Stewart White rescued parts of Angel Biotechnology from administration and then turned to the Alternative Investment Market for funding, as he tells Peter Ranscombe.
Here’s a question – what links sausage skins with life science companies?
More than meets the eye according to Stewart White, chief executive at Collagen Solutions. His Glasgow-based firm takes simple cow hides and tendons and extracts collagen, a protein that’s found in tissue throughout the human body and which can be used for a host of medical treatments, from bone grafts all the way through to delivering cutting-edge therapies like stem cells.
When we meet at his head office, the rain is pounding the Nova Business Park at Robroyston in Glasgow, but the outlook appears bright for Collagen Solutions. It’s results day and White is taking calls from journalists about his full-year figures, which put the company on course to meet its goal of growing its value from around £20m at present to £100m by 2020.
Rewind to February 2013 and the company couldn’t have had a more complicated birth. White had been acting chief executive at Angel Biotechnology, a life sciences business that was put into administration. White and David Evans – a serial biotech entrepreneur – set up a company called Collbio to save Angel’s manufacturing facility at Robroyston.
They then completed a reverse takeover of a cash shell called Healthcare Investment Opportunities (HIO), of which Evans was chairman, and took on its listing on the Alternative Investment Market (AIM).
Bringing Collbio and HIO together allowed the combined company to buy California-based peer Collagen Solutions.
Even though White had only been with Angel for 15 months – first as commercial director before quickly stepping up to become the company’s acting chief executive – he was already very familiar with the Robroyston facility. Angel had bought the plant from the medical division of Devro, the Moodiesburn-based sausage skin maker where White had worked as technical operations manager. Meanwhile, the Californian operations of Devro’s medical division went on to become Collagen Solutions LLC, before eventually being reunited with the Scottish arm by White and Evans.
Despite the Glasgow plant passing through several pairs of hands – from Devro to Angel and then on to Collbio and now Collagen Solutions – there has been an element of consistency running through its operations. The site is not only involved in producing collagen for its customers, but it also works with clients on research and development.
“We always believed in the strategy,” explains White. “It’s the exact opposite of what a lot of people do – they spend £5m developing a device but don’t know whether the National Health Service actually wants to buy it. This is the antithesis of that.
“There’s a business opportunity here. There are customers that use the facility and there’s the opportunity to grow. Being able to save the facility and bring it back together with the operations in California was great. Going through the process was intense and we had to go into so much detail for the reverse takeover.
“David Evans’s belief in the strategy enabled us to initially rescue these assets. Without David’s leadership, commitment and belief, we wouldn’t be where we are today.”
Evans is an experienced operator in the sector: he sold life sciences firm BBI Group for £84m in 2007 and Manchester-based diagnostics firm DXS for £80m in 2009; he’s also the chairman of Alva-based Omega Diagnostics and a former chief executive at Axis-Shield.
White met Evans through the Scottish Lifesciences Association, a trade body run by Scott Johnstone and John A Brown. Scottish life science companies have come and gone from the stock market, with Angel falling into administration, Borders-based drugs developer ProStrakan being taken over by Japanese firm Kyowa Hakko Kirin, Dundee medical testing kit maker Axis Shield being swallowed by New York-listed Alere and Japanese camera giant Nikon snapping up Fife eye scanner maker Optos.
White believes that listing your business on the stock exchange – and AIM in particular – can bring benefits for entrepreneurs. “The transparency and publicity that AIM brings are great advantages for a business,” White argues. “A lot of people think that being a publicly-listed company is onerous, and yes you do need to make a time commitment to it, but the access to the markets that it gives you and the feedback you get from institutional investors is fantastic, especially when it comes to honing your strategy.
These are experienced life science investors who ask ‘Have you thought of this?’ or ‘Have you thought of that?’ so there’s a much wider spread of people giving you advice or offering you opportunities.”
As well as the requirement to report to shareholders twice a year, the other criticism levelled at the stock market is the cost of raising money. Indeed, Collagen Solutions spent £1.4m in the year to 31 March 2015 on administrative expenses, including the cost of raising £5.4m in an over-subscribed share-placing so that it could buy New Zealand-based Southern Lights Biomaterials.
“You have to try to get as much value into the company as you can from those fees that you pay,” White says. “It’s one of the costs of growth, but the benefit is that one can raise capital fairly quickly on AIM if an opportunity comes along.”
Those investors seem to have latched on to the idea of collagen and what it can do.
“Collagen makes up your tendons, your skins, your trachea, your eye – indeed bone is basically just calcified collagen,” explains White. “There are about 27 different types. Collagen has been used for decades in medical devices, so what we can do is take collagen and turn it into different forms for different applications. For example, we make collagen that our customers then turn into bone grafts.”
White studied applied microbiology at the University of Strathclyde and completed his PhD there, with a view to entering academia. But it was during a night class for the university’s post-graduate certificate in entrepreneurship that he was bitten by the business bug and changed direction, taking a job in Liverpool with American pharmaceuticals group Eli Lilly before returning to Scotland to join first BioReliance and later Devro Medical.
“I sometimes make a flippant comment that I used to be a scientist,” says White. “But I don’t think you ever stop really being a scientist in the way that you approach things. I think that critical way of solving a problem always stays with you, along with the data analysis skills and the requirement to articulate a data-driven solution.”
He adds: “One of the first questions our customers ask is where do we source our material from – the answer is cattle in Australia and New Zealand, which have very tight borders and don’t have BSE,” explains White.
“They protect their supply chain very carefully. So the starting material is as safe as it can be for its type and then there are several levels of testing and safety over and above the safe location to ensure the material is safe for human use.
Collagen Solutions’ current partnerships include work with University College London, via a licensing deal, to produce tissue that surgeons will be able to use within hours, rather than waiting weeks for it to grow. The company was also awarded a grant from Innovate UK – formerly the Technology Strategy Board – to work with the Electrospinning Company on a substance that can be used to help internal wounds to heal.
“Working on research and development projects is partly about bringing in revenues now, but also about seeding opportunities for contract manufacturing in the future,” White adds. “Ultimately it’s not just about paying a dividend – it’s about making quality products that improve the lives of patients too.”