Periodic Reporting for period 1 - SWINE-GEN (Genetic markers assisted selection for improvement of swine breeding productivity.)
Reporting period: 2015-10-01 to 2016-01-31
Thanks to more than €2.9 M invested by the company, the technology (a DNA biochip) has been already designed and developed as a prototype and currently it is capable to interrogate a set of 362 genetic biomarkers linked to reproduction efficiency in pigs. In the SWINE-GEN project we aim at validating this biochip with a population of more than 100.000 animals and verifying the % of gene inheritability in 3 generations. Based on these results, we will definitively design a marker assisted selection (MAS) program to maximize the reproductive efficiency in pigs by 20% (from 20 piglets/sow per year to 24 piglets/sow per year). Upon the completion of the SWINE-GEN project, we will end up in a solution that we will offer to our clients in the pig farming sector as a selection service for them to increase the productivity of their breeding programs.
The key of the SWINE-GENE technology is a DNA genetic biochip specifically designed for the analysis in blood samples of those genetic markers (362 markers) that affect swine prolificacy (litter size at birth). The DNA biochip (miniaturized recipe in which can be performed thousands of simultaneous biochemical reactions) that we have optimized to interrogate specifically the 362 genetic markers we have identified as the ones linked to prolificacy in pigs. Specifically, these genetic markers are Single Nucleotide Polymorphisms (SNPs) found in chromosomes 1, 6, 7, 8, 9, 11, 12 as chromosomes that contain the genes linked to uterine size, ovulation ratio and production of reproductive hormones. These 362 genetic markers will be interrogated by the biochip in microliter blood samples extracted from the animals. The Biochip is capable to interrogate these markers with total specificity, thanks to a secret combination of reagents that hybridize specifically the selected SNPs. The secret knowledge over the biochip content (reagents), the 362 genetic markers (SNPs), and how they interact and affect prolificacy. The biochip technology is already developed as a prototype and validated by a pilot study with 1.500 DNA samples of the 6 more common commercial porcine breeds.
Additionally, the second component of our technology is a bioinformatics platform including bioinformatics software that includes a complete library of genetic markers (Single Nucleotide Polymorphisms, SNPs) of pig genome and that is capable to analyse the results obtained by the biochip dealing with the presence/absence, concentrations and interaction of the genetic markers found in blood samples. The software is capable to rationalize and interpret the complex analysis results, delivering a simplified interpretation of the analysis in the form of % of prolificacy.
To demonstrate and validate the biochip prototype in an operational environment, the next step will be to perform a large scale validation study with a real swine population of ≥100.000 animals. It means, under a technical perspective, the SWINE-GEN project is a large scale demonstration study in a real industrial environment, meaning a validation of our technology with approx. 10o.000 DNA samples obtained from pig farms, to prove the technology in conditions for its industrial implementation. Our ultimate objective is to end up in a genetic test capable for quantification of the % prolificacy with an accuracy ≥95%. Therefore, the feasibility assessment aimed at ensuring that the large-scale validation study is performed under strict industrial standards. The activities performed encompasses: a) selecting the animals to include in the study by direct contact with end users, b) designing the gene heritability study for 3 herd generations.
a) Selecting animals to include in the biochip validation by direct contact with end users
The technical methodology that will be used for the validation study of the biochip will be the same already used for the pilot study of the biochip in pig DNA samples coming from the end users. The end users of the SWINE-GEN solution, meaning also our current and future clients, are mainly pig-famers and pig farmer´s cooperatives, within the Pork Production Market. In 2010 we became leaders worldwide offering an equivalent of the swine-gene project but for the improvement of poultry breeding productivity. One of our main clients related to poultry is interested in the swine-gene project, hence is currently collaborating with us by sending samples from their farms for the biochip validation, since this stakeholder´s farm population contains both animal types.
Breeds and swine sex, selected for the biochip validation study are chosen according to their popularity among the relevant markets and breeding operations. There are several breeds not included because their influences on market operations are not as significant. Because common genetic selection practices differ among countries, traditional breeds have undergone genetic changes and are now identified with a country or region as breeds have been selected over many generations to excel in traits that are important within a respective country (e.g. Iberian Swine for Serrano Ham Production). From a producer perspective, swine breed is chosen commonly to meet the requirements for breeding stock or to sell at the market. Individual merits of the animal are the key to establishing and maintaining a profitable herd, particularly if the objective is to produce and sell breeding stock. Today, the swine performance data is based on sow prolificacy, growth rate, feed efficiency and carcass merit. We analysed results obtained from a comparative performance evaluation of the commercial swine breeds we will consider for the chip validation in terms of traits that producer takes into account to evaluate sow prolificacy.
Overall, Large White is the breed that matches the "perfect pig", as it is a rugged breed that can withstand a wide range of climatic conditions, hence is exploited worldwide. Additionally, the sows have been noted for their large litter size and their heavy milk production. Large White breeding programs result in large white pigs produced for market that meets consumer’s requirements of low amounts of fat and high levels of lean meat content, and therefore is one of the main breeds from a market point of view. As prolificacy is one of the most important traits from the farmers’ perspective, is also the majority breed in the farm which will send samples for the biochip validation study and therefore will also be the main breed employed in our studies. Related to swine sex, we concluded that the link between the SNPs analyzed on the boars was not completely linked to a simple variable as it occurs in sows. Our conclusion was that boars to mate simply should have dams that are highly productive sows. The swine-gene service does not depend on the genetic analysis of boards from a herd, it is simply required to take advantage of the traditional selection currently made in all farms for selecting the most prolific boars. The selection for boar replacement for improving prolificacy in a traditional manner is based on phenotypic traits, taken as reference the standards for selection available in the bibliography (litter size, feed/gain, age at 100 kg, etc.
b) Designing the gene heritability study for 3 herd generations
Based on the results achieved in the performed pilot study with 1500 DNA samples, for the biochip validation with 100.000 samples it will be required to study 3 herds generations of sows in reproduction phase during 18 months. Reproductive data of the first swine generation (F0) will be provided by our stakeholder (poultry and swine company collaborating with us). We will analyze the reproductive traits of Fo, and the 362 biomarkers (SNPs) of these breeding sows, and results will be linked to prolificacy to validate biomarkers usefulness. Having done this first analysis and classification of animals (selection based on their prolificacy) we will proceed to artificial insemination of sows by boars previously selected by our collaborator (the swine-gene service does not depend on the genetic analysis of boards from a herd as previously explained). Next generation is F1. From this point, the gestation period of the F1 generation is 9 months, at which point the prolificacy will be retested, and therefore our biomarkers and their heritability can be assigned. The animals of the F1 generation also will be sorted and selected according to their prolificacy, and sows will be inseminated again. Again the gestation of the F2 generation is 9 months, and biomarkers and heritability will be assigned. Overall, from F0 to F2 it will take a total of 18 months.
2) Commercial feasibility study
The commercial feasibility of the SWINE-GEN project relied fundamentally on being able to access a wide number of clients (pig farms and farm cooperatives) at international level. During Phase 1 we performed an in-depth analysis of these geographical markets with a special focus on client typology. Additionally, we analysed the prices acceptable for each country depending on the market analysis.
a) Client typology: farms size
Since inbreeding depression and heterosis from crossbreeding are essentially opposite effects, it is not surprising that the same traits that respond well to crossbreeding will respond adversely to inbreeding. These would include reproductive traits such as litter size, weight and survival rate. Inbreeding affects rate of genetic improvement in several ways. There is a small increase in prepotency (the degree to which a boar will pass his or her characteristics consistently). This is more than counteracted by the decline in selection intensity and loss of genetic variation. Selection intensity is a function of the proportion of boar and sow candidates that are actually selected. Selection will be less intense since more boars and sows will be needed as replacements and there will be fewer to choose from. Furthermore, the variation will be less among the animals since inbreeding reduces genetic variation. Therefore, as the SWINE-Gene Project is based on an accelerated genetic selection improvement to pass on several generations, it is very important for us avoiding any inbreeding trace in the animal population. Considering the avoidance of inbreeding impact and the sample size required for the biochip validation, we concluded that in order to perform the validation study under strict controls of inbreeding, it is essential to execute our chip validation with samples coming from a farm with a population size of at least 25000 heads. This sample size has statistic power enough for the avoidance of inbreeding as well as provided statistical power for the validation.
b) Geographic distribution of our potential clients
Swine production is widely scattered across the globe. The estimated global swine production has extremely grown up in the last years thanks to recent improvements in farms. The countries of Asia have the largest inventory of swine in the world, as China accounts for over the 58% of the global inventory. The European Union account for nearly 15% followed by North America with approximately 10%. Swine are produced primarily in regions of the world with available natural resources including arable land, cereal grains and water. By countries, China has the higher number of swine in the world, with an estimated inventory of 482M pig heads. The Chinese pig population is predominantly produced and raised by a very large number of individual families having small herds consisting only in a few animals. This is in contrast to many other countries of the world, where swine production is in the hands of a small proportion of the population and production units are very large in size. The US is the second largest swine producing country in the world, with an inventory of approximately 65M pigs.
Regarding to identify and analyse our potential future clients, for the feasibility study we have not only considered pig meat production but exporting and key companies in the sector that really influences the market trends. Our extensive experience in our service related to poultry prolificacy optimization in farms has helped us identify our potential customers effectively, since many poultry producers are also pig producers. In fact, in 2014 we reached an agreement with one of our key partners, the world leader producers of beef and poultry processor, the Brazilian company JBS, which is currently benefiting of our service for improving poultry litter size. The same company is dedicated to the pig farm production and is one of the key stakeholders in the swine-gene project, hence they will collaborate by providing samples for validating our DNA biochip.
c) Pricing strategy
Considering a pig farm with 25.000 heads and 5.000 sows, the number of new piglets born each year is about 100.000 (9-10 piglets/litter and 2 litters/sow per year). Through our selection service, this pig farm will be able to increase the number of new piglets by 20%, meaning 20.000 extra piglets each year. This means substantial economic benefits for our clients in two ways: a) savings through avoiding raising insufficient fertile sows (about 32€/sow savings) and b) earnings from the extra piglets (about 30€/piglet). Therefore, the economic benefits for a pig farm of this size (the end user) would be more than €760.000/year. In terms of revenues for us, we are going to offer our genetic selection service at a price we have preliminary setup at 60€/sow. The price has been estimated considering our experience in poultry genetic selection, in which we reach the 65% of benefit per test. For each pig farm of about 25.000 heads (average size for avoiding inbreed) we sell our service, we will charge €1.5M. We will offer a 5 years deferred payment, €300.000/year for the end user in order to facilitate the initial expenditure for the genetic selection service and 120.000€/year (8% of the initial payment) for monitoring of genetic inheritability in subsequent swine generations (monitoring performed in 2-5% of heads of new generation pigs). With these assumptions and considering a five years period in which we aim to sign agreements with 60 pig farms, we will be talking of about €101M revenues solely coming from the SWINE-GEN project as we will explain later in a more detailed approach of our financial projections.
Based on the behaviour and characteristics of our customers (most of them big companies as analysed in section a), and based on our previous experience in our successful poultry service, and considering the characteristics of the SWINE-GENE service, we will setup our pricing strategy on the level of demand for the service, not on the cost of materials and labour. Our costs are 14€/test, and according to this pricing policy, we have preliminary setup 60€/test for our potential clients in Brazil, Europe and US, meaning a benefit of 77%. Nonetheless, as China would be a more resilient market, we concluded that we might be able to reduce price up to 40€/test, which implies 65% of profit margin.
3) Financial Feasibility Study.
a) Investment required for the swine-gene project
In this section, we calculated the total investments we need to bring the SWINE-GENE service from the current stage of development to the market launch. At this point, the preferred financial strategy is for us to apply for a Phase 2 project in the topic SMEInst-07-2016: “Stimulating the innovation potential SMEs for sustainable and competitive agriculture, forestry, agri-food and bio-based sector”. The total investment requires personnel costs, indirect costs, and costs for materials, consumables, equipment, subcontracting, travel and other costs, which were discussed separately for a better understanding.
We are assuming a time to market period of 2 years from today, meaning the SWINE-GEN solution will be in the market immediately after the termination of the SWINE-GEN project. To achieve the SWINE-Gene project objective, we designed a detailed 2 years work plan covering the different project areas that is divided into 5 work packages, each WP subdivided in task. In summary, the total costs for the SWINE-Gene Phase 2 project and the requested contribution for the SWINE-GENE Phase 2 Project reached €2.1M.
b) Cost/benefit analysis
As previously shown, our estimations of the total costs for the Phase 2 of the SWINE-GEN project amounts at €2.1M. At this stage, we will use this value to calculate the expected project profitability (projected cash flow) and payback period (breakeven) for the SWINE-GEN project. To do so, herein we first detail our financial projections for the first 5 selling years. When analyzing the cost/benefit ratios we aim at achieving and for c
alculating our financial projections, we will consider the initial analysis period in the farm, in which we will perform the prolificacy evaluation and next the heritability analysis period, in which we will monitoring tests performed to assess the genetic evolution of the animals. In the first commercialization year we plan to reach 5 new clients, and the average number of heads per farm will be at least 25000. For this feasibility study we will consider just the market entry in the EU, US and South America. Depending on the market entry achieved during the first three years, we will consider to commercialize the SWINE-GENE service in the year three in China as this is the most realistic scenario. Though the analysis of the financial projections for the first 5 selling years we conclude that Breakeven will occur by the first year, and afterwards the SWINE-GEN project becomes highly profitable (cumulative cash flow by year 5 up to €93.9M. meaning a cumulative R.O.I of 255% in 5 years).
This fact represents a huge opportunity for the meat sector, but it represents a challenge as well because meat producers continuously strives to increase meat production efficiency over time. If we look specifically to the swine industry, both the opportunity and the challenges are even more notorious because pork is the most widely consumed meat in the world, accounting for almost 40%. In this sense, solutions that can contribute to increase meat production in a resource-efficient way, like SWINE-GEN, emerge as long-term and sustainable option to overcome these challenges faced by meat producers. The pork industry will be able to benefit from the future opportunities, only if specific measures are taken to ensure pork production is sufficient to meet consumer demands. This fact provides clear evidences of the business opportunity of the SWINE-GEN project that is specifically aimed at helping the pork industry to increase production in sustainable way.
The solution we propose in the SWINE-GEN project to improve the breeding productivity in pig farming is a unique technology for genetic selection of the most fertile sows (breeding female pigs) to mate with the most fertile hogs (breeding male pigs). Through our solution it will be possible to know before mating, which animals have a higher genetic prolificacy profile. Therefore, the chosen animals could be mated upon the genetic analysis of the prolificacy traits, or what is the same, it will be possible to implement a marker assisted selection (MAS) programme in pig breeding. Our service is the solution for the improvement of swine breeding productivity, as it will be the only tool in the marketplace that won´t use genome sequencing techniques. Our technology is based on a DNA biochip that will exclusive analyze those 362 biomarkers (instead of the 2.000-3.000 markers analyzed by our competitors) that we have identified as those genes that build up the complex genetic architecture of swine prolificacy. Thanks to this differential value, our technology offers clear advantages over the competitors: low costs (60€/test), assessment value (quantitative correlation of genes and % prolificacy with ≥95% accuracy), and high scalability (we will be able to perform 16.000 test/day as our technology allows analyzing 384 samples in milliseconds). These advantages of our technology are the ones that explain why we have become leader in poultry breeding productivity with more than €20M income in just 3 years of implementation of our technology in this segment.
The market of the SWINE-GEN solution is the so called “Animal Genetics Market”. The global Animal Genetics Market was estimated around €2.6 Billion in 2014 and it is predicted to grow at a CAGR of 8-9% up to €4.1 Billion in 2020. North America represented the largest regional market in 2014, followed by Europe and Asia. The SWINE-GEN solution will find a great market acceptance, as increasing animal productivity is a major driver of the Animal Genetics Market. Moreover, our solution will provide: a) an affordable and time efficient analysis and b) it won’t require skilled professional in pig farms because the analysis will be made at our facilities and the results will be delivered as a user-friendly report informing of % prolificacy for each animal.