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

Thanks, and good afternoon, everyone. Wade King here, Cibus' Chief Financial Officer. I appreciate your time in joining Cibus' Second Quarter Of 2024 Financial Results and Corporate Update Conference Call and Webcast. With me on today's call are Rory Riggs, our Co-Founder, Chief Executive Officer and Chairman, plus Peter Beetham, Co-Founder, President and Chief Operating Officer. Prior to getting started, please note that remarks delivered during this call and webcast — among them those about future financial results, future operational goals and industry prospects — constitute forward-looking statements and could be subject to various risks and uncertainties that might make actual results differ materially from what gets described here. For a list of associated risks, please see 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 be found on the Investor Relations section of cibus.com. With that, I'd now like to turn the call over to Mr. Riggs. Go ahead, Rory.

Thank you, Wade. To kick off today's call, I want to provide a big-picture look at what our company has been doing over this quarter and throughout this year. After I speak, Peter will take you through what we've recently accomplished in greater depth. He will also go over the value proposition behind every one of the developed trades we have and talk about where we stand on the 2024 milestones we're targeting, so you can see just why our progress has us so enthusiastic. Then Wade will wrap things up by covering the financials. Let me begin by going back over the business formed a year ago through the Cibus and Calyxt combination. At the time of that merger, the two of us stood as the top gene-editing firms when it came to holding the foundational patents and technology for agricultural gene-editing. Those holdings include exclusive proprietary rights to the foundational intellectual property across the ag gene-editing sector — our GRON Editing Technology Platform, exclusive agricultural rights to TALENs, and in specific geographies, exclusive agricultural rights to CRISPR Technology. In building this gene-editing powerhouse, we set out with a clear mission: to become the top independent developer of gene-edited traits for the major crops — canola, rice, soybean, wheat and corn. The business of selling GMO-based traits to seed companies is an enormous industry, one where seed companies hand over billions of dollars annually in royalties to trait developers for particular traits. Such attributes are genetic expression within a plant tied to a specific plant characteristic, like herbicide tolerance or disease resistance. Our trait strategy shows up well in the herbicide tolerance traits we've created. Within the GMO trait industry, herbicide tolerant traits form the backbone. The key characteristic of a herbicide tolerant trait is that it lets plants survive a farmer's herbicide spray — put another way, such traits let farmers eliminate weeds using herbicides while leaving the crop alive. GMO herbicide tolerant traits came about through foreign materials taken from other plants, which means they run into heavy regulation or outright bans, effectively halting GMO trait innovation in crops like rice and wheat. What sets us apart is that our gene editing technology lets us create herbicide tolerant traits with no foreign materials at all, and our traits cannot be distinguished from ones produced through conventional breeding; that's the reason regulations around the world are shifting so that traits from our technology get treated the same as those from conventional breeding; that's the reason we're eager about what lies ahead for our rice and wheat crop platform. We're now able to create families of herbicide-resistant traits in crops that never had GMO traits; beyond that, gene editing has opened up possibilities in areas that were hard to tackle with GMO technology, given the complexity involved in producing particular traits. Disease resistant traits serve as an ideal illustration of complex traits. With disease resistant traits, our early focus was Sclerotinia white mold disease, which matters enormously in canola and soybean. Those are characteristics that positively and directly affect agricultural output, expense, and productivity. What gene editing offers is the ability to tackle things such as resistance to disease. That's the reason traits conferring plant disease resistance represent such a key area of emphasis for Cibus. Royalties on agricultural traits closely resemble the enormous royalties pharmaceutical companies pay for the technology tied to every medication. Practically no pharmaceutical manufacturer exists, and no seed firm serving the major crops exists, that fails to pay substantial royalties to outside parties for technology they license for their products. That is how we operate. Through our own proprietary technologies, we can create sophisticated seed traits at a small fraction of the duration and expense required by traditional or GMO breeding methods, and thanks to our technologies, we can speed up the route to commercialization. At the time we announced our merger, we set out significant milestones to measure our advancement toward becoming the top trade developer serving seed companies in these major crops. Our milestones were split into 3 groups. First, new crops; we monitor milestones tracking how we advance in building new crop platforms and technologies. That means, for instance, giving updates on a recently created operational platform for wheat, the soybean platform we expect in 2024, and our recent patent expansions covering new technologies. Second, new traits; we monitor milestones tracking how we advance in creating new productivity traits and in securing agreements with seed companies. That means giving updates on what's happening within our trait portfolio and on bringing those traits to market, like our strides in commercializing herbicide tolerant traits in rice and our movement on advanced traits for disease and herbicide tolerance in other crops. Third, regulatory. We monitor milestones tracking how we advance in securing regulatory approvals for gene editing. In this area, we've been following regulatory processes for gene editing around the world, including the recent Canadian approval, the approval in the U.K., and the positive parliamentary vote in February. The delay in the final regulatory approval in the EU disappoints me. After the parliamentary vote, the EU process keeps moving favorably, and other nations globally, such as Canada and the U.K., keep adjusting their regulation so gene-edited traits are treated similarly to traits produced through conventional breeding. We keep witnessing growing international backing for gene editing as the technology that will prove essential in solving the world's challenges around food scarcity and the next generation. Above all, we're genuinely thrilled since we've kept hitting our milestones. We're swiftly building our position as the top trait innovator and developer tackling distinctive needs across these major crops. Looking back at what we've recently achieved, the second quarter was yet another robust quarter for our commercial and technological advancement; it closes out what has been a terrific first half for Cibus and, honestly, a terrific launch of a significant new company. Peter is going to go into more detail about what we've achieved lately, but before that, I'd like to point out a few significant wins that underpin our trait portfolio. During Q2, we finished edits on the third mode of action—a critical one—for the trait that resists Sclerotinia, and we also wrapped up a first edit on the initial mode of action for a nutrient-use-efficiency trait. These two matter a great deal because they widen the range of possibilities we can pursue with new traits. On the commercial side, things are moving along nicely as we roll out the herbicide tolerant trait platform for rice. This quarter, we reached an agreement with FEDEARROZ, among the biggest rice seed businesses in Latin America, and that pushes the count of our rice partnerships to 4 leading firms across the U.S. and Latin America, among them Interoc in South America and Loveland Products, a fresh subseries of nutrients in the U.S. We also recently shared significant field results backing tag-gene-edited tolerant traits in rice. Expanding our herbicide-tolerant platform in rice matters to us. During 2024 and 2025, we anticipate continuing to grow our footprint across the Americas and Asia, both among the companies that work alongside us and in new traits. Such milestones will keep showing our commercial advancement and the momentum we have in creating new traits and new technologies. With that, I'll hand things over to Peter. Peter?

Thanks, Rory, and good afternoon, everybody. For Cibus, the opening six months of 2024 have truly been transformative, representing substantial strides across our commercial development, our trait pipeline, and the worldwide regulatory environment. I want to stress once more just how far our company has traveled. Appreciating the grueling journey toward creating a yearly recurring royalty stream can be difficult, yet we feel we are truly near that point. Crucially, we keep guiding our customers' genetics through the development stage, and I'd like to begin by laying out how commercial development looks from Cibus's perspective. At Cibus, commercial development means being able to perform gene edits within customer crop genetics that deliver a new desirable characteristic or trait for them, and then verifying those edits through several field trials. When it comes to any trait, field trials that validate effectiveness serve as a vital component and a key milestone on the road to eventual commercialization. In every instance, our traits in the fields get compared against the customer's seeds lacking the trait; these direct observations of how well a trait performs are extraordinarily valuable to our commercialization efforts. We've gone through this with every trait we've developed, with customers committing only after first examining our field test results. On our website, you can view some photos showing one of our herbicide traits in rice. It's a vivid illustration of how our gene-edited herbicide tolerant crops perform. On one side, a crop is shown having endured the herbicide application whereas the weeds have not, and on the other side, the control crop appears, which lacked our edits, and that crop was destroyed by the herbicide. Excitingly, earlier this week we shared yet another rice milestone, having launched the first stacked gene-edited traits for herbicide tolerance. Here, we reported that trait effectiveness looked promising as well following an initial field trial. Such traits can deliver a superb weed management solution that generates value for Cibus, for seed company customers, and for farmers, more profit plus sustainable choices. Today, I want to concentrate on a few key achievement areas. First, further expanding our developed rice platform and customer base, as Rory just referenced, and second, breakthroughs in canola, where we confirmed edits in canola for our advanced traits. Sclerotinia resistance, also called white mold disease, along with herbicide tolerance, HT2. So let's begin with the progress on our rice platform. We've built considerable commercial momentum in rice and are seeing growing customer demand for our HT1 and HT3 traits, which lined up with our reporting of successful field trials back in January 2024, highlighting the sizable market opportunity we see in rice; furthermore, during this last quarter, we have seen initial trials revealing the remarkable opportunity to extend weed management solutions through the stacked gene-edited traits I referenced earlier. As we've said before, rice stands as a major opportunity, given the industry's ongoing difficulties in creating conventional herbicide tolerance systems. Keep in mind, herbicide tolerant GMO traits have been taken up widely across more than 95% of canola, soybean, and corn crops. That fact shows us two things: there's room for a similar level of adoption in rice farming, and today's agricultural technologies still have limits. Alongside our rice customers, we're working to bring our HT traits in rice to launch as soon as 2027. Through the partnerships we have now, we could reach 6 million rice acres, with a yearly royalty opportunity we presently put at roughly $120 million. Rice is mainly a target for us in the United States and Latin America, though we also have a strategic partnership taking shape for Asia. Beyond the momentum we have in rice, canola keeps moving forward as well. We're running key field trials in canola and winter oilseed rape across the U.S., Canada, and the U.K; on top of that, our advanced trait pipeline has moved ahead considerably, and that's what I'll cover next. Disease resistance, new herbicide tolerance, and Nutrient Use Efficiency — which we refer to as NUE — are among the advanced traits in canola. These three trait areas carry huge commercial possibilities, not just through the obvious productivity and sustainability value, but also because they open a major chance to extend into other crops such as soybean. During this quarter, we finished our edit milestones in the canola franchise, adding a third mode of action for our Sclerotinia, or white mold, resistance trait. Delivering lasting resistance against this disease in canola and other crops, soybean included, makes this a vitally important step; now that editing is done, plants carrying these edits will go into controlled environment growth rooms for evaluation, with results anticipated later this year; on the herbicide tolerance side, for our HT2 trait, we've finished one more generation of edits in canola and expect greenhouse results later this year too. Once this trait is available, we think it could become the first gene-edited trait used on 100 million acres annually across multiple crops, which would make it one of our biggest opportunities. As a reminder, both Sclerotinia and HT2 work across multiple crops, so the efficacy we anticipate in canola should carry over to other crops, soybean among them, and in time the company could collect royalties on several crops for a single trait; we also hit a key milestone with the first editing work for Cibus' initial Nutrient Use Efficiency, or NUE, trait in canola. To our knowledge, this is the first NUE gene edit in a major crop within North America. It's a major milestone, not only for us but for agriculture as a whole, given the growing pressure on crop production to cut back on fertilizers made from fossil fuels. Let me walk through why that matters so much. NUE traits belong to a very broad trait category that applies to every crop. On a worldwide scale, these traits could improve how efficiently fertilizer is used while still preserving the yields farmers count on. Basically, traits from NUE would offer a way for farmers to improve how they farm while keeping output levels up. What makes this milestone matter is that it marks the first time we've used the trait machine process to bring a trait developed by an outside party into operation. It shows that our company can act as a development partner — taking gene edits that others have identified and effectively producing those edits within our platforms to build a trait. Beyond what we've accomplished in our pipeline of traits that are developed and advanced, we keep moving forward with our crop platforms. Earlier in this year, we finished our wheat crop platform successfully, which gives us potential entry to the biggest grain crop globally when measured by planted acres; this lets us create productivity and sustainability traits that tackle the major difficulties facing wheat farmers around the world. Ever since we reached this wheat breakthrough, we've been actively involved in talks with possible seed company partners, and herbicide tolerance along with disease resistance traits have been a central focus in those conversations. Given these talks, we think we're on schedule to sign initial development and commercial agreements for wheat within this year. We also anticipate launching the first edit aimed at creating traits for wheat. Lastly, our advanced soybean platform represents yet another thrilling opportunity for us and, as I've noted previously, one of the tougher pursuits in plant biology. We're progressing at a steady pace and we continue to expect this platform to be operational, with initial editing finished, by the close of 2024; that milestone would let us reach the enormous soybean market, covering more than 200 million addressable acres. Yet it goes beyond market size alone. We anticipate our soybean platform becoming the basis for our sustainable ingredients business, which plays a vital role in our company's long-term growth strategy. We perceive a major opportunity in developing sustainable, low-carbon ingredients and materials for the consumer packaged goods sector. With this business, our aim is to produce items that cause no harm to the environment across production, use, or disposal; and having said that, I'll hand the call over to Wade for a quick look at our financials. Wade?

Thanks, Peter. Now for a look at our numbers from Q2: as of June 30, 2024, cash and cash equivalents stood at $30 million. Turning to the income statement, I want to begin by pointing out that Q2 2024 can't really be compared on an apples-to-apples basis with Q2 2023, because the Calyxt merger closed partway through the quarter at the end of May 2023. To be specific, only one month of results from the combined company shows up in the prior-year period. So please bear that in mind as I walk through the prior-year figures. R&D expense came in at $13 million for Q2 2024, versus $8.4 million in the same period a year earlier. The growth was mainly driven by higher lab supplies and facility costs, more employee headcount, and a rise in stock-based compensation expense tied to restricted stock award grants. Partially offsetting these costs was $1.3 million in one-time expenses stemming from the merger transaction's closing in the year-ago period. SG&A expense totaled $9.3 million for Q2 2024, compared with $11.1 million in the year-ago period. That $1.8 million decline is mostly attributable to $6.5 million in one-time expenses related to the merger transaction's closing in the year-ago period. Partially offsetting that was growth in headcount, higher consulting and legal fees, and an uptick in stock-based compensation expense for restricted stock award grants. Royalty liability interest expense, which is non-cash, reached $8.7 million for Q2 2024, versus $2.6 million last year — a $6.1 million increase. This ties to the liability we took on in the May 31, 2023 merger with Cibus Global, LLC. Net loss came to $28.5 million for Q2 2024, compared with a net loss of $20.5 million in the year-ago period. For more detail on our Q2 2024 financials, please see our press release and our SEC filings. That wraps up our financial discussion. Rory, over to you now for your closing remarks.

Appreciate that, Wade and Peter. As we laid out, this quarter mattered a great deal for several reasons. It's been a significant stretch for growing our weed management platform in rice. We closed out the quarter with 4 top seed company customers in rice, accounting for roughly 40% of the addressable acres. On top of that, thanks to our recent field studies for stacked traits, we've started expanding what we can offer so we can position ourselves as the top weed management solution in the crucial rice industry. Progress on advanced traits matters a lot, since those traits serve as the foundation of the trade offering we have today in canola, where 10 customers work with us. Beyond that, these traits should serve as the foundation for what we offer in soybeans. That wraps up what we wanted to say, Operator. Would you please open the line for questions?

Hi there. Hope your day's going well. I'm Nick, filling in for Scott. Nice work on the quarter. This is my first one…

Appreciate it.

… moving over to soybeans, just trying to get a better handle on things, I'd like to dig a bit deeper into what that market could be worth, plus when we might see revenue coming in and possibly hit some of those other targets you've talked about for that area. A bit more detail regarding soybeans would be useful. Thank you.

Appreciate it; that's wonderful. First, we are — like we've mentioned, our conversion is underway, that single-cell conversion, and we're quite near. It's one of those situations where the moment is unpredictable, and suddenly it will be upon us. We have strong confidence it will occur during 2024. And once that takes place, a lot of things open up. To begin with, this is an extremely concentrated crop. 200 million acres, and the leading — in our view the leading four players are each genuinely keen on partnering with us regarding Sclerotinia and NQ1, though Sclerotinia is the critical one. So our expectation is that once the pipeline gets cleared, the pipeline gets confirmed, we would sequentially execute agreements with every one of those partners, obtaining their germplasm. We're already engaged with an organization named GDM, the biggest firm in Latin America, and they're interested in what we're growing. So our initial step will be editing their crops. We anticipate editing those crops by the close of this year, putting us in position to collaborate with them during the next year on building a soybean platform. On top of that, there's significant momentum among all the consumer packaged goods businesses when it comes to reformulating certain of their blended oils, which come from sources that are fragile and under pressure. And so we've recently raised our — the sum given to us for creating a substitute for the lauric oils, and the soybean platform will be central to achieving that, so we regard soybeans as truly vital. Firstly, due to how many acres are involved and what a crop such as Sclerotinia is worth. And second, establishing an entirely new sector around sustainable ingredients represents a truly massive opportunity, and that excites us, so both of these will begin unfolding simultaneously. Did that answer your question?

Yes, that's helpful. Thank you. For my second question, I'd like to dig a bit deeper into the sustainable ingredients opportunity, building on what was just said. You said the launch is targeted for 2025, but could you provide a bit more detail on how you see this segment shaping up over the longer term, and whether any further investment will be required to get this program operational?

This is an investment being funded by the corporations. So funding has been provided to us. To date, P&G has provided funding for this project so we can develop these products, and the plan is to collaborate with the other consumer product companies. So in our view, sustainable ingredients represent a very large category spanning many consumer product goods; and on the other side, they operate a fragrance business, and we have a business named Nucelis. We are extremely skilled at differentiating essence and editing yeast and creating products from it. And so we're collaborating very closely with them with the hope of beginning to ship biofragrance-like products next year. In our view, the entire sustainable ingredients business could be worth the same as the rice. It's a truly enormous opportunity and it will come about as soon as the soybean platform is available to us. We expect they are making edits in these platform and fermentation. The products are already being made by us and our process is being validated at this moment so that we'll be positioned to begin shipping; and so it's a large category that will begin with fragrances and then shift to oils rather than soybean.

That covers everything I had. Thanks for the extra detail.

I appreciate you making time for this.

Yes. Hi, everyone. Congratulations on the quarter. It's really nice to hear from all of you. What I'd like to ask today is whether you intend to move HT1 and HT3 stacked traits to customers solely as the stacked rice version, or do you see yourselves moving them individually at all — like HT1 on its own or HT3 on its own?

That's an excellent question. The core of the herbicide business is having stacked traits. That's how GMO built their reputation. So if you look at rice and corn, they probably have 5 different herbicide stacks. What we're essentially saying is the same thing will happen in the non-GMO crops, and we're going to lead in that area; so picture the stacked trait as one where we'll offer each trait on its own, and then we'll begin developing stacked traits with each of them separately. And we have 4 different herbicides we're working on right now to try to complete the opportunity in stacks that we'd expect to have available so that, depending on where you are, the farmer and the seed company can sell a seed that has the ability for the farmer to be able to pick the herbicide that works best for them. It's the way you get it; we're not so much in the trait businesses, though. It's the weed management businesses; for the weed management business, you need to offer a seed that has a bunch of different ways for the farmer to manage the weeds; and to do that for the different levels or pre-plant and fair plant, you need the ability to handle a bunch of different ones. And we're alone in this field, and we're pretty excited about the ability to lead them by having a whole group of stacked traits. Was that helpful?

Sure thing, Rory. Thank you, Rory. I'm grateful that you're fielding my question.

Peter, would you like to chime in?

Yes, and I’d like to expand on that point a bit, since I believe it’s a really excellent question. It’s also among the developments I feel the most enthusiasm about — the chance to deliver to the market solutions that let farmers manage their weeds. Like Rory mentioned, this is the weed control sector. Around the world, weeds create enormous problems for growers, and they seriously diminish their output. Applying herbicides over the crop involves significant expense. They run diesel equipment, or they apply product by air with aerial sprayers. As I noted, controlling weeds alone can run up to $120 per acre. So for us, moving these possibilities forward, as Rory said, first of all, it’s thrilling for growers, but also for seed companies, who can supply those products. That assists with managing weed resistance and with having several traits stacked together. And like Rory pointed out, with soy and corn this has been accomplished for a long time, though it was accomplished through GMOs; so crops that aren’t GMO, such as wheat and rice, never got those chances. That’s the reason I find it so exciting that we’re introducing HT3, HT1, and other products to the market — not only in the U.S., but also in Latin America and the Asian markets — and that we’ve achieved so much progress in so brief a period.

Okay, thanks a lot, everyone. That's really appreciated. Thank you. Yes, that's a good question.

Hello, and good afternoon. For my first question, could you elaborate on which processes will be carried out during the back half of the year to assess the edits that were made in canola for Sclerotinia as well as Nutrient Use Efficiency in HT2?

Peter, allow me to walk through each one. To start with Sclerotinia and HT2 — regarding Sclerotinia, there are 2 distinct modes of action for which field studies have already been conducted. I'm genuinely thrilled that our third one, which in my view will truly be the standout among all 3, is still awaiting greenhouse data and growth room data initially, and we won't take it into the field until next year. That said, the initial step involves examining the greenhouse data, and the same holds true for HT1. Since the edits have been completed, the following stage in the editing work — given that so many strong assays exist at present — is to confirm the worth of those modifications in the greenhouse, and after that, since we do have customers, how rapidly we can advance it with those customers participating in this effort.

Yes, thank you, Rory. When we discuss how disease resistance works, it's crucial to grasp that this is precisely where Cibus's distinctiveness and brilliance lie — Rory frequently draws a comparison to antivirals in pharma, and that applies equally here. Possessing several mechanisms of action against disease means we can deliver lasting protection for crops facing threats such as Sclerotinia. So we're eager about the latter portion of this year, when the third mode of action, as Rory mentioned, will be in our growth chambers and greenhouse for trait validation. We're confident it will succeed. We already have solid proof, just as with the other modes of action. Uniting all of them represents our upcoming milestone. And the clients we engage with, and those within our canola franchise, appear genuinely enthusiastic about this. It's among the complex traits we've discussed, and it highlights how unique our approach is to tackling such complex traits. You inquired about herbicide tolerance as well as NUE; and they follow the same pattern. Assays for HT are already in place; we know what needs to be done to reach the next phase of demonstrating that the crop withstands that specific herbicide. Then regarding NUE, we find ourselves at the — that has progressed more quickly than anticipated and we're thrilled because, I believe, as I noted in my comments, it stands as one of the greatest global opportunities available to us, and advancing the NUE traits — the initial set of edits is merely the first generation, and we'll be eager to share updates on those later in this year.

Great. Just one more question on that. Will the cost-cutting steps you announced in the release to save capital end up reducing how quickly additional editing and development work on new traits gets finished, and would that push greenhouse and field testing later, or is that not really the case?

No. We have three big platforms. Weeds, disease and NUE following that — the — our focus right now is really to make sure these get going and these start making money and we can break out of them. And so our focus has really been on theirs. We aren't taking any steps that would halt the expansion or construction of those things. It's more about making sense of and clarifying what's required to grow the remaining parts of the business. Still, the major priorities for us—bringing herbicide tolerance into rice and wheat—represent a genuinely massive category, and we've already got a number of herbicides available to use. As for disease, our patterns are in place. That side is mostly a matter of development work. Does that answer your question?

Excellent. Thanks for the details.

Yeah.

Yes. I appreciate you answering my question. I just need a handful of clarifications. The presentation was solid. There's quite a lot of detail in the press release. Regarding sustainable ingredients, you mention that funding for 2024 and 2025 will see — or has seen — a significant bump. Is that something you're anticipating, or have you already observed some early increases in funding?

Would you mind saying that again so I'm sure I understand?

Yeah.

About the increase funding.

So when it comes to those milestones around sustainable ingredients, there's a fairly substantial step-up in the money being put behind them…