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

Thanks, and welcome everyone; Bill Koschak here, serving as Calyxt's Chief Financial Officer. I appreciate your time in joining our conference call and webcast covering the second quarter 2022 earnings results. Joining me is Michael A. Carr, who serves as 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 corporate site, calyxt.com. Prior to starting the formal portion, I want to remind all of you that remarks delivered during this call and webcast — including those about upcoming financial outcomes, future operational targets, and industry outlooks — constitute forward-looking statements and may involve various risks and uncertainties that might lead actual outcomes to differ materially from what is described here. For a list of related risks, please consult Calyxt's SEC filings. This presentation also covers adjusted net loss along with adjusted net loss per share, and both qualify as non-GAAP financial measures. Additional disclosure about these non-GAAP financial measures appears in Calyxt's press release and its SEC filings, each posted on the company's website at calyxt.com. Any mention of these non-GAAP financial measures ought to be viewed alongside GAAP financial measures and must not be treated as a replacement for results presented under GAAP. Finally, a webcast of this conference call is taking place. You can access the webcast link in the Investor Relations section of calyxt.com. With that, I'll hand things over to Michael for his opening remarks.

Appreciate that, Bill, and thanks to everyone for being with us today for the Calyxt earnings and corporate update call. During 2022's second quarter, the Calyxt team made tangible headway in every part of the business, which includes moving forward on the development and sale of plant-based chemistries driven by customer demand, securing infrastructure partners to substantially broaden our manufacturing capabilities along with technology, and plant trait licensing. Over that quarter, Calyxt kept working on scaling and standardizing production within its pilot BioFactory system while building out the related capabilities. The meaningful progress achieved within a short span makes me proud and shows that our new strategic direction remains on track. Today, I'll take you in detail through what we've accomplished in recent months, and then Bill will give a financial update. Our attention is on pushing forward discussions and relationships with new customers across the cosmeceutical, nutraceutical, and pharmaceutical industries. Each is a large, innovative industry whose customers currently need to source sustainable and finite plant-based chemistries. These prospective customers are likewise recognized as quick to embrace innovation and are actively looking to shrink their carbon footprints. During the second quarter, Calyxt obtained 9 new chemistries from potential customers for evaluation, which brought the cumulative total of chemistries evaluated through poor development with our PlantSpring platform and for production in our BioFactory to 95. Out of those 95 chemistries, 31 have satisfied Calyxt's target product profile, or TPP, criteria, and we intend to evaluate these further and discuss them with the potential customers. Notably, the chemistries evaluated include a number that potential customers flagged as having been tried unsuccessfully by other players in the synthetic biology industry. That highlights the distinctive technology and approach of Calyxt's engineer, plant metabolism, in producing innovative, high-value plant-based chemistries for use in customers' materials and products. Drawing on the 31 customer demand-driven chemistries that cleared our TPP criteria, Calyxt is right now negotiating term sheets with several potential customers to develop a select number of those plant-based chemistries. As a reminder, our target is 2 to 4 customer demand-driven compounds developed by year end. We're also happy to share that Calyxt is running a pilot project for a potential high-value chemistry on behalf of a large global consumer packaged goods company. We anticipate delivering an engineered solution in early 2023; that could serve as the foundation for a potential engagement to finish development and manufacture the chemistry for that company. Other companies in the space might also have interest in this chemistry. In the second quarter, we also began conversations with multiple potential infrastructure partners. I'm pleased to report that we have exchanged a term sheet with one of them and are advancing discussions with others. These potential infrastructure partners bring a global footprint and capabilities that let Calyxt boost its speed to scale, since they have capacities spanning pilot to commercial scale production. The possible alliances we're discussing could allow chemistries to be developed and manufactured on an industrial scale for customers within our main end markets. What matters here is that our headway with these infrastructure partners doesn't just pave the way for future deals — it also adds value to the customer conversations we're having right now. Notably, I can share that these prospective infrastructure partners have shown real interest in collaborating with Calyxt, and they recognize and value that the chemistries we're pursuing are difficult to solve, high value, and potentially high margin. Through this asset-light model, we can direct our capital toward building a strong customer base and speed up how quickly chemistries reach prospective customers, rather than sinking that capital into large scale manufacturing. Beyond concentrating on PlantSpring-driven product development for BioFactory production, we're simultaneously exploring a broad array of possible licensees for our technology as well as the plant traits we've developed over the years, and we've achieved meaningful headway on that front. After we refocused our licensing business in late 2021 — which included the strategic hire of Pete Ball, our Technology Licensing Leader — we built out our strategy for maximizing potential revenue from licensing our technology and plant traits, as we announced last quarter; within just a few months, we've managed to secure term sheets for licensing our patents and for license of our plant traits. Where plant traits are concerned, there's been considerable interest in Calyxt's high fiber wheat trait for breads, pastas and other wheat applications, along with Calyxt's second generation high oleic soybean trade for healthy oil applications. These term sheet discussions with prospective licensees keep moving forward. I credit the considerable progress to having the right team, the right technology and an opportune moment. Our prospective licensees recognize the value in what we offer, particularly amid today's global supply chain issues and food and security. Our project with a large food ingredient manufacturer who contracted with us to develop a soybean intended to produce a replacement for palm oil remains on track for completion in the first quarter of 2024. Throughout the agreement's term, this manufacturer funds our development costs and holds an option for future development and commercialization. In light of world events, Calyxt has lately received inbound interest from additional manufacturers and users of palm oil. And as it happens, Calyxt appeared in the recent Wall Street Journal article covering exactly this topic and the potential for Calyxt to deliver solutions; we still expect that continuing global inflation in food and other products will generate further interest in additional palm oil alternatives. That takes in our cosmeceutical end market too; and Calyxt is especially well positioned to bring forward solutions grounded in our proprietary technology and expertise in plant-based synthetic biology. I'd like to now hand the call over to Bill, who will cover our second quarter financial results.

Michael, thanks. We released a press statement today about our second-quarter 2022 results, and we also submitted our Form 10-Q for that period this afternoon. Cash, cash flows, and restricted cash stood at $11.9 million on June 30, 2022. Second-quarter 2022 revenue was minimal, compared with $11.9 million for the same period in 2021. The decline came from winding down the soybean product line, which finished late in 2021. The bulk of second-quarter 2022 revenue was tied to our contract with a food ingredient manufacturer for creating a palm oil substitute. We've mentioned this previously: because we're phasing out our soybean product lines, we anticipate a significant decline in revenues compared with 2021 levels. For the second quarter of 2022, total operating expenses reached $6.8 million, compared with $6.3 million in the same quarter of 2021. That rise stemmed primarily from implementing the lease accounting standard, which shifted sums formerly recorded in interest net over into operating expenses. Our net loss for the second quarter stood at $2.5 million, or $0.05 per share, compared with $4.8 million, or $0.13 per share, during the equivalent period a year earlier. Non-operating income and expenses drove the reduction in net loss. Those items include the mark-to-market of our Common Warrants liability, which lost value as a result of a stock price decline in 2022, and that was partly offset by a gain we realized in the second quarter of 2021 when the Payroll Protection Program loan was forgiven. The improved net loss per share resulted from both the better net loss and a year-over-year rise in weighted average shares outstanding. For the second quarter, adjusted net loss totaled $6.7 million, or $0.14 per share, compared with $7.8 million, or $0.21 per share, during the prior year period. Our adjusted net loss and adjusted net loss per share both improved, driven by a smaller net loss and growth in weighted average shares outstanding compared with the prior year. We've mentioned this previously, and we're also glad to have brought in $10 million in net proceeds from the offering we closed in February, even with tough conditions in the capital markets, and from an institutional investor that is well respected. Our balance sheet is stronger as a result, and we're positioned well for success going forward. We expect those offering proceeds, together with our careful management of cash, to fuel continued targeted expansion and scaling of our BioFactory business model, and this approach keeps resonating with investors. Considering the money we plan to spend at our own discretion, and taking into account the business plan Michael just described, our expectation remains that our cash will last into early 2023. That figure factors in the outlays we intend to make in order to fuel the growth we're aiming for and to expand the BioFactory business model. Only payments from customers that are already locked in for licensing and product development work as of right now are counted in that runway. Because of this, should new agreements bring in cash from customers, our runway would be pushed out even longer. For additional details about how we performed in the second quarter of 2022, our press release and the filings we made with the SEC are available for you to review. With that, I'll turn it back to Michael, who will share his closing remarks.

Thank you, Bill. I want to stress once more that Calyxt's Q2 2022 represented a stretch of real, measurable progress; during that quarter we assessed nine novel plant-based chemistries shaped by what customers asked for, which lifted the total count of chemistries looked at for development to 95, and we also have a number of term sheets in active negotiation. For a high value molecule, we are on course to hand over an engineered solution in early 2023 to a major worldwide consumer packaged goods business. We keep moving forward with a number of prospective infrastructure collaborators capable of manufacturing chemistries across bioreactors of differing capacities, spanning pilot through commercial scale; beyond that, we are reviewing several term sheets related to technology licensing, and there is considerable appetite for licensing our plant traits. As I mentioned before, the meaningful strides achieved over the last few months make me extremely proud. Our fresh strategic path remains on schedule, and our determined effort to generate value for stakeholders continues. Much of our recent momentum stems from the unwavering commitment of our staff, whom I wish to thank. We anticipate bringing you further updates over the next several months. Operator, that wraps up our prepared remarks. Kindly make the line available for questions.

My first question concerns the asset-light strategy for large scale manufacturing, where you prefer not to put capital into that type of production yourselves. I'm just wondering how much intellectual property is tied up when you move a hypothetical molecule from what you do at the BioFactory over to what an infrastructure partner would handle. Does that partner contribute a substantial amount of IP, or do you essentially hand over most of it already completed?

Sure, IP definitely sits there. Like we've said before, our pilot BioFactory is up and running, and we keep pushing the scaling work forward; we keep building on and applying our AML method to it, aiming not just for greater efficiency but for higher productivity as well. And we've made specific moves when it comes to the media — the nutrient media we rely on, which is proprietary — plus other moves that matter for the real production happening inside a bioreactor. So even though that infrastructure piece exists, a portion of the IP is still tied to Calyxt.

Moving on, perhaps regarding those term sheets you're currently assessing — is the main thing you're weighing right now mostly money-related items, or would you say it's simply the overall intricacy involved with these sorts of agreements, or what exactly requires that kind of careful thought? Are you the one doing that weighing, or is it the other side? I'm just a bit curious for any detail on where things stand with that process?

Certainly. As you might expect, this has us fairly enthusiastic. Not just regarding the combined count of molecules we've gotten, but also the range of clients who've come to us, and how much they value our plant-based and quite distinctive technology in the synthetic biology space. Still, I believe you hit on something there, Bobby. What we're talking about are longer-term partnerships; we've stated publicly that our process runs roughly 36 months from the start, which covers our initial development work with the PlantSpring platform plus a further 24 months tied to scaling up in production. Like we've said previously, that stands out as extremely competitive when measured against other synthetic biology firms. So naturally, with partnerships like these and development timelines like these, reaching an agreement takes a bit of time. All the same, we remain — once more, I'd say genuinely happy with our position, keeping in mind that the overall figure we've laid out is 2 to 4 development deals by the end of the year. And once more, we're fairly at ease with where we sit right now.

And then, maybe once more regarding the 2 to 4 development agreements before this year wraps up. I realize at first you folks were perhaps thinking you could complete one of those before last year ended. From what it sounds, the close of 2023 remains your goal. I'm wondering whether any other schedules besides when these agreements happen might need some sort of shift in outlook, where you believe that after they're signed, the timelines that follow stay essentially as you first envisioned them, this opportunity?

Yes, I'd say our comfort level is fairly high with those initial timelines — we've handled the 2 to 4 for the year, no question.