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07 July 2017 | Insights

OBJ: Building A Base For Strong Growth

Key Insights

  • Revenue starts to flow from P&G
  • BYS predicts cash flow break even by the end of the year
  • The growing list of products hitting the market significantly de-risks OBJ
  • 2nd licensing technology could be a paradigm shift in the way consumers engage with skincare
  • Bodyguard continues to progress and nears pivotal short term licensing opportunities
  • OBJ is looking to accelerate the growth of ready to commercialise technology through accelerator/incubator funds
  • New board members will provide additional skill sets and industry experience to accelerate growth

 

I think it will be rewarding for current investors and potential investors of OBJ to read the latest company presentation.

Baker Young recently hosted an investor presentation for OBJ at our offices. The progress made by the company since it last presented is impressive; both in terms of the range of products developed and those slated for development. Importantly, OBJ’s relationship with FMCG giant, Procter and Gamble (P&G) provides a clear pathway for the company to reach profitability in the next 6 to 9 months.

OBJ’s second product is the Magnetic Booster and is a beautiful piece of design. After seeing and feeling the device firsthand, the anecdotal feedback from those at the seminar was that it will be highly sought after by consumers. Indeed, the feedback that OBJ has received from P&G suggests that they too believe that it will sell extremely well and they have initially produced 400,000 units as shelving stock. We recently came across an article explaining the new product and its release details. An early launch of the magnetic booster occurred on the 1st of July at Changi Airport.  It is expected that the device will be released more broadly in August.

We also learned that OBJ’s third and fourth products are due to be released before year’s end. We expect that some of the products will be sold across multiple P&G brands, and most importantly the Olay brand – one of the highest revenue skin care brands in the world.

A few months ago OBJ announced that they had licensed a second technology platform to P&G. The company has been at pains to not disclose any information that could jeopardise their licensing agreement with P&G. The company alluded to the fact that the technology represents a significant opportunity for P&G and would be at the heart of a new experience for consumers and how they engage with their skincare.  As part of the licensing agreement, OBJ received approximately $300,000 in upfront payments and will receive an additional $1m as they reach certain milestones throughout the course of the year. Reading between the lines, it is clear that the relationship with P&G continues to strengthen and is expanding in scope. The pathway to market for OBJ’s innovation appears to be accelerating and the potential to engage with bigger brands within P&G’s stable is also improving.

Whilst the P&G relationship provides the stability to see the company through to profitability, we view the company’s various other technology platforms as the blue sky. Bodyguard in particular has the potential to tap an unmet need within the significant joint pain market. The company recently signed an important agreement with a Japanese company that is currently establishing the mass manufacturing procedure for the Bodyguard patch. We expect that within the next 3 months this will be complete and OBJ will have a clear idea of their potential margins from future sales. In the last presentation it stated that discussions were well advanced with Reckitt Benckiser (Nurofen), Pfizer (Advil) & Beiersdorf (Elastoplast). It was also announced on 4 April 2017 that OBJ would undertake a Bodyguard trial using ibuprofen. Pfizer is one of the largest manufacturers of ibuprofen in the world, selling the drug through the Advil brand. Our take on that announcement was that Pfizer had helped OBJ design the trial and would actively assess the data upon completion. We also see a possibility that in the next 6 months the company could achieve agreements on distribution for their natural therapies, including products such as glucosamine and chondroitin, in a separate deal to the anti inflammatory/short term pain relief product.

OBJ has recently begun exploring the possibility of partnering with an accelerator fund. This is a tried and tested method of turbo-charging speed to market and increasing a company’s capabilities. It is possible that products, including Bodyguard and Surface Hygiene, could be put into an accelerator fund where OBJ will be equitised and share in the profits from sales, rather than a licensing fee being received on a per unit sale of the technology basis. Often an accelerator will focus on one market such as online sales of a product and then sell the product to a traditional brand for wider distribution at a later date. With Bodyguard nearing the end of its development timeline it is conceivable that OBJ would receive at least 20% of any wholesale pricing.

In recent weeks the company has released ​​an update forecasting that will achieve stronger quarterly earnings compared to the previous quarter, driven primarily by revenue of around $170,000 from licensing fees from their Wave 1 product. As mentioned, it is expected that the company will receive $300,000 as part of the second technology licensing payment shortly.

Lastly, an important recent focus for the company has been to find two new directors. Baker Young has been pleased with the company’s efforts in finding a highly skilled non-executive director in Stephen Schepera. Mr Schepera founded the successful BECCA Cosmeticbrand (www.beccacosmetics.com) and commercialised it into a range of cosmeticproducts that were distributed throughout Europe, Asia and North America. Mr Schapera guided BECCA from its infancy through to being a global player in the international prestige cosmetic field. BECCA was recently sold to Estee Lauder for more than US$230 million. It is a credit to the company’s developing pipeline and strong technology platform that they have attracted someone of such a high calibre. The company has stated its intention to also find an executive director who can provide additional skills, expertise and corporate relationships to OBJ as it pursues the development and commercialisation of its numerous technologies.

If you would like to discuss the above article, I am always happy to discuss my analysis in more detail.

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Disclosure of interest:
The author of this document holds shares in OBJ. Baker Young Stockbrokers Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly share) and may from time to time hold interests in the securities referred to in this document.