Delivering biomaterials for revenue growth

Collagen Solutions 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 5x by 2021. These include building global commercial infrastructure and developing a pipeline of finished medical devices, such as ChondroMimetic scaffold for repair of small cartilage lesions. Recent financial results have highlighted the progress in revenue growth, and 2018 looks set to benefit from the launch of its first proprietary finished device, ChondroMimetic.

• Strategy: Management has embarked on an investment strategy through a series of initiatives to increase the growth opportunities. This strategy is moving COS from a reliable quality collagen supplier to one that also has proprietary products that will move it into profitability, and cash generative, at a faster pace.
• Growth: Sales are currently being driven by the core biomaterials business, with underlying growth of +17% in 2017, reflecting new marketing initiatives. Growth is expected to accelerate in future years following the signing of nine new contracts and through the introduction of high margin proprietary devices.
• Finished device pipeline: Led by ChondroMimetic for articular cartilage repair – COS has embarked on a follow-up study with 15/17 patients implanted with the device eight years ago, to support re-submission for CE Mark at the end of 2017. Two additional products are in the pipeline: for wound and bone repair.
• Risks: Management has re-iterated its aspirational, but achievable, target to grow sales five-fold within five years (starting fiscal 2016), equating to a demanding +38% CAGR. Time to get CE Mark again for ChondroMimetic is key. Management highlighted also a potential contract risk in Korea for fiscal 2019.
• Investment summary: Results provided clear evidence that the company has responded well to its strategic transition. Investment in marketing initiatives and new opportunities (China JV, Orthomimetics, plus other new products) continues to build a pipeline of strategic relationships that is expected to drive long term growth. The recent capital increase and debt financing leaves COS well positioned to turn EBIT profitable and cashflow break-even in fiscal 2020.