newsletter updateJuly 5th, 2011
Dear Subscriber,
In less than 12 months EnWave has expanded our pipeline of multinational Research Collaboration Agreements (“collaborations”) from the initial project with Danisco SA, to four new opportunities with global market leaders including Nestle AS, Kellogg Co, Grupo Bimbo SA and Grimmway Farms. The level of interest in REV technology from leading global producers has never been stronger as we continue to establish new collaboration opportunities with a very diverse group of food, bulk biomaterial and pharmaceutical companies. Recently, we also took a major step forward in establishing commercial traction for REV technology in the U.S. market by signing our first commercial royalty-bearing license for the introduction of nutraDRIED™ fruit snacks with Milne Fruit Products, a leading American fruit processor.
Over the past few years EnWave has generated interest from more than 100 companies representing many different opportunities - from smaller entrepreneurial ventures, to global market leaders. In assessing these opportunities, we have come to believe that the best approach to maximizing shareholder value is to focus our efforts in developing relationships with top tier companies who are leaders in their market sector. These companies are in the best position to capitalize on our innovative dehydration technology over the broadest range of applications, and will provide the best chance for us to achieve the greatest return under long-term royalty-bearing license agreements.
Investors often ask me to define the term Collaboration Agreement (also referred to as a Testing or R&D Agreement, depending on the convention of our partners), and to comment on the importance of these agreements to EnWave’s business model. They also ask why we can’t just sign commercial agreements with multinational companies as the first step rather than the last, and why we don’t give more details on our agreements in the news releases.
The need to start with a collaboration (as opposed to a commercial agreement) comes from the process by which many multinational companies undertake the decision to change something as fundamental as an established manufacturing practice. Almost by definition, large companies operating in mature industries such as food and pharmaceuticals are relatively risk averse. A collaboration stage allows our partners to take a necessary and thorough look at our proprietary REV technology to determine the benefits, costs and risks against their current established manufacturing process. A collaboration also allows our partners adequate time to develop new products, or improve existing products, and incorporate the benefits of REV technology such as “puffing” and better nutrient and flavour profiles.
Prior to signing any Collaboration Agreement, both parties conduct testing under a Confidentiality Agreement at our pilot plant in order to help define the specific products or field of interest where the REV process could offer product improvement and/or cost advantages. During this pre-collaboration phase, we discuss the potential structure and scope of a commercial agreement, the testing timeframe, and the specific development steps or milestones to be achieved. To ensure that both sides feel comfortable moving to the next stage, we are up front with every potential partner about our commitment to the business model of signing commercial royalty bearing licenses under long term agreements, as opposed to simply selling the equipment on a “one off” basis.
As part of our collaboration negotiations, we also require some level of public disclosure from every partner so that our investors are aware of the progress we are making in the development of this exciting company. Because they work in such competitive industries, however, our current partners generally ask us to keep the details of our agreements absolutely confidential, and I have a great deal of respect for their position having worked with multinational partners for many years now in previous companies. Our experience so far has been that this limited level of disclosure has actually worked in EnWave’s favour as we are able to customize each new agreement to the needs of both parties.
During the collaboration period we typically train a group of our partner’s product development and operational teams responsible for the project at our site in Vancouver, or at their local site if they prefer to lease a REV testing unit for their own facility. Through the personnel and equipment at our pilot plant on Annacis Island outside of Vancouver, we also offer ongoing technical support and the ability to produce samples of materials for our partners to use to collect market feedback on new products or product improvements created during the collaboration period.
A summary of major company developments that have occurred since my last update at the beginning of the year is provided below.
nutraREV™ Food Dehydration Technology - Rotating Drum System
In early June, after initial testing at our pilot plant, we signed a Research & Development agreement with Kellogg’s who will now conduct their own trials on nutraREV™ on a wide variety of food products and ingredients in the categories of breakfast cereals and snack bars. They now have 12 months, during which time their R&D and marketing teams will work exclusively with our technology to develop new products or improve existing products for applications that were defined in the agreement. This is yet another significant step forward for EnWave in bringing a multinational company to the table.
In June our busy sales team attended IFT 2011, held this year in New Orleans, for the third consecutive year. Our small booth was as full as ever with people tasting samples of nutraDRIED™ products, and meeting with us to determine the potential fit for our REV technology in a wide variety of applications – from cheese to chorizo.
We continue to make progress on our existing collaborations, and have received encouraging feedback from the ongoing work at Nestlé and Grupo Bimbo. We hope to be able to provide more specific details of these developments in the upcoming months.
MIVAP™ Food Dehydration Technology - Continuous Tray-Based System
In May we were very excited to announce our first commercial royalty-bearing license agreement signed with U.S.-based Milne Fruits for the MIVAP™ technology that we acquired the North American patents to in 2010. This tray-based REV method originated in Germany with our partners at Hans Binder Maschinenbau, and it has been used very successfully for several years now in the production of commercial soup stock in France. MIVAP™ is an excellent addition to our technology suite as it rounds out the offerings on the food side to allow our customers to dehydrate liquids, gels or fragile products in a continuous tray-based system.
Milne Fruits has the experience and market relationships to launch nutraDRIED™ healthy snacks and other fruit-based products throughout the United States. Under the terms of our agreement, Hans Binder will be responsible for the delivery and start up of the new plant expected in December 2011. EnWave negotiated the license agreement with Milne and expects to receive a commission for arranging the sale. Future royalties generated as a percentage of revenue from the ongoing use of the MIVAP™ technology by Milne in North America will be shared 75% by EnWave and 25% by Hans Binder.
quantaREV™ Food Dehydration Technology - Continuous Belt System, Above Freezing
Assembly on our latest platform, quantaREV™, has now begun at our pilot plant and we expect to begin testing the first pilot-scale machine this summer with our collaboration partner, Grimmway Farms, the largest producer of carrots - and one of the largest organic farms - in the world. The pilot version of this continuous belt REV design will be capable of producing up to 30 kilograms of dried material per hour, at or around room temperatures. At the same time, we are also designing the next version of the machine that is intended to dry up to several hundred kilograms of material per hour. The ultimate goal for quantaREV™ technology is to reach drying capacities of several tonnes per hour with a high-quality, high-speed, low-cost process designed to compete against conventional spray drying and air drying technologies with far superior quality and comparable costs for a wide variety of applications.
powderREV™ Bulk Powder Dehydration Technology - Continuous Belt System, Below Freezing
After completing successful tests on a modular powderREV™ prototype earlier last year, we began building the first pilot machine that links five modules together under a single vacuum system using a continuous belt to convey material through the microwave field. The machine incorporates specific design requirements by Danisco for handling sensitive probiotic bacteria including a specialized clean-in-place and sterilization system. We initiated testing of this new pilot machine at our Vancouver facility a few months ago, with the goal of optimizing the process for drying three separate bacteria strains. We expect to finalize the testing with Danisco at our site this summer followed by a review in September to confirm whether the pilot machine will be delivered for a final 2 to 4 month operational evaluation at Danisco’s U.S. manufacturing site in Wisconsin.
We are also exploring the potential for other uses of this flexible technology with biomaterials such as enzymes, antibodies and bacteria, and we are now actively searching for partners who are interested in evaluating the powderREV™ bulk powder dehydration process in the pharmaceutical industry.
freezeREV™/bioREV™ Biopharmaceutical Dehydration Technology - Vial-Based System
Assembly of the new freezeREV™ multi-vial prototype has begun, and we hope to begin testing this technology internally over the course of the summer with the goal of shipping it to our partner, Saskatchewan Research Council, in the early fall. SRC will then conduct another round of tests against the current freeze drying (lyophilization) process on their proprietary E. coli animal vaccine to determine the viability and shelf-life of the vaccine under these two methods.
On the basis of the very promising results that we have previously announced on the single-vial freezeREV™ and bioREV™ systems, Tim Durance and Jennifer Thompson accepted the BIOTECanada Early Stage Industrial Biotechnology of the Year award at the BIO International Convention in Washington D.C. on June 28th.
We have now accumulated five Confidentiality Agreements with global pharmaceutical manufacturers, and we met with most of them at the conference to further discuss the application of our REV technologies in their biologic and vaccine divisions. We are now actively working towards a collaboration with one or more of these companies, and I am excited to see progress in this area of the company as we begin to work through the same evaluation process that we are now so familiar with in the food industry.
Corporate Activities
On the corporate front, the $12M bought deal financing that we closed in January allowed us to achieve our first goal of the year of buying the complete suite of REV patents that were held by the University of British Columbia for $5.5 million ($3.1 million in cash and the balance in shares). Both EnWave and UBC are proud of this purchase, which they believe to be one of the largest technology transfer deals in Canadian university history. The financing has also left us with a very comfortable cash balance that should see us through any short-to-medium term market turmoil. As always, we are a conservative company that focuses our resources sharply on designing and delivering our revolutionary technology.
Over the past few months I have travelled widely throughout Europe and North America, building our business development pipeline while also presenting the EnWave story to retail and institutional investors. We have increased the institutional shareholder base in Canada and the United States and secured investments from at least two leading institutional agriculture funds in Europe. Everywhere I go I am met with real enthusiasm, particularly as we continue to deliver our stated goals, and attract the interest of world class partners. Although general financial markets are working against us at the moment, I firmly believe that if we accomplish the goals we set out at the beginning of the year we will continue to build our shareholder base with growing interest from international investors.
Please feel free to contact myself at john.mcnicol@enwave.net or Jennifer Thompson, V.P. of Corporate Development & Investor Relations at jthompson@enwave.net with any questions or thoughts about the Company.
Kind regards,
John McNicol
President & Co-CEO
EnWave Corporation