Collagen Solutions announced that, together with The Electrospinning Company (private UK-based company), it has been selected as part of an Innovate UK grant award to develop a novel bio-synthetic surgical mesh for internal wound healing. Whilst of little financial relevance in the short term it illustrates the value and diversity of Collagen Solutions’ technology and provides another example of the route to realising longer term commercial opportunities.
Under the terms of the grant Collagen Solutions will provide The Electrospinning Company with purified soluble collagen to create a composite polymer/collagen sheet with Electrospinning creating a 3D scaffold that resembles a natural extracellular matrix. The aim is to combine the benefits of synthetic polymers (eg. flexibility, strength and batch to batch consistency) with the bioperformance benefits of collagen, such as providing cell recognition sites for cell adhesion, proliferation and ultimately improved tissue regeneration at wound sites.
Not all client contracts are notifiable for reasons of confidentiality. However, this grant award provides further evidence of the momentum within the business to build external supply and development and follows the announcement with NovaBone (USA) in April 2015, Globus Medical (USA) In January and KYERON (Holland) and Desu Medical (Turkey), both in December 2014.
We have made no changes to our forecasts as a result of this announcement and our DCF valuation remains unchanged. Based on the forecast cashflows to 2018, projected cashflows thereafter to 2020 and a 2% terminal growth rate, a DCF value of £60m (32p per share) is indicated. As visibility to contracts improves so too are forecasts likely to be underpinned/rise, with the full value of the technology platforms increasingly being reflected in the share price.
Integration of SLB, seemingly on track; timing of development and manufacturing contracts, supply agreements, regulatory delays, all of which have contributed to the above sales shortfall in 2014/15; potential competition from alternate biomaterials.
Collagen Solutions continues to broaden and deepen its relations with external partners. This award provides another example of the type of partnership that, in our view, adds to the incremental value of the business. The Board’s stated objective remains unchanged: creating a business worth c.£100m by 2020.