Buy Tissue Regenix (TRX) at 12.75p

A report by AllNewIssues.com

Background on this red hot penny share tip: Regenerative medicine involves the creation of tissue (a group of cells performing a similar function) that help repair or restore the functioning of human cells, tissues or organs that have been affected by age, disease or injury. Tissue Regenix has developed a device based on its propriety dCELL technology which uses a patented process to remove cells and other biological components from human and animal tissue. This device containing functional tissue can then be permanently implanted within a patient through surgery enabling the cells to repopulate with the patient's own cells and natural biological repair mechanisms to be set off. Since the company's implants are compatible with living cells, tissues and organs they carry no risk of toxic contamination or organ rejection by the immune system. Furthermore they enable the delivery of a long-term solution that enables the regeneration of organs and cells with serious deficiencies.

Tissue Regenix comes to the market following the company's acquisition by AIM-listed technology and science sector investment business Oxeco in a move that counts as a reverse takeover under AIM rules. Net proceeds of GBP4 million were raised via a placing of 106.7 million shares at 5p in order to provide working capital for the enlarged group and the company's shares joined AIM on 29th June 2010. At the current share price of 12.75p the company is capitalised at GBP 59.746 million.

Operations: Founded in 2000, Tissue Regenerix was set up to commercialise the academic research of Professor Eileen Ingham and John Fisher of the University of Leeds in the field of tissue decellularisation (the removal of cell or cell material from tissue). The company believes its regenerative implants can be used to address many critical clinical needs such as vascular ailments (blood vessel illnesses), heart valve replacement and knee repair. Tissue Regenix is currently focused on delivering its lead product, the dCELL Vascular Patch which is a sterile biological implant which began trials in August 2009. The company has completed the six month follow-up to its clinical trial on the dCELL Vascular Patch and will shortly be submitting its dossier of data from the trial to the regulatory authority as part of its application for a CE Mark (EU regulation enabling the marketing of medical devices for sale).

Since its founding the group has filed four types of patents pertaining to the characteristics and applications of its dCELL technology. Patents have been received from its decelluraisation technology in Australia, Europe (except for Germany) and the USA with patents pending in Canada. The company's second patent application relates to the ultrasonic technology used to modify tissue it has been granted patent protection in Europe with approval pending in Australia, Canada and USA. In the UK the firm holds patents for the use of its technology in knee repair and the bladder but patents are pending for these two applications in all other geographies.

Once regulatory approval is achieved the group hopes to generate revenues by licensing its technology to third parties and by entering into co-marketing and distribution agreements for its products.

Business Development: Tissue Regenerix hopes to use proceeds from the placing to complete the CE application process for its dCELL Vascular patch, to begin marketing the device in Europe and to file for regulatory approval in the US.

The next product on which it hopes to focus following is the dCELL Meniscus. The dCELL Meniscus is a device made from porcine meniscus (pig cartilage tissue) which possesses the biomechanics and structure of human meniscus which management believe will assist in restoring normal function to human organs. The product has already been the subject of more than 3 years of background research and the firm hopes to apply a significant proportion of the cash raised towards furthering the development of the product and securing regulatory approval for marketing. In the future the group also hopes to develop further follow-on products in the vascular, cardiac and orthopaedic areas.

Management: A qualified Chartered Accountant 58-year-old John Samuel joined the company as Chairman in March 2008. In the past he has served as the Financial Director of fire safety and marine services company Whessoe and chemicals group Ellis & Everard. He is also a former CEO of the Molnlycke Health Care group, a global provider of single use surgical and wound care products to the healthcare sector and a former partner at private equity group Apax Partners LLP.

Antony Odell is the group's Chief Executive Officer. The 48-year-old joined has extensive commercial experience in the medical technology sector. In the past he has served as the co-director of Xeno Medical, a medical technology consultancy and the CEO of a UK NHS cardiovascular device spin-out, Tayside Flow Technologies Ltd. Previously Mr Ordell has also worked for J&J Medical for almost 10 years in European business development roles for Drug Delivery & Vascular Access and as the UK General Manager for Fresenius (Critical Care & Diagnostics)

Besides working as the Finance Director of Bridgent Group for 12 years, 54-year-old Finance Director Michael Bretherton has worked in senior business positions at property services company Mapeley Limited and entertainment software games developer Lionhead Studies. Over his career he has been involved in a number of project evaluations, acquisitions, disposals, restructurings, start-ups, venture capital fundings and IPO flotations. He is currently also a director of AIM-listed companies Nanoco Group, Obtala Resources, Oxford Advanced Surfaces Group and Oxford Nutrascience Group.

Financials: As its products are in still in development the group is yet to generate any revenues from sales of its technology. During the 2009 financial year the business reported a net loss of GBP1.2 million on administrative expenses of GBP1.5 million. The group's latest results are for the six months to 31st January 2010 during which it reported a net loss of GBP0.66 million on revenues of GBP74,000. These revenues consist entirely of grant income which is recognised as contractual conditions are achieved. As at 31st January 2010 the group held accumulated losses of GBP2.6 million.

Following admission, Tissue Regenix will have net funds of approximately GBP6.8 million which equates to four and a half years of operating expenses on the 2009 run rate.

Assessment: Tissue Regenerix's ability to generate value for shareholders revolves around it being granted patents in new geographies and the successful development of new applications for its products. However once it is past that hurdle there are additional risks affecting its commercial viability including whether its products will be eligible for reimbursement programmes from governments, threats from competitors looking to encroach on its intellectual property and uncertainty as to whether its devices will be accepted by surgeons.

We should also state that there are five other companies using cellular technology to develop implants for surgery and thus the firm does face competition. On the other hand we note the firm's success in achieving patents which indicates that its technology has unique properties which could help maintain an edge over rivals.

On a more positive note, a number of catalysts exist to the share price in the form of the receipt of CE approval and the possibility of further patent approvals in major markets. While the company is likely to continue to be loss-making for the foreseeable future the future news flow and the business' strong balance sheet is enough for us to rate the shares as a highly speculative buy.

Key Data
Epic: TRX
Market: AIM
Spread: 12.5p - 13p (3.8%)

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