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Hardman & Co

Collagen Solutions Plc Focus on R&D

Hardman & Co ReportCollagen Solutions Plc (LON:COS) is a biomaterials company developing and manufacturing medical grade collagen components for use in medical devices, in vitro diagnostics, and regenerative medicine. The strategic plan is to invest into its own pipeline of value added devices, such as the in-licensed Orthomimetics product family. It is also investing in earlier stage R&D by, in part, maintaining strong cross-sector relationships through collaborative research programmes. The recent award of a Horizon 2020 by the European Commission is the latest of five grants awarded to COS over the past two years for development of collagen-based medical devices.


► Strategy: A refocused strategy was announced in July 2016 to add proprietary products to its medical-grade collagen and research services offerings. In parallel, R&D spend was increased. This has been complemented by public-sector grants for collaborative research into collagen-based medical devices.

► Grant Opportunity: Subject to a final grant agreement among consortium members and the European Commission, COS will receive a Horizon 2020 grant (€500K) for development of collagen scaffolds for therapeutic use in cell-based tissue regeneration. This is the second Horizon 2020 grant awarded to COS.

► Valuation: No changes have been made to our forecasts and the DCF valuation remains at £54m or 32p per share. There are few quoted competitors that could be considered a comparator for valuation purposes. The closest, Innocoll (INNL), is developing proprietary products and commands an EV of $161m/£124m.

► Risks: Timing of development and manufacturing contracts, supply agreements, customers’ regulatory delays, collagen sources and potential competition from alternate biomaterials. However, sequential half year sales growth and ca.70% of 2017 sales secured suggest that risks to forecasts have been minimised.

► Investment summary: 2016 was transformational for Collagen Solutions Plc: the new leadership team has realigned strategy onto an accelerated growth platform, whilst maintaining core objectives. Investment in new opportunities (China JV and the in-licenced Orthomimetics family) continues to build strong pipeline that should drive long term growth, whilst delivering short term financial objectives.

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