KCQ's regarding BPO

What I noticed from the beginning whilst researching BioProspect Limited (BPO) is that the Board of Directors changed dramatically over the past 5 years.  In particular, between November 2013 and July 2014 (except for the Managing Director), a whole new Board was appointed due to the resignation of all prior board members.  

On further investigation it is noted in the Annual Report that one in three non-executive directors (except the Managing Director) are required to retire by rotation at each Annual General Meeting, with each director being eligible for re-election.  Thus, it seems that all directors (except the Managing Director) have resigned from the board for the past two years. 

I was really interested to know what the reasons would be for this, so I did some digging and found out the following.

As stated in BPO's annual report: 

“the performance of the company depends upon the quality of its directors and executives.  To perform to satisfactory levels, the company must attract, motivate and retain highly skilled directors and executives.”

Mr Ben Cooper who has recently resigned from the board was originally appointed as a Director to fulfil a role specifically to search and identify opportunities for the Company.  

I really got what this company was all about when I read that - before then I could not quite get what it was that they actually did.  The website and annual reports do not contain a Vision Statement or Mission Statement which I found to be quite odd as I usually can get an insight into a company from same.
I see very clearly now that BPO is a company that searches out opportunities where they can either develop a new biotech product, purchase a trademark or intellectual rights or purchase an ownership interest in other companies.  As such, the board is constantly changing and new directors with different areas of expertise, different networks and new ideas and strategies enter the company with the view of identifying new business opportunities.  Effectively the Board of Directors is the chief decision maker.

About BPO:  The company is engaged in developing and commercialising technology in the human health and personal care, animal health and nutrition and agricultural sectors. This includes AGRIPRO® animal health and nutrition products, Qcide® a new, environmentally friendly treatment for household and agricultural pests, TERMILONE® which is the registered Trade Mark for the natural Eremophilone Oil, and REGEN® human health products. The Company also has an investment in Frontier Oil Corporation Limited an unlisted public company based in the Philippines. Located in Sydney, BioProspect is listed on the Australian Stock Exchange. 

Investment in Frontier Oil Corporation:  This acquisition came about due to an extraordinary general meeting of shareholders in 2011, whereby approval was given to change for the Company to include in its activities the exploration, development and production of oil and gas domestically and internationally and as well as other associated activities.  

Quite interesting given that the company is a biotechnology company.  What I have since learnt is that (Grey) biotechnology involves industrial processes such as the production of new chemicals or the development of new fuels for vehicles. 

However, this investment opportunity was in line with the Company’s strategy of increasing shareholder value.  Which effectively is every commercial company's strategy, or so I'm led to believe.

Another interesting point to note is that BioProspect issued shares to Frontier Gasfields' shareholders as part of the acquisition cost.

Moving forward to 2013/2014 F/Y: The company states that the investment climate in the biotech industry has improved and is now considering whether or not an in-specie distribution of its shares in Frontier Oil Corporation, valued at $5.3 million, is in the best interest of the Company and its shareholders.  

An in-specie distribution is a phrase describing the distribution of their shares in the present form, rather than selling them and distributing the cash. In specie distribution is made when cash is not readily available, or allocating the physical asset is the better alternative.

ReGen:  The company was receiving a Government grant in 2011 and 2012 for taking the ReGen Wellness product into the Asian market.  Unfortunately, sales of this product line have steadily declined over the years and the company has written down $175,000 of inventory in the 2013 profit and loss.

The company has maintained it’s intellectual property including local and international trademarks with a view to either resuming activities or selling the asset to another industry participant.  The directors have also written down goodwill $50,000 to nil.

Latest development:  

Invatec Health Pty Ltd is an associated company of BioProspect.  Invatec developed the world’s first quantitative analysis for depression.  The Company’s Heart Rate Variability (HRV) technology is based on the scientific finding that human heart rates, including certain tell tale changes, are sensitive measures for depression. The HRV technology consists of a heart monitor that sends recordings wirelessly to the internet where a proprietary algorithm analyses and delivers a report back to the clinician. The HRV technology is the first objective, evidence-based approach to the diagnosis of depression and other affective disorders. The technology has already benefited from 10 years of research and BioProspect is currently undertaking a number of pivotal trials to further validate its clinical utility.  BPO is to acquire 80% of Invatec Health - for further details regarding the acquisition please go to:

http://www.asx.com.au/asxpdf/20131205/pdf/42ldzkmjdcbl5l.pdf

Mr Claude Solitario, who founded Invatec Health Pty Ltd in 2005 joined the board as an Executive Director.  Mr Solitario has been instrumental in the growth of Invatec since its inception.  Mr Solitario has over 25 year's commercial and research experience and brings a deep understanding of the development and commercialisation of intellectual property to BPO.

Depression is estimated to cost the Australian economy $15 billion annually, with a cost in America estimated at US$83 billion annually.  Complete roll out of the technology is due in 2014/15.

Currently, I think the major challenge the business faces is whether this new technology will be embraced by the medical profession and will prove to be a successful business strategy for BPO. 

Shareholder returns

	30/06/13	30/06/12	30/06/11	30/06/10	30/06/09
Share price-cents	0.1	0.2	0.8	1.3	1.7
Shares on issue	2,873,174,372	1,612,170,347	1,116,570,347	563,113,565	487,040,944
Capitalisation	$ 2.9 m	$ 3.2 m	$ 8.9 m	$ 7.3 m	$ 8.3 m
Loss per share-cents	(0.05)	(0.2)	(0.3)	(0.6)	(0.6)

BioProspect does not currently pay dividends.  However, BPO state in their annual report that all of the company’s funds are fully invested in commercialisation of its natural and sustainable product range, for the benefit of long-term growth in shareholder value. 

Current share price:  is 0.3 cents and currently has 2,200,223 shares on issue.  It will be interesting to watch the share price especially if the HRV technology proves to be very successful.  If you are keen to keep an eye on it here's the ASX link:

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=BPO

Other Interests:  BioProspect has a 28.76% ownership interest in Astrum Therapeutics Pty Ltd, an unlisted Australian drug discovery company focused on type 2 Diabetes Mellitus.  However, the carrying value of the investment is recorded as nil, and the directors have resolved that in the absence of a sufficiently attractive offer, BPO will retain its current 28.76% shareholding.

Going concern:  When I first looked at BPO's financial statements and read over their website, I did have an initial query as to whether they would continue as a going concern.  The website was not giving me too much information - until I undertook a lot of research - and the financials were showing that the company was operating continually at a loss, along with a steady decline in the share price.  As stated in the notes to the 2013 Consolidated Financial Statements:

Going Concern Statement -

"As at 30 June 2013 the Company was in a net asset position of $2,538,153 (2012: $2,444,327) and had incurred losses of $1,096,713 (2012: $3,326,955) and had cash outflows from operations of $1,176,758 (2012: $1,513,183) for the year then ended.........

Based on the above factors and the Company’s history of being able to adequately raise funds the directors believe the group will be able to pay its debts as and when they fall due for a period of at least 12 months from the date of these financial statements."

BioProspect's long-term strategy:  

"Continue to evaluate new business opportunities consistent with BioProspect’s long term strategy to grow market value through the development of biotechnologies."  

I do feel that BPO appears to be meeting its long term strategy as it continues to seek out new opportunities and will continue as a going concern for the next period.  However, the company is dependent on raising capital through issuing ordinary shares, and ultimately relies on investors who believe in the company for its future.   To date, being able to adequately raise funds has proven to be quite an achievement.

Biotechnology Industry Overview:  

It is anticipated that biotechnology will underpin our economy and provide solutions to intractable problems of human and animal diseases, climate change, fuel alternatives, food security – as well as improving our quality of life.

Despite the challenges of the global economy and the degree of difficulty in building a biotechnology and life sciences sector from scratch, Australia is doing very well by any comparative measure, with an impressive return on investment from a maturing stock of quality companies. Australian biotechnology boasts a raft of success stories and a world-class industry.  To read more please go to:

https://www.ausbiotech.org/content.asp?pageid=25