Ever since Ross Murdoch sent out his pre-AGM note to Phosphagenics (ASX:POH) shareholders on the back-end of a fairly negative announcement that there would be at least a further 12 month delay in clinical development of the Oxymorphone product due to a formulation issue, there has been a lot of hoo-hah from shareholders. Shareholders that have, quite frankly, endured tremendous pain from this company.
There is no need to re-hash its dark past, it is behind us. The question is what can truly be the go-forward strategy for the company?
A lot has happened in the past few months, particularly the reconstitution of the board. I must confess, however, I didn’t care much for Murdoch’s “100 days of watching” communication. While I respect the leadership style of learning about a new company and trying to get a handle on the major issues, there was sufficient intelligent transitional leadership in the form of people like Lawrence Gozlan (now resigned) to make some fast and robust decisions – particularly personnel decisions. To be honest, the thing that always amazed me about the Esra affair was how completely clueless and uninvolved the executive team must have been in order for that situation to have transpired. If they are that peripheral to the business, they aren’t required and in my opinion there has not been enough restructuring of the team.
Furthermore, although it is encouraging that POH will further harness external expertise to troubleshoot product development, it clearly also begs the question of whether there should be further reduction on the technical side of the business. If the product development really is being outsourced then the scale of the business can probably be reduced to save cash. Joe Amon seems to be an excellent hire, however, and should be truly capable of appropriately managing any external CMO/CRO relationships given his product development track record. Hopefully when the exec team agreed on the disclosure of a 12 month delay, Amon was on board with the number.
I guess we will find out fairly quickly whether Murdoch’s leadership style really is about listening or not.
For shareholders of POH, the meeting on the 18th of May will be an important turning point for the company, and Dr. Murdoch deserves a patient audience as he outlines a vision for the business going forward. I’m not talking about trivial and stupid stuff like name changes (please do – but get a branding agency in and do it properly – this time I agree with the punters, “Alyptus” sounds like a type of anal wart), I am talking about meaty, strategic matters. I will not be at that AGM as I am not a shareholder but if I were, there would be five questions I would want to know the answer to, and I would be insistent on quality answers.
1) Given the post-Esra era and further product development delays, what is the balance of resource utilisation between internal resourcing and external R&D support – and how is this reflected in the constitution of the team. I would be wanting to see evidence of a redirection of expenditure, not a doubling-up of the cost basis of the business. Overall, POH needs to be scaling back the size of the team (including management team) and this plan should be articulated to shareholders in a sensitive and high-level way.
2) Given the delays in the Oxymorphone program (in my view, always the less interesting program anyhow), we need to clearly understand how the commercial dynamic of the business will change over the next 18-24 months. This should include partnership opportunities. Just be transparent. Show that trust can be earned by getting it out on the table. The stock price is in the shitter anyhow, so don’t worry about it.
3) The business has too many irons in the fire. For example, animal nutrition is not a business segment for POH, it is simply an out-licensing opportunity. Anyhow, most of the time when a company has an “animal business” it is just subverting resources from clinical development (i.e. where the real value creation is). Don’t treat it as a segment, treat it as an activity. If you can’t tell shareholders why the animal business is worth more than a few million bucks a year, maybe it’s not even worth doing. Justify.
4) Obviously, a related question in terms of “focus”, is whether the disposal of the “BioElixa” consumer product business has made any progress since the February announcement. If not – just show some testicles and write it off and don’t waste energy on it. It’s not worth the distraction and it will further enable the cost basis of the business to be reduced if the relevant commercial resources aren’t required. Frankly, the products don’t seem to get very good consumer reviews anyhow.
5) If POH is going to reduce its focus down to a couple of key clinical products – delays notwithstanding (and in my view, this is the correct strategy) – then it’s time to ‘fess up whether TPM technology really works. I have to tell you, I have been skeptical about this for a long time and while I see no harm in continuing to monetise the platform if it is delivering on certain areas, it will be a real credibility enhancing position for Murdoch to admit that actually, for Oxymorphone, they need to go back to the drawing board. New IP opportunities that tend to be a side-effect of re-working a product are also part and parcel of creating value for the company. Don’t brush it off, explain it. The product vision is still interesting.
Anyhow, these are my thoughts. I wouldn’t personally touch this company with someone else’s hands, and I still marvel at the extraordinary events of the past couple of years. I also marvel at Murdoch’s willingness to grab this particular bull by the horns. He is either a very savvy bloke that sees a real turn-around opportunity, or nuttier than squirrel shit.
I hope it is a bit of both.
Awesome Photo Credit: Ryan McGuire. http://www.gratisography.com/