NRGene Technologies Ltd.

Management Reports • May 22, 2023

INDEPENDENT EQUITY RESEARCH

NRGENE TECHNOLOGIES LTD - UPDATE REPORT 22.05.2023

1 st milestone for locating elite varieties of wheat suitable for dairy cattle feed; completed development phase in project to develop ToBRFV-resistant tomato varieties (revenue potential of \$24M over project's lifespan); 1 st milestone in project to develop fungal disease-resistant canola varieties; NIS 1.5M funding approved by Innovation Authority for project to develop tools to guide and monitor black soldier fly behavior to improve their cultivation and reproduction; stock price target remains

NRGene Technologies Ltd. (TASE: NRGN) is an AgTech engaged in research and development of IP intensive technological products. The company develops varieties and traits of crops and animals, using its technology in the field of artificial intelligence, to analyze genetic information based on Big Data, in order to accelerate and improve the natural development of crops and animals in the global agriculture and food industry. unchanged.

Key events in Q1 2023:

• IP development: IP development: Currently, NRGene has several projects using AI to optimize crops and animal genomics, that results in generating IP- improved varieties and traits. The business model is based on generating revenues from royalties or end-product sales, with potential revenue of tens of millions from royalties (per project) and hundreds of millions from end-product sales (per project) over the project's lifespan.
• Genetic testing (Genotyping): NRGene is currently implementing DNA tests (genotyping) for crops and animals, including the development of designated DNA kits. These kits aim for NRGene's internal projects and also commercialized to customers. NRGene's strategy in the DNA tests market continues to revolve around offering access to its software via cloud computing, alongside genetic data analysis services. This approach promises the potential for recurring transactions, with each client potentially contributing hundreds of thousands of dollars over multi-year contracts.
• Strategic projects (partnerships and long-term support): NRGene continues its strategy of carrying out long-term strategic collaborative projects with multinational corporations (foodtech and seed companies)

Strategy – NRGene is continuing a shift in its business model to be a one-stop-shop for all genomic needs of crop and animal breeding, not just as a service provider, but as a partner in the entire process of developing varieties and traits, including ownership (exclusively/jointly) of the varieties' or traits' IP, like the model used by drug development companies. Due to revenue growth potential, customer base, knowledge, and new business model, we believe NRGene is well-positioned for growth.

In conclusion, the company has a strategic plan that involves changing its business model and expanding its intellectual property development transactions for varieties and traits, generating income from royalties and/or end products. However, the financial results do not suggest a positive trajectory, and prevailing market interest rates exert downward pressure on the company's value. In light of, this the price target remains unchanged.

NRGENE TECHNOLOGIES LTD

22.05.2023

Key events in Q1 2023 and as of the publication of this report:

• On February 8, 2023, the company reported achieving its first milestone in the IP project to develop canola varieties with clubroot resistance (a fungal disease):
  • o Identification of canola plants that are resistant to a range of disease variants (resistance genetic source).
  • o Identification of the resistance trait in plant offspring with dominant inheritance.
  • o Identification of potential unique genes in the resistant varieties that could give a plant the resistance trait.

The Canadian subsidiary of NRGene also filed a preliminary patent application to protect the resistance trait. The completion of the first milestone has led the company to estimate that its Canadian subsidiary will complete another milestone in 2023. This second milestone involves mapping the resistance trait, which will allow for the detection and development of genetic markers. These markers are necessary for optimizing the integration of the trait into elite varieties of plants of potential customers and partners that the company intends to engage with.

NRGene forecasts that the R&D phase of the canola project will be completed in 2025 and is currently engaged in several discussions with potential customers and partners to market the resistance trait. The company believes that subject to successful development of the project, suitable market conditions, and successful assimilation and commercialization of the seeds, each commercialization agreement for the resistance trait could result in substantial revenues amounting to millions of dollars.

• On February 1, 2023, NRGene reported achieving another milestone in its project to develop tomato varieties with high resistance to ToBRFV disease:
  • o Successful integration of the unique genomic region, which was identified in wild tomato plants and is the source of the resistance trait, into commercial tomato varieties.
  • o Development of unique genetic markers needed to incorporate the trait into the care programs of NRGene's current and potential customers and partners.
  • o Completion of the R&D phase of the project to develop tomato varieties with high resistance to the ToBRFV disease.

NRGene and its project partner filed a subsequent patent application to protect the use of the genomic regions in the tomato plant responsible for the virus resistance trait. This patent includes the unique genetic markers that can identify the specific genomic region containing those genes.

NRGene signed agreements with seed companies in Israel, Europe, and the US to sell seeds with the resistance trait and genetic markers, in exchange, the company will receive royalties from the sale of these seeds. The potential revenue from these agreements is estimated to be in the millions, and the total revenue potential is estimated at USD 24M over project's lifespan, contingent upon market conditions and successful commercialization.

On January 5, 2023, NRGene was granted approval for financing of approx. NIS 1.5 million from the Israeli Innovation Authority. The funding is for a project aimed at developing genomic and computational tools to guide and monitor the behavior of the black soldier fly ("BSF") to improve its breeding, cultivation and reproduction. Over 10 companies and academic bodies are part of a consortium aimed at promoting four approved development programs related to the black soldier fly. The consortium members will conduct research and development on this new farm animal which serves as a sustainable solution. Its larvae can be grown on organic waste and used to create high-protein food products for the private sector. The company's development goal within the consortium is to optimize the black soldier fly's breeding process using modern AI-based tools.

Investment Thesis

Agriculture is one of the oldest fields of technology and innovation that exists. Its goals have changed slightly throughout history: finding ways to increase yield and maximize key characteristics of crops or animals, such as size, taste, color, and resistance to pests. AgTech startups provide farmers with a range of strategies and technologies to improve crop quality and yield. These include tools for agricultural financing, solutions in biotechnology and genomics that can improve productivity and resilience, farm management software, and a growing focus on AI & ML-powered data analytics that can help automate decision-making.

Modern AgTech startups began attracting venture capital funding about a decade ago, when the industry raised \$322.2 million in 2010. Since then, AgTech venture capital funding has grown to \$6.1 billion in 2020, with an annual growth rate of 33.8%. This widespread growth is a direct result of two main factors: population growth and climate change. The world's population is expected to grow to 9.8 billion people by 2050, which will create more demand for food. At the same time, greenhouse gases and warming climates are creating more frequent extreme weather events that threaten crop yields.

NRGene Technologies Ltd. is an AgTech company engaged in research and development of IP intensive technological products. The company develops varieties and traits of crops and animals, using its technology in the field of artificial intelligence, to analyze genetic information based on Big Data, in order to accelerate and improve the natural development of crops and animals in the global agriculture and food industry.crops. The uniqueness of the company's software tools lies in its ability to analyze large volumes of genetic information through artificial intelligence tools that analyze all gene combinations, identify the optimal genetic composition, and enable the improvement of crops or animal traits by creating new strains. The company's technology is a breakthrough that allows it, its partners, and customers to operate at an accelerated pace to improve crops and animals in the agriculture and food industry.

NRGene's technology is widely used to create disease and climate-resistant strains, strains with a healthier nutritional composition, and those that maximize the potential of the crop. In the field of crop genomics, the company offers unique databases for leading commercial crops and artificial intelligence-based technologies. The solutions provided by the company have been widely adopted by numerous research organizations and major industry players in more than 300 projects.

The core of NRGene's technology is a cloud-based artificial intelligence tool, along with a vast database of genomic information, field performance data, information on pests, diseases, and more. This information is

fed into NRGene's artificial intelligence tool and is computationally predicted to achieve superior strains that take into account the natural selection process. Once the predicted strain is identified, it is produced through a natural selection process or through genetic editing/CRISPR. This process enables improved strains to develop in half the time and at half the cost of research and development.

NRGene's solutions can be applied and utilized in the early stages of the R&D cycle to identify interesting or problematic genes. NRGene intends to continue focusing on developing the intellectual property of varieties and traits in exchange for royalties or end products sales, in order to solve specific challenges faced by agricultural organizations (seed companies, food and beverage industry, etc.), including providing solutions for improving crop yields and quality, disease and pest resistance, resilience to extreme weather conditions, and more.

The company has a comprehensive R&D team that offers innovative solutions in genomics. These capabilities have enabled the company to easily identify a number of unique characteristics of crops and animals that it can improve and embed naturally in its end products and services for customers.

NRGene's market penetration strategy is suitable for the long-term and is to provide an end-to-end solution for all genomics needs to develop improved varieties and traits of crops and animals. We believe that NRGene is well-positioned for growth due to its potential for expansion, knowledge, and business model.

Market

The following three areas encompass significant portions of NRGene's addressable market: bioinformatics technologies, genotyping, and seeds (both genetically modified (GM) and non-GM).

The bioinformatics technology market for agricultural applications generated revenues of \$3.296 billion in 2020 and is expected to generate \$7.509 billion in 2026, with a compound annual growth rate of 14.7% from 2021-2026.

The increasing need to use bioinformatics to identify and cultivate unique characteristics and the vast untapped opportunities worldwide are driving demand for bioinformatics technologies. Frost & Sullivan expects revenue growth to range from 13% to 25%, depending on the application.

A key growth opportunity in the bioinformatics market is providing solutions and integrated systems. NRGene's solution can help seed and food companies compensate for the shortage of skilled labor that hinders market growth and facilitates their transition to solution and integrated system companies.

The seed market generated revenues of \$42.424 billion in 2020 and is expected to generate \$54.926 billion in 2026, with a compound annual growth rate of 4.4% for the years 2021-2026. Non-genetically modified seeds will continue to grow during the forecast period, as some farmers, consumers, governments, and other relevant stakeholders gradually move away from genetically modified varieties. The demand for non-GMO crops is rising in Asia and the European Union, and as a result, these crops receive a premium over genetically modified varieties despite a lower yield.

NRGene can assist both GM and non-GM companies in increasing their research and development efforts and quickly achieving desired traits such as increased pest resistance and tolerance to herbicides and adverse weather conditions, for example.

The genotyping technology market generated revenues of \$1.855 billion in 2020 and is expected to reach \$3.087 billion by 2026, with a compounded annual growth rate of 8.9% during the years 2021-2026. With the rise in food prices due to COVID-19 and Russia's incursion into Ukraine, the adoption of genomics and artificial intelligence technologies to improve crops and animals is expected to expand. The market for enhancement support services, including the use of genetic testing, is expected to grow concurrently until 2026 to support the adoption of these services among researchers, enhancement companies, and agri-food industry giants.

Valuation summary

NRGene is a growth firm, thus we based our valuation on current and future market trends and the Company's plans for future operations. Due to the high growth in the Ag Biotech market and the uniqueness of NRGene's solution, we predict that the Company is well-positioned to generate significant growth in the foreseeable future.

We conducted NRGene's valuation using market benchmarks from recent deals and analysis of VC's activity; Given the assessments and findings mentioned above, we value the company's stock price target in the range of NIS 29.4 to NIS 32.4, with a mean of NIS 30.9.

1. Company Overview

NRGene Technologies Ltd. is an AgTech company engaged in research and development of IP intensive technological products. The company develops varieties and traits of crops and animals, using its technology in the field of artificial intelligence, to analyze genetic information based on Big Data, in order to accelerate and improve the natural development of crops and animals in the global agriculture and food industry. The technology is used to analyze genetic data based on Big Data for the acceleration and natural enhancement of crops and animals in the global agriculture and food industry. The AI-based technology is widely used to create disease-resistant and climate-resilient strains with healthier nutritional profiles, maximizing yield potential throughout the value chain. In the field of crop genomics, the company offers an extensive database and AIbased technologies to some of the largest seed and agriculture companies. Its tools and services are already used by leading players in the AgTech industry and research institutions worldwide.

Strategy

NRGene's long-term strategy is to become a one-stop shop for all genomic requirements in the development of crops and animals, regardless of the location of partners and customers in the agricultural value chain. This includes data generation in laboratories (including its genotyping lab in Canada) and through other R&D activities, including identification of genetic diversity, to produce new varieties to supply seeds/varieties to various organizations that support farmers around the world. Since the end of 2020, the Company has been actively involved in partnerships with its customers in several development projects of crops and animals in several countries. The Company (exclusively or with partners) invests in development projects of new varieties of crops and animals. The Company then owns the improved varieties and/or traits and benefits from the commercialization of traits or varieties in exchange for royalties from sales or sales of the end-products.

Business Model

During the reporting period of 2022, the company operated through several complementary business models:

• 1. Developing intellectual property of varieties and traits for royalties and/or end-product sales As of the date of the 2022 periodic report, the company is prioritizing its resources towards projects aimed at developing intellectual property related to varieties and traits. The objective of these projects is to generate revenue for the company through royalties and/or sales of end products. Details of these projects are outlined below:
  2. a. Contracting for Royalty Agreements: Within the aforementioned projects, the company independently develops intellectual property related to varieties and traits of crops and animals, or

collaborates with partners to do so, in established target markets. In such cases, the company is entitled to royalties from the sale of the developed varieties or traits to customers and/or partners. To date, the company operates in three main categories within the intellectual property development model for royalties:

• Improving the development of unique traits
• Developing new/unique varieties of crops and animals
• Enhancing and developing food components.

These projects can generate income for the company, including advance payments, milestone payments, and royalties. The company estimates that as these projects are traded, they have the potential to provide long-term value to shareholders and customers.

Status of transactions in the intellectual property development model for royalties as of the date of the 2022 periodic report:

Project Partner	.	2022	2023	2024	2025	2026 .	2030
ToBRFV resistance in tomatoes Philoseed	2020: Development by NRGene	2022: Commercialization and implementation	2023: Royalties
High-quality cherry tomato varieties Top Seeds	2021: Development by NRGene			2023: Product Development by Top Seeds		2026: Royalties
Alternative protein from Pea and Hemp PIC Consortium: Pulse Genetics, Manitoba Harvest, FBN	2021: Development by NRGene			2024: Royalties
Clubroot resistance in canola Internal Development (partner yet to be identified)	2021: Development by NRGene				2025: Commercialization and implementation	2026: Royalties

b. Contracting for End Product Sales: Within the aforementioned projects, the company independently develops intellectual property related to varieties and traits of crops and animals, or collaborates with others to do so, in emerging target markets. These markets are still in their early stages, and the company's products may be among the first on the market, in a disruptive way. In such cases, the company is entitled to revenues from the sale of end products (i.e., varieties of crops or animals) to end customers.

According to the company's assessment, these projects have the potential to create long-term value for the company's shareholders and customers as they mature into commercialization.

Status of transactions in the intellectual property development model against revenue from end products as of the date of the 2022 periodic report:

1. Genetic Testing (Genotyping) - as of the reporting date, the company is engaged in performing genetic testing for crops and animals, and producing specific DNA kits for genetic testing of crops and animals for cultivation purposes, both as part of internal company projects and for trading to customers and partners. The company's SNPer™ product is directed towards the genetic testing market for crops and animals. This product provides customers with access to software (via cloud computing) that analyzes genetic information to develop and implement specific genetic tests tailored to the customer's enhancement program. This is expected to lead to more accurate results at lower costs. According to the company's estimation, there are around 1,000 potential customers in this field.

To advance its activities, the company launched a dedicated genetic testing (genotyping) laboratory in Saskatchewan, Canada in October 2021, serving the company's customers in genetic testing projects. According to the company's estimation, the business model in the field of genetic testing may enable the company to generate revenue through recurring contracts, as existing and potential customers rely on the company's products in both the research and development stage for crops and animals enhancement, as well as in the production of varieties for an extended period.

As of the 2022 periodic report, the company continues to promote further research and development efforts to expand solutions provided in the field of genetic testing. This includes developing specific DNA kits for crop and animals with broad commercial potential based on the company's unique data repositories.

1. Strategic collabarations and long-term support (strategic projects) - In this model, the customer enters into a transaction (project-based or multi-year) with the company to access software via cloud computing and receive accompanying services of their choosing. The company's support is comprehensive and includes services tailored to the project's needs, including complex analyses, cloud solutions, and more. After the company demonstrated the ability of its developed technology to bring value to its customers (and validation) and completed over 300 different projects, enabling the product's tube, as detailed above, as well as gaining relevant knowledge and experience in significant crop growth worldwide, the company continued during the reporting period in negotiations with potential customers and partners for contracts under this model. During the reporting period, the company expanded the scope of strategic contracts by an insignificant amount compared to its previous activities.

We believe that the complementary models mentioned above are useful for NRGene for two main reasons:

• a. The company will be able to gain knowledge and genetic information in every project, which will improve its competitive advantage, support its future growth, and serve as a decisive differentiating factor.
• b. The mentioned business model allows the company to advance in the value chain and achieve maximum potential value over the agricultural value chain that was previously inaccessible, through the sale of end products or exchanges from the sale of end products by its partners and customers.

As of the reporting period of 2022, the company's financial resources (cash and short-term bank deposits) totaled approximately \$12.3 million (gross), and the company expects them to be sufficient to meet its business plans without the need for additional financing. Additionally, the company is working to identify and obtain alternative financing options, such as government grants.

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