NRGene Technologies : Quarterly analysis update report

NRGENE TECHNOLOGIES LTD

12.12.21

Key events in the passing months and Q3 2021:

• On July 1, the company announced that it entered into a multi-year subscription agreement with a leading international seed company in the field of genetic testing in corn in the sum of approx. $700 thousand
• On July 3, the company’s Canadian subsidiary entered into an agreement with Protein Industries Canada, a corporation funded by the Canada Innovation, Science, and Economic Development Authority (PIC) to receive 50% of the actual cost of the Pea and Hemp Improvement Project as a meat substitute. Funding will be provided to the Canadian subsidiary by way of reimbursement of expenses up to $700 thousand.
• On July 28, NRGene entered into an agreement with a leading international seed company to grant a non-exclusive license for the cultivation and commercialization of varieties resistant to the Tomato Brown Rugose Fruit virus (ToBRFV). The company estimates that, based on an analysis of the potential market size of the products and the chances of success of their commercialization, its revenues from royalties during the term of the agreement may add up to a substantial amount of revenue.
• On September 29, the company entered into an agreement with an international agrochemical company (a repeated customer of NRGene). In exchange for the provision of genetic information analysis services and the development of a DNA testing kit to improve the Canola plant, the company will be entitled to a payment of approx. $400 thousand.
• On October 1, NRGene entered into an agreement with Top Seeds International Ltd. (Mitsui & Co. subsidiary) in which the two companies will jointly conduct R&D and the subsequent commercialization of cherry tomato varieties with improved traits.
  o According to the agreement, NRGene will apply its AI tools for the acceleration and precision of the breeding process and will bear the costs of the research and development stages. Top Seeds will cover the costs of the production, business development, and commercialization of the improved varieties for farmers.
  o If the project is successfully completed, NRGene will be entitled to royalties from the sale of improved varieties at rates in the range of 35% – 70%, depending on the composition of the varieties. The company estimates its expected investment in the project is approx. $400 thousand and the expected date of receiving royalties is 2025.
• On November 30, the company received approval from the Innovation Authority for financing in the amount of NIS 5 million. The funding will be provided through an association called CRISPR-IL for the second 18-month project period, which begun in November 2021. This is the second stage of the CRISPR-IL project that started on May 2020. As part of the project, the goal is to develop an AI-based system for streamlining and precision genetic editing processes for a variety of uses, such as: medical needs, agriculture, aquaculture, organic waste treatment, and more.

R E S E A R C H & C O N S U L T I N G L T D.

Investment Thesis

Agriculture is one of the oldest areas of technology and innovation in existence. Its objectives have changed little throughout history: finding ways to increase yields and maximize key traits of crops or animals, such as size, flavor, color, and resistance to pests. Agtech startups provide farmers with a variety of strategies and technologies to help improve crop resiliency and output. These include agrifinance tools, biotech solutions that can improve yields and resiliency, farm management software, and an emerging focus on data-driven AI & ML that can help automate decision making.

Modern Agtech startups began attracting venture funding roughly a decade ago, with the industry raising $322.2 million in 2010. Since then, VC funding in agtech has grown to $6.1 billion in 2020, a 33.8% CAGR. This explosive growth is a direct result of two primary factors: population growth and climate change. The global population is expected to swell to 9.8 billion people by 2050, driving more demand for food.i At the same time, greenhouse gases and warming climates are creating increasingly frequent extreme weather events that threaten crop yields.

NRGene Technologies Ltd is a leading global genomics company that provides several innovative solutions for many agricultural applications. At its core, NRGene is a software company that uses AI to analyze big genomic data to optimize and accelerate the natural breeding of plants and animals used in agriculture. NRGene’s mission is to provide an enabling platform for naturally strengthening the structure and performance of plant and animal genomes through cost-effective bioinformatics. Notable, NRGene has successfully demonstrated that its AI-enabled trait prediction tool is superior in the marketplace (e.g., the company successfully assembled the full genome of the hexaploidy wheat in just ten days).

NRGene’s technology is widely used to create disease-resistant and climate-resilient varieties with healthier nutritional compositions and maximizes yield potential. In the field of plant genomics, the company offers a vast proprietary database and AI-based technologies. The solutions provided by the company have been widely accepted by several research organizations and big industrial players across ~300 projects. To name a few, Syngenta, Bayer Crop Science, Mondelez, Bridgestone and Nestle are using NRGene’s AI tools to improve agriculture production in various industries, including food & beverage, rubber, and paper & pulp industries.

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R E S E A R C H & C O N S U L T I N G L T D.

The core of NRGene’s technology is its cloud-based AI tool coupled with its extensive database of genomic information, field performance data, and information on pests, diseases, and seed and irrigation considerations. This information is fed into NRGene’s AI model and computationally predicts elite varieties that consider the mentioned variables. Once the predicted variety is identified, then the variety is produced either using an expedited breeding process, gene editing, or CRISPR. This process allows improved varieties to develop in half of the time and at half the research and development costs.

NRGene’s solution can be applied and utilized early in the R&D cycle to identify interesting or problematic genes. NRGene intends to grow its seed and traits royalty business to solve specific challenges on the farm directly and to breeding organizations (seed, food & beverage, processor, retailer, etc.), including offering diseases resistance, drought-resistant, and pest-resistant varieties.

The company is also among the most trusted emerging cloud-based genomic data solution providers with applications in both animal and plant breeding. The company has an extensive R&D team that offers innovative solutions in the field of genomics. These capabilities have been combined and have allowed the company to easily identify several proprietary traits across a wide set of plant genomes that it can license in the future.

NRGene’s long-termgo-to-market strategy is to become a one-stop shop for all plant and animal genomic requirements. We deem that NRGene is in a strong position for growth due to its initially strong market penetration, scalability potential, know-how, and agile business model.

Market

The following three markets encompass significant portions of NRGene’s addressable market: bioinformatics technologies, genotyping, and seeds (both genetically modified (GM and non-GM).

The bioinformatics technology market for agricultural applications generated revenue of $3,296 million in 2020 and is expected to generate $7,509 million in 2026, growing with a CAGR of 14.7% in 2021-2026.

Due to the rise of the need to use bioinformatics to identify and cultivate unique traits and the amount of unaddressed opportunities across the world, it is expected that the demand for bioinformatic technologies will be immense. In general, Frost & Sullivan expects that revenue growth will range from 13% to 25%, dependent on the target application.

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R E S E A R C H & C O N S U L T I N G L T D.

A key growth opportunity in the bioinformatics sector is addressing the need for integrated solutions and systems. NRGene’s solution could help bioinformatics firms compensate for the lack of skilled personnel that hampers the market growth and facilitate their transition into integrated solutions and systems companies.

The seed market generated revenue of $42,424 million in 2020 and is expected to generate $54,926 million in 2026, growing with a CAGR of 4.4% in 2021-2026.Non-GM Seeds will also grow during the forecast period as some farmers, consumers, governments, and other relevant stakeholders slowly move away from GM- produced varieties. Non-GM crop demand is rising in Asia and the EU, and consequently, these crops command premia over GM varieties despite possible lower yields.

NRGene could help GM/non-GM companies boosting their R&D efforts and quickly achieve varieties with desirable traits such as increasing resistance to pests and tolerance to herbicides, and adverse weather )e.g., drought(.

The genotyping technology market generated revenue of $1,855 million in 2020 and is expected to generate $3,087 million by 2026, growing with a CAGR of 8.9% in 2021-2026. With the rise in the adoption of technologies in the plant and animal genomics market post COVID-19 pandemic, the market size of support services is expected to grow simultaneously by 2026 to facilitate the adoption of services amongst the researchers and industrial giants.

Valuation summary

NRGene is a growth firm. Thus, we based our valuation on current and future market trends and the company’s assumption for future operations. Due to the high growth in the Ag Biotech market and the uniqueness of NRGene solution, we estimate the company is well-positioned to generate significant growth in the foreseeable future.

We conducted NRGene’s valuation using market benchmarks from recent deals and analysis of VC’s activity; Given the assessments and findings mentioned above, we value the company’s stock price target in the range of NIS 29.4 to NIS 32.4, and a mean of NIS 30.9.

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