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 over the last year to accelerate the rate of growth, including global commercial infrastructure and the development of a pipeline of finished medical devices. ChondroMimetic will be the first of these products and is expected to enhance significantly the value of the company which is not being reflected in the current share price. The recent capital raise and loan facility has resolved funding issues.
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.
ChondroMimetic: Best described as a clever bi-layered and easy to use sponge that allows the regeneration of cartilage where cartilage is supposed to be, and bone where bone is supposed to be. ChondroMimetic is for surgeons to repair knee cartilage damage thereby delaying the need for joint replacement.
Forecasts: The growth strategy is dependent on investment in R&D, sales & marketing, and corporate infrastructure. Management has not shied away from making this investment even though it is detrimental to short-term profitability; the benefits are clearly visible in medium to long-term sales forecasts.
Risks: Modest investment is required in order to regain CE Mark in the EU for ChondroMimetic. Much greater investment will be needed for US approval, for which Collagen Solutions Plc will seek a development partner. There is no precedent for the FDA approving a cartilage repair product with regenerative claims.
Investment summary: ChondroMimetic fulfils management’s stated strategy to move further up the value added chain. For relatively little up-front cost and modest investment, COS has obtained a largely de-risked proposition. Longer-term, ChondroMimetic has the potential to be the first regenerative cartilage product to be approved in the US, but this will require external investment.
