Pierpont invites any readers who are looking for examples of hungry vendors to examine the current prospectus of RiTract Ltd. RiTract is one of the rather numerous Australian companies which are building new and better syringes.
Having undergone a couple of dozen blood tests over the past two months, Pierpont is well weary of being stuck by syringes. Indeed, your correspondent will go to his grave without understanding why junkies are so keen to perforate their veins daily (unless it's an altruistic effort to support the Colombian economy).
Anyhow, RiTract is developing a syringe with an automatically retractable needle which it claims will greatly reduce re-use of syringes and the risk of needlestick injury.
To this laudable end, RiTract is seeking to raise $5 million in 20 ¢ shares, and will take another $3 million in over-subscriptions. RiTract's chairman, Michael Boyd, tells Pierpont that the company has raised the full $8 million.
RiTract has been formed to take over a company called Glenord Technology, which owns the technology. RiTract has agreed to pay $2 million to buy 70 per cent of Glenord. As soon as the minimum subscription has been achieved, RiTract will pay another $500,000 for a further 15 per cent of Glenord. Glenord also has a put option under which it can put the final 15 per cent to RiTract for a further $500,000.
So $3 million of the money raised in the float will go straight out of the door to Glenord. Costs of the offer will total a further $840,000, or more than 10 per cent of the $8 million. That seems a high proportion to Pierpont, but your correspondent is notoriously old-fashioned about modern fees.
That doesn't take any account of some of RiTract's commitments. The managing director is on a salary of $200,000, which is fair enough because you can't get much of a boss for less than that. In addition, non-executive directors are going to charge the company up to $250,000 for their services, leading Pierpont to the conclusion that the non-executive directors believe their combined efforts will be worth 25 per cent more than those of the chap who will have to run the company.
Except that he won't have to run the company because that will be done by an outfit called Health Tech Growth Partners. The prospectus says: "Health Tech has been engaged to provide the company with corporate and management assistance in respect of the acquisition of shares in Glenord, preparation of this prospectus and the subsequent listing of the company on the ASX."
Health Tech will also "provide management and corporate assistance to the company on an initial and ongoing basis" for at least three years.
Health Tech's services will cost RiTract: $20,000 up front for office set-up costs. $37,500 for the first four months of RiTract's life. A minimum $15,000 per month for three years from next February.
So RiTract doesn't only have to pay the vendor consideration to Glenord, it also has to pay Health Tech for negotiating the deal. And for preparation of a prospectus that has already cost $840,000 under other headings.
On these numbers, RiTract has committed to pay Health Tech $245,000 over the rest of the current financial year. Looking at the rest of the numbers, Pierpont calculates that by June 30, RiTract's cash will be down to about $4.2 million, of which $500,000 may have to be paid for Glenord's final 15 per cent.
That is the sum upon which RiTract is going to have to finance any further development or research on the syringe and then market it to hospitals and health departments. If inventors have a flaw (and in Pierpont's experience, they have many) it is a naive belief that as soon as they have invented a better mousetrap, the rest of the world's mousetrap makers immediately throw in the towel, sighing: "We can't possibly compete with this."
In the real world, the other mousetrap makers fight like tigers, steal patents, run big, mendacious advertising campaigns and commit any foul crime necessary to stay in business and strangle the newcomer.
So if old Pierpont's experience is any guide, it follows that companies which have invented a new widget chronically underestimate the amount they will have to spend on marketing to make their potential customers aware of the better mousetrap (syringe, in this case) they have invented.
Michael reckons RiTract has ample funds because they are going to outsource their manufacturing. Pierpont wishes Michael well but he couldn't help noticing that when Glenord was selling its first 15 per cent tranche to RiTract it had the option of taking either cash or shares and the vendors chose cash. Hmmm.
Worse, there are competitors about. Pierpont's knowledge of medical hardware is slight, but there are at least two other recently listed companies which are also planning to take the syringe market by storm.
Unitract is making a retractable syringe and has a head start of more than a year on RiTract. Unitract is backed by the formidable Danny Hill. Unitract admittedly started from an even lower base than RiTract, raising only 3.9 million. But Unitract's market capitalisation is now $200 million and it's building a factory in western Sydney to produce its syringes.
Another rival is Occupational & Medical Innovations, which is not only producing a safety syringe but a safety scalpel. OMI has signed a contract with one of China's largest syringe manufacturers which according to the company has undertaken to produce OMI's syringes by the middle of 2004.
On top of these, another company called Medigard Ltd has a prospectus out for $5 million which is going to make (wait for it) a unique retractable syringe which is superior to all other products. To Pierpont's eye, the market is looking a little overcrowded.
There might even be several international companies launching such syringes, but don't bother asking Pierpont to do the research because by this time he and Leo had retired to the billiard table. Leo had also ordered a quart of sloe gin, so it looked like being a long afternoon.
Following last week's column about the property disaster at 604 St Kilda Road, Pierpont received a letter from a reader who had been a tenant there. The reader had originally rented a suite at $425 a week but in the softening market early this year he tried to bargain the rent down to $375. The agent told him to go jump, so he moved. The suite has never been let since and the asking price is now down to $375.
"You are correct that the lifts were inadequate," the reader wrote to Pierpont. "But the real inadequacy is the car park. The spaces are just too small. We could fit our Mazda 323 into our space, but could barely open the driver's door to get out. Every now and then our inconsiderate neighbour would park too close and I would have to climb out the passenger side window!"
As the Mazda 323 is not the world's largest car, it sounds as though the parking lots are suitable only for scooters. Such are the joys of an Avram property.
ICU Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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