Looking for a Company focused on the next generation of biotech solutions to transform the delivery of sustainable outcomes? Then think BSF Enterprise
“…But BSFA’s fundamental case remains strong: here is a UK-based pioneer of technologies capable of breaking into vast markets…”
BSF Enterprise (LSE:BSFA) continues to pursue its near-term aim of spinning out a suite of groundbreaking cell-based tissue engineering technologies into separate companies capable of targeting specific markets.
BSFA hit the headlines last year – and soared in value – when it produced the first steak fillet of cultivated meat using its proprietary cell growth methodology. Popularly referred to as ‘lab-grown meat’, cultivated produce promises an alternative to the rearing and maintenance of the vast herds of cattle that compromise animal welfare and place an increasing strain on planetary ecosystems: livestock reared for food produces a quarter of all greenhouse gases, and occupies broad swathes of de-forested land.
But cultivated meat is just one application of the cell-based tissue engineering technologies the ambitious UK-based biotech is pursuing, which also includes lab-grown leather, artificial human corneas, collagen growth stimulants and skin substitutes. BSFA wants to develop an ecosystem of industry-leading bio-tech companies by fostering the company’s current portfolio, entering new joint ventures, strategic investments, and acquiring promising new ventures.
Earlier this year BSFA elaborated its evolving strategy to assign the company’s technologies to a suite of subsidiary companies with specialist technical and managerial teams serving dedicated markets. Each subsidiary will execute its own business model, progress its own products, enter its own commercial partnerships, and pursue its own funding, allowing investors or partners to fund a particular venture without diluting BSFA’s price.
The company currently has four subsidiaries: 3DBT, a cell-based tissue engineering company; Kerato, specialising in corneal tissue replacement; BSFA HK, focused on breaking the huge Chinese market; and Cultivated Meat Technologies (CMT), a joint venture with bioprocessing company, CellulaRevolution in which BSFA has a 50pc interest. BSFA is also planning to separate its cultivated leather business into a subsidiary company, Lab-Grown Leather, ‘within the next six months’.
‘The purest artificial meat yet produced’
3DBT’s flagship City-Mix product is an animal-free cell growth agent for cultivating muscle and fat cells for lab-grown meat and leather production. Using a process called ‘macromolecular crowding’, City-mix differs from mainstream processes for developing cultivated meat, which involve extracting stem cells from a donor animal. As well as the prospect of removing animals altogether from the production process, BSFA says City-mix promises higher yields and reduced need for fewer expensive supplements. The company has dedicated significant investment to 3DBT since acquiring the subsidiary, doubling lab capacity to 2,400 square feet, allowing for increased City-mix production of 200 litres a month, and giving 3DBT greater scope to showcase products to potential customers interested in commercialising lab-grown meat, leather and other products.
Last February BSFA made national news when City-mix was employed to produce a pork fillet, which the company called ‘the purest artificial meat yet produced’. Cells were grown and divided in a ‘cell-culture’ environment, where they were cultivated with the City-mix formula, and turned into structured meat. BSFA said that in its raw state ‘the cultivated steak fillet was very similar in appearance to conventional meat with fibres clearly visible. On cutting the fillet, it displayed similar structural integrity to raw conventional meat, including resistance to breaking and compression. In addition, it was the same to the touch in terms of consistency and elasticity and, as with fresh traditional meat, had no obvious aroma while raw.’ When pan-fried ‘the fillet seared easily, showing the typical browning, charring and crisping on its surface, and the aromas were identical to those of frying traditional pork’: BSFA’s announcement included a video of 3DBT researchers and management sampling the fillet.
BSFA’s challenge is to reduce the cost of production and build a consumer base. The company aims to manufacture 12,500 litres of City-mix per annum by next year. The product is being tested by potential customers including cultivated meat companies, universities and biotech businesses, with ‘overwhelmingly positive’ results so far: several evaluations are near completion, with sales orders expected, including further purchases from a Fortune 500 pharmaceutical company. BSFA is establishing itself as a recognised industry thought-leader, 3DBT CEO Professor Che Connon co-authoring a new book Cultured Meat Technology detailing the technology and its future. Last year BSFA entered a joint venture with CellulaRevolution to establish CMT, focused on developing solutions for manufacturing cultured meat at scale and at a cost competitive with traditional meat products. CMT combines CellRev’s bioprocessing expertise with City-Mix to facilitate the development of ‘a premier manufacturing platform with harmonised technology processes, licensing agreements, and strategic partnerships.’
Lab-grown corneas and leather
BSFA is spinning off two other 3DBT tissue-engineering technologies into subsidiaries. An independent company, Kerato, has been established to commercialise 3DBT’s advanced intellectual property in lab-grown human corneal products, and accelerate progression toward clinical trials. The new company uses cells and collagen to produce corneas in the laboratory that serve as substitutes for those provided by human donors, which are in short supply.
Kerato is working on two applications for its bioengineered biomimetic corneas: an Implantable Medical Device and an Ocular Toxicity Testing Platform. The former would serve an artificial cornea and corneal implant market valued today at $422m with a project Compound Annual Growth Rate (CAGR) of 7.4pc: more than half of the world’s population do not have access to human donor corneas, with 13 million people on the waiting list for replacements. BSFA has scheduled the Device’s launch for 2028, with clinical trials due in two years time. A ‘number of grant funding streams’ have been identified to help finance the trials. The Ocular Toxicity Testing Platform, named Keratox, will test a range of ocular toxicity endpoints through a ‘high throughput solution that can be incorporated into existing R&D pathways’, facilitating early indication of a formulation’s ocular toxicity profile. The global in vitro toxicology testing market is worth over $12bn with a CAGR of 12pc.
BSFA is in the process of establishing another subsidiary, Lab-Grown Leather, expected to launch in H2 2024’. The new company will help scale technical development and operational sales of non-animal skin products, targeting a leather goods market currently valued at $253bn and forecast to grow to $405bn by 2030. BSFA has already engaged with several companies within the leather industry in the UK and abroad to establish Proof of Concept contacts, and is in the process of building an in-house leather tanning capability.
Last month the company announced a ‘milestone event’: an MoU with Maison Amelie Pichard, a fashion company that designs and makes products using environmentally friendly materials. BSFA says this ‘will be first time real lab-grown leather has been ethically produced for the fashion industry using the same structures as traditional leather’, making it suitable for traditional craft purposes. The partners will explore future commercial opportunities, working together to develop, manufacture, and – ultimately – sell fashion accessories that incorporate lab-grown leather. The vast Chinese biopharma market, which grew from $3bn in 2016 to $380bn in 2021, is a particular target.
Breaking the Chinese market
Such is the superpower’s importance the company has formed BSFA HK as a separate entity to establish a presence in Hong Kong and develop a distribution network in the Greater China market, which, with annual consumption of over 100 million tonnes, accounts for over a quarter of global meat consumption. BSFA HK is currently in discussions with investors in the region regarding the use of BSFA’s technologies in new meat processing plants, and is engaged with cultivated meat companies and biotech companies working in cultivated meat production, gene therapy, and regenerative medicine and Life Sciences.
Earlier this month BSFA announced a partnership with Ive Farm Technologies, an established UK cultivated meat production company ‘to help fundraise, launch and scale its cultivated meat plans in China’. Ivy Farm, currently produces mincemeat from premium Wagyu Beef, Aberdeen Angus, and English Large White Pork tissue to create meatballs, scotch eggs and burgers, has a pilot plant with capable of producing 2.8 tonnes of cultivated meat a year, the largest of its kind in Europe, with plans to scale to 12,000 tonnes. BSFA will be supporting Ivy Farm’s ongoing funding round designed to scale up its technology to accommodate large production-sized fermenters.
Making lab-grown produce competitive
BSFA’s essential challenge is to demonstrate that its innovations can be produced at scale and at competitive cost. The ecological case for lab-grown meat, for example, is compelling, but there are many technical, economic and cultural challenges. There is, to be sure, growing growing awareness of the environmental implications of beef production. The UN Food and Agriculture Organisation estimates that about 15pc of all greenhouse gas emissions derive from livestock, mostly cattle reared for beef and dairy. And cultured meat is slaughter-free, and untainted by antibiotics, hormones and diseases such as salmonella and E. coli. Public concern is indicated by estimations that there are now more than a million vegans in the UK, and as many as 100 million worldwide. The cultivated meat concept has already come a long way since Google co-founder Sergey Brin bankrolled the first burger made from meat cells grown outside an animal back in 2013 – at a cost of $330,000. Seven years later Singapore became the first country to sell lab-grown meat, and by 2021 the sector was attracting $1.9bn of venture capital. The US Food and Drug Administration has completed a ‘pre-market consultation’ on lab-grown chicken which raised no safety concerns.
But the difficulties of turning concept into economic reality have been highlighted by travails of Beyond Meat, once a poster child for the sector. Shares in the ‘shamburger’ maker soared eightfold in the weeks after its May 2019 flotation, as it raced to a market cap of $14bn. On launch analysts believed Beyond Meat would turn free-cashflow positive by 2022 by virtue of 40pc compound annual sales growth, but the company actually reported a 10pc drop in sales last year. A cash infusion will probably be required some time this year to help the company get back on track. Price has fallen to around $8 down from more than $150 summer 2021.
The fact is that lab-grown meat is still very expensive. An analysis published last month in the Journal of Agriculture and Food Research suggests that, even with scaling up, cultured meat would cost about $63 a kilo to produce: 2021 wholesale per kilo prices for lean pork and beef were under $4 and just over $6 respectively. And there are cultural challenges: the concept will have to become normalised among meat-eaters: a third of carnivores – and more than half of vegetarians – are unwilling even to try it.
But as the trend towards veganism shows, the tide does seem to be turning. Over time the cost of cultivated meat should fall as the technology improves and scale of production expands. McKinsey estimates that cultivated meat might get to cost parity within the next decade. Plant-based foods and non-meat proteins are rapidly gaining popularity among those seeking alternatives to meat produced from herds, and there are significant consumer shifts away from beef and lamb towards chicken. Lab-grown meats can carve out a niche in this vast market.
Outlook
BSFA’s most recent set of annual results, for the year ended 30 September 2023, stated a cash balance of £1,640,000. The company raised £2.9m last year and secured a €612,000 grant to scale up City-mix production. BSFA hopes to boost revenues organically, through higher sales of the formula: ‘the Group’s revenue reflects only small orders for City-mix as, at this stage, orders are from large companies evaluating City-mix for use in their own media formulation. It is the Company’s expectation that, following this evaluation, larger orders will develop.’
BSFA’s demonstration of the potential of its lab-grown produce excited the markets last year, pushing its value to heights of 15p to 20p. 12 months on, however, the company is back on the long road towards proving commercial viability, its price subsiding to 8p at the time of writing, taking its market cap to £8.4m. It has also had to weather the cold economic headwinds that have hit all small cap growth stocks.
But BSFA’s fundamental case remains strong: here is a UK-based pioneer of technologies capable of breaking into vast markets. It isn’t possible to discern which companies will reap the commercial rewards when lab-grown produce breaks through, but BSFA is positioning itself to be one of them. In the mean time, the most immediate stimulus for an uptick in the company’s price would seem to be a thawing of economic conditions that would facilitate warmer market sentiment towards speculative small cap tech stocks.
