Blis Technologies on the up

Blis Technologies commercialises probiotic bacteria identified by Otago University scientists and has developed natural treatments for such conditions as bad breath, ear and skin infections and sore throats. It listed in July 2001 and had accumulated $24.1 million in losses through to March 2009.

Year after year, Blis has promised to break even but never has. As recently as its March 2009 rights issue, which aimed to raise $3 million, the signs were unpromising. Sales had dwindled to $158,000 in the six months ended September from $394,000 in the previous first half. In the company’s 2008 annual report its auditors cast doubt on its future.

Reading the rights issue prospectus, I wondered whether underwriters Eion Edgar and Tony Offen were throwing good money after bad. They had already invested $500,000, giving them just over 5% of Blis, and had lent the company another $500,000 to tide it over until the proceeds of the rights issued came in.

The previous rights issue, in November 2007, which wasn’t underwritten, aimed for $3.3 million but raised only $1.36 million. Given the bleak financial climate in March, Edgar and Offen must have realised they would end up with a fair swag of the new shares (they ended up with nearly $1.1 million worth).

But what a difference another six months has made and, as Blis director Bevan Wallace joked, the pair now look visionary.

Although chief executive Barry Richardson won’t admit it, Blis was actually cashflow positive in its second half. After burning through $272,000 in the first half, its cash burn by year-end was down to $155,549. Second-half sales jumped 71.1% to $450,881 from the previous second half.

The price of the shares and the preference shares issued in the latest rights issue responded in kind. Shares were trading below 5 cents during the rights issue but had reached 11.5 cents by early October while the preference shares, issued at $1, were trading at $2.60.

The preference shares will convert to between 25 and 100 shares, depending on the share price, in March 2012. Edgar and Offen have an option to buy a further 1 million preference shares for $1 million by March 2010.

Richardson, who joined the company in August 2006, drove a strategic review of the company, which concluded Blis would not become profitable following its then course of marketing retail products.

Instead it should follow a business-to-business model of persuading major food and ‘nutraceutical’ companies to use its probiotics as a proprietary ingredient and let those companies take care of the marketing.

In March 2007, Blis had signed up Nestlé to use its Blis K12 probiotic in infant food but, even if current clinical trials and technical studies go well, the launch date won’t be before 2010 and Blis won’t start receiving royalty payments until 2011. (It is already receiving R&D and licensing fees from Nestlé, which paid $155,000 in the year ended March.)

Of more immediate importance, in October 2008 Blis signed up Tel Aviv and London-listed Frutarom — which distributes and markets flavours, ingredients and nutritional products in 120 countries — as global distributor (excluding New Zealand and China) of its probiotics as ingredients. That relationship and the appointment of US marketing and nutraceutical specialist Jack Klein are now starting to bear fruit. Blis’ US sales were $325,000 in the year ended March.

Richardson told the annual shareholders meeting in July Blis has also signed up another major international consumer products company to use its probiotics as an ingredient. US-based Nature’s Plus has recently launched a range of products using a new Blis M18 probiotic, which protects against tooth decay, as well as the original K12. US warehouse club Costco is currently trialling Blis’ BioGuard K12-based tablets in 50 stores.

Blis has addressed a slump in New Zealand and Australian sales and has a distributor of its retail products in Ireland, although sales there have been slow. Another distributor in South Korea is likely to start selling Blis retail products early in 2010 and the company is also working on developments in countries such as Japan and China through Frutarom. It is also jumping through regulatory hoops to market its probiotics as food ingredients.

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