Major investment in research and development and patenting innovative technology has paid off in partnerships with multinational food manufacturers for two upstart Vancouver technology companies.
Pakit Inc. created a buzz earlier this month when it signed a partnership to help PepsiCo Inc. (NYSE:PEP) develop packaging technology.
That followed Enwave Corp. (TSX-V:ENW) signing its fifth major pact with a multinational in June. Enwave’s technology quick-dries food using microwaves and a vacuum system that neither heats nor removes as many nutrients as other drying technology.
Enwave’s agreement gave Kellogg Co. (NYSE:K) exclusive rights to use Enwave’s system for 12 months to produce cereals and cereal bars.
Previous Enwave partnerships with multinationals include:
•a December 2010 deal with Grimmway Farms, the world’s largest grower, producer and shipper of carrots;
•an October 2010 agreement with Latin America’s Grupo Bimbo, the world’s largest baking company, which bought fresh bread divisions in the past year from George Weston Ltd. and Sara Lee Corp.;
•a July 2010 agreement with Swiss food manufacturer Nestlé S.A.; and
•a May 2009 deal with the Danish food giant Danisco, which Dupont (NYSE:DD) bought in June for US$6.3 billion.
Pakit and Enwave’s recent success in landing multinational partners provides lessons for owners and decision-makers at small and medium-sized companies who have similar aspirations.
According to CEOs at Pakit and Enwave those lessons include:
•making a strong connection on a technical level with someone in the target multinational partner who can be a champion within the global company’s research and development team;
•being prepared for long delays and slow progress as approval for the technology works its way up the chain of command; and
•being flexible about how the process evolves.
Both CEOs believe their technologies are “disruptive” – a modernization that revolutionizes a niche that has gone decades without significant innovation. And they say it’s because their technologies are such a radical departure from what’s available in the market that partnering with global food giants is so important. Their involvement prompts major food manufacturers in different subsectors to consider adopting the technology.
Pakit CEO Dwayne Yaretz told Business in Vancouver that the company has thus far invested about $90 million in developing its technology.
It has patented a process for producing egg-carton-like, three-dimensional moulded shapes from cellulose fibres sourced from sugar cane or biomass. The finished product can replace plastic or other paper products.
“In many cases we’re cheaper. We use far less energy and far less water,” Yaretz said. “So we are environmentally sustainable.”
Yaretz could not reveal details of how PepsiCo might use his packaging technology, but he confirmed that the testing agreement provides revenue for Pakit. Given that the company is under court protection from creditors, its deal with Pepsi comes at a good time.
Enwave’s corporate filings show that it racked up $24.5 million in accumulated losses up to March 31.
But a private placement with Canaccord Genuity Corp., Laurentian Bank and Clara Securities has helped it raise $12 million.
Enwave co-CEO John McNichol told Business in Vancouver that his company will likely not generate a profit until at least next year.
However, some of the $7.1 million in losses that Enwave accumulated in 2011’s first quarter could be reversed. It paid $5.5 million to the University of British Columbia in March to buy patents for its technology and immediately wrote off that cost. If Enwave hadn’t bought the patents, it would have had to pay the university 20% of all future royalties resulting from their use.
McNichol, who pointed out that the price for the patents would have risen once revenue was rolling in from deals signed, said Enwave expects to have between seven and eight multinational agreements in the pipeline by year’s end. •
