Lombard Medical Technologies

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1 Outlook 8 August 2011 Lombard Medical Technologies Price 0.7p Market cap 28m Year end Revenue ( m) PBT* ( m) EPS* (p) DPS (p) P/E (x) Yield (%) Share price graph 12/ (7.8) (0.8) 0.0 N/A N/A 12/ (8.4) (0.4) 0.0 N/A N/A 12/11e 3.9 (10.1) (0.3) 0.0 N/A N/A 12/12e 6.7 (10.7) (0.2) 0.0 N/A N/A Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items. Investment summary: Angling for US approval Lombard is moving closer to US approval of its unique AAA stent graft Aorfix, having just filed the sixth and final module covering data from the PYTHAGORAS study of the device. The company recently raised 13m from investors, and a second tranche of 14m will be triggered if Aorfix secures US approval, possible in This funding should allow the device to be launched by a direct US sales force, to be established, and take Lombard through to self-sustaining profitability. US Aorfix decision in 2012 The sixth and final PMA module, covering clinical data, has just been submitted to the US FDA. The regulator has up to 180 days to review the data, and accordingly approval could take place as early as Q112, although if additional questions are raised this could be delayed until Q3, necessitating some cost retrenchment. Two-tranche fund-raising Lombard recently completed the first tranche of a potential 27m fund-raising; the second tranche is contingent on FDA approval of Aorfix for use in high-angle abdominal aortic aneurysm (AAA) by Q312, financing the company to profitability targeted in A major driver of the market is the growing adoption of endovascular aneurysm repair rather than surgery as a means of treating AAA. Direct US launch Lombard s decision to launch Aorfix in the US directly requires the recruitment by late 2012 of up to 18 US sales reps. The unique label claim for the product in high-angle aneurysms, along with the possibility of cross-selling for the treatment of aneurysms with normal anatomies given some surgeons preference to adopt a single stent graft, could enable Aorfix to gain a foothold in the US. Valuation: 1.47 pence per share A DCF model taken out to 2017, using a 5% long-term growth rate and standard 12.5% WACC and based on US Aorfix launch in 2012 yields an NPV of 88m, or 1.47 pence per share based on the 2012 year-end share count. This compares with Lombard s current market capitalisation of 28m or 0.7 pence per share. Share details Code Listing Sector Shares in issue LMT AIM Healthcare Equipment & Services 4.0bn Price 52-week High Low 2.00p 0.70p Balance sheet as at 31 December 2010 Debt/equity (%) N/A NAV per share (p) 0.46 Net cash ( m) 5.8 Business Lombard Medical Technologies is a UK medical technology firm principally focused on the development and commercialisation of the Aorfix stent graft system for the endovascular repair of abdominal aortic aneurysm (AAA). Valuation e 2012e P/E relative N/A N/A N/A P/CF N/A N/A N/A EV/Sales ROE N/A N/A N/A Revenues by geography UK Europe US Other N/A N/A N/A N/A Analysts Emma Ulker +44 (0) Jacob Plieth +44 (0) Robin Davison +44 (0) healthcare@edisoninvestmentresearch.co.uk Lombard Medical Technologies is a research client of Edison Investment Research Limited

2 2 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Investment summary: Aorfix, angling for US approval Company description Lombard Medical Technologies is a UK medical device company principally focused on the development and commercialisation of its Aorfix stent graft system for endovascular repair of abdominal aortic aneurysm (AAA). Lombard listed in its current form on AIM in 2005, while a predecessor company, Lombard Medical plc, was listed on the stock market in Lombard and its predecessor have raised a cumulative total of 114m in various equity issues since inception (including 87m since the 2005 AIM listing). Valuation: 1.47 pence per share To value Lombard, Edison uses a DCF model taken out to 2017, using a 5% long-term growth rate and standard 12.5% WACC and based on revenue assumptions assuming the progression in sales of Aorfix following US launch in 2012, and market share expansion in the rest of the world, sold directly and through distributors. This results in an NPV of 88m, or 1.47 pence per share based on the 2012 year-end share count (ie, after the expected second equity fund-raising tranche). This compares with Lombard s current market capitalisation of 28m or 0.7 pence per share. The Edison valuation also assumes also that Lombard launches its TAA device in 2015/16. Sensitivities The principal sensitivities to the investment case are related to the timing of FDA approval of Aorfix. Lombard needs to achieve FDA approval within the timeline set out in the recent fund-raising in order to receive sufficient funding for commercialisation. There is little technical or development risk associated with Aorfix, as a result of its CE mark approval in Europe and widely documented use. Furthermore, a high proportion of these patients are captured in Lombard s RADAR registry, which should provide additional confidence for regulators. As a result, we have not discounted our valuation to reflect development risk. Aorfix is the only stent graft system approved in Europe for treating AAAs with neck angles of up to 90, and also offers performance advantages over existing products in normal-angle AAA; line extensions such as a broader size range and new delivery device should also aid market penetration. However, Lombard is a small player in a highly competitive marketplace dominated by large medtech firms and has found it difficult to make major inroads with Aorfix to date. Financials Lombard finished 2010 with 5.8m of cash and no debt, although it has a currently undrawn debt facility with its undisclosed partner for Aorfix in Japan; the first $2.5m of this could be drawn after US approval of Aorfix. The first part of a 27m two-tranche fund-raising brought in 13m this year, and should provide sufficient cash to finance the company through to conclusion of the Aorfix PMA (assumed between Q1 and Q3 2012). On this basis, we model receipt of the second tranche ( 14.2m) in 2012, and assuming partial drawdown of the debt facility see no further funding requirement before profitability, which our model suggests will occur in Lombard says it will implement cost-control measures if Aorfix approval is delayed into H212, but should US approval be delayed beyond 2012 additional funding will be required.

3 3 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Company description: Aorfix unique label claim Lombard Medical is focusing on the final stages of the US approval process for Aorfix, its abdominal aortic aneurysm (AAA) device. The unique high-angle claim and the body of clinical evidence provide a potentially competitive edge for the device in the significant and endovascular aneurysm repair-receptive US market. Lombard needs to meet the approval timeline to satisfy the provisions of its recent two-tranche fund-raising. Through the first part Lombard raised 13.0m in May 2011, and this is intended to provide funding through to FDA approval; the second tranche 14.2m gross is dependent on Aorfix securing US approval. The investment case for the company centres on a timely turnaround of the Aorfix US premarket approval (PMA) filing our model assumes registration and launch in the second half of If launch is followed by an effective commercialisation effort by an in-house sales force, to be established by Lombard, Aorfix could seize significant market share through its expected applicability in high-angle neck and tortuous iliac aneurysms (together 25-30% of all AAA cases). The US has a high acceptance of endovascular aneurysm repair (EVAR; ie, through devices like Aorfix). EVAR is used in up to 50% of US AAA cases a year (c 40k cases), while in Europe this has evolved more slowly. Lombard s two key products are summarised in Exhibit 1. The company has a 9.4% equity interest in Vascular Concepts Holdings, a distributor of medical devices, which is considered non-core to its business. Exhibit 1: Lombard Medical Technologies product summary Product Description Development stage/notes Aorfix AAA stent graft TAA stent graft Modular stent graft system for endovascular repair of abdominal aortic aneurysm (AAA) Larger-diameter version of Aorfix for endovascular repair of thoracic aortic aneurysm (TAA) Source: Edison Investment Research Launch through direct US sales force Approved for sale in 21 countries in Europe (including Russia and Turkey) and Latin America (Brazil and Argentina) through national distributors; direct sales in Germany, Italy, Spain and UK. CE mark for neck angles up to 90º. US registration trial (PYTHAGORAS) has been completed, including 12-mth follow-up. The sixth and final module of a US PMA filing has just been submitted. In the EU, Lombard aims to begin a (small) clinical trial to enable Aorfix to be used in larger aortas, thought to constitute a subgroup of around 25% of patients. Prototype product incorporating a similar coil design to Aorfix. Development activities are due to recommence in 2012 now that funding is in place. TAA to AAA ratio of 1:50 by volume, although there is currently less competition in the thoracic stent market and the pricing is higher in TAA vs AAA. Lombard had previously intended to secure a global distribution partner for Aorfix (ie, to include the US), but following a restructuring in December 2010 it decided to launch the device itself and commercialise it by means of a direct sales force, and the second tranche of the 27m fund-raising will support this effort. Lombard plans to appoint an 18-strong team for the US in 2012, where its strategic aim is to approach the high volume centres, hence capturing the maximum percentage of cases presenting the most tortuous anatomies relevant to the specifications of Aorfix. Meanwhile, in the EU Lombard continues to focus on five key markets: Germany, France, Italy, Spain and the UK. Accordingly, it has appointed a business director for central Europe and will recruit two additional sales people to the existing German two-person team in H The UK team now consists of four, following the addition of three members in Aorfix is distributed in Italy and Spain through local distribution agents plus two country managers. A small study is under way to support an application for reimbursement in France (targeted for approval in 2012).

4 4 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Exhibit 2: An overview of endovascular aneurysm repair (EVAR) Aortic aneurysms usually occur in the abdominal section, ie, below the renal arteries (less commonly they can occur above the renal arteries, when they are considered to be thoracic aortic aneurysms, or TAAs). Clinically, an AAA is defined as an enlargement of the aorta of at least 1.5x its normal diameter, or greater than 3cm. Once an aneurysm develops it will tend to expand unpredictably and, if untreated, eventually becomes susceptible to rupture. Such an event causes massive internal haemorrhage and in the majority of cases leads to death (the 13th leading cause of death in western countries). What is the traditional treatment for AAA? What is EVAR and what are the advantages over open surgery? What are the associated cost savings? Overview of stent grafts What can go wrong? Traditionally, treatment of abdominal aortic aneurysm was open surgical repair (OSR), which requires dissection of the artery and the placement of a synthetic graft under general anaesthesia (although this can also be done laparoscopically). Patients undergoing OSR require a significant period of recovery in hospital, and the procedure carries a 5-6% intra-operative mortality rate. With the advent of stent grafts in the early 1990s, it became possible to repair AAAs by a minimally invasive procedure known as endovascular aneurysm repair (EVAR, or TEVAR for TAAs). In this technique, a catheter is used to introduce a stent graft inside the blood vessel, via an incision in the femoral artery, to bridge the aneurysm. Patient suitability for EVAR is determined principally by the shape of the aneurysm, expressed by its neck length, width and degree of angulation. The advantages of EVAR over OSR include a lower time under general anaesthetic, the elimination of pain/trauma associated with major abdominal surgery, reduced blood loss and a reduced length of stay in hospital and ICU. Conversion to EVAR has been driven by cost effectiveness and outcome data. Attempts to quantify cost savings vary considerably, but studies have shown savings of upwards of $10,000 per quality-adjusted life year (QALY) (eg, Patel et al, J Vasc Surg, 2000 Aug; 32(2):247-57). Meanwhile, a paper by Shermerhorn et al (NEJM, 2008; 358: ) based on 22,830 matched pairs of US Medicare patients showed that EVAR was associated with lower rates of death and complications than OSR (eg, perioperative mortality of 1.2% vs 4.7%). Stent grafts are flexible self-expanding metal reinforced fabric tubes that channel the blood flow over the weakened area of the artery. These usually consist of a Nitinol (nickel-titanium alloy) stent attached to a woven polyester or eptfe fabric. Nitinol is superelastic at body temperature and has the property of return to a pre-programmed memory shape once deployed. AAA stent grafts are usually bifurcated (inverted Y shape) devices that extend into both iliac arteries. The graft is introduced on one side of the body and a smaller contralateral iliac limb connected via a catheter is introduced in the other femoral artery. Additional modular components, including aortic and iliac extender cuffs, are used to prevent endoleaks (an incomplete seal or backflow of blood). The stent graft components are attached together and to the aortic wall by wires, hooks and anchors. The first generation of stent grafts suffered from various shortcomings, particularly poor fixation and limitations of the neck angle (because of their tendency to kink and/or migrate). Poor fixation can result in migration, which in turn can cause endoleaks. Proximal endoleaks are an important risk factor following stenting of AAA, and the risk of leak increases as the angle of the proximal "neck" increases. A bench-test study published by Jean-Noel Albertini et al (Vascular, 2005 Nov-Dec; 13(6):321-6) showed that Aorfix was the only stent graft device that did not develop endoleaks, regardless of the angulation of the abdominal aorta. The study compared endoleak flow rate to neck angle for various competing stent grafts. Aneurysms are largely asymptomatic and are usually identified as a result of screening for other conditions. However, AAAs are now specifically screened for under health programmes since a reduction in mortality and cost-benefit has been demonstrated. The NHS is in the process of implementing a screening programme for men over 65 delivered by primary care trusts and the target date for inclusion of all men in England is In US, the provisions of the SAAAVE Act allow a free screening for AAA in men who have ever smoked and for men or women with a history of AAA as part of the welcome to Medicare package. AAA is more common in men than women (c3x) and the main risk factors are age, hypertension, smoking and family history. 3-6% of men over the age of 60 in the US are thought to have AAA, and some 1.5 million people have a diagnosis, with 250,000 new cases identified per year. Source: Edison Investment Research/Lombard Medical Aorfix for abdominal aortic aneurysm Lombard s lead product, Aorfix, is an endovascular stent graft for treating abdominal aortic aneurysm (AAA). It is a modular stent designed to address complex and highly angled arterial configurations. Following a CT scan, the stent is customised according to a 12-step sizing process, which includes measurement of artery diameter and length, and aortic and proximal neck dimensions. Insertion of the device is minimally invasive, by means of a small incision at the top of each thigh to access the femoral and iliac arteries that provide access to the aorta. The stent is fed through the tube-like delivery system and fixed in place using nitinol hooks (Exhibit 3). Aorfix was developed to fill a specific and unmet need, namely the treatment of aneurysms in patients whose aortic necks are highly angled or tortuous, which present particular problems in stent deployment and retention. Complications specific to the treatment of tortuous iliac anatomy

5 5 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 include the tendency of the devices to kink and cause life or limb threatening occlusion. Type II endoleaks are also a common feature in AAA repair of highly angled aortic necks. Aorfix is designed specifically to overcome problems with first-generation devices. For example, the Nitinol reinforcement wire in Aorfix is embroidered into the fabric, which is folded longitudinally to form the tube shape (circumferential rings are added at the ends for reinforcement). This makes Aorfix resistant to kinking. The market for high-angle necks is thought to constitute around 10-15% of the total AAA stent market (including cases that are not currently treated by AAA). Exhibit 3: The Aorfix AAA stent graft Source: Lombard Medical Technologies PYTHAGORAS trial Lombard has just filed data from its US regulatory trial, codenamed PYTHAGORAS, in a US premarket application (PMA) of Aorfix for treating AAA of up to 90 neck angulation. This Phase II safety and effectiveness study recruited around 200 patients, of whom at least 120 presented with a high-angle aneurysm (ie, above 60 ). Primary endpoints included superiority of rates of freedom from endoleak, migration and fracture, and non-inferiority of the rates of early serious adverse events at 0 to 30 days post-operation in the Aorfix groups versus control. Secondary endpoints were non-inferiority of 12-month all-cause mortality in the Aorfix group compared with control. The PMA filing comprises six modules, which were submitted on a rolling basis. Lombard has received approval for the first three, and the FDA required additional bench testing to satisfy module four and raised additional questions on module five, which Lombard answered (Exhibit 4). Following submission of the sixth and final module containing clinical data, the FDA has up to180 days to review this and respond regarding modules four, five and six. US approval is therefore possible as early as Q112, although if additional questions are posed this could extend up to Q312 (depending on the nature of any additional requests). Exhibit 4: PMA modular filing process Module Content Status 1 Biological testing (preclinical) Reviewed and approved. 2 Non-clinical laboratory studies Reviewed and approved. 3 Sterilisation and packaging Reviewed and approved. 4 Engineering (bench testing and shelf life) Filed Nov 2010, questions raised by FDA, responses made. Conclusion expected by year end Manufacturing Filed Dec 2010, questions raised by FDA, responses made. Conclusion expected by year end Clinical data Two-part filing, SAP statistical analysis plan filed June 2011, clinical data filed August Awaiting response from FDA. Source: Edison Investment Research

6 6 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 RADAR update Lombard is maintaining a registry of patients who have been treated with Aorfix, known as RADAR (Retrospective Aorfix Data Retrieval), which it updates at key scientific meetings. At the last update (Charing Cross Symposium, April 2011), RADAR contained data on 1,236 implants. This is understood to be a relatively high proportion of total implants, although some of Lombard s competitors have larger patient registries. The mean neck angle of the patients currently included in the registry is 55.2º, and that of the 330 patients with high neck angles is 79.8º. Data from the patient registry are shown in Exhibit 5. Exhibit 5: RADAR results (as of April 2011) Normal angle <60 High angle >60 All cases Number of eligible cases with ,236 one-year follow-up All-cause 30-day mortality (of 1.6% 2.1% 1.4% those fit for open surgery) All-cause 12-month mortality (of 2.7% 5.8% 3.8% those fit for open surgery) Stent migration at 12 months 0.0% 1.9% 0.6% Mean aneurysm neck angle Occluded at 12 months 0.0% 0.0% 0.4% Wire fracture at 12 months 0.0% 0.0% 0.4% Endoleaks type I 0.0% 4.3% 1.3% Endoleaks type II 11.4% 11.6% 11.4% Endoleaks type III 0.0% 0.0% 0.0% Source: Lombard Medical Technologies Among other stents, Medtronic s Endurant demonstrated 0% migration during its US study, although for a smaller patient sample (n=123), while earlier studies on other devices showed up to 9% migration for less problematic anatomies. Total Aorfix endoleak rates for high-angle cases at 15.9% compared favourably vs average rates quoted in studies of EVAR of up to 20%. The rate of the relatively less important type II endoleaks (commonly associated with complex arterial configuration rather than the device) of 11.6% was higher than for the Endurant device at 8.9%, likely owing to the higher-risk category of the group. Aorfix 30-day all-cause mortality for the highangle group at 2.1% was higher than as of April 2009 (1.47%). Mortality across all cases of 1.4% was lower than for other stents (eg, 1.93% in the AneuRx US study). High angulations are often associated with more advanced disease, in an older patient population, and this likely explains the higher mortality in high-angle vs all cases. Data were also presented on changes in the aneurysm diameter a year after implantation, showing that in c 97% of cases there was a decrease or no change (±3mm) in aneurysm sac diameter, indicating that the aneurysm was under control. Longer-term follow-up is crucial to monitoring the overall improvement in outcomes of EVAR vs open surgical repair (OSR). To date, certain long-term studies for first-generation devices have shown that the early benefit of reduced aneurysm related mortality tends to fall four years after the procedure, and that the incidence of AAA-related adverse events then begins to increase in the EVAR groups monitored. EVAR 1 and DREAM trials show that first-generation devices provided no significant difference in medium-term mortality using EVAR versus OSR. This tendency, however, has been observed in studies on older patients. Overall the picture is one of improving short-term EVAR outcomes up to 12 months, particularly in average mortality rates of 1.3% for EVAR in comparison with 4.6% for open surgery.

7 7 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Exhibit 6: Recent clinical publications/results for Aorfix Title Objective Outcome Conclusions Arbiter 2 European clinical trial Use of the Aorfix stent graft in patients with tortuous iliac anatomy Use of Aorfix for AAA repair, Balasubramaniam et al (Cardiovascular Surgery) Source: Edison Investment Research To study the safety and early outcome of patients with infrarenal aortic aneurysms with severe neck angulation (60-90 ). To examine the impact of the graft on rate of iliac limb thrombosis following EVAR. To review the use of Aorfix in a multicentre study during early follow-up. The competitive environment Of 30 patients with mean neck angulation of 81.2, 96.7% technical success at 30 days with no type I or II endoleaks. At 6 mth, 2 patients reported type I endoleaks (resolved without intervention). One peri-operative mortality. 267 patients underwent EVAR and in group 1 (n=129) 8 patients had unilateral iliac limb occlusion (6.2%). 6 of the patients had >90 iliac angulation. In group 2 (n=138) there were no limb occlusions. Of the 138 patients, 25 had iliac angulation of >90. All patients (n=40) were treated successfully with no incidence of endoleaks, migration or death at 12-month follow-up. The outcome supported continued use of Aorfix for the treatment of highly angulated aortic necks. The rate of iliac limb occlusion can be limited with use of the Aorfix stent graft. The device's flexible design allows safe and accurate aneurysm sac exclusion in highly challenging anatomies. Market drivers for EVAR include a high and increasing conversion rate in favour of the procedure in the US, growth in the over-65 population and potentially higher diagnosis of the condition as a result of widespread implementation of screening programmes. Acceptance of the procedure is driven by cost-effectiveness and the availability of supportive clinical outcomes and reduced mortality. Reimbursement is available in most markets. The total number of US AAA repair procedures has grown only slowly in the past decade, although the rate of growth in EVAR is approximately 8% year-on-year. At present up to 50% of all repairs are done by means of EVAR, but there is potential both for the total number of patients diagnosed to rise and for EVAR to increase to up to 80% of all AAA repairs. However, Europe as a whole is more resistant to conversion to EVAR despite the growing body of clinical evidence, and EVAR constituted only around 30% of a total 41,000 AAA procedures in Italy, Spain and France are the more accepting of minimally invasive methods and the number open surgeries is nevertheless falling year-on-year. The stent market is highly competitive, with six FDA-approved stent grafts currently available, shown in Exhibit 7. As a result it is characterised by pricing pressure and dominated by the global marketing force, multiple product ranges and the established patient registries of the larger medtech companies. Stents are divided into product families that address the range of arterial formations. Medtronic is the global market leader and controls approximately 50% of the US market, having three stents in its portfolio: AneuRx, Talent and most recently Endurant, which has garnered significant share of the European market since launch in The European market was previously dominated by Gore s Excluder and Medtronic s Talent. Cook s Zenith and EndoLogix s Powerlink also control significant US share. However, there are currently no licensed or known devices in development to compete with Lombard in the high-angle space. This competitive advantage might enable Lombard to gain a foothold in the high-angle niche and then to cross-sell Aorfix to US surgeons for the treatment of AAAs in normal anatomies (0-60 ), assisted by come surgeons preference to adopt a single stent graft for the treatment of all AAA cases.

8 8 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Exhibit 7: AAA stent graft competitive space Company Product Stent/graft Medtronic AneuRx AAAdvantage materials/fixation Nitinol/polyester/ radial force anchors + radial force WL Gore Excluder Nitinol/ePTFE/ anchors and radial force Cook Zenith Flex AAA stainless steel/ polyester/ suprarenal hooks Endologix Powerlink Cobalt chromium alloy/eptfe/sits on bifurcation Medtronic Talent AAA Nitinol/polyester/ radial force Terumo (Vascutek) Development status/notes Launched in EU in 1997; US in Indicated for neck angle <45. Data registry available on more than 1,000 patients in clinical trials and 70,000 implants since Primarily sold in US. 728-pt PIVOTAL Phase IV trial, comparing AneuRx versus surveillance in subjects with smaller AAA (4-5cm) with respect to survival rupture and related deaths, terminated in January Analysis of interim data under way. Post-market study monitoring longterm performance of the stent completed June c 200 patients: mortality in those implanted with an AneuRx graft (as determined in this study) probably exceeds that of open procedure patients (based on medical literature) at some point in time, likely within four years after implant (American College of Surgeons, Pubmed). Launched in EU in 1998, US in Neck angle <45. More than 87,000 implants worldwide to date. New larger-diameter 31mm version launched in the US (May 2009), has been available outside the US since 2004 and has been implanted in >3,300 patients. Of the 565 patients enrolled in two Phase II studies, adverse events include 1.8% occurrence of aneurysm-related deaths, 0.7% post-procedure migration and 0.2% post-procedure ruptures. Launched in EU in 1998; US in Indicated for neck angle <60. Recruitment for safety trial of Zenith Low Profile AAA (16 French diameter delivery system), completion date January Launched in EU in 2000, US in Indicated for neck angle <60. From 2003 to 2008, 157 patients treated with the Powerlink system at 28 centres across the US according to FDA regulations and approved protocols showed freedom from aneurysm-related death for up to five years. 231-patient longer-term follow-up study completed. Launched in EU in Approved in US Market leader outside the US. Requires proximal aortic neck length of only 10mm. Long-term study published 2011 by Verhoeven et al in the Journal of Vascular Surgery showed primary technical success achieved in 333 patients (91%). Proximal type I endoleak was present in 28 patients (8%) during follow-up, and 14 of these needed additional treatment for the endoleak. The 30-day mortality rate for the entire Talent group was 1.1% (four of 365 patients died). Anaconda Nitinol/polyester Launched in EU in US Phase II trial in recruitment with completion expected April Can be used in tortuous anatomy. Magnet wire technology used to facilitate the deployment of the contra lateral leg. LeMaitre UniFit Nitinol/ePTFE LeMaitre discontinued sale and manufacture of UniFit as of 30 June Vascular Cordis (J&J) Quantum LP Nitinol/polyester/ 300-pt Phase III study completed (April 2009). No further data found. infrarenal barbs Cordis (J&J) InCraft N/A Enrolment in 25-patient Phase II technical and safety trial started in Jan Primary completion date July 2011, study follow-up in June Planned CE submission in 2011 for launch in 2012 (also in US and Japan). Aptus Endograft Aptus Endovascular AAA Repair System Nitinol/polyester with fixation using helical screws Medtronic Endurant Nitinol/woven polyester Nellix Endovascular (acquired by Endologix) Trivascular 155-patient STAPLE-2 pivotal study trial complete. Awaiting US approval following private placement in 2010 to finance trial follow-up. CE mark for endovascular AAA repair system granted in One-year study data reported in H2 2010, from 150 patients in 26 centres, confirmed zero aneurysm-related deaths or ruptures. Primary safety and efficacy endpoints were major adverse events at 30 days and a composite of technical and treatment success of the device at one year, respectively. FDA approval granted Dec Device specifically addresses short and angulated proximal necks. N/A N/A Preclinical. Radically different approach to aneurysm exclusion, relies on filling aneurysm sac with a polymer. Presumably lower profile. Should primarily address and ablate type II endoleak. Initial studies have shown 100% freedom from aneurysm mortality and rupture. Ovation Abdominal Stent Graft System Source: Edison Investment Research Metal stent with two polymer filled rings First 5 patients treated in 500-patient, 30-centre, European, prospective, observational, post-market study of subjects receiving the lowest-available profile stent for treating AAA. The OVATION study is intended to expand the clinical knowledge base by collecting data on subjects treated with the stent graft system in actual clinical practice following commercial approval. Not currently approved in US but in Phase II trials (primary completion date Dec 2012, study completion expected in Dec 2017).

9 9 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Sensitivities The sensitivities to Lombard s investment case are principally commercial and financial. Unusually there is little technical or development risk associated with Aorfix, which we consider to have a low development risk thanks to its approval in Europe and current use in more than 1,000 patients. A high proportion of these are captured in Lombard s patient registry, which should provide additional confidence for the US regulator. As a result, we have not discounted our valuation to reflect development risk. Lombard needs to achieve FDA approval within the timeline set out in the recent fundraising in order to receive sufficient funding for commercialisation. Aorfix has a strong competitive profile, being the only stent graft system approved in Europe for AAAs with neck angles of <90. (Endurant has approval to treat AAAs with neck angles of <75 in Europe, but not the US). Line extensions such as a broader size range and new delivery device should also aid market penetration. However, as Lombard is a small player in a highly competitive market dominated by large medtech firms, it has so far found it difficult to make major inroads in markets where the three major players have a significant presence. This might continue as Lombard switches to direct marketing, although in the UK it seized an 8.9% market share within eight months with a four-strong sales force. Lombard only has one product in development, and its current size and the unique nature of Aorfix could attract a bid from a larger med-tech company. Valuation To value Lombard, Edison uses a discounted cash flow (DCF) model taken out to 2017, using a 5% long-term growth rate and standard 12.5% WACC. This is based on revenue assumptions assuming the progression in sales of Aorfix following US launch in 2012 (prior US revenue relates to sales of the device into the PYTHAGORAS study), and market share expansion in the rest of the world, sold directly and through distributors (Exhibit 8). The number of Endovascular aneurysm repair (EVAR) procedures is rising as a result of greater detection of AAAs and a higher proportion of patients being treated endovascularly; the forecast CAGR for EVAR procedures is c 8% out to Our revenue forecasts are conservatively based on Aorfix achieving a share well below the 10-15% of US EVAR procedures that are thought to comprise high-angle cases. Exhibit 8: Edison s revenue model for Aorfix AAA device Notes: Sales through distributors fall from 65% of the non-us total in 2011 to 54% in 2017; distributors margin is 40%. 2011e 2012e 2013e 2014e 2015e 2016e 2017e No of AAA procedures (US) 72,600 76, , , ,246 92,658 97,291 Total no of Aorfix units ,000 2,900 3,8 00 4,500 US sales to Lombard ( '000) ,258 15,951 23,129 32,638 38,650 No of AAA procedures (Europe/RoW) 65,340 68,607 72,037 75,639 79, , ,562 Total no of Aorfix units 1,030 1,700 2,500 3,000 3,500 4,000 4,500 Direct sales [UK (& Ger from 2010)] ( '000) 1,730 3,019 4,500 5,8 50 7,350 9,680 11,38 5 Revenue from distributors ( '000) 1,928 3,08 4 4,500 5,490 6,090 7,392 8,019 Source: Edison Investment Research This results in an NPV of 88m, or 1.47 pence per share based on the 2012 year-end share count (ie, after the expected second equity fund-raising tranche). This compares with Lombard s current market capitalisation of 28m or 0.7 pence per share. The Edison valuation also assumes also that Lombard launches its TAA device in 2015/16.

10 10 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Financials Lombard finished 2010 with 5.8m of cash and no debt. Revenues were 3.0m (up from 2.4m in 2009), and comprised direct and indirect sales of Aorfix in Europe of 2.5m (+45%) and US Aorfix revenue representing sales of the device into the PYTHAGORAS study of 155k, down from 448k as the trial wound down. In November 2009 Lombard sold its non-core, polymer coatings business (the 100%-owned subsidiary PolyBioMed) to Bayer for 1m. As we model a ramp-up in revenue we see progression in gross margin from 46% in 2010 to 59% owing to the fixed nature of manufacturing costs. Stent production has started in Prestwick, and the aim is for this facility to handle all production, to enable the Didcot plant to focus on assembly and loading of the delivery device. We assume marketing costs of 3m in 2011 to account for the European sales force of eight plus a few US representatives, increasing to 7m in 2012 by which time an 18-strong US sales force plus two regional managers are due to be appointed. In October 2010 Lombard signed a licensing agreement for Aorfix in Japan with an unnamed company that will handle filing for regulatory approval of the device, and if approved will sell it with Lombard on a mutually exclusive basis. Under the licensing deal the unnamed Japanese partner agreed to provide Lombard with a loan facility of up to $5m; Lombard can draw the first $2.5m of this after US approval of Aorfix, to assist it in the development of both Aorfix and its thoracic stent graft. Our model assumes partial drawdown of this facility in 2013/14. The loan is repayable at the (undisclosed) end of the licensing deal, but would be forgone if the parties extend the distribution deal beyond its initial term. The Japanese market is estimated to be worth c $100m and is in relatively early growth stage, having approved its first endograft in Two-tranche fund-raising In May 2011 Lombard completed the first tranche of a potential 27m fund-raising. 11.1m gross was raised in a placing and subscription (1.6bn new shares), followed by 1.9m (267m new shares) out of a possible 2.2m offer to qualifying participants. The 14.2m second tranche of the fundraising is conditional on the US FDA approving Aorfix for us in high-angle AAA (with a neck angle of up to 90º) by 30 September The first tranche is to be used to launch Aorfix in the US and Japan (through the undisclosed partner above), and to build up the direct, in-house US sales force. The final module of the PMA having been filed in August 2011, the US FDA has up to 180 days to review it and respond likely with further questions. Accordingly, although US approval and commercial launch are theoretically possible in Q112, our financial model assumes that they occur in the second half of We model the raising of the second tranche in full ( 14.2m gross) in Accordingly, while we model a total of 4.0bn shares in issue currently (following the first fundraising tranche) following the second tranche the number of shares in issue rises to 6.0bn by the end of 2012 (Exhibit 9). On this basis we forecast sufficient cash to last beyond 2012 and, if US approval and launch take place and the second fund-raising tranche is triggered, Lombard should be sufficiently financed to reach profitability, which our model suggests will occur in Lombard says it will implement cost-control measures if Aorfix approval is delayed into H212, but should US approval be delayed beyond 2012 additional funding will be required.

11 11 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Exhibit 9: Lombard financial model '000s e 2012e 2013e Year end 31 December PROFIT & LOSS Revenue 2,351 3,007 3,8 79 6,693 16,78 3 Cost of sales (1,356) (1,624) (2,017) (3,346) (6,866) Gross profit 995 1,38 3 1,8 62 3,346 9,917 EBITDA (7,432) (8,390) (10,038 ) (10,674) (5,316) Operating profit (before GW and except.) (7,648 ) (8,462) (10,163) (10,799) (5,416) Goodwill amortisation (46) (44) (45) (45) (45) Exceptionals Stock option charge/other 22 (236) (230) (240) (250) Operating profit (7,672) (8,742) (10,438 ) (11,08 4) (5,711) Net interest (122) Profit before tax (norm) (7,770) (8,409) (10,110) (10,746) (5,396) Profit before tax (FRS 3) (7,794) (8,689) (10,38 5) (11,031) (5,691) Tax Profit after tax (norm) (6,775) (7,58 8 ) (9,310) (9,946) (4,996) Profit after tax (FRS3) (6,799) (7,868) (9,58 5) (10,231) (5,291) Average number of shares outstanding (m) , , , ,000.0 EPS - normalised (p) (0.8 ) (0.4) (0.3) (0.2) (0.1) EPS - FRS 3 (p) (0.9) (0.4) (0.3) (0.2) (0.1) Gross margin (%) 42.3% 46.0% 48.0% 50.0% 59.1% EBITDA margin (%) N/A N/A N/A N/A N/A Operating margin (before GW and except.) (%) N/A N/A N/A N/A N/A BALANCE SHEET Fixed assets 3,367 3,350 3,48 0 4,210 4,565 Intangible assets 2,361 2,317 2,272 2,227 2,18 2 Tangible assets ,133 1,533 Investment in associates Unquoted investments Current assets 4,260 9,274 11,539 14, ,8 8 2 Stocks 1,447 1,694 1,8 58 2,724 5,8 07 Debtors 714 1, ,650 4,138 Cash 1,349 5,8 14 8,025 9,715 2,237 Other Current liabilities (2,139) (2,604) (2,226) (2,919) (5,407) Creditors (868) (1,335) (957) (1,650) (4,138 ) Other creditors (1,271) (1,269) (1,269) (1,269) (1,269) Short-term borrowings Long-term liabilities (1,000) Long-term borrowings (1,000) Other long-term liabilities Net assets 5, ,020 12,794 16, ,039 CASH FLOW Operating cash flow (7,8 37) (8,524) (10,471) (11,540) (8,398) Net interest Tax 1, Capex (18 ) (99) (300) (900) (500) Acquisitions/disposals 1, Financing 5,450 12,150 12,129 13,277 0 Dividends Other Net cash flow 74 4,465 2,211 1,690 (8,478) Opening net debt/(cash) 601 (1,349) (5,8 14) (8,025) (9,715) HP finance leases initiated Other 1, Closing net debt/(cash) (1,349) (5,8 14) (8,025) (9,715) (1,237) Source: Edison Investment Research

12 12 Edison Investment Research Outlook Lombard Medical Technologies 8 August 2011 Growth Profitability Balance sheet strength Sensitivities evaluation N/A N/A Net cash ( '000s) 12,000 10,000 8,000 6,000 4,000 2, , e 2012e Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices Growth metrics % Profitability metrics % Balance sheet metrics Company details EPS CAGR 08-12e N/A ROCE 11e N/A Gearing 11e N/A Address: EPS CAGR 10-12e N/A Avg ROCE 08-12e N/A Interest cover 11e N/A 4 Trident Park, Didcot, EBITDA CAGR 08-12e N/A ROE 11e N/A CA/CL 11e 5.2 Oxfordshire OX11 7HJ, UK EBITDA CAGR 10-12e N/A Gross margin 11e N/A Stock turn 11e N/A Phone Sales CAGR 08-12e 36.1 Operating margin 11e N/A Debtor days 11e 90.0 Fax Sales CAGR 10-12e 49.2 Gr mgn / Op mgn 11e N/A Creditor days 11e Principal shareholders % Management team Invesco Ltd 39.3 CEO: Simon Hubbert Abingworth LLP 12.5 Named CEO in January 2011, having joined Lombard as vicepresident MVM 7.8 of sales & marketing in June Before that he worked as LMA International, and earlier held various sales Fidelity International Ltd 6.1 and marketing roles at Johnson & Johnson and Medtronic. evysio Medical Devices LLC 5.3 directors 3.0 CFO: Tim Hall Appointed CFO in Previously worked as CFO of Celltech Pharmaceuticals ( ) and director of strategic planning Forthcoming announcements/catalysts Date at Medeva, and has held senior planning positions at Glaxo Wellcome. He is a chartered accountant. Interim results Aug 2011* CIRSE Sep 2011 Non-executive chairman: John Rush ESVS European Society for Vascular Surgery Note: * = estimated Sep 2011 Joined the board of Lombard as CEO in October 2009, becoming chairman in January Earlier was president and CEO of North American Scientific and MicroTherapeutics, and held management roles at Scimed Life Systems/Boston Scientific. Companies named in this report Medtronic, WL Gore, Cook, Endologix, Vascutek, LeMaitre Vascular, Johnson & Johnson, Trivascular. EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research is a leading international investment research company. It has won industry recognition, with awards both in the UK and internationally. The team of more than 75 includes over 40 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies across every sector and works directly with corporates, fund managers, investment banks, brokers and other advisers. Edison s research is read by institutional investors, alternative funds and wealth managers in more than 100 countries. Edison, founded in 2003, has offices in London and Sydney and is authorised and regulated by the Financial Services Authority ( DISCLAIMER Copyright 2011 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Lombard Medical Technologies and prepared and issued by Edison Investment Research Limited for publication in the United Kingdom. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. 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