Skincare company Skin Elements (ASX: SKN) is the latest ASX small cap that wants to enter China.

The company, which owns the brands McArthur Skincare and Soleo Organics, announced a deal with Chinese distributor Henan Huatuo Health Management (HHHM).

HHHM will have exclusive distribution rights for Skin Elements products and will order $20m over the next three years starting June 30.

Subject to Skin Elements’ shareholders consent, HHHM will also make a $2.4m investment in the company — nearly 40 per cent based on Skin Element’s $6.2m market cap.

Skin Elements Chairman Peter Malone was excited to announce the deal and optimistic that more deals could be signed.

“It [the deal] represents our first large-scale distribution transaction in our key targeted global markets,” he said.

“With this term sheet now in place…we see a clear opportunity to move to expedite other potential global distribution opportunities.”

HHHM Chairman Li Zeling also expressed “great pleasure and satisfaction” to close the deal.

“We see the combination of Skin Elements’ high-quality world-class skin care products, and our strong sales and distribution track record and know how in China as providing the foundation of a highly successful partnership – which we see growing and expanding in the future,” he said.

Skin Elements and HHM chairman Peter Malone & Li Zeling signing the Term Sheet. (Pic: Skin Elements)

Skin Elements’ shares jumped nearly 40 per cent to 6c in early trade. In the last two weeks they have more than tripled.

Skin Elements (ASX:SKN) shares over the past 12 months.
Skin Elements (ASX:SKN) shares over the past 12 months.

But the ASX have some questions…

Also this morning, Skin Elements released its response to ASX price and accounting queries it received two weeks ago.

Over 600,000 shares had changed hands in the preceding 48 hours and the ASX wanted to know why. However, Skin Elements had no explanation other than today’s announcement.

The company defended not releasing the news until today saying until today, “the negotiations were incomplete and confidential”.

ASX Listing Rule 3.1A allows exemptions from disclosure rules where, “the information concerns an incomplete proposal or negotiation”.

Yet Skin Elements had a tougher time responding to the other “please explain” it got from the ASX.

The bourse wanted to know why Skin Elements couldn’t value its intangible assets despite undertaking an impairment assessment and stating it was a “key audit matter”. The ASX also asked if the company’s financial condition was sufficient to be listed.

Again, Skin Elements used its China partnership to defend itself, noting the intangibles were based on deals, that at the time of auditing it had not been finalised and consequently the company could not estimate the value of intangibles.

The company nonetheless argued accounting standards had been met.

Skin Elements promised its next financial statements will “validate the reliability of SKN’s cash flow models used to support the recoverable amount of the intangible assets”.

The company staunchly rejected the supposition its financial condition was insufficient to warrant listing. The company pointed to its net asset position of $9.4m and its extensive skincare product range.

While admitting it would need capital soon, Skin Elements believed the China deal was “indicative of the opportunities for the company’s technologies”.

The ASX was evidently satisfied enough to reinstate the company to trading today.

In other health news today…

Board changes and capital raises

  • Software as a service (SaaS) business HeraMED (ASX: HMD) has hired Arturo Weschler as vice president of innovation. Dr Weschler has a medical career spanning several decades that includes being the co-founder of cloud-based health management platform Healarium.
  • Health start-up investor EVE Investments (ASX: EVE) has raised $350,000 from two existing shareholders who proactively desired more of the company. Only one was named, TRT Investment Group. TRT is the Australian subsidiary of Tianjin Tongrentang Group, one of China’s most prominent traditional medicine enterprises.

Judgement and Presentation Days

  • Wednesday May 8 (US time). That’s the date for when Pharmaceutical firm Pharmaxis (ASX: PXS) will hear the US Food and Drug Administration recommendation on the use of its cystic fibrosis treatment – Bronchitol. An 11-member committee will hand down their findings, which will be five months after Pharmazis submitted its new drug application.
  • Overnight, hearing solutions company Nuheara (ASX: NUH) presented at a prominent hearing aid expert and investor conference in New York. Hearing Aid Day was run by European finance firm Kepler Cheuvreux and also attended by significant medical device companies, including Demant and Intricon.
  • On Monday July 1, Global Health’s (ASX: GLH) MasterCare Electronic Medical Record (EMR) is scheduled to be operational in Sunraysia’s healthcare centres in Victoria. Global Health won a competitive tender process to be the Client Information Management System (CIMS) supplier for the Mildura-based healthcare provider. Platform findings will be obtained and utilised in real time by front-line doctors and for senior management evaluations.