When we think of plant protein extraction companies on the TSX, the two names that immediately come to mind are Burcon NutraScience (TSX:BU) and BioExx Specialty Proteins Ltd. (TSX:BXI). However, a third player must be thrown into the mix thanks to recent developments. SemBioSys Genetics Inc. (TSX:SBS) has
signed an agreement with Tasly Pharmaceuticals, Ltd to provide the company with global distribution rights of their products in the pharmaceutical and healthy living markets, particularly their plant made insulin and insulin analogues.
While SemBioSys focuses more on the medical benefits of their plant protein extraction methods compared to the other two companies which primarily use their process for food, the similarities of the companies cannot be overlooked. As a development stage company SemBioSys has no history of revenues but has the partner in Tasly who will take on 100% of the sales and operation costs of the plant protein products SemBioSys manufactures. Similarly, Burcon signed a license and production agreement with Archer Daniels Midland Company to exclusively produce, market and sell their CLARISOY™ soy protein.
BioExx has the opposite problem. They have a working facility but no partner as they struggle to find one before they become insolvent. The company has been unable to get up to a profitable capacity on their own at this point and the stock price has taken a pounding because of it.
So we have two companies with a partner and no revenues in SBS and BU and a third with revenue but no financial backer in BXI. Before pointing out the obvious that a corporate transaction could take place to solidify the plant protein production and distribution lines all under one umbrella for less than half a billion dollars, we can see how each company compares to each other in market cap below.
|
Fully Diluted Shares |
Stock Price |
Market Cap |
| SBS |
133,116,602 |
0.100 |
13,311,660 |
| BXI |
228,180,158 |
0.245 |
55,904,139 |
| BU |
29,991,074 |
5.900 |
176,947,337 |
Of note, SBS actually has only 51.8M shares outstanding but have a significant amount of warrants exercisable at prices below current market price so the fully diluted share count includes them. BXI and BU also have dilutive instruments outstanding, but those occur at strike prices higher than current market prices so their fully diluted share count does not include them.
No matter what view you take of SBS - whether at 51.8M shares or 133.1M fully diluted shares, SBS shows clear value relative to its peers as its market cap is much smaller. SBS is less than 10% of BU's market cap while essentially being in the same position as them. Someone could argue that Burcom's chances of success are 10 times greater or that their market is 10 times larger, but that would be a difficult argument to make.
In the North American market, the need for plant protein for consumption is limited. Most people have access to meat and other sources of protein. There will be some vegetarian, vegan and bodybuilding uses but the best case for the North American market would be a cheap source of feed for farm animals. Mass human consumption of these types of proteins will be greatest at the Third World level. Contrast that with the SemBioSys and Tasly business plan which is marketing natural health products first to China, one of the largest consumers of natural medicines worldwide then to the rest of the world where these products are gaining in popularity.
Tasly is one of China's largest pharmaceutical companies and is China's second largest producer of traditional Chinese medicines, which are derived from plants. The contract that the companies signed to form Tasly-SemBioSys Bio-Pharmaceutical Technology Co., Ltd.
received approval from the Government of China. The agreement states that the companies will collaborate to create healthy living, nutritional, and pharmaceutical products utilizing BOTH companies' plant-based technology and expertise. SemBioSys does not have an agreement with Tasly just to act as a sales agent nor are they merely a financial backer for SemBioSys products. Both companies are actively combining their corporate knowledge to come up with the latest natural health products. This contract leaves the companies much more intertwined than the agreement between BU and ADM.
The close connection between Tasly and SBS cannot be overlooked for a very important reason beyond the ability for the Joint Venture to come up with cutting-edge products. Tasly is listed on the Shanghai Stock Exchange (symbol 600535) and has a market cap of over $19B Chinese RMB or about $3B in Canadian dollars. Should Tasly decide to list on a North American exchange a reverse takeover of SBS would be the easiest way to achieve listing on the TSX. The ADM agreement with Burcom is much less likely to result in a takeover and BXI has become a takeover target only because of its extremely depressed stock price.
Given SBS' minuscule market cap relative to its peers, the close relationship with Tasly and the favourable production contract with them, SBS makes for a very attractive buy at its current stock price. Add in the fact that the biotech industry is lightning hot thanks to the move in CardioComm Solutions, Inc. (TSXV:EKG), any positive sign from the FDA regarding their product's medical usage and the stock will move skyward.