Carbiotix LOI Signals Promising JDA Progress

Carbiotix, a pioneering biotechnology company in the field of upcycling plant-based side streams, has taken a significant step forward with the announcement of a Letter of Intent (LOI) during their ongoing Joint Development Agreement (JDA) phase. The LOI signifies successful progress, paving the way for a potential licensing agreement that could revolutionize the production of prebiotics.

According to Erik Deaner, CEO of Carbiotix, the LOI outlines the necessary requirements to transition from the JDA phase to a licensing agreement. This includes the completion of JDA-related work on product formulation and process, as well as a formal decision to construct the NutraCycle process. The NutraCycle service is integral to Carbiotix's mission, allowing food, beverage, ingredient, and feed producers to transform plant-based products into healthier, more profitable, and sustainable offerings.

The business model for the NutraCycle process, based on a customer's side stream, suggests that Carbiotix could reach a breakeven or positive cash flow at a processing capacity of 7,500 tons per year. This scale could generate annual licensing royalties of up to $1.85 million over a decade. For customers, the return on investment could be realized in less than a year if they choose to sell the ingredient externally.

Furthermore, on-site production of prebiotic extracts for enrichment purposes could result in up to 80% cost savings compared to purchasing equivalent ingredients externally. This could reduce the cost to as little as $0.08 to $0.12 per liter of enriched product, achieving high-level health claims as per the European Food Safety Authority (EFSA), provided the product is also low in fat and sugar.

The potential for enriching plant-based dairy products into healthy functional products with minimal price impact is substantial and extends to a wide range of other plant-based products. With a global market for prebiotic extracts already exceeding 1 million tons annually and expected to more than double in the next decade, Carbiotix is well-positioned to capitalize on this growth.

While the current customer is relatively small, their innovative approach and expansion phase in the Nordics and globally suggest a potential increase in side stream volumes. Carbiotix has already verified side stream volumes exceeding 450,000 tons annually among their current customers, indicating significant future opportunities.

Carbiotix's strategy involves applying lessons from the JDA process to other customer projects, demonstrating the value that can be extracted from similar side streams. Although the timeline for JDA projects cannot be fully controlled, these insights aim to expedite the transition to licensing agreements. The existing business model also creates a natural barrier to entry, as competitors would need to undergo similar phases to compete effectively with Carbiotix.

Given the promising developments and strategic positioning, investors may consider holding onto Carbiotix shares as the company continues to advance in its JDA phase and explores new growth opportunities.