On Tuesday 16 August 2011 OBJ Limited released an announcement after the close of the trading. The announcement entitled “Pain Patch Development Program” referred to the creation of a range of next generation path products directed at common musculoskeletal pain.
Previous OBJ’s technology had only been considered for use by our partner companies (GSK, FMCG #1 & FMCG #2). Therefore this announcement referred a change in the company’s position as it was effectively going it alone in the development of a product that may be commercialised at some point in the future. It also made reference to an update in 2010 when the company flagged its intentions to use its technology in the development of its own product. Further analysis also found a reference to this in the April 2011 update to shareholders. As a result this announcement could not be seen as a surprise and would have been expected by many existing shareholders.
After reading the announcement I will admit that my initial thoughts were negative. This was largely due to the fact that OBJ has managed its cash extremely well in the past. As a result I could not foresee a need for a capital raising in the new future. With OBJ now embarking on its own development program this may not be the case, although further evidence will be required from the next quarterly update to clarify this position. Secondly I was concerned that the change of track could signal the end to one or more of our partner agreements, the same agreements that offer the best chance of commercialisation and revenue in my opinion.
However the last paragraph was somewhat re-assuring with the company stating:
“The Company’s established partnering relationships with international FMCG, pharmaceutical and cosmetic partners will continue unaffected and will remain a core aspect of the Company’s commercial plans.”
As a result of much thought, discussion and research (some in collaboration with other OBJ shareholders) I have come to the conclusion that this announcement just represents another “iron in the fire” so to speak. As a result we now have the potential for commercialisation from four separate parties: GSK, FMCG #1, FMCG #2 or our own internal development program.
The extent of our relationships with these major partners formed a strong basis for my investment decision and as a result the continuation of these programs is of the upmost importance to my decision to remain invested in OBJ. These partners continue to represent the best opportunity to large upfront payments and ongoing royalties given their global size, marketing penetration and product volume. Furthermore OBJ only needs one to commit to a product agreement and by having three parties exploring our technology we can realistically allow for one to drop out without getting too concerned. Having considered the facts presented I therefore remain confident that all parties remain committed to exploring OBJ’s technology at this time.
As previously mentioned the other factor that could be impacted is OBJs quarterly/annual cash burn. As a result of this announcement I will now be placing additional importance on the next quarterly cash flow statement. The other factor that has been impacted by this announcement was OBJs low cash burn. Should the company report a serious reduction in cash then my holding within OBJ will have to be re-considered. There has however been some speculation that the company would not increase its use of cash unless it thought it was close to receiving a licencing payment or contribution towards research from one of our partners.
At this stage OBJ remains a high risk stock with quite a bit of uncertainty surrounding its operations. The last thing I will mention is that the development of a product by OBJ does not prohibit the use of our technology by other partners. OBJ grants exclusivity based on individual products or areas within the market. For example GSK are widely expected to use our product in the oral healthcare sector, this would not prohibit us using the same technology to develop the pain relief patch referred to in this announcement.
P.S. The market did not see to react too much to the announcement with OBJ closing down 0.001 the following day.
No comments:
Post a Comment