Collagen Solutions Plc (LON:COS) is a biomaterials company developing and manufacturing medical grade collagen components for use in medical devices, research, and regenerative medicine. A number of investment initiatives have been introduced recently to accelerate the rate of growth, including global commercial infrastructure and development of a pipeline of finished medical devices, the first of which will be ChondroMimetic for repair of small cartilage lesions. The recent trading update for FY 2017 indicated a slight sales shortfall being offset by higher grant income and lower costs, such that the bottom line may well be above market expectations.
Strategy: Management has embarked on an investment strategy through a series of initiatives to increase the growth opportunities. This strategy to move COS from a reliable collagen supplier to one that also has proprietary products will move it into profitability and cash generative at a faster pace.
Trading update: The sales trajectory has benefited from nine new supply, development and distribution agreements, however with the majority being signed in the 2H’17, this contributed to a modest sales shortfall. This was offset by higher grant income and some reduced costs that improved the bottom line.
Corporate changes: COS has announced the relocation of its US HQ to Minneapolis so that global commercial and R&D functions can work more closely together under the leadership of Chris Wattengel. Dr White will step down from the board and as CSO, but will continue to consult on the SAB.
Smart Matrix deal: An agreement has been signed with Smart Matrix for development and manufacturing of sponge-like advanced woundcare scaffolds that encourage tissue growth, to help closure of full thickness wounds and to avoid the need for skin grafts. Manufacturing should commence next quarter.
Investment summary: The Collagen Solutions Plc trading update hints that the realigned strategy onto an accelerated growth platform is starting to bear fruit. Investment in new opportunities (China JV, Orthomimetics, and additional new products) continues to build a pipeline of strategic relationships that is expected to drive long term growth. The recent capital increase is expected to see COS through to EBITDA profitability in 2019 and to cashflow break-even.
