Analysis - BOS - Biosignal

(See Biotech Valuation Indices)

Updated 11/01/07
Company BOS
Price($) 0.16
NTA ($) 0.05
P/NTA 3.27
Team 5.6
BurnPeriod 5.1
ProductPipe 6.6
ForeignMarket 1.5
Cash:Debt Inf

Biosignal - company with a unique technology platform. Biosignal is able to synthesise a compound found in seaweed in Botany Bay that has the ability to prevent or disrupt the formation of biofilms without killing the bacteria that produces it.

Biofilms can cause human bacterial infection, they may form plague on teeth, they are the slime in ponds or the gunk in the drain. Biofilm form on surfaces expose to water and creates an environment for bacteria growth. They can also build up on the bottom of ships and vessels.

Biosignal's compound is a platform technology because it has many application, such as marine anti-fouling paint and in healthcare. Biosignal aims first to target healthcare by incorporating its compound into contact lenses. Other medical applications are numerous. One of the challenge for management is to cleverly identify one from these many applications that would generate return to investors quickly and significantly.

Its team index of 5.6 is considered very good with management composed of highly qualified people. The foreign market index of 1.5 is low. Biosignal has been in negotiations with a few contacts overseas (US-contact lenses, Japan and Europe-medical devices) but this is yet to mature. The recent investment made by Japan's Restoration Company and the inclusion of entrepreneur Prof Gunter Pauli indicates confidence in Biosignal. Locally, BHP and Santos are collaborating with Biosignal in their interest to apply the technology to their gas pipelines.

The product index of 6.6 is quite high among biotechs. Some applications such as the marine anti-fouling paint and contact lenses do not require the same stringent clinical trials as other drug development pipeline, but the contact lense for example still needs to go through safety trials. Effectively, the marine paint and contact lenses are assumed to be effectively in Phase II, with commercialization expected in 2007 and 2008 respectively.

In terms of cash flow, the last 3 quarters of 2006 had receipts of over $400k, but the previous quarter dropped to over $100k. Estimating cash burn, it can survive for another 5 quarters assuming similar cash burn rate. Hence this survival rate is not too bad but close attention to the next few quarters is warranted.

The company is debt free. The Price to Net Tangible Assets is 3.27 times. Comparing with other biotech companies, P/NTA index of anything below 3 is undervalued, and 3.27 is also reckoned to be on the not pricey side.

The price has dropped from about 19c in Sept and starting to stabilise at 16c now.

Recommendation: Buy when price stabilise or reaches 15.5c
* Recommendation assumes no significant unforseen negative changes.