Cellular agriculture and precision fermentation are becoming increasingly crowded fields. The last ten years have seen exciting developments, however positive revenue is still many years away. The cell-based sector remains a 'deep tech' field, where large technical risk and R&D costs are offset by hefty long-term rewards. Andrew Tindall, patent attorney at Potter Clarkson, explores how companies can safeguard their alt-protein innovations for lasting success.

While this environment can be challenging for start-ups, it also presents opportunities. Barriers to entry are still mainly intellectual rather than infrastructural, meaning companies developing future keystone technologies will be in a highly advantageous position. Strategic thinking is required to both identify these opportunities and attract the critical investment needed to fuel development.

Investor Warren Buffett refers to good investments as being valuable 'castles' surrounded by impregnable 'economic moats'. These can be anything that maintains a company’s edge – e.g. capital, technical, or legal advantages. Strong moats stop others muscling in on a company’s territory and protect long-term profits. In the alt-protein space, the value of a pre-revenue 'castle' is low, but it promises to be immensely profitable in the future. In such a situation, the value of an investment depends heavily on the strength of its moat and its ability to stand the test of time.

Identifying and securing a niche

For new alt-protein companies, identifying a niche is crucial. This means defining the boundaries of your 'castle' – the unique offering that sets you apart from competitors. The race to claim the first cultivated chicken, beef, and quail products has already begun, as have regulatory approvals and serum-free methods. To succeed, new entrants must bring something more than a retread of past innovations while remaining cautious of over-promising.

Focusing on real technical problems can help avoid over-hyped claims. In a nascent field like cultivated meat, there are numerous challenges to overcome, from improving bioreactor design to developing better serum-free media and elite cell lines. Proprietary solutions to these problems will give companies a competitive edge, whether they choose to use their technologies for their own products or for further collaborations.

The importance of strong IP protection

Having identified a suitable niche, the difference between successful alt-protein start-ups and those that fail will be those who manage to build 'moats' to protect them. This is important for three reasons:

Firstly, for pre-revenue companies whose value proposition is almost entirely found in their ideas, having these secured is vital for attracting investment. Whether companies have taken protecting their work seriously will be among the first things investors look at, and is one of the hardest things to fix after the fact. Putting in place a good strategy early is key.

Whilst traditional IP rights like patents and trademarks have a key part to play in moats, more nebulous know-how and trade secrets, not to mention keeping control of confidential information, are perhaps equally important at early stages. Indeed, at the cross-roads of food and biotech, it is unsurprising that detailed patents sit side-by-side with secret recipes in successful IP portfolios. Start-ups may benefit from formalising these processes early, and incorporating IP alongside technical development in their ten-year plans or roadmaps.

Secondly, with the delayed returns inherent in deep-tech, the risk-reward matrix favours the kinds of contentious action common to biotech but rare in the food industry. We have already begun to see signs of this, with Motif FoodWorks and Impossible becoming embroiled in a high-profile transatlantic IP dispute, and indications that this may be coming to cultivated meat might be seen in attempts by an anonymous third party to revoke a European patent held by Upside Foods.

Consequently, savvy investors will not only be looking at the extent or amount of IP, but its defensibility, and prospects for licensing to avoid dispute or secure early revenue. This is another area where focussing on more modest 'edges' and defending them fiercely is likely to be more successful than spreading out too thin.

Finally, secure moats provide exit options for investors. Currently, it is still unclear what exits will look like in alt-proteins. The preferred model for biotech, which might be appealing here given the similar risk profile, is acquisition by 'big pharma' looking to secure a new clinical asset – much like investment raises, this is built around the core value offering.

However, this may not be viable as, to date, nobody has emerged as the obvious acquirer. Although one might hope that food giants like Tyson or Nestlé step into this role. Fortunately, the competitive advantage that makes companies a tempting target for acquisition also puts them in a strong position to strike out and build their own production capacity.

In an uncertain but dynamic field like cellular agriculture, it can be daunting for companies to find a path forward, especially when there is so much work to be done. However, if armed with the right strategy, and by putting it into practice early, start-ups can secure the capital they need to transform their fledgling castles into formidable and lucrative fortresses, that will stand the test of time.

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