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finnCap has a good gut feeling about OptiBiotix

The City broker says OptiBiotix is “well-positioned” to be a leader in the growing microbiome space
fruit and tape measure, symbolising weight loss
The functional foods market is worth an estimated US$200bn

City broker finnCap says it has a good gut feeling about life sciences group OptiBiotix Health plc (LON:OPTI), which it reckons can become a leader in the microbiome space.

OptiBiotix’s technology is focused on tackling worldwide health issues such as obesity, high cholesterol and diabetes, and looks to partner up with food, health and pharma companies that have established routes to market.

“With the microbiome fast becoming a rapidly growing area of interest, OptiBiotix is well positioned to be one of the leaders in this field,” claims finnCap’s Alex Pye.

“[It is] a lower-risk entry into the microbiome space compared with pharma plays with higher regulatory and development risk profiles.”

The analyst also highlights the potential future value of OptiBiotix’s products by comparing it to Valio OY’s €73m sale of its LGG probiotic bacterial strain to Christian Hansen last September.

The deal valued LGG at 8x sales and generated a royalty stream for Valio from Hansen.

“Unlike LGG, which is a diet supplement, OptiBiotix's proprietary LP-LDL strain has been shown to modulate the microbiome, reducing cholesterol, and therefore opening up more significant market opportunities and, arguably, creating greater value for shareholders.”

At the end of 2016 OptiBiotix partnered with an Asian multi-national firm to develop various weight management foods and products that contain its SlimBiome technology, and Pye said at the time he thought there would be more agreements and partnerships throughout 2017.

He's not wrong, so far, as in March OptioBiotix signed a manufacturing deal with Sacco, one of Europe’s leading probiotic manufacturers and raw ingredients suppliers.

Sacco has been granted an exclusive licence to manufacture and supply OptiBiotix's cholesterol reducing strain, LPLDL, in Europe.

OptiBiotix will receive 50% of the profit from the goods and has ensured a minimum price per kilogramme is written into the contract to secure against discounting.

While it waits to secure further deals, the company is on a steady financial footing. At the end of the last financial year, Opti had £3mln in the bank and an annual cash burn of around £1.2mln.

Excluding any licensing agreements it may sign, that should give the group a cash runway of between two and three years.

To give an idea of the size of the markets OptiBiotix is working in, Pye estimates that the functional (diet) foods market is worth US$200bn annaully, while the skincare and woundcare market are both worth in excess of US$100bn.

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