Here is a potentially interesting play at the crossover point between biotechnology and the health and beauty sector. Vilacto Bio Inc. (VIBI, Financial) is a small-cap biotechnology company that, in its own words, is engaged in the business of skincare products. It is headquartered in New York and has a manufacturing facility in Denmark. The company has developed a skin care portfolio based on a patented molecule and is just about to start pushing the portfolio in the U.S.
Normally, this would not be considered exciting. Cosmetics, even the side of the space targeted toward health care, is incredibly competitive and without spending tens of millions of dollars establishing a brand (or being an already established brand), it is very difficult to gain any sort of traction from a top-line growth perspective in the sector.
So why this one now?
Last week, the company announced it has established Carmen Electra as a sort of brand ambassador for its portfolio and that, in conjunction with her acting in this role, it will be developing a skin care line framed as "Carmen Electra by Vilact."
For those not familiar with Electra, she is an actress and model with a very large fan base and social following.
With Electra on board, Vilacto's chances of being successful in its efforts to establish its brand of products in the U.S. market are dramatically increased. Sure, these sorts of arrangements are pretty commonplace in this industry and her interest in the brand is likely far more financially driven than it is by her reported love of the company's patented moelcule and the line of products that rests on it, but that does not really matter.
The reason these arrangements are so popular among early-stage cosmetic companies is that they work. Social media has changed the game when it comes to endorsements bringing Electra on board gives Vilacto direct access to her close to half a million Twitter followers, her nearly one million Instagram followers and the three million people that follow her on Facebook. And this is not just direct advertising. These people follow Electra because they want to hear what she has to say – it is called social influence for a reason – and her support for a product or product line has the potential to really drum up interest among exactly the target market Vilacto is going after with its range.
So what is the product?
The patented molecule that underpins Vilacto's range (which is called Vilact, without the "o") was not actually developed by the company. Instead, it was developed by a company called Pharma GP ApS, a Danish entity, which then licensed the patent to Vilacto for use in its range. The licensing happened in April this year and involves Vilacto paying an 8% royalty to Pharma GP on the selling price (irrespective of any taxes, customs duties, costs of insurance, transportation costs or other costs) for all licensed products the company sells in the U.S.
In other words, Vilacto took the molecule, branded it for sale in the U.S. under the Vilacto moniker and agreed to pay a royalty on any sales.
As far as the product itself is concerned, the molecule it is based on is a colostrum composition the company has branded as Lactoactive. The patent for the molecule is here for anyone interested. Colostrum is a form of milk produced by mammals in late pregnancy and the few days after giving birth. It is also known as “immune milk” due to it containing increased levels of components important in mediating immune responses. It is also rich in protein, polysaccharides and important nutrients and vitamins and, as such, is regarded as a composition with beneficial health care properties.
The company has taken colostrum, combined it with what is called a hydrocolloid (this is basically to allow it to form a creamy substance) and bottled it for sale under the Vilacto brand.
There is plenty of evidence to suggest this sort of composition can help with certain skin care problems – psoriasis, eczema, dermatitis – but, in all honesty, that is not overly important. There are thousands of these sorts of claims (that a particular product or molecule can be beneficial when used or applied daily) and many are based on biased studies or little evidence, yet achieve considerable commercial success because of smart marketing tactics – and it is on this last point that Vilacto looks like it could be set to strengthen.
The company has recognized an opportunity in gaining direct access to a base of potential customers through Electra and her social channels (and, by proxy, through the harnessing of her social influence) and is using this route to circumnavigate the normally huge amounts of money required to launch this sort of product range.
This is not a risk-free play, of course. In fact, it is risk heavy. This is a pre-revenue company for all intents and purposes and the fact we do not yet know how the market (the commercial market, that is) will respond to using what is basically breast milk from various mammals on their faces makes the future sales potential difficult to judge.
There is also the issue of growth capital. The company had practically no cash on hand at the end of the second quarter this year and it is going to need to raise money if it is going to execute on a successful launch – smart marketing and social influence can only take you so far. As such, we are almost certainly going to see an equity issue near term. The chances of this issue being dilutive are high, meaning anyone who picks up an early exposure will have to potentially take a hit to the representative value of their holdings before seeing any long-term gains.
Further, and as noted above, this is an extremely competitive industry. Having Electra on board gives the company a boost, but there is still plenty of work, time and capital needed to establish a brand. In addition, there is no guarantee Vilacto will be successful.
With all this said, however, Vilacto still looks like an interesting play right now. The company is up close to 150% since May this year and, so long as it can keep pushing things forward from an operational perspective, could continue to appreciate as 2017 closes and 2018 begins.
Disclosure: The author has no positions in any of the stocks mentioned in this piece.
