A CONTRACT delay and disruption related to coronavirus will lead to a one-off write down of £900,000 and hold up its sales pipeline, Glasgow-based biomaterials business Collagen Solutions warned.

The company, which is led by chief executive Jamal Rushdy, said in a trading update it expected a ‘materially greater than anticipated’ loss for the year when it announces preliminary full year results in mid-April. This is due to increased costs from a development and manufacturing contract which has taken longer than originally anticipated.

"Multiple uncertainties" may also impact year-end revenue, pushing some sales into the next financial year, Collagen Solutions added.

These include closing certain contracts in late-stage discussions, and delivery of collagen and tissue products for which the company has already received orders.

“The contract closure referred to above is uncertain because some customers have recently communicated that they are delaying their investment decisions because of economic and business uncertainty due to the COVID-19 outbreak,” the company said.

“The delivery of collagen and tissue products is at risk due to evolving government travel and transport restrictions and potential reduced capacity of import and export offices, testing services, and other aspects of the supply chain.”

Collagen Solutions manufactures medical-grade collagen for applications in medical devices, regenerative medicine and research and sells to customers in North America, Asia Pacific and Europe, the Middle East and Africa.

In its trading update, the company said its accounting treatment of the development and manufacturing contract delay required a one-time write-down of around £900,000. This accounted for the full loss over the life of the development portion of the contract only.

“The accounting treatment does not reflect a change in the company's commercial view of the full value of this contract inclusive of the contract manufacturing portion,” Collagen Solutions said.

It added that the company has put in place health and safety measures aligned with the latest government and industry recommendations and policies related to the COVID-19 outbreak.

“This includes a suspension of all non-essential travel, flexibility for employees faced with indirect effects of these measures, and of course a requirement to remain at home for any sick employees.”

At its half-year results announcement in April, Collagen Solutions had announced its third consecutive six-month period of double-digit sales growth. Revenues for the six months to end September 2019 were up 14.4 per cent to £2.23 million. Highlights included four new customer contracts and supply beginning to ten new customers.

The company said it had also begun an "infrastructure capacity expansion project" at its Glasgow facility to support increased demand. Growth was being driven by tissue sales, which more than doubled with 124% growth, and collagen, which grew at 13%.

Chief executive Jamal Rushdy said at the time. “We have shown particularly strong growth from our tissue business and also are continuing to bring on new customers and contracts from our global sales team.

“Our product development teams remain focused on development projects for customers, providing a solid platform for future contract manufacturing business. Finally, we are investing in our manufacturing capacity to ensure we can continue to support future growth and we look forward to a successful remainder of the year."

In June 2019, Collagen Solutions completed a fundraising of almost £6m, before costs. This included a strategic investment of £4.18m from Rosen's Diversified Inc, a Minnesota-based family business operating in the agribusiness and food processing sectors. Its business units include American Foods Group, one of the largest beef processing companies in the US, and Scientific Life Solutions, which supplies critical components to the bioresearch and biomedical fields, to advance research in areas including cardiovascular disease and diabetes. Rosen’s Diversified, Inc was founded in 1946, by brothers Elmer and Ludwig Rosen when they returned from service in WWII.

Collagen Solutions was set up in 2008 as a subsidiary of sausage skin maker Devro, based in Moodiesburn, Glasgow, to exploit biomedical applications for medical grade collagen.

The company is quoted on London’s Alternative Investment Market (AIM) for smaller growing companies. In early trading, Collagen Solution’s shares fell 41% to 1.15p.