Should 3D Systems Corp. Acquire Modern Meadow?

Modern Meadow could change the world through 3-D bioprinting. Should 3D Systems gobble it up before it's too late?

Jul 10, 2014 at 10:40AM

Modern

Modern Meadow scientist Karoly Jakab observing a tray of lab-grown meat. Source: Modern Meadow.

One of the biggest draws of additive manufacturing -- or, as we've come to know it, 3-D printing -- is that materials aren't wasted to produce any given product. By contrast, traditional subtractive manufacturing techniques are more like carving a sculpture: Start with a big block of the material out of which the product is to be made, then remove the excess until you achieve the desired form.

And as additive manufacturing leaders like 3D Systems (NYSE:DDD)Stratasys (NASDAQ:SSYS), and ExOne (NASDAQ:XONE) continue to narrow the gap with speed and capabilities between their respective technologies and traditional manufacturing, the market for 3-D printing should only continue to grow by leaps and bounds. So far, however, the 3-D printing industry's efforts have largely focused on using materials like plastic, glass, and metal.

Another massive industry ripe for the picking
Speaking of waste, did you know that more than one-third of all available land in the world is used for livestock production? Or that it takes over 50 gallons of water to make a single quarter-pound burger? Or consider the fact that 20% of all leather is wasted in manufacturing and 70% of leather's wet weight is comprised of toxic solid wastes.

But one Brooklyn-based company is aiming to solve these problems: Modern Meadow.

Modernmeadow

Source: Modern Meadow.

Co-founded by Andras Forgacs, his father, Gabor, and scientists Francoise Marga and Karoly Jacab, Modern Meadow is looking to 3-D bioprinting to reduce the global impact of livestock production -- all without harming animals in the process. Previously, the father-son combo also founded tissue printing specialist Organovo (NYSEMKT:ONVO), which went public in 2012 and is working to create functional 3-D human tissue for medical research and therapeutic applications.

As it stands, Modern Meadow's efforts still remain in the early stages and are far from being ready for mass production. But the company has already demonstrated the ability to create lab-grown leather and beef -- the latter of which the elder Forgacs actually ate while giving a live TEDMED talk in 2011.

However, according to Modern Meadow business director Sara Sclarsic, "[T]he first range of products to hit the market will be cultured leather and related biomaterials, not cultured meat."

And it appears Modern Meadow wants that to happen sooner rather than later: Only a few weeks ago, Modern Meadow announced it had raised $10 million in additional Series A financing to "accelerate R&D product development as well as to open an expanded research headquarters at the Brooklyn Army Terminal in New York City." 

All in favor...
But here's my question: Why hasn't another company acquired Modern Meadow already? More specifically, why hasn't 3D Systems done so yet?

After all, 3D Systems' VP and Chief Strategy Officer Ping Fu already serves as an advisor to Modern Meadow. In fact, without explicitly naming Modern Meadow, Fu even mentioned her involvement with the company and highlighted the promise of its technology in an interview with our very own Brendan Bynes early last year.

Images

3-D printed sugar from 3D Systems ChefJet printers. Source: 3D Sytems Corp.

In addition, 3D Systems already acquired fellow food printing specialist The Sugar Lab last year, so currently stands the largest publicly traded 3-D printing company with any meaningful presence in the 3-D printed food market. Meanwhile, Stratasys has remained busy given both its massive merger of equals with Objet in late 2012, as well as its $400 million acquisition of MakerBot around this time last year. And high-end industrial printing specialist ExOne, for its part, is still facing lumpy quarterly results given the massive costs of its high-end industrial printers, as well as margin pressures from the ongoing implementation of its key ExCast initiative.

I'll admit, however, 3D Systems current line of ChefJet 3-D sugar printers primarily appeals to professional kitchens seeking the ability to create geometrically pleasing edible prints with minimal effort. At the same time, Liz von Hasseln -- who founded The Sugar Lab and is now 3D Systems' creative director of food products -- has already stated they want the technology to evolve "into a variety of flavors and foods, powered by real food printers for both professionals and consumers alike."

And what better way for 3D Systems to do so than to propel its food products business head-first into the multibillion-dollar market opportunity presented by 3-D bioprinting?

All opposed...
That's not to say there wouldn't be drawbacks for 3D Systems in acquiring Modern Meadow.

While we don't have any meaningful information on the precise financials of its business, for example, it's safe to say Modern Meadow's young technology isn't generating any meaningful revenue or earnings at this point. To the contrary, the entire premise of tackling such an acquisition this early in the game lies with Modern Meadow's extraordinary promise for generating results down the road.

But that certainly wouldn't appease investors who are already skeptical of 3D Systems' habit of pursuing growth through acquisitions at the expense of profitability over the past few years. If acquiring Modern Meadow at this stage were to significantly hinder 3D Systems' focus on the rest of its more developed businesses, the market may cry foul.

Foolish takeaway
Alternatively, Modern Meadow could follow Organovo's go-public path. But despite its lack of near-term profitability, keep in mind Organovo currently boasts a $640 million market cap. If Modern Meadow commands anywhere near the same premium, that'd be a big pill to swallow even for the $5.6 billion behemoth that is 3D Systems. Over the long term, though, and if Modern Meadow's world-changing aspirations ultimately bear fruit -- or meat, rather -- it could be the best money 3D Systems ever spent.

Warren Buffett: This new technology is a "real threat"
Speaking of disruptive tech, Warren Buffett recently admitted another emerging technology is threatening his biggest cash cow. While Buffett shakes in his billionaire boots, only a few investors are embracing this new market that experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up. That's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains" behind the technology.

Steve Symington owns shares of 3D Systems and ExOne. The Motley Fool recommends and owns shares of 3D Systems, ExOne, and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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