Avivagen’s CEO, Kym Anthony, discusses the recent sales agreement with AB Vista that was announced on Friday, October 1st, 2021. Listen or read the transcript below.
Transcript
Operator Good day ladies and gentlemen. Welcome everyone to Avivagen’s analyst and investor call to discuss their landmark deal with AB Vista.
As a reminder, today’s conference call is being recorded.
Before we begin, I would like to remind you that this presentation is being provided for information purposes only, and does not constitute or form part of an offer or invitation to sell or any solicitation of any offer to purchase or subscribe for any securities. Certain statements or information contained in this document constitute forward-looking statements. Any statements that express or involve discussions as to expectations, beliefs, plans, projections, objectives, assumptions or future events or performance, often but not always through the words or phrases such as will likely result, are expected to, expect, anticipate, believe, continue, estimate, intend, plan, potential, predict, project, seek, or other similar words are not statements of historical fact and may be forward-looking statements. Forward-looking statements involve internal projections, estimates or beliefs of Avivagen Inc. concerning, among other things, future growth, results of operations, expected sales, benefits and results to arise from the supply agreement with AB Vista, business prospects and opportunities. These forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond the control of Avivagen Inc. No assurance can be given that Avivagen’s expectations will prove to be correct, and such forward-looking statements should not be unduly relied upon. These forward-looking statements are made as of the date this presentation was originally given, and Avivagen Inc. disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results, or otherwise, other than as required by applicable law. You are encouraged to review the risk factors associated with the business of Avivagen Inc. as set forth in their most recent management discussion and analysis of financial condition, which may be found on www.sedar.com.
I will now turn the call over to Kym Anthony, CEO of Avivagen. Please go ahead.
Kym Anthony Good morning everyone and thank you for joining us for today’s call. We are pleased to share with you this morning details of our supply agreement with AB Vista, a landmark deal for Avivagen, and how this sets Avivagen nicely for the future.
As you are all aware, Avivagen is developing and commercializing products that promote health in animals and humans. The corporation’s unique OxC-beta technology is a proprietary first in class source of beta carotene oxygen copolymer compounds that confer a variety of immune-supporting and non-vitamin A benefits. These benefits have wide global utility, including serving as an alternative to antibiotics in livestock feed. I would like to stress that the elimination of the use of antibiotics in feed, in order to reduce antibiotic-resistant bacteria, is still a very important issue in global health today. Our product is also notably gaining traction in food production conditions where antibiotics are not used, such as for producing dairy cattle and sows.
We also have products for supporting good health in companion animals, and most recently for the benefit of humans in our Beta Blend with our partner Mimi’s Rock.
We’ve made great strides this year in the commercialization of our unique OxC-beta technology. Through our multiple confirmatory trials in regions around the world, we are achieving new country regulatory approvals and gaining new customers, and are seeing our current customers expanding their recurring orders.
The considerable successes of the past several quarters have resulted in the strongest pipeline in Avivagen’s history. We have already begun to deliver on our largest sales volumes yet, and efforts worldwide are forging high-value relationships with partners and customers in the Americas and Asia.
Now let me discuss with you the landmark supply agreement with AB Vista and how this sets up nicely for the future.
First, who is our partner? Associated British Foods, AB Vista’s ultimate parent, is a diversified international food ingredients and retail group with sales of around £12.9 billion, and having over 118,000 employees in 47 countries. AB Vista is a division of AB Agri, which is a unique community of leading agricultural businesses operating globally across the entire food chain. AB Vista itself is a global leader in the sales of many feed additive products, particularly enzymes and other health- and productivity-enhancing health products for livestock.
First a bit of a background. The catalyst for the deal was the realization that our former arrangement in the U.S.A. was not working. We needed to direct our attention to fixing our distribution in the U.S. Negotiations required many months of intense discussions. Numerous interested parties were involved at the beginning. Avivagen did not want to agree to a global deal. All potential parties started with wanting a global deal; through negotiation, we agreed with AB Vista that the three regions selected, the U.S., arguably the largest market in the world, Brazil, number three, and Thailand represented a large diverse market for AB Vista’s technical salesforce and sub-distributor relationships to sink their teeth into, while leaving Avivagen with many of its existing customer relationships. Avivagen believes this could leave the door open for deals in other jurisdictions.
Important to note that the AB Vista agreement does not include our nutraceutical product, nor our companion animal products. They may sell them, but they do not have an exclusive.
Highlights of the deal are that it is an eight-year agreement, expected to increase OxC-beta access and adoption in some of the largest feed production markets in the world. AB Vista is to become the exclusive distributor for use with poultry, swine, ruminants like cattle, and aquaculture in the United States, Brazil, and Thailand. AB Vista and Avivagen will collaborate on other development efforts such as combining them with AB Vista’s current products and new applications.
We look forward to keeping you updated as we progress our programs.
I’ll turn the call back over to the Operator. Operator?
Operator Thank you Kym. We’ll now open the line for questions from the analysts.
The first question comes from David Bautz with Zack’s Small Cap Research. Please go ahead.
David Bautz Hey, good morning Kym. Thanks for this update, and congrats on the deal.
So, my question is, wonder if you could expand upon maybe some of the driving forces behind the deal with AB Vista, and maybe some of the ways they kind of stood out from other companies that you may have been in discussions with.
Kym Anthony Sure. Thank you David. It’s interesting, this has been a bit of a journey as a process. As I mentioned in my presentation, we needed to address the U.S. situation; we had a great partner there that, for a variety of reasons, couldn’t and didn’t perform. So, we started talking. We were introduced to AB Vista by one of our U.S. advisors, Doctor Steve Pullman (phon) who is on our (inaudible) panel. We were talking to, I would guess, five different parties. One of them was localized to one region, not the United States, to Brazil. The others wanted—there were positive reasons, such as AB Vista stood out in terms of its penetration to the poultry and swine markets in areas we were interested in, and their focus on enzymes put them into the same sales process, different technology but same sales process as we had. So they were one of the frontrunners from a positive standpoint.
From the other side of the coin, a couple of the others that were good potential partners were just too aggressive in terms of wanting a global deal and our sort of share of the pie would not have been helpful necessarily for Avivagen shareholders.
So, from both the positive standpoint in terms of AB Vista and from a negative standpoint on the others, we settled on AB Vista. They also wanted a global deal, but they were willing to back off and see how the product and the project goes in those countries, U.S., Brazil and Thailand, and they chose those because they have direct relationships among the largest customers, even though everybody uses sub-distributors to some extent, they have direct relationships; and they have a big and very proficient technical salesforce, so they are a good pathway.
The last thing I would say about it is that a deal with AB Vista puts us in a position where, in addition to having some important clients and customers using our product, now we’ve got a major global distributor that’s backing us and bringing us the credibility of their own, as I’ve described, very large organization.
So, from a number of standpoints, both in terms of credibility in other markets and being part of their sales process, we’re very excited about it and very optimistic.
Thanks David.
David Bautz All right great, thank you. Congrats again on the deal.
Kym Anthony Thanks.
Operator The next question comes from Joe Gomes with Noble Capital Markets. Please go ahead.
Joe Gomes Good morning Kym, thanks for taking the question and again congrats on the deal.
Kym Anthony Thank you.
Joe Gomes So, I was wondering if you could speak a little bit more, in little detail for us on how COVID is affecting the number of your customer trials you wish to conduct, its impact, the constraints on the global supply chain, how will that impact being Avivagen, and what impact if any it could have on getting the AB Vista relationship up and running. Thank you.
Kym Anthony Thanks Joe. Very good questions. Let me start with our existing operations.
We are, for example, shipping our next order to the Philippines. The global shipping situation is, as you know, backed up. But in our case it put us in a position of waiting two weeks for a ship rather than five days. So, it’s an irritant but it’s not lethal or critical.
On the other hand, with AB Vista, they are such a massive fulfilment customer to the world’s shipping and fulfilment industries that they get a lot better treatment than smaller players do, and I’m very excited about being able to sort of leverage off of their fulfilment. They ship hundreds of thousands of tons of product a year, to various locations.
So, I’m hopeful that that additional leverage puts us in a better position, but so far we haven’t been overly affected, just slight delays.
The COVID, in terms of getting on site, has varied by country. Additional trials, for example, in countries like Thailand and Philippines have been slower, but those that are already on site, like AB Vista is, or UNAHCO in Philippines, continue to gain access. In other centers we’ve had situations where the relevant people that are conducting tests have gotten COVID, or decisions slowed down. It’s no different than everybody else. The good thing is, people have to eat, and for people to eat people have to produce food, and so the animals need feed and they need the feed additives and they need general health. We’ve seen an increased interest in our products, depending on where you are, simply because the focus on increased health and the need for that over all.
There’s no disputing the fact that some trials have been slowed down, there’s no getting around it, but nothing has stopped, and so, as we go forward, I think the AB Vista guys have taken this all into account with their systems and their infrastructure, and so we’ll see, but they’re very optimistic, I can tell you that. So, I trust them.
Joe Gomes Great. Thanks for answering my questions, Kym.
Kym Anthony My pleasure. Thanks Joe.
Is there another question?
Operator For now it doesn’t appear that there are any other questions from the telephone lines. Thank you, and that concludes our analyst question-and-answer session. I will now turn the call over to Drew Basek, Investor Relations at Avivagen.
Drew Basek Thank you.
Kym, the first question I received is the following.
“I saw that the deal did not include Europe, which is a huge market and antibiotic-free. Was there a reason for this, and what are your future plans for that region?”
Kym Anthony One of the players that we talked to did include Europe. The trouble with Europe, although it’s antibiotic-free, the process for getting our regulatory approval in Europe is expensive and takes a long time. COVID is an area that has impacted on regulatory approvals because the regulators don’t meet. So, all of the parties that we talked to would have included Europe in a global deal, but wanted, if they had to be restricted, they wanted to focus on those places that we already had approval.
As I have said in other locations, we are getting very close in a couple of other major jurisdictions, i.e. China and Vietnam, and so we’re working on distribution, talking to potential distribution partners there.
Europe is definitely in the longer-term plans, and we are talking to some people about that, but it is intertwined with the regulatory approval process there. Even though we sit within a category, it will still take some time and some expense. For companies like AB Vista or others to take it, they want to be familiar with the product in other markets before they would absorb the cost of implementation in Europe. Clearly in the longer term, Europe, for all three of those major markets, swine, poultry, and dairy, is a very important market. If you go north to Norway, you’ve got aquaculture, the three main aquaculture for cold water fish are Norway, Canada and Chile. So, Europe fits within our plan, and it’s just going to come after those parties that are talking to us are comfortable that they can make sales in other jurisdictions.
Drew Basek Thank you for that.
Another question along these lines as well:
“Depending on the success of this deal, do you foresee the possibility of granting AB Vista additional countries in which to sell OxC-beta in, such as China?”
Kym Anthony That’s an interesting question. AB Vista is not, and you can—this is all public information, so there’s nothing unusual about this. AB Agri has a large presence in China; AB Vista does not. If AB Vista was comfortable and would agree to a negotiated deal that included significant minimums etc., then absolutely. I’d rather deal with a partner we know. In the meantime we are talking to some end customers and some distributors in China for different markets. But the door is open for AB Vista to take on individual regions. There’s other regions that are very interesting as well. China is, with the United States, the largest market, but it carries with it also some difficulties, and other markets, South Korea, Japan, Turkey, Russia, that are also open, and different companies have different strengths. But I like the guys at AB Vista, they’ve conducted themselves extremely professionally, and so, thus far at least, they’ve been a pleasure to deal with. If they’re successful in their markets, the door would always be open.
Drew Basek Thank you for that. Another question is:
“Given this deal and your recent increased sales volumes, when might you see yourself reaching cash flow positive?”
Kym Anthony I’m not sure I should answer that. I think our securities counsel will whack me on the back of the head if I gave too specific an answer. But with our sales pipeline, and it depends on timing, there are some delays with COVID and other things, but with our sales volumes and with the projections and minimums of AB Vista, there is a line of sight on cash flow positive. I’m not going to say when it will be, but there is a line of sight on it.
Drew Basek Thank you.
I’ve had a few questions around these areas: just are there annual minimum sales guarantees from AB Vista, and are you or can you possibly elaborate on those?
Kym Anthony There are. That was the subject of, as you can imagine, significant negotiation both overall and within each of the three regions. I can’t really elaborate on them. I think it’s safe to say the first year will be modest; it’s still significant, in our context, but modest as they get it out into the field, as they educate their own salesforce, their sub-distributors and their clients. But as the joint venture or the supply agreement gets into the second, third and fourth year, there’s a significant ramp up in minimums, to the point where we will be working with our supplier to increase capacity. I’ll just leave it at that.
Drew Basek Thank you for that.
Just waiting—again I remind the audience, if you do have any questions, we have a few more minutes left, so just e-mail your questions in to me, d.basek@avivagen.com. I will wait a few more minutes to see if any other questions come in.
I believe that’s it, so I shall pass it back over to the Operator.
Kym Anthony Well, I’d just like to say thank you, Drew, and I will just reiterate that this is a very important step for us, not only with respect to the three regions, the U.S., Brazil, and Thailand. Thailand is, for those that don’t know, is a very high-class modest-size, medium-size market. They have made a living over the last 10 years supplying poultry to Europe, therefore they are antibiotic-free, and swine to China, and China has gone antibiotic-free, and so their standards, they’re subject to inspections, particularly by the European regulators, and they have some very big producers. In fact they have a feed distributor that is comparable, from a feeds distribution standpoint, to the size of Cargill: CP in Bangkok.
So, we’re very excited about this. It gives us credibility with other customers and other distributors in other markets, and from that standpoint, in addition to the actual economics and volumes in this deal, it sends a wider message for us and gives us another step in the journey.
So, with that, I will say thank you to everybody, and turn the call back over to the Operator. Operator?
Operator Ladies and gentlemen, thank you for participating in today’s conference. Avivagen will make every effort to respond to those questions which were not responded to during the allotted time. Our call is concluded; you may disconnect your lines.
