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== Summary == | |||
MeaTech 3D (MeaTech) is developing proprietary three-dimensional printing technology to be used in conjunction with its cultured meat process, which will enable the manufacture of premium meat products such as marbled steak. Alternative meat demand is booming and cellular agriculture could represent a new solution to the ever-increasing demand for protein. Cellular meat has the potential to significantly disrupt both meat- and non-meat markets over the next several decades. | MeaTech 3D (MeaTech) is developing proprietary three-dimensional printing technology to be used in conjunction with its cultured meat process, which will enable the manufacture of premium meat products such as marbled steak. Alternative meat demand is booming and cellular agriculture could represent a new solution to the ever-increasing demand for protein. Cellular meat has the potential to significantly disrupt both meat- and non-meat markets over the next several decades. | ||
'''Meating demand''' | '''Meating demand''' | ||
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Due to MeaTech’s start-up nature, financial forecasts cannot be made with any certainty and management does not expect to report positive revenues or profits in the short to medium term. Uncertainty is compounded by regulatory risk, as cultured meat is not yet approved in most jurisdictions. As MeaTech is the first listed cultured meat company, it has no direct peers. Its net cash position was $30.6m at end H121. Given the free cash flow burn was $5.9m during the period, assuming no further acceleration in cash burn would suggest the company has enough cash for the next c 2.5 years. That said, the trend has clearly been an acceleration in cash burn and the intent to start to design and set up a pilot scale cultured chicken fat facility in Belgium during FY22 is likely to cause cash burn to accelerate. | Due to MeaTech’s start-up nature, financial forecasts cannot be made with any certainty and management does not expect to report positive revenues or profits in the short to medium term. Uncertainty is compounded by regulatory risk, as cultured meat is not yet approved in most jurisdictions. As MeaTech is the first listed cultured meat company, it has no direct peers. Its net cash position was $30.6m at end H121. Given the free cash flow burn was $5.9m during the period, assuming no further acceleration in cash burn would suggest the company has enough cash for the next c 2.5 years. That said, the trend has clearly been an acceleration in cash burn and the intent to start to design and set up a pilot scale cultured chicken fat facility in Belgium during FY22 is likely to cause cash burn to accelerate. | ||
== Cellular agriculture could disrupt protein production | == Cellular agriculture could disrupt protein production == | ||
Meat protein in particular has witnessed a sharp increase in demand over the last decade, due to increasing consumption predominantly in China and India, yet global supply has been disrupted at times by outbreaks of disease. More recently, however, consumers have developed an increasing awareness of the unsustainability of conventional meat, providing significant scope for alternatives. While plant-based meat is currently the only commercially available alternative priced at a level that is affordable for consumers (albeit at a premium to mass market meat), | Meat protein in particular has witnessed a sharp increase in demand over the last decade, due to increasing consumption predominantly in China and India, yet global supply has been disrupted at times by outbreaks of disease. More recently, however, consumers have developed an increasing awareness of the unsustainability of conventional meat, providing significant scope for alternatives. While plant-based meat is currently the only commercially available alternative priced at a level that is affordable for consumers (albeit at a premium to mass market meat), we believe cultivated meat could become a much more desirable alternative to conventional meat, and indeed could potentially replace it as consumers embrace cultivated meat. | ||
Kearney forecasts that the global meat market (including alternative meat) will grow from c US$1tn in 2018 to US$1.8tn by 2040. It forecasts 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. | Kearney forecasts that the global meat market (including alternative meat) will grow from c US$1tn in 2018 to US$1.8tn by 2040. It forecasts 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 witnessed a significant shift over the past five years, with the launch of plant-based meat alternatives such as Beyond Meat’s and Impossible Foods’ burgers. Meat alternatives have become more mainstream and acceptable to non-vegetarians, and the emergence of flexitarianism (to reduce – rather than eliminate – overall meat intake) has encouraged consumers to transition towards plant-based products. Indeed, protein consumption has become more flexible, as consumers make decisions based on ethical, environmental and health considerations. Food retailers and restaurants have adapted by offering more plant-based alternatives over time, with the latest addition being plant-based ‘Beyond Fried Chicken’ at KFC restaurants in January. The dairy segment has also been significantly disrupted by the advent of plant-based alternatives: what started as a transient fashion led to an increased uptake of plant-based dairy alternatives. This, in turn, led to increased availability of tasting and appealing alternatives, with consumers increasingly switching to what are perceived to be more ethical and healthier options. | Protein consumption has witnessed a significant shift over the past five years, with the launch of plant-based meat alternatives such as Beyond Meat’s and Impossible Foods’ burgers. Meat alternatives have become more mainstream and acceptable to non-vegetarians, and the emergence of flexitarianism (to reduce – rather than eliminate – overall meat intake) has encouraged consumers to transition towards plant-based products. Indeed, protein consumption has become more flexible, as consumers make decisions based on ethical, environmental and health considerations. Food retailers and restaurants have adapted by offering more plant-based alternatives over time, with the latest addition being plant-based ‘Beyond Fried Chicken’ at KFC restaurants in January. The dairy segment has also been significantly disrupted by the advent of plant-based alternatives: what started as a transient fashion led to an increased uptake of plant-based dairy alternatives. This, in turn, led to increased availability of tasting and appealing alternatives, with consumers increasingly switching to what are perceived to be more ethical and healthier options. | ||
We believe cultivated meat and seafood has the potential to disrupt conventional farming and fishing industries in a similar way. 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. | |||
== Cellular agriculture explained == | == Cellular agriculture explained == | ||
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The typical time spent in the bioreactor depends on the species but is much shorter than conventional livestock farming: beef cells take c 30 days to mature compared to around 24 months via conventional farming, while chicken cells take one to two weeks compared to the usual 12–16 weeks. The key difference from plant-based proteins, which is likely to make cultivated meat much more attractive to consumers, is that cultivated meat is equivalent to normal meat at the molecular level, thus providing the same taste and nutritional profile as traditional meat. | The typical time spent in the bioreactor depends on the species but is much shorter than conventional livestock farming: beef cells take c 30 days to mature compared to around 24 months via conventional farming, while chicken cells take one to two weeks compared to the usual 12–16 weeks. The key difference from plant-based proteins, which is likely to make cultivated meat much more attractive to consumers, is that cultivated meat is equivalent to normal meat at the molecular level, thus providing the same taste and nutritional profile as traditional meat. | ||
=== Creating a structure via 3D bioprinting === | === Creating a structure via 3D bioprinting === | ||
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In December 2021, MeaTech 3D reported a breakthrough with the printing of a 3.67oz (104g) cultivated steak consisting of real, living muscle and fat tissues, without utilising any soy or pea protein. Management believes this is the largest cultivated steak produced to date. The company plans to have a demo facility for beef products within the next two to three years and to commence the design and potentially the building of a pilot plant for cultured chicken fat production in 2022. | In December 2021, MeaTech 3D reported a breakthrough with the printing of a 3.67oz (104g) cultivated steak consisting of real, living muscle and fat tissues, without utilising any soy or pea protein. Management believes this is the largest cultivated steak produced to date. The company plans to have a demo facility for beef products within the next two to three years and to commence the design and potentially the building of a pilot plant for cultured chicken fat production in 2022. | ||
We note MeaTech is also working on hybrid products, whereby cultured fat cells are added to plant-based protein to create meatier textures that are generally preferred by consumers. | |||
=== Peace of Meat: The hybrid opportunity === | === Peace of Meat: The hybrid opportunity === | ||
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Conventional livestock farming is well-known for causing carbon emissions and for its use of land, water and energy. In contrast, cellular agriculture is much less resource-intensive. For example, each kilogram of conventional farmed meat produces on average 14kg of CO2 emissions, versus 3kg for cultured meat (source: MeaTech). | Conventional livestock farming is well-known for causing carbon emissions and for its use of land, water and energy. In contrast, cellular agriculture is much less resource-intensive. For example, each kilogram of conventional farmed meat produces on average 14kg of CO2 emissions, versus 3kg for cultured meat (source: MeaTech). | ||
In addition, while conventional farming of livestock and fish uses most of the antibiotics produced worldwide, cellular agriculture requires minimal or no antibiotics. Food safety is also improved with cultured meat, due to the absence of mass slaughtering and the clean environment in which the cells are cultured. This reduces the likelihood of contamination from pathogens such as salmonella or E. coli and also results in the benefit of a longer shelf life for the finished product. | In addition, while conventional farming of livestock and fish uses most of the antibiotics produced worldwide, cellular agriculture requires minimal or no antibiotics. Food safety is also improved with cultured meat, due to the absence of mass slaughtering and the clean environment in which the cells are cultured. This reduces the likelihood of contamination from pathogens such as salmonella or E. coli and also results in the benefit of a longer shelf life for the finished product. | ||
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The much-touted number in the alternative protein industry is the cost of the first cultivated meat burger, which is placed at around €250,000 (it was developed by a Dutch scientist in 2013, although the CEO of Mosa Meat has subsequently stated that the real number is ‘a bit higher’). The cost has come down significantly but, for the product to become a viable alternative to conventional meat, something in the region of cost parity is required. As Nick Halla, senior VP International at Impossible Foods, has said, ‘you’ll buy the product once based on novelty, you’ll come back if the taste is good and if there are benefits such as nutrition and sustainability, and you’ll buy it in the long run if the value is right.’ | The much-touted number in the alternative protein industry is the cost of the first cultivated meat burger, which is placed at around €250,000 (it was developed by a Dutch scientist in 2013, although the CEO of Mosa Meat has subsequently stated that the real number is ‘a bit higher’). The cost has come down significantly but, for the product to become a viable alternative to conventional meat, something in the region of cost parity is required. As Nick Halla, senior VP International at Impossible Foods, has said, ‘you’ll buy the product once based on novelty, you’ll come back if the taste is good and if there are benefits such as nutrition and sustainability, and you’ll buy it in the long run if the value is right.’ | ||
The other side of the equation in terms of achieving anything close to price parity is the cost of conventional meat. | The other side of the equation in terms of achieving anything close to price parity is the cost of conventional meat. We note that COVID-19 has driven up prices as the meat industry in many regions has suffered from labour shortages and increased freight costs. As concerns regarding climate change and sustainability come to the fore, we could see governments start to reduce some farming subsidies or indeed introduce some form of taxation on carbon emissions caused by farming. This would cause cost increases for conventionally farmed produce. | ||
'''Regulation''' | '''Regulation''' | ||
As discussed above, cultivated meat is not currently approved for sale in any jurisdiction apart from Singapore. That said, as cellular agriculture becomes closer to commercial viability, | As discussed above, cultivated meat is not currently approved for sale in any jurisdiction apart from Singapore. That said, as cellular agriculture becomes closer to commercial viability, we would expect more regulators to examine and approve the product. We note that regulation changes by jurisdiction, but also by product: for example, cultivated seafood would only require approval by the FDA in the United States, while cultivated meat requires both FDA and USDA approval in the United States. We note that in the EU, approval would be required both by the European Food Safety Authority via the Novel Food Regulation and individual countries. Furthermore, approval will be required for each different product and, potentially, using different components (such as edible scaffolds) would require a new safety review each time. Farming lobbies are powerful worldwide, especially in the United States and the EU. We would expect farmers to lobby aggressively against the approval of cellular agriculture, and potentially try and dissuade consumers from switching to cultivated food. | ||
==MeaTech’s vision: A B2B service== | |||
MeaTech is targeting a broad range of cell types and cultured products, through both research and development (R&D) and acquisitions. While MeaTech began its R&D with beef cultured products, it acquired Peace of Meat in February 2020, as previously mentioned, which focuses on avian products. In July 2021, MeaTech announced it was launching development of cultivated pork cells. MeaTech’s development of fat and muscle cells for each class of meat is aimed at eventually developing hybrid products (which, as a reminder, contain a mix of plant-based and cultured meat), ground meat products, processed meat and structured 3D printed meat. We illustrate this in Exhibit 5. | |||
MeaTech’s current focus is on developing its proprietary 3D printing technology and cell culturing processes and building a demo facility. As previously mentioned, MeaTech has nine patents pending covering key aspects of both the cell culturing and 3D printing process. In the longer term, MeaTech intends to out-license its technology to interested food manufacturers or retailers. The business model will be to obtain revenue streams both from licensing the process and from support services. The latter will encompass engineering services in terms of helping to operate the plants and the technology, food technology services to help optimise the finished product, but also the supply of cell lines and scaffolding materials. | MeaTech’s current focus is on developing its proprietary 3D printing technology and cell culturing processes and building a demo facility. As previously mentioned, MeaTech has nine patents pending covering key aspects of both the cell culturing and 3D printing process. In the longer term, MeaTech intends to out-license its technology to interested food manufacturers or retailers. The business model will be to obtain revenue streams both from licensing the process and from support services. The latter will encompass engineering services in terms of helping to operate the plants and the technology, food technology services to help optimise the finished product, but also the supply of cell lines and scaffolding materials. | ||
We believe MeaTech could out-license its technology to different customers (food manufacturers and/or retailers) in different regions, probably giving either product or geographical exclusivity to each customer. | |||
In terms of geography, MeaTech is based in Israel but also has operations in Belgium, at its subsidiary, POM. In March 2022, MeaTech announced it was expanding its operation into the US to accelerate its go-to-market strategy. Its California-based office will include activities in R&D, business development and investor relations. It has recently moved into new headquarters in Rehovot (Israel), which is the epicentre of Israel’s foodtech sector. | In terms of geography, MeaTech is based in Israel but also has operations in Belgium, at its subsidiary, POM. In March 2022, MeaTech announced it was expanding its operation into the US to accelerate its go-to-market strategy. Its California-based office will include activities in R&D, business development and investor relations. It has recently moved into new headquarters in Rehovot (Israel), which is the epicentre of Israel’s foodtech sector. | ||
==Management | ==Management== | ||
The senior leadership team at MeaTech comprises: | The senior leadership team at MeaTech comprises: | ||
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'''Simon Fried, Head of Business''': Simon has broad experience covering tech, retail, fast-moving consumer goods, finance and strategy consulting. Before joining MeaTech in December 2019, he was co-founder of CBO and US president of Nano Dimension. | '''Simon Fried, Head of Business''': Simon has broad experience covering tech, retail, fast-moving consumer goods, finance and strategy consulting. Before joining MeaTech in December 2019, he was co-founder of CBO and US president of Nano Dimension. | ||
==Financials | ==Financials== | ||
MeaTech is still in its early stages and hence does not have any revenues, nor is it expecting to have any in the shorter term. | MeaTech is still in its early stages and hence does not have any revenues, nor is it expecting to have any in the shorter term. | ||
We provide summary financials below. | |||
R&D expenses were $2.5m in FY20 and $2.1m in H121, reflecting MeaTech’s increased investment to expand its cultured meat technology capabilities. Operating losses in FY20 were affected by listing expenses. We believe the cash flow statement is more relevant, given MeaTech is an early stage company. Free cash flow is obviously negative as the company is loss-making. Free cash flow burn has been accelerating as MeaTech has stepped up its investments to expand its capabilities. | |||
For completeness we also provide a summary balance sheet. | |||
==Valuation== | |||
MeaTech is still in its early stages, hence without revenues or profits expected in the shorter term, it is hard to value. Furthermore, as MeaTech is the first listed cultured meat company, it has no direct peers. The closest listed peers are in the alternative protein segment, namely Beyond Meat, Oatly and Burcon Nutrascience. While none of these are expected to be profitable in the shorter term, MeaTech’s peers do generate revenues at present. We note both Beyond Meat and Oatly have recently reduced their expectations for FY22 due to slower growth/consumer uptake and rising raw material costs. Based on consensus, Oatly is trading on a FY22e EV/sales multiple of c 3.0x and Beyond Meat is trading on c 5.5x. In our view, it would therefore not be unreasonable to assume that MeaTech could achieve a similar low-to-mid single-digit multiple once there is a track record of a few years of strong revenue growth. | |||
More meaningfully, we note MeaTech’s net cash position was $30.6m at end H121. Given the free cash flow burn was $5.9m during the period, assuming no further acceleration in cash burn would suggest the company has enough cash for the next c 2.5 years. That said, the trend has clearly been an acceleration in cash burn, and the company’s plan to start the design of a pilot scale cultured chicken fat facility in Belgium during FY22 is likely to cause cash burn to accelerate further. | |||
==Sensitivities== | ==Sensitivities== | ||
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* Economic outlook: despite cellular meat having strong long-term growth drivers from demographic changes and consumer demand for more sustainable food sources, the demand for meat (both conventional and alternative) is vulnerable to changes in the macroeconomic outlook and consumer incomes. This is especially likely to be the case in the nearer term, as cellular meat is likely to be sold at a premium when launched initially. | * Economic outlook: despite cellular meat having strong long-term growth drivers from demographic changes and consumer demand for more sustainable food sources, the demand for meat (both conventional and alternative) is vulnerable to changes in the macroeconomic outlook and consumer incomes. This is especially likely to be the case in the nearer term, as cellular meat is likely to be sold at a premium when launched initially. | ||
* Changing consumer preferences: MeaTech may be exposed to changes in consumer tastes and preferences, with consumers choosing to shun cultured meat products. | * Changing consumer preferences: MeaTech may be exposed to changes in consumer tastes and preferences, with consumers choosing to shun cultured meat products. | ||