Starpharma offers rare bright spot in market

Starpharma Holdings has finally delivered some much needed relief and shareholders will be hoping that today’s regulatory approval of its gel-coated condoms will break the stock out of its downtrend.

Starpharma Holdings (SPL) has finally delivered some much needed relief and shareholders will be hoping that today’s regulatory approval of its gel-coated condoms will break the stock out of its downtrend.

It seems to be working for now, with the stock recording its best one-session rise in six weeks of 6.9% to 78 cents at 2.30pm AEDT in a market that has crashed by over 1%.

Leading Japanese condom maker Okamoto Industries has secured certification to start selling condoms coated with Starpharma’s VivaGel product in Japan, which is the second largest market for condoms.

Okamoto has a 60% market share of the country’s $US500 million condom market and Starpharma will receive a royalty on each VivaGel condom sold.

No financial details were released and Starpharma’s chief executive, Jackie Fairley, said the terms of the deal are confidential, but the profit potential for the local biotech is very much dependant on adoption rates and no one can say what that would look like with any great certainty.

However, there are reasons to think that the Japanese market will embrace the new product with greater gusto than most other major developed markets because the Japanese are a pretty paranoid bunch when it comes to health issues.

If the VivaGel product constitutes 20% of Okamoto’s condom sales and if the size of the market and the company’s market share remains constant, the royalty from this one opportunity would likely cover the company’s 2012-13 reported net loss of $5.2 million. That is significant as consensus forecast is not tipping a maiden profit for the group until 2016-17.

Further, Starpharma has other promising opportunities in the pipeline. The company has struck a similar licensing deal with Ansell (ANN) to sell the VivaGel condom in other parts of the world, and is expected to announce a significant partnership deal with a global pharmaceutical for its Dendrimer technology some time before December.

Ansell is waiting for regulatory approval in major markets, such as the United States, to sell the condom. VivaGel has been proven to prevent the spread of sexually transmitted diseases, including HIV.

Dendrimers are nanoparticles that can change the characteristics of drugs to make them more effective or safer. Drug companies would be keen on doing a deal to extend the patents on blockbuster drugs that are coming off or have come off patent.