The road to RUA looks ready to rock
“…Now might be the time to consider taking a position in a company that may be on the cusp of confirming transformative contracts with major industry players….”
Flush with cash after a £4.4m fundraise late last year, heart device specialist RUA Life Sciences (AIM:RUA) is working to confirm deals with major medical companies that promise to secure strong revenues for years to come.
RUA comprises a group of medical device businesses focused on the application of a patented implantable biostable polyurethane, Elast-Eon. Polyurethane is a flexible plastic material popularly used as a foam in home furnishings such as furniture, bedding and carpet underlay. But, as RUA’s application shows, it can also be adapted for use as an alternative to silicon, the material typically used in heart devices. Processed by means of conventional thermoplastic extrusion and moulding techniques, the company’s polymers have been in clinical use for 16 years, and have been employed in more than eight million implants.
RUA has four trading businesses. Its Contract Manufacturing division develops and manufactures medical devices and implantable fabrics. Biomaterials licences Elast-Eon polymers to the medical device industry. Vascular (a term for the body’s circulatory system) develops and commercialises Elast-Eon sealed Vascular Graft products. And Structural Heart is focused on the group’s Elast-Eon composite heart valve material.
RUA’s new direction
RUA has been engaged in a major reorganisation to position itself to help large medical companies address the supply chain issues they faced during the pandemic. The strategy is showing signs of paying off, with RUA’s Contract Manufacture, Structural Heart and Vascular branches closing in on deals that promise significant longer-term cash generation and profitability.
The company hopes to double its Contract Manufacture business by continuing to convert sales discussions into formal bid processes. RUA has responded to a formal bid request from ‘a global business seeking manufacturing services to derisk supply chain issues across a range of implantable devices’, the successful completion of which ‘should result in annual revenue potential in excess of £1m’. RUA has proposed a phased work plan involving project scoping and reverse engineering, proof of concept manufacture and process validation, leading to a long term supply contract. Phase one has now been agreed with the prospective client with ‘work due to commence on contract signature’. Another Contract Manufacture customer ‘is expected to submit a bid request in the next few months at a value of around £500,000.’
The company’s Structural Heart division has entered into material testing agreement (a preliminary step to further collaboration) with a major medical company for an innovative new heart valve leaflet technology – thin but strong flaps of tissue that allow valves to open and close to facilitate the movement of blood. RUA’s technology blends the proven blood contacting and biostability properties of Elast-Eon with the company’s expertise in implantable textiles.
Recent testing results ‘have surpassed key milestones’. A heart valve made of the composite has achieved the key 200 million cycles required by ISO standards for a flexible leaflet heart valve, and flex fatigue testing for durability has passed 400 million cycles, equivalent to 10 years performance. The new valve’s flow area is around 25pc larger than similar sized valves in the market, and testing indicates its efficiency, requiring 50pc less energy than a biological valve. Though strong, it is wafer thin, at only 150 microns thick much thinner than animal tissue material, opening further performance benefits.
A December update reported that patent protection for the leaflet composite was being sought, and that RUA was ‘now seeking to commercialise the RUA composite material as an alternative to animal tissue used in the manufacture of heart valves.’ The company said that ‘engagement with the industry has been positive’ and that ‘a major heart valve company has approached the Company to undertake its own tests and has now entered into a material testing agreement in order to do so.’ The company expects ‘to shortly formalise an agreement to provide composite material to a large heart valve company for its own testing’. Now ‘that an attractive data pack is available on the composite, RUA intends to broaden this further through the industry.’
RUA’s Vascular division is seeking third party funding for an advanced project that has attracted interest from original equipment manufacturers, and early commercial sales. All the conditions are in place for the commencement of the regulatory testing regime: an automated manufacturing process has been established, a pilot manufacturing plant set up, and a global distribution partnership put in place to allow a simplified route to market. A business plan for the regulatory pathway and business model is being prepared as the basis of attracting third-party investment for the project. RUA says that ‘depending upon time of starting recruitment for the clinical studies and speed of recruitment, a timeframe to regulatory approval of between 30 and 36 months and a budget of approximately £6m is expected.’
£4.4m fundraise
RUA’s most recent set of interim results, for the six months ended 30 September 2023, reported a reduction in revenue to £794,000, down 28pc from the previous year, which the company attributed ‘to delays in the completion, shipment and sterilisation testing of orders from the major customer.’ It said the issues had been resolved by the autumn, when record shipments were recorded, with revenues from the customer now ahead of budget, allowing the company to report cash of £900,000 at the beginning of December.
But RUA supercharged its finances later that month, raising £4.4m after carrying out significant reorganisation to meet conditions for new capital, including the transfer the heart valve and vascular assets into subsidiary companies. The company said ‘the funds will be targeted at accelerating growth within contract manufacturing; strengthening the Company’s balance sheet to aid the commercialisation phase of its R&D projects within the Company’s vascular graft and HV leaflet composite; and enabling the Company to demonstrate value across the portfolio.’ RUA says the raise will help ‘the business to turn profitable in the shorter term as a result of growing contract manufacturing and commercialising the R&D undertaken within Vascular and Structural Heart.’
Outlook
RUA has had to implement its strategy in the face of poor market conditions for biotechs, but those headwinds may be easing. Biotech stocks suffered their worst run this century through 2021 to 2023, collapsing after they rose to freakish levels during the bull market spurred by the pandemic. The S&P biotechnology index remains more than 50pc below its early 2021 peak, but has risen 25pc since November, as investors anticipate a lower interest rate environment.
Biotech companies raised $6.2bn in equity capital markets in January, and the SPDR S&P Biotech ETF, which fell almost two-thirds from its 2021 high, has rececovered by 40pc since October. Small caps like RUA will be hoping the change in conditions will encourage a resurgence of interest among private investors, who have avoided speculative biotech stocks for the past two years.
RUA’s share price has been flat this year, at around 9p, taking its market cap to £6m, but a November rally to 37p, generated by updates on the promising deals discussed above, showed how quickly things can change. Now might be the time to consider taking a position in a company that may be on the cusp of confirming transformative contracts with major industry players.
