdles. However, funding of £2.25 million, plus a further £500,000 raised in January 2018, was insufficient to achieve the cohesive integration of all business units within the enlarged Group in a timely fashion to allow sales targets to be met. Management have been successful in cutting costs and achieving efficiencies on every level. Whilst this hindered sales and marketing expenditure, it did not curb the advances of Innovenn’s Labskin business development to move from single product sales into a full service provider of animal-free skin testing to multi-national skin care companies.

Labskin (Innovenn)

The Labskin business unit has demonstrated its ability to move away from selling single animal-free laboratory grown human skin test kits, to a fully fledged service provider for biotech, skin-care, wound-care, cosmetics and personal hygiene companies. While revenue in H1 2018 amounted to £49k, contracted work of £160,422 is already invoiced with 50% paid upfront. This is actually 327% higher than reported revenues of H1, 2018. Revenue to mid-August is £98,370. Invoices for clinical test and formulation development for clients are reaching up to 25 times the average price of selling single test kits. The network of the new management team opens up an exciting expansion and collaboration partnership plan. In addition, late stage negotiations are underway for a shared revenue model, with external investment from the developers of virtual laboratory facilities in the form of an artificial intelligence platform for skin care clients.

WoundPhase

Having Labskin in the group with such accumulated knowledge and expertise allows us to identify markers on the skin (microbiome) for many skin related conditions. Laboratory analysis allows the Labskin team to see what happens on the skin with too much sun damage or what triggers acne, anti-aging, anti-fungal, anti-dandruff and in the case of “WoundPhase”, Wound Healing.

Labskin and WoundPhase are combining technologies to create a Labskin Temporary Tattoo (LTT). Biology (triggers) and chemistry, use temporary tattoo ink that changes colour depending on what is happening to the skin. The first product is likely to be a temporary tattoo that changes colour as the skin is over-exposed to the sun to remind parents of children to cover up or apply more sun screen. Consumers will be able to match cosmetic products to their skin types based on the Labskin Tattoo. Health applications include visual monitoring of body temperature, without electronic devices or attaching monitors, on an infant or elderly patient.

The Labskin Tattoo is based on the core underlying technology of WoundPhase. New management have previously sold sticking plaster dressings in 43 countries. Contract manufacturing of dressings with an entire sales, marketing and distribution channel partners is in place to do the same with the Labskin tattoo. FDA or EU Class 1 product approvals are not required as inks are already approved in the EU and US for use on every temporary tattoo that children already apply. They are also inexpensive to manufacture.

Stoer Skincare

This award winning men’s skincare brand was a recent acquisition in November 2017. Stoer was a winner of the best Facial Cleanser/Exfoliators at Shortlist Men’s Grooming Awards 2018. On the back of the award and additional media coverage small quantities of sales occurred from retailers have begun. However, new management, who have had experience in consumer sales of skin care products across multiple continuents are negotiating higher volumes for the Stoer range of products that are expected to see increased sales as we progress into H2 2018.

TSPro

The oral-care TSPro business unit saw a 20% fall-off in sales in the first half of 2018 to a level of £95k. Strong demand for this patented oral-hygiene product at professional level is obvious from repeat business, but an increase in the marketing budget is necessary to push this through to the consumer. While management believes the TSPro hygiene product is likely to be successful in the future, the Board believes that it will require additional resources to achieve that goal. Given the resources available to the Company, and the Company’s refocussing of its strategy, the Company will look to divest this business.

Visible Youth

Since Integumen’s admission to trading on AIM in April 2017, Visible Youth has not launched any products. Hyaluronic acid is clearly in high demand, but the Board believes its exploitation requires significant additional development expenditure. Therefore, management are exploring the divestment of Visible Youth with a number of  potential buyers, who we understand have an appetite for the intellectual property and the range of products that would be derived from further development.  These potential buyers include Donald Nicholson who has today resigned from the board to avoid any conflict of the interest in the board’s consideration of his offer. No guarantees are being made of the likely outcome of these discussions. Updates on this will be provided on any likely outcome.

Cellulac

The commercial licening agreement, signed on 2 August 2018 with Cellulac, has enabled Integumen to engage buyers for the sale of wholesale volumes of human grade food supplements into the food sector. This includes protein enriched food into the animal feed sector, biodegradable plastic ingredients, all of which are to be provided by Cellulac. Negotiations that may lead to the first US distribution agreement are ongoing with a large US animal feed commodity supplier for sales of Omega 3. Further information will be released on the outcome of these negotiations.

New Commercial Focused Management Team

Cellulac was built over the last 6 years by the management team that has recently been appointed to the Board of Integumen and who are now the commercial team, running Integumen. As new management have already a well established presence in the US, through partners of Cellulac that same team are in effect the commercial arm of Cellulac for its product sales and technology licensing in the North American Continent.

Write down of Intangible asset value

A strategic review of the different businesses within the Group has been undertaken. As a result  the Board will seek to divest the Group of under-performing assets or those requiring significant funding. Such a course of action is likely to result in a charge to the statement of comprehensive income, so an impairment of £500k has been provided for, in anticipation of this outcome. Further announcements will be made shortly.

Outlook

The Board, senior management team and the strategic direction has changed. The prospects for existing and new shareholders of Integumen are now being built on past successes, and lessons learned by overreaching. We are looking to divest assets that would offer better value and the potential for success for other interested parties who would be better placed with greater resources to fully exploit these assets.

Pivoting to a strategic collaboration partnership business model provides access to existing, well established, sales, marketing and distribution channels. This was absent from what was a struggling internal direct sales strategy. This provides for the sharing of costs, but importantly, increasing overall revenues. Longer term contract for services, larger distribution and supply agreements diversify the Group from a reliance on monthly or quarterly sales targets, to recurring annual revenues from multi-year sales agreements.

We are already seeing licensing-in opportunities with Cellulac, and licensing-out technology to third parties for Omega 3 and bioplastic ingredients. We are moving from the sale of Labskin testing kits to providing clinical test services to biotechnology companies with topical drug delivery and non-medical skin and wound care products. That list includes small, medium and Fortune 500 companies.

This strategy, which has been successful in the past for the new management team, is already increasing revenues as can be seen with Innovenn’s Labskin, in H2 2018. We are eager to get on with the changes being put in place and look forward to updating shareholders as we progress on this more commercially focused journey.

Tony Richardson

Chairman                              

28 August 2018

 

 

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