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

Thanks, and good afternoon everyone. Bill Koschak here, Calyxt's Chief Financial Officer. I appreciate you spending part of your day with us for Calyxt's First Quarter 2022 Earnings Results Conference Call and Webcast. Joining me is Michael A. Carr, our President and Chief Executive Officer. We issued a press release with these results right after the market closed today, and you can find it on our website, calyxt.com. Before the formal presentation gets underway, I want to remind everybody that remarks delivered during this call and webcast — including those about future financial results, future operational goals, and industry prospects — are forward-looking and could be subject to a number of risks and uncertainties that might cause actual results to differ materially from what gets described here. For a list of associated risks, please refer to the company's SEC filings. This presentation also covers adjusted net loss and adjusted net loss per share. Those are both non-GAAP financial measures, and additional disclosure about them appears in Calyxt's press release and its SEC filings, each of which was posted on the company's website, at calyxt.com. Any references to these non-GAAP financial measures ought to be considered alongside GAAP financial measures and should not be viewed as a substitute for results presented in accordance with GAAP. Finally, we are webcasting this conference call. You can find the webcast link in the Investor Relations section of calyxt.com. With that, I'll hand things over to Michael for his opening remarks. Michael?

Thank you, Bill, and I'm glad everyone could join us for today's Calyxt earnings call. For those of you who are still getting up to speed on where we stand following the October 2021 announcement about our repositioning, I'd like to take a moment to restate who we are: a plant-based synthetic biology company. We exist to deliver the biomanufacturing power of plants to forward-thinking businesses in the markets we serve — cosmeceutical, nutraceutical and pharmaceutical. Our technology platform, our distinctive production capability and our financial model all set us apart from the rest of the synthetic biology field. I'm glad to report that our organization is moving at full speed into the growth and scaling stages of its development. We expect major milestones in 2022, and we'll go over those during today's call. To give a quick overview of our technology platform and explain why we believe the future of several industries rests on producing plant-based chemistries sustainably — PlantSpring is that platform, and it draws on our extensive know-how in engineering plant metabolism. Through an efficient development process, we move innovations from the lab to the pilot stage. Our proprietary BioFactory then produces these PlantSpring-derived compounds. The BioFactory taps into what plant cells can do when arranged in a multicellular matrix — that's our patented Plant Cell Matrices, or PCMs. To produce something inside a bioreactor, which we call a BioFactory, those PCMs are paired with growth media. What makes the BioFactory stand out from the other production systems in use across SynBio and plant-based industries right now comes down to several things: its plant-based foundation, how our PCMs are used, the fact that it can generate complex plant-based chemistries, plus its modular design and geographic flexibility. Because the BioFactory is modular, our thinking is that in many cases it can be built out near the customer, and that results in a supply chain that's more dependable for the people we serve, with the added possibility of lowering transportation expenses. We're also using AIML across PlantSpring development and BioFactory production, which helps us become more efficient and cut down how long development takes. So in our view, the company is set up to supply unique chemistries that, as we see it, probably can't be made through the more conventional synthetic biology production methods. Given the major industry trends, these capabilities put the company in a strong spot — one of them being that more than 20% of the 2,000 biggest companies globally have made carbon neutrality commitments. To hit that target, we think these businesses will have to bring plant-based solutions into what they do. We've achieved significant commercial headway since January, along with several key technical milestones involving PlantSpring, BioFactory, and AIML, which put Calyxt in a strong position going forward. Our attention is on building out conversations and connections with prospective new clients across cosmeceuticals, nutraceuticals, and pharmaceuticals — sectors that are sizable and forward-thinking, where companies presently need to obtain sustainable, finite plant-based chemistries, tend to embrace new technology quickly, and are deliberately working to lower their carbon footprints. As you may recall, our strategy for creating compounds is guided by what customers need, and we run candidate molecules through our screening standards — the target product profile, or TPP — for lists of compounds that our prospective clients find interesting. By late April, 28 molecules flagged by potential customers had been assessed by Calyxt for development using our PlantSpring platform and for manufacturing in our BioFactory. An additional 58 molecules are not counted in that figure, since they fell short of our TPP standards and were dropped from further review. Among these 28 customer molecules are a number that the potential customer noted had previously been tried without success by other synthetic biology firms. Just to remind everyone, our goal is to have two to four compounds driven by customer demand ready for development by the close of the year. Back in January, we shared that our pilot BioFactory production system went live in late 2021. That milestone came in right on schedule and represents a significant initial move toward reaching commercial production at scale. Within this pilot BioFactory, we've finished several runs, with our attention on confirming the system functions as intended, that our Plant Cell Matrices deliver the expected performance, and that data gets recorded correctly, since this feeds future AIML progress. The pilot BioFactory has a modular design, built so it can keep producing plant-based chemistries without interruption while also generating several compounds simultaneously. So this gives us some room to maneuver when we're making chemistries for several customers simultaneously. Our plan is to grow this pilot system until it can handle full production runs of compounds comparable to what commercial production requires. We've also started putting more AIML tools into use across both PlantSpring and the pilot BioFactory. Right now, Calyxt relies on AIML to help pinpoint gene targets within the PlantSpring development workflow. Over the last quarter, we brought AIML into our lab-scale reactors, which lets us continuously gather and study data, and that has driven improvements in performance. Later this year, we're aiming to move these lab-scale AIML capabilities up into our pilot-scale reactor. This implementation shapes upcoming choices and enhances testing rounds, aiming to cut down how long development takes. Near the end of last year, Calyxt announced significant strides in uncovering and advancing eco-friendly, plant-derived compounds within its BioFactory. Our metabolomics study findings revealed over 15,000 chemical markers, covering familiar ones alongside those not yet defined, plus precursor building blocks. Such markers represent chemical substances taking part in reactions that yield additional substances. The chemical markers recognized so far make up an initial reference collection, letting us promptly pinpoint and evaluate what customers are aiming for, which could help speed up development schedules. Based on what potential customers have told us they're interested in, we've made rosmarinic acid from this library. It's a compound that works as an antioxidant, fights inflammation, and has antimicrobial qualities, and it's widely used in cosmeceuticals and nutraceuticals. Beyond that, Calyxt has pinpointed 6 more compounds that prospective customers may want. Calyxt plans to bring rosmarinic acid into the pilot BioFactory so its capabilities and scale can be pushed further. Using what we've learned from our soil-based operations and our lab-scale bioreactors, Calyxt can demonstrate that switching from land-based production to a lab-scale bioreactor delivers a yield gain of at least 35-fold. With those results as a foundation, we expect yield to improve even more once production moves to pilot scale. When combined with the land-based to lab data, that next step up to pilot scale might produce a total yield gain reaching as high as 130-fold, comparing land-based production with the pilot BioFactory; such outcomes support the scalability and sustainability advantages the company gains from the BioFactory production system; we have kept adding focused new personnel who are essential to expanding and scaling our operations. Only a month ago, we disclosed the addition of 2 directors, which further strengthens our know-how and capabilities while backing our strategy and business model. Suellen Boot came aboard as a Business Development Director, bringing Calyxt more than 20 years of valuable business development experience; in that position, she will concentrate on enabling prospective partnerships, deal structures, valuation models, and the transaction execution and alliance management that follow; we likewise brought in Elizabeth Teigland as Manufacturing Director. Liz contributes over 15 years of chemistry and purification know-how to Calyxt and will oversee pilot through commercial-scale manufacturing of the company's compounds driven by customer demand and, together with an R&D leader, the verify stage of product development.

As you might remember, in February we brought on Gerry Nuovo as our new SVP of Business Development. Gerry has over 30 years of experience across the specialty chemicals and biotechnology sectors, along with varied experience creating multimillion-dollar revenue streams in the cosmeceuticals end market, which includes personal care and home care. Also in February, Calyxt closed a successful financing that gave the company net proceeds of roughly $10 million. Raising capital was difficult at that time for many companies, especially those in biotechnology. The fact that we accomplished this speaks to our strategy and focus; this raise bolsters Calyxt's financial position as we strive to grow our business and realize its value. As a result, we expect Calyxt's cash runway to last until early 2023. The BioFactory production system we use differs from those employed by other synthetic biology companies today. Plants—naturally complex, multicellular organisms—are the foundation of our BioFactory. This, we believe, enables us to create plant-based chemistries with greater complexity than numerous alternative production systems, including single-cell fermentation-based ones. Some of our prospective customers have certainly told us this. In our production system, the biomass we use is a PCM. Owing to being multicellular, PCMs are stable and capable of generating more than one plant-based chemistry simultaneously. When our PCMs expand in size and number, they keep generating the desired chemistry on an ongoing basis. To feed our PCM structure and deliver nutrients, we apply a growth media. Each hour includes some period of bathing, and over time that can be fine-tuned through AIML so the PCM's output capacity reaches its maximum. On another front, we've pushed hard to broaden our intellectual property holdings, which lets us secure room for Calyxt's proprietary technology — among it our PCM and the multicellular method that serves as an essential cornerstone of our company's success. Everything gets produced inside a bioreactor, also called a BioFactory. That means it avoids lots of the harmful weather impacts you'd normally see with conventional farming operations, plus the growth difficulties that come with alternative approaches such as fermentation. On top of that, the way our BioFactory system gets built is modular — it can be configured so that multiple plant-based chemistries are made simultaneously. Because of this modular setup, a BioFactory can go just about anywhere, giving it geographic independence that other big production operations lack, since those usually demand heavy spending on one centralized site. Taken together, these advantages let Calyxt turn out sophisticated plant-based chemistries quickly. There are cases where we think the compounds our chemistry can create might not be manufacturable using alternative approaches. Customer orientation and our commercial framework give us two more points of distinction. In contrast to how Calyxt operated in the past, or honestly, to certain other synthetic biology players, our route to market involves creating and manufacturing exclusively plant-derived chemicals that our buyers want and require, guided by what our target product profile specifies. Should we manage to develop these chemistries and scale production successfully, that gives us greater confidence about reaching commercialization. Since we hold every candidate to our TPP standards, we expect an exceptionally strong rate of success for whichever chemistries we decide to pursue. As previously mentioned, plants sit at the heart of our technology, and we view that as a huge competitive edge. Plants deliver natural diversity that nothing else matches and can generate far more chemistries than other organisms can; often those chemistries are much more complex than what a single-cell organism is able to make. Frequently, those working with single-cell organisms are attempting through their development work to copy what plants already do in nature. By pairing plants with our proprietary PCM structures inside our BioFactory, we obtain the range of cell types that a whole plant possesses, while not having to grow the entire plant; that allows a wider array of chemistries to be made simultaneously and yields steadier scaling of both the PCM biomass and the target chemistry. Our business model also sets us apart from others in synthetic biology. To identify plant-based chemistries we might develop, our business development team takes a customer-focused, demand-driven approach. Under this model, we must be selective from the start so that sound decisions get made for both Calyxt and our customer. Those criteria are what we call our TPP. Within the TPP, you'll find several components. One is whether we technically can synthesize the desired chemistry. Another is the size of the customer's demand pool—looking at volume as well as total and per-unit spending. We also examine what other future chances exist to market that chemistry to additional parties. Our focus is on big demand pools and product revenue possibilities that might hit several million dollars a year for each compound, with a gross profit margin goal in the mid-double-digit range. Because we care so much about margin, we lean toward creating compounds that are rare in nature along with those that are difficult to manufacture—ones that carry high value but low production volume. After the TPP is in place and we've taken care of a few other intermediate actions—like producing a limited quantity of the desired chemistry—we then settle on the exact details of the compound with the customer. Our plan is to have infrastructure partners carry out the manufacturing for us, while the customer purchases the plant-based chemistry from Calyxt through a supply agreement. In this business model, the bulk of Calyxt's value stems from how much product gets supplied to the customer once development and scale-up are finished. Depending on which compound is wanted and where the end market sits, there will also be situations where the design, engineer, verify and pilot process gets paid for by the customer. Anything involving regulation or formulation tied to the chemistry we make is something we anticipate the customer will take care of. So, in summary, Calyxt's PlantSpring technology along with the BioFactory production system differs from what others in synthetic biology are doing in many respects, including how we've structured our business model. That model has resonated during the business development conversations we continue to have with prospective customers. Looking ahead, our work to bring customers on board centers on end markets in which we think our existing abilities position us best to succeed, such as cosmeceuticals, nutraceuticals and pharmaceuticals. The following markets are quite large, and the companies operating in them right now require plant-based chemistries that are sustainable and finite. They're known for adopting new ideas fast, and they're working hard to reduce their carbon footprints. Consider the cosmeceutical ingredients space, which also takes in personal care along with flavors and fragrances. Based on figures from MarketsandMarkets, this market is projected to spend more than $60 billion annually. Within it you'll find major multinational cosmetics companies, regional and specialty brands, plus flavor and fragrance houses that either create products for those brands or supply them with ingredients. If Calyxt were to win even a modest portion of these large markets, the resulting business opportunity would be significant. In our view, our development cycle might deliver an unprecedented timeframe, counted from signing a contract through to commercialization, for getting plant-based compounds to market. We have always maintained that our 36-month development cycle gave us an edge over other synthetic biology peers.

Since we've progressed deeper into the process of bringing customers on board, we now anticipate making modest volumes of product so the customer can evaluate it early on in development. Because of that, we think our development timeline will probably come in under 36 months. We also anticipate applying AIML even more across the various phases of the PlantSpring development cycle and within the BioFactory production system, which is likewise meant to trim the time it takes us to develop things. To give an example, we're happy to report that the design-engineer-verify cycle is now, in certain instances, able to wrap up in only 9 months. To sum up, our product development cycle leads the industry and should keep getting shorter, which lets our route to product revenue speed up too. Along with the momentum in our customer acquisition efforts, we're enthusiastic about what lies ahead for Calyxt as we consider this part of the business. At this point I want to hand the call to Bill, who will discuss our licensing technology, our latest financial results and the important milestones coming up. Bill?

Thank you, Michael. Beyond concentrating on creating products powered by PlantSpring for BioFactory output, we're likewise exploring a broad array of possible licensors for our technology as well as traits we've developed over the years. During 2022's opening quarter, we completed the plan for maximizing possible income from licensing both our technology and plant traits. That plan has 2 components. It captures outreach on a wide scale to businesses operating in plant gene editing and biotech regarding their licensing of our intellectual property holdings, plus turning the agricultural traits we've built historically into revenue. Calyxt plans to generate money from those traits by licensing them to other parties, among them seed firms, processors and additional entities. We're making licenses available covering the numerous gene editing and breeding technologies within our patent portfolio, among them our TALEN patent estate. When it comes to licensing our agricultural traits, lively talks are underway regarding a number of them, such as our soybean and wheat offerings; our goal is to complete licenses across both the technology and trait licensing groups during 2022. Last, here's a quick update about a project for the sizable food ingredient producer that signed a contract with us to create a soybean meant to yield an oil usable as a substitute for palm oil. Work on this kicked off in 2021's fourth quarter and is still expected to wrap up in the first quarter of 2024. Across the 2-year length of this agreement, the food ingredient producer covers our development expenses and retains an option covering later development plus commercialization; relatedly, you might have caught last week's reports saying Indonesia's government has prohibited palm oil exports as a way to rein in consumer prices for palm oil there, an action that could worsen worldwide inflation in food along with numerous other goods, cosmeceuticals included. We think this turn of events could spark greater appetite for further palm oil substitutes, and that Calyxt is especially well positioned to deliver solutions rooted in our proprietary technology along with our know-how in plant-based synthetic biology. Today, earlier, we put out a press release detailing results for our first quarter of 2022, and this afternoon we additionally submitted our Form 10-Q covering that quarter. Starting with cash: our cash, cash equivalents and restricted cash totaled $17.9 million as of March 31, 2022, which includes $10 million in net proceeds raised during mid-February through the SEC-registered offering. Turning now to the P&L: revenue came in nominal for the quarter, versus $4.4 million during the same period a year earlier. That revenue drop stemmed from the late-2021 finish of winding down Calyxt's soybean product line. Every bit of revenue during 2022's first quarter related to the agreement with a food ingredient manufacturer for developing a palm oil alternative; and moving forward, we anticipate revenues falling substantially below 2021 levels, owing to the wind-down of our soybean product line and the company's business transition into a synthetic biology company. Operating expenses for the quarter totaled $6.1 million, versus $7.3 million during the same period a year earlier. That reduction came mainly from recapturing noncash stock compensation expense tied to forfeited unvested stock awards during the first quarter of 2022, along with reduced operating expenses. We posted a net loss of $5.6 million in the first quarter, equal to $0.13 per share, against $10 million, or $0.27 per share, in the comparable prior year period. The smaller net loss resulted from finishing the wind-down of the soybean product line, which lifted gross margin and cut operating expenses, while the better net loss per share came from that reduced net loss plus a year-over-year rise in weighted average shares outstanding. Adjusted net loss reached $6 million in the first quarter, or $0.14 per share, versus $8.8 million, or $0.24 per share, a year earlier. Both the adjusted net loss and adjusted net loss per share improvements stemmed from the lower net loss and the year-over-year growth in weighted average shares outstanding. As Michael and I noted, the $10 million in net proceeds from our February offering have backed our business plans, strengthening our balance sheet and setting us up for future success; we take great pride in this financing, achieved despite challenging capital market conditions and alongside a well-respected institutional investor; we plan to stay disciplined about how we deploy cash and expect those offering proceeds to fund continued growth and scaling of our BioFactory business model plus selective hiring to support the advancement and expansion of our AIML capabilities. Investors are responding to this growth plan. Thanks to the successful offering of our common stock and warrants, and given our current business plan, we now anticipate Calyxt's cash runway stretching into early 2023, including planned spending to support growth and scale of our BioFactory business model; that runway reflects only committed customer payments for licensing and product development as of today. Consequently, any customer cash flows from new deals would push our cash runway out even further. For more specifics on our first quarter of 2022 financials, please see our press release or SEC filings. As Calyxt continues validating its platform technology, we remain on track to hit several key milestone targets spanning PlantSpring and the BioFactory. First, within PlantSpring, and extending our existing gene targeting capability, to possess AIML capabilities for identifying pathways during the design phase of development by midyear 2022. Second, building on our lab-scale reactor AIML rollout, to have AIML capabilities operating fully inside the pilot BioFactory by midyear 2022. Third, to design additional PCMs with PlantSpring for production in the BioFactory. So these PCM structures are really the basic building blocks we use to create the chemistries and molecules that lots of customers across our target end markets care about. And then, last, when it comes to commercial-scale production, we want 1 infrastructure partner locked in by the close of 2022. On top of that, we're still making strong headway on our commercial milestones, and those involve having 2 to 4 customer demand-driven compounds in development, plus we're aiming to execute multiple licenses across both technology and trait licensing by the end of 2022. At this point, I'll hand the call back over to Michael for his closing remarks.

Thank you, Bill. Let me stress once more that Calyxt's opening quarter of 2022 represented a stretch marked by pivotal progress. From prospective clients, we've examined 28 molecules — among them a number of additional ones where those possible customers had not found success working with other synthetic biology firms. Several trial runs on the pilot BioFactory are now finished, and we've brought AIML features into its lab-scale reactors, which sets up pilot-scale deployment of that AIML functionality before this year ends. Our work moved forward on targeted metabolomics analysis, which spots over 15,000 chemical signatures — among them, given interest expressed by possible customers, rosmarinic acid — and we pinpointed 6 additional compounds that prospective clients care about. We've shown a yield gain of no less than 35-fold when going from land-based production to a lab-scale bioreactor, and drawing on those findings, we anticipate even greater gains once output shifts to pilot scale — possibly lifting yields by up to 130-fold relative to land-based production. Hiring continues for essential positions that back our strategy and business model. Notably, our capitalization carries the business into early 2023 and possibly further out, subject to how well we do with licensing and product development agreements and the associated cash flows during 2022. Several forthcoming milestone objectives, in the lab as well as commercially, remain within reach. We're eager to keep up our speed and momentum, and to bring you news about what we accomplish going forward. Operator, that wraps up our prepared remarks. Kindly open the line for questions.

So I suppose the first thing is really just getting a handle on that palm oil substitute. The deal you've got going at the moment, under which you're funded, as I understand it, for the coming two years, plus there's a commercialization option with that partner — does that block you, or stop you, from signing additional deals regarding that specific plant trait?

Bobby, that's an excellent question, and one whose timing is certainly intriguing, shaped, I think, by what Indonesia has changed, along with the difficulties surrounding palm oil. I mean, at Calyxt, one thing we're definitely centered on is generating value across every part of our operations; and a piece of that is truly capitalizing on our IP portfolio and our track record of IP development, and that really ties into this deal. But to answer you directly, no, it doesn't; and so it's going to be interesting to watch the consequences that unfold when it comes to palm oil and supply globally across the world.

Great. So, when it comes to your production scale partner, my understanding is that you're hoping to have one secured before this year wraps up. Would that single partner handle everything for you? Or might you require more than one, depending on which molecules or compounds you eventually intend to scale up?

Well, at the close of Q4 last year, we brought our pilot-scale bioreactor online, as you're aware. And the objective, just like you said, is to lock in one infrastructure partner before the year ends — possibly even more than one. What really shapes our business model at its core is our customer base. That makes it demand driven, essentially. And that plays a big role not only in how we find and formalize those infrastructure partners, but also, addressing your question, in how much they vary and how many we end up with; so ultimately, our customers' requirements will be the primary force behind it.

All right, that's helpful. One more thing from me, and after that I'll get back in line. I'm just trying to understand — there were a number of molecules, I believe, that some prospective customers had already identified, and the partner they were working with on synthetic biology couldn't actually scale them up or find a way to get them produced successfully. So does that give you — do you have any sense of why that happened, and what puts Calyxt in a stronger spot to succeed with those same molecules? Is there something about your approach, something fundamental, that makes success possible there?

Good question. Clearly, we're quite enthusiastic about the commercial progress we've discussed today, having been able to review more than 58 molecules from customers while keeping that evaluation going on another 28. The interesting piece with those molecules — those 28 — is that they span 12 distinct chemical classes across 5 distinct functional areas. You can think of things like antimicrobial and anti-inflammatory. And they come from 8 separate prospective customers. So there's genuine diversity in that mix. When it comes to where we sit, this is exactly the position we described back when we made our transition in October of last year. As a plant-based synthetic biology business, what sets us apart is that we take a multicellular approach. That happens through our proprietary Plant Cell Matrix, and when you compare it with other synthetic biology methods — mainly microbes, which are single-cell and rely on fermentation — there are situations where those methods simply can't handle the complexity of certain compounds that need to be made. So we've been quite enthusiastic about our position and what we can do when compounds get complex, and what we're finding is that this is genuinely being validated through the conversations we're having with these customers.

Regarding those 28 molecules, the press release mentioned that earlier tries from other suppliers didn't work out. "Our efforts based on the technology" — is that the thing that sets us apart? I'm simply attempting to grasp which kinds of solutions or methods those other suppliers were using compared with what we're doing.

The true specifics about the other solutions aren't known to us. Usually, what you see in synthetic biology is an approach built on microbes plus fermentation. What we focus on is, once again, our PlantSpring platform and BioFactory, which relies on a plant-based method, a natural method, in which we use the multicellular structures. And once again, truly, the core of that is the proprietary Plant Cell Matrix. And for us, what's thrilling about that is its modularity, which means it generates several chemistries simultaneously. So we can serve not just a given customer who needs more than one compound, but potentially several customers at once. So there are multiple distinct ways in which we stand apart. Also, if you set our method against fermentation, say, we bathe our Plant Cell Matrix using our nutrient media, our proprietary media, rather than submerging it, which is what happens in fermentation. So there are multiple distinct elements that set us apart and separate us from other SynBio methods, which we believe contribute to a great deal of the conversations we've had with customers already, plus possible customers down the road.

Got it. And has any of that work gotten underway yet? Or is it more that you're still in talks with prospective clients about which molecules to focus on?

What stands out is that toward the end of last year, we ran a batch in our BioFactory and performed a metabolomics analysis, which yielded more than 15,000 chemical signatures. In one of those signatures, we demonstrated that rosmarinic acid was there, and customers had brought that up on multiple occasions as something they might be interested in. At this point, no development agreement has been signed for that specific compound, but we're leveraging it inside our pilot BioFactory to push its capabilities and scale further, while at the same time holding those conversations with prospective customers regarding the 28 molecules. And clearly, we'll keep having more customer discussions as we move ahead.