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Safe Foods Preparing for Growth, Again - Innovate Arkansas

Safe Foods Preparing for Growth, Again

By Mark Friedman, 2/20/2012 12:00:00 AM

For more than a decade, Safe Foods Corp. of North Little Rock has been saying it was just a year or two away from having its big breakthrough.

Founded in 1999, the biotech firm that developed a treatment to reduce food-borne illnesses while extending food’s shelf life projected in 2002 that its revenue would be $250 million to $300 million annually by 2006. The company fell far short of that estimate, however, reporting revenue of about $2 million in 2006.

Nevertheless, Safe Foods’ revenue has been growing, Safe Foods President and CEO Rush Deacon last week. Between 2007 and 2011, Safe Foods’ revenue increased “10 times,” said Deacon, who declined to release specific financial figures, providing only percentages.

In August 2007, Safe Foods said it was on track to have $4 million in revenue for the year. Deacon said revenue in 2012 was projected to be double that of 2011.

“The second half of last year was strong, and leading into the first half of this year is unprecedented growth,” he said. “We’ve gone … from incubation to market leader, according to our market intelligence.”

In the past several years, Safe Foods has expanded in North America and moved into international markets.

It also has adjusted its business model and improved the technology of the treatment system machine that it manufactures in Rogers. The treatment system machine now costs customers about one-fifth as much as in the early 2000s, but Deacon declined to release the price of the system, citing the competitive nature of the antimicrobial market. (In 2002, Safe Foods reported a system cost between $20,000 and $30,000.)

And the company is looking to expand still further. It’s planning to add three to six employees to its workforce of 29 in the next 12 months. It also is seeking more money from investors and hoping to get approval to treat food in the European Union.

“We have tremendous amount of growth still left in this company,” Deacon said.

But the road to “market leader” hasn’t been smooth.

The Arkansas Department of Finance & Administration slapped three liens against Safe Foods between 2010 and 2011 for failing to pay state withholding taxes on wages. The

amount owed totaled only $34,000, and all three liens have been released, with the final one discharged on Jan. 12.

In addition, about a year and a half ago, Safe Foods missed a monthly payment of $46,000 to the Arkansas Development Finance Authority on a $6.77 million loan it took out in May 2005, said Charlie Lynch, an ADFA development finance officer.

Lynch declined to say how many payments Safe Foods had missed. He said Safe Foods was in the midst of trying to attract investors and releasing its payment history “could be considered insider information, which could be used as a detriment against those negotiations.”

But Lynch said that “at one point there was some past due issues that we were concerned with. But they have worked with us … where we are comfortable.

“They’re progressing at this stage and … this year looks like that they’ve turned the corner, will have turned the corner,” Lynch said.

The Arkansas Economic Development Commission guaranteed half of Safe Food’s loan. The balance of the guarantee is $3.3 million, AEDC spokesman Joe Holmes said in an email to Arkansas Business last week.

Deacon said that the company was short on cash a few years ago.

“It’s like any other development-stage company,” he said. “When you are in negative cash flow and constrained resources, you have to juggle them all and sometimes those things happen.”

In addition, its potential customers in the poultry industry were hammered by higher grain prices.That left less cash for capital improvement projects, Deacon said.

“In the early part of 2011, the poultry [industry] has been going through difficult times with feed prices as high as they are,” he said.

Manufacturing Process

While Safe Foods manufactures its treatment systems in Rogers, its patented solution for killing bacteria, called Cecure, is produced in Atlanta.

Deacon said the redesign of its treatment system had “opened up a lot more opportunities for a broader adoption of the technology.”

In 2002 Safe Foods described how its treatment system would work: A chicken’s carcass, moving through Safe Foods’ stainless steel box, would pass through a fog of Cecure. The box’s dimensions were described as being 4 feet by 4 feet by 3 feet.

The cost of sanitizing a single chicken was estimated at about eight-tenths of a cent.

That treatment was “very expensive” and “quite complicated,” Deacon said.

The business model in the early 2000s called for contracting with a poultry plant for three to five years and then selling the plant gallons of Cecure that would be used once and then flow down the drain, Deacon said.

That model would result in huge sales for Safe Foods, he said. That’s why in 2002 Safe Foods forecasted that by 2006 the University of Arkansas for Medical Sciences, which owns 20 percent of the company, would receive $1 million a month in royalty payments.

But up until April 2010, UAMS had received only $147,228, according to an article in the Arkansas Democrat-Gazette.

Since then, UAMS has re-ceived another $59,911, a UAMS spokeswoman said last week.

Deacon ordered the redesign of Safe Foods’ treatment machine, said Bruce Smith, Safe Foods’ vice president of operations.

Although the chickens still pass through a stainless steel box on a shackle, the Cecure is now applied in “a drench,” which is a coarser spray, Smith said. But the Cecure is captured in the machine and recycled for use throughout the processing day.

And the three- to five-year commitment is gone. Now the customers buy the treatment machine, and it’s up to them how long they want to buy Cecure from Safe Foods.

“It’s now what you call an open-ended relationship,” Dea-con said. “As long as we continue to perform and deliver the results, they’ll continue to use it.”

Safe Foods’ treatment system is in 36 poultry plants in North America, and by the end of the first quarter, it will be in 41, Smith said.

Deacon said that Safe Foods had about 20 percent of the antimicrobial market, which is the direct-contact rinses used to kill potentially harmful bacteria on food products for North American poultry producers. By the middle of the year, Safe Foods projects to have about 30 percent of the market, and by the end of the year, the percentage will be even “higher than that.”

Deacon said the company reported its first profit in 2010, but it lost money in 2011.

Deacon, an attorney and CPA, joined the company in 2001 and was promoted to CEO in 2009 after the former CEO, Curtis Coleman, left the company to run as a Republican against then-U.S. Sen. Blanche Lincoln, D-Ark. Coleman was defeated in the 2010 Republican primary.

Slow Growth

In 1994, researchers at UAMS discovered a chemical treatment that killed e. coli, salmonella and other bacteria. The treatment used cetyl pyridinium chloride (CPC), which has been used safely in mouthwashes for more than 60 years. The CPC treatment was undetectable in food and didn’t change the color, texture or the taste of food.

Safe Foods was incorporated in 1999 and started in UAMS’ Arkansas BioVentures business accelerator program. One of the

first hurdles the company needed to overcome was receiving approval from the FDA.

“When you’re selling something that comes in direct contact with food, you have to go through a regulatory process literally everywhere in the world,” Deacon said.

Safe Foods finally received approval from the FDA in March 2004. But then Russia said it would not allow any Cecure-treated poultry to enter the country until it approved Cecure. That move halted sales

in the U.S., Coleman told Arkansas Business in 2007. Russia gave its approval Cecure at the end of 2005.

“We now have a slight advantage [in Russia],” Deacon said. “We are only one of two antimicrobials that have approval in Russia. We hope to get some revenue out of Russia before this year is out.”

Still, Deacon said Safe Foods was tiptoeing into international markets, although it does have sales with companies in several countries such as Mexico, South Africa and Saudi Arabia.

One of Safe Foods’ key selling points overseas is that use of Cecure can extend the shelf life of food from one to five days, depending on market conditions.

Safe Foods also is seeking approval from the European Food Safety Authority to sell to the European Union.

“We hope we get approval there,” Deacon said. “Because if we do, we believe Cecure can be the antimicrobial of choice in that market.”

He didn’t have a timetable for an announcement.

In the meantime, Safe Foods is looking for more money from investors to fund its growth. Deacon wouldn’t say how much money Safe Foods is trying to raise. But it wants to expand into other food lines, such as beef.

Safe Foods has an application pending with the U.S. Food & Drug Administration to treat beef. Although Coleman had projected in the early 2000s that Safe Foods would be treating beef, seafood and fruits and vegetables, it has only received the OK from the FDA for poultry.

Deacon wouldn’t project when the beef approval might be given. “We’re not good at predicting timelines on regulatory approval,” Deacon said.

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