BioProgress makeover takes shape but the market still needs convincing
The new management team at speciality pharma and healthcare group BioProgress plc (BPRG.L) has made some big changes since it took over the tiller in April last year to a mixed reception from the stock market.
Richard Trevillion (pictured) was appointed CEO on 29th April 2005, a fortnight into a seven week long review of strategy by the Board of Directors, which he had joined in February. Since then, he has presided over a substantial reshaping of the group. It has:
• Acquired Dexo S.A., a profitable French speciality pharmaceutical firm, for €12.5m, €8m in cash and €4.5m in new shares, representing just under 5% of issued capital. Dexo's forte is in registering and marketing innovative branded products into the French healthcare system
• Set up a joint venture with generics supplier Crescent Pharma Ltd - named Dexo BioGenerics Ltd, in which BioProgress owns 75.1% and which brings manufacturing and regulatory know-how and product licences for generic medicines including NSAIDs, simvastatin and diazepam. These will be combined with the Group’s core oral delivery technologies for rapid commercialisation
• Upgraded US-based subsidiary BioTec Films' manufacturing facility to conform to full pharmaceutical cGMP standards accreditation so it can integrate Dexo's products division.
• Raised about £5.8m through a placement of new shares representing almost 10% of issued capital
• Settled two sets of legal proceedings. One brought against it by a former employee of a US subsidiary. The other with radio frequency applications group Stanelco plc. The parties were disputing entitlement to three families of patents relating to the making of water-soluble capsules sealed using radio frequency. Both parties can now commercially exploit all three.
• Started a development programme focusing on incorporating known active substances into its platform technologies based on water soluble and biodegradable films. These products will either be launched through Dexo or be available for out-licensing.
• Renegotiated some partnership agreements that weren't previously working or were incorrectly structured.
• Settled into a new head office in the Cambridge Science Park, moving into an environment of like companies and cutting its rent bill by 70%.
Still licensing IP
Mr Trevillion, a solicitor turned corporate financier before taking up his current role, said "The business has changed from a platform technology business into a specialty healthcare business…, with an ability to generate sales in two distinct markets. One is the branded pharmaceuticals market. The other is the pure generic market."
The company retains its intellectual property licensing activities centred on patented encapsulation systems that use water soluble and biodegradable films. But it had become concerned about the risk inherent in relying on licensing IP alone for commercial success, not the first Silicon Fen high-tech to worry about this. Smaller high-techs can't be sure their big partner will market products using their IP or whether the partner, even with the best intentions, might just not perform. It is difficult to control what partners do.
So now licensing, where there is ample blue sky, is only part of the business. For the foreseeable future, blockbusters or even half-blockbusters are most likely to be delivered by the well-resourced big pharma companies. But the Dexa and Crescent deals enable BioProgress to get around the risk of over-reliance by applying its own technology to its own products in markets that do not compete with its established partners.
New pharma division
Through the creation of the new pharmaceutical division - Dexo BioPharm - including Dexo and the JV, BioProgress will be able to apply its technologies to Dexo’s products, develop new products and market the enhanced products directly. The company expects this capability to demonstrate to consumers and partners the benefits of its technologies such as XGEL.
The company says the new division will be immediately accretive in cash terms and "creates the potential for near-term group profitability".
And in a recent trading update it said that the restructuring and refocusing had seen its film production division BioTec Films producing a monthly net profit. It said that the group's improved financial position had cut cash burn by over 75% on an operational basis.
Market Unsure?
BioProgress, listed on both AIM and Nasdaq, saw its share price slide before last year's strategic review. It recovered about a third of lost ground after the new team was put in place. More recently the share price achieved a peak at around 58p on the announcement of the Dexa and Crescent deals in December, but since then has come off again. It has shed 11% in the past three months but today (when it was up 2.7% at 48p) it was 9% higher than its highest point around the time the new strategy was released last year. The group is now worth £65m.
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It would not surprise if the market was waiting to see how this frenetic corporate activity beds in. It might be too that the issuance of an extra 15% of issued capital is overhanging the market, and might take time to work itself out.
20th March 2006
