It is raising the bulk of the new monies from investors via a placing and open offer that could bring in as much as £8mln.
A further £4mln will provided by finance house Norgine Ventures, which will subscribe to bonds with warrants attached.
Chief executive Jamal Rushdy called the funding round “strategically important”.
The cash will be used to develop and launch new, higher value “finished device products”, which will supplement the revenues from base business – the supply of bovine collagen materials.
As the company pointed out in its statement, while the revenue stream from the current operation is stable and long-term, the sales cycle is often “long and complex”.
Investing in R&D
So, Collagen Solutions is moving up the value chain with products such ChondroMimetic, an implant used to treat cartilage and underlying bone defects.
It also plans to go ahead with bone graft and wound treatment collagen devices.
“Mostly we are investing research and development to complete and successfully commercialise regenerative medicine/finished device products,” CEO Rushdy told Proactive Investors.
“So that’s where most of our focus is going to be.
“However, we are also using some of the funds to accelerate our core business; completing our investment in sales, marketing and some of the back-end infrastructure we need to support our growth in bio-materials and tissue supply.”
Interesting is the scale of boardroom financial support for the strategy, evidenced by the £1mln being contributed by Collagen’s directors.
A total of £825,000 is coming from chairman and serial healthcare entrepreneur David Evans.
The equity portion of the fundraise could almost double the Collagen’s share base.
Usually that would result in a mark-down in the stock, which is being sold to new and existing investors for 5p.
In early afternoon trade, the shares were 3% higher and changing hands for 5.7p each.
City broker Cenkos said Collagen now has now has more than enough cash to see it through to a “self-sustaining cash flow positive situation”.
It previously said the business required around £6mln to get it to this position.
Analyst Chris Donnellan highlighted the huge potential of Collagen Solutions’ ChondroMimetic scaffold, which is designed to stimulate the regeneration of both joint cartilage and the underlying bone in patients with joint damage.
The product should receive regulatory sign off later this year and is likely to be sold by a third party via a distribution agreement.
Estimates suggest that there are more than 250,000 cartilage procedures performed annually in the US.
Here in Europe, meanwhile, the opportunity could be £340mln (€400mln), Cenkos’s Donnellan reckons.
Even if it were to capture 5% of market share when established, that would still equate to £17mln of annual revenues, or around five times' Collagen Solutions’ current turnover.
“We do not believe the current share price reflects the company’s ambition to grow its revenues by five-times over five-years, nor the full potential of the ChondroMimetic regenerative medicine scaffold,” said Donnellan, reiterating his ‘buy’ recommendation.