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Vilacto’s (VIBI) Colostrum-Based Skin Product Launching in US

11/22/2017


OTC:VIBI

Vilacto Bio (OTC:VIBI) skin creams are a new entry into the US skin care marketplace having crossed the Atlantic from Denmark where they have been available for several years.  The brand is trying to leverage recent trends which have favored cosmetics with natural ingredients and claims backed up by science.  Vilacto has identified an opportunity in the United States with its Lactoactive skin care products, and is planning preclinical trials to demonstrate the benefits of its line of cosmeceuticals.  With all-natural ingredients and the advantages of colostrum, Vilacto’s products may strike a chord with consumers in the US and elsewhere.


The skincare market is estimated to be over $10 billion in the United States and over 10 times that level globally.  While there are a number of household names that dominate the cosmetics space, such as L’Oreal, Avon, Johnson & Johnson, Estee Lauder and others, the most active consumers frequently seek the latest product that can provide them not only the skin care they desire, but also the type of branding and ingredients that are aligned with their lifestyle.  

Vilacto’s skin care products are targeting the higher income, educated consumer that recognizes the benefits of natural ingredients and desires to avoid harmful substances such as allergens, parabens, dyes, and other synthetic ingredients.  The branding also relies on the consumer’s knowledge of the importance of colostrum in newborns and expects that consumers will assume, by extension, that it is also beneficial to the skin. 

Vilacto differentiates itself from other natural skin products in its use of patented ingredient Lactoactive.  The compound’s active ingredient is colostrum, which is the milky fluid secreted following birth in humans and other mammals.  Lactoactive was developed at Aalborg University in Denmark in collaboration with Novi Science Park, a science incubator.  In its composition, Vilacto uses bovine colostrum, which is high in proteins, carbohydrates, fats, vitamins, minerals and antibodies.  There are a number of bovine colostrum studies taking place worldwide that are investigating the impact of the substance on inflammation and immunity and anecdotal evidence of benefits to skin.  While not able to make these claims to US consumers prior to approval after clinical trials, Vilacto scientists have identified benefits related to inflammation, psoriasis and other skin diseases.  The company plans to launch in vivo studies following a round of financing to research further.

Marketing

According to NPD Group, since 2015 growth in skincare has come from online sales and the focus on skincare products has moved from anti-aging categories to prevention and complexion preparation.  Growth in the space has been from natural products and from emerging brands that are leveraging their approach from popular scientific findings, including areas such as the microbiome, probiotics or peptides.

To increase consumer awareness of Lactoactive-based products and their perceived benefits, Vilacto added Carmen Electra as brand ambassador last month.  She has achieved fame with the brand’s target audience as recording artist, actress and model.  In her early days she collaborated with Prince on her self-titled album, was featured on the cover of several Playboy magazines and appeared in popular television shows and movies including Baywatch and Scary Movie.  She has also been spokesperson for Max Factor cosmetics and for her own line of perfume.  While not an A-lister, Ms Electra does have broad name recognition and a reality-star reputation that is able to grab headlines and gather attention.   Her social media following is expected to increase awareness with the brand’s target audience.

Many new products are launched through social media and Vilacto has firmly embraced this medium with its marketing approach.  With a presence on Twitter, Facebook, Instagram and its own website, the brand has attracted numerous followers, with over 6,000 each on Twitter and Facebook and over 8,000 on Instagram.  With the addition of Carmen Electra’s following and marketing might with over 3 million followers on Facebook, over 700,000 on Instagram and almost 400,000 on Twitter, the relationship will help broaden the audience.

The company has also launched its Approved Affiliate partnership which seeks bloggers and influencers possessing a dominant presence in social media to direct traffic towards the Vilacto website.  The program provides for an 8% commission to participants and seeks those with followers who are “skin care lovers.”  The system is managed by Rakuten Marketing and provides for tracking and commission payment to affiliates. 

Products

Vilacto offers a wide range of skin care products, including Skin Cream, Skin Lotion, Skin Gel, Lip Balm, Baby Skin Gel, Maternal Skin Cream, Foot Cream, Heel Cream, and Antiperspirant Foot Cream.  The company has also recognized the importance of tattooed skin and has a product that is intended to enhance the visibility of tattoos.  Kits, with multiple related products are also available for sale.  Below, we provide a few examples of products from the website.  





Efficacy

Vilacto has highlighted customer claims identifying benefits to dry and damaged skin, eczema, wounds, acne, psoriasis and a host of other dermatological maladies.  Included in the patent filing for Lactoactive, there are several photographs illustrating an improvement in skin condition following the use of the colostrum-based creams.  We do not know about the design of the study that generated these effects; however, we provide the exhibits as they appear in the document
 
In each of the photographs below, the skin condition is shown prior to and after use of the colostrum bioconjugate that is the basis for Vilacto skin creams. The cream was used on a skin eruption, and several cases of psoriasis as shown in the following exhibits.  





Vilacto will not be able to make claims to consumers for improving any of the above skin conditions without successful clinical trials and approval from the FDA.  Therefore, the company is planning to commence preclinical work to investigate the benefits that have been observed anecdotally and in the lab.  As it develops these programs, they will fall under the regulatory authority of the FDA.

Regulation


Cosmetics and drugs are both regulated by the FDA but have vastly different standards and requirements.  All products that fall under the FDA’s umbrella must be safe, which includes the categories of cosmetics and drugs.  Products that are intended to make an individual more attractive are generally considered cosmetics, while products that affect the structure or function of the body are drugs or medical devices.  For example, a moisturizer that reduces the appearance of wrinkles would be considered a cosmetic whereas a product intended to remove wrinkles would be considered a drug or device.  Cosmetics are not required to be approved by the FDA, but drugs and devices do require FDA approval for safety and effectiveness following extensive preclinical and clinical testing.  

In keeping with the trend of providing consumers more scientific information about the products they purchase, Vilacto Bio has highlighted three clinical programs it intends to pursue based on their skin creams compositions patent.  These are in topical, systemic and cosmetic applications of the compound.  We anticipate that Vilacto will be able to begin studies when it is able to raise sufficient funding for operations, investment and R&D.  

The Company

Vilacto Bio is a micro-cap biotech that emerged in the spring of 2017 to develop and market skincare products based on the Lactoactive molecule.  While it has not yet generated revenues and only has minimal cash and inventories on its books, it has developed a number of relationships for manufacturing, marketing and distribution of product.  90 million shares are outstanding.

To satisfy the agreement with Pharma GP and to provide sufficient funds to acquire inventory and successfully launch the business, Vilacto requires capital.  The company has not stated how much it will need, but amounts from $25 to $100 million appear reasonable for a first round.  This will provide sufficient cash to consummate the deal with Pharma GP and acquire sufficient inventory to begin sales, fund working capital needs and begin work on preparing for pre-clinical trials and investigational new drug efforts with the FDA.  

Management Team

Vilacto Bio has a three-person management team consisting of CEO Gert Andersen, COO Pernille Steenfat, and CSO Poul Hunnichen Madsen, Ph.D.  Gert and Pernille founded Pharma GP in 2011 which is the manufacturer of Vilacto products and are responsible for commercialization and marketing respectively.  Dr. Madsen’s experience is in the use of natural ingredients for human use and has previously contributed to other start-up companies. 
  
Relationships

Vilacto Bio does not perform sourcing, distribution or marketing internally and is outsourcing these efforts to partners.  The company has an agreement to acquire Pharma GP, which owns the rights to Lactoactive-based products and currently manufactures them.  Prior to the consummation of the acquisition, Vilacto is required to pay Pharma GP an 8% royalty on all sales.  Pharma GP APS was incorporated in 2011 and is based in Næstved, Denmark and operates as a subsidiary of 9 Heroes APS.  Pharma GP was originally founded by the current management team of Gert Anderson and Pernille Steenfat.

In late August, Vilacto entered into an agreement with Rakuten Super Logistics (RSL) to process inventory, fulfillment and shipment.  The agreement supports distribution in all 50 states.  Rakuten Super Logistics is part of the Japanese Rakuten group of companies which has four shipping ports and eight fulfillment centers around the United States.  The business emphasizes e-commerce fulfillment and has built a global group of customers since its founding twenty years ago.  

Marketing is the key to success for aspirational products such as Vilacto, and the company took a bold step by adding Carmen Electra as spokeswoman so she can develop her own Lactoactive-based skin cream.  Vilacto has also introduced an Affiliate Program which allows health and beauty bloggers, writers and commentators to direct traffic towards Vilacto in return for a commission.  Personalities and minor online celebrities with a dominant presence on platforms including Facebook, Twitter, Instagram and YouTube can further penetrate the brand into targeted consumer groups.  

The company has also reached out to the financial community.  In anticipation of a near-term capital raise and in an effort to increase investor awareness, Vilacto retained the services of The Equity Group to augment the investor relations effort.  The Equity Group designs investor relations programs for small and mid-sized public companies and is expected to play a meaningful role in Vilacto’s upcoming capital raise.

Risks

Vilacto is an early stage company without current revenues and insufficient capital to substantially grow the business, dependent on raising equity or other capital in the short term to launch its sales organization and R&D efforts.  Vilacto will require funds to achieve its business objectives and early shareholders may be diluted in successive capital rounds.  The company faces a variety of risks that are common for consumer and biotechnology companies and also specific risks related to their early stage and distinct market focus.

Vilacto competes in the skin care market against many dominant firms which have developed brands and distribution.  Approximately 400 companies are vying for the skin care consumer and competitors include recognizable names such as Johnson & Johnson, L’Oreal, Allergan, Avon, Estee Lauder and many others with substantially greater financial resources.  Vilacto’s products are premium priced, with prices ranging from $15 to $100 per unit, which narrows the addressable market for the product.  

The company is dependent on social media platforms, affiliate partners and celebrity endorsers to grow sales.  These approaches may not be effective or reach a sufficient audience size to justify their cost.  Vilacto is reliant upon the reputation of its partners and celebrity endorser to brand their Vilacto skin creams favorably.  Risks related to the online marketplace involve online transactions and data storage.  Participation in this medium can expose the company to hacking, computer downtime and ransom demands for the return of consumer data.  

Cosmetics, which includes skin products, are subject to FDA regulation for safety and product claims.  If Vilacto makes a claim that is inappropriate for a cosmetic, the FDA may require a change in advertising, reformulation or withdrawal of the product.  Vilacto has also expressed an interest in conducting preclinical and potentially clinical trials to obtain FDA approval for its Lactoactive compound.  Clinical trials are expensive, time consuming and have a high failure rate.

While the risks are daunting, all companies in related areas face them in their early stages, therefore, a clear plan and execution on milestones are key to eventual success.

Summary

Vilacto Bio has a contemporary product in a huge industry that is constantly seeking new and improved formulas.  The company has recognized the desire to avoid harmful chemicals and focused on ingredients that inspire health-related excitement.  Vilacto products have seen early success in Denmark, with a 2015 award for Best New Natural Skincare Product by Natural & Organic Awards of Scandinavia, and the company is now launching its product in the United States.  To date, Vilacto has built up its supply, distribution and internet storefront presence sufficiently to begin sales in the near term.  The company is relying on interest from consumers who demand natural products and who also seek hard research supporting health benefits.  Early examination has shown improvement to skin conditions, and Vilacto expects to begin preclinical studies to further investigate the advantages of the Lactoactive compound.  Vilacto Bio is certainly a speculative investment with no historical revenues and a need for capital before it can begin operations in earnest.  But, it offers a compelling product and sales infrastructure backed up with a social influencer marketing strategy.  Perhaps this mix can provide a healthy return if the benefits of colostrum and Lactoactive become popular with the consumer.

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