Bioexx Q3 loss does little to Deter Investors

A stumble, perhaps, but hardly a fall. When Toronto’s Bioexx (TSX:BXI) yesterday reported Q3 numbers that seemed a step backwards, investors weren’t ecstatic. But they weren’t altogether disappointed, either. Shares of Bioexx slipped nineteen cents on November 16th, to close at $2.34, but gained that right back the next day to close at $2.53.

Bioexx, which has developed a patented system for extracting protein from plants, has been a market darling of late, climbing from pennies in late 2008 to a recent high of $2.86 on October 15th. The Company’s Q3 numbers, which showed $178,464 of revenue from canola oil and canola meal sales at its Saskatoon plant, versus revenue of $838,283 in the prior quarter seemed to suggest problems at the company’s flagship Saskatoon plant, but Bioexx suggested otherwise.

In the Q3 release Bioexx reiterated its assertion made in a November 1st update that production from the plant is on schedule and will “to commence continuous protein production operations at the Saskatoon plant during the week of Nov. 15, 2010”. Some investors may have been spooked by the language of that press release describing a decision to operate the Saskatoon plant on an “as-required basis” but the decision seemed to suggest the company plans to reach an economy of scale that is just around the corner:

“The operation of a very small 40,000-metric-ton crush-only plant is economically challenging. Third quarter operations were therefore guided by the appropriate minimization of unnecessary losses. Until the pending introduction of protein production, plant operations are best viewed not on a stand-alone basis, but rather as a stepping stone toward protein production”

So canola oil and canola meal sales might be nice, but the holy grail here is protein production. So what is oilseed extraction and why has it attracted so much attention? In a word, protein. Some experts believe that as the world population grows traditional sources of protein, such as those derived from animals, will become expensive and unsustainable. They surmise that protein from seeds such as canola will naturally follow the lead of the most recognizable oilseed product; soy. According to the USDA, worldwide soy consumption rose 125 percent from 1990 to 2007.

Until recently, the technology for extracting the protein from a plant wasn’t practical because the process required temperatures in excess of 100°C. When proteins are exposed to temperatures above 65°C they begin to denature, which reduces their nutritive value. Bioexx believes its patented extraction system, which uses refrigerant-based solvents “is the only known commercial system that allows for low temperatures to be maintained during the extraction of oils and proteins from the biomass”.

The immediately addressable markets for the for the company are large and worldwide, from vegetable protein additives to animal feed, aquaculture and oils. Bob McWhirter, President of Toronto’s Selective Asset Management says Bioexx has the potential for fast growth without having to borrow or issue more stock. Three years from now, he says, BioExx “could be a $10 stock if all goes according to plan.” (Globe and Mail Jan. 27, 2010 )