A Fool is tempted by a company set to fly on the back of pigs!
Blue sky companies -- loss-making fledgling businesses that promise great things for the future -- aren't generally my bag. But when one of these income-less tiddlers gets the backing of big-cap dividend supremo Neil Woodford, it does tend to grab my attention!
(By the way, if you're also intrigued as to which FTSE 100 shares Woodford backs, then this free Motley Fool report -- "8 Shares Held By Britain's Super Investor" -- reveals which big companies he is keen on right now.)
Tissue Regenix (LSE: TRX), a small AIM-listed firm, is a rare Woodford blue-sky bet.
Pig scaffold
Tissue Regenix joined AIM two summers ago, raising £4.5m in the process. It raised a further £25m in a placing at 13.75p per share last December, when Neil Woodford was the major taker.
Since I wrote about Tissue Regenix a couple of months ago as a 'buy-what-Woodford-bought-but-cheaper' opportunity (it was 12.25p at the time), the company has released its annual results.
For those of you who are new to Tissue Regenix, the company's dCELL technology, which is protected by a library of patents, removes cells and other components from human and porcine (pig) tissue. This leaves a "scaffold" that can be used without anti-rejection drugs to replace or repair worn out, damaged or diseased parts of the human body.
Because these scaffolds are inert and regeneration occurs through the natural functions of the body, they are classified as medical devices. As such, regulatory approval is typically faster and less expensive than, for example, pharmaceutical products. I like the fact the company has a relatively speedy and cost-effective route to market.
A pivotal year
In last week's results, Tissue Regenix updated us on the progress of its various products in what it describes as "a pivotal year … providing a significant endorsement of the commercial potential of our innovative technology platform":
- Heart valves. dCELL-processed human donor valves have been used in over 140 patients with encouraging results and work has commenced on porcine valves.
- Chronic wounds. Preliminary clinical data from a pilot study using human donor decellularised skin is expected towards the end of 2012, and a porcine donor version is under examination.
- Arteries. Clinical evidence is being built for the commercialisation of the dCELL Vascular Patch and the company is in dialogue with the FDA about approval of its use in the US.
- Orthopaedics. Data from a preclinical trial of a porcine meniscal repair product, dCELL Meniscus, is expected in the second half of the year. Initial surgeon feedback has been encouraging and work has begun on a porcine ligament repair product.
Tissue Regenix continues to be loss-making at this stage -- £2.7m over the year -- but cash and short-term deposits at the year end stood at £28m, thanks to the share placing. The strong cash position is allowing the company to scale up the development programmes of all its products in parallel.
During the course of the year, Tissue Regenix entered into a commercialisation and IP agreement with development partners in Brazil. This deal not only gives the company access to preclinical testing facilities, but also exclusive worldwide rights (excluding Brazil) to the development partners' pipeline of innovative complementary products, a number of which could be generating revenue in the near term.
A global leader
With a chronic global shortage of donor tissue, and areas like advanced wound care worth over £3bn a year and growing, Tissue Regenix is confident it's ideally positioned to capitalise on major market needs.
The company aims to become a significant player in regenerative medicine -- indeed, its ambition stretches to being no less than "a global leader".
If Tissue Regenix delivers, the current share price of 12.4p will multiply who knows how many fold – tenfold would take the market cap to £800m, which is still way smaller than top FTSE 100 medical devices firm Smith & Nephew (LSE: SN) at £5.5bn.
Of course, such wildly speculative potential is the very stuff of all blue-sky punts, most of which wind up being miserable disappointments! I do feel, though, that Tissue Regenix's technology, the markets it's targeted, a strong board of directors and the heavyweight backing of Neil Woodford, make it more than a cut above the average.
My personal no-blue-sky-punts rule hasn't come under this much pressure for a long time! I'm wavering … but should I?
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> G A Chester does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Smith & Nephew.
