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Hybridan on Optibiotix - 22% upside

By ShareProphets | Monday 1 June 2015

Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hybridan is house broker to Optibiotix (OPTI) and so its views can be largely ignored.It is paid to be bullish. But by way of background here is its post results commentary which we happen to agree with. Busted clocks and all of that. 

The life sciences business developing compounds to tackle obesity, high cholesterol and diabetes today released its annual report for the year ending November 2014. The results themselves are not reflective of the value being built within the company, covering only four months of trading in the underlying business, which is still in the development phase. However net losses totaled £0.8m of which £365k related to admission expenses.

Following the £3.3m placing the year end cash balance stood at £2.87m and we understand that April 2015 cash balances stood at £2.65m demonstrating prudent cash management. The company is satisfied that this is sufficient to fund its existing research and development programmes and initiate commercialisation. 

Optibiotix seeks to commercialise its expertise of the microbiome through innovation backed by robust scientific data and IP protection. The announcement earlier this week of three further patent filings (taking the total to nine) is testament to this approach.

The new patents reflect the progress made in developing OptiBiotix's proprietary OptiBiotic® platform technology which generates novel oligosaccharides (carbohydrates that consists of a small number of sugars).  The rapid development of this platform looks to be core to the evolution of the Optibiotix product range. 

Specifically it has identified a novel sugar which has the potential to selectively increase the growth rate of Propionibacterium species. This could be a powerful addition to its growing suite of weight management products. A further oligosaccharide has been identified which promotes the growth rate of Lactobacillus plantarum. This is the species used in OptiBiotix's cholesterol product and points to a  pathway for a combined pre and probiotic cholesterol product. – This could be used to reduce doseage or augment any efficacy shown in the clinical trial results of the cholesterol product likely to be published later in the year.

Finally the platform has been advanced to allow faster and more predictive screening capability, one benefit of which may be the expansion by Optibiotix into other areas where the microbiome may be influential, such as cognitive health and certain skin conditions. 

During the period the company entered into a partnership with Nizo Food Research incorporating its tri-action weight management formulation into yoghurts. We understand this has attracted significant commercial interest and that the company is evaluating various routes to market. 

The human microbiome continues to be seen as a rapidly evolving field in human health and wellness as is regularly documented in the national press and scientific publications with the likes of Google Ventures citing it as one of the emerging life sciences technologies with the most investment appeal. After an excellent share price performance our risked sum of the parts valuation of 48.9p per share remains 22% above the current share price.

The key to unlocking further value in our opinion is turning the science into commercial reality and the share performance since listing suggests the market believes it will.  The strengthening of the executive team in particular with the appointment of Jim Laird from Premier Foods demonstrates the company’s commercial focus. Each of the company’s programmes could generate significant license deals or product revenues, and we expect further product development, either organically, or from industry partnerships in due course.

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