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

Thanks, and good afternoon to everyone. Wade King here, and I serve as Cibus' Chief Financial Officer. We appreciate that you've set aside the time to be with us on this conference call and webcast covering Cibus' First Quarter 2024 Financial Results and Corporate Update. Joining me for today's presentation are Rory Riggs, who is our Co-Founder, Chief Executive Officer and Chairman, as well as Peter Beetham, our Co-Founder, President and Chief Operating Officer. Prior to getting the call started, please allow me to note for all listeners that any remarks delivered during this call and webcast — among them those touching on future financial results, future operational goals and industry prospects — constitute forward-looking statements and could be exposed to various risks and uncertainties that might lead actual results to diverge materially from what gets described here. A list of the associated risks can be found by referring to Cibus' SEC filings. A webcast is now underway for this conference call. To help you in analyzing the business, the webcast link, together with our press release and corporate presentation, can be accessed in the Investor Relations section of cibus.com. With all of that covered, I'd like to hand things over to Mr. Riggs. The floor is yours, Rory.

Thank you, Wade. I'd like to kick off this call by giving everyone a broad-strokes look at how our company performed during the quarter. After that, Peter will take you through the commercial strides we made in Q1 and talk about where we stand regarding the 2024 milestones we've laid out. Then Wade will return to wrap things up with a review of the financials. During this quarter, we achieved remarkable things on the commercial side, and we also saw encouraging movement in the regulatory landscape around gene editing. A big part of what happened this quarter reflects our successful shift away from being primarily an R&D-oriented organization to becoming the first gene editing company at the commercial stage. When we describe ourselves as a commercial-stage gene editing company, what we mean is that we're focused on bringing validated gene edited traits to market. Seed companies are the ones we serve. We don't operate in the seed business itself. What we do is provide validated traits to seed companies and collect annual royalties in return. Put differently, we grant licenses for traits we've created using our gene editing technology to seed companies. The traits we offer deliver economic value to farmers — for instance, assistance with weed management or defenses against particular diseases like white mold or Sclerotinia. Our economic model revolves around earning annual royalties on each bag of seed containing our traits, tied to those benefits. That's a standard way of doing things throughout the seed industry. A large number of traits get licensed to seed companies in exchange for royalties; however, for the most part, that activity falls under arrangements where seed companies license to other seed companies. As gene editing emerges, we think gene editing technology firms such as Cibus will lead the way in licensing new traits to seed companies in return for royalties; we call our gene editing technology the trait machine. At the foundation of our trait machine sits our precision Rapid Trait Development System, or RTDS. RTDS is a platform technology tailored to specific crops, consisting of a set of gene editing technologies protected by more than 400 patents that have been issued or applied for. When we say we have a platform crop, we're saying we've successfully built our RTDS technology within that particular crop, which lets us edit one cell from a customer's elite germplasm, regenerate that edited cell, and hand the edited seed back to the customer. This capability matters a great deal for complex traits that call for multiple edits, like our pod shatter reduction trait in canola and our Sclerotinia-resistant trait for canola and soybean. Cibus has built commercial RTDS platforms for canola and rice, and we very recently created an RTDS platform for weed, for which we're looking into commercial possibilities. Finally, one important 2024 milestone involves building an RTDS platform for soybean. Soybean represents such a significant opportunity for us given that it's been grown on more than 200 million acres across just Brazil and the United States combined. We're thrilled that Fast Company Magazine recently honored our trait machine as one of its top 100 innovations in 2024. To build on what Fast Company wrote about the trait machine, bringing this technology to market represents an analog-to-digital shift in breeding. The trait machine alters, at a fundamental level, how quickly and how cheaply complex traits can be created and brought to market; thanks to it, we can now pursue development of new complex traits in a span as short as 3 years, whereas a traditional breeding approach or a GMO approach requires more than a decade. On top of that, we can accomplish this for a fraction of the expense. Another benefit of the trait machine is that it lets us accelerate commercialization of our traits, since it permits us, within a compressed schedule, to move complex traits straight into elite germplasm or into a customer's seed for commercialization. Peter will walk through in more detail the progress we made this year on our developed platforms in canola and rice, as well as our work building new platforms for wheat and soybean; even so, I want to mention a few highlights that have us genuinely excited. To start, we close this quarter with 10 customers for our pod shatter reduction trait in canola, which shows how well we are building out our canola platform. Every one of those customers has already provided us with their germplasm, which lets us run the Pod Shatter trait gene editing process. Because of what we've achieved in canola, we look at this year as the point when we became a fully integrated commercial scale gene editing company. On the rice side, we have also brought on board some of the biggest companies across the United States and Latin America, among them Nutrien and Interoc, for our 2 proprietary herbicide-resistant traits, HT1 and HT3. Traits for herbicide resistance are a cornerstone of agriculture, since they transform, at the root, the way farmers handle one of the hardest problems they face, weeds. The favorable reaction so far to our 2 HT traits in rice reflects the appetite for such traits, and that is the reason we are pushing to move our third herbicide trait, HT2, forward in additional crops, canola and soybean among them. In our view, this HT2 trait could become the first gene edited trait to reach 100 million acres of annual use, which would represent a tremendous opportunity for us. Finally, I want to give a quick update on where regulation of gene editing stands after recent movement. For us at Cibus, February 7 stood out. That was the day the EU parliament cast its vote in favor of regulating gene editing in a manner similar to conventional breeding. That EU vote marked a key inflection point in the worldwide push to regulate new genomic techniques in a way distinct from GLO Technologies. The EU still needs to negotiate and finalize its rules, but the significance of this parliamentary vote is hard to overstate, given that the EU is famous for holding the strictest regulations anywhere in the world. What matters greatly is that, for the first time, the EU parliamentary vote reveals a strong new alignment spanning the 3 major agricultural growing regions; North America, South America and now the EU and the U.K. We've seen comparable moves take shape in plenty of other nations too, including Canada and Uruguay. So with that, I'll hand things to Peter, who can dig deeper into how our pipelines are advancing, where our trait platforms stand, and the opportunity we hold to create meaningful value for shareholders. Peter?

Thanks, Rory, and hello everybody this afternoon. Like Rory said, the quarter we just finished marked a huge step forward for rules governing gene editing. We've spent more than 10 years striving for this point. It represents the payoff from many years spent educating and talking with a wide range of stakeholders, which helped the EU become more at ease with what gene editing methods can offer in pursuit of its sustainability and food security objectives. For our company, this truly is a wonderful moment. As was noted before, we're already making strong progress on commercialization with our 3 traits that have been developed for productivity. In canola, also called Winter Oilseed Rape or WOSR, we have Pod Shatter Reduction, known as PSR, and in rice we have our herbicide tolerance traits, HT1 and HT3; during our previous call, we also zeroed in on how far we've come in moving our PSR canola traits over to customers so they can be commercialized. What I'd like to do now is highlight two big wins from Q1 2024. The first is growth in the number of customers for our developed Rice HT1 and HT3 traits, and the second is the significant breakthrough we announced earlier in the year involving poor regeneration out of single cells, and why that counts as such a key milestone for our gene editing work in yet another major crop; so let's begin with how our developed Rice traits are progressing. As Rory noted, we've now put signatures on 4 agreements with Rice customers, 2 located in the U.S.A. and another 2 in Latin America. Among them are Nutrien, based here in the U.S.A., and Interoc over in Latin America. I'd like to convey just how big these agreements are. Taken together, those 4 customers account for roughly 40% of the total addressable rice acres throughout the U.S.A. and Latin America. Rising customer appetite for our HT1 and HT3 traits lined up with what we reported in January 2024 about successful field trials. Rice offers us a huge opening because the industry has had such difficulty creating conventional herbicide tolerance systems. Those systems for rice have found it hard to secure truly durable market traction, since tolerance to herbicides develops quickly and the resulting solutions haven't always ranked as the ideal herbicides for the weeds that matter most. That gap in the marketplace now gives Cibus' trait solutions a substantial opening, and they've proven highly effective, as our 2023 field trial results showed when both HT1 and HT3 either matched or surpassed performance expectations under evaluation with the proposed commercial herbicide application rates. You can plainly see how much demand exists for herbicide tolerance traits from the enormous uptake of GMO-based HT traits, which even now make up over 95% of major crops including canola, soybean and corn. This highlights the potential for rice farmers to adopt them, while at the same time revealing where existing technological approaches fall short in addressing some of agriculture's most urgent challenges. Let me lay out why HT traits carry so much value. To manage weeds, rice farmers rely on selective herbicides along with cultural practices like flooding. Sadly, in rice, selective herbicides prove highly inefficient and expensive. Actually, according to estimates from USA State Extension Services, herbicide expenses in the Mid-South can go beyond $130 for every acre; that regimen involves up to 4 sprayings, and across many American situations those are done using aerial applicators. Still, the possibility of bringing a gene edit into a variety carrying herbicide tolerance traits offers better weed suppression, reduced input costs — meaning less herbicide — plus smaller application bills, all of which combine to give growers a notably less expensive and more effective answer. Today's second area of focus is wheat. Among the globe's most significant cultivated crops is wheat; it serves as a dietary staple in numerous populations and accounts for 20% of the calories people consume, which makes it among the planet's most vital food crops. Wheat flour shows up in breads, pasta, cookies, crackers, confections, and various other products. As far as Cibus is concerned, wheat ranks among the five key crops we are targeting for editing through our scalable high throughput trait machine. Ever since we revealed our breakthrough in January, we have been investigating alliances with top wheat seed businesses globally. Creating traits for wheat represents a possibly enormous opening, since improved varieties along with new wheat hybrids have not enjoyed the advantages of GMO traits. According to USDA estimates, wheat is cultivated on more than 500 million acres worldwide, and roughly 100 million of those acres sit within the developed markets of North America, Europe and Australia. When it comes to Cibus, our strategy for wheat mirrors what we do with our other crops — put differently, we aim precision shots at trait possibilities that tackle recognized problems indiscernible that slows our pacing. And with wheat specifically, we see an immediate opening in resistance to fungal disease as well as nitrogen use efficiency. Beyond the remarkable accomplishments among our developed traits, we keep making headway on our 2 advanced traits. Sclerotinia resistance, which is also referred to as white mold resistance, along with our herbicide tolerance HT2 trait, and we keep pushing forward on advancing our soybean platform. Beginning with our first advanced trait, Sclerotinia resistance: during the past year, we hit a milestone by stacking 2 separate modes of action against Sclerotinia into canola and effectively showed it working in greenhouse trials. And during 2024, we anticipate getting greenhouse results for the third mode of action against Sclerotinia in canola, which moves us nearer to commercialization of this key trait. Our remaining advanced trait is a herbicide tolerance trait known as HT2. This trait boosts productivity by going after broadleaf weeds that have developed resistance to herbicides in key crops, such as canola and soybean. Fundamentally, the significance of HT2 parallels how I explained weed control choices for rice. We think this trait could become the first gene edited trait to reach 100 million acres of annual use, which stands for a tremendous opportunity on our part. After we wrapped up the HT2 edits in canola during 2023 without a hitch, our expectation for greenhouse results in 2024 remains unchanged, and those will matter a great deal when it comes to proving how well these traits work. Just to remind everyone, Sclerotinia and HT2, the two advanced traits here, are referred to by us as multi-crop traits. What that means is they could potentially be effective in a number of crop types, such as canola, wheat, oilseed rape and soybean. Beyond opening up a commercial chance to collect royalties on the same trait across several crop types, this also lets us take what we've learned and the synergies we've achieved in crops we already work with and bring them to new ones. That kind of efficiency stands as a major competitive edge for growing penetration into additional crop types. Last, we stay hopeful that our soybean platform will be up and running by year-end, which would open the door to penetrating this sizable addressable market. Building out our soybean platform continues to be a central strategic initiative, acting as the base for our sustainable ingredients business, which centers on plant-based alternative oils for customer applications; and with that, I'd like to hand things over to Wade for a quick look at our financials. Wade?

Thanks, Peter. Let's turn to the numbers for Q1. As of March 31, 2024, cash and cash equivalents stood at $24.5 million. On the cash flow side, during the 3 month period that ended in March, operations consumed $13.5 million in cash, translating to a monthly burn rate of roughly $4.5 million. By optimizing resources and putting cost-saving measures in place, we've brought our operating cash flow burn rate down to about $5 million each month. In our view, that's the right amount of cash burn to support planned operating expenses and capital expenditure needs moving forward. That ought to carry our existing cash runway into the third quarter of 2024. When it comes to financing activities, we brought in $6.2 million of net proceeds through regular equity sales during the first quarter, plus another $9.5 million in the second quarter so far. Now on to our income statement, and I'd remind everyone that it isn't directly comparable to the prior year period because of the merger with Calyxt that closed in May of 2023. Please keep this in mind it is a reference to the prior year period's results. R&D expense came to $12 million in the first quarter of 2024, versus $2.2 million in the year ago period. That increase was mainly tied to higher lab supply and facility expenses, a rise in employee head count, and growth in stock-based compensation expense for restricted stock award grants. SG&A expense was $7 million in the first quarter of 2024, versus $2.3 million in the year ago period. That increase was mainly tied to higher headcount, greater consulting and legal fees, and growth in stock-based compensation expense for restricted stock award plans. Royalty liability interest expense, a noncash use, came to $8.3 million in the first quarter of 2024, versus no expense last year; this relates to the liability assumed in the May 31, 2023 merger with Cibus Global LLC. Net loss came to $27 million in the first quarter of 2024, versus a net loss of $5.4 million in the year ago period. For more details on our first quarter 2024 financials, please see our press release and filings with the SEC. That wraps up our financial discussion. Rory, back to you now for your closing remarks.

Thanks, Wade, and I really appreciate everyone joining us today. The strides we've taken toward scalable commercialization of both this company and our products show how committed we are to our vision of driving an agricultural revolution forward through gene editing breakthroughs. Our aim is to function as an extension of the breeding operations at seed companies. Working alongside those seed companies, we want to assist farmers in tackling their sustainability, productivity and environmental challenges at a fraction of the time and cost that conventional breeding or GMO approaches previously required. As I hope comes through clearly, Cibus is at the forefront of ushering in this new gene editing era. Looking toward the remainder of 2024 as we push our activities forward, we expect to further demonstrate our commercial momentum with customers for the products we've developed, while also reaching important milestones for our advanced traits and new crop platforms. I'm grateful to all of you for that. Operator, that wraps up our prepared remarks, so could you please open the line for Q&A.

Yeah, so perhaps just to get the Q&A started. Maybe we could discuss the regulatory developments over in Europe, where our most recent update came in February, though I'm aware there have been ongoing efforts on that front. And I'm curious, could you take us through where the EU stands right now regarding the upcoming steps toward finally settling this new reading of gene-edited crops.

I don't know whether you all — I had the ideal response ready, and my line was muted, so my apologies. What you really asked is — it ought to be clearer, correct, that they got this measure passed; there are a number of regulations they still need to approve. The major development is that before the parliament's session concluded, they held a final vote. And through that final vote, essentially they determined there's no need for them to return to the parliament for any additional approval, since they're permitting the committees within their own countries to proceed and implement the changes. And for us, that's an enormous win. And they achieved higher vote counts than in their initial vote; so our expectation is that the vote will take place and then every element will fall into place. And the encouraging part is that the elements falling into place are all favorable to us. By every measure, our technology is going to receive a clean sale. Peter, could you take us through a few of the technical specifics concerning certain people who may be more frightened than we are, Peter?

No, like I said earlier, this represents a huge shift on the regulatory side for us, because the EU has clearly put real effort into grasping the fundamental science behind gene editing. And really, the products we wind up with can't be told apart from something that happens naturally. So once they recognize that, you know, conventional — the terminology, the rules they put forward function really effectively for bringing price to market across Europe, which gets us excited.

All right, that's helpful. So another catalyst is on the way soon, tied to a vote at some point, correct?

That's right. We anticipate a few of those. And what I'd say is encouraging is that the initial milestone that truly matters to us is getting the green light for growing, correct? Then, once growing is permitted, that opens the door for us to actually introduce the products. Peter, what's your timing expectation on this?

Rory, this process will take the next 6 months to wrap up. A trialogue is involved, bringing together the commission, the council and the parliament. After that concludes at some point in early '25, we'll receive guidance regarding how this gets implemented. So we're eager for quite a few of our customers to be able to conduct field trials, just as we've already done in the U.K. in Europe, as we continue toward our commercialization process.

All right, excellent. And then perhaps regarding the funding injection that your company has to complete after, I suppose, sometime in Q3 2024, not too far off. What I'd like to know is, considering the items you've already gotten done during this year, possibly that soy platform, is there anything specific you'd highlight as especially persuasive for those sorts of conversations that potential backers, or perhaps even strategic backers, tend to care about more? I'm just wondering what gets potential backers fired up when you're out there and eventually bringing in some capital.

There are two components to what you asked. The first component, which excites me the most, is that we're receiving quite positive responses on the soybean side, since, as you're aware, soybean covers 200 million acres; it's essentially dominated by 4 companies, and we're — we're holding productive talks with every one of them about ways we could potentially collaborate. And I believe that represents such a huge chance that, in our view, it somewhat transforms the game in gene editing. Peter, do you want to chime in about the soybean — and I want to get to the cash in a moment. But please continue, Peter?

I want to say something about soybean first, and after that you can return to the cash topic. On soybean, though, from where we sit — as I said before, we've made a great deal of headway there; among the toughest problems in plant cell biology across the past 20 years, this ranks as one. What gets me enthusiastic, however, is that the advances are visible to me on the inside, and I genuinely perceive the soybean platform approaching that transition from analog to digital, in which we can truly deploy editing together with customers' genetics in soybean. And per what we've forecast for this year, by the time this year finishes we will have brought in certain soybeans. Once more, an extremely light weight — we achieved a breakthrough in that area, and we're eager for it later in this year.

I'd like to add one thing — ideally, you've all been keeping up with what we're doing, and our track record on reaching milestones has been fairly strong. Two major milestones in particular have me genuinely energized: soybean, along with our advanced traits. So for Sclerotinia in soybean, we anticipate getting the edit finished, and then the other trials for HT2 and HT2 — either of those could become enormous products. So the milestones that I believe will get people enthusiastic are finishing soybean and finishing those advanced traits, which, when taken together — even on their own — add up to a fairly significant company. As for progress, our open market transactions for capital raising have worked quite well so far, and that will keep being the case. And then, clearly, most folks understand there will likely be a fundraising event before long, but I think our use of open market transactions up to now has been quite effective.

This is Carol Cheung, filling in for Laurence Alexander. Congrats on what you've achieved with gene editing. So, a question at a high level: could you talk about how you view your total addressable market, and what pace of scaling would you anticipate over the next 2 to 3 years?