Capital increase to support accelerated 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 over the last year to accelerate the rate of growth, including global commercial infrastructure and the development of a pipeline of finished medical devices. The company has announced a capital increase, as well as some strategic investor venture debt, to raise gross funds of up to £12.0m to fund these initiatives, with a target of generating a five-fold sales increase over 5 years and profitability in 2019.

• 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.
• Funding: COS has announced a Placing and Open offer to raise up to £8.0m of new capital to fund investment and strengthen its balance sheet. Also, it has agreed up to £4.0m of venture debt in three tranches from specialist healthcare investor, Norgine Ventures. Both are conditional on shareholder approval.
• Forecasts: This note is focused on the new funding and the use of proceeds. No changes have been made to our operational forecasts, but EPS figures have been adjusted to reflect the maximum number of shares that could be issued in the Placing/Open offer; and the balance sheet reflects the increased cash and loans.
• Risks: Management has re-iterated its aspirational, but achievable, target to grow sales five-fold within five years. This equates to a demanding CAGR for sales of 38%. Key will be the time it takes to get CE Mark again for ChondroMimetic, targeted for 2H 2017, and signing up a commercial partner.
• Investment summary: Recent interim results provided evidence that the realigned strategy onto an accelerated growth platform was 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. This funding is expected to see COS through to profitability in 2019 and cashflow break-even.