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Arcadia Biosciences blossoms into a health-conscious ingredients company


Originally a research and development company engaged in pioneering research on crop improvement, Arcadia Biosciences is undergoing a transformation, according to CEO Raj Ketkar


Quick facts: Arcadia Biosciences Inc

Price: 2.69 USD

Market: NASDAQ
Market Cap: $28.78 m

Better tasting whole wheat. Wheat with more nutrients and lower allergenic gluten.

Those are some of the foods from Arcadia Biosciences (NASDAQ:RKDA) of Davis, California, that could soon be in your shopping cart.

READ: Arcadia Biosciences CEO offers time line for getting new products to market

Set up in 2002 as a research and development company engaged in pioneering research on crop improvement, Arcadia Biosciences is undergoing a transformation. It no longer wants to be known exclusively as a provider of new genetic traits which protect crop yields, that are licensed to seed companies.

Arcadia has morphed into a health and nutrition food-ingredients company that is already working with food companies around the world to test its new ingredients and will see its first sales in the next year to 18 months.

“We have undergone a transformation over the next 12 to18 months from a crop trait provider to a company that is focused on developing and commercializing health and nutrition ingredients,” explains Arcadia CEO Raj Ketkar.

Wheat in the spotlight

A key focus for the company is wheat, which accounts for roughly 25% of the almost 2,000 calories per day that an average person consumes. Despite its dietary importance, it’s a crop that hasn’t benefited from a lot of modernization over the past 75 years, according to Arcadia. The reason being that commercial hybrid wheat doesn’t exist. Also, farmers tend to save seed from last year’s crop, so they don’t buy new seed every year. In short, there hasn’t been much incentive for seed companies to invest in innovation.

But Ketkar, who spent 30 years in senior jobs at the agricultural biotech powerhouse Monsanto, is looking to change this.

“What we have done is really improved the key characteristics of the crop to bring products that will improve the health and nutrition of people who are consuming wheat,” says Ketkar. “Wheat is a key crop for us. We have been really focused on bringing wheat quality traits to the market.”

Sales of GoodWheat portfolio are pivotal

Up first on Arcadia’s agenda is selling its GoodWheat™ portfolio of wheat flour ingredients, which include reduced gluten, high-fiber, and better tasting whole wheat with a longer shelf life.  The company developed all of these products using its proprietary TILLING technology, a screening technology that identifies natural variation in plants and that’s non-GMO.

The GoodWheat high-fiber wheat line, for example, offers the benefits of high-fiber without the need to add an extra source of fiber in the form of corn starch or another additive. “It’s a cleaner label, food companies don’t have to add any type of fiber ingredients to call it high fiber, it’s in the wheat,” adds Ketkar. “And consumers get the benefits of high fiber for managing obesity or managing diabetes.”

The company’s other advances include a reduced gluten line that delivers a host of nutritional benefits. It’s also in the final stages of testing other useful traits but is keeping details about those products under wraps as it first must secure the necessary intellectual property to protect their arrival on the market.

Over 192 patents held

The company already has secured patents for its high-fiber wheat, its reduced gluten-wheat and its extended-shelf-life wheat and controls another 192 patents as well.

Arcadia is also in various stages of recipe testing with at least 10 companies around the world that are interested in its GoodWheat portfolio. Some are food companies that would be using the wheat to make end products to put on the grocery shelf. Others are ingredient and milling companies that are interested in offering Arcadia’s traits in their flour.

Tie-up with Ardent Mills

Arcadia recently announced it will partner with Ardent Mills LLC, the largest wheat milling company in the US, to develop and bring new wheat varieties to the market.

The first step of the collaboration between the companies will focus on extending the shelf life and improving the flavor of Ardent’s whole-wheat products.

Using patented Arcadia trait technology, the storage life of whole wheat flour can be extended by slowing the enzymatic processes that reduce shelf life. Because milled flour from wheat carrying Arcadia trait technology oxidizes more slowly, it cuts down on the bitterness associated with whole-wheat products.

By Ketkar’s estimates, markets for flour are worth well over $200 billion a year globally. Arcadia is targeting segments totaling about $1.5 billion. “That’s not our revenue tomorrow,” says Ketkar. “That’s a target market for all these traits put together.”

Royalty payments expected

The expectation is that Arcadia will collect a tidy stream of royalties when GoodWheat traits are sold to seed companies and when GoodWheat ingredients are sold to the big consumer product groups. Indeed, revenue from trait royalties could hit $20 million to $40 million per year while revenue from ingredient sales could reach $215 million to $325 million.

On top of its advances on the wheat front, Arcadia is also nearing the commercial launch of its HB4 soybeans, which are being produced in Argentina as part of its Verdeca joint venture with Bioceres, that country’s predominant agriculture technology company.

Arcadia recently received approval from Argentina’s regulatory authorities for its HB4 drought-resistant soybeans stacked with herbicide-tolerant traits. The novel traits help Argentine soybean farmers by protecting yields under stressful climatic conditions without dispensing with weed control.

Novel breed of tomatoes set to see first sales

Finally, the extended-shelf-life tomatoes, which were first developed by Arcadia and licensed to Shriram Bioseed, a private seed company in India, are also likely to see their first sales by the end of next year. Arcadia will receive milestone payments and royalties on the sales of its tomato seed, according to its agreement with Bioseed.

Armed with a battery of patents and still on the hunt for additional ones, many of the team of 50 employees at Arcadia’s facilities in Davis, California, which includes laboratories and greenhouses, are still immersed in the science of food ingredient design.

“More than half of our people are involved in some phase of research or development,” says Ketkar. “We do field trials around the US and around the world. Between our own staff and working with partners, we have a pretty wide reach.”

Finances in focus

In its most recent quarter, Arcadia’s net income hit $4.5 million, swinging from a loss of $4.5 million in the corresponding period last year due to one-time accounting items. Despite a slowdown in funding from government contracts, its revenue, meanwhile, amounted to $370,000, which came in ahead of estimates. As of September, the company was sitting on cash of $24.6 million and had no debt while its average quarterly cash burn (for the prior four quarters) totaled $3.6 million.

“Our goal is to commercialize our products next year and drive towards profitability as quickly as we can,” notes Ketkar. “We have a good cash runway now.”

Ketkar also points out that Arcadia faces “very little” competition in developing its own varieties of healthy traits as the big agricultural science companies like Syngenta and Bayer’s efforts are focused elsewhere.

“When a food company adds a cornstarch to their high-fiber pasta, potentially they could use our wheat and get that same benefit,” Ketkar concludes.  “Nutrition is a real concern of consumers and a real concern for food companies.”

Contact Ellen Kelleher at ellen@proactiveinvestors.com

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