Agronomics — A unique offering in a rapidly developing sector

Over the past few decades, global demand for protein has been driven by population increases and rising wealth in markets such as China. Meat protein in particular has witnessed a sharp increase in demand, due to increasing consumption predominantly in China and India, but global supply has been disrupted at times by outbreaks of disease such as Asian swine fever (ASF). Recently, consumers have developed an increasing awareness of the unsustainability of conventional meat farming and other animal proteins, paving the way for a search for alternatives. Plant-based meat is currently the only commercially available alternative that is priced at a level that is affordable for consumers (albeit at a premium to mass market meat), and demand for this has moderated following an initial hype, as the sensory experience (mainly taste and texture) has proven to be disappointing for a significant proportion of consumers. We believe cultivated meat could become a much more desirable alternative to conventional meat than plant-based alternatives, and indeed replace it over time as consumers embrace the concept of lab-grown meat.

Kearney, a consulting company, forecasts that the global meat market will grow from c US$1tn in 2018 to US$1.8tn by 2040. It predicts that plant-based meat will grow significantly over the next 10 years as conventional meat sales decline, but cultivated meat is expected to overtake plant-based meat by 2040.

Protein consumption has shifted enormously over the past five years, with the launch of plant-based meat alternatives such as Beyond Meat’s and Impossible Foods’ burgers making meat alternatives more mainstream and acceptable to non-vegetarians. Indeed, the emergence of flexitarianism (a diet that aims to reduce – rather than eliminate – overall meat intake) has encouraged consumers to transition towards plant-based products as they make consumption decisions based on ethical, environmental and health considerations. However, after much initial excitement, plant-based proteins have disappointed some consumers on the basis that they do not provide the same ‘sensory experience’ as meat and seafood in terms of taste and texture. This has reduced earnings expectations, triggering a reassessment of initial valuations. Beyond Meat listed in May 2019 and has a current market cap of c US$900m, having fallen c 90% over the past 18 months. Impossible Foods remains private, having shelved a rumoured initial public offering. By contrast, cellular meat and fish is unlikely to face this sensory challenge, as these products are molecularly equivalent to conventional meat and seafood, and should thus be capable of matching consumers’ taste and texture expectations.

The dairy segment has been significantly disrupted by the advent of plant-based alternatives over the past five to 10 years. What started as a transient fashion/diet fad of eliminating traditional dairy from diets eventually led to consumers substituting traditional dairy with plant-based alternatives. The increased number of dairy alternatives and their greater affordability have led many consumers to switch to what they perceive to be more ethical and healthier alternatives.

Cultivated meat and seafood have the potential to disrupt conventional farming and fishing industries in a similar way to what we have witnessed with non-dairy milks in the dairy segment. If the technical hurdles of cost, scalability and regulatory risk prove surmountable, cultivated protein could be priced at a similar level to conventional protein, but with much cleaner and more sustainable credentials. In addition, as mentioned above, cellular protein can ultimately resemble conventional protein more closely, thus proving to be a more reliable substitute.

We believe precision fermentation will also play a key part in providing more sustainable protein alternatives. The process has been used pervasively in the pharmaceuticals industry for decades, for example in the production of insulin, and more recently it has been used to produce animal proteins such as casein and bioalbumen. This technology allows these specific proteins to be made without the use of animals, despite being chemically and biologically identical to the animal equivalent, making them ideal substitutes for their animal equivalents. In addition, many of these proteins are used within food manufacturing rather than being the finished product offered directly to consumers. Consumers are therefore likely to be less aware of their presence in the finished product, except for marketing references such as ‘animal-free’, thus providing a lower hurdle for consumer acceptance. Any cost advantage over conventional animal proteins would also provide a strong incentive to food manufacturers.

Cellular agriculture is not just about meat, fish and dairy

In a similar vein, cultivated leather, cotton, cocoa and other cellular agriculture products could provide a more environmentally friendly, sustainable and dependable source of raw materials. Traditional leather production is very inefficient in terms of the amount of an animal’s hide that is used, and the tanning process is highly polluting. Cotton requires a large amount of water to grow, and cotton-picking has been fraught with human rights issues, while cocoa trees are highly susceptible to disease and pest infestation, and cocoa farming has been known to lead to deforestation. Cultivated leather, cotton and cocoa could provide a solution to these problems.

In summary, cellular agriculture has the scope to decouple supply chains from animals and the environment, while also providing the means to feed the world’s expanding population.

Cellular agriculture refers to the interdisciplinary scientific and manufacturing processes of deriving conventional agricultural products directly from cell culture and fermentation, without the need for animals. This encompasses the concepts of cultivated meat, precision fermentation and the utilisation of microorganisms to grow (formerly) animal-derived ingredients.

For a detailed overview of the cultivated meat process, please see our Agronomics initiation note. Exhibit 1 provides a summary of the cellular agriculture process.

Cellular agriculture is much less resource-intensive than conventional livestock farming: land, water and energy usage are all much lower. In contrast to conventional farming of livestock and fish, cellular agriculture requires minimal or no antibiotics. Food produced via the cultivated route will not be prone to the accumulation of pollution or contaminants (such as mercury in larger fish species). In addition, as the cultivated meat industry gains traction and progress is made on the scientific side, land, water and energy usage should fall as the industry strives to reduce costs.

Regulation, production at scale, and cost remain the biggest barriers to making cultivated protein available to consumers. Most production processes are still operating at either lab or pilot scale. In addition, the growth medium in which the proteins are developed remains the most expensive part of the cultivation process.

In terms of the product itself, taste, texture and appearance remain essential when it comes to replicating conventional meat. The texture of ground meat is easier to achieve, hence why most alternative protein products have tried to replicate ground beef or chicken. The texture of a beef steak in particular is considered the most challenging to replicate. So far this has involved layering the cultivated cells on edible scaffolding or 3D printing a meat structure.

Regulation is a major hurdle for participants in cultured agriculture, as cultivated food requires approval in most jurisdictions, in some cases by several regulatory bodies (eg in the United States approval for cultivated meat is required by both the US Department of Agriculture (USDA) and the Food and Drug Administration (FDA)). At present, Singapore is the only jurisdiction globally where cultivated meat is approved for sale, with chicken being the first meat available to Singaporean consumers, although currently only in a single restaurant.

In November 2022, Upside Foods (formerly known as Memphis Meats) received a ‘no questions’ letter from the FDA regarding its submission about its safety conclusion for its chicken product. This paves the way for an eventual launch and approval in the US market, though it is important to note that Upside Foods still needs to meet FDA requirements, including registration of its facility for the cell culture process. The company will also need a grant of inspection from the USDA Food and Safety Inspection Service (USDA-FSIS) for both the manufacturing facility and each individual product. In addition, the FDA ‘no questions’ letter only applies to its chicken product, and other products manufactured by Upside Foods will need a separate submission. Nevertheless, the ‘no questions’ letter obtained by Upside Foods is very encouraging and opens the way for further progress on the regulatory front for the entire industry.

We note that regulation changes by jurisdiction, but also by product. Some products, for example cultivated leather, would not require approval, as they are not foods; cultivated seafood would only require approval by the FDA in the United States, while cultivated meat requires both FDA and USDA approval. In the EU, approval would be required both by the European Food Safety Authority, via the Novel Food Regulation, and individual countries. Furthermore, approval would be required for each different product and, potentially, for similar products using different components (such as edible scaffolds). Farming lobbies are powerful worldwide, especially in the United States and EU, and we would expect them to aggressively lobby against the approval of cellular agriculture products, and potentially try to dissuade consumers from switching to cultivated food.

Conversely, carbon pricing is a positive force for the cellular industry. If governments start to introduce carbon taxes on the farming industry, prices of conventional alternatives would have to rise. This would also be the case if governments decide to reduce agricultural and farming subsidies.

The US regulatory environment for precision fermentation is easier to navigate, with companies only required to obtain certification of GRAS (generally recognized as safe) status from the FDA. Within the EU, the regulatory environment around precision fermentation is trickier, as genetic modification is often used within the process, thus requiring the end product to be registered as a genetically modified organism (GMO) product.

Cell culture and fermentation have been used for the last 20–30 years for the production of therapeutics. Costs have been reducing over time, to the point where the technology can be used for food production. Cellular agriculture for food production is therefore a relatively new concept, and the technology is still developing, and is currently mostly being undertaken at lab scale. It therefore requires scaling up to pilot stage, and then full commercial production, in order to reduce costs and manufacture meaningful quantities.

However, scaling up industrial processes always presents challenges, more so in new fields such as cellular agriculture, so it is likely to take some time to reach commercial viability.

Precision fermentation has a shorter runway to financial viability because the technology is already widely proven and easier to scale up. In addition, providers of contract precision fermentation services will generate income from contracting out their services, regardless of whether their end clients succeed in developing their products to the point of commercial viability.

As discussed in our initiation note, the main cost challenge within cellular agriculture is the cost of the growth medium. As a reminder, the growth medium varies for every cell line. There is currently very little information on the cost of growth media, as each company regards it as proprietary information. As with all new technologies, progress has been made on many fronts, including the cost of growth medium. Steakholder Foods (STKH), for example, recently announced that it has made a technological breakthrough that has allowed it to improve its yield by 50x. Agronomics has stated that the cost per litre of growth medium is around US$10, and is expected to continue to fall as production is scaled up. We note that in February 2019, the Good Food Institute (GFI) estimated that under its most optimistic scenario, the cost per litre of growth medium could fall to US$0.24, allowing the cost per kilogram of meat to fall to US$1.37.

Cellular agriculture products that are currently being evaluated for scale-up are varied and span segments, from various types of meat, fish and seafood, to dairy and egg products, but also non-edible products such as cotton and leather. The prospective markets are therefore diverse, and consumer acceptance levels are also likely to vary. Cultivated leather, for example, will provide an ethical and sustainable, and thus easily acceptable, alternative to conventional leather, with no concerns regarding implications for human health. Food is likely to prove more controversial for consumers, due to concerns about food safety and the unconventional nature of production. Surveys on consumer attitudes to cultivated foods have been conducted in several countries and, while methodologies and questions have varied, the common theme is that younger consumers (particularly Generation Z, aged up to 23) are most accepting of it. Of course, the terminology used around the product also makes a difference, with more artificial-sounding names (such as ‘lab-grown meat’) being less desirable. On the positive side, in the wake of the FDA’s ruling on Upside Foods’ cultivated chicken, there has been widespread media coverage, which is enhancing consumer awareness of the sector.

On the matter of pricing, consumers have shown that they are willing to pay a premium for protein choices that they feel are important (eg organic eggs, free-range chicken, grass-fed beef), and hence cultivated meat is likely to be successful even without achieving price parity with conventional mass-market meat. That said, the consumer needs to feel the value proposition is right. Overall, we believe that as long as the taste and texture of cellular foods are acceptable, the products are appropriately priced and convenient to use, then consumers will have no problem adopting them.

Once the technical and cost challenges are overcome, and commercial scale has become commonplace, cellular agriculture is likely to expand more widely to other areas, such as pet food and industrial animal feed. Cultured ingredients are already used in some pet food, and fermentation is used in some industrial animal feeds. In the shorter term, however, we believe the main markets of interest will be in the consumer goods space, particularly at the higher price end, for example prime cuts of meat, bluefin tuna, high-end cheese (rather than milk) and luxury leather.

As with privately owned, early stage companies in any sector, cellular agriculture and other alternative protein businesses need to undertake successive rounds of fund-raising to finance their development, and progress towards sales and eventual commercial viability. The growing investor appetite for sustainable investments in general, and cellular agriculture and alternative proteins in particular, is proving to be a major factor in ensuring that companies in these sectors raise the funding they require.

Agronomics’ net asset value (NAV) has climbed steadily since its inception in 2019, almost doubling during this period, and team member Anthony Chow is confident there is still significant upside in the NAV over the long term (see the Performance section for further discussion). As a reflection of investor confidence in the company’s prospects, its share price has typically traded at a premium, at times substantial, to its NAV (Exhibit 9). However, as has been the case with many investment trusts, ANIC’s share price has been under sustained pressure over the past year, falling around 45%, to 12.4 currently, from 22.5p at end December 2021. This represents a discount to NAV of around 24%.

Chow is clearly frustrated by this severe share price markdown, which he believes has little to do with ANIC’s performance. Rather, he ascribes it to current, volatile and unusual market conditions and to investors’ desire to liquidate investments in response to related uncertainties. The company’s October 2022 update also noted the recent deterioration in investor sentiment towards venture capital funding, which has slowed the deployment of capital and lowered valuation expectations sharply. Investors may also be losing patience with the unexpectedly long delays with regulatory approval for some cellular agriculture products, such as the seafood products of portfolio holding BlueNalu.

Whatever the cause, Chow believes the share price decline to be unjustified given Agronomics’ long-term prospects and he views the current discount as an opportunity for investors to access the company’s unique portfolio of assets and favourable prospects at a particularly attractive price.

Chow remains very upbeat about the outlook for cellular agriculture as a whole. The sector passed a key milestone in the commercialisation of cultivated meat in November 2022 when the US FDA approved the sale of UPSIDE Foods’ cultivated chicken product. The United States is one of the world’s largest and highest value markets and the FDA is recognised as a global leader in the regulation of novel food products. This is the regulator’s first such approval and a validation of the cellular agriculture sector as a whole. As such, the ruling is likely to encourage the nascent interest displayed by China, Europe and the Middle East in cellular agriculture as a means of improving food security.

Chow expects the FDA ruling to be the first of many approvals for the sale of cultivated meat and seafood in the United States. And it is potentially very positive for ANIC’s portfolio companies. In ANIC’s annual report for the year ended 30 June 2022, Richard Reed, ANIC’s chairman, said the ruling is ‘a major step forward (that) paves the way for Agronomics’ portfolio companies and others to gain regulatory approval in the near future’. He expects to see regulatory approvals across ANIC’s portfolio in major categories in 2024.

Nonetheless, sceptics remain. Recent press reports have questioned the viability of cellular agriculture due to consumer reticence, and this may be another factor weighing on ANIC’s share price. However, Chow is quick to challenge this view. He draws a clear distinction between cultivated meat and fish, and plant-based meat alternatives. He is not concerned about consumers rejecting cellular meat and fish products on the basis of a disappointing sensory experience because, unlike plant-based alternatives, they are actually meat, and are therefore capable of meeting consumers’ taste and textural expectations, whereas plant-based meats have disappointed consumers from this perspective, depressing sales and earnings (as mentioned in the previous section). This has led to a reassessment of the high valuations typical of some companies in the broader alternative protein sector. For instance, the share price of sector leader Beyond Meat has fallen precipitously over the past year.

Chow concedes that when considering the viability of cellular agriculture, cost is the most important consideration and a possible hurdle, although not in all cases, and perhaps only in the short term. For example, BlueNalu will produce high-value bluefin tuna that will target the top end of the seafood market, and consumers will thus expect to pay a premium for this, as they would with conventionally produced high-grade seafood. A similar logic holds for another portfolio holding, Vitrolabs, a producer of high-quality cultivated leather, which has signed deals with several luxury leather goods producers whose products already sell at premium prices.

More generally, Chow stresses that he remains convinced that over time, cultivated meats will be able to achieve price parity with conventionally produced meat, which Agronomics’ founder Jim Mellon refers to as ‘griddle parity’ in his book, Moo’s Law: An Investor’s Guide to the New Agrarian Revolution. And this point may not be so far away. Industry sources suggest one animal-free protein producer has honed its production processes to the point where costs are now within 30% of price parity with conventionally produced alternatives.

Furthermore, in some cases, cellular meats and other proteins have the potential to actually reduce the cost of some food products used in hybrid products by supplementing conventionally produced meat products. For example, Chow says there has been ‘very impressive progress’ in the use of cellular chicken in chicken burgers and similar manufactured products.

Chow is equally confident about the future of precision fermentation (explained above). As he observes, this process has already been used at an industrial scale since the 1980s, for example in the production of insulin, and the technology is thus well understood. Agronomics’ portfolio holding The EVERY Company (EVERY), which produces egg protein using precision fermentation technology, is already selling its products in the United States. However, global capacity for precision fermentation needs to be scaled up and refined to meet the requirements of new products and more complex manufacturing processes. Agronomics estimates that this is a multi-billion dollar market.

Precision fermentation is also likely to be an easier concept for consumers to accept than vat-grown meat, because products such as egg and dairy proteins manufactured by precision fermentation processes are mostly only one of several ingredients in dairy products, baked goods or other foods. In some cases, the consumer will not even know such ingredients are in the end product, so their widespread use is likely to be less challenging for consumers than the notion of transitioning to cellular meat.

Chow believes this technology will reach cost parity with conventional dairy and egg products before cellular meat products. In fact, some ingredients derived by precision fermentation may eventually be cheaper than conventional alternatives, increasing their attraction to food manufacturers. And their inclusion in food products may be a positive from a marketing point of view. For instance, ‘animal-free’ cheese, yoghurt and chocolate will appeal to vegans and other consumers, while providing a similar sensory profile to conventionally produced products.

February 2023 saw the announcement of a new initiative in the field of precision fermentation that has significant potential to raise the sector’s profile and encourage its development by increasing access to funding and markets. Nine precision fermentation leaders, including two of Agronomics’ portfolio companies, EVERY and OnegoBio, another producer of precision fermentation egg protein, announced the formation of the Precision Fermentation Alliance. The objectives of this industry body include to promote understanding of precision fermentation technology, establish industry best practices regarding food safety and compliance, and build trust and familiarity with the process. The alliance also hopes to engage with regulators to improve market access and to establish private-public partnerships to accelerate industry growth. The Chair of the Precision Fermentation Alliance, Nikki Briggs, who is also Vice President of Corporate Communications at Perfect Day, which produces milk proteins using precision fermentation, says this new collaboration ‘stands to exponentially accelerate what any one member could achieve alone’. In addition to EVERY, OnegoBio and Perfect Day, founding members of this group are Change Foods, Heliana, Imagindairy, Motif FoodWorks, New Culture and Remilk.

The Agronomics team’s confidence in the precision fermentation sector is reflected in the fact that the company is at the leading edge of global efforts to increase the scale and sophistication of precision fermentation processes. Over the past eight months or so, the company has shifted its focus in favour of a greater emphasis on precision fermentation businesses, which appear to offer greater near-term commercial potential. See our last two notes for further detail (Fermenting growth and commercial viability, published 9 August 2022, and Recent events support move into precision fermentation, published 23 September 2022).

The most significant portfolio shift has been ANIC’s initial and follow-on investments in Liberation Labs, an industrial-scale contract provider of precision fermentation services. Following the company’s first investment of US$627,000 in Liberation Lab’s initial financing round, ANIC invested a further US$7.0m (in two tranches of US$3.5m) in Liberation Lab’s seed round in October and December 2022. Subject to audit, Agronomics’ investment will be carried at US$22.4m, including an unrealised gain of US$11.3m. This represents a 37.4% equity stake on Liberation Labs, which will use the proceeds of the seed funding round to acquire and develop its first US-based 600,000 litre facility. Liberation Labs has since announced details of this facility, located in Indiana, and expects the facility’s capacity to be fully committed when it is launched at the end of 2024. The facility will have scope to expand to 4.0m litres of capacity, although this only represents a fraction of the 10.0bn litre capacity Boston Consulting estimates will be required to meet demand by 2030 (see Key holdings section for details).

This investment in Liberation Labs reduces the need for ANIC to pick individual winners among cultivated food producers, because if one producer contracted to the company suffers a setback, Liberation Labs will be able to contract its services to other clients. The company clearly has ambitious plans to meet the global demand for precision fermentation capacity and if it is successful it will greatly enhance the progress to commercial viability of several of ANIC’s other portfolio companies that require access to this technology. These include Formo, a producer of dairy proteins, egg protein producers EVERY and Onego Bio, and Geltor, which manufactures collagen.

Agronomics has not made any other follow-on or new investments since the publication of our last update note in August 2022. Portfolio holdings still number 24. Chow believes that the company now has ‘a good balance’, with a 50/50 split between precision fermentation investments and cellular agriculture companies covering all the major protein groups: high-value bluefin tuna and the best manufacturers of pork and chicken, along with luxury leather. He expects ANIC’s investment focus will be on ‘doubling down’ on these existing investments, rather than seeking out new investments in the more exotic end of the cellular agriculture sector, where the production of products such as quail, foie gras, algae and insects (for animal feed) will only ever cater to niche markets.

The Agronomics team has not given any indications about which of the company’s portfolio holdings will benefit from further near-term investments, although Chow says that ANIC’s £30m of cash (as at end December 2022) will be sufficient to fund any investments the company may wish to make in H123.

Liberation Labs is commercialising precision fermentation with scalable, cost-effective and purpose-built manufacturing facilities for industrial biotech. The increase in demand for alternative proteins has resulted in increased demand for contract manufacturing organisations (CMOs), which were primarily built for the pharmaceuticals industry. Facilities tend to be old and cannot efficiently produce at the cost or scale required to achieve profitability for novel foods. Liberation Labs seeks to address this gap in the market with an efficient and flexible fermentation process that is adaptable and sited in key global locations. It is seeking to partner its facilities with novel food companies, thus removing the need for them to build brand new facilities. Details of ANIC’s stake in the company are set out above.

SuperMeat is an Israel-based leading cultivated chicken meat company. In a taste test in January 2022, SuperMeat’s unseasoned chicken was indistinguishable from conventional chicken as judged by a panel of culinary experts. SuperMeat is currently seeking regulatory approval in the United States and Singapore for its chicken products.

Agronomics first invested in SuperMeat in December 2020, with a US$2m investment in the form of a Simple Agreement for Future Equity (SAFE). In March 2022, ANIC co-led the Series A Financing for SuperMeat with a US$10m investment, resulting in an equity stake of 7.77% and a right to a board seat. Agronomics will now carry the aggregate position in its accounts at a book value of US$19.35m, subject to audit, including an unrealised gain of US$6.95m, representing an internal rate of return (IRR) of 207%.

VitroLabs is a California-based company that aims to become the world’s largest tissue-engineering platform. Its goal is to develop real, ethical calf, crocodile and ostrich leather for use across a range of industries, including the luxury leather trade. The tanning process is simplified, however, as there is no need to remove other parts such as hairs, fats or flesh, meaning there is a significant reduction in its environmental impact. This provides a ‘third way’ compared to traditional leather manufacturing, which is wasteful and very damaging to the environment, and to vegan alternatives, which are often petroleum-based, highly polluting and lacking the qualities and functionality of real leather such as tensile strength. According to Agronomics, the global luxury leather goods market is a US$48bn industry and VitroLabs is set to become the world’s first company to commercialise cultivated leather.

In September 2021, Agronomics led VitroLabs’ Series A funding round, with a US$10.5m investment. The funding will be used to build and scale the world’s first pilot production facility of cultivated leather. Following this funding round, Agronomics owns 11.7% of VitroLabs and has the right to a board seat. Agronomics will carry this position in its accounts at a book value of US$12.75m, subject to audit, including an unrealised gain on cost of US$2.25m (£1.6m) and an IRR of 40%. This added an estimated 0.2p to ANIC’s end June 2021 NAV.

Formo is a Berlin-based precision fermentation company (formerly known as LegenDairy Foods) that is developing cultivated cheese. The company plans to expand its product portfolio to include a variety of European cheeses such as mozzarella and ricotta, in collaboration with artisan cheesemakers. The company’s target is ‘to replace 10% of dairy products in Europe by 2030’ (Market Data Forecast estimates that the European cheese market alone will be worth US$37.3bn by 2026).

In September 2021, Formo raised US$50m in a Series A funding round led by EQT Ventures. The proceeds will be used to boost Formo’s R&D capacity and fast track commercialisation ahead of its market launch. ANIC participated in the round with a €3.15m investment, which leaves it with a 5.94% equity share of Formo. ANIC co-led Formo’s seed round in December 2019 with a €1.0m investment, which will see a 7.5x uplift on the original investment, representing an IRR of 225%. Subject to audit, ANIC will carry this position on its balance sheet at €10.7m, inclusive of the Series A participation. This added an estimated 0.7p to the 30 June 2021 NAV. Following the financing round, Formo is valued at an estimated €117.5m (£101m).

Sydney-based All G Foods’ ambition is to become the largest alternative protein company in Asia-Pacific, through leading technological innovations in creating next-generation milk and meat. The company concentrates on two technologies: precision fermentation and plant protein. On the precision fermentation front, its goal is to assemble a synthetic casein micelle at scale, which is imperative to match the true nutrition and functionality of traditional milk. On the plant-based meat side, All G is looking to identify and produce plant-based proteins in differentiated formats. Through its rapidly growing Love BUDS brand range, it has already successfully launched across key channels in the Asia-Pacific region, including the Woolworths Group and over 500 foodservice venues in Australia.

In August 2022, ANIC led All G Foods’ Series A financing round with a A$15m (c £8.7m) investment, for an equity stake of 8.01% on a fully diluted basis.

Geltor is a California-based biodesign company focused on producing designer proteins for use in the cosmetic, food and nutrition industries. The company develops tailored bioactive ingredients through precision fermentation to replace traditional animal-derived proteins. Geltor currently has five products:

In February 2022, Agronomics acquired 1,069,593 Preferred Stock in a secondary transaction in Geltor from an existing shareholder, for a total consideration of US$9.49m.

BlueNalu is a California-based business. Its mission is to be the world leader in cell-cultivated seafood. It plans to produce real seafood products directly from fish cells, without the use of genetic modification or antibiotics. The company has narrowed its focus over the last 12 months from ‘fin-fish’, to specifically focus on bluefin tuna. This species is overfished, primarily imported, difficult to farm and a premium product. In September 2021 it announced a collaboration with Nomad Foods, Europe’s leading frozen food company, to accelerate its market strategy in the region. Having previously expected US regulatory approval of its first cultivated seafood by early 2022, following its pivot to concentrate on bluefin tuna, BlueNalu now expects regulatory clearance by late 2023.

ANIC’s equity interest in BlueNalu is c 5.85% on a fully diluted basis. A statement from ANIC in September 2021 estimated the value of this holding to be approximately £13.4m (based on the valuation cap of a convertible note), up from a previously published valuation of £6.3m (US$8.55m). However, the holding will continue to be held at a book value of £6.3m until the next funding round. This added an estimated 0.8p to ANIC’s end June 2021 NAV and values BlueNalu at approximately £229m.

Meatable is a Netherlands-based company that produces cultivated pork and beef. Its aim is to deliver, at scale, cultivated meat with the look, taste and nutritional profile of traditionally produced meat. In September 2021 it announced a partnership with Royal DSM, a Dutch speciality nutrition chemicals company, to co-develop growth media for cultivated meat. Growth media are currently estimated to account for 50–90% of the production cost of cultivated meat, hence technological and cost breakthroughs in this area are essential to make cultivated meat more affordable. In July 2022, Meatable announced it had produced cultivated pork sausages with the same structure, texture, glossiness and flavour as traditional sausages. Meatable’s cultivation process does not use fetal bovine serum (FBS), and it only takes a few weeks for it to grow its sausages. It currently expects to sell its first products to consumers in 2025 at the latest.

ANIC has equity ownership of 5.84% of Meatable on a fully diluted basis, a position worth approximately £6.5m, implying a valuation of £111.3m for Meatable.

The EVERY Company (formerly Clara Foods) is a San Francisco-based company that is a leader in the field of precision fermentation. It produces egg proteins for use as ingredients for the global food and beverage industry and is focused on the commercialisation of proteins traditionally derived from animals. The company was founded in 2014 with a mission to accelerate the transition to animal-free and more sustainable proteins and to reduce factory farming practices.

In early November 2021, ANIC made a US$8.0m investment in The EVERY Company, for an equity stake of 1.28% .The company invested as part of a US$175m fund-raising undertaken by EVERY. This investment broadens ANIC’s portfolio further into other major protein categories outside of meat and dairy.

Onego Bio is a Finnish company that develops sustainable and animal-free egg protein through precision fermentation. Egg white is a very versatile ingredient, which is used across the food industry, and its unique functionality cannot be replicated by egg alternatives. In addition, egg proteins have a high nutritional quality and good digestibility. Onego Bio has replicated one of the proteins in egg white, ovalbumin, via precision fermentation, meaning that the resulting product is equivalent to the animal-derived original without the use of chickens.

In February 2022, ANIC invested €6.9m in a €10m seed funding round, leading to an equity stake of 19.94% on a fully diluted basis and the right to a board seat.

Solar Foods is a Finnish company that produces a protein called Solein, using air-captured carbon dioxide and electricity. Solein production is independent of weather and climate conditions and can be produced in harsh conditions such as desert and Arctic areas, where traditional food production is not possible. It can be used in a variety of foods, to supplement the nutritional value of plant-based products, enabling them to replace animal-based food without compromising on nutritional value.

Finland’s state-owned Finnish Climate Fund invested €10m to aid the build out of Solar Foods’ demonstration facility, which is set to be fully operational in Q124. In December 2022, Business Finland approved €34m grant funding to Solar Foods, which will be used to ramp up its hydrogen fermentation facility at its first factory and enter the engineering phase with the second factory. In October 2022, the Singapore Food Agency (SFA) gave regulatory approval for the novel food, Solein. This allows for the sale of food products containing Solein in Singapore. Solar Foods plans to seek US regulatory GRAS status assessment for Solein soon, while applications for novel food authorisation have already been filed in the UK and EU.

At the end of October 2021, ANIC participated in Solar Foods’ bridge funding round, providing €3.0m, half of the round’s €6.0m total value, in the form of a convertible loan note (CLN). The CLN is expected to convert to give Agronomics an equity position of approximately 5.8%, inclusive of its prior investment announced in September 2020. This implies a valuation of €103m for Solar Foods.

Agronomics reports its NAV on a quarterly basis. In the three months ended 31 December 2022, the company’s NAV stood at 16.38p per share, almost unchanged from its level of 16.51p per share at the end of Q322 and up 8.6% from the NAV of 15.08p per share at end June 2022. This represents an NAV increase of 14.3% over the year to end December 2022, and a 97.2% increase since the inception of Agronomics’ current strategy in April 2019.

The valuation policy ANIC uses to value its portfolio holdings aligns with IFRS guidelines for the valuation of international private equity and venture capital investments. The company’s individual portfolio holdings are held at cost or at the value established by the most recent funding round. At end December 2022, net assets stood at £162m, including investments of £133m and cash of £30m.

Since our last note, which discussed NAV developments up until end June 2022, the company’s net assets have been supported by unrealised gains on investments totalling £19.4m, including an unrealised gain of US$11.3m in Liberation Labs, a US$6.95m unrealised gain on SuperMeat, £2.9m from its investment in the seed financing round of Clean Food Group, a palm oil producer, and an unrealised gain of US$0.8m on its holding of Bond Pet Foods, following this company’s completion of its Series A Financing Round in September 2022.

Agronomics’ share price has lagged the company’s NAV performance over the past year. The share price stood at 11.75p at end December 2022, 47.8% below its level at the end of 2021, representing a discount of 28% to the NAV per share. This compares to an average premium to NAV of 8% over the calendar year. The company’s share price has since recovered to a degree. The factors weighing on the share price are discussed above.

Because Agronomics’ valuation policy only allows for valuation uplifts following valuation events such as new third-party funding, ANIC’s published NAV is, arguably, somewhat ‘backward looking’. However, the team foresees further significant gains in the company’s NAV over the coming year. In our August 2022 update, we reported that ANIC’s assessment of the company’s intrinsic NAV was ‘18–19p’. However, Anthony Chow recently estimated that the NAV it will be closer to 21.0p per share by end 2023, a 28% increase for the calendar year. He expects this rise to be underpinned by upward valuations to several portfolio holdings by the end of the current financial year ending 30 June 2023, including Liberation Labs, BlueNalu, Onego and Formo (all mentioned above), and Meatable, a producer of cultivated pork products, following last year’s launch of its pork sausage product.

We agree with the company’s assessment that there is potential for further NAV uplifts over time, due to these and other valuation uplifts as its portfolio holdings progress towards commercial viability, and as the company’s new focus on precision fermentation begins to generate income. The NAV is likely to experience further upward impetus if ANIC’s chairman is correct in his prediction that several portfolio holdings are likely to receive US regulatory approval in 2024.

As the only UK-listed venture capital company investing exclusively in early stage cellular agriculture companies, Agronomics is unique to the UK market, so there are no meaningful comparators in the domestic market to provide context for ANIC’s strong NAV performance since inception, and its recent share price weakness. However, the share prices of most UK-listed investment trusts have experienced share price declines of varying degrees over the past year, as investors seek liquidity in the particularly uncertain investment environment arising from Russia’s invasion of Ukraine, aggressive central bank responses to inflation pressures and resultant fears of recession.

Agronomics has fared reasonably well relative to its closest international peer, Eat & Beyond. This Canadian-listed venture capital fund has a broader remit than ANIC, as it invests in early stage and growth companies working with plant-based proteins and meat alternatives, as well as in cellular agriculture. Eat & Beyond listed in November 2020, but it is much smaller than ANIC and its portfolio holdings do not overlap with ANIC’s. Its market cap has dropped over 95% from its peak in early 2021 and is now below C$2.0m.

Agronomics’ share price usually trades at a premium to its NAV. However, significant pressure on the share price over the past year has pushed it well into discount territory, for reasons discussed in the section on the team’s view above.

This unusual development may provide an opportunity for investors to gain access to ANIC’s unique offering, and to the massive growth potential of the cellular agriculture sector, at a particularly attractive level. In our view, the company’s share price should, at some point, receive support from several quarters, including its scarcity value as the only UK-listed investment vehicle targeting cellular agriculture, and the favourable outlook for the sector and for ANIC’s portfolio holdings. While the likelihood of significant NAV uplifts over time, as discussed in the Performance section, will, of course, limit upward pressure on the premium, these considerations nonetheless suggest that ANIC’s share price discount is likely to prove relatively short-lived.

For further information about Agronomics’ fund profile, capital structure, investment process and fees and charges, please see our Initiation report.