Duro Textiles, one of the largest distributors of textile products in the U.S., is making a substantial investment in Alexium’s flame retardant nylon treatment under an exclusive operating licence agreement. Alexium will realise an immediate financial gain and will still be able to pursue further licensing agreements with partners in other territories.
Alexium International Group (ASX: AJX) has completed a licensing deal with Duro Textiles, one of the largest distributors of textile products in the U.S., that will see the company’s flame retardant (FR) nylon treatment marketed to commercial and military customers in North America.
Importantly for Alexium, the deal will provide the company with an immediate financial gain as well allow it to continue to pursue further licensing agreements with partners in other territories.
The signed agreement includes an upfront licence fee, development cost sharing, machine sale, milestone payments, and royalties based on product sales with minimum quantities, which will establish a solid revenue stream for Alexium.
Alexium is aiming to address demand from the U.S. military, which currently has 1.4 million soldiers serving on active duty and 800,000 soldiers on reserve duty, as well as commercial customers in the U.S. and abroad.
The company anticipates a combined market demand of at least 4 million linear yards per year, with high profit margin potential.
Under the agreement, Duro will also have limited rights to export military fabrics to Europe and the Middle East.
Both companies will work together on the commercial and technical roll-out, establishing manufacturing capacity, and supplying customers over the coming 10 months with a view to a rapid roll out.
After a technical ramp-up and market introduction period, the agreement with Duro is expected to establish a solid revenue stream for Alexium which will assist the company in expanding into other technology platform areas.
‘Game changing’ technology
Ed Ricci, chief executive officer of Duro Textiles, said the Alexium product will allow Duro to make products containing at least 95% nylon fire retardant without jeopardising hand or breathability.
“This is a game changing technology that will broaden the way people think about Nylon for FR applications.”
Commercial growth
Stefan Susta, chief operating officer and executive director of Alexium International Group, commented: “Alexium will push for growth in the next year. It will be an exciting year.
“Specific to these topical FR nylon treatments, Alexium has initiated discussions to establish similar commercial relationships in other global territories.
“While that is our near-term focus, our longer term strategic objective is to expand our FR treatment into other applications and markets.”
Alexium is investigating opportunities to expand its technology to carpets, synthetic fabric blends, and as polymer additives in materials for non-textile applications.
Market traction
Alexium’s flame retardant textile treatments are set to gain commercial traction as consumers and industry look for a better, cleaner alternative to traditional bromine-based flame retardants.
While commercial organo-bromine compounds inhibit combustion, they are coming under increasing public criticism and increasing scrutiny of consumer protection agencies.
Brominated flame retardants are lipophilic and bio-accumulative, and several brominated flame retardants have been labelled carcinogens and neurological toxins.
This has led some European countries to ban some or all hazardous brominated flame retardants, while in the U.S. legislative efforts are underway in some states and at the federal level to phase out brominated flame retardants.
California is moving forward with plans to scrap old laws and replace them with new standards that can be met without the use of toxic chemicals, while the U.S. Environmental Protection Agency is carrying out a high priority review of organobromine-based ingredients, citing widespread exposure and potential health risks.
Alexium’s flame retardant treatments do not contain organobromine or any other halogenated compounds.
Analysis
This deal is of potentially epic proportions to Alexium given its current Market Cap. of sub $10 million. The market opportunity for Alexium in North America is in excess of 4 million linear yards of nylon. This market is expected to grow as applications for FR Nylon broaden into other FR markets.
Duro is a leader and foremost solution provider for military fabric needs in the U.S. The company is also a major fabric supplier to the performance apparel, industrial, tactical, home, and hospitality markets.
However, a point perhaps missed by some investors, Duro Industries and sister companies Galey & Lord and Best Textiles are part of Patriarch Partners, LLC, a private equity firm managing $7 billion in assets in more than 70 companies.
Edward W. Ricci II, managing director of Patriarch Partners-Textile Platform, is known to be extremely bullish on the alliance with Alexium and believes the company's technology to be "game-changing."
Revenues derived from the agreement will initially be used to accelerate the transition to full production.
With the parties working together on commercial and technical roll-out, establishing manufacturing capacity, it could supply customers over the coming 10 months, with a view to a rapid roll out.
With the deal with Duro set to generate a solid revenue stream and other discussions in the pipeline to establish similar commercial agreements, Alexium is set to realise substantial value and growth from its flame retardant nylon technology.
The culmination of this deal should assist to bring Alexium out from under the radar to investors and financiers. We can foresee significant upside in the Alexium investment equation over the next 12 months.
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