Plant Health Care LON:PHC, is a North Carolina-based, AIM-listed pharmaceutical company that develops and distributes proprietary agricultural products for the horticulture and agriculture sector. The company, established in 1999, creates ‘vaccines for plants’, using biological products to treat crop diseases faced by farmers, and improve their yields.
PHC have developed a range of biological products, which differ from traditional agrochemicals. One of the fastest-growing segments in agricultural inputs is biological products. Agricultural biologicals are a diverse group of products derived from naturally-occurring microorganisms, plant extracts, beneficial insects or other organic matter.
They are typically broken down into two or three major categories according to their use in agriculture. They include biostimulants, which enhance plant growth and productivity; biopesticides which offer plant protection, or biocontrol by using organisms to control disease or pests, such as using predatory ladybirds to control aphids on crops growing under cover; and biofertility, or plant nutrition products.
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Analysts project that the agricultural biologicals market will reach approximately USD14.7bn by the end of this year, with an even split between biostimulants and biopesticides. It is predicted projects that the agricultural biologicals market will hit USD25.3bn by 2030, up from USD10.9bn in 2021, with a compound annual growth rate of 9.8%.
New innovations needed for growing population
The growth of the agricultural biologicals market is driven by various factors, including the need for new innovations to meet the food needs of a growing world population, an increasing demand for agricultural sustainability, consumer interest in organic products, weed and insect resistance to chemicals used in agriculture and concerns about the environmental impacts of current agricultural practices. Agricultural biologicals offer a way to address these issues and provide a sustainable, green approach to the challenge of producing enough crops to keep up with an increasing demand for food and fuel.
The biggest difference between biologicals and agrichemicals is that biologicals are made from living or naturally-occurring materials, and agrichemicals are not. That said, biologicals can be chemically synthesized but manufactured to be nature-like in composition. Both types of products offer protection against a wide variety of plant diseases, insect pests, and weeds for the farmers who use them.
Farmers use biologicals to complement chemical products in an integrated pest management system for protecting plants from disease, insect pests and competition from weeds. PHC said that its products are less toxic for farmers, with fewer environmental concerns, allowing farmers and growers to have safer handling and their application is more consistent with sustainable agriculture.
Accelerated regulation to speed up innovation
PHC’s products are designed to protect plants from stress such as drought, help plants to resist disease, increase resistance to soil pests and increase the uptake of minerals and key nutrients. PHC says that as a result of these advantages, regulatory authorities around the world are adopting accelerated regulation, which allow biological products to come to market more quickly than conventional agrochemicals. In addition, biological products tend to cost far less to develop than conventional agrochemicals. The demand for biological products is increasing rapidly as a result. The group’s products have been classified as low toxicity products, are exempt from the requirement to establish maximum residue limits (MRLs), and quality for fast-track regulatory approval in the USA and Brazil.
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Plant Health Care’s business is driven by sales of Harpin αβ, a recombinant protein which acts as a powerful biostimulant, promoting the yield and quality of crops. Overall sales in 2022 were USD11.8m, an increase of 40% compared with USD8.4m sales in 2021. Of that sales of core Harpin increased by 36% over the period with Harpin representing 69% of sales in 2022.
As well as ‘fertilizers’ PHC is also developing pre-treatment products to prevent plants getting ill in the first place – vaccines for plants – in 2021, PHC launched Saori, its first ‘pretech’ product in Brazil to help protect soyabeans from disease, planting 150,000Ha with positive test results and the aim to plant one million hectares.
Plant Health Care to launch new pretech treatments every year
The company has a target to launch a new product from the Harpin and pretech range every year and is predicting group revenues in excess of USD30m by 2025, and at the start of the year gained approvals to launch Harpin into India to treat the sugarcane crop.
In the US, PHC gained commercial approval from the US Environmental Protection Agency for its proprietary peptide fungicide, PHC279 branded Obrona in March and has started selling the product in the United States through its distributor, Wilbur-Ellis, one of the largest US retailers of agricultural products.
Obrona is a unique product developed to help growers control a wide range of fungal and bacterial plant pathogens, particularly in fruits, nuts, vegetables, and row crops, controlling powdery and downy mildew in grapes as well as white mold and other diseases affecting leafy vegetables and grey leaf spot, common rust and northern corn leaf blight in tank mixes in corn – all fungal diseases.
In May PHC gained regulatory approval for commercial use of its pretech, PHC68949 product to treat root-lesion nematode in soyabean in Brazil with the hope to roll out nemacides in sugarcane, corn, cotton, coffee, potatoes and 14 other crops in the country in due course. Earlier this month PHC received approval to start marketing Harpin in Poland.
PHC remains primarily a R&D company, although it is starting to market some of its products, so it has a young maturity profile. A lot of its capital is deployed in developing new products. The company published it full-year results to end-December 2022 in May.
The company saw its gross margin improve two percentage points to 61% year-on-year and started making less losses cutting its loss by 20% from USD4.6m in 2021 to a loss of USD3.7m in 2022 and hoped to see this cut further in 2023. Working capital also fell from USD3.9m in 2021 to USD3.1m in 2022 and management said in a statement to the market: “The company is on track to deliver long-term targeted revenue, cash breakeven and profitability.”
Dr.Christopher Richards, non-executive chairman said: “We are pleased to record an excellent financial year and are on track to achieve revenue of USD30m by 2025. The company’s focus on developing new distribution partnerships and building on its existing ones for its growing portfolio of products has helped increase revenue by 40% […] Sales in both North and South America were strongly up, 74% and 104% respectively.”
He continued: “Our success has been driven by the growing demand for Harpin in North and South America and the successful commercialisation of Saori in Brazil following its launch in 2021. We expect Saori to be a significant driver of growth, and our new long-term commercial agreement with Nutrien to distribute the product in Brazil will help achieve this mission.”
Cash is a primary focus for the group
As at 31st December 2022 and 2021, investments and cash and cash equivalents were USD5.7m and USD9.2m respectively. Richards maintained that cash remains a primary focus for the group. Inventory of USD3.4m increased by USD1.2m due to Harpin purchases in the second half of 2022 to ensure adequate supply to meet the projected strong demand in the first half of 2023. Trade receivables of USD1.4m decreased USD1.6m due to higher-than-expected collections in the 4Q22 in the Americas versus the prior year. Trade payables of USD1.6m were comparable to the prior year of USD1.2m.
PHC raised GBP6.6m through the issuance of new ordinary shares in March 2021. This was followed by a GBP2.8m fundraise in June this year. Jeff Tweedy, CEO, said: “We are pleased with the strong support from investors for the placing. The company has made significant strategic and commercial progress over recent years. This additional funding will permit the company to accelerate product launches in significant markets over the coming months. We are on track to achieve our target of USD30m revenue in 2025, aiming to be cash positive and profitable by the end of 2024.”
PHC opened trading on 22nd August at 9.14p and was up to 9.3p by lunch. The agritech company’s shares have ranged between GBP8.5p and 13.35p over a 52-week period, offering a -12.7% year-to-date return and -16.1% one-year return giving PHC a market capitalisation of around USD32.2m.
The company’s management questioned whether (being a US biotech company with significant business in the Rest of the World) AIM was the best market for its growth and undertook a consultation on its continued tenure on London’s alternative market.
Plant Health Care shareholder concerns over low valuation
Richards said: “The company has made significant strategic and commercial progress over recent years and is on track to deliver long-term targeted revenue, cash breakeven and profitability, in line with its strategy. It was clear in the consultation process that investors are consistently supportive of the company’s track record of delivering growth over recent years. Moreover, the Board is encouraged that a number of shareholders were supportive of providing further capital to accelerate organic growth, if justified by returns over the current plan.”
What the consultation found was that although some of its significant shareholders had raised concerns about AIM and that generally the company was under-valued, management decided that the company should remain listed on AIM for the time being.
Bridgewise, the analyst, was not impressed. The research company gave PHC an ‘Underperform’ rating. The analyst said: “Looking at Plant Health Care’s financials of Q2 reflected unimpressive, mediocre results. This typically translates into the stock performing on par with market performance for the upcoming quarter. We gave Plant Health Care a 61 rating and a ‘Underperform’ recommendation.”
