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By Alex Langton | 25 March 2024
Mike Caine and I have a financial interest in OptiBiotix Health.
In a rather unexpected twist, OptiBiotix Health
In a rather unexpected twist, OptiBiotix Health has pulled off a fundraising feat that has tongues wagging and heads turning. With CEO Stephen O'Hara off gallivanting in the States, the company managed to secure a cool £1,350,500. This financial coup during difficult markets was achieved by issuing 6,752,500 spanking new ordinary shares, each priced at around 7% discount at 20p, netting around £1.1 million.
A Double-Edged Sword for investors holding a stake in OptiBiotix, this move is a bit of a bittersweet pill. The dilution of shares might have some wringing their hands over the dip in their slice of the pie and the market's knee-jerk reaction. However, OptiBiotix has been judicious in minimising diluting shareholders over many years due to its directors' extensive holdings. The silver lining lies in the strategic deployment of the funds raised, which, if played right, promises to sprinkle some fairy dust on long-term shareholder value. For sure, i am a little biased in my view, and some investors will be, shall we say, less than pleased.
OptiBiotix seems set on directing the newly acquired funds towards a full-throttle marketing drive, complete with active account management, making waves at leading exhibitions, and an all-out assault on e-commerce marketing, all in a bid to ramp up sales and, of course, launch its second-generation products.
This strategy, however, raises an intriguing question for some investors who like a conspiracy theory: Why does this push for marketing seem to eclipse the focus on next-gen products, especially when the expectation was for OptiBiotix's partners, who have developed their own direct to consumer (D2C) offerings with SlimBiome® or WellBiome® as the core ingredient, to take the reins on marketing? The subtle nod towards future investment in next-gen products does hint at a broader vision for innovation and market leadership. Still, this apparent shift in priorities is causing some furrowed brows, and the order in which the funds are used, as some will suggest the RNS implies, is nonsense. More on that later. This is all nonsense and distracts the focus on doing both during this transition period.
With the company teasing the market with its next-gen SweetBiotix® and MicroBiome Modulator, OptiBiotix is not just resting on its laurels. This pivot towards innovation could very well set OptiBiotix apart in the rat race, provided these newfangled offerings hit the ground running and win over the market.
Yet, the breadcrumbs regarding fund allocation offer a sneak peek into the strategic sanctum, revealing a zeal for growth and innovation. It is sorely needed if we use OptiBiotix’s brands as an example from an investor's perspective; sales have been flat, relatively speaking, for several years. O’Hara argues, "This is incorrect; we had triple-digit growth YoY till 2022, and then it dropped off."
I have an email exchange with O’Hara addressing some of my queries related to product launch time, how this affects year one, and the order of the use of the funds.
The use of the funds is written in a chronology and not in terms of importance. It has nothing to do with the priority of the use of the funds.
When I (O’Hara) say year one many investors think its this year but in actuality it depends when the orders are placed. Each order is worth around £330K so it depends on how many orders we get in the first year and this will be determined by launch plans. We hope they will launch in H1 but I am always cautious when giving times to investors when they are outside our control.
It's curious why the notion of raising funds for growth often meets with scepticism. After all, one of the primary reasons a company goes public as a PLC is precisely for this ability to gather capital, but when it's out of the blue, it comes as a shock. Over the years, OptiBiotix has been rather conservative in fundraising with its own share, preferring to use SkinBioTherepeurics because of EIS constraints. Yet, it has successfully birthed two ventures with the since listing. SkinBioTherapeutics and ProBiotix Health have achieved independent listings, funnelling back £10.3m to the shareholders with minimal impact on shareholder dilution to OptiBiotix stakeholders.
It appears that O'Hara may have exercised excessive caution, potentially under-marketing the company's products while prioritising cash conservation during exceptionally difficult periods during COVID. However, it is worth reviewing old ground when reminding investors the company now boasts multiple clinical studies and has secured regulatory approvals across key global markets. This strategic groundwork enables OptiBiotix to endorse its products with health claims, significantly enhancing its market differentiation and value. This value proposition is evident in Croda's engagement in clinical trials with SkinBioTherapeutics, an endeavour poised to escalate OptiBiotix's value as it nears commercialisation.
Furthermore, the shifting market landscape is beginning to yield forecasts from partners for the first time, opening a critical window of opportunity. There's a compelling argument that, valued at merely £20 million, OptiBiotix is substantially undervalued, suggesting a disconnect between the market's perception and the company's intrinsic value. This scenario calls for a degree of patience, especially from those invested for the long term, as the unfolding strategy could significantly realign OptiBiotix's market standing and shareholder returns. I suspect the short-term trigger of OptiBiotix's revalue in the market eye lies with the imminent commercial launch of SkinBioTherapeutics endeavours with Croda, especially if the board conjures up a solution to the remaining convertible bonds, as all clouds will have evaporated.
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