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

Thanks, and good afternoon to everyone. Wade King here, serving as Cibus's Chief Financial Officer. I appreciate your time in joining this conference call and webcast covering our Fourth Quarter 2023 Financial Results and Corporate Update. Joining me on today's call are Rory Riggs, our Co-Founder, Chief Executive Officer and Chairman; along with Peter Beetham, Co-Founder, President and Chief Operating Officer. Prior to getting started, I want to caution all of you that any statements shared during this call and webcast — including those about future financial results, future operational goals, and industry prospects — constitute forward-looking statements and could be affected by various risks and uncertainties that might lead actual results to differ materially from what gets described here. A list of associated risks can be found by referring to Cibus SEC filings. This conference call is being webcast. To help with your analysis of the business, the webcast link, our press release, and corporate presentation can all be found in the Investor Relations section of cibus.com. With that said, I'll hand things over to Mr. Riggs now. Go ahead, Rory.

Thank you, Wade, and hello everybody joining us today. I'm going to give you a big-picture look at what we accomplished during 2023 and the way the past year's developments set us apart within this nascent sector. Then Peter will take you through the commercial strides we've recently made with our products, along with several milestones we anticipate reaching during this year. After that, Wade will wrap things up with a short review of the financials. Our aim is to give you the clearest possible picture of our business, so that you're able to gauge and follow both our corporate and commercial advancement. Most importantly, 2023 marked the year in which we shifted from being a company centered on R&D into one operating at the commercial stage in gene editing. Our firm concentrates on producing and bringing to market a family of trait products created through gene editing. This transformation got underway when our partners' edited elite germplasm was first transferred in early 2023, covering both canola and rice. Those transfers signal the start of the clock for bringing our pipeline of developed traits to market. At the same time, we launched what is the industry's first standardized, semi-automated, high-throughput gene editing facility, known as the Trait Machine. For us, and honestly for the whole sector, this facility represents an enormous leap forward in boosting the precision, speed and scale of gene editing trait products. What makes this breakthrough in trait development matter even more is the headway we've witnessed in regulations worldwide, which now oversee traits produced through gene editing in a manner comparable to those arising from conventional breeding. That reflects growing international backing for this emerging gene editing sector as it tackles the significant sustainability problems facing the world's food supply. Before Peter gets into the details on our products and how they're progressing, let me briefly cover how our commercial advancement has unfolded alongside the company's evolution and our vision of what a commercial-stage gene editing company in plants looks like. We define that as an integrated commercial business model linking research and the creation of new traits to a standardized, semi-automated trait production facility and, finally, to commercial trait transfers into seed company customers, who then commercialize and sell our traits. Put more plainly, a commercial company centered on gene edited trait products that runs a gene editing trait supply system. That system operates at industrial scale, handling and delivering numerous traits from numerous customers spanning numerous crops. Most importantly, our initial transfers upon opening the trait regime embody the face of our transformation, this vision of a commercial stage company; under our vision, technology-based trait companies function as an extension of the breeding operation at seed companies; within this model, Cibus supplements the breeding operations of seed companies with significant new complex traits. By doing so, we speed up the seed and trait development efforts of our customers. Crucially, since our traits cannot be distinguished from those originating in conventional breeding or nature, an expanding number of hundreds of regions have shifted toward adopting new regulations that promote gene editing. These fresh rules are meant to spur on gene editing by handling characteristics derived from NGTs much like those coming out of traditional breeding. When it came to embracing these updated rules, the United States along with South America took the lead. A significant milestone in the continuing growth of this emerging sector occurred in February 2024, when the EU itself decided to govern traits produced through NGT technology in a manner comparable to traits originating from conventional breeding, which aligned the EU with the United States, South America and numerous other nations; the fact that these adoptions happened nation by nation demonstrates how vital our technology is for securing a sustainable worldwide food supply. These fresh rules < > mark a genuine turning point. Worldwide, the updated rules are making possible this new period of standardized high-throughput trait creation. Within the seed business, traits form the essential foundation of rivalry. One cannot overstate how much faster, scalable breeding approaches are needed. Another crucial piece of this puzzle involves putting global regulatory standards in place. Given the magnitude that our stabilized high-throughput trait development technology is unlocking, people often call this period agriculture’s equivalent of the analog to digital shift. Put differently, this period will drastically accelerate the creation of new traits and allow new trait creation to shorten the schedules to a fraction of the time and expense associated with conventional breeding or GMO approaches. That’s the reason we hold the view that our vision for a commercial-stage gene editing company represents the future of breeding as well as the future of commercial crop development. As we’ve covered, the core of our commercial approach is pushing forward our commercial pipelines, combined with our stand-alone high-throughput trait facility and the first transfers of traits to top seed companies so they can be commercialized. That’s why 2023 stood as a key turning point for our company and for the sector. Peter will now give greater detail on our pipeline and our route to amortization. Crucially, he will offer some context on trait products and how we execute. Peter?

Thanks, Rory, and good afternoon, everybody. Like Rory pointed out, we're already making solid progress on commercialization, concentrating on bringing 3 productivity traits we've developed to market with customers: pod shatter reduction, or PSR as we refer to it, in canola, plus the herbicide tolerance traits for rice known as HT1 and HT3. Before diving into the products, let me clarify what counts as a developed trait for us and why there's meaningful upside in using such traits within customers' elite genetics. Basically, this sets up how we think about our developed trait offerings; we classify traits as developed once they've gone through several years of successful field trials, satisfied our Cibus product specifications, and finished a product stewardship review covering quality assurance, regulatory matters, and intellectual property paperwork; these traits sit inside customer elite genetics, giving Cibus's customers a considerable timing edge when bringing traits to market and the chance to speed up their pre-commercial breeding work. In essence, we function as an extension of their plant breeding operations. That speed-up also matters for any follow-on products emerging from our advanced trait development; combining genetics with traits in this way is exactly why we view this as the analog-to-digital moment Rory referenced earlier. Let me go on and describe in more detail our first developed productivity trait, PSR, in canola. PSR reinforces the pod wall surrounding canola, or winter oilseed rape, seeds, safeguarding crop yield through many conditions ranging from typical to extreme weather at harvest time. Among canola growers, there's a shift toward what's known as direct harvest, letting them bring in the canola crop without first mowing it down. That cuts fuel expenses and provides more flexibility in scheduling when harvest happens on their farms. Several years of our field trials, among them the latest 2023 results, have demonstrated that our trait, across numerous genetic backgrounds, delivers efficacy comparable to the top competitor product available on the market today. We've already gained substantial commercial traction for our PSR traits, as shown by our work with 10 seed company customers to have the Cibus PSR trait edited into their elite germplasm. We think this existing customer base, featuring names like Bayer, Nuseed, and Nutrien, accounts for more than 20 million acres, or roughly $150 million in possible yearly royalties from canola and winter oilseed rape; during 2023 we hit a key milestone by finishing transfers to several customers, a sign that PSR is moving nearer to producing revenue for our company. We're entering 2024 carrying real momentum. And by the time this year wraps up, we anticipate that 7 to 8 among our 10 current canola customers will have their elite germplasm carrying the Cibus trait either transferred or set to be transferred back to them. Keep in mind that transferring elite germplasm carrying the Cibus trait marks the beginning of the commercialization process. Now turning to our remaining 2 developed productivity traits, HT1 and HT3, in rice. Here's another chance for Cibus to grow across borders. Our HT traits aimed at lead management in rice are completely developed and validated, just like what we've done with PSR, and the customers we currently serve account for 3 million acres, which translates to roughly $70 million in possible annual royalties. To put the rice opportunity in perspective, consider how well GMO-based traits have done in big crops like canola, soybean and corn. Today, more than 95% of those crops rely on GMO-based HT traits for weed management. That's remarkable penetration, and it shows the value producers get from those traits. The rice industry, though, hasn't reached that kind of success, since it has only had conventionally produced HT systems, which have a hard time matching what GMO-based HT traits deliver. That gap creates a major opening for Cibus' trait solutions, which have proven very effective, as our 2023 field trial results showed, with both HT1 and HT3 meeting or beating performance expectations when tested at the proposed commercial herbicide application rate. Those field trials matter a great deal for sharpening how well our technology works and for pushing commercial progress forward. On that note, we've locked in agreements with 3 major rice seed company customers, among them Nutrien and Interoc, to incorporate Cibus' HT1 and HT3 traits into their elite germplasm. And excitingly, we've also finished the first transfers of customer elite germplasm carrying our HT1 and HT3 traits. That's the start of commercialization for our rice traits. Our commercial team is pushing hard to grow our customer base for canola and rice with all 3 of our existing developed productivity traits, and we anticipate securing more customer agreements in 2024. Now let's turn to how our advanced traits are progressing. Beyond the tremendous accomplishments in our developed traits, we're still making headway with our 2 advanced traits: Sclerotinia resistance, which is also called white mold resistance, and our Herbicide Tolerance HT2 trait. Both work across multiple crops, which means they could be effective in a range of crop types, such as canola, winter oilseed rape and soybean. That distinction matters, because it gives us the commercial chance to earn royalties across multiple crop types from the same trait. Let's begin with the first of the advanced traits, Sclerotinia resistance. Sclerotinia is the disease with the biggest economic impact in canola and one of the main diseases affecting soybean. In canola by itself, we estimate that roughly 30 million acres could be affected by Sclerotinia. Sclerotinia is a fungal pathogen that brings about a serious disease called stem rot in crops. Each year it affects 14% to 30% of canola and winter oilseed rape fields. And back in 2016, the Canola Council of Canada reported that as much as 90% of the Canadian canola crop may have been affected. Sclerotinia can cut canola yields by 7% to 15%, and yield losses for a single infected plant can reach 50%. The Canola Council of Canada refers to Sclerotinia stem rot as the canola disease with the greatest economic impact in Canada. On top of that, soybean faces a serious disease issue — the fungal pathogen shows up across soybean-growing areas at rates ranging from 33.3% in 2015 up to 78.3% in 2020. For a resistance trait to hold up over time, as with other disease traits, it has to tackle several aspects of the disease condition, which means several modes of action are required. Back in 2023, we hit a milestone by stacking 2 distinct modes of action against Sclerotinia in canola, and greenhouse testing allowed us to demonstrate effectiveness successfully. This year, we anticipate greenhouse data for a third mode of action targeting Sclerotinia resistance in canola. We're also in the process right now of putting together a plan to bring Sclerotinia resistance into soybean, once that editing platform is completely ready. If it works, this would become the first major disease trait usable across multiple crops. Looking at canola and soybean by themselves, we estimate this adds up to more than $800 million in future annual royalty payments. Now let's turn to our next advanced trait, HT2. Because herbicides have been used so heavily over the last 20 years, many weeds have developed resistance to them. So for crops such as canola and soybean, demand is enormous for broad-spectrum herbicides along with the related herbicide traits that go after broadleaf weeds.

Here's where our HT2 trait could truly move the needle on farm productivity. We pulled off successful edits of HT2 in canola during 2023, which shows the steady progress we're making on its development. Given the demand for canola and soybean, we think HT2 could become the first gene-edited trait to reach 100 million acres of annual use. To put that in perspective, the industry figures GMO-based herbicide-tolerant traits currently sit on more than 300 million planted acres, so there's a clear precedent showing adoption of value-enhancing traits, and that's a massive opportunity for us. We're eager to see the important greenhouse results for this trait this summer. Together, our 3 developed and 2 advanced productivity traits add up to a potential target market of more than 250 million accessible acres, which works out to well over $1 billion in possible annual royalties. I'd stress that we're only scratching the surface of what this business could achieve. Let's turn to other platforms and sustainable ingredients; now I'll cover development progress on our remaining crop platforms and our sustainable ingredients business, using a set of quality traits we're working on. In January we announced a major industry breakthrough: completing what we believe is the world's first successful regeneration of wheat plants from single cells of elite wheat germplasm. This remarkable accomplishment shows our company's continued success in building scalable, high-throughput breeding platforms that can serve as extensions of seed company breeding programs. We believe this new platform opens the possibility of developing various productivity and sustainable traits that address the most significant challenges wheat farmers face globally. I'm incredibly proud of our entire R&D and technical teams for achieving this breakthrough. We finished our success well ahead of schedule, and we expect to demonstrate initial edits toward developing productivity traits for wheat this year. Turning to our soybean single cell regeneration platform, this is clearly one of the toughest cell biology challenges many institutions have encountered. Still, we keep making progress on this challenge by refining many steps in the process so it works for our standardized high-throughput trait machine; we expect the platform to be operational and to have initial editing completed in 2024. Continued development of our soybean platform is a key strategic initiative and forms the foundation of our emerging sustainable ingredients business, which focuses on developing plant-based alternative oils for downstream customer applications. We anticipate completing discovery efforts for alternative oils this year, an initial step toward developing solutions using our quality traits that boost our customers' ability to meet their sustainability targets. What's particularly exciting for us is that we already have existing engagements with many of the world's large seed companies across other crops and projects. While we keep developing confidence and showing what we can deliver for these clients, we're simultaneously planting groundwork for the soybean platform we'll roll out later, and in our view that really highlights how carefully we've designed the way we operate. Getting our 3 created traits into the market and moving our 2 more advanced traits ahead stay at the heart of what the company is trying to accomplish. Because of that, we plan to follow how each trait advances once it enters the elite germplasm of our customers. How that unfolds will sit at the center of the updates we give each quarter from here on, as every trait-by-crop pairing begins to bring in royalty income. At this point I'll hand things over to Wade for a quick look at the numbers. Wade?

Thanks, Peter. Let's turn to the numbers for Q4. As of December 31, 2023, cash and cash equivalents stood at $32.7 million. On the cash flow side, during the 3-month period that ended in December, operations consumed $17.1 million, which works out to a monthly burn rate of roughly $5.7 million. At the same time, we've put significant effort into optimizing resources, and the cost-saving measures we've put in place have brought our operating cash flow burn rate down to $5 million per month. We think that reflects the right level of cash burn to support planned operating expenses and capital expenditure needs moving forward. That ought to carry our existing cash runway into the early part of the third quarter of 2024. Turning to financing activities, we brought in $20.3 million in gross proceeds through a registered direct offering during the fourth quarter, and we've also succeeded in raising further proceeds through regular equity sales in the first quarter. Now on to our income statement, which — I want to remind everyone — isn't directly comparable with the prior year's, because of the merger with Calyxt that closed in May of 2023. Please bear that in mind as I refer to the prior year results. R&D expense came to $14.2 million in the fourth quarter of 2023, versus $2.3 million in the year ago period. That increase was mainly driven by higher lab supply and facility expenses, a rise in employee headcount, and growth in stock-based compensation expense for restricted stock awards. SG&A expense totaled $6.8 million in the fourth quarter of 2023, versus $1 million in the year ago period. That increase was mainly tied to a rise in headcount, higher consulting and legal fees, and growth in stock-based compensation expense for restricted stock grants. Royalty and liability interest expense came to $8.1 million in the fourth quarter of 2023, versus no expense last year. This related to the liability we assumed in the May 31, 2023 merger with Cibus Global LLC. Nonoperating income was $0.1 million in the fourth quarter of 2023, versus nonoperating income of $0.5 million in the year ago period. That decrease stemmed from $0.8 million received in the fourth quarter of 2022 from a legal settlement; this was partly offset by a $0.3 million change in the fair value of the liability classified Class A common stock warrants. Net loss came to $277.2 million in the fourth quarter of 2023, versus a net loss of $2.8 million in the year ago period. That larger net loss was mainly driven by a $249.4 million noncash goodwill and intangible assets impairment charge we recorded in the fourth quarter, tied to our May 2023 merger with Calyxt; for more details on our fourth quarter 2023 financials, please see our press release and our filings with the SEC. That wraps up our financial discussion. Rory, back to you for your closing remarks.

Wade, thank you, and I appreciate all of you joining us. I hope we've conveyed clearly just how enthusiastic we are about the headway we're making. The remarkable business traction we've built up to this point stands as a powerful validation of the gene editing technology we've developed, which leads the industry and gives us a distinctive ability to work alongside the breeding divisions of several of the biggest seed corporations globally. On top of that, as Peter noted, the milestones we anticipate hitting during 2024 will demonstrate even more of our business advancement alongside our clients for the products we've created, plus the crucial benchmarks for sophisticated traits and fresh platforms. Taken as a whole, these reflect our strategic aim of establishing a substantial, high-margin agricultural trait royalty enterprise founded on our portfolio of valuable trait offerings and our exclusive technology platform, which will allow us to keep developing and providing, continually, numerous intricate traits for numerous seed firms spanning numerous crops. As I trust is clear, Cibus is spearheading the transition into the new era of gene editing. We genuinely hold the view that we stand at the leading edge of an agricultural analog and digital turning point. We're eager about the ongoing business wins we'll see in the upcoming months and quarters; we're looking forward to bringing you updates. Operator, that wraps up our prepared remarks.

I'm just wondering, looking at how much cash you have to work with and the targets you've laid out for 2024, which of those would you call first-half targets? What are you able to get done before that cash injection has to come through?

Thank you. The major target we're aiming to hit — and it's taking forever — is finishing soybean. We continue to move forward; among the hardest projects in biology, this one ranks right up there, and I believe we're on the verge of breaking through. Should we pull that off, it doesn't just unlock 250 million acres, it truly unlocks the sustainable ingredients business, the capacity to take soybeans and — Proctor & Gamble is collaborating with us, and we have other partners as well, to launch that entire industry. So that's the one we concentrate on most — the major target. Beyond that, we're shipping everything we can, pushing to bring our traits into the market. For me, those are the moments that reduce our risk, getting their germplasm combined with our traits into people's hands < >.

And after that, I suppose, I'm simply attempting to grasp how significant the programs you're developing are to your partners, particularly when you achieve successes and more or less demonstrate that the platform is viable — is there anything perhaps qualitative that you could point to regarding how that supports your business development work, your ability to reach potential partners, current partners, or similar things? Are you noticing momentum building in that area because they're following your wins and the broader reduction of risk around whether the platform works?

That's a wonderful question. There are 2 major items for us. First, our platform lets us create these products; as a result, we genuinely have 3 products that are developed, and each has completed its field trials; so prior to anyone sending their seeds our way, those products had already been in the field, and people had observed them functioning; and that's the trait development side of the business, correct? The portion of our operations where you witness this incredible advancement is the industrialization of the trait business. So after a trait exists, you don't simply pass it along to them. We possess this trait machine, which enables them to provide germplasm to us, have it edited, and receive it back; and what we're observing is genuine momentum among the major seed companies to collaborate with us, so that with every continuing season, they can view us as an economical method for refreshing their traits and bringing them to the field; and momentum of this kind arriving this rapidly wasn't something we really anticipated. And you observed it when Nutrien or Bayer publicly stated they were collaborating with us. And the implication was that their work with us went beyond merely the traits we provided; they were engaging with us as a seed partner, and they're preparing their crops. That's our perspective on it. And the reality that the sector itself is embracing this approach — that we can take their elite germplasm of traits, edit it, and return it to them promptly and affordably — I believe when we initially met you, Bob, I doubt we could have predicted it would occur this quickly. But it's evident that the industry is — as we begin the second and third launches — truly embracing this approach of ours, where we can economically perform these edits and return their products. Did that come across clearly?

Yeah, that's very clear. Perhaps I could fit in just one additional item regarding the royalty chance. You mentioned some fairly substantial — hundreds of millions in possible royalties plus some momentum in the service side there; but could you perhaps go back over the sort of division you're presuming between a farmer germplasm owner and the value enhancer, and your part in terms of how you get to that market? What rough calculation are you folks working with regarding how that value creation gets divided among stakeholders?

Let me take a shot at this. Broadly speaking, this is among the tougher questions for us to address concerning this business, since the trait sector has existed for quite a while; so among the seed companies, you have $2 billion, $4 billion traits, everyone has created things, and they struck licenses with one another and remit royalties. So the knowledge base is such that royalties can be quantified; so when you — particularly for a productivity trait. When you observe that by inserting a trait, you're able to quantify the cost benefit and you divide it with the seed company, with the farmer and with us, then for every one of our traits, there's genuinely been little argument over what kind of royalty you'd get and how to bring them to market. And so we've felt rather good about how effectively they've taken them up. We won't find out until we launch them, but the reality is that for every one of the traits that are — that we possess, we are placing them in their hands, and they have an actual model by which they price these items. And we're heartened, it indicates that it won't be attempted farmer by farmer. We're heartened that for each of their crops, these are traits they require. Similar to a BT trait, you required that on every acre, correct, we're heartened that these traits will be included in as fourth — particularly our first 3 traits of our customers' germplasms that get sold. Items such as Sclerotinia, we don't believe these will exceed 1/3 of the acres or 50% of the acres, but we're fairly confident about how to view them. Peter, would you like to add anything to that? Would you like to comment on — Peter — speaking daily with the seed companies about pricing and launching. Peter?

Appreciate that, Rory, and thank you, Bobby. I believe this is an excellent question about the way we work alongside our customers to build a pricing approach that works in the market. Like Rory mentioned, this is a marketplace that genuinely recognizes what productivity traits are worth. Growers battle daily to keep their input expenses under control. That means when we can deliver productivity traits to the market together with our customers, we're in a position to grasp that value proposition extremely clearly. So when you're told that he has very significant royalty payments coming in annually, from our perspective, that represents the addressable market and the opportunity. And we keep seeing customers who want a greater share of their genetics to come through our system. The one other point I'd make is the enthusiasm about the fact that we are now embedded in their plant breeding programs at a depth they've never experienced previously, which gets people quite excited about the ability to move into the market very fast; so when you can place edits in, and consequently traits into a wide genetic base, that means getting traits into a larger number of product lines at a quicker pace; and that's something we're eager to watch unfold over the coming few years.

Is that too random — too robustly, Bobby, is that okay?

Yes; that was perfect. Thank you.