Cibus, Inc. (CBUS) Earnings Call Transcript & Summary

Thanks, and good afternoon. I want to express appreciation to each of you for making time to be with us on Calyxt's conference call covering financial results for the fourth quarter and the full year of 2020. Joining you as hosts today are Dr. Yves Ribeill, who serves as Executive Chair of the Board, along with Bill Koschak, our Chief Financial Officer. A press release with the details of these results went out over the wires following today's market close, and you can find it on the company's website, calyxt.com. Prior to starting the formal presentation, I want to remind everybody that statements provided during this call and webcast — among them those concerning future financial results as well as future operational goals and industry prospects — constitute forward-looking statements and could be subject to various risks and uncertainties that might lead actual results to differ materially from what is described on this call. For a list of the associated risks, please consult the company's SEC filings. Also, this presentation contains discussion of adjusted gross margin, net loss, net loss per share and EBITDA. Each of these is a non-GAAP financial measure. Additional disclosure about these non-GAAP measures appears in Calyxt's press release and its SEC filings, both of which are posted on the company's website at calyxt.com. Any references to these non-GAAP financial measures ought to be viewed alongside GAAP financial measures and must not be treated as a replacement for results presented in accordance with GAAP. And lastly, this conference call is being webcast; the link for that webcast can be found in the Investor Relations section of calyxt.com. Now I'd like to hand things over to Calyxt's Executive Chair of the Board, Yves Ribeill. Yves, the floor is yours.

Thanks, Chris. I appreciate everyone being here for Calyxt's call covering the fourth quarter. Many of you listening who've tracked the Calyxt story — whether as shareholders, potential investors, or analysts — are probably aware of the positions I've held here. I've served on the Board since 2018, spent a stretch as Interim CEO during 2018, and then, most recently, in the summer of 2020, I was named Chairman of the Board. As for my experience, I've spent a long career in biotech, co-founding SCYNEXIS among other things, plus over 25 years working at large pharmaceutical companies. Right now I serve as Chief Executive Officer of Ribogenics, Inc., a privately held biotech focused on RNA biology. Two weeks ago, we shared news that my position would shift to Executive Chair, taking over from CEO Jim Blome. It's worth emphasizing that the choice we made in 2020 to change our business model stands as a key factor behind this leadership transition. That decision reflects another step toward concentrating Calyxt on major innovation possibilities that go past commodity-based agriculture. We've brought on a top-tier executive search firm, and on the Board's behalf, I'll assist in steering the CEO search and help with the handover once the new CEO is chosen. Speaking for the Board, we'd like to express our gratitude to Jim for leading Calyxt toward a leaner business model capable of seizing the value from delivering disruptive plant-based innovation. Calyxt has had a robust and productive 2020. We've refocused Calyxt's innovation engine toward fresh, high-value opportunities and assembled a team whose talent mix fits what's needed to advance Calyxt's go-to-market strategy. We're firmly positioned for growth and success ahead. I'm eager to collaborate closely with this outstanding leadership team throughout the interim period. I'm also pleased to share news about the creation of Calyxt's Scientific Advisory Board. As we said before, the SAB will report to Calyxt's Board of Directors and be led by Dr. Dan Voytas as Chair. Alongside Dan, there will be 3 members at the outset, each a globally recognized expert in biochemistry: Dr. Anne Osbourn, who is Group Leader at the John Innes Centre; Dr. Elizabeth Sattely, an HHMI Investigator and Associate Professor of Chemical Engineering at Stanford University; and Dr. Paul Bernasconi, formerly Global Function Head for Molecular Biology at BASF Biosciences. The Scientific Advisory Board's strategic mission involves assisting Calyxt in pinpointing disruptive plant-based solutions that represent near-term opportunities, along with longer-term, higher-risk, higher-return concepts, some of which might come to fruition via partnerships with other commercial entities. I think this marks an exciting moment for Calyxt and our fast-evolving story around disruptive plant-based technology. Calyxt is a technology company dedicated to bringing plant-based innovations to end users across industries such as food, nutraceutical, energy and agriculture; we also believe our technology can apply to additional industries. We make use of distinctive technologies, among them the TALEN gene editing platform, in order to create product candidates; in gene editing we hold a leading position, with exclusive rights to proprietary TALEN technologies for plant applications, and those technologies allowed us to successfully bring to market the first gene edited food product in the U.S. Our development pipeline reaches across multiple crops and represents a substantial total addressable market worth $8.8 billion. The products within that pipeline are to be commercialized via partners and are aimed at critical industry dynamics, such as consumer demand for specialty ingredients and the support of sustainability objectives; furthermore, we believe our business model is capital-efficient, offering multiple routes to market for our product candidate. At this point I would like to turn the presentation over to Bill Koschak, our CFO, who will share our 2020 highlights and walk you through our financial performance. Bill?

Thanks, Yves. Your joining us on this call means a lot, and we're eager to collaborate as we keep expanding what Calyxt does. Since we last spoke, a number of important milestones have been reached; work has moved forward on our winter oat initiative. There's real potential in our trait concept to help produce premium oats in greater quantities, satisfying rising demand from consumers for both food and feed. What we're aiming for is an oat variety grown in winter that serves food and feed purposes and might double as a winter cover crop, which could lift direct-to-consumer farmgate income for those growing winter cover crops and create carbon credits for them too. In America, oat ranks as the number two plant-based dairy product. Oat protein is likewise well placed to join the fast-growing plant-based protein sector. We think our oat initiative can bring about climate resilience, helping oats compete better economically and be cultivated in fresh areas of the continent, and eventually in more parts of the globe; once commercialized, this project—anticipated to bring sustainability gains—sits in Phase 1 of our development pipeline, with commercial planting availability targeted for 2026. Development of our hemp projects has moved ahead as well. The hemp work we're doing aims at the protein, nutraceutical, fiber and advanced materials markets. Initially, we're concentrating on standardizing the crop so it can be adopted across broad acres, lowering the risks of hemp production and updating how breeding gets done; we expect our hemp breakthroughs to reach the market first as licensed seed, breeding platforms or traits, brought to commercialization by top germplasm and hemp-based ingredient and material businesses. These efforts sit in Phase 1 of our development pipeline, with commercial planting availability targeted for 2023 and 2024, respectively. Near the end of December, we told the market about selling all of our 2020 soybean grain production to ADM, with cumulative sales totaling more than 4 million bushels; that move formed part of Calyxt's shift toward advanced go-to-market strategies. Selling got underway in the third quarter of 2020; and currently, 40% of the 2020 grain crop has been sold to ADM, with the rest expected to be sold across 2021. Additionally, in the fourth quarter, a commercial agreement was signed with S&W Seed Company, a worldwide agricultural firm based in Longmont, Colorado, granting an exclusive license for an alfalfa trait of improved quality across the U.S. and certain other chosen geographies. It's the company's first commercial trait license deal, and according to long-term U.S. sales projections, it might bring in over $10 million in license revenue across the life of the trait's pending patent. This inaugural trait license deal, plus the forthcoming alfalfa seed launch from S&W, marks a milestone in carrying out Calyxt's 3 go-to-market strategies and shows well how we can collaborate, pick traits that add value, conduct the necessary research and assist S&W Seed in delivering advanced plant science to the market. So in light of how strong our sector is and what's happening in the broader market, we felt it made sense to strengthen the balance sheet by completing a capital raise. That raise brought Calyxt $14 million in net proceeds and pushed the company's cash runway out into the second half of 2022. With this fresh capital, our plan is to move our existing product development pipeline forward, keep building out our technology platform, TALEN included, grow our intellectual property portfolio, and back the rollout of our streamlined business model. We're also pleased that Cellectis chose to take part in this offering — it shows they're behind our business and believe in our go-to-market strategy. Let's now shift to a few subsequent events from earlier in the first quarter of 2021. Last week, we were glad to share that we signed a soybean seed sale agreement with Perdue AgriBusiness, a standalone operating unit of Perdue Farms and one of the biggest grain companies in the U.S. Even more significant, this is the first seed distribution agreement we've reached since moving our business model forward. Perdue will contract with growers for grain production and processing under an identity preservation process, per the terms of the seed distribution agreement. For the 2021 high oleic soybean growing season, Perdue will contract directly with farmers — something Calyxt handled itself for several years previously — and this agreement will lead to Calyxt seed sales to Perdue in 2021 that fit their growing region specifications. Perdue is a great fit to help bring the Calyxt soybean line to the next level, drawing on their broad, vertically integrated production system and freeing the Calyxt team to concentrate on pushing forward the next plant-based breakthroughs in our research and development pipeline. Our core go-to-market strategies offer differentiated routes to commercialization and could generate cash payments across the development cycle. With a trait license, we anticipate receiving fees upfront and then when major milestones are achieved by our partner. The sooner a partner is identified, the greater our opportunity to generate positive cash flow during the development cycle; we also anticipate ongoing royalties once our partner commercializes. Under our seed sale go-to-market strategy, we anticipate that revenue generation will come from selling seed. With a technology license, we anticipate receiving fees upfront and then annually from any prospective licensee. Once that licensee commercializes, we also anticipate ongoing royalties. We understand there are trade-offs between the certainty of upfront payments and milestones versus higher-risk royalties, and we aim to strike a balance between the 2 potential cash flow streams. We have a robust development pipeline, and addressable markets for hemp, winter oats and our high saturated fat soybean for a palm alternative are all substantial opportunities worth more than $2 billion, and they're new projects Calyxt initiated in the last year. At this point in our pipeline, 9 projects have reached Phase 1 or beyond, spanning a number of crops. Our goal is to have no fewer than 5 product candidates ready for commercial planting to get underway between now and 2024. This funnel reflects how much R&D work we're doing, and it leaves out any possible chances to license technology; with that said, let's move on to the numbers behind our financial results. A press release went out today covering our fourth quarter and 2020 results, and our Form 10-K is going to be filed as well. You can find that press release in the Investor Relations area of our website, and the 10-K will go up this evening. Fourth quarter of 2020 revenue came to $13.9 million, which is $10.1 million more than the fourth quarter of 2019, mainly because roughly 40% of the 2020 grain crop was sold during the fourth quarter of 2020. Our gross margin percentage rose by 900 points compared with the prior year, landing at a negative 35% in the fourth quarter of 2020, largely due to the effect of the shift in our go-to-market strategy for the soybean product line along with smaller net realizable value adjustments on our inventory. For the fourth quarter of 2020, adjusted gross margin stood at a negative 28%.

Looking at Q4, our total operating expenses were approximately $8.1 million. That represents a decrease of around 21% year over year, compared to Q4 of 2020. The main driver behind this reduction was lower operating costs that resulted from changes in our soybean market approach, as well as additional reductions in general and administrative spending. Our net loss for the fourth quarter of 2020 was $13.4 million, compared with $12.2 million for the fourth quarter of 2019. Adjusted net loss for Q4 of 2020 was $12 million, essentially flat versus the fourth quarter of 2019. Important context regarding the non-GAAP measures we report, including reconciliations to the closest comparable GAAP measure, can be found in our earnings materials posted on our website. As we noted earlier, in the fourth quarter we finished selling off all soybean oil and meal, got out of almost every soybean processing and transportation contract, and sold roughly 40% of the 2020 grain crop. Seed production for 2021 has wrapped up, and we expect to sell seed to processors, depending on what we have on hand that fits the growing regions they're targeting. Thanks to our soybean go-to-market strategy change and the additional cost-cutting measures we've put in place, operating expenses have come down. As a result, we now anticipate that our cash burn rate for operating expenses in '21 will come in at roughly $25 million or less. Turning to cash, the fourth quarter of 2020 was notable for the major progress we achieved in moving our soybean products to a seed go-to-market strategy, along with our capital raise and the operating expense cuts we made. Net cash provided in the fourth quarter came to approximately $9.7 million, which is $17.6 million above the $7.9 million in net cash used during the fourth quarter of 2019. A portion of that gain was attributable to money we brought in through a capital raise, with Cellectis—the investor holding the biggest stake in our company—taking part alongside institutional investors who were new to us, and additionally from $9.1 million generated by liquidating short-term investments. Working against that was a reduction in cash flows tied to operating assets and liabilities, mostly because of when cash collections occurred and when payments to growers were made. Moving on, we'll look at how we did financially across calendar 2020. We brought in $23.9 million of revenue in 2020, which represents a $16.6 million increase, or 227%, compared with $7.3 million in 2019, with the main driver being sales of roughly 40% of the 2020 grain crop that took place in the fourth quarter of 2020. For 2020, our gross margin percentage dropped 2,000 points compared with the prior year. Several factors drove that decline: we sold a larger volume of products; we saw an impact from lower costs associated with products sold during 2019, since $3.3 million in grain costs had already been expensed as R&D; we had $2.8 million in unrealized losses on commodity derivatives from futures contracts sold to hedge our fixed price grain inventory and fixed price forward purchase contracts; and our net realizable value adjustment to period-end inventories rose by $1.3 million, which included write-downs of excess seed produced for 2020 plantings. Those increases were partially offset by higher selling prices and gains from pushing forward the go-to-market strategy for our soybean product line. For 2020, our adjusted gross margin percentage came in at negative 30%, versus negative 61% during 2019. That percentage-level gain came about because of cost savings tied to moving our soybean product line's go-to-market strategy forward. Operating expenses overall fell 14% for 2020, and the reasons were reductions in operating expense stemming from the revised go-to-market approach for our soybean product line plus other cuts to general and administrative costs, though those were partly offset by $700,000 in restructuring costs. Those restructuring costs take in the effect of severance and other expenses arising from the action we began in August 2020. From this action, we don't expect any additional restructuring costs. In addition, during the same period in 2019, we had $400,000 in expenses tied to writing off R&D tax credits that were no longer realizable. For 2020, our net loss was $44.8 million, an increase of $5.2 million, or 13%, compared with the $39.6 million we reported in 2019. The larger negative gross margin drove that increase, though it was partially offset by reduced operating expenses. Net loss per share for 2020 was $1.32, which is $0.11 per share higher than the $1.21 net loss per share in 2019, and the larger net loss was the reason. Our adjusted net loss for 2020 came to $40.3 million, which was essentially flat versus the $40.5 million recorded in 2019. Net cash used across 2020 added up to $41.7 million — that's $6.4 million above the $35.3 million figure from 2019. Several things pushed that number higher: short-term investment purchases, the bigger net loss, and a decline in noncash stock compensation expense, which together meant cash items made up a larger portion of our net loss, plus increased cash flows consumed by operating assets and liabilities, mostly tied to activity involving our soybean product line. Partially balancing those out were net proceeds from our capital raise. Turning to what we aim to accomplish in 2021 and afterward, the last three months of 2020 and the start of this year produced a number of important wins that we intend to extend over the coming quarters. Those include wrapping up shipments tied to ADM's pledge to buy our grain, getting seed out the door to satisfy our Perdue arrangement, and finishing the regulatory review process for IQ Alfalfa so that S&W can move ahead with the commercial debut it has scheduled for late 2021. More project milestones ought to land in the quarters ahead, as the timeline indicates. In gene editing, we occupy a leading spot, and we also hold a strong IP portfolio. Looking across everything we work on and every sector we touch—food, nutraceutical, energy and agriculture—the opportunities in front of us are enormous. We pursue a model where we create initiatives alongside collaborators, combining what we do best—trait creation and gene modification—with those collaborators' know-how in bringing products to market. Conversations with prospective collaborators have focused on our efforts to create plant-derived input options addressing specific downstream challenges, including what consumers want, environmental responsibility, expense, standards of excellence, and meeting regulations. We think the actions we had to complete during 2020 will place Calyxt well strategically to expand and to generate returns for shareholders over the coming years. At this point, Yves, I'll pass things over to you for your closing thoughts.

Thanks, Bill. I'd like to restate how enthusiastic I am about what lies ahead for Calyxt. Analogies have always struck me as a powerful tool for getting a point across, so I'll rely on one now to lay out what we see for this business. In the electric vehicle revolution, or EV revolution, Calyxt plays the part of the battery. Consider the automotive sector: my view is that the EV revolution came about because automakers kept waging the conflicts of the past, and that opened a space which disruptors — above all a modest-sized firm with ambitious concepts — could exploit. Within our own industry, Calyxt fills that same space for innovation. Calyxt is turning into the wellspring of energy behind plant-based ingredients made for pioneering products. Such offerings will serve rising customer demands spanning many expanding sectors, and at the same time they'll advance health, secure environmental sustainability, and tackle climate change. That is what Calyxt dreams of and envisions.

Yves and Bill, I'm not certain which of you is best suited to answer this, but speaking broadly, when we consider how gene editing and GMO might be divided going forward, are there any hurdles you foresee regarding regulation or how consumers might accept them? In what way are the people involved with non-GMO labeling viewing gene editing, and what might that mean for the products you're working on?

Yves, feel free to handle that one if you'd like.

Alright, I'll handle that one — or at least give it a shot. Your question is clearly a strong one, no doubt about it. Around the globe, what we're seeing with gene editing is that it's picking up steam. The key distinction, I'd say, between GMO and gene editing comes down to our reason for doing the editing. If what we're doing is answering what customers want — delivering health, sustainability, and a climate response — and if we walk people through the science behind gene editing versus the science behind GMO, then my belief is that the market will accept this more and more. The first soy product we brought forward proved that. Our regulatory team is very strong and has demonstrated its track record. And we're confident that we can keep moving ahead with gene editing without it being — how should I put it — lumped together with GMO.

That makes sense. Next, I was curious about what's coming down the product pipeline. Your addressable market looks strong. You're targeting several crops and enhancing them through advanced traits. I'd like to know how deep or how broad that pipeline can become given your present staffing level. With the people you have now, could you handle twice as many projects, or does some ceiling get in the way?

A ceiling always exists. What I mean is, with the science we possess and how thoroughly we've mastered TALEN technology, there are countless possibilities. Our view is that we should validate the new crops and concentrate on this new one, winter oats. I'll also add a few remarks regarding hemp. One thing we're examining, though, is that if we could establish an industry partnership with someone wanting to concentrate on one specific crop and collaborate with us on developing it, then together we'd be able to bring the resources to bear, and that fits into the business plan we've now implemented within Calyxt.

All right, that's helpful. Then I've got just one more, and it's about the CEO position. Yves, after someone else takes over from you as Interim CEO, what practical shifts do you see happening when it comes to what that new CEO does day to day, or where they put their attention, since the whole point is to fit the new business model more closely? Are there concrete tasks that person will need to handle that nobody was handling previously?

The key thing that has to keep being communicated, I believe, is getting the market to grasp — and grasp well — the innovation Calyxt produces. As I mentioned while presenting, we should be able to demonstrate just how much there is. Look at all these possibilities open to us; and your point about whether our R&D has sufficient resources to pull that off also speaks to every technology we're capable of introducing. Pursuing innovation while zeroing in on whatever currently carries high value and high margin, proving we can execute and execute quickly, and increasingly making clear that we belong to the upcoming wave of food, nutraceutical and other chemistries emerging in the marketplace — we intend to be a player in that space, and we intend to strengthen that core so it performs even better. That, I believe, will be the central mission for whoever becomes the next CEO.

Regarding the Perdue deal, can you share any insight into how much you anticipate it will add in 2021, and then how that relationship might expand for you down the road? Also tied to that, what sort of margins are you anticipating from the Perdue partnership?

Absolutely. Amit, thanks for asking — I appreciate it, and it's good to speak with you this afternoon. On the Perdue side, we just closed that deal not long ago, and right now we're working through which seed we can make available and what demand exists on their end regarding where they'd want to expand that seed, so we can figure out what suits both parties. Our expectation is that they'll take advantage of the same growing area we've operated in previously, which opens up some opportunity; that said, there are complications in how the whole thing gets mapped out. That covers assembling our plan for upcoming years, meaning 2022, and we'll see how it shapes up. When it comes to margin specifically, we've stated all along that when we generate seed inside the U.S., we earn money at the point of sale. That's been sitting inside our financial statements. And given the terms of the agreement we reached with them, we anticipate the same will hold true with Perdue; we haven't given specific commentary on what that margin percentage could be, though it would fall within the range of our earlier public remarks of mid-double digits.