Doubt and Uncertainty

Apart from the obvious negatives in the knock-back from GSK "in a manual toothbrush setting" and the pending negative court action, this latest shareholder update holds out little hope for increasing shareholder value in the foreseeable future. There is little to suggest that anything of material substance will be announced before 2016 as there is not one single definitive statement in this update (except for GSK's obvious rejection). Let's have a look at the more promising statements:


"The second work plan objectives have now been met and this is now expected to progress into the clinical testing phase. The third work plan is progressing to plan with two of P&G’s major brands."

OK, so the first product, SK-II, has been released (which is a great achievement for OBJ) but the second "possible" product is only coming up to "clinical testing phase", so there are no guarantees there. In my opinion, even if this progresses beyond clinical testing (and after the GSK decision nothing is certain) then it will be a long time until product release on a limited basis. The third work plan has not even progressed into the stage that it is "expected" to progress into the clinical testing phase, so who knows how long that "potential" will take to be realised?


"The Company has executed a Product Development and Licensing Term Sheet with COTY ........This work is proceeding very well."

Well, that tells us nothing we didn't already know! How well is it proceeding - as well as "work" was proceeding with GSK?? Is there a product due this year? This is typically vague by OBJ management and does little to allay fears that perhaps nothing of substance will happen during 2015.



"The BodyGuard musculoskeletal patch product development is progressing toward an expanded human clinical trial being planned with the University of Queensland. Product prototypes are currently being tested in preparation for this clinical evaluation with production tooling now well advanced."

Don't expect any product in the BodyGaurd range this year either, if ever. As much as I admire and respect the efforts of the guys at my old Alma Mater (UQ), where I spent 15 years of my academic career, the fact that "patch product development is (ONLY) progressing toward an expanded human clinical trial being planned" indicates that a commercial product is a long way (years) off yet. This is a very competitive area of the market and I remain unconvinced that anything of great value to OBJ will eventuate.

As for GSK, after a decade of "promise", there is very little to hang onto in the statements contained in the update.

"OBJ continues to work on a number of oral healthcare applications and will advise the market of progress when material events occur"

How non-specific can you get? --"a number of oral healthcare applications" ---What is that "number"? 2, 5, 20???? Never mind, management will let you know when material events occur! Obviously a "material event" has yet to occur, so, no product agreements, no licensing agreement..nothing. The carrot is being dangled though.

"The Company is currently in discussions with two major international Companies with an interest in exploring magnetic micro‐array technology in the electric toothbrush field. Meetings are scheduled with both of these Companies during the first quarter of 2015. "

Is this what it has come to? Is the market supposed to get excited about scheduled meetings with unknown companies later this year? This vague reference to "international companies" clearly keeps some shareholders happy but has very little meaning in creating shareholder value.

"The international Joint Venture, recently signed between GSK and Novartis, potentially expands opportunities for the Company’s technologies in the analgesic field with the new product development responsibilities and priorities under the JV expected to become clearer in the next quarter."

Again, a nothing statement talking about ways to "potentially expand(s) opportunities". Product commercialisation remains an ethereal concept, subject to "responsibilities and priorities" that might be clarified during the course of 2015. How more vague could it be expressed? Given GSK's rejection of the technology in one sphere, after a protracted trial period, can shareholders expect information to flow freely from this source? I think not.


"The Company has also commenced the development program into surface and skin care devices with the employment of a Project Manager to focus the necessary resources into developing the next generation of OBJ’s own products"

This, to me, is a clear statement that OBJ is going to require additional funding at some point in the near future. With an annual wages/consultancy bill close to $2 million, it does not require much imagination to establish that a new product manager will need more than the current $4 million cash balance to provide the "necessary resources" for "developing the next generation of OBJ’s own products". If you think that income from SK-II royalties will be enough then think again. I have previously said that OBJ would be happy if they get $1 million pa from the current product available. I have revised that downwards. I have done so because of the limited release and limited production run undertaken by P&G while they test the market.  So, I would be surprised if OBJ get $500,000 in 2015.

Added to all of the above we still have the uncertainty and doubt created by the directors' selling over the last few months. Whether they were sold, as some were, or transferred, is irrelevant. If the shares had been transferred into a super account, as some suggest, they would still show up as "indirect interest". The "potential" for OBJ is clearly less certain following this shareholder update. The current $140 million Market Cap is looking hugely overvalued. Who knows what the general market will make of Friday's update but the usual rampers/true believers have been putting in overtime this weekend, trying to quieten the horses and defend the indefensible in an effort to prevent a massive sell-off. So, given that it is looking more likely that there will be no more products released this year, what Market Cap should OBJ be valued at? Based on fundamentals, I would suggest it should be one fifth the current valuation. I have always believed that OBJ has a great future but this latest offering has forced me to reassess the niggling doubts I hold/held. For that reason I have changed my sentiment from "hold" to "sell".