27 September 2024

Half yearly Report

OptiBiotix Health plc

("OptiBiotix" or the "Company" or the "Group")

Half Year Report

OptiBiotix Health plc (AIM: OPTI), a life sciences business developing compounds to tackle obesity, cardiovascular disease, diabetes and skincare, announces its unaudited results for the six months ended 30 June 2024.

Highlights

·    Significantly increased order book and solid sales performance

·    Reported revenues decreased by 21.3% to £276K (H1 2023: £351k), although sales orders received during the period were substantially higher than in H1 2023

·    Strong strategic and commercial progress achieved in the first half has continued in the second half to date

·    E-commerce sales increased three-fold

·    Healthy balance sheet with gross assets of £8.0m (30 June 2023: £9.9m), no debt and cash of £1,263K (30 June 2023: £893K)

·    Successful placing to raise £1,350,500 through the issue of 6,752,500 new ordinary shares of 2 pence each in the Company in March 2024

·    Launch of LeanBiome® in Muscletech®, a leading sports nutrition brand

·    Partnership agreement with Morepen for SlimBiome® containing finished products

·    Manufacturing agreement with KAG Industries

·    Roehampton University submitting the results of a third human study on SlimBiome® for publication, which demonstrated statistically significant benefits to appetite and hunger regulation with no safety, compliance or tolerance issues reported by the participating volunteers. This study underlined the effectiveness of a single dose of SlimBiome® in delivering hunger-free weight loss by non-invasive means, and was timely in view of the growing consumer, media and pharmaceutical interest in this field

Stephen O'Hara, CEO of OptiBiotix Health plc said: "The fundamentals of our marketplace remain very exciting, with a range of recent market reports highlighting that products across the entire OptiBiotix portfolio have the potential to meet growing demand as solutions to a wide and increasing range of lifestyle-related health challenges. Given the excellent customer reviews, high customer return rates, multiple industry awards, and new customers launching products in key markets we believe there is a substantive opportunity to leverage market interest by increasing customer awareness of our products either directly through social media channels or indirectly through investing with our partners, and so build a successful and profitable business.

"The commercial traction we are now enjoying in our first-generation products with large partners in key markets, and the interest shown by other partners in our potentially industry-changing second-generation products, allows us to look to the future with a high degree of confidence. In the shorter term, based on orders already placed, we are also confident that full year revenues will be well ahead of those reported in 2023.

"With appetite suppression, gut health, sugar alternatives and modulation of the human microbiome all attracting ever-increasing interest, we believe that the Company is strongly placed to achieve profitability through growing sales of its now proven first-generation products, while progressing towards the commercialisation of our even more exciting second-generation products, SweetBiotix® and human microbiome modulators.

"We are confident that our strategy will deliver an improved sales performance for the rest of this year, and will continue in 2025, and look forward to demonstrating the long-term growth potential of the Group."

This announcement contains information which, prior to its disclosure, was considered inside information for the purposes of the UK Market Abuse Regulation and the Directors of the Company are responsible for the release of this announcement.

Forward-Looking Statements

Certain statements made in this announcement are forward-looking statements. These forward-looking statements are not historical facts but rather are based on the Company's current expectations, estimates, and projections about its industry; its beliefs; and assumptions. Words such as 'anticipates,' 'expects,' 'intends,' 'plans,' 'believes,' 'seeks,' 'estimates,' and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors, some of which are beyond the Company's control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The Company cautions security holders and prospective security holders not to place undue reliance on these forward-looking statements, which reflect the view of the Company only as of the date of this announcement. The forward-looking statements made in this announcement relate only to events as of the date on which the statements are made. The Company will not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances, or unanticipated events occurring after the date of this announcement except as required by law or by any appropriate regulatory authority.

For further information, please contact:

Chairman's and Chief Executive's Statement

We are pleased to report good progress towards all our main strategic objectives for 2024:

·    increasing our number of partners and sales in our key target markets of the USA and Asia;

·    investing in e-commerce channels to drive direct-to-consumer sales;

·    and growing our sales of final branded or white label products containing our ingredients so as to deliver a dual income stream.

The strong sales momentum re-established after our senior management change in 2023 has continued, with orders placed by the end of H1 2024 almost matching our reported revenue for the whole of 2023, and a number of business areas achieving or moving close to profitability in line with our plans.

Strategic overview

The Company's strategy is to focus on global markets with exceptional growth potential and to target these with a diverse portfolio of highly differentiated, clinically proven and patented products. We have adopted a layered two-generation approach to the development of our product portfolio with the aim of progressively building credibility and awareness of the Company in order to reduce risk and maximise opportunities for our investors.

The unique compounds OptiBiotix has created address what are recognised as some of the world's fastest-growing public health challenges: obesity, cardiovascular disease and diabetes. With appetite suppression, gut health, sugar alternatives and modulation of the human microbiome all attracting ever-increasing interest, we believe that the Company is well placed to achieve profitability through growing sales of its now proven first-generation products, while progressing towards the commercialisation of our even more exciting second-generation products, SweetBiotix® and human microbiome modulators.

The years we have spent undertaking clinical studies to establish robust health claims in multiple international markets for our first-generation products mean that SlimBiome® has now achieved strong scientific credibility and acceptance by major partners and consumers as a proven aid to weight management. We have also successfully extended our technology into new channels such as sports nutrition with LeanBiome®, already incorporated into two of the world's leading sports nutrition brands, Myprotein and MuscleTech, and into new product areas such gut and digestive health with WellBiome®.

More recently, we have been able to capitalise on the huge public and media interest in injectable weight loss GLP-1 agonists like Semaglutide, marketed as Ozempic and Wegovy.  Whilst SlimBiome® and the GLP-1 agonists both regulate insulin response and slow down stomach emptying improving appetite control, SlimBiome® works in a totally natural, non-invasive way and without any adverse side effects. Recent work with dieticians at a specialist London obesity clinic indicates that SlimBiome® may also have potential as an adjunct to treatment with Ozempic/Wegovy.  Work is ongoing to explore whether combining SlimBiome® with these drugs may help to reduce drug dosage, and thereby the cost of treatment and side effects, and enhance or prolong the appetite suppressant effect of the drugs. 

Whilst initial discussions and assessment are with specialist weight management clinics largely in London, if these early findings are confirmed we will go direct to the pharmaceutical companies selling these products to explore the potential of using SlimBiome, probably by a different name, as an adjuvant to drug treatment.

We are also progressing towards commercialisation of the second-generation SweetBiotix® and microbiome modulator family of products which offer shareholders the potential for significant value enhancement. The Company has seen a high level of corporate interest in these second-generation products and is in discussion with a wide range of industry partners over product application and launch timescales, some already announced and some with new potential partners.  Given we are working with large corporate partners in both manufacturing scale up and use in final product these are complex discussion where confidentiality is paramount.

We also see very significant further potential for revenue growth and value creation through the development of microbiome modulators, which apply our unique patented technologies to precision engineer the human microbiome to enhance those microbes that deliver health benefits. This is an emerging field of research and development for both the food and pharmaceutical industries, which we believe offers the opportunity to transform healthcare. Whilst the technology is applicable to a wide range of probiotics the commercial focus for our first product is Lactobacilli as they make up 65% market share by revenue (Coherent Market Insights, 2023) of the global probiotic market, which is valued at $57.8 billion (Mordor Intelligence, 2022). The creation of synergistic synbiotics which improve the growth rate, gut survival, and improve efficacy of existing probiotics is a new opportunity in the highly competitive probiotic industry. Opportunities exist to supply large corporates with a product which has the ability to improve all their products containing Lactobacilli, or codevelop, or license the technology for specific species.

The Company asks shareholders to be patient and respect our need for confidentiality in the development of its second-generation portfolio, and will make announcements on its progress as research milestones are reached or agreements with partners are concluded.

We have a high level of confidence in the scale of the opportunity within OptiBiotix and our ability to deliver sustained growth for shareholders in the years ahead.

Consumer Health and E-commerce

OptiBiotix has made significant investments in its e-commerce business to drive direct-to-consumer sales as a strategic move to reduce reliance on retail partners and to increase profit margins. The Consumer Health division has the advantage of receiving online sales income immediately and allows more control over the Company's brands and messaging whilst reducing reliance on distributors.

The Consumer Health division has continued to grow rapidly during the year with sales to 30 June 2024 exceeding the £151K achieved for the whole of 2023, and showing a three-fold increase over H1 2023. The biggest contributor to H1 sales was China, with our own OptiBiotix Online website and Amazon UK making up the rest with a roughly equal split, together with a small contribution from Amazon UAE which launched late in H1 2024.

In China, the shift in focus from TikTok to Tmall noted in the annual report has led, as expected, to fewer but more sustainable sales at a much lower marketing cost and an improvement in profitability.

The UK has delivered the strongest growth in direct-to-consumer sales this year. Our own OptiBiotix Online direct sales operation, with much lower marketing costs, has returned a positive contribution to shared e-commerce costs every month in 2024 to date. Sales through Amazon UK have shown the highest growth rate of all our online channels, but the platform has been loss making, reflecting the investment in marketing to grow our customer base. However, 25% of all Amazon customers pay by monthly subscription as repeat customers and, as the Company grows its customer and subscriber base, and increases sales from repeat purchases, marketing costs typically reduce as a percentage of sales and this is expected to lead to profitability. SlimBiome® remains among Amazon's top sellers for appetite suppressants and achieved record sales during Prime month in July 2024, while our SnackSmart SlimBiome® Indulgence bars are now among Amazon's Top 10 best sellers in the 'diet bars' category. WellBiome® has also quickly established itself as a strong seller on the platform with a  4.7* rating.

After waiting many months for a European VAT certificate, the Company can now sell through new Amazon channels in Germany and we are starting to see sales flow in this territory in H2. Amazon India is expected to follow in early October 2024. As we increase the number of countries into which we sell directly to consumers via Amazon, and we optimise our product offering in different markets, we look forward to continued sales growth through the remainder of 2024 and beyond.

North America

We have made good progress towards our strategic goals of increasing our number of partners and growing our sales within the USA, the world's largest economy.

At the beginning of 2024, we were pleased to report the launch of LeanBiome® in MuscleTech's Nitro Tech Ripped range, a premium protein powder designed to support athletes who want to lose fat and build lean muscle. MuscleTech defines itself as the No.1 selling Bodybuilding Supplement Brand in America - https://www.muscletech.ca/research/ - and the inclusion of LeanBiome® in this leading global sports brand is a significant endorsement of our product. Muscletech has continued to fill its distribution network in Europe, where sales to date have exceeded expectations, with further orders for LeanBiome® anticipated in H2 2024, and a launch in the much larger North American market under consideration.

LeanBiome® is now included in two leading sports nutrition brands, Myprotein and MuscleTech, a global market worth $45.2bn in 2023 and expected to grow at a CAGR of 7.5% per annum to 2030 (Grand View Research, 2023).

In line with our strategy of selling more final product and expanding our interests in the USA, the Company has continued to progress sales opportunities with a number of large North American corporates. As announced on 29 July 2024, the Company was pleased to receive its first order from one of these, a NASDAQ listed USA e-commerce and direct selling company, for a tomato soup final product containing SlimBiome® which is expected to be launched in January 2025 in Hong Kong for cross-border sales into China for Chinese New Year, and subsequently sold in the USA. 

Discussions are ongoing with a number of other large US partners to include our ingredients in partner final products. These include SlimBiome® and SweetBiotix® (which has been developed in a finished product for a large global partner) and our microbiome modulators. The Company is hopeful that further announcements with corporate partners in the USA will be made in due course.

OptiBiotix Health India

India is already the most populous nation on Earth, anticipated to have the world's largest cohort of medium to high level income consumers by 2035 and to become the planet's second largest economy by the 2050s. With obesity prevalence already measured at 40.3%, it presents a huge area of opportunity for weight management products in particular, and our strategic investment in establishing OptiBiotix Health India in 2021 has given us a strong platform for growth through the local manufacture and sale of both ingredients and final products.

The business took a material step forward with the announcement on 13 March 2024 of a major new five-year partnership agreement with Morepen to sell products containing SlimBiome® under the Dr Morepen brand: an established, well known, and trusted brand in the Indian market. OptiBiotix will receive revenue for both the ingredient and final product sales. The first order received in May 2024 for 5 flavoured shots has been increased and a further order received for a chocolate shake. Further products are under development for launch in 2025. 

This is the first time OptiBiotix has coinvested in marketing with a partner to try to rapidly achieve a large market share in a major market.  Morepen have confirmed launch dates within H2 and these will be announced in conjunction with Morepen and associated the marketing activities. As announced on 13 March 2024, based on Morepen's current forecasts, this agreement could contribute in the region of £6 - £7 million revenue per annum to OptiBiotix by the fifth year of the partnership.

We have signed a supply contract with KAG Industries as our alternative manufacturing partner in India to mitigate the risk of relying on a single partner in the territory, and they have commissioned machinery specifically to supply product for Dr Morepen and are advertising SlimBiome® in their forums and exhibitions.

We continue to sell GoFigure® products through approximately 1,000 Apollo Pharmacies stores across India, with a new product launch scheduled for next month, with improved branding and flavours. A launch on Amazon India is also scheduled for October 2024 in addition to pursuing a strong pipeline of other opportunities with leading and emerging players in weight management and sports nutrition in the country.

We believe that our agreement with Morepen and the upcoming launch of more products under the Dr Morepen brand, plus other partner launches planned for Autumn 2024 and the reorder of products by Apollo pharmacies could generate significant revenues and bring profitability to this part of the business during 2024.

Asia

In 2023, OptiBiotix signed agreements with four new partners in Asia for SlimBiome® and to date we have received just under £80,000 worth of initial orders. These partners include Nasol Pharma International (Vietnam), Bonanaza Neutra (Thailand), Colorinda Chemtra (Indonesia), and NexusWise (Malaysia and Singapore): all well-known specialist distributors in their field of expertise who will work with local manufacturers and brands to launch products containing SlimBiome®. The Board believes this is a strategic investment in high growth markets that are anticipated to grow relatively slowly but have the potential to deliver significant revenues in the future.

Results

Our results for the six months ended June 30 2024 are set out below, and show revenue falling by 21.3% to £276K (H1 2023: £351k), despite a significantly increased order book. As mentioned above, our e-commerce sales increased three-fold, but with lower reported sales from our wholesale business. The nature of the wholesale business can see significant fluctuations in reported sales between reporting periods, as is apparent in these results, with H1 2023 including a sale of over £100K to North America to support the MuscleTech consumer launch.

Sales orders received during the period were substantially higher than in H1 2023, but IFRS 15 accounting rules allow us to include revenue only when goods are accepted by our customer, even when prepayment for them may have been received. The growing gap between the placement of orders and the recording of revenue reflects our success in attracting newer and larger overseas partners who are placing orders for final products rather than ingredients, and the longer timescales involved between placing an order for a new product launch and the customer ultimately accepting the goods once manufactured. To the date of this statement, the total of reported sales and confirmed orders exceeds our total 2023 sales of £644K.

Administration expenses increased to £1,177K (H1 2023: £918K). H1 2023 benefitted from a £125K bad debt recovery, whilst our significant increase in on-line sales also comes with a corresponding growth in marketing and commission costs. There were no other significant cost changes.  As a result, the Company recorded an operating loss of £1,066K (H1 2023: £760K). The reported loss before taxation was £2,799K (H1 2023: £1,854K). The mark to market downwards valuation of our investment in SkinBiotherapeutics Plc was £1,655K (2023 H1: £1,066K), although our share of loss from our associate, ProBiotix Health Plc, decreased from £226K to £118K. We also made a small gain on the disposal of a portion of our shareholding in SkinBioTherapeutics Plc of £40K (2023 H1: £198K).

As in previous years, there was no contribution in this period from licence or royalty payments which tend to be received in the second half of the year.

The Company continues to enjoy a healthy balance sheet with gross assets of £8.0m (30 June 2023: £9.9m), no debt and cash of £1,263K (30 June 2023: £893K).

Outlook

The strong strategic and commercial progress we have achieved in the first half has continued in the second half to date. The commercial agreements we have secured with new and larger partners in key strategic markets, and our increasing emphasis on the sale of customer own brand finished products rather than stock ingredients, mean that production and delivery times, particularly for the first order are longer. This is because we have to work with the customer on developing the formulation, design and artwork, and packaging unique to the product. The customer has a proprietary own brand product which they are more likely to invest in marketing and grow the brand. However, for the first-year orders received and confirmed in H1 (e.g. Morepen, KAG, Apollo new products) will not be reportable under IFRS until H2, when the goods are accepted by the customer, even though prepayment may have been received (RNS: 20 August 2024).  We believe that whilst this adds more complexity to the supply chains and there is often a six-to-eight-month lag between first orders being placed and delivered this is justified by the increase in sales of both ingredient and product, larger orders, and higher margin. We have seen the initial stages of this transition in India and the USA in H1 and hope to announce further orders with corporate partners in the USA and India as they are confirmed.

Our Consumer Health division continues to trade strongly, with fresh records for Amazon sales expected to be set in November 2024 through the stimulus of Black Friday events. In China, we are examining the placement of our products in new platforms and categories to circumvent unexpected restrictions on the weight loss category in the country, which have prevented us from advertising our products on large platforms such as TikTok. We have recently signed an agreement with our UAE distributor to trade into Saudi Arabia and are exploring plans to extend onto additional ecommerce platforms in the UAE.

In the USA, we are currently finalising label claims and a trademark licensing agreements for SlimBiome® with a leading weight management brand and pursuing several other projects including a fully developed beverage concept with a large retail and ecommerce brand focused on the microbiome, which is expected to launch online and then with existing major retail partners in Q4 2024 or Q1 2025.  We are in the early stages of developing a sachet concept with SlimBiome® for potential launch in mid-2025 with a major US retailer whilst a Hong Kong-based ecommerce company focused on North America is looking to reformulate its flagship daily prebiotic with WellBiome®.

We have a number of new products under development in India as part of a range extension for Morepen and other partners including new six calorie button gummies, new formula breakfast, dinner and snack shakes, and new high protein, high fibre, low calorie bar containing SlimBiome®.

As our products launch with new partners in new territories, the Company's focus will be on supporting our partners with training and marketing assets to ensure sales growth and repeat orders. In some cases where the market opportunity justifies it, as with Morepen, we will coinvest to ensure we can rapidly scale the opportunity.

The fundamentals of our marketplace remain very exciting, with a range of recent market reports highlighting that products across the entire OptiBiotix portfolio have the potential to meet growing demand as solutions to a wide and increasing range of lifestyle-related health challenges. Given the excellent customer reviews, high customer return rates, multiple industry awards, and new customers launching products in key markets we believe there is a substantive opportunity to leverage market interest by increasing customer awareness of our products either directly through social media channels or indirectly through investing with our partners, and so build a successful and profitable business.

The commercial traction we are now enjoying in our first-generation products with large partners in key markets, and the interest shown by other partners in our potentially industry-changing second-generation products, allows us to look to the future with a high degree of confidence. In the shorter term, based on orders already placed, we are also confident that full year revenues will be well ahead of those reported in 2023.

N Davidson and S O'Hara

27 September 2024

Consolidated Statement of Comprehensive Income

For the six months to 30 June 2024                       

Consolidated Statement of Financial Position

As at 30 June 2024