Amoeba — Fighting pathogens, respecting nature

Amoéba is developing biological fungicides based on the characteristics of the Willaertia magna C2c Maky (W. magna) amoeba for treating diseases such as mildews and rusts. These diseases have a major economic impact on the production globally of a wide range of crops, including salad vegetables, vines, potatoes, cereals and bananas. Field trials to date show that formulations containing dead W. magna amoebae are effective in both temperate climates and tropical climates. In April 2022 Austria recommended the approval of the biocontrol active substance for use in plant protection on behalf of the EU. A few months afterwards, the US Environmental Protection Agency (EPA) approved the active substance for the control of fungal plant diseases in agriculture. Amoéba now needs to secure regulatory approval for products containing the active substance from the EPA and from individual EU geographic zones. Management expects to obtain these approvals in 2024 and to start selling product by early 2025.

The company is not yet revenue generating. At the end of June, Amoéba had €2.8m cash on its balance sheet. Noting that the company raised €4.8m through the issue of convertible bonds during H222 and that, excluding working capital movements, operating cash burn during H122 was €2.2m. this would give a cash runway into FY24 if cash burn were to continue at H122 levels. In January 2023 management announced that it intended to raise €45m to fund operations and site expansion over the following three years as the company steps up trial activity and marketing in preparation for product launches. Management has yet to determine how the funds raised will be split between debt and equity. €23m of the financing will be for capital expenditure, primarily on a production plant capable initially of manufacturing sufficient active substance annually to treat 100,000 hectares of crops, and 200,000 hectares when extended, which management plans to have operational by early 2025. As an interim measure, Amoéba has agreed a new bond financing agreement, which will generate up to €8.4m in net cash between June 2023 and March 2024.

The proposed production plant and extension would be capable of manufacturing sufficient active substance annually to treat 200,000 hectares of crops, which we estimate could represent annual revenues of €26m and gross profit of €19.5m at full utilisation, contributing to group EBIT of €11.7m. Given the potential size of the market, the high gross margins achievable and the relatively low incremental costs associated with a production facility, we envisage the company either opening additional factories as it takes market share, or potentially licensing the technology to partners. This analysis excludes any potential income from a biocide product derived from amoeba that has been approved for use in the United States. Since the company is at a relatively early stage with respect to having a facility at full utilisation, we are not attempting to calculate a valuation at present.

The key sensitivities as we see them are: (1) the length of time it takes and general uncertainty associated with receiving marketing authorisation for specific products before Amoéba can begin to sell them; (2) scaling up the production process; (3) rising energy costs; (4) product acceptance by the market; (5) potential IP theft; and (6) uncertainty regarding securing the finance required for building a dedicated production facility.

Amoéba is developing biological fungicides for treating diseases such as mildews and rusts, which have a major economic impact on the production globally of a wide range of crops including salad vegetables, vines, potatoes, fruit trees, cereals and bananas. These novel fungicides are based on the characteristics of the W. magna amoeba. As far as we are aware, Amoéba is the only company developing biofungicides derived from this specific amoeba.

Field trials to date show that formulations containing dead W. magna amoebae are able to control many fungal crop diseases and are effective in both temperate climates and tropical climates. These formulations demonstrate a higher level of performance than most biofungicides currently available, so Amoeba intends to offer its products both as an alternative to and as a complement to chemical fungicides. The active substance has been demonstrated to be non-toxic so it is safe for farmworkers and there are no issues with limits on the amount of residue that can be left on produce or restrictions on how close to harvest a farmer can apply the biofungicide. The active substance is stable, resulting in potential products having a long shelf-life. Management intends to focus initially on biofungicides for application on high-value crops such as vines, salad vegetables and aromatic herbs as this should generate the best return.

In April 2022 Austria recommended the approval of the biocontrol active substance for use in plant protection on behalf of the EU. A few months afterwards, in November 2022 the EPA approved it for use in the United States for the control of fungal plant diseases in agriculture. The company now needs to secure regulatory approval for products containing the active substance from the EPA and from individual EU member states. Management expects to obtain these approvals in 2024 and to start selling product after that. It intends to open a production plant by early 2025 that is capable of manufacturing sufficient active substance annually to treat 100,000 hectares of crops. The company has stated that it will require €45m over the next three years to finance the production site and to expand its operational and research activities. €23m of the financing will be for capital expenditure. It has recently engaged independent advisory firm Redbridge Debt and Treasury Advisory to secure the €45m required and agreed a new bond financing agreement with Nice & Green, which will generate up to €8.4m net cash and provide a cash bridge into FY24.

Amoéba listed on Euronext Paris in July 2015 and transferred from Euronext Paris to Euronext Growth in September 2020. Since July 2015 it has raised c €55m from a range of financing activities. The company is located on the outskirts of Lyon, France, and employs around 26 people. The company was founded in 2010 with the aim of developing a biocide based on live amoeba, which was approved by the EPA in 2022. The development of a biological control product based on amoeba lysate started much later. The company did not start R&D on the biocontrol active substance until 2017. However, management has recently decided to totally focus resources on the biocontrol opportunity because it is a much larger market.

According to the UN’s Food and Agriculture Organisation (FAO), crop pests, bacterial blight and other diseases result in crop losses of up to 40% of agricultural output globally each year. Plant diseases cost the global economy around $220bn annually and invasive insects at least $70bn. Moreover, crop losses are expected to get worse. A scientific review published by the FAO on behalf of the Intergovernmental Panel on Climate Change (IPCC) secretariat found that climate change will increase the risk of pests spreading in agricultural and forestry ecosystems, especially in cooler Arctic, boreal, temperate and subtropical regions. Even a single unusually warm winter may be enough to assist the establishment of invasive pests. The report notes that some pests such as fall armyworm, which feeds on maize, sorghum and millet, have already spread because of the warming climate and predicts that other pests will change their migratory routes and geographical distribution too. In addition, plant diseases are spread by global travel and trade.

Crop protection products are essential for preventing losses. For example, the cultivated grapevine has no natural genetic resistance to powdery or downy mildew because the plant first evolved in Europe, while the pathogen originated in North America. Powdery mildew causes reduced yield and a drop in berry and wine quality. In wet conditions, uncontrolled downy mildew infection can cause defoliation and complete crop loss. A high proportion of the fungicide used in agriculture is therefore applied to grapevines. According to data from ISTAT (Istituto Nazionale di Statistica) published in 2016, 26% of the total amount of fungicides distributed every year in Italian agriculture is used in viticulture

Demand for crop protection products is also linked to a rising global population and increasing affluence in China, India and South-East Asia. Based on projections of population and economic growth, the Agricultural Outlook 2022-2031 report, jointly published by the Organisation for Economic Co-operation and Development (OECD) and the FAO, predicts that global food consumption, which is the main use of agricultural commodities, will increase by 1.4% per annum over the next decade. The report also predicts that global agricultural production will increase by 1.1% annually over the next decade. Improvements in crop yield are projected to account for 80% of production growth, cropland expansion for 15% and increasing cropping intensity for 5%.

Yield improvements also have a material impact on combatting climate change and its effects. This is because agriculture is currently responsible for around 12% of global greenhouse gas, or 21% if the indirect impact of land use changes is included.

Since the second world war, arable farmers have increased yields by using a range of toxic substances to kill insects, worms, moulds and other living organisms that attack plants and to kill weeds that would otherwise choke the crop. However, over the last three decades interest in organic food and farming across the globe has driven a shift from conventional pesticides to chemical-free, biological-based products. This transition is being accelerated by greater consumer interest in the provenance of food and in food safety and quality as well as concerns about soil quality and the environment. These are resulting in the enactment of legislation to reduce the use of certain pesticides. For example, Germany is completely banning farmers from using glyphosate, which is the active ingredient in Monsanto’s Roundup herbicide, from 2024. In 2018 the EU extended the ban on using three neonicotinoids (clothianidin, imidacloprid and thiamethoxam) on all field crops because of the serious danger they pose to bees and other pollinators.

Another reason for the increased interest in biological products is that pests are evolving to be resistant to commonly used conventional pesticides. Biological crop protection products therefore represent a way for farmers to overcome this resistance, at least until pests develop resistance to biological products over time.

EU Green Deal mandates reduction in conventional pesticide use

As part of the Green Deal, in June 2022 the European Commission adopted a proposal to restore damaged ecosystems by 2050, reversing the decline of pollinator populations by 2030, increasing biodiversity in agricultural and forest ecosystems and restoring and rewetting drained peatlands. The proposal is also intended to help ensure the resilience and security of the EU’s food supply chain. Measures within the proposal include: (1) legally binding targets reducing the use and risk of chemical pesticides by 50% by the year 2030; (2) ensuring that all farmers practice Integrated Pest Management in which chemical pesticides are used only as a last resort; (3) accelerating the approval of biological alternatives for farmers and other pesticide users; and (4) supporting the adoption of sustainable agriculture in countries exporting food to the EU while introducing a new, more environmental approach on maximum level of pesticide residues in imported produce.

Of particular relevance to Amoéba are bans affecting conventional fungicides. Chlorothalonil is a fungicide used to prevent mildew and mould on crops including barley, wheat, beans, potatoes and peas. It has been banned in the EU since May 2020 following a review by the European Food Safety Authority (EFSA), which was unable to exclude the possibility that breakdown products of the chemical cause damage to DNA. EFSA also identified a high risk to amphibians and fish for all representative uses. Mancozeb is used to control fungal diseases in a wide range of field crops, fruits, nuts, vegetables and ornamental plants. Apples and potatoes are the largest markets for mancozeb in terms of total pounds of active ingredients. A study published in the Journal of Food Science and Engineering in 2017 calculated that banning mancozeb would lead to a total reduction in gross margin for potato producers in France, Germany, Ireland, Netherlands, Greece, Italy, Spain and the UK of €87–507m depending on the level of late blight infestation. The fungicide is also extensively used in countries such as Columbia, Ecuador and Costa Rica to protect banana crops against black sigatoka. The EFSA has classified mancozeb as a category 1B reproductive toxicant and an endocrine disruptor. The EU completely banned the use of mancozeb within the EU from January 2022 and is reviewing whether to extend the restrictions to include the level of residual mancozeb on imported fruit and vegetables, with a significant effect on the availability of bananas.

Bordeaux mixture, which is a mix of copper sulphate and slaked/hydrated lime (calcium hydroxide), is an organic fungicide used to control diseases of fruit and nut trees, vine fruits and ornamental plants. However, the copper in the mixture can accumulate in the soil if the product is applied for many years in succession, which is harmful for worms and may prevent farmers from grazing cattle on affected land. In 2018, following the EFSA’s publication of an in-depth peer review on copper compounds, the European Commission imposed a limit of 4kg on the amount of copper that can be applied per hectare per year. The limits will be reviewed again in 2026. The restrictions are particularly significant for viticulturists as copper and sulphur collectively account for up to 70% of the fungicides used in Italian viticulture (source: ISAT). Copper is used to treat downy mildew and sulphur powdery mildew.

According to a report from Grand View Research, the global crop protection chemicals market was valued at $43.24bn in 2022 and is expected to expand at a CAGR of 5.6% from 2023 to 2030. Within this market, the biological segment is growing very rapidly. A report published by P&S Intelligence in July 2022 noted that the global biocontrol agents market was worth c $4,850m in 2021, and predicted that it would increase to $13,600m by 2030 (ie a CAGR of 12.2% from 2021 to 2030). Management estimates that Amoéba’s addressable market size within the biological agents market is €1.6bn, expanding to €8bn if conventional fungicides are replaced by biological ones.

Amoéba is developing a range of products that utilise properties of the W. magna amoeba. This variety of amoeba was discovered in the thermal waters of Aix-Les-Bains, France, by Professor Pierre Pernin in 1998. The W. magna amoeba is a natural predator of water-borne microorganisms including opportunistic pathogenic bacteria such as legionella, pseudomonas, listeria and klebsiella. (An opportunistic pathogen is one that is commonly present in the body without ill effects but can cause disease if the host’s resistance is weakened.) Once a W. magna amoeba has engulfed a Legionella or other bacterium, it then digests and destroys it. This is different from other amoebae, where Legionella bacteria are engulfed but are then able to multiply inside the host amoeba. W. magna amoebae can also engulf and digest amoebae that are host to Legionella bacteria.

Amoéba has demonstrated that components of dead W. magna amoebae also work as fungicides. Amoeba lysate, which is produced by rupturing the amoeba’s cell membrane and causing the creature to disintegrate, prevents the germination of certain spores of microscopic fungi and in particular phytopathogenic fungi. The active substance contained in the lysate is highly unusual in having a dual mode of action, both stimulating natural plant defences, thus making them more resistant to stresses, and inhibiting the germination of pathogen spores. The company is using this characteristic to develop a biocontrol product to combat fungal plant diseases, particularly downy mildew and powdery mildew, which both affect a broad range of crops and cereal rusts.

The company has been engaged in more than 400 field trials since 2019, of which over 120 took place during winter 2021/summer 2022. The most recent phase of trials have: (1) generated efficacy data for future marketing authorisations in Europe, Brazil and California; (2) evaluated the potential of the company’s formulations on new targets such as Asian soybean rust, black sigatoka on bananas, scab on apple trees and powdery mildew on tomatoes and cucumbers in greenhouses; and (3) ascertained the optimal application dose for treating mildews on vines (alone and in combination with copper), late blight on potatoes and several diseases on wheat. Two main formulations were tested: a suspension concentrate and a dispersion in oil.

Field trials must follow official protocols that specify, for example, the number of times an experiment must be repeated, the number of treatments to be applied and how the tests are scored. At least two years of experimentation are required in Europe. The results from trials are analysed and included in a dossier presented to the regulatory authorities along with the toxicological and ecotoxicological dossier. Field trials must be performed by approved contract research organisations.

The field trials to date show that formulations containing W. magna lysate are able to control many diseases including those on specialised crops such as bananas as well as on field crops. Moreover, the formulations are effective in both temperate climates and tropical climates. Since the formulations demonstrate a higher level of performance that most of the biofungicides currently available, Amoeba's products will be offered as a substitute for chemical fungicides, particularly mancozeb and chlorothalonil, on a range of crops as well as for use together with copper-based fungicides so the amount of copper applied remains within regulatory limits.

Management intends to focus initially on biofungicides for application on vines, lettuce, tomatoes and aromatic herbs such as basil and parsley, selling to farmers in Italy, France, Spain and the United States. These crops have been chosen because they have the highest value per hectare of crop, making growers keen to prevent yield losses. While the active substance has been shown to be efficacious in treating diseases in wheat and soya beans and the area devoted to growing row crops is substantially greater than that for growing tomatoes, cucumbers or herbs, these crops will not be the first targets because the value per hectare is relatively low. Moreover, farmers growing vines and to a lesser extent those growing salad vegetables tend to be using one or more biological preparations already, while those growing row crops are not.

Exhibit 6 presents a summary of results from recent field trials. We note that Amoéba’s APX12 does not always perform as well as a conventional biofungicide. However, since APX12 it is intended for use where the grower either chooses not to use a conventional treatment or is banned from doing so, the important issue is whether APX12 is sufficiently effective to be of economic use and how well it performs compared to other biological products. In some instances, biological products are more expensive than conventional ones but this is not always case. Data from Ephy, which provides a catalogue of plant protection products authorised in France, shows that the average price of biological fungicides for treating downy mildew on cucumbers is 51% more expensive than the average price for conventional biofungicides. However, the average price for biological fungicides for treating Septoria on wheat is 43% less expensive than the average for conventional fungicides.

In November 2022, the US EPA approved the use of W. magna lysate for use in the United States for the control of fungal plant diseases in agriculture. At the same time, the agency confirmed that the lysate was exempt from maximum residue limits and any restrictions on how close to harvest the lysate could be applied to crops, provided it was applied in accordance with instructions for use and good agricultural practices. As discussed below in the commercialisation section, the company now needs to secure regulatory approval for individual products containing the active substance.

In April 2022, Austria recommended the approval of the biocontrol active substance for use in plant protection on behalf of the EU. As discussed below in the commercialisation section, the company now needs to have the recommendation approved at EU level and then secure regulatory approval for products containing the active substance for use in individual geographic zones within the EU.

The conventional technique for growing amoeba in the laboratory is on an agar plate or the surface of a liquid. This technique does not generate enough amoeba in a short time for commercial applications. Amoéba has developed a technique for growing amoeba in bioreactors. The productivity gains mean that the same amount of amoeba can be grown on a footprint of 2m2, which would have previously required a footprint of 21,500m2. Amoéba has scaled up the lab process and converted it to a continuous process in which the culture medium is continuously infused into the bioreactors. Amoéba currently uses reactors holding 500 litres of medium and is scaling up further, to reactors holding 5,000 litres of medium ahead of opening a production plant (see below). Amoéba has developed its own culture medium with unique physico-chemical parameters for optimising amoeba growth.

There are dozens of companies developing biological crop protection products that exploit a very wide range of naturally occurring processes, so our review is not exhaustive. These companies mentioned may offer other products as well as biofungicides.

Amoéba holds an exclusive licence granted by the University Claude Bernard Lyon relating to the biological control of Legionella pneumophila in industrial cooling water and hot sanitary water. It has built on this IP, which exploits the natural predatory behaviour of the W. magna amoeba, to create a natural biocide, Biomeba for preventing the proliferation of Legionella pneumophila bacteria in cooling towers, both within the water and biofilms on surfaces. This is an alternative to chemical biocides such as bromine, chlorine or isothiazolone, which are not completely efficient, can promote bacterial resistance to antibiotics through selection of specific bacterial populations, are dangerous for humans and the environment and can cause corrosion of cooling tower apparatus. Although W. magna is a close relation to Naegleria fowleri, a type of amoeba found in fresh water and cooling tower water which causes primary amoebic meningoencephalitis in humans, in vivo and in silico experiments have demonstrated that W. magna is not pathogenic. W. magna is not toxic to human and animal health or toxic to the environment either. The Biomeba biocide is biodegradable and non-persistent in the environment, it is compatible with the most commonly used anti-scale, anti-corrosion and anti-algae products for water treatment and it can reduce costs by cutting water consumption and the amount of anti-corrosion product required. Management estimates that the addressable market for Biomeba is around €200m.

Between 2013 and 2018, the company carried out more than 20 field trials with partners in France, Germany, the Netherlands, Canada, Italy and the US on installations from 1m3 to 800m3. The test results demonstrated the effectiveness of Biomeba in preventing the growth of legionella and controlling biofilm in cooling towers. In December 2022, the EPA approved both live W. magna as an active substance and the Biomeba products containing it for use in closed cooling systems for the control of microbial slime, microbially-induced corrosion and general microbial flora. Management states that Biomeba is the first biological biocide globally to be validated for the treatment of bacterial risk in water. Management intends to work with third parties to commercialise Biomeba in the United States, potentially licensing the product for manufacture and sales. Under this business model, Amoéba would carry out the manufacture of the culture for growing amoebae in house and sell the growing medium to the third party. Management has initiated the withdrawal of the biocidal active substance applications in Canada and Europe to conserve cash for commercialisation of biological control products.

Now that the company has secured EPA approval for the active substance and a representative (demonstration) product, which was granted in November 2022, Amoéba needs to obtain marketing authorisation from the EPA for individual formulations or products containing the active substance. It intends to apply to the EPA for market authorisation for products containing W. magna lysate in 2023 and expects that the approval will be awarded in 2024.

EU

Following the recommendation to approve the active substance at EU level by Austria in April 2022, the next steps are: 1) peer review (Q222–Q123) in which representatives from several other member states review the information in the dossier assembled by Austria; 2) publication of the review by the European Commission and implementation of regulation approving the active substance (Q323); and 3) decisions on authorisation of products containing the active substance in the three individual geographical zones that the EU is split into (2024). Austria classified the active substance as low risk, which should mean that products containing active substance can be evaluated more quickly and that it will not be necessary to establish a maximum residue level. For a comparison of timescales, we note that Eden Research received approval for the active substances used in its 3AEY product in May 2013 and received the first authorisation of the 3AEY product in May 2015.

The existing facility near Lyon has two 500-litre bioreactors, collectively capable of producing 500kg of active substance annually. Management intends to build a 3,000m² production plant dedicated to biocontrol products capable of manufacturing 200 tonnes of finished product annually. This is equivalent to 40 tonnes of active substance per year, which would treat 100,000 hectares of crops Management has identified a suitable location in Cavaillon in the south of France and has recently requested a building permit for the site. It plans to start construction work at the site in October 2023, subject to receiving planning approval, and to complete it by the end of 2024 to support the marketing of biocontrol products as soon as marketing authorisations in the EU and the US have been secured. In parallel, during 2023 the company plans to scale up production at the pilot plant in Lyon, with the intention of replicating the scaled-up reactors in the Cavaillon facility. In January 2023, Amoéba stated that it would require €45m over the next three years to finance the Cavaillon production site and to continue its operational and research activities. In total, €23m of the financing will be for capital expenditure and the remainder for funding field trials, supporting the regulatory approvals process, registering products, establishing sales channels and adding production staff. Management is considering constructing an extension to the facility, which would double output and cost another €10m.

During FY23, Amoéba intends to carry out further field trials with potential early adopters of its products to determine the optimal product formulation and application regime for different types of crops. It plans to undertake over 100 trials during the year.

CEO and chairman, Fabrice Plasson has more than 20 years of experience in the fields of life sciences and biotechnologies. Before founding Amoéba in 2010, he was managing director and founder of the French division of DiscoveRx, a provider of cell-based assays and services for drug discovery and development, where he was responsible for sales in Southern Europe. He previously worked at Whatman in France where he was responsible for leading the international distributor network, helping Whatman establish itself in the French genetic fingerprinting market. Prior to that, he grew sales of molecular instrumentation, sample preparation capability and technology for foodborne pathogen detection for Oxoid (now part of Thermo Fisher Scientific) and provided consultancy on legionella risk to hospitals and companies. He holds a double Master’s degree in Biology and Marketing and an executive MBA.

Deputy general manager, Valérie Filiatre has more than 30 years of experience in administrative and financial management of European and American listed companies. Prior to joining Amoéba in 2014, she held the position of chief financial officer, Europe at ABnote Corporation (now called American Banknote Corporation), which produces physical and digital solutions such as passports for financial, government, transportation and educational institutions. Valérie is a graduate of EM Lyon, where she specialised in finance and accounting.

Head of biocontrol business development, Jean-Luc Souche has over 30 years of experience in life sciences, specialising in crop protection. Before joining Amoéba in 2018, he was general manager of biological crop protection start-up Agrauxine, becoming business development manager when the company was acquired by the Lesaffre group. Prior to that he managed the construction of a biotech plant in Malaysia for Metabolic Explorer and held various technical and marketing positions, in France and abroad, at Rhône-Poulenc Agrochimie where, among other activities, he was responsible for the launch of new maize herbicides and the development of new seed treatment technologies. Jean-Luc is a graduate agricultural engineer with an executive MBA.

Scientific director, Dr Sandrine Troussieux has more than 20 years of experience in research and development in the field of environmental microbiology. Before joining Amoéba in 2018, she was responsible for a sequencing platform and the execution of research projects in microbial ecology in the engineering school École Centrale de Lyon.

Industrial director, Hervé Testeil has more than 24 years of experience in the pharmaceutical and medical device industry. He has held a range of operational positions in industrial development, production, supply chain management, quality control and regulatory affairs. He has also managed the strategic transformation of numerous laboratories including Famar, Boiron, Merial, Alcyone, Gibaud, Johnson & Johnson Medtech, Delpharm, Kisco International, Dômes Pharma and Phytéo Laboratoire. Hervé holds a Master’s degree in Mechanical Design from the University of Lille.

Regulatory affairs director, Jean-Baptiste Eberst has more than 10 years of experience in regulatory affairs in various regulated fields, including health and pest control products. Before joining Amoéba in 2015, he worked in the pharmaceutical (Sanofi Pasteur, Merck Serono) and medical device (Integra LifeSciences) industries, where he was in charge of the regulatory management of product portfolios in various regions (US, Europe, Canada, Middle East). Jean-Baptiste is a pharmacist, graduated from the University of Strasbourg.

Timescales for regulatory approval: Amoéba has already received approval for biocontrol active substance for use in plant protection in both the EU and the US. However, it needs to receive marketing authorisation for specific products before it can begin to sell these in either region. The company has no control over how long the next stage of the regulatory process will take.

Scaling up: one of the steps required for Amoéba to produce commercial volumes of active ingredient is to scale up from reactors holding 500 litres of medium to reactors holding 5,000 litres of medium. This is not a trivial step and may take time to complete.

Energy costs: growing amoebae in a culture medium is relatively energy intensive so theoretically higher energy costs will make a material difference to production costs. However, management is mitigating that by installing solar panels and ground source heat pumps at the proposed Cavaillon facility, as well as using biogas generated from production residues. On the other hand, rising energy costs affect the price of fertiliser, tractor fuel and, for crops grown in greenhouses, heating fuel and lighting. Growers are therefore keen to improve yield in rising energy cost scenarios, potentially heightening interest in novel but effective fungicides. Scarcity of water in the south of France could potentially be an issue, as the production process uses a lot of water, but management is addressing this by installing a recirculation system.

Establishing sales channels: since Amoéba is still pre-revenue, it is not possible to assess whether its products will be accepted by the market and whether it will be able to establish suitable sales channels in a timely fashion. The company intends to sell direct to individual growers over the internet, creating its own web presence and working with partners offering complementary products. Larger accounts would be supported by technical sales people. There is also no data on whether the target prices and margins management is seeking are achievable.

IP protected by patents: like all companies developing innovative technologies, Amoéba is at risk of would-be competitors stealing its IP. The company has a global patent regarding the use of W. magna amoeba lysate as a biofungicide until 2037. However, management decided not to patent the technique for growing amoeba in high volumes and the formulation of the culture medium because the filing would give too much information to potential competitors. Amoéba also holds four families of global patents: 1) prevention of the proliferation of listeria bacteria in water used to clean equipment and materials in contact with foodstuffs; 2) prevention of the proliferation of pseudomonas, a bacteria responsible for infections acquired within healthcare institutions in sanitary hot water; 3) control of Naegleria fowleri amoeba; and 4) therapeutic and non-therapeutic use of W. magna for killing and/or inhibiting the growth of pathogenic fungi in plants and humans. The patent relating to using live amoeba to treat Legionella is owned by the University Claude Bernard Lyon. It is valid in Europe and the United States but not Canada. Amoéba has an exclusive licence to use this patent.

Cash required for expansion: Amoéba had €2.8m cash (gross) on its balance sheet at end June 2022 and raised €4.8m through the issue of convertible bonds during H222. Excluding working capital movements, operating cash burn during H122 was €2.2m. Assuming cash burn continues at H122 levels, this gives a cash runway into FY24. However, in January 2023 management announced that it was seeking to raise €45m to fund operations and site expansion, of which €23m will be for capital expenditure as the company builds a production-scale plant to support commercial operation. There is no certainty that management will secure this funding.

The company is not yet revenue generating. Restrictions associated with the COVID-19 pandemic did not affect either the production of lysate for carrying out field trials, or the preparation and submission of documentation required by the regulatory authorities involved in the approval of the company’s active materials and products. Amoéba’s activities were not affected by the war in Ukraine either. Overall, total operating costs and reported EBIT were similar to the prior year period. Industrial deployment costs increased as the company began to prepare for the establishment of production facility. Some amortisation costs were moved from the general and administrative category to R&D. General and administrative costs were also lower year-on-year because of lower third-party fees and a €0.360m reduction in share-based payments. Sales and marketing costs were higher year-on-year as the company began to prepare for commercial launch of product. Net finance charges included €1.112m costs associated with a loan from the European Investment Bank (EIB), of which €0.305 was a penalty for early repayment.

During H122, Amoéba generated €5.76m cash (net) from the issue of the fourth and fifth tranches of convertible bonds associated with the finance programme with Nice & Green. It concluded its debt restructuring process by fully repaying the €6.8m balance of the loan (which included interest) from the EIB at the end of June 2022. At the same time, the company purchased the warrants associated with the loan for €0.2m. Working capital increased by €0.5m, primarily because of a €0.3m increase in other receivables and a €0.2m reduction in payables. Investment in both intangible and tangible assets was minimal.

At the end of June, Amoéba had €2.8m cash on its balance sheet, €4.4m debt, of which €4.3m was the debt element of the convertible bond agreement with Nice & Green, and €0.4m of property leases. We note that the company raised €4.8m through the issue of convertible bonds during H222 and that, excluding working capital movements, operating cash burn during H122 was €2.2m. Together with the cash generated from further bond issues in H222, management estimates that this will give a cash runway until end-2023 if cash burn were to continue at H122 levels.

Our FY22 estimates make the following assumptions:

Our FY23 estimates make the following assumptions:

As noted above, management intends to build a production plant dedicated to biocontrol products capable, when extended, of manufacturing sufficient active substance to treat 200,000 hectares of crops each year. This is a small percentage of the potential market. As discussed above, Amoéba intends to focus initially on biofungicides for application on vines, cucumbers, tomatoes and aromatic herbs such as basil and parsley, selling to farmers in Italy, France, Spain and the US. Based on data from FAOSTAT, Eurostat, Agence Bio and the US Department of Agriculture, management estimates that the total hectarage occupied by these crops across the chosen countries is 2,771k for vines, 280k for tomatoes, over 82.8k for cucumbers and 30k for aromatic herbs.

The potential market in the longer term is larger than this. Considering the two other crops most extensively studied so far during field trials of Amoéba’s active ingredient, there were 52.4m hectares dedicated to cereal production in the EU in 2020 (World Bank) and 18.5m hectares of wheat planting in US in 2022 (Statista). There were 1.7m hectares dedicated to potato production in the EU in 2020 (Eurostat) and 0.4m planted with potatoes in the US in 2022 (Statista).

The actual revenues realisable will depend on what proportion of the output is used on particular crops. Based on data from Ephy, management estimates that €250/hectare/year is the average price for biological products used on aromatic herbs, €113/hectare/year for tomatoes and cucumbers and €50/hectare/year for treating vines. If we assume that 25% of output from the proposed facility and its extension in Cavaillon is used on each of the four types of crop, this gives an average revenue per hectare treated of €131.5/year, giving annual revenues at full utilisation of €26m.

We note that gross margins likely to be achievable in this sector are relatively high. In 2021, Eden Research generated 46% gross margin and Plant Health Care 59%. However, both companies outsource production. Amoéba advises that the gross margin achievable will range from 45% to 89% depending on the target crop and formulation. Its objective is to achieve an overall gross margin of at least 75% by focusing on higher-margin applications, ie a gross profit of at least €19.5m with the production facility and extension at full utilisation. We expect that FY23 indirect costs will be inflated by fund-raising costs. Management advises that the additional indirect costs associated with the new facility and its extension will be around €1.6m. If we take the midpoint of this range and add it for FY22 indirect costs (€6.2m excluding grant income), we reach an indirect cost level of €7.8m, indicating a group operating profit for €11.7m with the proposed new facility and extension at full utilisation.

€26m revenues from the proposed production facility is 1.6% of the €1.6bn addressable market for biological agents. Considering the potential size of the market, the high gross margins achievable and the relatively low incremental costs associated with a production facility, we envisage the company either opening additional factories as it takes market share, or potentially licensing the technology to partners. This analysis excludes any potential income from the biocide product.

Given the uncertainty as to whether the company will use debt or equity to fund the production facility and the timescales for reaching full utilisation, we are not attempting to calculate a valuation at present.