Agronomics Limited NEWSLETTER 06/04/2020

TIDMANIC

Agronomics Limited

06 April 2020

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AGRONOMICS LIMITED

NEWSLETTER 06/04/2020

Dear shareholders and subscribers,

To state the obvious, 2020 will be a year to remember. We will look back at the near standstill COVID-19 brought to daily life and of course the many lives lost prematurely, with global deaths currently exceeding 40,000 and 190 countries confirming cases at the time of writing. It will also be remembered as the year we learned the practice of social distancing and the psychology of a crisis in which people hoarded many items, most notably toilet roll and hand sanitisers!

Less obvious perhaps, is that in a few years' time, 2020 is likely to be viewed retrospectively as the year that caused us to reconsider the structure of food supply chains.

Supermarkets and governments around the world have thus far insisted, despite the sight of empty shelves due to the panickers and hoarders, that there is no shortage of perishable items. But, with an increasing number of countries entering lockdown, borders threatening to close and workforces out of action, import capability to countries which are net importers of food is being tested. Government responses to COVID-19 is of course the driver of all of this disruption, but what is the primary cause driver of COVID-19? It would seem likely that the answer is the same as it was for MERS, SARS, avian and swine influenza, Ebola and even HIV.

All of these diseases, along with the remaining 75% of newly identified human pathogens, would appear to have originated at the human animal interface. This disaster could be avoided, in the future, if we repair and reinvent our food production system.

Agronomics believes that:

"We are on the cusp of the deepest, fastest, most consequential disruption in food and agricultural production since the first domestication of plants and animals ten thousand years ago."

-RethinkX - Rethinking Food and Agriculture 2020

We now have technologies such as cell culture, precision fermentation and gene editing tools like CRISPR-Cas9, that have the potential to remove our reliance on animals for food and other materials. These technologies will also improve the resilience of supply chains through the decentralisation of production and significant improvements in traceability.

From the inception of Agronomics, we set out to build a portfolio of innovative companies with the potential to cause a step change in the efficiency of supply chains, from primary sources to final product. With the portfolio now 12 in number, utilising technology our investments cover the industrial production of meat, poultry, dairy, seafood, leather, pet food and commodity crops.

Notwithstanding this period of deep economic uncertainty, we remain very optimistic about the future prospects of our portfolio companies, and the secular trends supporting them. Agronomics is a unique vehicle, encompassing a spread of the best investments in modern food production, just at the time it is most needed.

PORTFOLIO UPDATE

6 of the 12 companies within our portfolio utilise cell culture techniques to grow fish, pork, shrimp, beef, leather or cotton directly from cells, without the need to produce whole animals or plants for the cultivation:

GALY is one of the most recent additions to the portfolio, in which Agronomics invested US$ 500,000 into its seed round. GALY is a Boston, USA based biomaterials technology company focused on producing cotton grown directly from cells, without the plant and vast amounts of land. This avoids the extensive pesticide and herbicide usage for growing cotton crops, as well as massively decreasing the water requirements for its cultivation. The worldwide average footprint to produce 1kg of cotton is 10,000L of water. GALY recently won a EUR300,000 prize at the H&M Global Change Award out of 5,893 entries - a huge success for them.

As with GALY, VitroLabs is also working to supply materials to the textile and fashion industry to support its movement towards sustainable practices. Large fashion houses, such as LVMH and Kering Group, have ambitious targets for reducing their greenhouse gas emissions, that can only truly be achieved if they remove their reliance on cows for leather.

CULTIVATED MEAT

At the beginning of 2020, we witnessed the first Series B fundraise within the cultivated meat sector. Memphis Meat announced on 22 January it had completed a USD 161m Series B fundraising round, led by Softbank Group, Norwest and Temasek. With this influx of capital in the sector, we anticipate that funds raised in 2020 could exceed USD 300m, even after considering the climate due to the current COVID-19 global crisis.

We focus on technologies that provide a STEP CHANGE in the efficiency of producing novel over traditional agriculture methods

PRECISION FERMENTATION

Precision fermentation, the technology that enables microorganisms such as yeast to be designed to produce macromolecules like fats and proteins at scale in an efficient manner, has been around since the 1980s. This technology is used to produce human insulin (for type 2 diabetics) at pharmaceutical grade and the enzyme rennet used in the coagulation process of cheese production.

Agronomics led the EUR4m Seed round of LegenDairy Foods in December 2019, alongside M Ventures, the venture arm of Merck KGaA. LegenDairy is producing the key proteins found in milk, casein and whey, through recombinant engineering, that will be combined with plant-based fats to make cheese. The key milk proteins make up just 3.3% of the total volume of cow's milk, highlighting the enormous inefficiency of raising dairy cows. The dairy industry is already under enormous pressure, with two of the largest dairy farms, Borden and Dean Foods, declaring bankruptcy in recent months, partially due to the success of plant-based alternatives and low margins the farmers have to operate on. It is predicted that by 2035, the dairy market will have declined by nearly 90%.

Bond Pets, which is aiming to disrupt the USD 100bn global pet food market with its animal-free technology that produces meat proteins for pet food is also launching its first commercial product later this year, in the form of a protein-packed dog treat bar containing cruelty free, nutritious ingredients. Alongside Agronomics, Lever VC, KBW Ventures, Plug and Play Ventures and Andante Asset Management participated in the USD 1.2m Seed financing.

PLANT-BASED CHICKEN

On 12th February, we announced in "Foods United" which has since rebranded to The LIVEKINDLY co. (tLKc). Agronomics currently owns approximately 1.5% in tLKc which has since raised USD 200m to fund plant-based chicken alternative brands. To date, tLKc has added three companies to its portfolio, including The Fry Family Food Co, LikeMeat and LIVEKINDLY Media. We identify tLKc as a global leader in the sustainable food production sector, as the only company to own and operate the entire value chain of production. TLKc also has an equity stake in PURIS holding, a vertically integrated player of non-GMO plant-based ingredients. Agronomics also recognises the immense strength of the LIVEKINDLY team which includes key industry leaders Kees Kruythoff, as Chairman and CEO, formerly President of Unilever North America and Global Home Care Division, and Roger Lienhard, as founder, who is known within the sector for his active investing through the Blue Horizon Corporation.

Both The LIVEKINDLY co, and Rebellyous, are working to bring plant-based chicken to the masses. The plant-based beef sector has largely been 'won' by Beyond Meat and Impossible Foods immense success last year, but it remains evident that plant-based chicken has not yet achieved the same level of success. As one of the world's most popular meats, and increasing popularity in western countries as consumers shift their diets away from red meat, over 50 billion chickens are slaughtered each year worldwide. Antibiotic usage in poultry is also rife, with this contributing to antibiotic resistance that is yet another health concern alongside viruses to human existence.

SYNTHETIC BIOLOGY

We announced last week, our investment in Tropic Biosciences, a UK based leading agritech company which is utilising powerful gene-editing techniques including CRISPR-Cas9 and Tropic's own proprietary GEiGS(TM) platform to improve the traits of tropical crops. These platform technologies provide Tropic with the technical capability to modify the traits of crops that could previously not be enhanced via selective breeding. This new generation of gene-editing techniques has dramatically increased the speed of generating new crop strains at a significantly reduced cost.

Tropic's lead products are coffee with reduced caffeine content and increased solubility, and banana varieties with reduced browning, resistance to Panama disease and extended shelf life.

Richard Reed, Chairman commented on the investment:

"We view Tropic as a pioneering seed company that can help support and stabilise global food systems including the banana and coffee industries. Next-generation gene-editing techniques are invaluable tools to combat diseases which are destroying some of the most valuable global crops. The team at Agronomics has been highly impressed by Tropic's progress to date and believe it is well positioned to be a very substantial business."

Agronomics currently holds 2.95% of Tropic, following the completion of its Series B financing round. We see CRISPR-Cas9 and other gene editing techniques as fundamental tools for improving the global food supply chain.

PROVENANCE OF FOOD AND TEXTILES

Oritain is rapidly becoming a global leader in determining the provenance of food, fibre and pharmaceuticals, using its 'origin fingerprint' technology to uniquely trace a good at any point of the supply chain. The immense data libraries Oritain has built for various products, including cotton, means it can readily distinguish the product's point of origin and authenticity of consumer goods.

KEY READINGS

* Liz Specht - "Modernizing meat production will help us to avoid pandemics"

* George Monbiot - "Covid-19 is nature's wake-up call to complacent civilisation"

* Paul Shapiro - "One Root Cause of Pandemics Few People Think About"

* LIVEKINDLY press release - Global Plant-Based Food Company, the LIVEKINDLY co., launches a $200-Million Investment supporting the Brand Portfolio of LIVEKINDLY, Fry's Family Food, and LikeMeat

* Brian Kateman - "Will Cultured Meat Soon Be A Common Sight In Supermarkets Across The Globe?"

* The Rethinkx Report remains a highly insightful and detailed prediction of how technological disruption will shift dairy production. Found here.

* The Good Food Institute's website has some great resources for a deepening understanding of both the plant-based and cultivated meat landscapes. Found here.

* Our World in Data recently explained with a very useful chart, that eating locally would only significantly reduce the impact of a food's final carbon footprint, what you eat is far more important. Greenhouse gas emission graph found here.

COMPANY NEWS

* Non-executive director Jim Mellon highlighted clean meat as one of two mega themes alongside longevity at the MoneyWeek roundtable in November 2019

* Over the past few months Anthony Chow represented Agronomics on the Credit Suisse Future of Food investor panel in New York alongside Roger Lienhard of Blue Horizon Ventures and at the Credit Suisse Impact Investing Event in Gstaad, Switzerland.

* Most recent thought pieces from analyst Laura Turner available on Master Investor available:

   --    November 2019 update 
   --    January 2020 update 
   --    ESG MAGAZINE 

We are also excited to reveal that Jim Mellon is releasing a book later this year which explores the investment opportunities within the sector.

Kind regards and remain in good health,

The Agronomics Team

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April 06, 2020 10:49 ET (14:49 GMT)