Rot Not In France - (EDEN)
Rot Not in France
What fun to see The Sunday Times hailing a British biotech business as saviour of French wine. And even greater fun to read that the company concerned is Eden Research (EDEN), where many of us have been sitting patiently for years, hoping for the exciting science behind this business eventually to deliver the goods.
It is getting there, slowly but surely, with the pace of advance governed partly by the need to wait for the passing of the seasons, and maybe constrained by the limited resources imposed by a constantly tight cash position.
The Sunday Times sensation, delivered in a breathless tone which made me wonder whether it could really be aimed at Eden, foreshadowed the news that Eden's 3AEY product for treating and preventing botrytis in grapes had gained authorization for sale in France. This is long overdue. Under EU rules, approval ought to have come maybe 18 months ago, and 3AEY was selling, and selling well, in Kenya, Malta, Greece, Bulgaria, Spain and Italy in time for the 2016 harvest.
Characteristically, the French were dragging their heels blessing something not produced in France, despite substantial evidence that the French wine industry needed it to stop the grape rot, and alternative solutions were bringing ill health and even fatalities in France. Botrytis - grape rot - has hit France especially hard, and Eden says took out 20% of the total harvest, costing producers between Euros 10bn and 100bn annually worldwide, depending upon the weather. The market for botryticides is more than $350m a year.
Eden's established and proven product, which has the crucial advantage that it can be applied almost up the harvest, when grapes are most vulnerable, will be sold in France by partner SumiAgro France, part of Japanese giant Sumitomo, under the name Mevalone. Sumitomo companies already sell it elsewhere in Europe.
At this stage it is not clear who will be supplying the product. Originally planning to sell licences and reap just the royalties, Eden has been developing a new business model. Under this, it has the product made by a third party and supplies it to the distributor, in the process raising profit margins substantially. As suggested in my report of December 21 (Eden Lands A Big One), it is worth studying pages ten and eleven of the agm presentation, available at http://www.edenresearch.com/archives/presentation/Eden_AGM_2016.pdf
While the financial details of the SumiAgro France deal are not public at this stage, it is good news whatever emerges. Italy might be the world's largest wine producer, but the prestige of being associated with French wines is significant, and trials suggest that Mevalone can only improve the end product. Happily, it will be ready to service the vineyards in the crucial April/May season.
There will be a milestone payment to Eden on the French approval, and that follows a payment to Eden after the conclusion of the important agreement which brought US global giant Eastman in as partner to carry Eden's all-natural terpene-based nematicide to market. That will eventually be very big. Rather than pay Eden a hefty upfront fee, Eastman has undertaken to meet the costs of carrying Cedroz, as the product will be called, through the regulatory process in 29 countries around the world.
This might not put a big slug of cash into Eden's balance sheet, but is enormously valuable, removing from Eden the burden of costs which could run into millions of dollars. Eden has gained an upfront payment, and will receive more as Cedroz moves closer to market in 2019.
Approval of 3AEY in France is the latest important piece of the jigsaw which will see Eden's natural products using a slow-release system gaining ground across a steadily widening section of the agro-chemical market. Trials have established that different combinations of Eden's natural terpenes at least match most chemical rivals in efficacy in many applications, while beating them significantly on the safety front.
Proving this to the satisfaction of regulators in different parts of the world can be a slow process, dictated in part by the passage of the seasons. Eden now has products up and selling, however, supported by giant companies like Sumitomo, with Eastman to follow. There will be a steady expansion of the geographical areas where they are accepted for use - look at North and South America, Switzerland, Australia and South Africa to come - and a move into much broader areas of application. Terpene combinations, married to the slow-release system, will tackle a greater range of pests and diseases, and will be applied to many more crops. There have already been label extensions for 3AEY, widening use in several countries.
Clearly there must come a point at which Eden products reach North America, though markets there are tricky because of variations in regulation from state to state. The approval process might, however, run to 18 months or so, against the several years it has taken in Europe. In some cases, data from European tests and applications will help in overseas approvals.
There should be one or two more pieces of good news in the first quarter, and the wait continues for the launch of four animal health products in the US by global giant Bayer. This long-running dream has been on the cusp for years, and is suffering the predictable hiatus which tests every small company whose bright ideas disappear into the black hole of corporate bureaucracy. The prospect still appears to be alive, and was once expected in the first part of this year (or the year before, or maybe one before that).
Animal health is one of several areas alongside agro-chemicals where Eden could have an advantage, and the chance of something previously unexpected is always alive. And perhaps Eden's technology could be adapted to extend the life of fading patents elsewhere.
What matters most, however, is that Eden is slowly getting revenue-generating products into the market place. The current business model is gaining some traction, and ought to mean that returns are considerably higher than previously envisaged. Cash appears to be comfortable enough, and there ought to be a new report from house broker Shore Capital before too long.
The shares flirted with 15p before closing up 3.25p on the day at 13.375p in heavy volume. Long term holders will continue to sit and wait. Sooner or later it will become clear to most that Eden has great potential, with the slow release system for terpenes allowing it to become an invaluable substitute for so many damaging chemicals currently being banned or phased out in the agro-chem industry. There could be other exciting applications to emerge.
Sadly, though the new business model will help, gaining regulatory approval and then winning market share is a slow, painful process, and significant revenues are some way away. But the market capitalisation of £25m still looks modest.
I have a holding in Eden Research.