COS.L Regulatory News (COS)

23 April 2020

Collagen Solutions Plc

(the "Company" or the "Group")

Trading Update

Collagen Solutions Plc (AIM: COS), the developer and manufacturer of biomaterials and regenerative medicines for the enhancement and extension of human life, announces a trading update for the year ended 31 March 2020.

Revenue for the full year to 31 March 2020 is expected to be £4.01m (2019: £4.15m), reflecting a 3.3% decline on the prior year. As reported on 3 December 2019, the first six months of the financial year demonstrated strong momentum with sales growth of 14.4% and, notwithstanding manufacturing challenges during the financial fourth quarter, the second half of the year maintained positive single-digit year on year growth (and double-digit year-to-date growth) up until the end of February. However, the Company has experienced Covid-19 impacts to the business in March which have impacted the full year revenue and are expected to continue to impact the Company for the near future.

Despite these challenges, several of the business categories demonstrated positive revenue momentum for the full year including:

· 58% growth in tissue revenue

· 10% growth in development revenue

· 1% growth in contract manufacturing revenue

Although the demand and our order book for collagen supply remains strong, the Company faced, and continues to face, challenges from the Covid-19 impact to production, logistics and customer disruption, and capacity constraints and production challenges in the Company's Glasgow plant. Together, these factors contributed to a 34% decline in collagen supply sales in the full financial year.

All three Company sites in Glasgow, Minnesota, and New Zealand remain operational subject to certain reduced on-site staffing and other health and safety restrictions. The Glasgow manufacturing capacity issues have been addressed with an investment of £0.5m for a recently completed expansion of production cleanroom space and equipment, providing an almost doubling of collagen and contract manufacturing capacity once the Company is back up to full staffing after relaxation of current health and safety restrictions and completion of validations.

In addition, several late-stage agreements that the Company reasonably expected to close in March were postponed by customers due to the uncertain business environment or other priorities related to the effects of the pandemic. The Company plans to reengage with these potential customer opportunities as and when business uncertainty reduces.

Post year-end the Company's Notified Body submitted the Summary Evaluation Report related to animal tissue for ChondroMimetic® for review by the European Union Member States' Competent Authority, a critical step for the CE mark approval, and the Company is addressing the Notified Body's outstanding questions. The European Parliament on 17 April 2020 voted to defer for a year until 26 May 2021 the Medical Devices Regulation (MDR) from taking effect. This postponement will provide the Company additional time to submit under the current Medical Devices Directive (MDD) and should therefore avoid potential increased costs and timelines associated with having to re-submit under the MDR.

Group cash balances at the year-end were £2.1m (2019: £1.7m). In March, the Company received indication of approval from Scottish Enterprise for its revised R&D project plans in relation to the previously announced £1.54m grant. The Company has not yet accessed any of these grant monies. Based on this newly agreed upon plan, the Company will submit its first cash claims against this grant starting this financial year and throughout the 36-month duration of the grant. The Company is also actively pursuing additional potential non-dilutive sources of cash including various governments' Covid-19 loans and grants and enacting other prudent cash-conserving tactics. The Company's non-executive Board and CEO have taken a voluntary 25% pay cut for up to six months, and other members of the executive team have taken similar cuts, in order to preserve cash and minimize employee furloughs and job cuts. The ongoing Covid-19 pandemic presents significant challenges and uncertainties and it is not possible to predict what the outcome of the pandemic will be for the Group and its partners and customers.

Jamal Rushdy, CEO of Collagen Solutions, commented: "I am extremely proud of the resilience and response of our global team members to the Covid-19 crisis, and grateful for the continued support and partnership of our customers. We quickly implemented our Business Continuity Plan with a priority on the health and safety of our employees, their families, and our communities as well as ensuring continuity of business and delivery of products and services to customers. We remain confident that the markets we serve remain attractive over the long term, we continue to offer a compelling value proposition to our customers, and that double-digit growth will return as the impact of Covid-19 diminishes."

The preliminary results set forth above are unaudited and remain subject to completion of the Company's financial closing procedures.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

A copy of this announcement will be available at https://ir.collagensolutions.com/content/news/ir_news. For the avoidance of doubt, the content of the website referred to above is not incorporated into and does not form part of this announcement.

FORWARD LOOKING STATEMENTS

This announcement (including any information incorporated by reference in this announcement), contains certain statements that are or may be deemed to be forward looking statements. Such statements are prospective in nature. All statements other than historical statements of fact may be forward looking statements. Without limitation, statements containing the words "targets", "plans", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "projects", "remain confident that" or "considers" or other similar words may be forward looking statements.

Forward looking statements are based on current expectations that involve or are subject to risks, changes in circumstance, assumptions and uncertainties. Important factors such as business or economic cycles, the measures introduced in response to the COVID-19 pandemic, the terms and conditions of the Company's financing arrangements, tax rates, or increased competition may cause the Company's actual financial results, performance or achievements to differ materially from any forward looking statements. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward looking statements. The information in this announcement is provided only as at the date of its release, and the Company disclaims any obligation to update any forward looking or other statements contained herein, except as required by applicable law.