Small Company Champion & Lemming Investors Research and Newsletter Updates

Saturday, 21 November 2020

OptiBiotix Health - Next Stage Second Generation Products


Investors of OptiBiotix Health PLC (OPTI) will have heard the company talk of the first and second-generation products and the focus increases towards the second generation, and talk withing the company how excited they are about the next stage in the development of the business with the first generation lead products (ProBiotix Ltd, probiotics, like LP-LDL range, prebiotic SlimBiome range. These are created for health, chronic lifestyle diseases that have high mortality and morbidity and where there are limited treatment options.  As the microbiome storey emerges into the mainstream, particularly in the US, OptiBiotix will bring out its microbiome science more.

As most of you know, I try to communicate with the CEO. Stephen O'Hara a lot, usually with fact-checking queries I have, and or investor queries. One of the key observations we agree on is our belief many investors don’t fully understand the multiple shots at goal OptiBiotix has, consequently significantly de-risking the investor's investment.  These are all designed to reduce investor risk as the company builds a business in a new and evolving area like the microbiome.  With any new science in a totally new space, there is always the risk the promise won't develop or takes a long time (think of electric cars).

It is frustrating the wider market appears not to give OptiBiotix the deserved credit for delivering on all scientific based platform's; including multiple awards winning Pre, probiotic, modulation including SweetBiotix. All have passed science hurdles and all commercially viable and all managed with a headcount under double digits and £8m raised since the IPO in August 2014. That is astonishing, even if the share price does not reflect this right now, it will, but other forces are against us right now. It was cryptos in 2016/17, now its Covid stocks and dare I say, the reemergence of cryptos.

Some of us may not think so, but the company has come a very long way in 6 of on the AIM casino. Since listing on AIM during 2016, it was all about a microbiome idea and developing the science, backing that science up allowing it to brings science to the development of compounds which modify the human microbiome - the collective genome of the microbes in the body - to prevent and manage human disease and promote wellness. Through its R&D programme working with leading academics in the development of microbial strains, compounds, and formulations. These have been double-locked IP and Trademarked in most territories around the world, this is about building the solid foundations before utilising these compounds and ingredients into everyday products, primarily in a strategy as B2B, supported by a B2c model. Part of the building blocks has been the strategy to develop in-house own brands, like the GoFigure weight management range, CholBiome cardiovascular range and SmartSnake as shop window range - this has attracted large global corporations from all corners of the world. 

The shop window strategy is a very small part of the business I note sometimes some investors get really frustrated about because:

1. The range is not extensive enough

2. Online sale perception is low

3. No marketing to engage the general public beyond investors

This is not the focus of the company strategy. I am sure as the B2B model matures a time will come to expand the range of products and promote is and the company more. The online store is not intended to be a rival to Holland & Barratt's, it is a shop window for prospective B2B commercial partners, not a B2c. Obviously, it is a B2c which will grow organically as the OptiBitox grows its product range and the ''intel inside'' brands through the B2B partnerships which are now developing more and more products in something like 170 countries.

More than 20 international food and healthcare supplement companies and distributors have signed agreements with OptiBiotix to incorporate their human microbiome modulators into a wide range of food products, including baked goods, cookie snacks, gummies, frozen foods, OTC supplements, dairy and beverages. Some of these are part of the second generation products the company chairman, Neil Davidson seemed excited about during hiss recent Proactive Investors interview.

Key points:-

  1. OptiBiotix’s strategy was designed in the context of a new and evolving area, the microbiome, to limit investor risk where you are creating new science for an entirely new market where no microbiome products existed.  With any new science in a new space, there is always the risk the science will fail, or it takes a long time to develop the science and market as infrastructure support existing products.  This is particularly the case for products which are a step change from existing products.  In the same way, as electric cars have struggled to gain market acceptance, even though everyone accepts they are the future, sugar producers like Tate and Lyle, Sudzucker etc., have large investments in sugar cane, sugar beet producers and manufacturing plant which is totally different from that required from an enzymic process to produce SweetBiotix and OptiBiotix's microbiome modulators. The challenge with being first in the microbiome space with new technology and products is that in the early days there was very little access to microbiome testing services or data to show an association between particular microbial groups and health.  This is now developing, particularly in the USA.
  2. The overall aim was to produce multiple shots at goal focusing first-generation products on chronic lifestyle diseases, health conditions with high mortality and morbidity where there are limitations in existing treatment options.  Through R&D OptiBiotix has garnered microbiome data on these products it has focused on the health benefit and not the microbiome.  Once sales, industry credibility, and a distribution network is established, the focus switched to microbiome and pharma products. WellBiome is the first step in bringing microbiome supported health and wellbeing products to market.
  3. The company has been fortunate in that unusually all the developments and clinical studies have been successful, which is great news for investors because this significantly de-risks the company. However, there has been challenging balancing all the opportunities.  First, you need to build the scientific, clinical, and regulatory dataset to allow to show key differentiate its first-generation products like SlimBiome, WellBiome, and LPLDL, whilst building the science, IP and early clinical for the next-generation products.  This gives us shareholders a high degree of surety as we have the scientific, clinical, and commercial success of the first generation products (SlimBiome and LPLDL)  and the prospect of a large upside if any one of our microbiome modulators failed. SweetBiotix or live biotherapeutic next-generation products are commercialised globally – which is looking increasingly likely.  In my view, this is a lower risk strategy than a bivalent drug biotherapeutic strategy where an investor can win big or lose all.   
  4. We now have FDA GRAS, GMP pharma manufacture, and an IND for LP-LDL with potential application extensions into diabetes and immune health, 5 human taste studies on SweetBiotix with partners exploring applications in dairy and beverage products, and good scientific data on LPGOS and other microbiome modulators.  These are solid foundations to interest large commercial partners and commercialise.  With first-generation products growing sales and second-generation products having a solid scientific, IP, regulatory, and commercial base with early partners, this puts OptiBiotix in a strong position. 
  5. Structurally OptiBiotix is designed, so the company provides the seed funding and develops the product portfolio with scientific and clinical studies, scientific publications, IP, and regulatory approvals.   Once the products have their commercial data package, they are passed onto the divisions who are headed by experienced senior industry leads with large industry networks and a track record of sales growth to build the businessOptiBiotix is also the investment arm identifying and acquiring technologies, building the development and management team, and creating new companies (e.g. SkinBiotherapeutics).  This gives investors in OptiBiotix a further opportunity for value creation as that asset appreciates in value.
  6. Invest heavily in science, human studies, regulatory approvals (GRAS, GMP), and double IP (patents and trademarks) in early years to establish a strong position in the microbiome field and differentiate from tradition market-driven products.  Enhance credibility with independent peer-reviewed publications and launch Medical device (e.g. SlimBiome Medical) and pharma products (e.g. Ezimega 3, DS-01)  to highlight differentiation and enhance products credibility in other markets
  7. Sign agreements with multiple partners in multiple territories across all areas of the value chain (manufacture, formulation, distribution) to control and extract maximum value.  This limits risk for any individual deal, product, or territory 
  8. A scalable business model. This means that once products and brands are proven in early markets, the time and costs of taking products to other markets are much reduced.  As products are established and patents granted IP and R&D costs reduce creating a position of growing sales and reducing costs
  9. As the need for innovation reduces bring in experienced industry leaders with a track record of building revenues and growing profitability to head each division and drive sales and take each division to profitability.  The aim is to create independent profitable, and sustainable business units.

The Chairman Statement

Most people I communicate with agreed with my view of the chairman. Neil Davidson, in that he appeared to want to push forward a more positive tone rather than the caveated riddled statements delivered by the CEO. Stephen O'Hara. This is why I pointed out the complete disconnect between Neil's more emotional language directly opposed to the conservative - allow the mathematical statistics do the talking. Yes, rightly so there was a covid related caveat.

Market - Investor Perceptions

It is true some agreements have taken far too long to develop beyond an RNS. It is also true small companies like OptiBiotix are easily controlled with gagging orders we have come to learn they are called NDA'S. It is also true some investor and probably the wider market, observers that may be attempting to judge how to value the company on the back of NDA's, or as another OptiBiotix commentator suggests ''another RNS written on Adam Renolds keyboard.'' (It has no numbers).

we can argue a certain Indian company (apparently so fragile they cannot be named) has taken far too long to develop a product (4-year's and counting) and in some ways offers the illusion this is the norm when it is not. (I am on record suggesting the unnamed Indian company is 1/3rd Stephen factors in as failures or may not deliver on the stated agreement). Another one to ponder is the partnership agreement signed with a US pharmaceutical company tasked with adopting a pharmaceutical-grade LP-LDL cholesterol product. It has been a couple of years since the signing, and the promise of six-figure yearly milestone payments as part of the deal.


Stephen was asked about this, as this possibly falls into the second-generation product, so it was worth a probe to see how progress is proceeding, or not as the case maybe?

''Yes.  So far so good and the recent IND from Seed for an unrelated product (Daily Synbiotic for IBS) helps. The deal was just for the US, and we are now getting interested from other pharmaceutical partners for other territories.  This is a high-risk, high return opportunity that we have taken largely because our pharma partner is paying all the costs, taking all the risk,  and paying us milestones along the way.''

The high-risk Stephen speaks of is not a cost OptiBiotix bears because the financial risk is with borne by the partner. The only risk to OptiBiotix is one of disappointment if the partner fails to develop a product. If it is successful, then it will be a huge boost to the coffers, and all to the bottom-line with high percentage royalties the norm for pharmaceutical products.

Back to Second-Generation Products

USA based partner, Seed Health, has received FDA authorisation for an Investigational New Drug (“IND”) application for DS-01™, a broad spectrum multi-species, multi-strain probiotic which contains OptiBiotix’s Lactobacillus Plantarum LPLDL ®. The regulatory acceptance enables DS-01 to enter a Phase II randomised, triple-blind, and placebo-controlled a clinical trial to investigate the role of the gut microbiome in patients with Irritable Bowel Syndrome (“IBS”) and the impact of DS-01™ on intestinal microbial communities. 

Stephen commented: “We are pleased to see that Seed has achieved FDA authorisation for an IND in a product containing OptiBiotix’s Lactobacillus Plantarum LPLDL ®. OptiBiotix has whole genomic sequencing, built on a strong scientific and clinical evidence base, obtained FDA GRAS, and pharmaceutical GMP manufacture validation for LPLDL ® which has created the potential for LPLDL® to be commercialised as a pharmaceutical drug product. Seed Health is one of several partners OptiBiotix is working with to bring a range of cardiovascular, general health, and IBS applications to supplement and pharmaceutical markets around the world.” 

"Given the valuation of pharmaceutical companies in this area (particularly the USA), this is excellent news for investors and sets the scene for LP-LDL® to be used in other drug applications.  It also further validates our approach to take a more rigorous and scientific approach than traditional probiotic companies to open up a wider range of opportunities and create real product differentiation. The use of LP-LDL® in pharma enhances the credibility of the product in the other markets.  We can see an increased use for LP0LDL® in pharma now that we have FDA GRAS, and pharmaceutical GMP manufacture validation."

This speaks to the science-based evidence behind OptiBiotix's IP. The FDA undertook a long and protracted evidence-based fact-finding mission which took more than 2-years for FDA approval for LP-LDL®. Moreover, FDA has legitimised LP-LDL® for the inclusion of pharma-grade productsThis is significant not just for Seed, but another US pharmaceutical currently developing a pharmaceutical product with LP-LDL® and of course, OptiBiotix. And remember, these developments have no cost baring to OptiBiotix, these developments only add value to the IP and help build the LP-LDL® brand, a thing of beauty of the B2B model. However, it does have its downsides - It can take longer to develop new products containing new science until science is adopted as we are now seeing with LP-LDL®, SlimBiome, OptiBiome, WellBiome, CholBiome products. The downside, is sometimes we have a situation like today - OptiBiotix appears to be caught out by the news because investors are always seeking information and sometimes this partners like Seed have neglected to keep a partner informed of developments containing their IP.  

With news of a bulk manufacturer for SweetBiotix, the journey to commercial reality is now underway. It is the first piece of commercial jigsaw. It has been said OptiBiotix is in discussions with a dozen or so potential partners seeking to use SweetBiotix. I teased out the difficulties in recent podcasts as well as the time consumption of shelf-life testings that needed to be done to prove stability demanded over a prolonged period of time, especially when OptioBiotix's sweet fibre is added to carbonated drinks that have the potential to eroded the IP. Thankfully, we learned some time ago these shelf-life tests have performed very well. So, much of the hard work has been completed and lets us not forget, another piece of OptiBiotix IP has passed muster. Many of us assume SweetBiotix has the potential to be the blockbuster answer to the global sugar problem. NestlĂ© launched a new reduced sugar white chocolate bar with great fanfare, not a year passed before it pulled the plug due to poor demand. It is a fine balance pleasing the consumer, and some of the world's most successful corporation can make a misstep. I would argue they should have incorporated SweetBiotix - we did not have a bulk manufacturer at the time. 

If I divert slightly to the Bulk manufacturing agreement with an unnamed USA partner with a global footprint, there was some confusion over the term used in the RNS. Stephen: The modest annual fee (12 monthly intervals until product launchwas put into the RNS by the regulator as they argue it could be £999,000 and £100,000 (not my figures) and modest gives and indication without disclosing the actuals which would breach our confidentiality with the partner."

"If they used low, it would mean £100,000, and to me, modest means reasonable and gives investors a fair indication of the scale of the opportunity."

This is per the agreement, not a one-off, then, of course, the usual distribution and product royalty payments as each partner develops a product(s). 

Looking Ahead

Financially, the company is in an excellent position (fools will, of course, argue otherwise). OptiBiotix is not different than any other AIM-listed company - it as people with an agenda twisting the facts to suit their version of a narrative, so the light on placing is thrown around like confetti at a wedding. Stephen explains: "That is just BB nonsense typical of AIM.  If you look at our H1, we have £1.68m in the balance sheet and costs of around £100k per month. This gives us 14 -16 months without sales.  We have always been prudent in any fundraiser and have raised £8.3m in total, delivering a £50m+ market cap.  We are not getting a placing away now or at any time shortly."

I would argue there will be one for the proposed international duel listing, thought to be on NASDAQ unless OptiBiotix reverses into another company. See the 4D example, I brought Stephen's attention. 

I anticipate the duel listing in H1 2021. This will open the door to a better quality of brokers, it is clear the London broker system is broken - FinnCrap has been no use, more of a hindrance than anything. There is no doubt the listing in the USA will align the company with a market more suited to OptiBiotix specialist markets, and these typically demand greater valuations. OptiBiotix will, of course, need to be more open with investors than they are now. By this, I mean quarterly reporting, which should give the market more transparent and if as we genuine investor hope, the revenues are coming in, especially more of the royalty type which company 100% margin (something I have notice is confusing some investors again) then we should recover very nicely indeed. H1 margins are historically lower than H2 because more royalties are booked in H2, as more and more partners products come on stream, the higher the margin figure for the full year. 

There have been at least 3 large product launches in 2020; Alfasigma LP-LDL, Holland & Barratt SlimBiome and Optipharm OptiBiome. There have been numerous other product launches to which we have no grasp of this scale. The former 3 are expected to be significant royalty drivers, but caution is needed because they all launched at different periods in the year and we don't know how much royalties will land in H2. I suspect OptiPharm's will land in H1, I don't know for sure.

We wait patiently for our first SweetBiotix ''intel inside'' partnership....we know at the last count there were potentially 11, like SlimBiome and LP-LDL we could see a raft of RNS's related to SweetBiotix. If so, this could get very exciting quickly because we know the biggest corporations are eager for a substitute that works. After all, sales are being hit.

I am also eager to see where OptiBiotix develops the modulations technology for targeted health. I know the company is excited about this. Stephen commented, “The ability to create designer ingredients which can modify an individual’s microbiome to improve health is a hugely exciting development in global microbiome research and product development.  I believe we are fast approaching the next stage in the development of the microbiome in healthcare, where scientists have the ability to precision engineer components of the microbiome to prevent, manage and treat many of today’s chronic lifestyle diseases.”

Note on Forecasts or Lack of them from the company.

OptiBiotix reported it's H1 at the end of September as required by AIM regs. The company doesn't not ''hide behind NDA's'', and partners do give OptiBiotix forecasts and in some cases, these have minimum order quantities (MOQ) for exclusive agreements. That said, how can a company offer ''reasonably accurate forecasts inside a B2B model when OptiBiotix has no control over a product launch. 

This blog has identified numerous products launched without investors being informed through normal channels. Think of Smart4life, Seed Health, Vogue Beauty or Holland & Barratt (there are others) either launched earlier, without notice or when a deal was thought not to be happening. Partners may over-egg their expectations for any number of reasons; thus, I suspect Stephen is playing a very cautious game until partners have developed a history on which he can trust in what they project. Other commentators of a professional nature should be well aware of these problems.

It would be straightforward for Stephen to use Lenimaths, or be a stereotypical AIM CEO and blag investors and dump shares into the pump. We should be thankful, as frustrating at it is. IMHO we are a fist full of months away from accounting periods changing that offer greater visibility. 

Recent advances in modulating the microbiome


We are in the midst of “the microbiome revolution”—not a day goes by without some new revelation on the potential role of the gut microbiome in some disease or disorder. From an ever-increasing recognition of the many roles of the gut microbiome in health and disease comes the expectation that its modulation could treat or prevent these very same diseases. A variety of interventions could, at least in theory, be employed to alter the composition or functional capacity of the microbiome, ranging from diet to faecal microbiota transplantation (FMT). For some, such as antibiotics, prebiotics, and probiotics, an extensive, albeit far from consistent, literature already exists; for others, such as other dietary supplements and FMT, high-quality clinical studies are still relatively few in number. Not surprisingly, researchers have turned to the microbiome itself as a source for new entities that could be used therapeutically to manipulate the microbiome; for example, some probiotic strains currently in use were sourced from the gastrointestinal tract of healthy humans. From all of the extant studies of interventions targeted at the gut microbiome, several important themes have emerged. First, with relatively few exceptions, we are still a long way from a precise definition of the role of the gut microbiome in many of the diseases where a disturbed microbiome has been described—association does not prove causation. Second, while animal models can provide fascinating insights into microbiota–host interactions, they rarely recapitulate the complete human phenotype. Third, studies of several interventions have been difficult to interpret because of variations in the study population, test product, and outcome measures, not to mention limitations in study design. The goal of microbiome modulation is a laudable one, but we need to define our targets, refine our interventions, and agree on outcomes.