WA's Colltech goes for IPO on the sheep's back

Western Australian company CollTech is aiming to raise up to AUD$5 million in its IPO to build a collagen extraction and purification facility, based on its novel and proprietary method for extracting the protein from sheep skins.

CollTech, which is currently a public unlisted company, plans to issue 25 million shares at $0.20 per share for a total of $4.5 million, with an option to accept up to $0.5 million in oversubscription. Investors will also receive one option per four shares issued, exercisable at $0.25.

According to chief operating officer Dr David Kennedy, the capital raised will primarily be used to build the company's facility in the south-western town of Collie, close to the sheep-farming areas that will supply the skins.

CollTech's business strategy involves the production of three grades of collagen from the sheep skins, including a low-grade insoluble collagen suitable for use as a food additive, as well as a low- and high-grade soluble collagen for use in the cosmetics and medical devices industries respectively. Wool will also be produced as a by-product of the extraction process, providing another source of revenue.

"We're not creating new markets, these markets already exist," said Kennedy. "We'll be competing against current sources of collagen."

But according to Kennedy, there are several advantages of CollTech's technology -- it provides higher yields at a low cost than existing sources of collagen, which is primarily obtained from cattle and pig hides, and the livestock source is disease free.

The skins will be sourced from export quality abattoirs and all of the company's activities will be performed to GMP, ISO9001 and other international standards to meet the standards of medical grade collagen, he said.

Initially CollTech plans to move into the Asian market for food and cosmetic-grade collagen, and has already commenced pre-sale discussions with a number of potential customers.

"The moment we start building the factory, we'll continue discussions with those customers," Kennedy said. He said the company planned to have the new factory up and running by the end of 2004.

CollTech will also set up an R&D program to investigate potential medical applications of collagen.

CollTech's current major shareholder, Australian Development Capital Fund (ASX:ADV), will make an in specie distribution of shares to its unit holders on a pro rata basis of one CollTech share for every two ADV shares held, retaining a residual interest of 2.3 million shares.

The offer closes on February 6, 2004, although Kennedy said the high level of investor interest might allow the offer to close before Christmas. Burdett Buckeridge Young is managing the float.