Stephen Moon targets healthy product pipeline for Provexis

When European legislators introduced tough new rules in 2008 about the health claims that food groups could make about their products, it was a small British company that was first to meet the regulations. Despite numerous brand name multi-nationals finding themselves on the wrong side of the rules, AIM listed Provexis PXS was able to prove that its Fruitflow anti-thrombotic technology does indeed contribute to healthy blood flow. With a profit sharing alliance for Fruitflow signed 15 months ago with Dutch health ingredients supplier DSM Nutritional Products, all eyes will be on Provexis in June when it reports in financial results. In the meantime, chief executive Stephen Moon says that he is impressed by the progress being made, and with Fruitflow's commercial future in the hands of a partner he is now keen to focus on expanding the product pipeline at Provexis.

Moon took on the reigns as CEO in the summer of 2006, a year after privately-held Provexis had reversed into his AIM-listed Nutrinnovator Holdings business. He was formerly a director of strategy planning and business development in the nutritional healthcare division of drugs giant Glaxosmithkline GSK . At Provexis, he runs a 15-person strong business based in Windsor but with scientific teams at the University of Liverpool and the Rowett Institute at the University of Aberdeen. Having spent years firming up the science behind Fruitflow – a tomato extract which inhibits platelet aggregation – he now wants to use that expertise in new products. Human trials are under way in Liverpool on a treatment for inflammatory bowel disease, or Crohn's disease, which is expected to be a revenue contributor in the future. Likewise, a tie-up with the Institute of Food Research is focusing on the development of a potential product that uses vegetable extracts to reduce the risk of certain cancers, arthritis and cardiovascular inflammation. Finally, Moon is also keen to expand through acquisition and he is aiming to bring a new technology or business into the group this year.

Stephen, you have got a background in one of the largest phama companies in the world. What was the background to Provexis and its decision to come to the market in 2005?

I was doing strategy, business development and innovation at Glaxo's consumer healthcare business and, like a lot of entrepreneurs, I got out of bed one day and decided that I could do it better than a big corporation. So I set up a company called Nutrinnovator. We were in the market for cereal bars and that kind of product, we raised around £1.5m but we very quickly realised that getting any science behind a health-based product was key. We could see it was important at the time but it was going to become even more important as the regulatory environment tightened. I came across Dawson Buck, who is still our chairman now, and who was the chairman of Provexis Ltd and he told me about this exciting technology they had developed in Aberdeen. They were looking to grow, we were looking for some intellectual property, we still had some cash but the joint company would need to raise money so the two businesses came together in 2005. It was a deal that worked for both. We got some proprietary technologies that we could then go on and commercialise and they got to grow up from being a university spin-out into a larger, listed business.

What was the main focus of attention for the company at that stage?

At that stage, they had developed what they thought was a commercially viable extract and they wanted to know how to commercialise it. As well as Fruitflow we also had something else that was at a very early stage, which was a non-starch polysaccharide for the treatment of inflammatory bowel disease from the University of Liverpool. So we really started off with those two things.

As a small company, how challenging has it been to drive your products through the development process towards licensing?

You have got some advantage being small and nimble and you have got some disadvantages because of scale. The bottom line is that we are a licensing business and we will find things, do the research and development and then seek to license them. So you are at the mercy of corporate timescales when you get to the end of your development process. If I look back over that time, I took over running the business in 2006 and it has been quite a colourful story from there to here. As a small AIM listed business, particularly in the healthcare sector, you go though this cycle of raising cash to finish your development and you are faced with assessing whether you can finish your development and make your cash last through to a licensing deal. You have got to manage that cash cycle which means you are not always pushing your pipeline as hard as you can. So that presented some challenges but we cracked them eventually.

The second thing was that 2008 was a difficult time for the sector but also an opportunity for Provexis because in that year the world was falling apart. We were out there trying to raise some cash and a lot of our peer companies, private and listed at the time were trying to do the same thing. We were out there doing a roadshow and peer companies were going under, so it was a difficult time. We had come across DSM, who were interested in the business and their venturing people met out management team and were very impressed. Late in 2008 DSM Venturing said they would come on board as an investor and are still our largest investor. We were able to build around DSM's entry onto the scene with a fundraising that enabled us to move forward to our big development milestone.

What was that?

At around that time, the European Commission announced that it was putting in place a quite stringent set of health claim regulations. Responding to all the spurious claims you see on packs, the EC said “prove it or take the products of the shelves”. That froze the industry for a while. It killed off innovation for quite an extended period because the big players wanted to see what would happen to the current ranges and it also made them a bit gun-shy on innovation. So that period into 2009 was difficult but then we became the first company under those regulations to have a health claim approved under the proprietary and emerging science section of the legislation. That was a big breakthrough for us and it sent a bit of a shockwave around the industry. Unilever ULVR got rejected, Danone got rejected, a lot of big companies got rejected but this 15-person company scattered around the UK suddenly nailed the first health claim. It was an odd time because we announced it and the share price didn't do anything at all. We were bobbing along at £8m market cap and nothing happened. We thought we had done something special, the industry was slapping us on the back and then all of a sudden the finance press picked it up and bang, the share price took off. The result of that for us was that late in 2009 we were able to raise what, for us, was a large sum of money: £7m, which really shored up our balance sheet and enabled us to then start driving a much bigger pipeline forward. So 2008 – 2009 was very difficult but also gratifying because we got a great investor and delivered an industry milestone with the first claim. It was the making of Provexis, really.

Tell me about the market for nutraceuticals and health-based foods – this is an area that large food groups are looking closely at, isn't it?

The market is huge. You can read all sorts of numbers but if you say the global market for nutritionals is about US$100 billion but growing rapidly – growing at twice the rate of normal food and beverage – but also profit margins being twice as healthy as well. The EC said they introduced the legislation to protect the consumer because more and more products were being poured onto the market and it was concerned that some of them couldn't be matched by supporting science. It has been a huge change and it has had a knock on effect globally because now the Americans are looking at the European legislation and starting to edge in that direction. Beyond consumer protection, the reason I think the legislation is a good thing is that for a small business, like us and other small British businesses, it levels the playing field. Now it is not about how much marketing spend you have got and how much muscle you have got in distribution, now it is about how good your science is.

In early 2010 you signed an alliance agreement with DSM Nutritional Products covering Fruitflow. What did that involve and what are your expectations now for Fruitflow?

While we are not a biotech business we are a biotech-style business and timescales tend to be longer than your originally plan and you can frustrate even your most loyal investors. We knew we had to get our first product commercialised and what we had been trying to do was go to big brand owners, who were very enthusiastic. Coca-Cola KO and Unilever were interested and we had various collaborations with them but the thing is with a big corporation is that they reserve the right to change their mind, and that is perfectly fair. You can spend a lot of time and money chasing one of these guys only for them to say that there has been a strategic change, and that is a couple of years gone. So we have looked at approaching the big ingredients players; the margin may not be as healthy because you are selling further up the value chain but these guys sell to everyone globally. We had a long licensing discussion with DSM and we realised that there were a lot of opportunities between the two businesses anyway so we decided to go beyond straight licensing and do a profit sharing alliance. So we entered Fruitflow into this novel profit sharing alliance and they launched formally in Europe at the end of last year and Fruitflow won a couple of major industry awards. Then they launched formally in the US in March of this year. From June 1 last year to now they have done a lot of work on marketing, selling and getting the supply chain right. We would expect to see some strong progress in the market place from this point. It was a major milestone for the business.

What are your expectations for it in the longer term?

The reason we went for an alliance is that each party could continue to do what it does best. Clearly over the years we have developed some significant expertise in the whole area of platelet aggregation and cardiovascular health in general. We understand the science inside out so we are continuing to contribute to the development of the science. They have got around 250 sales people in all the major markets in the world so they are out there selling, they are out there marketing and they have been able to put in place a large-scale industrial supply chain, whereas we didn't have the scale to purchase material at the right price. So each party is really doing what it does best and we run the alliance with a small board of two people from each company and we meet regularly. So it is a really effective joint venture structure that we have got in place.

Obviously we will have to wait for your results, but are you starting to see revenues from this yet?

We know for sure that they are making good progress with global players in various food and dietary supplement sectors, national players and local players. I have said on record that I am very impressed by them; they are making commercial progress.

Provexis has got other interests – a JV over a Crohn's disease treatment and a tie-up with the Institute of Food Research. How important are these projects?

They are very important. Rightly so, the market and stakeholders in the business have been very focused on Fruitflow but since we were able to strengthen our balance sheet we have really accelerated the development of the pipeline. Part of the job of the management team over the next year is to move away from Provexis being known as the Fruitflow company into Provexis being known as a company with a significant pipeline of functional foods and medical foods. The product in Liverpool is well in to a human trial and we will say something about the progress of that very shortly. It has been a little frustrating because Crohn's disease is quite a big market, there is about US$10bn of drugs sold every year for Crohn's disease, but the incidence is very low; about 1/1000. So you are trying to recruit people for a trial and you have got a 1/1000 shot and then they have got to fit within the parameters of the ethics committee. So it has been frustrating that it has gone slower than we would have liked but it is an important market and a promising technology, so we will push on with that. We would expect it to be one of the top contenders to become a revenue generator next.

With the Institute of Food Research, even back in the Nutrinnovator days, I was speaking to a guy called Prof. Richard Mithen at IFR. He had done some very clever work on extracts of stuff that you didn't like to eat at school, like broccoli and cabbage. He had found extracts that he felt had a significant ability to reduce the risks and development of certain major cancers such as prostate cancers. Richard and I have stayed in touch and his work has carried on and he has actually found that it is a deeper effect – so it is more about systemic inflammation so as well as cancers, arthritis and cardiovascular inflammation. Given that we have already got a strong cardiovascular platform we agreed with Richard that we would start with cardiovascular inflammation. Indeed, the first human trial will be starting next month. We will run two human trials on that hopefully this year and a third regulatory oriented trial next year. We are going to push aggressively and see if we can get something market-ready in dietary supplement form by the end of next year. That would be quite an accelerated timetable.

These projects are very tangible things. We are also working with DSM to see if we can extend our alliance beyond just Fruitflow. We are talking around some technologies that we may work on together, for example blood glucose which is again broadly in the cardiovascular health area. In addition to that, we have been looking for acquisitions quite aggressively now for over a year. We have screened over 2,500 possible opportunities – anything from another good technology through to possibly a revenue-generating business in the functional and medical foods areas. The reason it has taken a while is because we set a benchmark of very high standards of scientific proof and regulatory support. We need to make sure that if snare something, it has got the potential to for us to do the same thing again – support it with science and get the regulatory clearances in the major markets. So we are keeping pushing and the senior team spends a significant amount of time on that acquisition search.

Provexis is a popular company among retail investors. How much of your share capital is in private hands and what does that mean to you?

We have got an enthusiastic band of private investor followers, possibly up to 70 per cent. It gives us reasonable liquidity in the market, sometimes very high liquidity, which is always advantageous. They are very loyal, we take a lot of calls from private investors and I think it is part of the life of an AIM business. When the share price was rising on the back of the regulatory clearance, we were able to raise £5m from high net worth individuals. We needed to recognise the fact that we do have this large band of private investors so we announced an open offer at the same price, which we thought was the responsible thing to do.

Finally, how do you expect events to unfold over the next 12 months?

Our board are rigorous and set the team some stretching and quite detailed objectives. This year it is about working hard with DSM to make sure the Fruitflow revenues flow. We would also really like to get this Crohn's disease trial to a stage where we can start to have meaningful commercial conversations and then we would really like to push hard on the IFR technology and see if we can stretch that one and see how quickly we can get to some kind of product that may be market ready. We also feel that we have to get an acquisition in the door. We are regarded for the quality of our pipeline and science and we think it is really important to keep extending that.

Stephen, thank you for your time.

Thank you.

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