Burcon NutraScience Corporation (BU) Earnings Call Transcript & Summary

Burcon NutraScience develops innovative plant-based edible proteins from pea, canola, soy, hemp, and sunflower seeds, and holds over 100 patents globally. The company just announced a production facility agreement to bring its products to market this year, and CEO, Kip Underwood, is here to dig into the details. It's Monday, February 3, I'm Martin Gagel with Market Radius Research. Please remember this is neither recommendation nor investment advice. Kip, thanks for joining us, and congrats on materially moving your production plans forward.

There's a lot been announced, one a lot in this -- so why don't you give us a quick overview on what's happening, and then we can dig into some of the details.

Thanks, Martin, and great to be talking to you again. Really has been an exciting few days for Burcon-- really clear, 2 or 3 really substantial milestones for us in our desire to bring our differentiated plant proteins to market. So the first is we announced that our partner, led by our Board member, Mr. John Vassallo, acquired a facility that is intended for us then to lease and bring our entire plant portfolio to market. This is really exciting from a couple of different levels. First of all, it gives us a route to market. Second, it demonstrates that our Board member and his group believe in the market. They believe in our technology and they believe in our ability to execute our plan. Second piece of the puzzle was then we announced that we have formalized an agreement with Mr. Vassallo's business is called ProMan, protein manufacturer for basically essential for Burcon to lease the facility 100% operational control for the facility. Again, this really gives Burcon for the first time, a direct route to market where we control the production of our products, the delivery of our products to our customers to ensure we do not just meet, we exceed their quality expectations.

The operating agreement you have with them is a little, I don't know if it's unusual, but it's interesting there buying the facility, you're leasing it off to them. You're covering some expenses. They're not just a landlord, they're a little more active than natural. Can you just tell us a little more about what your roles are and what their roles are and how that all works?

Absolutely. So the first piece of the puzzle is on their side, it's essentially a real estate transaction. So they are buying the facility. We are installing capital process capability, so the facility can in fact, produce our entire portfolio of proteins. So that is all with their funding, they are delivering that to us. And we, as Burcon, essentially lease, we have the right to 100% of the operating time. Then we lease the facility, we operate the facility. We are 100% responsible for, does the facility run well or does it not? And then we have a 7-year contract agreement followed by a 10-year lease. So it's a long-term commitment by both parties. We really have mutually assured success in this together.

Can you tell us about ProMan, the investor group?

Absolutely. So we wind it back a bit. This really all started late summer. We began to look as Burcon in search for a potential manufacturing facility that we can invest and bring our products to market. As we went down that path, Mr. Vassallo then came in and said, "Hey, you know Kip, if this works, I had this idea for an investment group, we can probably come together and make something work for both parties". We very quickly narrowed it down to 3 facilities that we thought with the right size, right cost, right capability and that was about November. Since then, we've narrowed down, and we have the ideal facility. And why this is important for everybody, is one is, we went through that process together. Locating the facility, understanding needs, understanding where the wins for both parties are. And Mr. Vassallo, our Board member, again, he is a top 10 shareholder in our company. He believes in this. He personally -- it's an interesting set. He personally is heavily invested in health and wellness for himself, and he is a real estate, has extensive commercial estate experience. You put those 2 together and add in the fact he's a Board member and a top 10 shareholder. He literally is the perfect partner to help Burcon bring our products to market.

So it's not just a building. They're also providing the capital equipment, the machines and all that as part of the agreement. So Burcon shareholders don't have to pay up the initial CapEx for this facility?

So really cash efficient for our Burcon investors. So we locate the facility together. We, as Burcon specified the equipment. We agreed on the overall price, the installation plan, the ProMan Group then pays for that installs under our direction and then essentially hands over the keys to us, right? So -- and then for Burcon what we're responsible for, is we raised the money to fund the cash flow positive through the production and then the launch of our products. And then we have to pay them, obviously, a monthly rent for the operation of the facility.

All right. So you're doing all the hiring and the management of the facility.

We are a fully managed facility. We have full operational control. We will be directing all personnel there at the facility. So really, the performance of the facility wholly rests with us.

All right. You mentioned in the news release that you're expecting to go into production this year and even at the end of this year. So it seems to be going -- for my experience for a food manufacturing, that's pretty quick. Can you talk about the time line, what needs to happen and when you expect to start production?

Sure. One of the reasons this facility was truly ideal for us is it is running right now. It has people operating facility. It has a plant manager. It has some small pieces of business. So we're not walking in starting from scratch, right? So that's a huge help from a people and expertise, those types of things. Second is we have already, again, laid out the equipment. We've actually already ordered some equipment that will be installed. So we anticipate. first commercial production in very small amounts in the April, May time frame, and we expect ongoing continuous production in by mid-summer.

Wow! Okay. You have a lot of products, plant proteins from all sorts of agricultural products. Can you talk about -- and you gave some revenue projections for next year, I believe it was. Can you talk about, I guess, maybe like what do you expect your top 3 products to be? You've talked -- you're talking with customers -- where do you see your initial sort of push in the protein market to be?

Well, the first in the facility has -- we will have the capability to produce our top 4 products, hemp, canola, pea protein and sunflower protein. So first is, we will produce all those. We have already launched all those to market via pilot scale material. And the second thing is we will listen to the market. If you listen to the market, they will tell you what they value the most, they will tell you what they want to buy first. And that will be our approach. I anticipate our first sales to come from pea protein. That is primarily because right now, we have a set of prospective customers. We have 17 specific letters -- expressions of interest letters. And what those are is companies saying, "Look, we want your product, we like your product. When can you produce it commercially, we want to buy, right? And a large portion of those are companies that bought from -- bought our technology previously, which is pea protein and canola protein. So I anticipate pea protein being the largest initial product because there's an existing market, we have customers who have bought it before. Therefore, their decision, their decision time line is relatively short. And that's what we anticipate the majority of our sales coming from inside 2025.

Take it to buy inventory and to move production forward, you do need funds and you are in the middle of a rights offering right now. How is that coming along? And I believe the sort of benchmark for funding this project is you need to get $7 million. So how are you on the pathway to getting that?

Things are going very well. So $7 million is the minimum. The maximum is $12 million. We have -- we've been on the phone with several of our investors, and we have strong interest from our top 10 shareholders who own a significant amount, strong interest from insiders, strong interest just in the various people that we're speaking with. So we're highly confident that we won't -- we not only go well past the $7 million we will really approach the full subscription, which would be $12 million.

Your shareholder base, is it fair to say it's fairly concentrated. the top 10 shareholders own a significant portion of the shares out there?

Yes. The top 10 shareholders do own a significant portion. And by and large, they have committed to participate in the rights offering.

Over Burcon's history over the past 20 years that I've been following the company, the company has announced several partnerships before that haven't been the most successful. They've run into a few hiccups along the way. Are you confident that this one is going to be different? Why is this one different? And why should investors and everyone think that "Hey, this is it. This is Burcon's time to shine".

Martin, thank you in particular for this question. It's a question we ask ourselves. It's a question investors ask us all the time. And I think there's really 3 pieces of the puzzle, right? So one is -- we are targeting a growing market. And that's generally always been true. Burcon technology has always been relevant and differentiated in a growing plant protein and protein market. Second, we have differentiated technology. There are customers out there who want to buy our products, that has also been generally true over time. What has not been true in one and the big reason this is different is this is for the first time, Burcon will have full control of the production the sale and the delivery of our products to customers to ensure we meet or exceed their demands for consistent quality. We have never in our history had control of this aspect. And we believe this is a critical piece, #1 of why this time is different than the previous. The second thing -- the second piece of the puzzle really is my leadership and people I'm going to bring on board. I have done this before. I have started up a plant that was roughly 10x the size of Merit. I have sold out a plant as somebody in sales. I'm going to bring and have brought on experts from the industry who have done this before as well to proof our plans, look at our startup plans, poll holes in everything we are doing. So we are going to bring expertise of me and my network specifically to ensure that we get this done right. And this is from people who have frankly done it before successfully. So the big 2 differences are the growing market is there, differentiated products customers want to buy, Burcon. We own the production and sale and deliver our product to our customers to exceed their expectations, and we're going to bring expertise to help us get this done from people who have done it before.

How confident are you? And what do you -- what are the elements? There's a lot you've got to put together are the biggest risks are the biggest things that sort of keep you up at night, so to speak, where you're going to be especially focused on that we got to get these couple of things right for this to all succeed?

Well, like I said, the market is there, the customers there, the fund raise is going fantastic. We have a great partner. So that is our foundation for success, right? So really, we're focused on is the details, right? The nonsec details how to execute orders to cash? How do we get our product quality, our QA department up and running? How are we doing on the procurement of our raw materials? We are down to the details because I believe that we get those right, with the foundation we have laid with our agreements and our partners, the rest would take care of itself.

You haven't been able to disclose too many details about the facility itself as it's -- it hasn't been finalized. Given the current geopolitical economic state with Canada and the U.S., are you able to tell us which country the facility is located in and how that's maybe insulated or exposed to various regulations or changes in regulations?

Sure. Yes. We can say the facility is located in the United States. So any -- and that we can say that we have prepared to source raw materials, both from Canada and the United States. So from any tariff situation between the 2 countries, minimal, if any, impact to us, won't impact our plans to move forward at this point in time.

All right. And pretty much all of your main inputs are standard agricultural products, the hemp seeds or sunflower seeds and that. So these aren't super niche products, but they're widely available commodities, right?

Yes. I mean we've already kind of -- we've already worked through and have redundant supply, identified each -- for each of our products. We've already built those relationships. So we're well ahead in the game of ensuring we have security of supply for our raw materials so that we can meet our customer expectation in a product.

All right. Kip, we've covered a lot here. I think we've hit all the key points. Is there anything you want to mention before we wrap it up? And then any final comments to put a bow on the whole situation?

Thanks, Martin. I think the take -- there's really 3 takeaways I like all investors to walk away, right? So one is we're targeting a growing market. Two is, our products are highly differentiated, and we have customers who have stated they want to buy the minute we can deliver commercial scale quantities. And third, we hit it, what's different this time. We, as Burcon will own the production the sale and the delivery of our products to market for the first time in our history, and that will become the cornerstone of our success moving forward.

All right. Kip, thank you very much. That was a great update. Congratulations on getting it this far. And I really -- all the best on finalizing the last details that need to be done. And I look forward to getting you back here once things have moved forward. Hopefully, you're in production at that point, and we can see how things progress.

Thanks, Martin. Really appreciate your time today. I can't wait to talk again soon.