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Chairman buys more shares

Losses to rise as delays hit drugs firm Collagen

David Evans CollagenUpdated with City reaction 9.30am: Glasgow drugs developer Collagen Solutions has warned that delayed and cancelled contracts will cut revenue and lead to a higher than expected loss for the year.

The company says the forecast annual income will fall by £800,000 to £2.8 million and losses are likely to rise from the forecast £60,.000 to £750,000.

Chairman David Evans (pictured) said in trading update that he shared the frustration of shareholders but was prepared to back his confidence in the company by buying more of the company’s stock in the next few days.

The developer and manufacturer of medical grade collagen components for use in regenerative medicine, medical devices and in-vitro diagnostics said there had been a number of agreements asset acquisitions which indicated revenue growth.

But in its statement, the board said: “There is a degree of uncertainty around timing of contracts and attaining critical mass of manufactured products. The board believes that the uncertainties around revenue recognition are likely to impact on revenue for the year end 31 March 2016.

It outlined the following likely outcomes:


Amount (£000s)

Customer project cancelled


Lower than predicted order volumes


Customer takeovers


Customer delays (development, ordering, testing, regulatory)




The total estimated effect will be to reduce the revenue for the year to approximately £2.8 million compared with previous market consensus expectations of £3.6 million and LBITDA now expected to be approximately £750,000 compared with a consensus of £602,000.

The company has previously announced the recruitment of Tom Hyland as chief operating officer and Jamal Rushdy as chief business officer. It has also added a new commercial manager for the EMEA region.

“Together, these individuals will improve our commercial operations and manufacturing processes in order to meet a diverse and growing demand for our products and services. This is with the aim of ensuring we mitigate future uncertainties around revenue recognition and increase operational capability,” said the company.

Recent announcements, including the direct supply agreement to Histogenics and the agreement with BBI Solutions, provide the company with greater exposure to cutting edge collagen-based therapeutic devices and immediate short term revenue channels.  The company envisages similar announcements will be forthcoming.

The board said it remains “both confident and positive” regarding the future revenue growth in addition to the company’s value-added activities around the recent acquisition of the chondromimetic product and its portfolio of IP assets covering a family of similar products.

David Evans, non-executive chairman, said: “Whilst I understand there will be a significant level of frustration with today’s announcement and whilst I share that sense of frustration, I am of the view that while the overall direction of travel is positive – we clearly need to move up a gear and fill the hopper with sufficient opportunities such that single customer delays do not have such a material impact upon the year-end out-turn.

“I remain very confident about the future based on the recent strengthening of our commercial team in the US and Europe and this will be strengthened further in Asia in this quarter. Additionally, our pipeline is the strongest it has been during my tenure as chairman. I am prepared to back this sense of confidence by increasing my holding in the company over the coming days.”

Mike Mitchell, analyst at Panumure Gordon, said he believed the company was building a “credible” business but he lowered his expectations on revenue and losses.

He said: “A summary of the causes for the revised outlook is given: only £49k of the lost revenues are driven by the cancellation of a customer project. Instead, the lion’s share comes from customer delays (£359k: development, ordering, testing, regulatory); lower than predicted order volumes account for £236k; and customer takeovers £156k.

“As we’ve noted previously, Collagen Solutions is a small company still striving to attain critical mass, which unfortunately means delays or cancellations have a disproportionate impact on trading.

“Meanwhile, the company notes the measures it has taken in terms of building the team

“Nods to recent news flow will remind investors of the continued ambitions and operational progress of the company and we highlight, in particular, the comments from David Evans, Non- Executive Chairman, who makes clear his intent to back the business by increasing his holding ‘over the coming days’.

“Fundamentally, we believe Collagen is building a credible business underpinned by IP and technical expertise, with a growing range of customers and opportunities. Our immediate reaction to today’s news is to lower expectations for FY17E (now looking to £4.0m revenues – previously £5.9m – and adjusted loss before tax of £1.0m, previously profit £0.5m).

“We’d anticipate possible upside on these figures although we’ll be keeping an eye on cash which becomes constrained on lowered estimates. The direct comparables peer group is limited (as we discussed in our initiation note) but we continue to see companies such as AMS and Tissue Regenix trading on mid- single digit FY2 EV/sales multiples.

“Taking this approach on FY17E sales underpins a 10p target and we retain our view that recent activities – not least the acquisition of the Chondromimetic product and its portfolio of IP assets – offer potential value- enhancement for the future.”

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