OptiBiotix Health (OPTI) - in which we own shares - is “pleased to announce that it has has entered into an agreement with a US company for the purpose of large scale manufacture and commercialisation of a number of SweetBiotix® products”. SweetBiotix products are “based on the concept of creating a sweet fibre with a low glycaemic index… replacing 'unhealthy' sugars with healthy sweet fibres which contain no calories and improving microbiome diversity” and the agreement “allows the US company to invest in the large scale manufacture and commercialisation of a number of SweetBiotix products in return for upfront, annual and product launch milestone payments, plus royalties on all future product sales”...
More specifically, this is an exclusive worldwide licence agreement with the US company bearing the product manufacturing, marketing and all future commercialisation costs of a number of SweetBiotix products and OptiBiotix to “receive a modest six-figure payment from the company on signing the agreement and at 12 monthly intervals until product launch. Additional similar payments will be due on product launch plus royalties on all future product sales. Enhanced royalty payments will be made to OptiBiotix on sale of SweetBiotix products by the company to 11 application/innovation partners with whom OptiBiotix has been in long term discussions regarding exploring the use of SweetBiotix products in dairy, cereal and beverage applications”.
We note “modest six-figure payment” rather than ‘low’ and “exclusive worldwide license… of a number of SweetBiotix products” rather than just ‘SweetBiotix products’. Steve O'Hara guides us that these means well in excess of £100,000 up front and on the annual renewals. The idea of the latter is to incentivise the partner to launch asap so that the really big payments then start to kick in. We see further deal scope for other SweetBiotix products and note the payments add to a prior update noting company invoiced sales of “£741,504 representing a 398% increase over the H1 period last year (£148,818)” and suggesting second half sales will be much higher still.
That saw us conclude that next year sales should surge past £7 million (profit £1-2 million) and that would see the company on track to deliver sales of £20 million and profits of as much as £7 million by calendar 2022. Of course, there is much to do for it to get there but, although the shares have moved up to 51.2p, the market cap is still only £45 million. With this latest news further supporting the potential, we continue to target a return to well over 100p: Strong Buy.
This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the site for a new share tip from Tom & Steve JUST OUT THIS AFTERNOON and a new shorting piece shortly click HERE
Filed under: OptiBiotix, Roger Lawson, Deloitte, Autonomy, Rabble Books & Games, Easyjet, Tern, N50 website
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