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There's a new Stevia player in town to be available for trading in the coming weeks. The company is Evolva Holding, to be traded by ADR under the symbol OTCPK:ELVAF on the OTC. It is a Swiss company with a focus on food additives and flavorings, with a special emphasis on stevia. Evolva uses a yeast-based platform (no pun intended) to produce flavoring extracts at low cost without the need for agricultural investment. Its fermentation product line is currently under development, but includes vanilla, saffron, and stevia.
Anyone with a modicum of familiarity with vanilla bean and saffron knows that they are both extremely expensive. In fact, they are among the most expensive spices in the world. Saffron is about $2,000 a kilo and vanilla is not far behind at about $1,500. As 90% of the world's saffron supply comes from Iran, sanctions don't help much to bring down the price. There is no artificial saffron flavoring yet, but natural vanilla flavoring is so expensive that it only accounts for 1% of the market share for global vanilla sales by volume. The other 99% is artificial vanillin.
What Evolva is trying to do with its fermentation platform is manufacture molecularly identical saffron and vanilla that presumably taste the same as their natural equivalents at much cheaper prices. If that can be done, it is not too difficult to undercut the most expensive spice markets on Earth. To that end, Evolva is farthest along with its vanilla fermentation technology, with a basic pathway already established and a patent already granted. But the total vanilla market is only worth $600M by Evolva's estimates, which is decent, but no matter how good fermentation based vanilla is, it won't conquer the whole vanilla market, much less saffron. The big money is not in either of these small markets, but in stevia.
The vanilla market is pretty static. There probably won't be a sudden rush into vanilla. It's been around for a long time and we all know what it's for and how it's used. But stevia has barely scratched the surface of the non-sugar sweetener market since it received approval as a food additive in 2008, and it has already topped $300M, half the size of the ancient and static vanilla market.
Evolva's strategy is simple. Get a prototype fermentation process going, and then partner with a giant. It has already done this with vanilla, partnering with International Flavors and Fragrances (NYSE:IFF), the $7B monolith. It has yet to find one for saffron. As for Stevia, Evolva is working together with Cargill as of March 6, 2013, who is in turn working with Coke (NYSE:KO).
But Evolva may have a bit of a problem on the horizon from the little firm Stevia First (OTCQB:STVF), a company that often appears together in the stevia press with Evolva, being that Stevia First is the only other company actively pursuing a fermentation based approach to stevia production. The problem is, while Evolva is ahead of Stevia First in the partnering race, it seems that Stevia First is ahead of Evolva in the patent race, at least as far as stevia is concerned. (It has all but given up the vanilla and saffron fermentation crown to its rival.) As for the technological and production race, it seems the two are neck and neck.
The Patent Race
Stevia First received its stevia-by-microbial-fermentation patent in August 2012. It was acquired via a licensing agreement with Vineland research, who received approval for the original patent in April 2011. It was filed back in 2007.
Evolva, on the other hand, is busy filing its own patent applications, and a Google patent search for "Stevia Evolva" yields 65 results, none of which are granted. This is consistent with information on its website, which, while stating that it does have a granted patent for vanilla, says that it only has applications pending for stevia.
In order to understand a bit more about this patent race, a little microbial fermentation science is in order. The compounds these companies are looking to create by fermentation are rebaudiosides A, D, and X. These are the three stevia compounds with the best taste profiles. D and X are considered superior to A, with X considered the best by professional taste engineers at Coca Cola. Both Pepsi (NYSE:PEP) and Coke are involved with D and X and have received GRAS status from the FDA for D and X respectively, Coke just a few weeks ago. Meaning, these are big money compounds and whoever can produce them cheaply will win big. Supplying Coke and Pepsi with their sweeteners is like winning a weapons contract with the government at the peak of World War III.
Since both reb D and reb X exist within the stevia leaf, just in miniscule amounts too small for commercial production, there is a gene that controls their synthesis somewhere in the leaf. That gene was found and it is called ent-kaurenoic acid 13-hydroxylase, which is the pathway to all steviol glycosides, rebs A, D, and X included. Microbial fermentation of these compounds involves taking that gene, sticking it into a yeast strain, letting the yeast ferment sugar, and then seeing what happens. The trick is to get the right combination of genes to maximize product and enhance taste. The catch is that ent-kaurenoic acid 13-hydroxylase is only the first step in the process that must be followed by many other genes, and finding the perfect combination takes time. The two companies are now racing to find that perfect combination of genes to stick in yeast strains to produce the best tasting and the most glycosides at the lowest cost.
Vineland's patent however, licensed to Stevia First, covers all applications and uses of that key first-step gene, ent-kaurenoic acid 13-hydroxylase, to produce steviol glycosides. If you look through the Evolva patent applications in the search results linked above, you'll find it mentioned in all of them. To me, it seems a patent fight is inevitable, and it looks to me, though I am no patent lawyer by any stretch of the imagination, that Stevia First has the advantage.
The Technological Race
The two companies seem neck and neck insofar as technology goes. Though both companies are mum as to exact progress details, we do know from Evolva's 10-K (page 21) that its contract with Cargill extends for 3.5 years starting March 2013, which means there are about 2.5 years left on the clock for Evolva to find the right genes, put them in a yeast strain and scale up its fermentation platform to commercial production. We also know that it has 7 staff members working on the technology. As for Stevia First, we know that it conducted a public taste test on December 9 for its Nature-Identical Stevia fermentation-produced stevia extract, so it definitely has at least a prototype.
Cash and Conclusion
But this is about all we know. As Coke gets ready to introduce stevia-sweetened reb A based Coca-Cola Life to the US market sometime this year, cobranded with Cargill's Truvia, the stevia war will heat up. Cargill has Coke in the bag for now, making Evolva the favorite in terms of current business partners. Evolva also has a lot more money with $35.6M in current assets (page 2) as of its last 10-Q. Stevia First only has just over half a million with a quarterly burn rate slightly higher than that.
No doubt Stevia First will refinance soon, but shareholders know one thing: Evolva may have the cash and the partners, for now, but Stevia First has the patent and at least a prototype. Stevia First will likely keep its cards to its chest for now, but if Evolva makes the first move to bring fermentation produced stevia to market, it may play its hand.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.