Eden Research plc (LON:EDEN) Chief Executive Officer Sean Smith caught up with DirectorsTalk for an exclusive interview to discuss their latest trading update, new product registrations, the outlook for the second half, the commercial arrangement with Corteva, further expansions and other development products & seed treatments.
Q1: Sean, a trading update out, can you just tell us a bit about the first half of the year?
A1: The first half of the year for us has started off fairly strong, we were quite encouraged by the signs that we’re seeing.
For those who follow Eden Research and the developments over the past few years, you will recognise very well that 2020 and 2021 were somewhat challenging years for us, largely down to COVID and to some extent down to growing conditions. In particular, COVID had a significant impact on the consumption of grapes in particular for wine production.
We saw some rebound last year, albeit probably a little bit weaker than we had hoped but we are very much seeing strong demand and have seen strong demand in the first half of this year. Partially that’s been also driven by an expansion of the addressable market that we’re targeting, in particular we’ve had a significant expansion of what we refer to as the label for our primary product in several countries, but Spain in particular is supporting further sales growth.
Q2: Just looking a little bit closer, what do the numbers represent?
A2: In terms of primarily product sales, when we look at revenue growth compared to last year, the vast majority of that is based on product sales. From time to time and depending upon the various agreements that we have in place, we will derive revenue from things such as milestone payments, development payments etc.
The primary business is around the development and sale of products and where possible, we do um, try to benefit from revenue streams coming from the various agreements that we enter into. Again, the focus for the business is very much around the development of products and their commercialisation.
Q3: How is the list of new product registrations affecting revenue?
A3: It has been a very significant and positive impact for us.
So, to walk people through, we operate in the crop protection business line which is our primary business line today in a very highly regulated market. If you’re not familiar with the story, it is fairly analogous to the pharmaceutical industry, in other words, a company is not allowed to sell a product for use unless that use has been reviewed and authorised by the relevant authority,
To go back a number of years, at the time that we launched our first product, which we refer to as Mevalone, which by the way is a biopesticide for use on grapes but a growing list of high value crops, the first authorisation we had when the product was launched was fairly limited. That was due to reasons that we’ve explained in length in the past but the reason for that primarily was because to support a significantly larger label with additional product claims, one has to provide the data in order to allow the regulator to basically review and authorise that use.
The main point here is that at the time we didn’t have the funds to invest in the data sets that were required, now that has changed and we’ve been working very busily with our partners to expand that label. The main point is that when the product was launched, we were allowed to target one disease on one crop and in particular, in one region of the world, which was Southern Europe, all that made sense but what it did mean was that we were fairly limited to the overall market that we could go after.
We’ve been working very, very hard with our partners, such as SIPCAM OXON and a number of others, to expand that label which means that we can target new crops, new diseases, and ultimately that translates into a much bigger addressable market. For example, we are seeing Spain contribute meaningfully to the revenue numbers whereas in the past, within Spain, we were limited to Botrytis on grapes as was the case two years ago. We have a much more limited market to go after, and our fortunes were much more tied to how the grapevine Botrytis side business developed that year.
So, it’s quite a complex business in some respects but if you follow agricultural businesses at all, one will recognise that weather conditions, growing conditions, climate etc. can have a major impact on demand for a product in a given year. To illustrate the point, when we were limited in countries such as Spain, for example, and even Italy, to targeting Botrytis on grapes, in one season we might have favourable conditions from our perspective, not necessarily from the grower’s perspective, that would effectively force that grower to use our product 2/3/4 times. Under unfavourable conditions, from our perspective, that grower might only use the product once, or maybe not even at all and so one can see how that real market in real time can fluctuate from one to four X year over year.
So, what we have been doing to address that, not only cyclical but quite weather-dependent model, is that we’ve been expanding the number of crops and the number of diseases. That means that different growing conditions favour different diseases and even insect pests and so that’s been the focus of the business for the past few years.
Q4: How do you see the outlook for the second half of the year? Is the severe drought across Europe affecting the crop protection business?
A4: It is, and that is something that we see from time to time. The season, I almost describe it in three parts, if you will and here, we’re talking primarily about grapevine fungicides because that remains the largest portion of our business, albeit as I mentioned before, we’re working very hard to diversify.
The early stages of the season are really the bulk that’s when the supply chains are filled, where inventories are built up, and when products are pushed out to local dealers and distributors, so that they’re available for growers and growers begin stocking up. That really begins in earnest first quarter of the year and really runs thorough the first half of the year.
Then there’s a second part of the season which is largely driven by late season demand and that demand will arrive or will evaporate, depending very much upon the growing conditions. What I mean by that is, as you might imagine, just as the case with your shower at home, most fungal pathogens that affect crops prefer warm, humid weather and so in dry hot weather, there isn’t as much disease pressure. So, as the season progresses and we’re nowhere near done with the season quite yet, that begins to really to come to an end at the end of August and through September, if warm humid conditions arise, disease pressure can go up quite a lot. So, that second part of the season then develops as a period during which there’s meaningful demand for the product but conversely, we can also see that if the hot dry conditions continue through the season, that market won’t really develop in, again, that second period.
The final period is what we call the post-season period and this is where basically our commercial partners, such as SITCAM in Italy and Spain, for example, look at inventories, they look at the channel, they assess where product is and what likely demand is going to be and they work to fill that. So, what we want to do is make sure that by the end of the year, there’s enough product in the channel to ensure that it’s there and available for the early part of next year.
So, it’s a long way of saying it very much depends upon what happens with the weather in our key countries of Italy, Spain, France, Greece etc.
Q5: How are things going with Corteva?
A5: Yes, very well, thank you. To remind everyone, we entered into a commercial arrangement with Corteva last year, back in May ’21, and that agreement saw us through the period, which really encompassed all of 2021 and 2022 and then into the future as the product is registered and launched.
We have been in the second full season of regulatory trials this year, we are all working very, very hard to assess those trials. At the moment, the trials are still ongoing and we don’t have the results in yet, but early indicators are that we for the second year have some very good data coming in and that data should support product registration.
As I, as I mentioned earlier, when we put a submission to regulatory authorities in any given country, that regulatory submission, particularly in Europe, has to contain efficacy data so we have to prove to the regulators that the product works. So, that’s what we’ve been working with Corteva to do over the last couple of years and I’m pleased to say that at least the early indicators are that we’ve got some good data and fingers crossed, we should be in a position to begin the preparation of the regulatory dossiers which will be submitted. Timeline at the moment is that those would be submitted in the early part of 2023.
Rest assured that we and Corteva are working very, very hard to get this product registered and sold because we see a very strong and clear commercial demand for the product.
Q6: How about further expansions? What does the future hold?
A6: Yeah, so the elephant in the room for us over the last few years, fortunately, or unfortunately depending upon your perspective, is expansion into the United States, which is one of the most significant markets for our products in the world. This is both for our first product, which is the fungicide I mentioned, but also for our second product, which has been commercialised by Eastman in a good number of countries. That product targets soil-dwelling parasites called nematodes that affect a very broad range of crops.
The US market is substantial, it roughly equals Europe across both product categories, in some cases, depending upon which crop you’re targeting, it could be even a little bit larger than the European market. We have been going through a regulatory process with the US EPA for a good number of years now, the process is taking substantially longer than we would normally anticipate. There’s some good reasons for that we’ve explained although it doesn’t give me any comfort, we’re not the only company that’s been affected by this, COVID did have an impact on the pace of regulatory authorisation and the resource that the US regulator has available to it. The previous US administration did have a well-known impact on the resource available to US EPA so the process has taken longer than everybody expected.
I am pleased to say that we remain optimistic about the outcome this year, we do still fully expect authorisation from the US EPA during the course of 2022. I’ve given up trying to tell people when exactly that’s going to be because it is not in our control, unfortunately. All we can do is respond to inquiries that EPA may rise with us, and we can only assure people that whenever we receive an inquiry from the regulator, we respond immediately. So, again, the pace of that progress is down to them, but we are encouraged by signs that we’ve seen over the course of this year, I have to say, despite the delays EPA have been relatively nice to work with, in the sense that they’re fairly communicative and they don’t hesitate to engage in meetings with us when we request one.
Unfortunately, the process is what it is, it takes as long as it takes, we would’ve liked to have seen it go much more quickly. The lack of US EPA authorisation has had a negative impact on our revenue growth with or without COVID, and the events of the last two years. We are very much looking forward to US EPA authorisation because the US is a big and important market for us, and frankly speaking, we have distributors on the ground who are really chomping at the bit to get this product into their portfolios because both products are very good products, they’re highly efficacious, and there is a shortage of products like them on the market.
Q7: What can you tell us about Eden Research’s development products in addition to Corteva and seed treatments?
A7: First of all, on seed treatments, we actually have a number of different partners that we’re working with. Corteva is the largest, and they’re the ones that we we’ve announced publicly, but there are other opportunities in the development of our products and our technology for use in seed treatment applications.
So, very briefly, it’s a complex area but seed treatments are coatings that are applied to seeds to give those seeds the very best start in life that they can get, seeds are the most expensive agricultural input that a farmer will spend money on. So, it’s important if they put a hundred seeds in the ground, they want to see a hundred come up and that obviously translates into yield and it translates into basically their bottom line.
In a seed treatment, you have multiple components that deliver different effects, what we’re working on with Corteva is one set of effects, but we have other partners with whom we’re working to develop additional effects. To give you an example, an effect that I’m referring to could be insecticidal activity or fungicide activity, our products and our active ingredients do all of those things. Importantly, we also don’t contribute microplastics into these formulations which a lot of our competitors can’t say so some real positive attributes there.
In addition to further uses of our products and technology in seed treatments, we also are developing insecticide and that insecticide was the subject of our fundraise a couple of years ago. Here, we are targeting what are classified as sucking insects so aphids, thunder bugs, mites, white fly and a number of others, and we’re targeting those across a very broad range of crops. Again, because going back a good number of years ago, we know that if we go to market with effectively one product claim on the label, we have a more limited market so we’re doing our very best to come out the box, if you will, with this product launch, once authorised, across as many crops and as many pest targets as we possibly can.
We’ve had some really encouraging results, we’ve been running regulatory trials for the last couple of years, we have a long list of partners with whom we are now working, in fact, we’ve just finished providing samples to quite a long list of names, many of which you would recognise, who are evaluating our insecticide. This is a very strong demand area, it’s a very significant market for us and we’re really pleased with how the product has been performing in our own field trials so we’re eager to get feedback from our partners.
As you might guess, in the world of crop protection, no one takes your word for it, and we can go in and tell company X that our products are the best thing since sliced bread and in fact they may be, but they very much take a ‘prove it to me’ attitude. So, they will want to run their own trials and that’s perfectly understandable so we are in the process of, of that, and that has started now and depending upon whether conditions and the success of the trials, we would expect to have some encouraging results early in the year next year.
