Synthetic Alcohol; Potential Disruptor to Alcohol Industry
Source: Jefferies International Limited
Edward Mundy, ACA
January 18th
Key Takeaway
We hosted a lunch with Alcarelle, a company that has the goal of developing an alcohol-free adult beverage, which imitates the positive aspects of alcohol without the negative health aspects. While still early days, this is potentially a disruptor to the alcohol industry and traditional model.
What’s new? We hosted a lunch today with Professor Dave Nutt (Chief Scientific Officer) and David Orren (Managing Director) from Alcarelle. Given the growth of next generation, reduced risk product in tobacco, the development of synthetic alcohol, we believe, could be a potential disruptor to the alcohol industry and a med-term growth opportunity.
Beer – first mover advantage in low/no alcohol. Low and no alcohol are currently a small proportion of brewers’ beer volumes. However, both are growing ahead of industry, with low cannibalisation rates, opportunities to distribute into the non-traditional beer universe and higher profitability given excise tax arbitrage. ABI officially targets for low and no-alcohol to represent 20% of volumes by 2025 (vs current 6%) and both Heineken and Carlsberg have ambitions in zero-alcohol.
Spirits – playing catch up. Spirits companies are able to participate in a health/wellness theme (eg gluten-free, diary-free and vegan friendly Baileys Almande). However, spirits innovation in no-alc to date has been limited to products like Seedlip, a non-alc Diageo gin.
How would synthetic alcohol work? The ambition is to produce a synthetic alcohol that would mimic the positive aspects of alcohol – sociability, relaxation, enjoyment – without the negative aspects such as hangovers, loss of judgement, forgetfulness, vomiting that are associated with acetaldehyde. The objective is to target selective regions of the brain through stimulating the “good” effects of alcohol as opposed to blocking pathways.
Ideal product features of synthetic alcohol? The aspiration is to develop a product that is fast acting (15 mins for effects to take place), a one hour half-life (washes out in an hour), that is tasteless, odourless, with zero calories. We believe the finished product would likely be released as a bottled product that has already been diluted to a usable strength.
How would synthetic alcohol be used? It is not designed for binge drinking. Instead, the objective would be to mimic the impact of 2-3 glasses of wine over a 2-3 hour period. Pre-clinical trials would suggest that the intoxicating effect is not dissimilar to a few cocktails with a relatively low plateau level of intoxication. Alcarelle has done work with a flavouring group on cocktails (eg whisky sour) and even developing the flavour profile of single malts.
Timing – aim for market approval by 2022. There are three candidate products, with one preferred compound. This has been through pre-clinical development with significant pre-trial work already carried out. In 2018, the company will work on selecting the right jurisdictions for its regulatory pathway with three years of clinical trials expected 2019-21 ahead of potential market launch in 2022. The ambition is for commercialisation shortly after regulatory approval. The point of industrialisation is not expected to be a significant barrier.
Aim is to work with, not against, the drinks industry. We believe the company has been in dialogue with a number of alcohol companies. Alcarelle has no ambition to compete directly with the alcohol industry and produce ready-to-drink synthetic alcohol products; alcohol companies ultimately have the brands, the marketing skillset and distribution reach to commercialise the opportunity. The aim is not to replace alcohol but to develop a range of alcohol free products with the alcohol industry.
Not a “winner-takes-it-all-world”. The vision is for synthetic alcohol to be made available to all drinks companies, with Alcarelle owning the IP and acting as licensor of the synthetic alcohol compound.