Plant Health Care plc (LON:PHC) Chief Executive Officer Dr Chris Richards caught up with DirectorsTalk for an exclusive interview to discuss the progress of corn in the US, Harpin ?β in Brazil, getting to a cash flow positive, their new Plant Response Elicitor technology and plans for the future.
Q1: You recently announced a move into the US with corn, could you provide an update on this?
A1: Yes, absolutely. This is a really exciting new opportunity for us, there are 19 million acres of corn and we have a really really strong partners which supplies inputs to farmers who are farming roughly 25 million acres of corn in the US.
The product that we have is exciting and novel, it’s a fluency agent together with Harpin ?β which has the combined effect of helping corn to plant more easily plus giving a boost of about 3-5% in corn yields. So, that product was launched by our partner in September and the launch has been very well received as they talk about the product with growers during the October/November period. Our partner and ourselves, we’re now obtaining the final state registrations which will allow us to complete early orders from farmers. This is a business that is mainly done during Q4 of the year, the October-December quarter, so it’s happening right now, market reaction has been very very positive, and we are looking at some extremely interesting sales of that product already, it’s early days but very promising.
I’d like to mention whilst we’re talking about our partner, the name of which sadly for confidentiality reasons we’re not allowed to reveal, we’re also now launching a product based on Harpin ?β but as a seed treatment product for soy. That’s also a very significant product and probably comparable in size to the corn product.
So, we were expecting close to $3 million in sales to this partner in the US before the end of this year, clearly both these products are launches at this stage but the customer reaction, as I said, has been very very encouraging so we expect significant growth on that in 2019.
Q2: So, as well as this, Harpin ?β was launched in Brazil sugarcane earlier this year, how is this progressing?
A2: Well, again, we’re excited about that. The launch was in February, these products are applied twice a year in Brazil, February/March and September/October so we’ve now had two new seasons under our belt. We made it public already that we sold $400,000 for the launch in Brazil and I’m happy to say that all of that has been sold and that represents about 20,000 hectares of use which for an initial launch is extremely encouraging.
Farmers are getting such amazing results for this product. To give you an idea, just one customer, he’s tried it on his sugarcane this year and he found a 23% yield increase in his trial which is absolutely massive, quite spectacular. That one customer plans to use, next season, of all of their land which is 20,000 hectares so in other words, the amount that we sold in the launch is already expected for one single customer in the next season so that one customer would represent something like $400,000 of sales for us.
So, we’re very very confident that Brazilian sugarcane will be a very very important market for us over the coming years. The indication we’ve given is that if we treat just 5% of the sugarcane area, 5% of 10 million hectares, that would be $10 million of sales for us in 4 or 5 years’ time so we’re feeling very very positive about cane at this stage.
Q3: So, how do you plan to get Plant Health Care to cashflow-positive?
A3: Clearly, the progress we’ve made in the US and in Brazil over the last year or so is really really important for us. The market expects revenue of $10 million this year and the year is nearly done so when I say we’re confident of meeting that expectation, I hope people will accept that, particularly given the progress we’re making in the US and Brazil.
Our commercial business, based on that volume of revenue of $10 million, is generating cash and that means that our cash flow which was about $5 million starts to go down significantly in 2018, particularly if Harpin ?β continues to grow in the US and Brazil and indeed there are many other countries where we’re developing the product and sales are growing.
That gives us very high confidence of continued revenue growth and meeting the market expectations which are out there for revenue in 2019/2020 and beyond which continues to reduce our cash burn. In addition to that, we are watching every dollar that we spend and we’re trimming back particularly R&D spend in areas where we’ve completed studies. So, we’re taking R&D spend from about $5 million to just over $4 million this year and about $3 million next year.
So, the combination of growing cash from the commercial business and discipline on spend means I’m very very confident of getting to cash-positive in 2020.
Q4: Could you explain a bit more about your new technology and what Plant Health Care’s plans for the future?
A4: We are very excited about our new technology, our Plant Response Elicitor new technology which stimulates the immune system of a plant and helps both yield and quality. We’ve have stepped back over the last 3 months, we had disappointments in Brazil earlier this year, and we reviewed all aspects of that plan and I’ve led that with the team. I personally remain very very convinced that there’s exciting long-term value, we’ve staked out an area of peptides for agriculture, peptides are really exciting in pharmaceutical these days, and we’ve staked that out for the important uses in agriculture.
We’re very encouraged by results of our valuation partners in many different areas, sadly that is all confidential at this point, but the results are very very interesting. In addition, I’m pleased to say that we’ve got new partners coming forward and we will be making announcements about new partners signing up in the next few weeks. Based on those valuations we confident of announcing a significant collaboration with our new technology in due course. I’ve given up, frankly, making specific predictions of when that will be but I’m sure that it’ll be in the next 12 months.
We’re also making very important progress on getting the regulatory permits to sell our products, we’ve submitted for registration with the EPA in the US, we expect registration in 2020, and we’ve made huge progress on cost-effective processes for making our lead peptides.
So, based on that, I’m very confident that we should be in a position to make our first sales of our new technologies as early as 2022. That will start to add additional revenue streams, indeed before that through milestone payments and after that through royalty payment and gross margin in 2022 and beyond.
