Collagen Solutions (LON:COS) is targeting a £100mln market cap in five years – and it reckons deals this year and next year will keep it firmly on track to achieve that.
The company, which makes and supplies collagen products for medical uses, is aiming to build on its medical device business with forays into regenerative medicine and in-vitro diagnostics.
It passed a key milestone on that journey this year by striking a supply deal with Nasdaq-listed musculo-skeletal specialist Histogenics Corp (NASDAQ:HSGX).
A couple of days before, the group bought assets and an exclusive worldwide intellectual property licence for collagen-based cartilage and bone implant ChondroMimetic from Orthomimetics and Cambridge Enterprise. The implant's potential market is worth more than US$500mln.
The group is now talking to potential partners and customers on several different continents about more deals.
It says it should be able to say more on progress as soon as early next year, provided all goes well.
The group, which had revenue of just under £1mln in the year to July, is targeting £3.7mln this year, rising to £16mln-20mln by 2020.
It expects underlying earnings that year to be between £8mln and £10mln, against an underlying operating loss in 2014/15 of about £845,000.
Hitting a market capitalisation of about £100mln by 2020 from its current valuation of about £15.4mln may sound like a big ask – but chief executive Stewart White is confident of doing it.
White said: “We think this is a realistic and challenging goal in terms of the potential that this business has.”
Significant interest
Most commonly found in the skin, collagen is the structural protein that supports various connective tissues.
Versions of collagen can be human-derived, but more commonly, for medical use, they are taken from animals such as cows, pigs, chicken and even fish.
Collagen tends to be used in wound care – burns and skin grafts – prosthetic veins and arteries, bone grafts and skin regeneration.
The company itself provides products in various forms, ranging from raw tissue and tissue scaffolds to soluble and powdered collagen.
The merger of Collbio and Collagen Solutions LLC in the UK and US, respectively, created a business capable of manufacturing, research, sales and marketing.
The addition of New Zealand’s Southern Lights Biomaterials last December gave it processing capacity as well as a customer base in Asia, meaning the business is in three major continents.
Collagen Solutions’ has a big dentistry customer in South Korea and White and his colleagues have just completed a trip to Japan which attracted significant interest.
Crucially, the company is in the process of finding a partner to establish a presence in China.
And it is in talks with a well-known global blue-chip medical device maker about a deal to supply the latter with collagen in New Zealand for onward processing. White said he hopes to update on that early next year.
“We have put together that proposal just this week and if we get agreement to go ahead with it, we’ll inform the market accordingly,” he said.
Dramatically under-valued
Collagen for medical devices currently contributes more than 80% of the company’s revenue.
But it hopes regenerative medicine and research diagnostics will each contribute a third of revenue within five years, with medical devices making up the rest.
The goals White has set for the business may sound challenging, but he says they are driven by the market and customers.
Shares in the group were worth 9p in afternoon London trading on Wednesday.
“We believe we’re dramatically under-valued,” White said. “We think we’ve got it all to play for.”
In half-year results this week, Collagen posted a 36% fall in losses to about £357,000 on a 920% rise in revenue to £1.5mln in the six months to September 30. Net cash fell to £3.1mln from about £3.4mln in March.
Broker Hardman & Co said in a note after the company's full-year results in July that Collagen was showing clear evidence of meaningful gross margins (78%) and new customer wins.
Anticipated higher sales volumes should begin to offset central overheads of about £1.5mln, with cash flow break-even anticipated in the second half of 2015/16.
"These margins, in turn, are expected to drive long term shareholder value," the broker said.