BSF Enterprise: the only way is up?

The corporate refocus on ethical replacement leather is a smart move

Good morning and welcome back to ‘A Whisky with Charles.’

BSF Enterprise (LON: BSFA) has long been a stock on my watchlist, and on brief occasions a part of the portfolio.

However, when rates started rising amid sky-high inflation, this stock was only ever going to go one way - and while shares in the company rose to as much as 21p during March 2023, they have now corrected down to circa 3.5p per share (and a £3.6 million market capitalisation).

I covered the stock around the high, noting that larger competitors such as Beyond Meat, Impossible Foods, Perfect Day and Memphis Meats were all trying to crack the sector - and most were seeing a huge struggle.

My conclusion was that the stock was very high risk, high reward:

‘A speculative position means getting in on the ground floor in the hopes of high rewards, and accepting the potential write-off in case it all goes pear-shaped.’

My basic premise is that ‘replacement’ synthetic meat currently costs more to produce than actual meat, and when push comes to shove, widespread adoption and further technological innovation requires low inflation and low interest rates.

For context, Quorn parent Marlow Foods just posted a loss of £63.4 million for its financial year, up from a £15.4 million loss the year before. It last made a profit (£7.3 million), in 2021 - when rates were low.

But unless inflation comes back for round two, most analysts believe rates are likely to come down - HSBC argues the UK base rate will nearly halve from the current 5% to 2.75% next year.

Hence, BSF Enterprise could be in for something of a renaissance.

Let’s dive in.

BSF Enterprise: a brief reminder

BSF stands for Bio-Sustainable Future; it is the owner of clinical and cellular agriculture company 3D Bio-Tissues (3DBT)- which is driving the development of lab grown cell-based tissues. These can be used to generate cultured meat, lab-grown leather, human corneas, collagen growth and skin substitutes.

3DBT has patented IP covering three strands:

• City-mix™ - an animal-free cell growth agent for culturing skin, muscle & fat cells which can be used to make lab-grown meat and leather.

• Lipopeptide Etsyl™ - actively increases collagen production in human skin cells and can be used in cosmetic and skin care products.

• Tissue Templating Application - a platform to grow tissues with natural structure & function such as corneas, lab-grown meat and leather & human skin substitutes.

You will remember that BSF were the first to produce a real cultivated meat fillet last year (and to much acclaim) - actual meat without the ethical trade-offs is the gold standard.

This sector of the business will take off when rates have fully come down - consider also last year’s EUR612,000 grant from the European Institute of Innovation and Technology to upscale the production and sales of City-Mix™.

Or the 'University Spinout of the Year' at the North East Innovation Awards ceremony in May 2023.

BSF Leather

But it’s the leather to keep an eye out for in the near term- with the leather brand launched in February 2024. For perspective, the global leather goods market was valued at £$253 billion in 2023 and is expected to grow to $405 billion by 2030, a CAGR of 6.6%.

On 15 May 2023, the company noted that it had bio-engineered samples of animal skin tissue, measuring up to 10x10 cm and between 0.5-1 mm in thickness.

This production of tissues with ‘such thickness represents an important milestone in the industry and the progress being made is testament to the accumulative knowledge being secured by the team as it successfully advances its tissue engineering activities.’

For context, the City-Mix supplement has significant advantages: high production yields, the need for fewer expensive supplements and zero animal cruelty.

It also removes the need for conventional plant-based scaffolds, blends and fillers, which all other players in the industry use to ensure the structural integrity of their own cultivated tissue products.

It’s critical to also note that unlike competitors, this leather ‘replacement’ is 100% animal tissue.

On 29 February 2024, BSF announced it had partnered with Maison Amelie Pichard to produce the ‘World's First Fashion Accessory using Lab-Grown Leather.’ Amelie Pichard is already well-known as a fashion company that designs and makes products using environmentally friendly materials.

Again, this was described as a ‘milestone event, marking the first time real lab-grown leather has been ethically produced for the fashion industry using the same structures as traditional leather, without the need for plant-based scaffolds, making it suitable for traditional craft purposes.’

BSF is also in the process of building a leather tanning capability within its lab at Newcastle. Further updates on this is in the pipeline, including details on leather tanning capabilities, alongside an update on other ongoing previously announced partnerships and proposed future commercial opportunities.

Of course, last year 3DBT agreed to provide a major multinational leather fashion company with three bio-engineered samples of animal skin tissue, measuring up to 10x10 cm in size and between 0.5-1 mm in thickness.

The partnership was designed to consider the validity and suitability of 3DBT's cultivated skin as a sustainable, ethical alternative for leather tanning and the production of traditional leather goods.

Following the conclusion of a 60-week study, in which 3DBT's PoC (proof of concept) study successfully achieved and fulfilled the technical and operational requirements of the agreement, a more formal strategic and financial partnership has since continued with 3DBT now developing bio-engineered samples measuring up to 10x10 cm in size and 2 mm in thickness.

To date, BSF has received over £50,000 in initial payments from this partnership, and a further £40,000 from others.

The production of tissues with this level of thickness and combined with successful application with a global leather production company is arguably a bellwether moment for the company.

BSF is now engaged in several Proof of Concept projects with other leather companies to establish the suitability of its skin product as a sustainable, ethical alternative to traditional leather.

In early April, the company noted that it hopes ‘to make a further update on formal commercial agreements in the coming months.’

It also noted it had won £38,000 in grant funding from the Government agency Innovate UK to begin its project with the University of Northampton- to use 3DBT's bio-equivalent dermal tissue, combined with the University of Northampton's leather manufacturing knowledge.

The project will use dermal tissue as a replacement for animal skin and hide, developing processes to transform this innovative raw material into a premium material, suitable for leather-based footwear, apparel, handbags, furniture, fashion, automotive and accessories.

MD Che Connon noted this represents ‘another milestone in the development and application of 3DBT's City-mix™ technology in delivering successful high-quality cultivated tissue to clients within the leather industry. We look forward to seeing these commercial and research partnerships continue to grow as we increase our production capacity to enable further development of cultivated skin on a larger scale to meet the growing demand.’

In interim results out on 11 June, the 60-week leather study was the first highlight - with Connon enthusing that

‘This year started with remarkable advancements for us, marked by pivotal proof-of-concept agreements for lab-grown leather, the expansion of our strategic partnerships, and the receipt of grant funding to bolster our product development. Our collaborations with leading fashion brands, have validated the future market potential for this sustainable tissue engineered skin.

Our strategy is to establish our skin technology as the premier sustainable leather material solution and partner with the best-known brands and other key players within the fashion industry to increase market penetration and credibility, this will be done via our wholly owned spin out company Lab-Grown Leather Ltd.’

Marcelo Brave has been appointed as Chief Business Officer, having founded four startups, raising approximately £50 million and leading two to public listing on the AIM market.

And Chair Min Yang notes that ‘Going forward, the Company plans to establish a range of partnerships with major multinational brand owners while in parallel collaborating with designers to demonstrate finished product applications and position its 3DBT Skin product as the premier sustainable leather material solution.’

Away from the leather…

In recent months, BSF has partnered with Ivy Farm Technologies (a prominent cultivated meat producer in the UK) to fundraise, introduce, and expand Ivy Farm's cultivated meat initiatives in China through BSF Enterprise (Hong Kong) which was founded back in March.

BSF also announced it intends to form a joint venture with CellulaRevolution, combining CellulaRevolution's bioprocessing expertise with 3DBT's muscle tissue engineering knowledge, to establish a leading platform for cost-effective cultivated meat production.

On 24 November 2023, BSF also entered into a a proof-of-concept contractual agreement with one of the ‘largest cosmetic companies in the world,’ to test the suitability of the company's product for use within its skin cream cosmetic solutions.

The company has also announced launched Kerato, to focus specifically on developing applications for corneal tissue engineering- and enjoys a collaboration with Newcastle University to work on the development of an ethical, and sustainable model for ocular toxicity testing. 

Kerato has also partnered with the University of Montreal to further develop its in-situ gelling cornea that offers a novel treatment for corneal damage and full thickness perforations.

Corneas are the most frequently transplanted human tissue worldwide, with around 185,000 procedures per year, with 55% of the world's population lacking access to donor material.

Kerato's treatment combines host corneal stromal cells with a synthetic extracellular matrix protein sequence to support tissue healing and re-epithelialization of the surface of the eye. Administered via injections to repair damaged tissue rather than through full transplant surgery, the treatment is expected to significantly reduce the complexity (and cost) of procedures for many patients.

Kerato's aim is to commercialise its advanced tissue engineering IP and bio-engineered corneal products, and then accelerate progression toward clinical and veterinary trials. Two key applications are being developed, an Implantable Medical Device and an Ocular Toxicity Testing Platform.

The bottom line

Financially, BSF had a cash position of £1,373,000 at the end of March, having generated a loss of £864,775 in the preceding 12 months - which means it will likely need to source new capital from either a JV or the markets, but not imminently.

With further commercial agreements on all fronts on the horizon, the bottom may be in.