TECHNOLOGY: Glyn Denison says OBJ’s primary product is a skin penetration process based on physics rather than chemistry. Photo: Attila Csaszar
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Resources companies may dominate the big numbers on the local bourse, but it’s a relatively unknown technology stock that leads in TSR.
Ask most investors to name a Western Australian company that has ranked as a top 10 stock market performer on a one, three, and five-year, basis and it’s a fair chance that none will name OBJ Ltd, or know that it’s a technology stock and not a miner.
Interestingly, if the same question was put to senior managers at some of the world’s biggest pharmaceutical and consumer products companies, it’s a fair bet that they would know more about OBJ than anyone in Perth.
The knowledge gap between local investors and global manufacturers of household healthcare products such as Proctor & Gamble, GlaxoSmithKline and Coty is remarkable, but it will start to narrow as the OBJ story spreads; and particularly if it continues to star in stock market surveys of total shareholder return such as that undertaken for Business News by the international research firm Morningstar.
OBJ is not a winner in any of the three timeframes (one, three and five years) used for the survey of the 707 Australian stock market-listed companies that have Perth as their home exchange.
However it does come fifth on a one-year assessment, sixth over three years, and third over five years.
Despite the publicity associated with the resources boom, no mining or oil company comes close to OBJ’s consistent record of top 10 appearances.
The success of OBJ, and other technology stocks, is the outstanding feature of the this year’s Morningstar TSR survey, which takes into account opening and closing share price as at June 30, dividends paid, share buybacks, and any other way in which shareholders have been rewarded (see other feature story for a detailed report on Morningstar’s TSR report and go online at http://www.businessnews.com.au/Total-Shareholder-Returns to see all our data).
The reason for OBJ’s success on the stock market, with its shares having risen by 721 per cent in the 12-month (June 30 to June 30) assessment period used by Morningstar, can be traced to three factors:
• the company’s technology is delivering highly promising results;
• it has formed a close working relationship with some of the world’s biggest pharmaceutical and healthcare companies; and
• it’s not trying to develop pharmaceutical products itself, rather it is using a physical delivery process which enhances the products of the healthcare specialists.
“We understand the costs and pitfalls of trying to develop drugs and healthcare products, which is why we’re not doing it,” OBJ chairman and Perth technology veteran, Glyn Denison, said.
“The primary product we are developing is a skin penetration process based on physics rather than chemistry.”
At the technology heart of OBJ is a form of magnetism known as diamagnetism, known for centuries but with few commercial applications.
Diamagnetism was named by the ‘father’ of electricity Michael Faraday in the 19th century after he recognised its presence in most materials, but noted it was not permanent like a conventional ferro-magnet.
Essentially, diamagnetic materials create a magnetic field in opposition to an externally applied magnetic field. In layman’s terms, it pushes rather than pulls – though that simplistic description will infuriate physicists.
In terms of a skincare or pain relief product, diamagnetism helps ‘push’ active molecules faster and deeper into the skin.
Used appropriately (such as on a diamagnetically charged applicator) with the right healthcare products, a faster and longer-lasting effect can be achieved.
Mr Denison said tests had shown that skin penetration could be more than seven times more effectively than by simply applying the product on the skin and waiting for it to penetrate.
It is the potential appeal of being able to say that its products work better that has attracted some of the world’s healthcare and pharmaceutical giants to OBJ.
“Our business model is to partner with the manufacturers of pharmaceutical and healthcare products, while also developing applications of our own,” Mr Denison said.
“We signed a wide-ranging product development agreement with Proctor & Gamble in April, and have also signed the first licensing agreement which clears the way for that product to be brought to the market.
“Two additional product developments have been agreed and five other product development agreements are in final planning with P&G.”
Significantly, Proctor & Gamble is paying for all of OBJ’s development costs, with licence fees and future royalties based on end-product value – a business arrangement very much to the benefit of OBJ, a minnow valued on the Australian stock market at $124 million compared with Proctor & Gamble’s New York Stock Exchange value of $US218 billion ($A234 billion).
Details of how the big pharmaceutical and cosmetic companies will deploy OBJ’s technology are commercial secrets.
However, in OBJ presentations filed at the ASX, Proctor & Gamble brand names mentioned include Olay (a range of skin care products), Head&Shoulders (hair shampoo and conditioner), Braun (electric shavers), Gillette (bladed razors) and SK-11 (skin care).
Precisely how OBJ’s patented diamagnetic materials are mixed and matched with the P&G products has not yet been disclosed, but the most common use appears to be via a diamagnetically charged applicator or built-in to devices such as razors.
In the case of GlaxoSmithKline, which makes a vast array of products including Sensodyne, a special toothpaste for sensitive teeth and gums, the diamagnetism application technique seems likely to be via a specially designed toothbrush.
In theory, being able get active molecules of healthcare material such as fluoride deeper and quicker into teeth could be of significant benefit to oral hygiene.
Mr Denison said OBJ had been working with the oral healthcare division of GlaxoSmithKline for the past six years, and with the analgesics (pain relief) division for two years.
“We have completed a number of successful pre-clinical trials on oral healthcare products and we’re working on enhanced topical (surface delivery) of GSK’s products,” he said.
The Coty relationship is all about how to achieve better results for a range of that company’s brands, which include Chloe perfume and Calvin Klein fragrances.
Coty is paying for all development costs, consumer testing and evaluation with a licence agreements expected after the completion of successful consumer-acceptance testing.
While the three big healthcare and pharmaceutical companies assess how best to use OBJ’s diamagnetism products, the Perth-based company is working on its own range of products under the BodyGuard name with the aim of getting “joint lubricating and energy absorbing molecules” into injured and aged hip, knee, shoulder, elbows and other joints.
The easiest way to imagine BodyGuard at work is to see it being used in a patch on the skin with the lubricating molecules, such as OBJ’s own product Lubricen, being delivered to a sore joint with an added diamagnetic push.
For investors, the OBJ story could be just beginning. And while there is always a difference between what the management of a technology company thinks it can do, and what it eventually delivers, there is a big plus to the OBJ plan.
Quite simply, it is not trying to either re-invent the wheel by attempting to develop a new drug for human use – a process that costs millions of dollars, can take decades, and even if successful in trials can fail to win government approval from regulators charged with protecting the public, such as the all-powerful Food and Drug Administration in the US or Australia’s equivalent, the Therapeutic Drugs Administration.
“We decided very early on that we are not in the business of developing drugs,” Mr Denison said.
“We have a number of technologies built on the basic OBJ platform, well-protected by a number of patents, which we will license to other companies so they can achieve better results for their products.”
Financially, the performance of OBJ is yet to be tested, but it will largely depend on consumers being willing to pay a little more for products already in widespread community use with the promise of enhanced effectiveness.
OBJ’s cut will come in the form of a micro-payment for every item sold, but when the products being sold by companies such as GlaxoSmithKline, Proctor & Gamble, and Coty total in the millions of items per week (and in some cases per day), the potential can be easily seen.
Focus on physics pays dividends
An old film canister containing jelly beans is a clue to Glyn Denison’s close personal interest in the success of OBJ’s diamagnetic technology because, like all diabetics, he longs for the day when the insulin essential for his health can be delivered in a way other than by needle.
When Mr Denison sat down for a chat with Business News in a Perth cafe last week, the jelly bean-filled canister was quietly slipped onto the table in case he needed a rapid dose of glucose to compensate for falling blood-sugar levels.
Living with diabetes, especially during the compulsory long-haul travel during his earlier career with another technology company, ERG, meant that the jelly beans and needles were always at hand, including on one trip back from London when Mr Denison met OBJ’s founder and principal inventor, Jeff Edwards.
An airport discussion quickly focused on the interests of the two men. Mr Edwards had an invention that needed developing; Mr Denison had the knowledge of how technology can be developed thanks to his time at ERG
– and he had a close personal interest due to his diabetes.
While the technology is attracting international interest, and is obviously the heart of the business, perhaps the smartest move by OBJ is to not try and develop its product alone, and to avoid going down the human drug-application route.
The stock market is littered with the carcasses of failed drug delivery companies that thought they had winners, only to fall in the final trial or be rejected by the FDA or TGA because the human consumption risks were considered too high.
“Ours is a science based on physics, not chemistry,” Mr Denison said.
“We understand how we can help better deliver “through the skin” consumer products, but we’re happy to allow specialist consumer product companies incur the costs and take the time to develop those products.”
