OBJ Quarterly Report Email

As I mentioned in my post on the OBJ Quarterly Report I planned on contacting management about the lack of commentary associated with the figures.

I am pleased to report that I received a detailed/well thought out reply. In general, the email said that management considers each report on a case by case basis and are not against providing commentary as such. They just prefer to make announcements when a material event has occurred, rather than talk about one that might occur.

In my email I raised the fact that this was an important PR/marketing tool to keep new, old and potential investors in OBJ informed on a regular basis. Glyn said my suggestion will be taken on board so we will just have to keep an eye out for the next quarterly to see if we do get any additional commentary.

Overall, I think this highlights the importance of speaking with management. It is only something I have got used to recently, but it certainly helps clarify what the company is doing and the thought process of management.

OBJ Quarterly Report to 31 December 2011

OBJ released their Quarterly Report to 31 December 2011 and as per their previous reports they provided zero commentary. This is something that I plan to raise with the management team. I understand that they operate under a number of confidentiality agreements but a couple of paragraphs on what the company has done throughout the quarter would not be too hard to put together in my opinion.

Anyway, the main information to come out of the quarterly was that cash burn remains extremely low with a net cash decrease of $258,000 in the quarter. Now this is important on two fronts. Firstly it indicates that our internal pain patch development program is not requiring a significant amount of cash and suggests that their A. OBJ is utilising research provided by one of our partners to further their own efforts or B. that this project is in some way funded or supported by someone else even though OBJ call it an “internal” program. The only other option is that very little work is being carried out in this area. This would however contradict the purpose of the program which is to push the project through at a faster rate.

The second important impact of this low cash burn is that the company remains well funded for another couple of years. The cash at the end of the quarter was $3,959,000.

Link to announcement.

Where Do I See OBJ Going In 2012?

Out of all of the stocks I hold OBJ is perhaps the hardest one to predict as it operates in the bio-tech sector timeframes and achievements are largely affected by the regulatory process as well as the speed at which our partners wish to work.

As a result it is hard to state specific achievements that I will be keeping an eye out for. But in a general sense I would like to see the following:

1.    Continued improvement in discussions with each of our partners. This will be achieved with the signing of new development agreements, collaborative agreements and other initiatives that highlight to me that the company is moving forward and making progress.

2.    Continued strong management of the company’s finances and remaining cash. If there is one thing that OBJ does well it is minimising cash burn. I will obviously be following this closing in 2012 as any increase in cash burn could signify that a capital raising many be needed. As you may recall the company’s decision to move ahead with their own product development raised my concern over this issue a couple of months back.

3.    The securing of the all-important first agreement. At the recent AGM the management team indicated that they are confident of securing at least one agreement this year. If you look at the graphs provided in the presentation a number of our partners are also getting close to the prototype and product development phase where positive news must be forthcoming (if an agreement is reached to produce the product).

4.    Any new agreements of partners that come on board. The recent AGM presentation highlighted a new FMCG (Global) that we were unaware of. Currently OBJ has five irons in the fire (FMCG UK, FMCG USA, FMCG International, GSK and their internal program) the more partners we sign up the greater potential that one of them will take our technology to market.

Overall OBJ remains a speculative stock. The value of the business remains in its ability to turn one of these partnerships into a revenue generating relationship. The potential returns of doing so far outweigh the risk of holding by such a huge margin that I remain confident and comfortable holding this stock as part of my portfolio.

OBJ A Year in Review

In the lead up to 2012 I will be reviewing each of my holdings and providing a brief summary of what they have achieved throughout the year. I believe this is a good time to reflect on each investment and ensure that I am still 100% comfortable holding it as part of my portfolio.

The first stock I will examine is OBJ. OBJ started the year at 2.3cents and hit a hit of 3 cents on 17 May. Since then the share price has largely trended down and along with the rest of the market hit its lows (1.5 cents) throughout August and September.

Reviewing price performance alone is however a poor judge of what the stock has achieved over the last twelve months as there have been a number of important announcements released. The first major news came on Tuesday 5 April in the form of a shareholder update. For people unfamiliar with the stock this is probably the best announcement to start with as it clearly lays out each of the partners we are dealing with the and progress the company has made:

GlaxoSmithKline (GSK)

GSK has been on board with OBJ for a number of years now and 2011 saw a continuation of those discussions. At the time of the announcement the two companies were processing well with plans for first-in-man studies.

FMCG – Strategic Alliance – Consumer Care Products

This company only linked up with OBJ in September 2010 and required a number of new test models to be developed in order to evaluate OBJ’s technology and the impact/benefit it could offer for their line of products. There was also a range of regulatory requirements to be addressed.

The announcement also provided an insight into the company’s product line with a recent university studying showing a significant increase in the delivery of key anti-aging ingredients through the upper skin surface (stratum corneum) and into the living tissues of the skin. This obviously led to speculation about what large, global skincare company this FMCG could be.

FMCG – OTC Healthcare

This company had been collaborating with OBJ since 2009 and had progressed through a number of technical evaluation and consumer studies. The results of these studies were promising and at the time of the announcement the development program had been moved to being reviewed by the FMCG’s international marketing department.

That concluded the April update, however news would follow on 17 May 2011 when our relationship with GlaxoSmithKline proceeded to the next stage. This announced detailed how we had entered into an “exclusive Collaborative Development Agreement with the objective of developing new consumer products in the field of oral health utilizing the Company’s proprietary technologies.” The announcement also said that the GSK and OBJ would be looking to develop products using two of our technologies, the Enhanced Transdermal Polymer (ETP) and the Field-In-Motion (FIM) technology.

The announcement then went on to state that “The objective of the Collaboration is to develop and commercially release Oral Healthcare projects” (bolding added for emphasis). OBJ rallied on the back of the news, however it was short lived and 17 May marked the high for the year. This announcement, more than any other, really highlights to me how the market fails to place any value on the progress OBJ has made. Here we have a company stating that they are working towards the development and commercial release of a product and all the market can manage is one strong up day before it falls by the way side again. Investing in bio-techs is therefore not for the impatient or faith-hearted.

Moving on, we had the announcement of the “Pain Patch Development Program” I will admit that when this was first released I was somewhat annoyed at the company’s apparent change of direction. There was a lot of “panic” by certain posters on HotCopper at the time and speculation was rife that a partner or two had jumped ship and OBJ was now going it alone. Fortunately, this was not the case, and upon review it is just another “iron in the fire” for OBJ. In my opinion it now appears that this development program is being pushed forward for one of two reasons:

Firstly, it may be to show our partners that we are prepared to take a product through to market ourselves if they are not towing the same line in regards to timeframes and the commercial release of products. This therefore would act as a bit of a catalyst to move things along.

Or secondly, OBJ envisage that they will be able to develop the patch and then tie in the “compound” at a later date. This appears to be the more likely scenario in my opinion and it essentially means that OBJ can say to a partner we have the patch, it works and all we need is your compound and it can go to market. Given the close links with the PNO management team, speculation is obviously centred towards a tie in with their “Thermalife” anti-inflammatory product.

News continued to come thick and fast in August and a week later we were granted “allowance” for our Dermaportation Patent in the US. The “allowance” stage all but confirmed that we had received the patent, subject to OBJ paying some processing fees. An important, but often overlooked aspect of this announcement was the final paragraph which stated “Dermaportation is current being developed for a number of applications and the allowance of a US patent over this key drug delivery technology is expected to assist with partnering discussions”. In simple terms, no international company is going to sign a licencing agreement to use a technology over which there is no protection. As a result this was an important step, in my opinion, towards the ongoing development, and eventual licencing of products using the Dermaportation technology.

In October the company that had previously been referred to as “FMCG – Strategic Alliance – Consumer Care Products” in the April 2011 update announced that they had commenced negotiations with OBJ for a “Joint Development Agreement for the development and commercialisation of new products in the consumer health and beauty fields utilising OBJ’s three core technologies”.

The stock rallied a little on the news, but largely remained unchanged over given the relative importance of the announcement. Here we have a company that says they want to develop and commercialise new products, yet the market hardly bats an eye lid. On top of that the company wishes to use all three of our core technologies. This gives the market solid proof that not only does the technology work in a laboratory setting but it is able to be utilised in real world products and is being considered by a global company.

This company is also fast moving when compared to GSK and the other FMCG. They have been with us the shortest amount of time (September 201) but have already progressed to a stage where they are considering the commercialisation and development of new products. Which is very positive in terms of finally seeing an announcement that gives some sort of timeframe to market or the all-important dollar value of these agreements.

In November we got confirmation that OBJ had been granted their US patent. This was a bit of a non-event for informed holders given that research on HotCopper had located our approved paperwork on the internet well before this announcement came out.

Finally we had the AGM on 25 November. For some reason OBJ did not release their corporate presentation via the ASX and only made it available on their website. If I could have any criticism of the company, this would be it. There public relations could certainly be improved to highlight the steps the company has made and what it means for their future. That is however, a discussion for another day. What the AGM presentation highlighted was that we now have a new FMCG player on board. This is on top of GSK and the two FMCG’s announced in the April 2011 update. Furthermore a number of graphs contained within the presentation highlight the progress that has been made in 2011. In particular every project (except hygiene and surface care) has passed the proof of concept, with a number now in the concept testing and efficacy stages.

Most importantly, the Cosmetic and Skincare product line (which aligns with the FMCG who are negotiating the JDA) are on the cusp of the prototype stage which is followed by production and product launch. Obviously news about this agreement could come at any time (i.e. not just when the product is going to be launched) and is therefore, in my opinion, the most advanced of our partner programs.

Before I finish up the review I also wanted to comment briefly on the financial position of OBJ. If you review each of these quarterly announcements you can see that cash burn is extremely low (given a number of our programs are partner funded) and by my calculations OBJ should be well funded for 2012. As long as we get some form of agreement in 2012 that pays even a tiny milestone or upfront payment the need for any further capital raisings will be all but diminished.

So in summary the share price is certainly not reflective of the steps OBJ has taken over the last twelve months and 2012 does have the potential to be rewarding. However, 2011 also highlights that OBJ and Bio-tech stocks are certainly not for the impatient or those seeking instant gains. After completing the review I am very happy to hold OBJ as part of the portfolio and still believe that the potential rewards strongly outweigh any risk currently associated with the stock.

As always please do your own research and consult a licenced financial advisor before making any investment decision.

OBJ Takes Another Step Forward: Granting of US Patent For Dermaportation Technology

Way back in August OBJ released an announcement that stated the company had received notification from its patent attorney that “the patent application, protecting the Company’s powered electromagnetic fields drug delivery technology for the USA, had proceeded to allowance”.

This announcement then went on to say that subject to OBJ paying the applicable fees the full patent would be granted within 3 months.

A short while later I posted an article entitled “Granting of Patent on the Horizon” this provided some information on research conducted by a poster on Hotcopper and included a link showing that our patent had been awarded.

So I don’t know why there was such a time delay between that information being released on a public website and today’s announcement, but we finally received confirmation that OBJ has received the Dermaportation Patent.

The announcement also contained this paragraph which I thought was worth reviewing. I have highlighted the important sections in bold.

“The granting of the patent enhances the potential commercial value of the Company’s powered Dermaportation technology as it allows the Company to offer various market licensing options to potential partners in key market sectors.

The Company has identified several commercial opportunities for Dermaportation and has introduced the technology to potential partners”

In my opinion this underscores the wide variety of applications and partnering opportunities available to OBJ and just reinforces the potential of this technology in my mind. As I have previously commented on some the patent was granted any risk to our partners having their products copied or stolen has now been significantly reduced. This should open the way for more concrete agreements to be forthcoming.

Think to todays announcement.

Disclaimer: As always please do your own research and consult a licence financial advisor before making any investment decision.

OBJ - September Quarterly Announcement

It has been a massive few days and I have a lot of information to get out today, so bare with me on this. First up, OBJ announced their September Quarterly Report yesterday. This report has been eagerly anticipated since the announcement of OBJ’s internal pain-patch development program back in the middle of August.

Why? Because developing any form of product costs a significant amount of money and the rate of cash burn can identify if and when a capital raising may be forthcoming.

To analyse the potential effect of the pain patch development program on OBJ I have broken down three key areas of cost; staff costs, research and development and working capital over the last four quarters.

Quarter:	Staff Costs:	R & D:	Other Working Capital:
Sep 2011	$66,000	$305,000	$197,000
June 2011	$68,000	$229,000	$240,000
March 2011	$66,000	$194,000	$115,000
December 2010	$75,000	$197,000	$123,000

From this we can see the following:

·         There has been no increase in staff costs.

·         Research and Development expenditure has increased from circa $200 - $220,000 to $305,000 this quarter. This could however just be a “one off” result so we will have to wait for another quarter or two to determine if there has been a sustained increase in expenditure here.

·         Other Working capital was in the low $100,000’s for the March and December quarter and has recently increased to $200 - $240,000 in the June and September quarter.

So, there has been some increase in Research and Development and Working Capital expenditure, but even if you combine these two items the increase is only circa $200,000 per quarter, which is nowhere near enough to develop an entire product.

This leads me to believe that our costs may be covered by another partner who is looking at the patch in another field of use, or perhaps we have not ramped up our spending in this department yet. If it is the second option, then we will gain further information next quarter and will be able to re-consider our opinion on this issue.

Finally we can see that OBJ finished the quarter with $4,217,000 in cash for a net decrease of $565,000. At this rate OBJ can fund its operations for another 2 years in my opinion. As a result I am happy with their current financial position and where the company appears to be in terms of product development.

Some Comments on the OBJ AGM Notice

The other day OBJ released their AGM Notice which contains some points which I believe are worth discussing. Some time ago OBJ did a capital raising which provided each participating shareholder with additional options that were exercisable at 1 cent per share.

Given the current share price is 2.2cents they have been “in the money” for a considerable amount of time. It is also important to note that the options are tightly held and a number of Top 20 Shareholders are also Top 20 Option Holders. Any way at last year’s AGM these options were effectively extended to the end of this year by re-issuing new options to all excising holders for minimal consideration. This was done to “reward long term shareholders”. At the time many people commented how this extension was to ensure that people who had backed OBJ would be able to benefit in any upside in the share price following the signing of a commercial agreement. Given they were extended for one year, many holders felt that news would therefore be forthcoming within that period.

If we jump forward to today, the company is again proposing that these options effectively be extended for another 18 months until 30 June 2013. All existing option holders will be granted new options at 0.0001 cents, which are exercisable at 1 cent (i.e. in the money). Now this has generated some heated discussion on Hotcopper, however my view comes down to the definition of an option, which is:

“The right but not the obligation to purchase a share at a set price by a pre-determined date”

As a result of this definition options are affected by the price of the underlying security and time to expiry (time decay). However, because OBJ keeps extending their options, OBJ option holders are only at risk from the first part of the equation, the move in the underlying share price. Furthermore option holders do not have any voting rights over the company, nor own any percentage in the company (from those options). Given the board must act in the best interest of shareholders (i.e. those who hold the heads) I don’t see why they should continually extend the options. If option holders want to benefit in the potential upside in OBJ then they can exercise at 1 cent (instant profit of >100%) and be part of the company like normal shareholders.

Finally extending the options provides option holders with “artificial finance” at the detriment to shareholders as they only pay a fraction of the total cost of the shares for the time being and are therefore leveraged to the underlying move in the share price. Meanwhile the company misses out on having the cash from exercised options which could at the very least be earning interest in the bank.

The second aspect which I wanted to mention was Resolutions 3, 4 and 5 which approve the issue of Performance Rights to Glyn Denison, Dr Chris Quick and Jeffrey Edwards. I am all in favour of this resolution as it is associated with three key criteria. The notice states “The Performance Rights may be exercised by the Directors or their nominees upon the satisfaction of the performance condition which is:

(a)  6 million performance rights to vest subject to the execution of an agreement to design and develop commercial product(s) utilising the Company’s technologies (Milestone 1);

(b)  6 million performance rights to vest subject to the satisfaction of the regulatory requirements necessary for the Company to offer a product of its own design and development to the market either directly or through partners (Milestone 2); and

(c)  6 million performance rights to vest subject to the commercial release of a product utilising the Company’s technology (Milestone 3),

The Performance Rights shall expire three years after their issue date at 5:00pm (WST).”

Those conditions seem perfectly reasonable in my opinion. As each of those milestones are reached you would expect an increase in the share price and naturally the management team deserved to be rewarded if and when these conditions are met.

On final note: I don’t expect the option extension resolution to be defeated by I will be voting no to ensure that the company’s is aware that some shareholders are against such a program.

What A Day For OBJ: New Announcement: FMCG Company to Secure Access Rights for Beauty Care

Yesterday was a very significant day in the life of OBJ Limited (in my opinion), yet the market either fails to realise its significance or just plain ignored what it actually means. The announcement was released late in the day (2:30pm) and the stock quickly moved from 1.8cents to 2.3cents. However in the final half hour it dropped back to around 2 cents and amazingly finished the day at only 1.9 cents.

So why is this announcement so important and what does it mean?

“OBJ Limited is pleased to announce that a global FMCG company has commenced negotiations with the Company for a Joint Development Agreement (JDA) for the development and commercialisation of new products in the consumer health and beauty fields utilising OBJ’s three core technologies”

I have added the bolding to help highlight the key points. Here we have a company that has “commenced negotiations”. They are not thinking about commencing negotiations, or waiting for the outcome of tests, they are actually in the process of formalising a Joint Development Agreement and the terms, conditions and payment that will be applicable. This is the first concrete sign that we have, from any of our partners, which indicates we are moving to a stage where income could be received. For a company with a market cap of $20m, any revenue (regardless of how big or small) could have huge implications for the company and its ability to accelerate growth in other areas.

Secondly we can see that this agreement is for the development and commercialisation of products that use OBJ’s three core technologies. This demonstrates that a global company is confident that all three technology platforms (eM-Patch, Field-in-Motion and the Dermaportation patch) not only work, but have real life implications.

All that was containing in the first opening paragraph! If we read the rest of the announcement we are also reminded that this company only signed a Letter of Intention in September 2010. So in just over a year they have conducted their technical evaluation and are happy to proceed with the negotiation of a Joint Development Agreement. This represents a significant increase in speed to commercialisation compared to our other partners GSK (who have been on board for many years) and the other FMCG who signed on in 2009.

Furthermore we cannot forget the importance of first-mover advantage. Now that one of our partners is progressing towards the development and commercialisation of new products we may see our other partners GSK and FMCG#1 review the current status of their program. Even if the products are in different areas I do think there is an advantage in being the first to say that your products use a new, world first technology that can generate significantly better results.

It will be interesting to see what the next few days bring as the information begins to circulate. Will we see an increase in buying or will the announcement continue to be ignored?

Link to the announcement

Annual Reports: OBJ & MHM

I thought I would just do one post to cover both OBJ and MHM Metals who both released their annual reports this week. As is normally the case annual reports they only provide us with information on what we already know, however, it is important to read them in detail as you can pick up some hints or insight into the company’s operations and managements thinking.

Firstly, with OBJ, it is clear that all their programs are progressing well with their international partners. We also appear to be gaining increasing recognition in both academic and corporate circles which can only be a positive thing for the future.

One interesting thing to come out of the report was the company’s expansion of its own laboratory and the granting of ethics approval to perform their own tests (in their own lab) on skin. This should allow OBJ to speed up a variety of testing procedures and have more control over the process.

Secondly, OBJ stated that they are actively seeking short, medium and long term outcomes and that they have moved further from their research and development base to product-focused development programs and partnering activities. This helps firm my belief in the company’s technology and the potential for a re-rating of the share price within the next six months.

Moving on to MHM Metals and the report was slightly more mundane with no new additional information provided. The key point that I really picked up from the report was that “black dross” does offer an additional revenue stream for the company and that they are going to look at constructing a plant that can recycle this material alongside salt slag and any reclaimed landfill.

Secondly MHM continued to state that they are in discussions to receive government support for their project. What level of support is unknown at this stage but clearly tax concessions, land grants or a financial incentive will be hugely beneficial for the company.

Finally MHM reaffirmed their position to look at non-dilutionary methods of finance and remain committed to 100% ownership of the plant. This has helped allay some concerns that I had previously stated on my blog. Given the potential for a larger plant I was concerned that the company may need to approach the market for additional funding which would obviously dilute my initial holding and could provide additional downward pressure on the share price. It was also my view that a capital raising now would potentially be the worst possible time given the negative sentiment that surrounds the company and wide market.

Granting of Patent on the Horizon?

On 23 August 2011 OBJ Limited announced that the US Patent Office had allowed the company’s Dermaportation Patent to proceed to “allowance”. The announcement then went on to say that after OBJ had paid all the necessary fees that the full patent would be granted within 3 months.

At the time I posted this article discussing what the patent meant and the implications it may have on the signing of any future agreements. With any bio-tech stock there are many pieces to the puzzle, however the granting of this patent represents a significant step towards commercialisation in my opinion. Put simply no global pharmaceutical company would risk millions of dollars to manufacture a new product if it was not protected and could therefore be easily copied by their competitors.

This morning a very well respected poster on Hot Copper provided a link to a site that provides information on Patent Applications. The document on the link states:

Patent 8019412 Issued on September 13, 2011

Inventor: Edwards, Jeffrey D.

Assignee: International Scientific Pty Ltd

For those of you who are not aware International Scientific is a wholly owned subsidiary of OBJ Limited.

Based on this news I anticipate an announcement will be made to the market in the next few days (perhaps even today). At this stage I think the announcement will only cover the granting of the Patent and will not provide any additional information on potential partners, however, as I said above this is an important step for the company.

As always please do your own research, nothing I say is advice or a recommendation to make any investment or trade. You should consult a licenced financial advisor prior to making any investment decision.

OBJ Announcement: Preliminary Final Report Appendix 4E

On 30 August 2011 OBJ Limited Announced their Preliminary Final Report Appendix 4E. The announcement did not really provide any new information but some key lines I have pulled out include:

“The company continues to progress its technology and its business development initiatives in collaboration with international pharmaceutical, cosmetic, homecare and consumer healthcare partners.”

This really highlights the wide range of applications our technology can be applied to and the number of “irons we have in the fire”. There has been some discussion amongst OBJ holders and I believe the general consensus is that an announcement could come from FMCG #1 at any stage, GSK could also announce an agreement with milestone payments in the near future (although commercialisation of a product is still some time off) and FMCG #2 appears to be the furthest from any formal agreement.

It is however hard to judge the current status of the agreements and one needs to be confident in the technology and its application to hold comfortably through these periods. At this stage I do not mind if the share price stays where it is and my only concern in the short to medium term is the threat of dilution from a capital raising. Although the company has very low cash burn for a bio tech stock there is always that thought in the back of my mind.

Some other positives to come out of the announcement include: “The Company also announced the signing of a Strategic Alliance Agreement with one of the world’s largest consumer healthcare and homecare product companies.”

And “Highlights of the period include encouraging progress in the multi-product Strategic Alliance with one of the world’s leading Fast Moving Consumer Goods companies (FMCG)”

Again it is nothing that we did not already know but underlines the size of the partners we are dealing with and the potential our technology has.

Link to Announcement

OBJ Limited - US Patent Office Allows Dermaportation Patent

Last Tuesday OBJ made an announcement regarding the development of a new pain patch. This Tuesday they released further news in regard to the company’s Dermaportation technology. The company advises “that they have received notification from its patent attorney that the patent application, protecting the Company’s powered electromagnetic fields drug delivery technology for the USA, has proceeded to allowance.”

The announcement continues with “The Company has been notified that subject to the payment of applicable fees, that the United States Patent Office would move to grant the full patent within 3 months.”

And finally the most important paragraph “Dermaportation is currently being developed for a number of applications and the allowance of a US patent over this key drug delivery technology is expected to assist with partnering discussions.”

Now on first thoughts I think many investors and traders will be too quick to discount the significance of this announcement. It is a major milestone towards allowing the company to secure partner agreements and the potential commercialisation of a product. Put simply no partner would proceed with a licencing agreement or the production of a product if the technology it was based on was not secured by a patent. It would be too easy for the product to be replicated and the company lose the marketing advantage it sought to gain.

I do anticipate that this announcement could be a prelude to more exciting developments for the company within the next six months, however I do not expect this announcement in itself to lead to significant gains. The announcement came out at just past 1 o’clock (EST) and I have been reviewing the market depth and price movements. It has clearly bounced off our low of 1.6c today, hit an intraday high of 2.0c and is currently bouncing between 1.8c and 1.9c. My thoughts in regard to this is that some holders are selling into the announcement and taking this as an opportunity to exit given the stock has been weak relative to the overall market for a couple of weeks. I anticipate that we should be able to close in the green (1.8 cents or higher) but I do not see substantial gains coming from this announcement alone.

With two announcements, two Tuesdays in a row, perhaps more good news will follow next week.

Link to Announcement.

OBJ Pain Patch Development Program Announcement

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.

Link to the announcement

P.S. The market did not see to react too much to the announcement with OBJ closing down 0.001 the following day.