Bio..meldown could contribute to global warming!

AIM floatation
"Collins Stewart [BioProgress’ broker] were the only act in town at that particular time, doing IPOs,” says Hind, “So we went with Collins Stewart but we took a fairly brutal valuation at a market cap. of about £17m, 16p a share.

"We took the view if we do the job right, the price will look after itself anyway.

"And within nine months it had gone to 164p. Now we had some quality institutions that came in. We were oversubscribed at the issue. And we had institutions like Cazenove, Gartmore, M&G, Prudential, Invesco. I mean good, quality, blue-chip institutions. But when they made ten times their money, most of them were out at 150p."

Hind had little option but to float when he did: "We needed the cash. It is well known. The directors of the company did not take any salary for eighteen months and we all guaranteed the business on our houses and I ran personally my own credit cards up to £140,000… The minimum payments were costing me over £2,700 per month."

Though BioProgress had, since 1996, been quoted on the Over the Counter Bulletin Board (an electronic trading system for unlisted companies in the USA), Hind says the collapse of the technology bubble had frightened wealthy private investors away. Hence the move to a “proper market” in May 2003.

"You could not bring in institutions at all on the OTC Bulletin Board. Also remember we had a lot of US shareholders who swapped their shares for AIM shares. So we built in liquidity right from the start, which is unusual in an IPO. We had a double whammy. We had institutions taking profit progressively being replaced by private clients and a rump of US individuals coming with us anyway."


Share sale
But Hind stirred things up when, as the company was about to list on NASDAQ in October 2004, he sold 300,000 shares at £1.25 per share. Was he merely making good his debts? "To a certain degree, yes. I also bought my daughter a house. But what has also been missed is I also exercised some further share options. Two days later I paid the company £87,000 to exercise some share options. So it was not take the money and run by any means… I was in an open period and everyone was speculating that the stock was going to go up to £2 on the NASDAQ listing. Although I am criticised now, it actually at the time seemed quite reasonable."

Then, on 18 November, the company published a trading statement revealing problems at BioTec Films, a company it acquired in March 2004. "When we started to look at some of the profitability of the products," says Hind, "which you do not really know until you really have a good look, we discontinued some because they were not really profitable."

Hind says BioProgress is taking a longer-term view of its new acquisition; directing efforts at reformulating BioTech’s US approved products for the European market and ditching tobacco related products. “I could not get involved in that business,” he says, "A, from a liability point of view and b, because we have some ethical funds invested who would run the minute we got involved.

"So this year has been a settling down year. We made some forecasts based on real customers, real opportunities but when we evaluated them we chose not to do some of that business." BioProgress says BioTec Films will lose £1m this year, on revenues of £2.2m.

But, says Hind: "We have got huge growth, huge demand in this particular business so I have no worries at all that the revenues are there. We just have to make sure that we can make the products successfully, that they are profitable, and that they are the sort of products we want to sell."

The future
As BioProgress enters 2005 Hind says he is "very confident". Ignoring revenues, he expects outgoings to be only £3m in 2005 and £5m in 2006, well covered by the £15m in cash on BioProgress’ balance sheet. It buys the company time, he says, while licensees commercialise the technology. Factor in the company’s published forecasts (see part 1 for more detail): $50m from in-the-mouth films in 2004, 2005, and 2006, $160m from FMC’s NROBE license in the first six years of commercialisation, $1m to $1.5m a year from Perrigo for TABWRAP once it is fully commercialised, and add to all that the undefined potential the company sees in other markets, other license agreements and other products and you begin to understand the violent mood-swings all but the hardiest BioProgress investors experience.

Look further ahead, ten or twenty years maybe, and they can expect more excitement: "I will be surprised if the company is independent," says Hind, "Because I think this is a huge global proposition to change the global pharmaceutical industry. I think we will be taken out or there will be other parties become involved… I have not got active discussions at the moment, but… I would be surprised if we do not get approaches at a certain stage and my job is to make sure we get good value for the shareholders. I certainly would want to be seen to have come in and started the job, and also finish it prop