More acquisitions are likely for Oxonica

Wow, some valuation! It is indeed mind-boggling to pay $21 million for Nanoplex, when Oxonica is not even making any money! From where are they going to get the money for these acquisitions? Oxonica's revenues were $2,494,000 and cash-flow was -$1,000,068 for FY2005. Any reasonable investor would know that cash is king! This is above and beyond what the Management is getting paid - CEO Kevin Matthews' salary was at $335,750; Chairman Christopher Moore's salary was at $207,500 - FY2005. (If the company believed in Oxonica's intrinsic near-term value, then the Managemnet should forgo its salaries until they turn a profit.) This is on top of the recent announcement that the Turkish petroleum company did not find any utility to Oxonica's Envirox products, which were touted to be the some of the biggest revenue generators for Oxonica. Oxonica's investors must be big-time suckers. I would not invest even a penny in this company! This is the U. K.'s answer to our own "nanopretender" Altair Nanotechnologies! Investors beware!

David Browning, chief of Oxonica's healthcare division has left the group to join a diagnostics major. Key members of the healthcare team are believed to have followed him and will commence work after a period of gardening leave. Nanoplex founder, Mike Natan is expected to be promoted to CEO Healthcare. Browning was instumental in acquiring Nanoplex and supporting the transformational detection system based on SERRS Beads (Surface-Enhanced Resonant Raman Beads for Diagnostic Marker detection).

Time To Dump A Pioneer
GS Early, Editor
The Real Nanotech Investor

My colleague Tim Harper has just gotten back from Asia where he had a chance to talk at length with an Oxonica competitor in the fuel additive market. Tim’s piece in this month's Sector Spotlight gives you the scoop on what’s been going on with the world’s first publicly traded exclusive nanotech company.

On the investment side of this story, I’ve been concerned for a number of months about the lack of transparency in management and the lack of movement in any of its product lines. Although I can pat myself on the back for issuing a hold on this stock before real trouble hit, I also have to eat some crow for not selling it outright more quickly when we still had a small profit on the trade.

But this is indicative of these small companies, and it's why Tim isn’t a big fan of their long-term potential. Management will do anything it takes sometimes to make a buck or keep investors excited, if not informed.

A similar philosophy battered Electro Energy a few years ago; Altairnano’s previous CEO went “nano” in name for a few bucks in the stock market, as did pSivida’s former management team, leaving the bio-nano in tough shape. The latter two have solved these problems by completely changing management. The jury is still out on the former, even though the technology is solid.

As I’ve said before, management is just as important as the technology. And Tim notes that neither makes much difference if there isn’t a market. With two strikes against it at this point—management and technology—and the third just leaving the pitcher’s hand, it’s time to bite the bullet and sell Oxonica.
The Inside Isn't Pretty
Tim Harper, Contributing Editor
We discussed Oxonica a few weeks ago, and as promised, here is the inside scoop. If you are long on this stock, then you may want to sit down.

Oxonica’s big product--and the one causing all the current problems--is Envirox, a fuel additive based on cerium-oxide nanoparticles that should help diesel fuel to burn better. In fact, in trials with UK bus company Stagecoach in 2004, the additive produced savings of 5 to 10 percent, prompting the company to become an investor.

The technology was originally licensed from a small development company, Neufetec. The deal was supposed to be a joint venture, but Oxonica had some problems with its legal status. After a few years, they licensed the technology on very favorable terms and started manufacturing.

Everything was hunky dory until just more than a year ago when Oxonica announced a big deal with Petrol Ofisi in Turkey and then told Neufetec that it had gotten around Neufetec's patent, canceling the licensing deal. Not surprising, Neufetec became suspicious, especially when Oxonica refused to allow auditing of the royalty payments.

Normally, that would be the end of it. The patent dispute would rumble away in the courts and lumber toward some eventual settlement. But this story has another twist.

Whatever Oxonica did to circumvent Neufetec’s patent stopped the additive from working, and trials in Turkey with Petrol Ofisi were inconclusive enough to leave Oxonica sitting with GBP500,000 worth of Envirox while its shares were suspended from London’s Alternative Investment Market. At the same time the company engaged a PR agency specializing in disaster management.

According to recent press releases, the Turkish deal fell through because the trials were in high-sulphur fuel. What wasn't mentioned was that trials with the Neufetec additive were also in high-sulphur fuel and that Singapore-based Energenics (www.energenics.org), which also uses the same technology, has few problems with sulphur content affecting performance in Asia.

Another odd thing is that most of Petrol Ofisi’s gas stations sell low-sulphur diesel fuel, so it's unclear why the trials were based on high-sulphur fuel. If we look at the big picture, things don’t seem to add up.

Oxonica’s main product now appears ineffective, its odd behavior with Neufectec has slammed the door to any relicensing of the technology that does work, and it's locked in a law suit with Neufetec, which demands that Oxonica prove that it's not infringing any patents.

The canceled deal with Petrol Ofisi was worth about GBP6 million. And from what I hear, Oxonica’s legal costs is approaching GBP1 million already, which will make quite a dent in its margins.

Being a public company can severely limit the room to maneuver, but in Oxonica’s case, it had no option. Existing investors weren't prepared to invest any more, so it was initial public offering or bust.

One of the biggest problems for Oxonica--and one that may return to haunt it--is that it's very secretive about everything it does. Rather than disclosing information that's typically required by the markets, the company has to have information dragged out from it.

Even editors of financial publications (such as this one) tell stories of a complete lack of response from whatever passes as investor relations at Oxonica--never a good sign. A typical example is the Oxford Mail's recent announcement of redundancies at Oxonica, which was initially denied and then confirmed.

There's been little mention about the patent battles or any changes to senior management. (Anyone who left Oxonica after the recent cull of top management, which slashed the burn rate by GBP300,000 a month, may have dodged a bullet.) These are items I would expect to influence share prices.

So let's take a look at the future for Oxonica. I've heard persistent rumors that the company's whole energy business is in such a mess that it's effectively up for sale, so what's left?

Oxonica has three other divisions: healthcare, security, and materials. The healthcare business is based on the biomarkers developed by Nanoplex—a 2006 acquisition—in a hugely competitive sector. And there are rumors that the head of that division has resigned.

The security division uses the same nanoparticles developed by Nanoplex for biomarkers and just received an order worth a USD1 million.

The materials division owns the intellectual property for titanium-dioxide nanoparticles manufactured under license and supplied to Boots, a UK pharmaceutical company and drug store retailer, for use in sunscreens. Most of the toxicologists I speak to say that this material shouldn’t be on the market.

So what we have is a company with a market cap of GBP33 million (USD66 million) with just nearly enough cash to last until the end of the year, USD1 million worth of unwanted stock in nonfunctioning fuel additives and annual sales of a couple of million dollars, most of which will be sucked up by legal fees.

Some people are betting that Oxonica will make it big in one of its applications, but we've been here before with companies like Nanosys, which was even broader and better funded.

In the end, it comes down to that old nanotech problem: attempting to push a nano-enabled solution on a market that doesn’t really need one. As long as companies start with the technology rather than the market, this sort of situation will always occur.

Tim Harper is contributing editor to The Real Nanotech Investor and founder and CEO of Cientifica, a leading global nanotech development and assessment firm.