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

Thanks, and good afternoon. I’m Wade King, Cibus’ Chief Financial Officer. I appreciate everyone making the time to be with us for Cibus’ Third Quarter 2023 Financial Results and Corporate Update Conference Call and Webcast. Joining me on today’s call are Rory Riggs, our Co-Founder, Chief Executive Officer and Chairman, and Peter Beetham, Co-Founder, President and Chief Operating Officer. Before we get started, I want to remind all of you that remarks delivered during this call and webcast, including any relating to future financial results and future operational goals and industry prospects, are forward-looking and could be affected by a number of risks and uncertainties that might cause actual results to differ materially from what is described on this call. For a list of associated risks, please refer to Cibus’ SEC filings. This conference call is being webcast. To help with your analysis of the business, the webcast link, along with our press release and corporate presentation, can be found in the Investor Relations section of cibus.com. With that, I’d like to hand the call over to Mr. Riggs. Go ahead, Rory.

Thanks, Wade, and hello everyone joining us today. First, I want to walk through a few of the latest developments on the business and commercial side. After that, Peter and I will take you through our current position and what lies ahead. Finally, Wade will wrap things up with a short overview of the financials. We've designed this format to give you an instructive picture of our company, what's in the pipeline, and what those prospects look like. That way, you'll have a stronger base for understanding who we are and for following our milestones and momentum. With that said, let me turn to some recent business and commercial news. From our June listing this year onward, our entire focus has been on pushing the shift from being an R&D organization to becoming a commercial one. As part of that shift, in October we carried out a strategic alignment meant to sharpen attention on our main commercial objective, which is to keep moving our commercial activities forward. Every resource and operation we have is now devoted to finishing the rollout of our first traits. Importantly, that means our 3 developed traits — Pod Shatter Reduction, usually called PSR, in canola, plus HT1 Herbicide Tolerance #1 and HT3 Herbicide Tolerance #3 in rice — along with pushing our soybean platform ahead and strengthening work on our advanced traits, Sclerotinia Resistance and HT2 in canola as well as soybean. Notably, this realignment has allowed us to capture these areas of focus and priority. I'll get into how each of these traits is progressing a bit later. Alongside the strategic realignment, we've put some needed cost reduction steps in place, with the aim of safeguarding capital resources so we can advance these 5 traits. Our belief is that concentrating again on our strengths and highest priorities will leave us well placed to hit our strategic objectives sooner, and we're putting in hard work to ensure that happens. So now let me take you through our 5 trait, 3 crop business model. Royalties haven't begun yet, but our commercialization work is already moving forward. It revolves around advancing 5 traits that apply across 3 major crops: rice, canola and soybean. Taken together, we see this as an addressable market opportunity exceeding 250 million acres, with more than $1 billion in potential royalties spanning canola, rice and soybeans. In our view, this 5 trait, 3 crop model is only the start of what our capabilities could eventually reach. A key achievement for our scientists has been mastering oligonucleotide-directed mutagenesis, our single-cell editing technology, and the production system that supports every crop platform. For a lot of people, the achievement that stands out even more is that, using this technology platform, the Cibus team has managed to build a product pipeline of 5 important traits. 3 of those traits are fully developed, backed by multiple years of successful field trials, and protected by strong intellectual property. What matters is that for every one of these traits, we've established a solid customer base at this point. On top of that, Cibus has constructed two crop platforms — one at canola, one at rice — and we're nearing completion of a third at soybean. Development work on our soybean platform has been going on actively for multiple years, and our expectation is that it will be up and running during Q4 2023. With all 3 traits now developed and with our commercialization efforts running through a high throughput editing process that shortens the timeline for development, we couldn't be more enthusiastic about what lies ahead for these 3 traits. In this process, what we do is edit the proprietary germ plasm belonging to our customers, then hand that germ plasm back to them carrying our trait. Executing this is now possible at great speed, which lets the customer speed up how quickly they commercialize. After they're satisfied and results have been confirmed, the customer puts together a registration dossier, kicks off its marketing plan, builds up its seed inventory, and in the end gets the seed out to farmers — that's the point when royalty payments to Cibus start. We look at our Pod Shatter Resistant trait, PSR, as our first trait product. It makes the seeds around canola seeds stronger, which shields the crops when weather conditions get extreme. We've demonstrated PSR's efficacy across multiple field trials. Drawing on those field trials, we now count 10 different customers who we estimate account for over 20 million acres of Canola WOSR. We have now edited these crops and begun giving customers back their leaked germ plasm carrying our PSR trait. As we've said before, our expectation is to finish transfers to 6 customers in 2023, and beyond that, in 2024 we expect to transfer the remaining customers while growing our market penetration with additional customers. Our estimate is that PSR's annual trait royalties could come to roughly $200 million annually. Besides PSR, the 2 developed traits are HT1 and HT3 in rice. These are significant genetic traits for herbicide tolerance, or weed management. Currently, over 95% of canola, soybean and corn rely on GMO-based herbicide traits for weed management. Rice has never had GMO traits. That's the reason these 2 traits are in high demand in rice. We've already transferred our first HT1, HT3 traits in the rice to Nutrien for the North American market. We now have 3 customers who we believe account for over 4 million acres in North and South America. We expect additional customers in North America and South America in 2024. Our estimate is that the annual trait royalties fees from HT1, HT3 in rice could come to roughly $150 million a year. These HG traits are now fully developed and validated, and much like our work in PSR, we'll be tracking the progression to customers' commercial lines that will generate our future royalties streams. 2023 has seen the progression of these 3 traits accelerate significantly; we are shipping additional traits back to customers and are also adding new customers across both canola and soybean. We're eager to share updates on how those 3 traits and 2 crops are coming along in the quarters ahead. Beyond the traits we've already developed, the 2 advanced ones matter enormously. Both work across multiple crops, which means they could prove effective in a range of crop types. Herbicide-resistant #2, or HT2, for weed control is the first of these advanced traits. Given how heavily certain modes of action have been used across the past 20 years, resistance to those herbicides has emerged in a lot of weeds. Growers of crops such as canola and soybean are clamoring for fresh broad-spectrum herbicides, plus the accompanying herbicide traits, that go after broad leaf weeds. HT2 is aimed at that market. We're anticipating key greenhouse data on this trait next summer. Since canola and soybean both want it, we think it could become the first < > trait to clear 100 million acres. To put that in context, industry figures show GMO based herbicide traits currently cover more than 300 million planted acres. The second advanced trait targets sclerotinia, also known as white mold, resistance. Among canola diseases, sclerotinia does the most damage, and it's 1 of the main diseases affecting soybean. This being a disease trait, it doesn't rely on a single mode of action. To hold up over time, it must tackle several aspects of the disease condition.

Should this work out, it would mark the first instance of a significant disease characteristic being usable across several crops. Assuming this characteristic works and gets rolled out in both canola and soybean, our view is that it could become the biggest gene edited characteristic so far. Development of these two characteristics moved along nicely during 2023. In the years ahead, we will also monitor how these two characteristics advance, along with their movement toward customers, commercial alliance, and their royalties payments. A major piece of our economic base and profitability will come from these characteristics and the royalties payments tied to them. On a quarterly basis, we will track this progress very carefully. Soybean represents the final piece of our 5 characteristic, 3 crop business plan. We have made substantial progress in finishing our soybean single cell editing platform. As we have said, we continue to believe that development of this platform will be finished in FY 2023. In the next few years, we will monitor how our soybean business progresses. After we have reached our platform, we anticipate considerable growth in soybean customers, drawing on initial discussions held so far. This is a big crop of 200 million plus acres in North and South America alone. A number of the major soybean seed companies are already customers of Cibus and other crops. Our view is that soybean will become a major contributor to our economic base moving forward and a key pillar in the growth of gene editing and agriculture. As should be evident, our 5 trait, 3 crop model sits at the heart of our corporate strategy. We plan to monitor how each characteristic progresses as it is deployed into elite germ plasm, and how each one advances will be central to our quarterly updates going forward, as every trait by crop combination begins producing royalties revenue. With that, I would like to hand the call over to Peter for his remarks.

Thanks, Rory, and hello everyone this afternoon. Like Rory said, Cibus’ model of 5 traits across 3 crops sits right at the leading edge of what amounts to agriculture’s shift from analog to digital. The reason we put it that way is that these gene edited traits essentially transform how large and how fast trait development can happen in crops. Through the technology underpinning our Rapid Trait Development System, RTDS, we can edit one individual cell taken from plants that carry what are regarded as the finest genetics in the sector. That material is what we call elite germ plasm. Cells that have been edited from that elite germ plasm then get regenerated into matching elite germ plasm carrying the intended edits. That stands out as the central way Cibus differs from competing gene editing approaches. Thanks to it, the amount of time and money needed to deliver fresh trait innovations to seed companies has dropped considerably. Our priority remains helping customers scale up and speed up their gene edited elite genetics. Let me explain how high throughput gene editing — our trait machine — operates. Once we get the green light from a seed company to edit its germ plasm, and that germ plasm physically arrives from them, work on a product gets underway as it goes into the trait machine. During the prior quarter, we told you we had launched the very first high throughput, semi-automated gene editing facility. And per Rory’s remarks, we look forward with excitement to seeing our initial customers move their germ plasm edits through in 2023. Over the coming 24 months, this new facility should produce more product at scale and with greater speed. One thing worth stressing: adding a new trait to our portfolio doesn’t require spending on a whole new machine. What we do instead is bring in a fresh set of editing reagents. Whenever a new crop joins the platform, we simply introduce plug and play automation solutions, backed by years of expertise in plant tissue culture, to handle whatever adjustments might be needed. Our design’s comparative simplicity, along with the efficiency it delivers, underpins how quickly we can develop things. It also helps us hold down major CapEx spending while we scale and accelerate the business. When a customer’s elite germ plasm reaches us, we process it and run it through the trait machine. After molecular confirmation of the edit wraps up, we check that edit’s quality, the trait’s efficiency, and confirm the elite line matches exactly what we got in the first place, apart from the edits we introduce. For our customers, this quality assurance step matters enormously. Next, we create a modest seed supply to return to the customer so their commercialization work can start. We expect that whole process to take somewhere between 18 to 24 months. Worth noting as well: at Cibus, our earlier efforts on the traits we’ve developed were carried out in growth rooms, greenhouses and field trialing across many years, demonstrating the process before we move into high throughput editing using customers’ genetics. The initial work that we've finished gives our customers really strong direction on ways to speed up their commercial process. Taking what used to be a process lasting a decade and shrinking it down to just a few years is genuinely revolutionary, and it's what our strategy rests on as we build a scaled business with high margins and strong free cash flow. Over to you, Rory. Thanks.

Appreciate that, Peter. To sum up, we're making solid headway on commercialization, with our focus placed on pushing forward 5 traits that have uses across 3 major crops: rice, canola, and soybean. Taken together, we see this as an addressable royalty market worth more than $1 billion, and our 3 crop 5 trait approach is only the start of what our capabilities could eventually reach; beyond that 5 trait, 3 crop commercialization work, there are further pieces that matter for our commercialization push as well. Summer is a crucial period in agriculture for field studies, and this year we ran a broad field trial schedule covering each of our traits. We were out in the fields alongside our customers too, collaborating with them to bring our 3 developed traits to launch. On top of that, during the third quarter we set up our first multi-locational field network for sclerotinia white mold resistant testing across various modes of action moving through our pipeline. That field performance network matters greatly for pushing forward and proving how well existing and extra modes of action for sclerotinia resistance perform. 2023 has likewise been a pivotal year for building a new global regulatory framework for gene editing technology — in particular gene editing technology that avoids transgenes; over recent years, we've witnessed policy being introduced in numerous countries worldwide that permits gene editing without transgene use. Most recently, on July 5, the EU College of Commissioners adopted the European Commission proposal on the Regulation of Plants obtained from New Genomic Techniques, commonly called NGTs. That proposed regulation sets out a conventional-like category of NGT products, which would be regulated as conventional varieties, moving the EU nearer to its trading partners in North and South America, Australia and Japan. Within the proposal, the Commission points to the potential for NGTs to support more sustainable agriculture, climate resilience and food security. According to this proposal, products from Cibus' gene editing platform would fall under the conventional-like designation. The EU matters for several reasons. First, it serves as a crucial bellwether for the rest of the world. Second, it accounts for over 100 million acres that have lacked access to GMO trait technologies. And third, roughly 20 million acres of winter oilseed rape are grown in Europe, which connects directly to our own strategy. Our PSR trait was created for this market, and we started field trials for it in the U.K. in 2023. This market also fits our other advanced traits in our canola pipeline; these represent major steps forward for our products and technology globally; we'll keep watching and reporting on these regulatory developments as they happen, but we remain on target for gene editing technology to become a globally approved method for advancing plant traits. I'll now hand the call over to Wade for a quick review of our financials.

Thanks, Rory. Turning to the numbers for Q3: as of September 30, 2023, we held $31.9 million in cash and cash equivalents. In our view, those cash and cash equivalents will be sufficient to support our planned operating expenses and capital expenditure requirements into the first quarter of 2024. For the third quarter of 2023, R&D expense came in at $17.5 million, versus $3 million in the same period a year earlier. That rise was driven mainly by higher lab supply and facility costs, growth in employee headcount, and greater stock-based compensation expense tied to restricted stock awards. SG&A expense totaled $8.8 million for the third quarter of 2023, compared with $3.2 million in the prior-year period. This increase largely reflected more headcount, higher consulting and legal fees, and greater stock-based compensation expense associated with restricted stock grants. Non-operating expense stood at $0.9 million for the third quarter of 2023, against non-operating income of $0.3 million in the year ago period. That swing stemmed from changes in the fair value of the liability classified Class A common stock warrants. Net loss reached $34.5 million for the third quarter of 2023, compared to a net loss of $6 million in the year ago period. For more detail on our third quarter of 2023 financials, please see our press release and filings with the SEC. That wraps up our financial discussion. Rory, over to you for your closing remarks.

Appreciate that, Wade, and I want to thank each of you for joining us today. It's hard to put into words how thrilled we are about what lies ahead for Cibus. In our view, we've reached a pivotal moment in history — one that lets us deliver swift innovation, for the very first time, to a sector eager to address global food scarcity; with favorable momentum coming from a better regulatory climate and major strides in trait creation, the seasoned Cibus team is seizing the chances in front of us, continuing to move our traits into our customers' elite germ plasm so their product lines improve for the good of the farmers they serve. We're genuinely eager to bring you an update on our following call. Operator, that wraps up what we prepared to say. Please go ahead and begin the Q&A portion of the call.

So, I suppose my first question is really about assisting everyone in grasping how we should rank the various initiatives that are presently in motion. Therefore, if we could examine a few of those commercialization milestones that you all reported having occurred during the quarter. Could you perhaps help us order those by total addressable market size, by timeline, or by both?

Bobby, that is an excellent question. Those 5 traits are something we have, and you fully understand that they are ranked. Our ranking truly centers on these 3 traits that are developed; thus, what we are emphasizing is telling you what occurred during the prior quarter to advance rice, and what occurred during the prior quarter to advance pod shatter. I will let Peter address part of that. Yet as a result of the effort we have put into rice, we currently face enormous demand across Latin America; we have already secured 1 major customer, which in our estimation accounts for roughly 3.5 million acres; we have several additional ones squarely in our sights; therefore, genuine advancement has come from the development work we have completed with commercial customers. These are customers who right now are in the midst of sending their germ plasm to us while we insert our traits into that germ plasm. Consequently, our aim over the coming year is to take those germ plasms and return them to the customers carrying their traits so that a launch becomes possible. The advancement, we hope, is something you will monitor through the contracts we are signing, the acreage attached to them, and how quickly we can turn those germ plasms around. What this business is aiming for is placing these germ plasms into people's crops so they can bulk up by themselves; we form part of the launch effort. Thus, once we ship back, we will possess a fairly solid idea of when they bulk up and when they go. As for pod shatter, the genuinely fascinating aspect of pod shatter is, first, that we have edited 10 traits and we are engaged in a separate launch process going back. However, I would like Peter to discuss the major point regarding pod shatter, which is the capability we now have with field studies and field studies involving customers, plus the mix of delivering their germ plasm to them and their field studies. We have this model under which all 3 of these traits will be prepared for planting at roughly the same moment. Nevertheless, for every single one of these items, we must be extremely clear regarding what we are doing to prepare them for that moment and to be able to state whether delays occurred, but even more crucially, to explain why we feel encouraged by their current state and how revenues ought to be considered. Peter, would you like to add a bit regarding plants and field studies?

Yes, I do. Bobby, thank you for asking, and Rory, thank you as well. In my view, the most useful frame for assessing where we stand — and I want to focus specifically on canola pod shatter — is this: as Rory said, there are 10 customers whose genetics we hold, elite germ plasm, as I've noted previously on this call, and we are in the process of moving those back to them. So during 2023 thus far, 2 of those customer lines have been returned. Taken together, the full set of elite genetics we possess represents potential access to as many as 20 million acres down the road. What makes this exciting on our end is that these returns are beginning to happen. On top of that, our field trials involving canola hybrids carrying pod shatter traits performed extremely well during the most recent summer. Seeing those traits expressed in customer genetics out in the field is thrilling for us. Following that, over this winter, we'll be evaluating canola hybrids in winter nurseries and genuinely advancing to the next stage — pre-commercialization performance evaluation — in 2024.

Also, Bobby, there's another point: our attention has been heavily on three crops and three traits, plus two crops. But we can't overlook how enthusiastic we are about soybeans. We're working with GDM germ plasm on this, and honestly, the prospect of completing it within this year has us very excited. Once that's done, there's suddenly this massive opportunity — because we think that as soon as people recognize we've got a single cell model capable of regenerating into a plant in soybean, we have plenty of customers involved in the soybean business. The chance to grow this business is just enormous. Does that answer what you were asking?

Yeah, that's really useful. Great stuff. Okay, so a quick follow-up. Clearly, that EU draft regarding how they plan to regulate what I referred to as NGTs — though I suppose there are plenty of abbreviations — comes across as quite encouraging. So I'm curious whether you could draw some comparison between their proposed approach and what's already been implemented in Canada? Also, I guess, where's the demand originating within the EU? Has this been something long in development as a way to revise those rules? Or are they facing certain pressures — say, around food security — or perhaps reassessing how they oversee other parts of your food system, and this is getting swept along with that?

Peter, I'll handle the big picture, then you can dive into the details on the customers. I believe it would help them to grasp this. The specific customers we serve in canola, how wide our demand is across those canola customers, and the reality that studies can now be conducted in the U.K. — but our biggest surprise is that the U.K. has been engaged in a 3-year effort to alter their legislation so that gene editing which doesn't involve transgenes is regulated like conventional breeding; and there's genuinely strong agreement throughout Europe. Productivity there has fallen so much, given they have no GMOs whatsoever. As a result, they require this law. And we — when their safety assessment was conducted, they essentially concluded our technology was safe and they went with it. What caught us off guard, though, was that this came roughly 3 months before we — when we mentioned it in our press release, 3 months earlier than we anticipated it would occur. And within that press release, they mentioned bringing it before Parliament in February. We had been thinking June; so we're quite thrilled that there's truly not merely forward movement, but they're attempting to accelerate things to put this behind us. That said, Peter, you might go — if that helps, it's genuinely a very encouraging time for all of us; and the U.K. passing this, meaning we can now run field studies there, is significant since it lets us begin advancing those products cultivated in Europe. Peter, do you want to chime in about the customers?

Correct, Rory. Bobby, I believe what you're asking gets right to the heart of it, since the EU is evidently attempting to speed up this regulatory process, and that isn't how things typically work. Consequently, quite a few of our customers are located in Europe, and they're thrilled about the chance to commercialize traits. Well, this is a — the entirety of Europe represents a 100 million acre market that simply hasn't seen much innovation over the past 30 years. Regarding your point on bettering sustainable agriculture, climate resilience and food security, those are significant regulatory drivers; so these favorable conditions for — for getting better products into the market are viewed by our customers as a tremendous leap forward. The reality is, we have 3 of our customers, genetics and the trials in the U.K., across the winter and into the spring of 2024; that marks a first for canola, winter oilseed rape; and it's thrilling to witness that, because I believe that global alignment, and you brought up Canada in what you asked, is showing considerable movement on the regulatory side toward harmonizing where the regulatory agencies stand on — in Europe they refer to them as new genomic techniques, but basically products derived from gene edited technology and particularly ones such as Cibus, where we utilize a non-transgenic process and a non-transgenic product. So they are harmonizing across the globe. And that genuinely unlocks worldwide markets for a company like Cibus.

Also, quite a few clients have already signed agreements with us. What's really cool is considering that these 100 million acres have never seen any wheat trading at all. At present, we've got 3 of them, which means this is a huge chance for our company. My apologies — I didn't receive the directions.

No, that adds some really useful detail. And just so we're clear, this would apply to goods brought into the EU as well.