Forward-looking Forbes Medi-Tech racks up R&D losses

By staff reporter

- Last updated on GMT

Related tags Forbes medi-tech Cholesterol

Forbes Medi-Tech is expecting future growth for its branded
nutraceutical business to be borne of its milestone deal with
leading UK retailer Tesco, yet is philosophical that it will
continue reporting losses until one of its ventures bears
sufficient fruit to outstrip R&D costs.

The Vancouver, Canada-based company reported net losses of C$12.8m, or C$0.38 per share, for the year ended December 31 2005, compared to C$8.0m, or C$0.25 per share for 2004.

However it said that an increase in R&D spend from C$4.7m to C$10.2, as it initiated a US phase II clinical trial for its cholesterol-lowering drug FM-VP4 was a major contributing factor.

Sales for the year were up 19 percent, from C$17m to C$21m, however following the divestment of its 50 percent share in the Phyto-Source joint venture with Chusei (USA), this level will not persist in 2006.

The company is presently relying on income from its Reducol branded sterols ingredient. and other branded ingredients contributed just 23 percent of 2005 sales - C$3.9m.

However Reducol is performing remarkably well: it is expected to bring home between C$6m and C$6.5m in 2006.

The launch of Reducol with Tesco was identified as one of the company's major milestones for 2005, said by president and CEO Charles Butt to "position the company for future success and growth"​.

The company cites industry reports that sales of phytosterol-based spreads, yogurts and yogurt-drinks are expected to show double-digit annual growth in the UK.

Competitive price-positioning is seen as key to growing the market, since high cholesterol levels are prevalent in those in a lower income bracket.

The Tesco deal allows for line extensions under the supermarket's own brand, but that is just the start of the story:

"2006 holds a great deal of opportunity, with additional product launches in Europe anticipated,"​ said the company.

Last April it gained European approval to market its cholesterol-lowering ingredient Reducol in seven new food applications, in addition to milk-based products: yellow fat spreads (margarine), fermented milk type products, soy drinks, low-fat cheese type products, yoghurt type products, spicy sauces, and salad dressings.

Butt said that the decision to sell the Phyto-Source share was a return to the core business strategy of developing and marketing a continuum of products for the prevention and treatment of cardiovascular disease.

The proceeds of this sale (US$25m) will be ploughed back into developing more branded products.

As Forbes Medi-Tech looks towards the future, however, it will have to contend with on-going operational losses.

"We expect to continue incurring operational losses until the earnings from commercialisation of one or more of our products exceed the costs of research and development, administration, and other expenses,"​ it said.

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