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Holista Colltech (ASX:HCT) braces for a $43m a year sea of opportunities in China with Ovine Collagen  

Image Source: HCT Website

Summary

  • Holista Colltech offers ovine collagen derived from Australian sheep, a disease-free and culturally acceptable collagen source.
  • The Company has signed a deal with Malaysia-based Mutiara for the distribution of its ovine collagen into China. 
  • The deal could potentially generate up to $43 million a year in revenue from year four of the contract onwards.
  • Holista’s cosmetic-grade collagen is witnessing significant demand potential after the use and marketing of EGF was banned in cosmetic products in China. 
  • Mutiara will be responsible for obtaining key regulatory approvals in China and export permits.  

Australian research-driven biotech company Holista Colltech Limited (ASX:HCT) is positioned well to deliver a multi-million dollar organic growth opportunity, thanks to its exclusive agreement with Mutiara Seribumi Sdn Bh for distributing its ovine (sheep) collagen into China.

During the last quarter, the Company’s wholly owned subsidiary Holista Biotech Sdn Bhd inked a deal with Malaysia-based Mutiara, which is expected to purchase the annual production of Holista’s existing Collie Plant in Western Australia.

The purchase, however, is subject to a successful outcome of trials and Chinese regulatory approvals. Chinese state-owned enterprise Guangzhou Sinbio Cosmetic Co Ltd is testing Holista’s collagen product.

For additional details on Holista Colltech, read here

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Related Article: Holista Colltech (ASX: HCT): A powerhouse of unique health and wellness products

With this backdrop, let us cast an eye on how the deal is well placed to usher in opportunities for Holista to leverage the exciting market potential.

A brimming market for Holista’s premium-grade collagen

As highlighted by many studies, collagen is a powerful moisturising agent, which when applied to the skin increases its suppleness and tone.

Holista’s cosmetic-grade collagen is witnessing significant demand potential after China banned the use and marketing of Epidermal Growth Factor (EGF) in cosmetic products in the beginning of 2021.

As Australian sheep are known to be free of diseases, Holista’s ovine collagen is regarded as an ideal substitute for EGF. Further, there are no religious or cultural barriers to the use of sheep-derived products.

Related Article: Holista Colltech (ASX:HCT) ropes in new board member to fuel growth

Holista in a sweet spot with key terms of the deal

In May, Holista signed a distribution agreement with Mutiara, which holds more than 20 years of experience in supplying quality ingredients to cosmetic and food companies in China, especially state-owned enterprises (SOEs).

The distribution agreement will come into effect only after successful results of the trials as well as Chinese regulatory approvals. Thereafter, Mutiara will commit to purchase Holista’s entire annual production capacity of 48 tons from its Western Australian plant over the following 12-month period.

Moreover, Mutiara would be required to increase its minimum annual order to 144 tons in the second year, 288 tons in the third year, and 576 tons in the fourth and fifth years to retain exclusivity in China over the five-year agreement.

Mutiara will pay a non-refundable 50% deposit of 1.8 million upon placing an order, while the balance would be settled before Holista facilitates the collagen delivery.

In addition, the Company reported that the agreed price for Holista’s collagen is $75 per kilogram, Free On Board (FOB) Perth, Australia. This means that Holista could potentially earn $3.6 million in the first year of the deal and around $43 million a year on full scale-up from year four onwards, as per the Company.

Meanwhile, Holista can provide a 90-day written notice to Mutiara for increasing the price of its product.

Mutiara takes charge of the Chinese regulatory approvals process

As part of the agreement, import of Holista’s collagen into China and all necessary approval processes would be handled by Mutiara, with Holista not required to provide any financial support.

The trials being undertaken by Guangzhou Sinbio are focused on ensuring that Holista’s collagen conforms with all the Chinese regulatory requirements of cosmetic usage concerning safety and efficacy. Guangzhou Sinbio, which is an existing customer of Mutiara, exclusively represents leading cosmetic brands such as Ceeture, Estee Lauder and SK-II in China. The enterprise sells cosmetics through a network of 45,000 direct-owned stores.

Meanwhile, Holista’s collagen is already listed or authorised as ‘cosmetic grade’ in Australia, New Zealand, the United States, Thailand, Malaysia, Vietnam, Singapore, Taiwan, and the Philippines.

The regulatory hurdles for cosmetic-grade products are lower than medical-grade products. More importantly, Holista’s collagen is derived from sheep and lamb, which have long been exported to China without issues or restrictions.

Source: Copyright © 2021 Kalkine Media, Data Source: HCT update, dated 26 May 2021

Export permits are required as part of all necessary approvals, with Mutiara and its customers responsible for obtaining all export permits.

Holista gears up for lucrative growth prospects

Holista intends to refurbish the existing plant to meet the production requirement in the first year. The refurbishment would include replacing or upgrading ageing equipment, installation of additional storage tanks, and expansion of the effluent plant.

The refurbishment, which is planned to commence between September and November 2021, is expected to cost around $1.5 million, with funding obtained through a combination of a 50% deposit from Mutiara for the first-year orders and cash flow from Holista’s operations. Subsequently, the production would be scaled up from the second year onwards.

Holista has a commercialised portfolio of patent protected/proprietary technologies, allowing the Company to efficiently churn out premium products.


 


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