SMALL CAP IDEAS: Biotech firm Optibiotix set to build on momentum

OptiBiotix is a pioneer of probiotics and prebiotics that work synergistically with the human microbiome, the ecosystem of bacteria found largely in the gut. Its discoveries have been or are being developed to tackle obesity, cardiovascular disease, inflammation and diabetes, stress and anxiety.   

Stephen O’Hara always had a clear vision for OptiBiotix Health, even if investors had a lot to learn about the commercial potential of the human microbiome and the challenges of taking new products, with new technologies, into new markets.

The plan was to get the company’s first innovative pro- and prebiotics out of the lab and onto the market in as quick and effective a manner as possible.

Having achieved his goal – and then some – the strategy going forward is to build on this momentum with a second generation of microbiome-focused fibres, modulators, and treatments.

Trailblazer: OptiBiotix is a pioneer of probiotics and prebiotics that work synergistically with the human microbiome, the ecosystem of bacteria found largely in the gut 

‘We believe the company is at an interesting stage, demonstrating strong early revenue momentum and divisional profitability and early commercial traction with its second-generation platforms,’ said the company’s broker Cenkos in a note initiating coverage of the group.

O’Hara concurs: ‘I think we are at a very exciting stage in our development as we now focus on delivering revenue and margin growth rather than developing a pipeline of products.’

Before looking at what lies in store for OptiBiotix, it’s worth assessing the considerable progress made to date.

The first-generation products and ingredients for weight management, nutrition and cholesterol reduction are available in 160 countries around the world via distributors, supplement makers and retailers.

Financially, the group is starting to make real headway. In 2020, revenues doubled, albeit to a comparatively modest £1.5million. In the six months after, sales were £1.1million (analysts expect the company to turn over £2.2million for the full-year).

‘For context, our products have only been on the markets for around two years,’ O’Hara says, pointing out that each of the company’s trading divisions is profitable.

With a strong recurring revenue base and some big contracts kicking in, including recent deals with Nahdi Medical Co and Apollo Hospitals, momentum is starting to build. The commercial push will be aided by new products, including the sports nutrition line called MyProtein.

OptiBiotix’s success to date has based around innovative technologies such as SlimBiome and LPLDL.

The latter is a Lactobacillus plantarum probiotic that has been scientifically and clinically validated to reduce cholesterol.

Indeed, studies show its performance stacks up favourably against statins in the way it reduces ‘bad cholesterol’ and its impact on atherosclerosis (furring of the arteries).

This know-how, which carries 28 patents and 15 trademarks, has been fashioned into CholBiome cardiovascular range. Indeed, the company’s science-led approach to developing its platforms and products has generated eight peer-reviewed articles and 17 poster abstracts presented at major international conferences. Meanwhile, SlimBiome, its functional weight management ingredient, has won multiple awards.

Looking forward, the group has pledged to increase marketing investment to support sales growth of SlimBiome and CholBiome, alongside moves into adjacent markets such as healthy ageing and sports nutrition with products WellBiome and LeanBiome, respectively.

Major customer: OptiBiotix is supplying Holland & Barrett here in the UK as well as international pharmacy chains Nahdi Medical and Apollo Hospitals

Major customer: OptiBiotix is supplying Holland & Barrett here in the UK as well as international pharmacy chains Nahdi Medical and Apollo Hospitals 

OptiBiotix’s strategy was to build brand recognition its LPLDL and SlimBiome ingredients through a business-to-business model.

However, it is now using its award-winning ingredient brands in finished products and in doing so is capturing more from the value chain.

It is supplying Holland & Barrett here in the UK as well as international pharmacy chains Nahdi Medical and Apollo Hospitals. It has also developed its own range of ‘GoFigure’ branded shakes and breakfast cereals.

Building on this first wave of products, what comes next should excite investors.

‘We have a second generation that I think is highly innovative,’ says the OptiBiotix CEO.

The first cab off the rank is a prebiotic sweetener with a clean flavour (no after-taste or off-notes), that is low-calorie and has a positive impact on the microbiome.

In September 2020, the company inked a manufacturing and commercialisation agreement with an unnamed US company for a number of the SweetBiotix products derived from this novel fibre.

It receives an annual six-figure licensing fee, milestone awards and royalties on future sales.

‘Annual licensing fees and milestone payments are highly unusual in the food and nutraceutical industry, so this gives an indication of the potential value of SweetBiotix to partners,’ O’Hara points out.

Beyond this, it is looking to team up with food and beverage firms and flavour houses, not just in the fizzy drinks space, but also in dairy and snacks.

In a separate foray, OptiBiotix is moving into drug development with an unnamed US partner and a separate tie-up with Seed Health. Seed has received US regulatory approval to embark on a clinical trial of DS-01, a probiotic containing LPLDL, which will be assessed as a potential treatment of irritable bowel syndrome.

Earlier in the pipeline are microbiome modulators that target specific gut and skin microbes and metabolites to support health and wellbeing.

Specifically, the company has developed techniques that allow it to create prebiotic ingredients that selectively enhance the growth of target microbial species.

‘Given the growing association between the microbiome and a wide range of diseases such as cancer, autism, diabetes and obesity, the ability to selectively manipulate the microbiome represents an attractive opportunity,’ said Cenkos in its note.

As the broker’s analysts point out, the second generation of innovative products bring with them a higher risk profile – but then this is more than matched with the potential rewards associated them.

What should be stressed is that OptiBiotix is not flying by the seat of its pants embarking on the next stage of its journey.

It has an established and growing revenue base from its initial commercial efforts – 85% of which is recurring, according to O’Hara.

At the same time, the group is financially resourced to meet its obligations.

It has previously raised money from the sale of shares in sister business Skinbiotherapeutics, in which it retains a 23.1 per cent stake. This holding effectively provides a source if non-dilutive funding if required.

It’s worth pointing out that OptiBiotix has received just over £8million to get to a market cap of around £41million, but, as noted above, is essentially self-funding.

Cenkos, using a sum-of-the-parts model, values the company at £160million.

Even if you think the company’s broker is being over-optimistic with its assumptions, it’s hard to explain OptiBiotix’s current discount market capitalisation given the operational and commercial progress made.

Perhaps the OptiBiotix’s potential will be recognised as the year unfolds.

‘With seven high profile large corporate, retail, and pharma partners in multiple territories, expanding product ranges and territories, a greater focus on direct-to-consumer, and greater investment in sales and marketing, 2022 should be a year of strong growth,’ O’Hara says.

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