Pharma success: Stockopedia speaks to Ronald Openshaw, CFO of Plethora Solutions plc

When Ronald Openshaw was drafted in as interim finance director of pharmaceuticals group Plethora Solutions Hldgs (LON:PLE) in February 2009, the company was closing in on a global licensing deal for its flagship product, PSD 502. In the months that followed, Plethora not only secured that deal but also began working on a similar agreement for the next product in its portfolio, PSD 503. It also set up a new distribution arm called The Urology Company to begin driving a range of other treatments out into the market. While frustrated that the market has never given the company proper credit for the deals it has done, Openshaw is confident that last year’s successes have left it poised to make even more of an impact this year

Plethora is behind the development and distribution of treatments focused on urology and sexual medicine, together with men’s health and women’s health conditions. When it came to AIM in March 2005, it raised £10m at 135p per share and was mid-way through the clinical trials process for PSD 502 - a topical treatment for premature ejaculation, PSD 503 - a topical treatment for stress incontinence and PSD 506 - novel agent for the treatment of overactive bladder. In May 2007, it signed a licensing deal with Sciele Pharma for the US rights to PSD 502 but over the course of the next two years Sciele was acquired by Japanese pharma giant Shionogi (TYO: 4507), which transformed that initial licensing deal and had a big influence on a major strategy re-think at Plethora.

Ronald Openshaw spoke to Stockopedia about the challenges of developing a small-cap pharmaceuticals group, the growing importance of private investors and the company’s plans for the rest of 2010.

Ronald, you joined Plethora in early 2009 to work with the company’s CEO, Steven Powell. What is your background?

I spent six years at KPMG and then spent ten years at Panmure Gordon. I then spent four years at what was Pharmagene, which is now Asterand (LON:ATD), as its M&A Director, CFO, then CEO. I put that through significant change and went back to join the security of a large American investment banking firm, Jefferies International (NYSE:JEF), just before the credit crunch. In August 2008 I set up my own boutique M&A advisory house, called Lucia Capital and I spend about half my time on Plethora business.  

The CEO, Steven Powell, is a long term client come friend of mine and he was a client of mine when he was CEO of KS Biomedix when I was at Panmures. He and I had been doing work together on Plethora’s accounts whilst I was at Jefferies and then Lucia and then in February of last year he had cause to need another finance director quite quickly. He asked whether I could come and sit in as an interim. So I spend about half my time on Plethora business but what Steven, therefore, gets is access to a CFO that he might otherwise not have on Plethora’s ticket. So I can spend half my time being properly effective and it’s worked out very well so far.

Last year there were some very significant moments for Plethora. Can you talk us through what happened and the reaction you have had from investors?

One of the things that we’ve found over the course of the last half year is that we’re starting to get attention from the private investor and high net worth investor groups and some of that’s actually coming through non-traditional channels. I think that this has helped to drive liquidity in a formerly illiquid stock in an undervalued situation.

If you wind it back to the days when I was a boy at Panmures the view was that the private investor didn’t matter and it was all about the public institutions. In truth that is only relevant when you are a large enough cap stock that the institutional investors, ranging from the small 2-3 man funds up to the Invesco’s and Gartmore’s, when they can provide the liquidity in the stock in the market. As they tend not to play, there’s an exponential decline as the market cap of the company declines, which is a terrible shame and actually what we’re seeing is that it is an important part of our investor relations activities today to spend time with the non-traditional media. Actually that media can address the needs of the high net worth investor who’s searching for situations that he can understand, have the right risk profile, that are potentially undervalued, where there is some liquidity in the stock and where, if they can get in and call it right, they can make a reasonable return.

All of those things have been important to us over the course of the last six months. If you wind it back to the end of May last year, the 26th to be precise, it was a bit of a watershed date for the company. Having survived the holocaust of the financial meltdown it was that point where we were able to relinquish ourselves of a sizeable chunk of debt, put some cash on the balance sheet to recapitalise it, close a deal with a global pharmaceutical company in the form of Shionogi, because by that point in time Sciele had been acquired by Shionogi, and start to rebuild.

The other thing we did at that point in time, in particular Steven and myself, was to say ‘okay, let’s take a look at what investors want out of a small healthcare company’ and our view of the world has changed. If you wind it back ten years everybody wanted a high riskology company that had the chance of being a 20 bagger. If you take it to today what people want is something in what has historically been a defensive sector with good growth prospects which is revenue generative and/or profitable with a likelihood of growing because it’s in a market niche or sector that can push forwards. So we said ‘how do we get from there to here?’ and the position was we’d now, by June/July 2009 time, cut a deal with, and we call it the global pharmaceutical company which was not Sciele, for a product called PSD 503, for the treatment of stress incontinence. They don’t want to be known because they want to take a charge on the market when they bring this product out.

So we’ve now got two products embedded in partners where hopefully those will produce a fat flow of royalties in due course and then we’ve got to say ‘well what do we do with the rest?’ Do we go and raise some more equity to throw the dice with a view of what do we do next and do some more R&D or do we actually build a profitable business and we took the choice of the latter.

We had a couple of people, early on, who said ‘well you’ve changed your business model’. No we haven’t. What we’ve done is to stick very much to what we know and understand, which is urology and sexual medicine, men’s health/women’s health conditions, and use that knowhow around building a profitable speciality UK based pharmaceutical company in our core market where our core competences are and where our core know how is.

We then, towards September time, formed The Urology Company and the purpose of that was to acquire smaller products that could go straight to market without there being a need for R&D and where we could build a balanced portfolio quickly.

Does that mean developing your own products or distributing products for other companies?

Some of the products in the portfolio are in-house. The Urology Company has already launched a number of products, including two food supplement products, one called hI-Cran and one called hI-Argenol. hI-Cran is a very high dose cranberry and hibiscus extract but it is at the doses that you don’t get in your cheaper food supplement bought on the High Street. We’ve only sought to develop, for example, the food supplement products where it’s based on clinical evidence that a product containing these active ingredients might have a genuine effect in an underlying condition and you will know that a lot of women drink cranberry juice, particularly for urinary tract infections. What we’re giving them is a dose that they’d have to drink pints of the stuff and it’s based around sound clinical data. We’re not into the quackery end of medicine; we’re into, ‘because we are a proper grown up pharmaceutical company, have we got a basis of clinical evidence to suggest that a product that we construct can actually be useful to somebody suffering from a particular condition?’ So that led to the creation of hI-Cran. It also led to the creation of hI-Argenol, which is L-arginine, plus selenium, plus pycnogenol, plus zinc for male health, particularly around erectile issues and sperm production. So they are very low R&D burn products but we can get those products to market really very rapidly and we’ve started to see first sales already of those products that we’ve launched.

We’ve also seen the ability to go out to other parties and say to them ‘you have a product which you are selling in some other territory, you’re not selling it in the United Kingdom, can we sell it for you?’ and cut an exclusive sales and marketing deal with them. That is very different from the in-licensing model that some of the mid sized pharmas do because they end up spending money on acquisition costs and milestones and then they do some development and all the rest of it. So there are probably three good examples of that in the portfolio at the moment. One is a product called Striant, which was marketed in the United Kingdom by a company called Ardana, which went bust about two years ago. The rights to Striant then reverted back to its US parent, Columbia Labs (Nasdaq:CBRX), so we approached Columbia and said ‘you’re not selling Striant in the UK market, you’re missing out’ and they went ‘yes, we know’ and we said ‘we’ll do it for you’ and they went ‘oh, okay then’ and what we’ve done is cut a deal with them to sell Striant in the UK market.

The same is true of a product called Dianatal, which is for easing and facilitating childbirth. The same is also true of a product called Hyalofemme, which is for the treatment of something called vaginal atrophy. Both Dianatal and Hyalofemme are regulated products but they’re regulated as medical devices because they’re used externally. So they’re proper healthcare products. Striant is a prescription medicine and then in further announcements that we’ve made we talk about the fact that we’ve got a couple of generic pharmaceuticals that are going to come on stream in due course. We also have an in-house developed product that came out of our clinical bag for the treatment of painful bladder syndrome, which will be launched towards the end of this year. The goal is that we will launch, what we said to the market, between six and nine products this calendar year and we’ve already spoken about eight.

From a complete standing start, almost this time last year, we now have a portfolio of products, we’ve got all the infrastructure in place and we’ve made first sales and the company has issued a piece of positive news every single month from May 2009 to to-date. The share price has been up as far as 17/18p and it falls back again and, unfortunately, we’re sat here in the summer months, when people have generally gone away, and we’re seeing a bit of share price weakness, which is a great shame because there should be no reason for any share price weakness.

After coming to AIM in March 2005, Plethora actually did a deal with Sciele over PSD 502 relatively quickly. Presumably that was regarded as a great success?

And the deal was actually a very good deal for the company. However, the counter party was one that was not recognised by the London market. If it had done exactly the same deal with Johnson & Johnson (NYSE:JNJ) or Pfizer (NYSE:PFE) the market would have reacted completely differently but because it did it with a company called Sciele and the British public market investor went ‘who on earth is Sciele, we don’t recognise that name?’ The company, unfortunately, didn’t get the credit due for doing really quite a good deal.

That original licensing agreement evolved quite a lot over the course of two years as Sciele was taken over by Shionogi. How did that impact on Plethora and do you think the company has ended up with a good enough deal?

Yes, I do think they got a good deal in the end, I’m very certain of that. The company faced horrific financial markets and, therefore, if you’re going to deliver a shareholder return Item 1 is ‘survive’, witness Ardana. Ardana did not survive despite the fact that it was perceived at various points in time to be highly valuable with lots of good products. So, Job No. 1 was ‘survive’. Job No. 2 was ‘get the products through the clinical development stages’. Job No. 3 was ‘secure an acceptable royalty stream given A and B’.

The other thing that happened was that Sciele was acquired by Shionogi. Shionogi are one of the largest Japanese pharma companies and are a global player. That means that Sciele’s importance as a partner changed and, therefore, it allowed us to consider a deal structure where, at one point in time, Sciele were the perfect partner for the US only, now Shionogi is a perfect partner for the world globally and that’s the change that is so important that means that the deal is actually a good one.

The other thing that also happened is that at a point in time when, again, the markets were a little thin, Sciele, now Shionogi, said ‘we’d quite like the whole of the US rights, can we make you an offer for it?’ Again, go back to Item 1, ‘survival’, they offered us a fair price to buy out the rights at that point in time that gave us the capital to survive and grow and develop and take ourselves onto the stage of where we’re at. Now in alternate markets, if we’d had access to large slugs of cash, might we possibly have negotiated it differently? Can’t say; that’s all hypothetical speculation but from where we find ourselves the deal that we did was very much acceptable to the Board and I think in shareholders best interests to cut.

There is obviously a lot of competition in this market so what sort of challenges does PSD 502 face?

All that’s changed in the market is that Johnson & Johnson have done, in some ways, a rubbish job for themselves but a great job for us in bringing a product to market called Priligy. Priligy is a treatment for premature ejaculation, which is based on the use of an antidepressant. Now the US Food & Drug Administration (FDA) basically threw it out. They don’t want otherwise healthy people taking antidepressants for no good reason. It has not achieved market penetration that they would want in Europe but what they have done they have done quite a lot of patient/physician education around premature ejaculation. That is great news for us because it allows PSD 502, when it comes to market, which is actually a much better product, to come into a market niche that has already been established by somebody else. So we don’t need to do that initial market creation and development. We can actually back it off against the fact that Priligy’s been in there as a bit of a rotten product.

In the aftermath of the Shionogi deal you also struck an agreement to offload debts owed to Paul Capital by selling your US-based distribution business, Timm. How significant was all that?

The significance of that is as soon as we took the strategic decision to sell the US rights in whole to Sciele, Timm went from being a strategic asset, because Timm was going to be our sales arm in the United States for PSD 502, to being a tactical asset and it became financial. It was simply a holding in a profitable company in the United States. It no longer had the same strategic values. So what we did, as a Board, was to say ‘our investor group don’t like, particularly, the Paul Capital facility, what can we do to get that debt off our balance sheet so that we can actually return the value to shareholders?’ So, whilst legally it was sold for a dollar, in truth it was sold for $16.5m and that $16.5m compares to about $9.5m when we bought it. So what that actually says is, as a management team and as a Board and as a company, we can grow a sales and marketing business and it’s that history that tells us that we know what we’re going to be doing with The Urology Company. So that’s the relevance.

Moving on, you have also been focusing on doing a deal with PSD 503. Was that a product that was around back in 2005 and has just been awaiting some sort of tie-up?

Yes, and there is more in the portfolio that we just don’t talk about because we’re not getting credibility for it on the market. Let’s go and do the deal and surprise people. There are other assets in the portfolio, one of which we released some clinic data on towards the end of last year, PSD 506, where there are still deals that are capable of being done.

How keen are these larger companies to try pick up these products from smaller, more innovative players?

There’s almost no easy answer to that question I’m afraid. It depends on the quality of the data; it depends on what the purchaser’s looking for that day. Let me answer it by reference to something else. PSD 503; we looked to get 503 tucked away on a licensing deal where the objective was to sell it on a straight pharma licensing model as a brand new physician prescription product, and they were struggling. We looked at it again and said ‘actually, this potentially has use as an over the counter prescription’, at which point in time we went from conversation to deal rapidly because actually what we changed was the market dynamic for the product and the partner then said ‘I really like it a lot’.

So sometimes it’s about being creative about how you cut your deal and what your deal structure is and sometimes it’s about doing a deal with Sciele which turns into Shionogi, sometimes it’s about changing from a physician prescription to an over the counter and it’s about being fleet of foot. I think what the company’s demonstrated is that it can do deals. What it needs to have is the bandwidth to be able to do it and, therefore, our most important job was to get PSD 502 tucked away, then get PSD 503 done, then work out what we do with the rest of what’s going on. We’ve kicked off The Urology Company and, therefore, we can now turn our attention to 506, 510 and others.

With a renewed strategy and the comfort of a major deal having been done, what can we expect to see from Plethora during the rest of the year?

More product launches, there would be a hope that we can see a deal. Shionogi will try and find some local marketing and licensing partners to distribute PSD 502. We may see something around the back of PSD 503 but it will be really around the rest of The Urology Company, sales, marketing, we’ve obviously given you a taster of the news that will be coming out in the interim review in September and it’s just about heads down and focus and delivery now. Our biggest gripe is that we are undervalued and we’re at the mercy of market forces. One of the salesmen at our broker, FinnCap, who we didn’t know particularly well, came up to us the other day and he said ‘you’re a small company and you’re actually doing what you said you would do when you said you would do it. Small companies aren’t supposed to work like that’. I said ‘well, they are when Steven and I run them’.

Thanks Ronald for speaking to Stockopedia News.