Writing the reality cheque

Friday 17th May 2002

HOWARD PATERSON: 'With some of the more esoteric things, people forget we're a small country and we've got to pick our niches'

Dunedin punches above its weight in business terms. In the first of a series from the deep south, DEBORAH HILL CONE interviews Howard Paterson

It's 4pm Thursday afternoon and Howard Paterson is drinking tea with soy milk. That's because it doesn't have the A1 protein - but don't get him started on that unless you have an hour to spare for a dramatic dissertation on dairy proteins. Who thought anyone could get that passionate about white watery stuff from cows?

Mr Paterson actually gets a glint in his eye about a whole lot of stuff you might think was rather mundane - how much omega-3 oil is in the ultimate egg, what funguses grow on vegetables - that sort of thing.

G K Chesterton once said he found dishwater far from dull - in fact he found it fascinating and teeming with life. Mr Paterson might agree.

But he doesn't like having his photograph taken and the tape recorder bothers him as well. His eyes keep darting over to it in the way media trainers tell you not to in case you look shifty. "Is that on?" He hides the dictaphone behind his large mug of soy tea, perhaps on the theory that what you can't see can't hurt you.

He doesn't have a lot to be scared of. Mr Paterson is involved in the most exciting projects going on in the South Island. Scratch that - in both islands even. He has a wiring diagram worth of investments in property, deer, eggs, wine and biotech - totting up to $100 million, according to last year's NBR Rich List, but likely to be worth more now. He's also NBR's New Zealander of the Year.

"He has this knack of picking a trend about five years before everyone else cottons on to it - deer, wine, biotech," a Dunedin academic observes fondly. Dunedin people talk about Mr Paterson like proud parents - including his dad, Wally, who tells stories of how his son bought his first house while still at school from the 10 shilling weekly child allowance his parents had saved up for him.

At this Mr Paterson jnr, who will celebrate his 50th birthday later this year, has an "aw shucks, Dad, you're embarrassing me - she's a reporter" expression.

But Mr Paterson also has another knack. It's a way of keeping his own high-risk ventures in perspective. It is hard to imagine him holding a Cannes party. Instead he has taken Schopenhauer's advice and opted to accept the world as it is rather than impose his will upon it. Excuse the philosophy reference - blame it on the atmosphere of a varsity town.

With Mr Paterson, every third sentence includes a reality check. Scratch that - every second sentence.

On research: "SmithKline before it joined with Glaxo was spending well over $3 billion a year on research. Work out how much you have got to spend every working day".

On New Zealand: "People forget we've only got 6% of 1% of the world's population here. We're a poor country - we're fighting it out with Portugal, Turkey and Greece for last place in the OECD."

On Dunedin: " We've got just over 100,000 people here - so we're talking about 21^_Ž2% of the nation's population."

On the suggestion that Blis could have got US Federal Drug Administration approval to be marketed as a new medicine: "In my opinion that's almost too big a call for New Zealand. To go through the FDA programme and fund it all yourself - it's like me going a round with Mike Tyson - what's the point."

Er, that's the spirit, tiger.

But something is not going according to the usual script with Mr Paterson's biotech ventures - Blis, Pharma Zen and Botry-Zen.

You know the normal routine with biotech companies - traditionally investors put up some cash into a risky new venture and then wonder about getting some return on their investment -- and wait, and wait and wait.

But Mr Paterson has given that script a total rewrite. All three companies are on the verge of becoming cash-generating - and profit-generating - after operating for a year or less.

In Pharma Zen's case, the company is already profitably selling its range of colostrum products. The advanced animal remedies company is set to list in another six to eight weeks.

"In its full financial year it is going to generate in excess of $20 million of revenue and a significant profit, which is just unheard of," Mr Paterson says.

That's because Paterson and his close-knit group of advisers, based in Otago House, just off Dunedin's Octagon, have chosen ventures they believe can make money quickly. "With some of the more esoteric things, people forget we're a small country and we've got to pick our niches."

Products so far include listed company Blis' K12 throat guard, a unique strep throat prevention product now stocked in pharmacies, and Botry-Zen's biological control agent to prevent the growth of botrytis cinerea on grapes.

Pharma Zen has a suite of products sourced from colostrum and other animal and human remedies.

Mr Paterson reveals he is very keen on Singapore and is looking at dual listing Blis, Botry-Zen or Pharma Zen in both this country and on Singapore's "souped up" secondary board, Centrex.

He is investigating the relative tax structures between New Zealand and Singapore in preparation to list there.

"The Singapore government is more than receptive, extremely welcoming, and I think that would be an interesting avenue. We wouldn't bother going to Australia - we'd just go straight to Singapore."

The attraction is the way Singapore has decided as technology becomes increasingly commoditised to focus on biotechnology and life sciences as the way of the future.

Broking firm JB Were has put on two new advisers in its Dunedin office in recognition of the buoyant regional economy - but it is far from sold on the Howard Paterson biotech "story." It doesn't analyse or compile research on the companies, although it is considering doing so.

It says clients are "screaming for advice" but the firm can't give it without numbers and transparency. As a listed company Blis must provide a constant flow of information but Botry-Zen and Pharma Zen's accounts are not released.

But Rob Mercer of Dunedin-headquartered Forsyth Barr Frater Williams "gets" the biotech story: "It's transparent to me." He says Botry-Zen and other companies are well down the track towards generating revenues with new CEOs on board. "Howard Paterson is 100% passionate - he believes this is the future. He has been a front runner of vision in this area in New Zealand."

And Mr Paterson sounds a bit huffy at the suggestion the market is not kept informed, saying all three companies send out shareholder letters.

"Three [companies] in six months is not bad. We're moving at breakneck speed - look at Blis - but we've still got our day jobs and got to keep our day job companies working."

He says the Blis case is the model - it listed on the secondary board, then the main board, and now has independent directors. "As quickly as we can do it Botry-Zen and Pharma Zen are there too."

Mr Paterson says the unlisted securities board is "remarkable" because it makes it cheap and easy to list.

Within weeks after the intellectual property agreement with the University of Otago over the ownership of Blis was signed, the company had produced a prospectus and sent it out to its database of 400-500 investors.

"There's no messing around. What do they say: 'Long, drawn-out engagements lead to lukewarm marriages?'"

This mechanism makes it cheaper to list a company, Mr Paterson says.

"When I look at some of those new companies and the amount of money squandered needlessly, the endless hoops these people have jumped through with that new board thing [the New Capital Market]. I didn't understand it. They started to explain it to us a year-and-a-half ago and I went to sleep after half an hour. It's too complicated. If you can't explain it in half an hour I don't want to know about it."

Mr Paterson points out the unlisted securities market has some of the top companies in the country on it - tourism operator Skyline, "bluest of blue chips" Pyne Gould Guinness and some power companies.

"All the listing rules haven't really prevented some of the scallywags in the mainline companies. So we just see the [unlisted market] as a fabulous route to go straight on to get the action rather than people investing in something and wondering what it is going to be like for five years."

Mr Paterson is candid about what he thinks of the main board. "One of the big problems with the sharemarket has been it is dying of boredom - it's boring."

It's that reality check thing again.

"It's not about charm or nonsense or good stories, it's about making money and return on funds and that essential velocity of growth that people can see."

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