Investors

OptiBiotix Health plc (AIM: OPTI), a life sciences business developing compounds to tackle obesity, high cholesterol and diabetes, announces its audited results for the period ended 31 December 2019. During the period, the Company has met a significant number of important objectives that continue to build value for shareholders.

Operational highlights

• The award of a CE mark and registration of SlimBiome® as a medical device
• The recognition of OptiBiotix’s cholesterol and blood pressure reducing Lactobacillus plantarum LP_LDL® probiotic strain determined as Generally Recognized As Safe (GRAS). GRAS is a United States Food and Drug Administration (FDA) designation and extends the potential applications of LP_LDL® to use as a functional ingredient in food, dairy, and beverage products across the USA
• Pharmaceutical GMP manufacturer approval of LP_LDL®. Pharmaceutical GMP proves that a drug substance (LP_LDL®) is produced consistently with pharmaceutical grade quality. GMP process validation is required by customers and health authorities around the globe to commercialise active ingredients as drugs. The validation of LP_LDL® pharmaceutical GMP manufacture is a significant step in the development of LP_LDL® as a pharmaceutical drug product
• The award of a licence from the Food Standards and Safety Authority India (FSSAI) to OptiBiotix’s manufacturing partner, Zeon Life Sciences, to manufacture SlimBiome® and SlimBiome® containing products in India
• The appointment of EIWA Trading Company to import, market and distribute OptiBiotix’s cholesterol and blood pressure-reducing probiotic strain Lactobacillus plantarum LP_LDL® in Japan
• The launch of LP_LDL® in pharmacies of El Corte Inglés, Spain's biggest department store in all of Spain’s major cities, with IENP under the “39ytú” brand
• A license agreement with Kappa Bioscience AS (“Kappa”) for the use of Lactobacillus plantarum LP_LDL® in a new application area within cardiovascular health in 27 countries
• Raising £1.025 million through the issue of convertible loan notes for OptiBiotix to provide funding for a potential initial public offering of wholly owned subsidiary ProBiotix Health, of which OptiBiotix subscribed for £250,000
• The appointment of Extensor and subsequent territory extension to import, market and distribute GoFigure® products in Poland, Ukraine, Estonia, Lithuania, Latvia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Armenia, Azerbaijan, Georgia, Belarus, Moldova and Russia. This is the start of a strategy to take OptiBiotix’s own label GoFigure® products to international markets to build brand recognition, and create demand for SlimBiome®, the functional ingredient within Gofigure® products
• An agreement with Nutrilinea Srl to develop a food supplement containing LP_LDL® for the reduction of high blood pressure (hypertension). Nutrilinea will cover the cost of all product development, manufacturing and human studies in return for 12 months exclusivity for the European market. ProBiotix has exclusivity for the UK and all other markets outside Europe
• An agreement with Agropur to manufacture, supply and distribute OptiBiotix’s SlimBiome® weight management technology in the USA, Canada and Mexico
• An agreement with Maxum Foods Pty Ltd to manufacture, supply and distribute OptiBiotix’s SlimBiome® weight management technology in Australia and New Zealand
• The launch of two products formulated with SlimBiome® in India: Metalite – a supplement to aid with effective weight management and  Metalite Pro – a high protein meal replacement (www.metalitepro.com)
• Winning the award for Weight Management Ingredient of the Year: Asia, for SlimBiome®, at the Vitafoods Asia trade exhibition tradeshow in Singapore. The award is given to the product identified by a panel of scientific, regulatory and industry experts demonstrating leading edge research and innovation in the weight management market

Post-period end highlights

• The launch of a product range containing OptiBiotix's SlimBiome® proprietary weight management technology under the SlimBiome® brand with Holland & Barrett
• The launch of a food supplement containing LP_LDL® by ALFASIGMA, the first of its kind nutraceutical probiotic in Italy for cholesterol reduction
• An agreement with Granja Pocha S.A. (“Granja Pocha”) for the inclusion of LP_LDL® into a functional yogurt product in Uruguay, South America
• Successful completion of a three month study of 40 patients for a new food supplement containing LP_LDL® (CholBiome BP) carried out by the University of Pavia, Italy and showed statistically significant reductions in both systolic, diastolic blood pressure levels, and cholesterol levels
• An agreement with OptiPharm, whose flagship brand, Optislim, is Australia’s leading weight management brand, for the use OptiBiome® weight management ingredient in over 20 countries including Australia, parts of Asia, New Zealand, Middle East, Gulf States and North America
• The listing of SlimBiome® containing products in Walmart and Costco in the USA and Canada
• The signing of a deal with Pierce Asia taking OptiBiotix products to China

Stephen O'Hara, CEO of OptiBiotix, commented: "OptiBiotix has made significant progress in the last 12 months growing sales across all divisions, signing 24 new agreements and extending our reach into 46 countries. OptiBiotix’s products are now being commercialised as food ingredients, medical devices, drug biotherapeutics and supplements in more and more countries across the world helping to build brand presence. 

“The progress made in 2019 has continued into the first three months of 2020 with sales of LP_LDL® and SlimBiome® as ingredient or final product increasing by 928% when compared to the same period last year and extending geographic reach and brand presence into 119 countries.

“Despite challenges facing the global economy caused by the Covid-19 pandemic, we remain focused on the next phase of our strategy, driving our divisions to profitability in the current year. This is not just about continuing to grow sales, but also about managing costs, renegotiating contracts as volumes increase, reducing the cost of goods to OptiBiotix, and focusing on higher margin products.

“As part of our focus on managing costs we intend to transition our agreement with our financial adviser Goetz from a fixed monthly payment to an ad hoc project by project basis at the end of May 2020. This is an important part of building a profitable and sustainable business for our shareholders in a market forecast to become one of the world's fastest growth areas.

Chairman’s Report

I am pleased to report a period of very significant progress, during which OptiBiotix has achieved a real step change in its planned transition from a research and development specialist into a market-leading and profitable commercial operation.  The business is now growing revenues and achieving global reach and recognition for its unique technologies and products.  We have grown sales across all divisions, signed 24 new agreements extending our reach into 46 countries, and significantly strengthened our management team, all while maintaining cost control and a strong balance sheet. 

Strategy

Optibiotix Health is a life sciences business founded on the development of compounds to tackle obesity, cardiovascular disease and diabetes: all conditions that are affecting growing numbers of people in all parts of the world.

Our growth strategy is to secure multiple deals with multiple partners – manufacturers, formulators and distributors – so that we have control of the complete value chain for all the compounds we develop, and can extract value for our shareholders at each stage.

We also seek to reduce risk by reaching agreements with manufacturers in a range of different countries: hence our SlimBiome® compound is produced by separate companies in the UK, Continental Europe, USA, Australia and India, to which we will soon add a manufacturer in China.

Formulators apply our compounds to a range of different uses; the common factor is that our patented and trademarked products such as LP_LDL® and SlimBiome® act as the ‘Intel’ inside a wide and growing range of food, beverage, supplement, and medical products around the world.

This careful, low-risk approach is delivering on exactly the schedule envisaged when the Company began the process of commercialisation in 2017.  This saw initial deals being secured that year, a broadening of reach in 2018, and the build-up of revenues from contracts in 2019.  We now have a secure platform to deliver strong sales growth and with the aim of achieving profitability in 2020.

Business development

Among the many positive developments during the period, which the Chief Executive discusses more fully in his report, I would particularly like to highlight the achievement of US Food & Drug Administration GRAS status for LP_LDL®, and its pharmaceutical Good Manufacturing Practice designation.  Together these achievements open the way for LP_LDL® to be used as a functional ingredient in a range of food, dairy and beverage products across the USA, and pave the way for its use as an active ingredient in pharmaceutical products.  Similarly, significant potential should be unlocked by the award in Europe of a CE mark for SlimBiome® and its registration as a medical device. 

I am also pleased that the effectiveness of our products continues to gain recognition through the achievement of major industry awards, with the naming of SlimBiome® as Weight Management Ingredient of the Year: Asia at Vitafoods in Singapore constituting a particular highlight of the year.

Board and management

This has been my second year as Chairman and it has been a real pleasure to see the business growing and maturing in line with all my expectations when I joined the Board at the beginning of 2018.

As announced in the last annual report, Dr Fred Narbel joined the Company on 1 March 2019 as Managing Director of our integrated Prebiotics division containing our SweetBiotix®, OptiBiotic® and microbiome modulating technology platforms.  I believe we now have an excellent mix of executive talent with the scientific and commercial expertise of our founder and CEO Stephen O’Hara, the proven management skills and extensive industry contacts of Dr Fred Narbel; and the scientific leadership of our Research & Development Director Dr Sofia Kolyda.  These are complemented by the expertise of my non-executive colleagues Peter Wennström and Sean Christie, with Peter bringing us more than 25 years of experience in international brand management and specialist consultancy, and Sean possessing extensive experience of finance, corporate governance, mergers and acquisitions.

Outside the main Board, Stephen Prescott joined us as CEO of our wholly-owned subsidiary ProBiotix Health Ltd in May 2019, while Steve Riley continues as head of our Consumer Health division, with responsibility for our Online store that makes our unique products available direct to consumers.

During the period Fred Narbel, Steve Prescott and Steve Riley were given full P&L responsibility for their respective divisions, charged with growing sales while managing costs.

Outlook

As shown in the recent trading update (RNS: 18 May 2020) we continue to grow our top line with strong commercial progress in the first three months of 2020 increasing sales of LPLDL® and SlimBiome® as ingredient or final product by 928% when compared to the same period last year and extending geographic reach and brand presence into 119 countries.  As we benefit from increasing revenues from established deals, and new agreements begin to deliver sales we anticipate further revenue growth in 2020.  Encouraging developments in our new financial year include the launch of SlimBiome® with Holland & Barrett in the UK, the launch of products with Walmart in the US, and a deal to enter the Chinese market. AlfaSigma in Italy and Akum in India are also both commercialising products in their home markets that will contribute to our sales growth during the year.

The renegotiation of our contract with Sacco S.r.l. in March 2020, extending this until 2023 and changing it from a profit sharing to a manufacturing and supply basis, is illustrative of the increasing leverage we can exercise as sales volumes increase, and will capture a greater share of value for our investors.  This is an important precedent that we expect to follow in other contract renegotiations during the year.

We continue to explore the potential for a dual NASDAQ listing in the USA to capitalise on growing North American consumer and investor interest in the microbiome, broaden our investor base and reduce the share price volatility caused  by the low liquidity associated with our current AIM listing in the UK.

Despite the pressures on the global economy caused by the Covid-19 pandemic, we continue to look to achieve revenue growth and profitability in all three of our divisions in the current year, and remain confident in our ability to deliver growing value for our shareholders in the longer term.

N Davidson
Chairman

27 May 2020

Chief Executive Officer’s Report

OptiBiotix offers investors a unique opportunity to participate in the growth potential afforded by one the most progressive and exciting areas of biotechnological research: the modulation of the human microbiome. Everything we do involves the application of science to improve human health, developing pharmaceutical grade solutions to deliver food and dietary supplements of proven effectiveness; these are protected by our extensive international portfolio of patents and trademarks. Our low risk business model involves working with a range of local partners who are recognised and respected leaders in their fields to gain access to fast-growing markets around the world,  developing a truly global reach that is delivering strong sales growth.

Strategic development

As the Chairman has noted, our strategy is designed to maximise the income potential of each of our products while limiting investment risk, and managing costs. We focus on large markets, valued at £100m or more, that are growing rapidly, showing a compound annual growth rate (CAGR) of 10 per cent or more, and where there is a large unmet demand. We aim to satisfy this demand by developing food ingredients, supplements and pharmaceutical products with a range of appropriate partners in a wide and growing range of territories. Our partners vary in size from $1bn turnover corporations to small, fast-growing companies, but all share an established industry reputation and an effective distribution network within their target market.

Our commercial strategy involves completing deals across multiple levels of the value chain, starting with manufacturing agreements such as that signed with Sacco S.r.l. in Italy in 2017 to manufacture LPLDL®; this was then complemented by royalty bearing licence deals with formulation and distribution partners such as Nutrilinea, and final distribution partners like AlfaSigma.

While this strategy takes longer to develop than concluding a single licence deal,  and requires close collaboration with partners, the multi-channel approach enables OptiBiotix to maximise the income potential of each product, whilst limiting the risk related to any individual deal.

This allows OptiBiotix to operate on a very asset-light infrastructure with manufacturing, product regulatory approvals, and sales and marketing infrastructure all funded by our partners so that licence and royalty fees are largely cost-free and flow straight to our bottom line. This is a low risk, low cost approach to accessing multiple consumer healthcare and pharmaceutical markets around the world and has the potential to cumulatively generate substantial revenues and profitability in the years ahead. 

Key to this strategy is working with the right commercial partners and ensuring that their sales and marketing teams are provided with the supporting science and training to highlight the benefits of our technology in order to maximise sales growth.  As we extend our reach into new application areas, create new products, and expand into new territories, the scale of our opportunity enlarges.

The next phase of our strategy, on which we have now embarked, is to drive the business to profitability. This is not just about continuing to grow sales, but also about managing costs, renegotiating contracts as volumes increase, reducing the cost of goods to OptiBiotix, and focusing on higher margin products. This will be an important part of building a profitable and sustainable business.

The renegotiation of our terms of trade in an extended contract with Sacco S.r.l., announced in March 2020, provides an excellent illustration of this approach. Our original agreement with them in 2017 was a profit-sharing deal which encouraged and rewarded the manufacturer to use their industry network to promote and sell our products.  This is a very cost-effective approach in the early days of building a business, since the manufacturer effectively becomes our global sales team without any cost  to us, as they carry out marketing activities, promotion at exhibitions, application development and so forth.

However, as our sales volumes increase our leverage improves, allowing us to renegotiate our contract from profit share to manufacture and supply - where we buy the product and then sell on to our other partners.  The advantages of this are two-fold: we can reduce our cost of goods from the manufacturer as volumes increase, and we can also exert increased leverage on our formulation and distribution partners as we become the direct sales link to them. Whist this may initially increase operating costs whilst we build stock levels, particularly to support retail partners who deliver large volume sales and require a responsive supply chain, this should ultimately deliver greater profitability.  

Our contracts are typically of one to three years’ duration and we expect to renegotiate a number of current agreements from a profit sharing to a manufacturing and supply basis during the current year, allowing us to capture more of the value chain for our shareholders by increasing control and profitability.  

The historic uneven weighting of revenue towards the second half of our financial year will be smoothed out as more contracts are renewed on these terms.  

A further benefit expected to flow through to the bottom line is that our research and development costs are set to fall as a proportion of sales now that clinical studies to confirm the efficacy of SlimBiome® and LPLDL® are essentially complete.  Intellectual property expenditure will also reduce now that patent and trademark registration in most key territories has been completed, and core patents have been granted.  As part of this process whilst we will continue to register core patents in all major territories (typically US, Europe, Canada, Japan, Australia, India) we will limit supporting patents to Europe and the USA. This should reduce IP costs whilst continuing to protect our commercial interests.

Finally, we announced the appointment of Goetz Partner Securities (“Goetz”) in June 2019 as financial advisers to the Company with the aim of improving institutional and family funds buy side access from within Europe. As part of our focus on managing costs we intend to transition our agreement with Goetz from a fixed monthly payment to an ad hoc project by project basis at the end of May 2020.

Operational highlights

During the period we have met a significant number of important objectives that continue to build value for our shareholders. Key achievements of the period include:

• The award of a CE mark and registration of SlimBiome® as a medical device
• The recognition of OptiBiotix’s cholesterol and blood pressure reducing Lactobacillus plantarum LP_LDL® probiotic strain determined as Generally Recognized As Safe (GRAS). GRAS is a United States Food and Drug Administration (FDA) designation and extends the potential applications of LP_LDL® to use as a functional ingredient in food, dairy, and beverage products across the USA
• Pharmaceutical GMP manufacturer approval of LP_LDL®. Pharmaceutical GMP proves that a drug substance (LP_LDL®) is produced consistently with pharmaceutical grade quality. GMP process validation is required by customers and health authorities around the globe to commercialise active ingredients as drugs. The validation of LP_LDL® pharmaceutical GMP manufacture is a significant step in the development of LP_LDL® as a pharmaceutical drug product
• The award of a licence from the Food Standards and Safety Authority India (FSSAI) to OptiBiotix’s manufacturing partner, Zeon Life Sciences, to manufacture SlimBiome® and SlimBiome® containing products in India
• The appointment of EIWA Trading Company to import, market and distribute OptiBiotix’s cholesterol and blood pressure-reducing probiotic strain Lactobacillus plantarum LP_LDL® in Japan
• The launch of LP_LDL® in pharmacies of El Corte Inglés, Spain's biggest department store in all of Spain’s major cities, with IENP under the “39ytú” brand
• A license agreement with Kappa Bioscience AS (“Kappa”) for the use of Lactobacillus plantarum LP_LDL® in a new application area within cardiovascular health in 27 countries
• The raise of £1.025 million through the issue of convertible loan notes for OptiBiotix to provide funding for a potential initial public offering of wholly owned subsidiary ProBiotix Health, of which OptiBiotix subscribed for £250,000
• The appointment of Extensor and subsequent territory extension to import, market and distribute GoFigure® products in Poland, Ukraine, Estonia, Lithuania, Latvia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Armenia, Azerbaijan, Georgia, Belarus, Moldova and Russia.  This is the start of a strategy to take OptiBiotix’s own label GoFigure® products to international markets to build brand recognition, and create demand for SlimBiome®, the functional ingredient within Gofigure® products
• An agreement with Nutrilinea Srl to develop a food supplement containing LP_LDL® for the reduction of high blood pressure (hypertension). Nutrilinea will cover the cost of all product development, manufacturing and human studies in return for 12 months exclusivity for the European market. ProBiotix has exclusivity for the UK and all other markets outside Europe
• An agreement with Agropur to manufacture, supply and distribute OptiBiotix’s SlimBiome® weight management technology in the USA, Canada and Mexico
• An agreement with Maxum Foods Pty Ltd to manufacture, supply and distribute OptiBiotix’s SlimBiome® weight management technology in Australia and New Zealand
• The launch of two products formulated with SlimBiome® in India: Metalite – a supplement to aid with effective weight management and  Metalite Pro – a high protein meal replacement (www.metalitepro.com)
• Winning the award for Weight Management Ingredient of the Year: Asia, for SlimBiome®, at the Vitafoods Asia trade exhibition tradeshow in Singapore. The award is given to the product identified by a panel of scientific, regulatory and industry experts demonstrating leading edge research and innovation in the weight management market
  

Post-period end highlights

• The launch of a product range containing OptiBiotix's SlimBiome® proprietary weight management technology under the SlimBiome® brand with Holland & Barrett
• The launch of a food supplement containing LPLDL® by ALFASIGMA, the first of its kind nutraceutical probiotic in Italy for cholesterol reduction
• An agreement with Granja Pocha S.A. (“Granja Pocha”) for the inclusion of LPLDL® into a functional yogurt product in Uruguay, South America
• Successful completion of a three month study of 40 patients for a new food supplement containing LPLDL® (CholBiome BP) carried out by the University of Pavia, Italy and showed statistically significant reductions in both systolic, diastolic blood pressure levels, and cholesterol levels
• An agreement with OptiPharm, whose flagship brand, Optislim, is Australia’s leading weight management brand, for the use OptiBiome® weight management ingredient in over 20 countries including Australia, parts of Asia, New Zealand, Middle East, Gulf States and North America
• The listing of SlimBiome® containing products in Walmart and Costco in the USA and Canada
• The signing of a deal with Pierce Asia taking OptiBiotix products to China 
  

Regulatory approvals

In December 2019 we were delighted to achieve a CE mark and registration of SlimBiome® as a medical device by the European regulatory authorities.  This was supported by independent human studies at a number of universities which demonstrated that, when compared to a control group, people who took SlimBiome® feel fuller and are less hungry; experience fewer food cravings; and change their food choice to eat fewer sweet and fatty foods. This registration unlocks significant further potential for the application of SlimBiome® beyond its current use as a functional food ingredient with the formulation and sachet presentation the basis for Holland and Barrett’s launch of products in 2020.

Previously, in April 2019, our partner Zeon Life Sciences was awarded a licence by the Food Standards and Safety Authority India (FSSAI) to manufacture SlimBiome® and SlimBiome® containing products in India.

We have also made very important strides in the official recognition of our cholesterol and blood pressure reducing Lactobacillus plantarum LPLDL® probiotic strain. This was Generally Recognized As Safe (GRAS) by the United States Food and Drug Administration (FDA) in February 2019. Securing this GRAS designation extended the potential applications of LPLDL® to its use as a functional ingredient in food, dairy, and beverage products across the USA.

In October 2019 we also secured from the FDA Pharmaceutical Good Manufacturing Practice (GMP) approval of LPLDL®, which is important in proving that LPLDL® is produced consistently to pharmaceutical grade quality. GMP process validation is required by customers and health authorities around the world to commercialise active ingredients as drugs. The validation of LPLDL® pharmaceutical GMP manufacture is a significant step in the development of LPLDL® as a pharmaceutical drug product.

New partnerships and product launches

In February 2019 we appointed EIWA Trading Company to import, market and distribute OptiBiotix’s cholesterol and blood pressure-reducing probiotic strain Lactobacillus plantarum LPLDL® in Japan.

In May 2019 we reached an agreement with the Italy-based Nutrilinea Srl to develop a food supplement containing LPLDL® for the reduction of high blood pressure (hypertension). Nutrilinea covered the cost of all product development, manufacturing and human studies in return for 12 months exclusivity within the Continental European market. ProBiotix retains exclusivity for the UK and all other markets outside Europe. Following successful human studies, OptiBiotix intends to launch a blood pressure product CholBiomeBP in 2020.

In the same month we signed an agreement with Instituto Español de Nutrición Personalizada, S.A. (IENP) for the use of LPLDL® in personalised food supplements in Spain. IENP has already launched LPLDL® under the ‘39ytú’ brand in pharmacies of El Corte Inglés, Spain’s largest department store chain with outlets in all the country’s major cities.

In June 2019 we signed an agreement with the dairy co-operative Agropur to manufacture, supply and distribute OptiBiotix’s SlimBiome® weight management technology in the USA, Canada and Mexico.

In the same month we appointed the well-known Polish brand Extensor to import, market and distribute GoFigure® weight management products directly to consumers in Poland, and subsequently agreed a territory extension that also covers Ukraine, Estonia, Lithuania, Latvia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Armenia, Azerbaijan, Georgia, Belarus, Moldova and Russia. This is the start of a strategy to take OptiBiotix’s own label GoFigure® products to international markets, build brand recognition, and create demand for SlimBiome®, the functional ingredient within Gofigure® products.

In July 2019 we signed a licence agreement with Kappa Bioscience AS for the use of Lactobacillus plantarum LPLDL® in a new application area within cardiovascular health in 27 countries.

In August 2019 we concluded an agreement with the Australian dairy ingredients company Maxum Foods Pty Ltd to manufacture, supply and distribute OptiBiotix’s SlimBiome® weight management technology in Australia and New Zealand.

In December 2019 we launched two new products formulated with SlimBiome® to the Indian market in partnership with Anthem BioPharma and Zeon Life Sciences: Metalite, a supplement to aid with effective weight management, and  Metalite Pro, a high protein meal replacement (www.metalitepro.com).

Awards

We were delighted to win the award for Weight Management Ingredient of the Year: Asia for SlimBiome® at the Vitafoods Asia trade exhibition tradeshow in Singapore in September 2019. The award is given to the product identified by a panel of scientific, regulatory and industry experts demonstrating leading edge research and innovation in the weight management market. This follows on from our Weight Management Ingredient of the Year awards for SlimBiome® in Europe (2018) and 2017 (UK), demonstrating a high level of industry recognition across global markets. The Company also received The Grocer New Product Award 2019, in the breakfast category, for its GoFigure Matcha Tea & Pistachio Muesli.  This is a major food industry award and shows how SlimBiome® can effectively be incorporated into everyday breakfast products to support healthy weight management.

Results

As announced on 23 March, we changed our financial year-end to 31 December to align our reporting with that of similar companies on other international exchanges. We are therefore reporting results for the 13 months to 31 December 2019 (prior year: 12 months to 30 November 2018). 

Total sales for the year were £744,883 (2018: £541,614) with other income of £617,000, including, inter alia, income resulting from the partial disposal of SkinBioTherapeutics plc shares as previously reported.  The sales figure is less than the £808k reported in the unaudited figures (RNS: January 17 2020), as it no longer includes approximately £60,000 worth of LPLDL® which was invoiced and part paid in 2019 which under IFRS 15, the new international reporting standard, will now be accounted for in the 2020 accounts as delivery did not take place until 2020.

In line with previous years, the majority of income was generated in the second half of the year (H1 2019: £148,818). We expect this trend to continue in 2020 with a gradual smoothing in this second half as income from ingredient, white label and own label products sold through retailers or direct to consumers online, provide more evenly distributed income throughout the year. 

Administrative expenses for the 13 months to end of December 2019 were £2,559,440 an increase of £709,037 from the £1,850,403 in the 12 months to November 2018. A large part of this increase (£261,904) arises from the combination of one-off regulatory costs (£185,447) and the increase in consultancy costs (£76,457) from achieving GRAS and GMP manufacture for LPLDL®.  We calculate approximately £154,200 of expenses arises from the change in accounting period creating an additional month in this year’s accounts.  The appointment of Dr Fred Narbel and Steve Prescott contributed to an increase in Directors fees of £290,665.  Director costs include the remuneration costs of Christina Wood who left in August 2019 but was remunerated to the end of November as part of her contractual 3 month notice period.  Within 2019 administration expenses there were £355,304 of non-cash expenses representing depreciation, amortisation and share based payment devaluations, an increase of £85,174 on 2018 (£270,130). 

The share of loss from OptiBiotix’s associate, SkinBiotherapeutics plc (SBTX), was £296,344. This is an accounting adjustment and has no impact on the Group’s cash.

At 31 December 2019, the Group had £455,608 cash in the bank. Once R&D tax credits (£190,435), and recoverable VAT (£59,345) are added back, the balance was £705,388.  On 17 April 2020, post accounting period, the Group raised £1.0 million through the issue of 2,500,000 new ordinary shares. With this funding and growing revenues, the cash position remains strong and sufficient to cover the delivery of existing commercial plans.

Management

We significantly strengthened our management team during the year with the appointment in March 2019 of Dr Fred Narbel as Managing Director of our Prebiotics division. Fred Narbel was formerly Vice President of Sales for Nutrition Solutions at Agropur, a major North American dairy company with sales of $6.7 billion in 2018. He has brought us extensive experience of selling speciality food ingredients in international markets, a wide network of contacts in the high value speciality food ingredients industry, and a strong track record of rapidly growing sales.

Outside the main Board, Stephen Prescott joined as Chief Executive Officer of OptiBiotix’s wholly owned subsidiary, ProBiotix Health Ltd in May 2019.  Steve will step down from the Board of ProBiotix Health Ltd and leave the Company by mutual consent at the end of May 2020.  Mikkel Hvid-Hansen, who joined ProBiotix as European Sales Director in February 2020 will take on an extended role as Commercial Director with Stephen O’Hara acting as CEO of ProBiotix Health Ltd.

We anticipate further additions and changes to the management team and the Board of both OptiBiotix and ProBiotix Health in line with the growth aspirations of both companies and the aim of transitioning to a profitable and sustainable business.

Prospects

Despite the global challenges with Coronavirus we have continued to extend our global reach in 2020 signing 14 agreements for the period to date. These include 10 for SlimBiome® and four for LPLDL®.These agreements aim to extend the Company’s geographic reach into 119 countries. 

Significant developments in the year to date include the launch of a product range containing OptiBiotix's SlimBiome® proprietary weight management technology under the SlimBiome® brand with Holland & Barrett in the UK. Sales of the first products launched have exceeded our expectations and we are working with our partners to extend the product range.

In Italy, our partner AlfaSigma has launched a food supplement containing LPLDL® which is the first nutraceutical probiotic for cholesterol reduction to reach the market there.

Also in Italy, the University of Pavia has successfully completed a three month study of 40 patients for a new food supplement containing LPLDL® (CholBiome BP) which showed statistically significant reductions in both systolic and diastolic blood pressure levels, and in cholesterol levels, for the participants.

In March 2020 we announced a new global manufacturing and supply agreement for LPLDL® with Italy-based Sacco S.r.l., extending our deal with them until 2023 and changing our original profit-sharing terms to allow us to benefit from lower prices for LPLDL® as sales increase, and to receive commission from Sacco following successful sales of LPLDL® to dairy customers. 

We have signed a new agreement with Granja Pocha S.A. for the inclusion of LPLDL® in a functional yogurt product in Uruguay. The use of LPLDL® in functional foods is an important precedent which has the potential for replication in other territories.

Having achieved FDA GRAS and GMP manufacture standards, we hope to build on this proof of concept by Granja Pocha to further extend the application of LPLDL® from its use as a supplement into use as a food and dairy ingredient in 2020.

We have concluded an agreement with OptiPharm (whose flagship brand, Optislim, is Australia’s leading weight management brand) for the use of our OptiBiome® weight management ingredient in over 20 countries including Australia, New Zealand, North America, parts of Asia, Gulf states and the wider Middle East. 

In May 2020 OptiBiotix Health PLC announced that it had entered into a three-year distribution agreement with the Asian focused B2B product developer and distributor Pierce Group, granting it exclusive rights to import and commercialise OptiBiotix's SlimBiome® weight management ingredient and LPLDL®, our cholesterol-lowering probiotic, in China and Hong Kong.

We also announced in May 2020 a non-exclusive licence agreement for our SlimBiome® trademark with Smart For Life, Inc. and the related launch of cookies containing OptiBiotix's SlimBiome® proprietary weight management technology in the USA and Canada; the cookies will be sold through Walmart in the USA, Costco in Canada, and online.

Our commercial plans for 2020 are centred on extending our reach into new application areas, including hypertension, immune and cognitive health, continuing to enter new territories, and supporting established partners like Agropur in the USA, AlfaSigma in Italy, and Akums in India, in the commercialisation of products in their territories.

Our own Online store - https://optibiotix.online - is offering a growing range of meal replacements, snacks and supplements including porridge, muesli, flapjacks and gummies containing SlimBiome® to aid weight management and CholBiome® probiotic supplements containing LPLDL® to reduce cholesterol.  These products act as a shop window for partners and to test new products before expanding into other territories and presenting to retailers.  This approach has led to successful product launches in Holland and Barrett, and paved the way for product acceptance in Walmart, and Costco.  We cannot predict the future in these difficult times but hope this approach will lead to more products being launched online, and partners looking to extend their product ranges in the year ahead.

The recent trading update (RNS: 18 May 2020) shows strong commercial progress in the three months of this year with OptiBiotix extending its geographic reach and brand presence into 119 countries.  With more agreements generating revenues, and a greater number of deals generating income in the first year of agreement, we have seen a large increase in revenues (928%) when compared to the same period last year. We anticipate further revenue growth in 2020 as existing deals contribute to full year revenues, we extend the application of our products into new areas, and continue to execute deals with new partners.

Investor and consumer interest in the human microbiome is growing steadily, presenting us with a market opportunity that is large and expanding. We will continue to devote our efforts to increasing our range of applications, products and territories in order to capitalise on this opportunity. Our strategy of developing microbiome products with a strong scientific and clinical evidence base with key opinion leader support has provided clear product differentiation and stimulated high commercial interest. We look forward to converting this interest into agreements in new territories and application areas in the months ahead to continue to grow revenues in this new and exciting area of science which has the potential to revolutionise the future of healthcare.

Stephen O’Hara
Chief Executive

27 May 2020

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Final Results
For the 13 months to 31 December 2019

Notes to the Financial Statements are available in the printable PDF version