Cellmid Limited (ASX: CDY) has made a transformative acquisition of Advangen Inc., Japan, the company that owns the FGF-5 inhibitor hair growth technology.
Currently, Cellmid licenses the technology for re-sale through retail outlets in Australia as évolis®.
Cellmid will acquire 100% of Advangen Inc shares from the current owners, Japanese institutional investors Biotech Healthcare for $1.2 million cash and 55 million Cellmid shares to be issued at $0.05 per share.
The shares will be escrowed for up to 12 months. It is expected that the settlement of the transaction will be completed within two weeks.
The deal is likely to significantly increase Cellmid’s revenues in the short to medium term as Cellmid will gain immediate access to the established Japanese hair growth market.
In addition, profit margins will improve as there will no longer be royalties payable. In addition, savings are expected on raw material costs of the active ingredients.
Benefits of the acquisition in a nutshell
- Immediate access to sales from established Japanese hair growth market
- Whole-of-chain acquisition; reduced cost of goods and no royalties on évolis®
- Global rights including China with recently granted import permits
- Boosts Cellmid’s product development expertise to facilitate the midkine hair
growth program
Cellmid will gain full ownership of the FGF-5 inhibitor technology platform, which underpins the Cellmid's existing successful évolis® hair product range and is the basis of other Advangen Inc. brands generating solid revenues in Japan.
New market opportunities will also be pursued including China where import permits are already in place for the Lexilis® and Jo-Ju® branded products.
Director of both investment funds active in Japan’s biotech industry, Dr Takeo Matsumoto, welcomed the deal and said “We have been very impressed by Cellmid’s progress with évolis® on the Australian market and are happy to be invested in Cellmid shares.
“We believe Cellmid can translate their strategy to global markets and increase sales for all of our FGF-5 inhibitor brands. We are also excited about the potential of Cellmid’s midkine diagnostic and therapeutic portfolio, which is becoming well known and accepted as a strong target.”
Cellmid CEO, Maria Halasz, said “This is a company changing deal. Our objective is to establish Cellmid as a global leader in scientifically and clinically validated hair growth technology. We plan on generating substantial revenues in the next three to five years.”
Market for hair loss products
The market for hair loss products is US$1-2 billion annually in the USA alone, affecting 52 million patients (US Department of Health and Human Services, 2009).
The global market is estimated to be several times this amount.
Advangen’s products are:
- Clinically validated
- Launched first product in 2007
- No reported side effects (700,000 bottles sold in Japan in 5 years)
- Suitable for men and women
- Up to 98% of website users love the FGF‐5 inhibitor products and would recommend it to their friends (Australian data).
Opportunities for growth
- Access to established Japanese market – scope for growth
- Large new markets such as China, Taiwan, Singapore, Malaysia
- Chinese import permits for Jo‐Ju and Lexilis brands of lotions and shampoos
- Pricing control in the process of establishing distribution in EU and USA
- Reduced COGS overall, including reduced raw material costs
- Removal of royalty payments on évolis
- Access to Advangen’s product development expertise in the hair growth sector
Analysis
This is a value accretive acquisition by Maria Halasz's Cellmid in terms of revenue growth in the medium to longer term, margin improvement and the transformation to a higher cash flow generating company that will be translated into higher market cap. That the Japanese vendors are taking mostly stock in Cellmid provides a guide as to upside expected in the share price. We can foresee immediate growth in share price as well as medium to longer term share price appreciation.
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