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

Okay. Welcome back, everyone. It's a pleasure to host this next session with Peter Beetham from Cibus. I've known Peter a long time, and he's a wealth of information on gene editing. We will certainly get into that. They have a very differentiated platform, and we were just chatting a few minutes ago about the benefits of having access to the technology that came with Calyxt. But anyway, Peter has been involved in gene editing for probably decades. He was the developer of the RTDS technology that they have. It's -- their approach to gene editing is quite different. They work across a lot of different crops. So we'll certainly get into it. So I sure appreciate you being with us today, Peter.

My pleasure, Steve.

Well, why don't we start off with your technology? How is it differentiated from other gene editing that's out there? You work with a protoplast. Why do you do that? What are the advantages to it? What does it enable you to do that may be more difficult with others? And then I also would like to get your views on the TALEN technology that you also now have access to. That was the technology that came with Calyxt.

So, I'd love to, Steve. So good afternoon, everybody. I really appreciate everyone's time. As Steve said, I've been involved in gene editing for a big part of my career. I often say that I've been in Ag Tech for 35 years, but I've stopped counting on purpose. But the fascinating thing for me right now is I do think that gene editing is at a real inflection point. As we go through today, I'll talk about regulatory, I'll talk about how many things have changed in that front. But fundamentally, what's been exciting for us at Cibus, we've been working in gene editing for literally 2 decades. I started off my career looking at gene targeting and understanding how you can go and target genes. And the ability to go and make spelling changes in genes leading to traits is something that was always the holy grail. And so for us, at Cibus, we've focused on what is -- what our Chief Technology people talk to about is the star of the show. And the star of the show is this gene repair oligonucleotide. And that's a long mouthful to really talk about the ability to -- like the red squiggly line to make a spelling change or correct your spelling in Microsoft word, it's like that in a genome. And I mentioned that is because when we do that, doing it in a single cell, which, as Steve mentioned, a protoplast, being able to do it in a single cell allows you to put multiple reagents in there and make multiple changes in multiple genes. And so true multiplexing in a single cell that then you take there and go up into a whole plant. That allows you to think, okay, why is that important is because you can think, okay, I want disease resistance. I'm fascinating disease resistance. There's multiple targets that you might want to go after to give you durability to that tolerance. And so we've shown that over time, a number of releases that we've talked to where we've done that in canola with different 4 modes of action already, so 4 different targets. So that's a big advantage of doing it in a single cell of being able to do multiple reagents and do it in one pass. One of the big things we released earlier this year was being time-bound and predictable. And I think that's another important aspect of the ability of what we've done at Cibus. It helps to differentiate us because being able to do that in 12 months is a really critical step when you start to think about how you integrate with your customers' plant breeding programs. So if you've got a customer like a Nutrien or Nuseed, you want to interact in their plant breeding program at the stage where they're close to commercialization. So they've got -- you're going into elite genetics. And the other side of it that Steve mentioned was TALEN. And so one of the aspects of gene editing is, as you will have read, that there's lots of different approaches to it. CRISPR has been sort of the main nuclease, which is Cas9 as part of that. There are other nucleases that you can use. And there are systems like TALENs that don't necessarily use a CRISPR. They are a separate protein that is also a nuclease that can target areas of a genome that CRISPR can't. So when you think of Cibus, think about the single cell method, but also think of the fact that we have a really deep bench, if you like, as a toolkit for gene editing reagents.

Very good. So let's also talk about the outlook for regulatory approval. We do have the U.S. -- USDA approval process has maybe changed a little bit or maybe reverted back to a prior pathway. What's your view on that? And what's your outlook for approval in Europe? And how important is that to Cibus?

Thanks, Steve. It is super important to us. As I said at the top of the talk is that it really is a -- really exciting moment for gene editing right now because of the regulatory harmonizing around the world. As Steve said, USDA had built what they called a secure rule, which covered gene editing. That has been challenged. But what they've fallen back to is what they call MI regulated. And we've been through that process multiple times. It is a workable process. And it really is -- allows us, as we've just recently released as a press release that we've got a number of new modes of action of disease tolerance in canola that we've got approval through. That process is very efficient and I think also harmonized across the world. So I'm going to run through a whole series of regulatory agencies just recently that have come forward. So in Ecuador, we just released our two herbicide tolerant traits in rice that we're commercializing in Latin America and that we're also bringing to the mid-South and the U.S. And then hopefully, in the future, expanding into large markets like India and China. But right now, Ecuador, who essentially had outlawed, it was against the law to make a GMO. So not even in process. So for us, we sent a delegation to Ecuador. They understand our technology. They see that as indistinguishable from what occurs in nature, and they gave us a green light. Europe in early March, March 14 this year, we were excited because the European Parliament last year had passed new laws, new legislation. It had to go through the council as well as the commission. And so now the council got the votes in March, and it's going to the trilogues. And what that means and why that's important is the final wording of the legislation will be approved and then it will be able to go into secondary legislation. So within -- we believe within 12 to 18 months, you'll see Europe open up. They're already planting gene-edited rice in Italy. So you can actually do some testing in that area. We've actually been testing in the U.K. We've got the U.K. just passed their secondary legislation literally a couple of weeks ago. And then even beyond that, there's other countries around the world. I'm not going to go through the full list, but it really shows the harmonizing of that. And it's because gene editing is bringing beneficial traits to market and people are recognizing how valuable this is. I can't go on with that. I mean you can tell I'm excited about this. But the thing is the other side of it is even on the animal side, we've just had a gene-edited pig approved by USDA. Really for herd of pigs, it's going to be fabulous. And then also with FDA going ahead with trials for humans, correcting genetic disorders like [indiscernible] that just recently was in the news. The recognition of the technology moving in multiple organisms really shows that the power of what you can do, but also the understanding that this is really a technology that allows you to do something that no nature can do given enough time.

All right. Very good. So why don't we start going through your products and your pipeline and so forth. Maybe we could start with Canola, which is the one you've been working on for a long time. You have multiple traits in there. Like let's just start with the -- the Pod Shatter resistance. How much of a yield benefit is that trait to the grower?

So Pod Shatter Reduction is a great trait. It's been -- you've seen it in the market in North America. You haven't seen it in other parts of the world. Canola at the end of the season in the pod dries down and it has the grain inside, just like peas in the pod. Unfortunately, with changing climates and pretty severe weather conditions, occasionally, you can have major loss, so the pod shatters before you get to harvest it or even at harvest, when you actually run the harvester through, it can reduce. So the losses, Steve, are around 20% to 30%. And it can be more than that, but that's sort of what the Canadian Canola Council have identified as the range of yield loss. There's -- so our trait, we've done a lot of work in customer genetics, where primarily right now, we're very much focused on the U.K. and Europe markets. That's an area where they have not been able to get that trait. The trait has been available in North America through BASF, which is stacked on top of a GMO trait. But I think that for us, we're excited to see that moving forward. The other traits in Canola, just while we're there is that was our developed trait in Canola. As Steve said, we've been working on that for a number of years. The -- what we call our advanced traits, the Sclerotinia tolerance, the White Mold tolerance, that we're bringing to Canola. That is also progressing. It's been in the field the last couple of years, and that's going well. And then also this year, we're testing a second generation of our HT2 trait, which is another herbicide tolerance that's not available in the market today that we're excited to see how it performs in field test this year.

So you mentioned BASF has the pod shatter in GMO canola. Is the opportunity for you, and you mentioned U.K. and Europe, that's for the oilseed rape. Is that market necessarily need to remain non-GM?

That's correct. I mean right now, getting GMO approved in Europe is a nonstarter. And so what we've -- we can bring to market with our customers there is an opportunity to actually have the pod shatter in -- as a non-GM and as a gene-edited trait. And I think one of the things to remember is Europe, it's a big agricultural market. There's 100 million acres of crops in Europe that haven't had access to some of the newer technologies like GMO. They've had to look to other areas. And I think the thing that's changed a lot is that they're very much focused on beneficial traits. And for us, things like Pod Shatter helps to preserve yield, bringing Sclerotinia tolerance to the market is also something that is seen as a very positive being able to reduce the amount of fungicide use. One of the things that Europe has really been very aggressive on is reducing crop protection products. As you know, Steve, a lot of the chemistries have been delisted there in Europe. And so farmers are really crying out for traits that will help their productivity, insect tolerance is another one that is seen as a high profile in Europe. So many of the insecticides have been banned in Europe, and that's a problem. So they're looking to genetics to be the new engine room for traits.

And how meaningful is the white mold problem in Canola and/or oilseed rape that your trade could have a meaningful benefit?

So it's a seasonal thing with -- and so what's interesting about it is, for example, last year in Canola in North America, about 56% of the Canola was infected. The loss of yield can be up to 90%. Now that's not the norm. It's -- you can lose 20% to 30% of a yield, though, just like the pod shatter from infections with Sclerotinia. I think 2016 was the worst year that they had and where about 90% of the crop was infected with Sclerotinia. It's -- no, when you talk to the Canadian Canola Council, it is the biggest constraint when it comes to disease in Canola. But it's also a big disease in soybean. So one of the things when you think about what we do at Cibus and gene editing is the ability to take a trait and move it to another crop is something that we've really worked hard on understanding exactly what edits we would make in soybean to give it the same trait as we've developed in Canola. And that's, again, for us, something in the future, but we've already started to make some of those edits in soybean for -- at least for the herbicide tolerance.

So let's talk about herbicide tolerance. We have 3 different herbicide tolerance traits. We did have Nutrien on a session earlier today, and Jeff Tarsi was very excited about their rice seed platform, and they were interested in the herbicide tolerance trait you have. So where are you at on those 3 herbicide tolerance traits? And where are they coming from? Are these naturally occurring herbicide tolerance genetics in plants? Or how did you create these?

So let me start there because that's -- I don't get asked that question very often, Steve, and I love that. When you have herbicide-tolerant crops, in the past, they were all GMO where they take a gene from another organism and put it in like roundup-ready beans. So it came from -- essentially came from an agrobacterium. In our case, gene editing is only -- is editing the genes that are in the crop already. Most modern classes of herbicides react with what we call housekeeping genes and shut it down. So for example, glyphosate affects an enzyme called EPSPS, which is involved in aromatic amino acids. When you understand that interaction with the chemistry with the genes in the plant, you can essentially edit the genes so that the interaction doesn't occur. So what we've done in our discovery work is understand the edits we need to make so that the plant or the crop is not affected by the herbicide. And so that's part of our intellectual property as well as then when we do that, we can also use some of our selection methods to see what improves that. Over time, as many of you would know, is that when you spray herbicide a lot on a crop, it kills all the weeds and not the crop, which is exactly what you want. But every now and then, you get a weeds that becomes resistant. Not natural resistance is usually because of mutations that have occurred naturally. So we also harvest the knowledge around mutations that have occurred in nature or in crops that have been sprayed a lot. What that means, though, is over time, no matter what herbicide you use, you will get tolerance in the weeds and farmers have required to start to think about how you manage that, how you steward that. And a lot of that is crop rotation or it is using different herbicides. And so the reason we have -- we're targeting three different herbicide tolerances is because we know farmers gives them a weed management solution that gives them options to rotate their crops, but also then rotate the different herbicide tolerant traits. And that allows them to reduce the amount of tolerant weeds that are potentially constraints on production in the crop.

So you have HT1 and HT3 in rice. You're developing HT2 for Canola. Can you put all 3 of them in either crop?

So the short answer is yes. The longer answer is, does it make commercial sense. And in some cases, we will be stacking for sure, in rice. There are already some herbicide tolerances in rice that have come from mutagenesis. And there are some opportunities to stack, we believe, in the future for that. Our HT1 and HT3, we can stack. And we've shown that, that actually -- we've done initial field trials on that to show that it works. In the U.S., we're currently moving HT3 ahead first, and that is Clethodim tolerance. So we announced last year that we did a partnership with Albaugh, who are working on the chemical registration work with us on Clethodim. Clethodim is a great grass herbicide. So it helps to get rid of the grass weeds that are a problem in rice fields. When it comes to HT2, it may not be the best one for rice, but it may actually be very good in some of the broad leaf agriculture. It's more of a generalized herbicide. So there are areas where we could stack all three, Steve, but it depends on the crop and depends on the geography.

So would the HT2 potentially be more effective for soybeans?

Correct. Exactly. So I think that's an area where soybean has a lot of stacked traits and GMO. And as you follow agriculture and soybean, particularly, there's some challenges that some of the big companies are facing on delisting of herbicides and the traits this year and heading into next year. There's also some of the challenges around glyphosate. We do see an option for that HT2 trait in soybean could be a good replacement for that. I think that one thing I would say that's really important that Cibus is -- because we're agnostic on chemistry is what we're really focused on is giving the farmer the best weed management solutions they possibly can get. So we may be stacked on top of herbicide tolerant -- other herbicide tolerant traits or maybe just we have a series of stacks that we've developed.

Very interesting. Can you put this HT2 trait into soybean germplasm that already has transgenic traits in it. Can you do that?

So practically, yes. That is something that we -- depending on the customer, we'll work towards doing that because I think, as I said before, we're looking to make sure that the farmer has the best weed management solution they possibly can do to control resistant weeds, but also control the rotations with other crops and other herbicide tolerances in other crops. So we're really just looking for the whole holistic solution. The challenge comes, Steve, if there's some licensing issues. But that's up to the customer how to handle that. Practically, we can do that.

Okay. Soybeans is one of your more recent crops that you have figured out how to gene edit. Is there anything about soybeans that is more challenging to your process, which involves a protoplast? Is that more difficult with soybeans?

The short answer, yes, it is. I think as I mentioned earlier, that a single cell is what we're all about at Cibus being able to do complex traits in one pass, so it's time bound and efficient, time bound and predictable. We've been able to edit single cells of soybean already using some of our targets. That's exciting, but getting a single cell in soybean back to a whole plant is not so trivial. We have made a lot of progress on that front. We're actually -- because of the efficiency at the single cell level, we've been able to recognize that we can -- there's a couple of different paths we can go. So that's what we're working on right now. We've put time lines on that towards the second half of this year. We look to have a platform developed to be able to do that. The -- it's -- there's a difference between some of the lab-based sort of what they call lab rats, some of the ones that are more amenable to tissue culture, Steve. But what we are dealing with is elite genetics, the best genetics that are out in the market, and that's where we want to stay. So we feel confident we're very close. And -- but it has been something that many research institutes have been trying for many years. It's not a trivial exercise. But we've been able to leverage the knowledge that we've gained from Canola, where we're like literally 50% efficiency in some cases at a single cell level, we can regenerate really efficiently. Same with rice, same with wheat, same with other crops even cassava and peanut, for example.

So you mentioned wheat. Where does your platform look on wheat? Is that something that the Calyxt side of the business had maybe a little more experience with wheat. I recall they were looking at it a long time ago with respect to gluten content?

Exactly. So wheat for us right now, we are -- because of, I think, a couple of things about the platform and our predictability plus the regulatory framework that is harmonizing, we've had some inbound interest. And so I think what we're looking for is expanding that opportunity. As you said, we -- with our legacy Calyxt products, we've got renewed interest. And I think that's an exciting area that we would like to play in a little bit more.

Okay. What about anything that you're doing down the path of any like structural changes to seeds that might facilitate the biological technologies that are out there that rely on bacteria to either provide some protection to the crop, but they do have to rely on the root system of the crop and root systems can really differ from one variety to another. Is this an area of interest to Cibus?

It is. I think I've said this a few times, but we're kids in a candy store when it comes to gene editing. You think about the amount of knowledge we have in genomics now and the amount of knowledge that has been accelerated by AI. We've got a relationship with a group of Biographica, that's helping us on the disease tolerance front. But this -- our computational biology group have identified lots of areas we can go after. That looks -- you're right, Steve. There's root architecture and the interaction with the soil biome and understanding how microorganisms actually interact to help in nutrient uptake, how they help in drought conditions, root architecture is something that a lot of people have been looking at. We do see that as an exciting area. We have got some work that we are doing with regards to nutrient use efficiency. It's a small effort right now. And so we'd like to see that. That's a future trait for us that we see pretty exciting actually because it's -- there's been some great publications around that in the last few years.

And how does that trait actually work? Is it nutrient use efficiency for any particular nutrient? Or is it kind of broad?

It is broad. I think that's the -- most people are focused on nitrogen use. But as you may know, fertilizers usually -- I mean, nitrogen is the main part of it, but NPK, phosphorus and potassium are the other two key nutrients and others. I think the thing that is not well understood always is that there is a lot of nutrients in the soil that the plants don't access. And then even when you add fertilizer, the plants don't necessarily utilize it well. So a lot of -- particularly the synthetic fertilizers that are added to crops, as much as 60% of that ends up in waterways because it just runs off and doesn't get incorporated in the soil or doesn't get incorporated in the plant. And that -- the knowledge of how that interaction, there's the things called mycorrhizae that interact very closely with roots. And as you know, with nitrogen fixation with soybean and legumes. So a lot of that interaction is now being better understood. And there's a tight connection between the genetics, the root architecture and the microbiome.

It sounds like a lot of opportunity there. I did want to get into this other business unit that you have about biofragrance. Effectively, you have gene editing capabilities that you are also applying to bacteria that are then used in fermentation. Do I have that right? And tell us a little bit about this business?

So yes, let me start off by how do we -- how did that sort of eventuate? I mean we are very much a crop-based organization, and we've really maintained our focus. One of the areas that we do, do early on is in this discovery phase of understanding a target. So whether it's a herbicide tolerant target or to do with disease, we use a system that is a surrogate system for like micro organisms like yeast and bacteria. And what we discovered is that we got very good at editing and genetic manipulations with regards to yeast. And some of the early work we looked at was improving different types of oils. So we use a yeast called yarrowia lipolytica, which is an oleaginous yeast, produces a lot of oil bodies. And it's a yeast that has been used in a lot of commercial fermentation. And that's important because it's scalable. So it's something that you don't have to sort of think through how do you scale that? It's a bug that really is a tough one and very scalable. So what we discovered in that was that given the right feedstocks and the right conditions, we've been able to produce oils that have fragrance. And biofragrances are something that when it comes to sustainability is that a lot of large organizations, especially the CPG guys are really keen to get bio-based sustainable fragrances into their products. And so we've got two that we've been able to scale, and we're working with a major CPG company and that we see actually very early stage revenues coming as soon as the end of this year and growing next year. So that's an area that has not been a huge amount of resource that we've had to attribute to, but an opportunistic trade characteristic of yeast that we've been able to utilize. And again, it fits with our royalty-based model. So when you think about Cibus, it's traits, and we're collecting royalties as revenue from our traits that we've gone through with herbicide tolerance and others in crops. It's the same model that we have when it comes to the fragrances.

And do you affect the production of the fragrance through genetics that you're modifying in this yeast or by just the growing conditions?

So it's both. It's both. I think we've been able to understand the pathways that are involved in the yeast for producing particular types of oil and also then the growing conditions allow you to get different types of fragrance. So it's a very cool part of the biology of the yeast.

Have you broadened this search of producing products that the CPGs could have an interest in, whether it's plant-based or bacterial-based or yeast-based it could be a fragrance, it could be some kind of a color or a flavor or an ingredient. Is this kind of a broad opportunity that you might also pursue rather than just simply something that benefits the farmer. This is going down a pathway that has benefits to CPG customer companies?

Yes. I think you've captured it well, Steve. I think this sustainable ingredients is essentially the group within Cibus that is looking at this area. It's broader than just yeast. It can be crop-based. I think there's a demand today for more sustainable ingredients. One of the things that I always think crops are amazing at essentially turning sunlight into carbon. And so the cost of carbon is a big thing when it comes to ingredients. So whether you're producing a different type of oil profile or you're producing flavors or fragrances, the ability to do that is -- that really comes to the economics of what I call the cost of carbon. And if crops can do that efficiently by using sunshine, the economics are really good. It's pretty intensive when it comes to energy use and the carbon use for fermentation. There are quality products that will come from that. But I think I would love to see some of the crop area utilize them for sustainable ingredients. So it is a future -- so it's in our future.

Maybe just one last one for you, Peter. Any other crops that you're looking at that would be in your pipeline that you could expand your gene editing capabilities into?

Thanks, Steve. I think that, as I said, we are kids in a candy store. We love -- there's so many opportunities out there. We've stayed very much focused on rice and canola, winter oil seed rape and soy. Wheat is one we've already mentioned. But there's others that we have done some work on and like peanut. I think peanut for me is something that broadening out our portfolio, working with some of the industry on nonallergenic peanut, for example, it would be a really cool use of the technology. It's also very, as you might imagine, economically viable for us to do that. It's -- to go into the science a little bit, just one of the challenges is a lot of CRISPR technology can just do gene knockouts. If you knock out a lot of the proteins that are associated with the allergen in peanut, for example, you don't get a peanut anymore. It's a little shrunken thing. It's because it's a storage protein. It's the meal within the peanut that's the problem. So if you knock it out, you don't have a peanut. So you want to be able to do precise edits and spelling changes like Cibus can do to be able to change the what's called the epitope in almonds. It's a little bit like a spike protein that we talked so much about when it came to COVID. But if you can modify those spike proteins by editing, you can reduce the allergens or knock the allergens out completely. So things like that, I think, as we bring our portfolio forward some exciting things we can do.

All right. Very good, Peter. We run out of time. As always, it's sure a pleasure to get an update from you. We'll certainly be following your progress and very much appreciate you joining us today. So thank you.

My pleasure, Steve, as always. I appreciate your time and everybody else's time on the call. So thank you.

Very good. All right. Be well, everybody.