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Cibus, Inc. (CBUS)

Q2 2023 Earnings Call· Fri, Aug 11, 2023

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Transcript

Operator

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Cibus Second Quarter 2023 Financial Results and Corporate Update Conference Call and Webcast. [Operator Instructions] This conference is being recorded today, August 10, 2023. At this time, I would like to turn the conference over to Wade King, Cibus’ Chief Financial Officer. Please go ahead, sir.

Wade King

Analyst

Thank you, and good morning. This is Wade King, the Chief Financial Officer of Cibus. I would like to thank you for taking time to join us for Cibus’ Second Quarter 2023 Financial Results and Corporate Update Conference Call and Webcast. Presenting with me today is Rory Riggs, our Co-Founder, Chief Executive Officer and Chairman; and Peter Beetham, Co-Founder, President and Chief Operating Officer. The press release detailing these results crossed the wire early this morning and is available on our company’s website, cibus.com. Before we begin the conference call, I’d like to remind everyone that statements made on the call and webcast, including those regarding future financial results and future operational goals and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to Cibus SEC filings for a list of associated risks. This conference call is being webcast. The webcast link is available in the Investor Relations section of cibus.com and will be accessible for 90 days. At this time, I’d like to turn the call over to Rory for his opening remarks. Rory?

Rory Riggs

Analyst

Thanks, Wade. Welcome to our first quarterly release, which we’re really excited about. Financially, this quarter will be a little bit different from quarters going forward as our financial results for this quarter only reflect one quarter of the combined operations of Calyxt and Cibus as merger became effective on June 1, 2023. That means the results reflect two months of scaling and one month of the combined operation. I think the easiest way to understand this is to have Wade go over our financial presentation. Wade?

Wade King

Analyst

Thank you, Rory. Earlier today, we issued a press release describing our second quarter 2023 results. We are also filing our Form 10-Q for the quarter today. For additional details about our financials for second quarter 2023, please refer to our press release or filings with the SEC. As Rory described, we are excited to bring the 2 leaders in gene editing and agriculture together in our recent merger. Today, we are reporting financials as part of this transition from the legacy Calyxt business alongside the combined company business. Now for our second quarter 2023 financial results. Cash and cash equivalents as of June 30, 2023, was $50.9 million. The company believes our cash and cash equivalents will enable Cibus to fund planned operating expenses and capital expenditure requirements into the first quarter of 2024. R&D expense was $8.4 million for the quarter ended June 30, 2023 compared to $3.2 million in the year-ago period. The increase of $5.2 million is primarily related to increased lab supply and facility expenses and increase in employee headcount and an increase in stock-based compensation expense for restricted stock awards, award grants and the acceleration of share vesting associated with stock award agreements due to the acquisition of Cibus Global, LLC. SG&A expense was $11.1 million for the quarter ended June 30, 2023 compared to $3.6 million in the year-ago period. The increase of $7.5 million is primarily related to an increase in headcount, increased consulting and legal fees and an increase in stock-based compensation expense for RSA grants and the acceleration of share vesting associated with stock award agreements due to the acquisition of Cibus Global, LLC. Nonoperating income was $1.3 million for the quarter ended June 30, 2023 compared to $4.3 million in the year-ago period. The decrease of $3 million in nonoperating income is due to changes in the fair value of the liability classified Class A common stock warrants. Net loss was $20.5 million for the quarter ended June 30, 2023 compared to net loss of $2.5 million in the year-ago period. Net loss per share of Class A common stock was $2.74 for the quarter ended June 30, 2023 compared to net loss per share of $2.66 in the year-ago period. Now I’ll turn the call back to Rory for his further remarks.

Rory Riggs

Analyst

Thanks, Wade. In addition to the financials, this quarter will also be a little different as we look at this quarter’s release as the inaugural call for Cibus as a public company. Because of this, the format will be a little different than a typical call. Our goal today is to begin to develop an understanding of who Cibus is, our business goals, strategy and milestones. From here, the plan would be to do quarterly calls to review our finances and provide updates on our commercial progress as we launch our developed traits. The merger between Calyxt and Cibus was a great onetime opportunity to merge the two pioneers in gene editing. The union is significant because in the early days of gene editing, Cibus, Cellectis, Calyxt’s agricultural subsidiary in University of Minnesota, one of the founders of Calyxt, were the leaders that were developing the field of agricultural gene editing. All this essential agricultural gene-editing technology from this period now resides in Cibus. We’re really excited to be working with our colleagues from Calyxt and take advantage of all this great intellectual property. The merger also allowed us to become a public company. We believe 2023 was a good year for us to go public as it is the point of inflection year for us as we transition from R&D to a commercial company. As part of this transition, we laid out a list of 2023 milestones that were critical to this transition. We’re going to be really excited because we have already accomplished many of our 2023 milestones and are on target for our remaining ones. The key milestones that we have accomplished are multifold. We first successfully made the initial transfers of our initial trait products. We have three developed traits, one for pod shatter reduction in…

Peter Beetham

Analyst

Thanks, Rory, and good morning, everyone. Cibus’ high-throughput breeding or as we call it, the Trait Machine, changes the game. What separates Cibus in the plant gene-editing industry is its Trait Machine process. It is built using Cibus’ patented Rapid Trait Development System, or RTDS. The process from ideation, molecular discovery or what I call the what to edit, then editing to the field validation can take as little as five years. The Trait Machine process is a crop-specific standardized end-to-end gene-editing breeding system that edits a single cell from an elite germplasm and generates the cell into the same elite germplasm with that edit. It is the first time-bound and reproducible breeding system in the plant gene-editing industry. It is the breeding system used at our Oberlin location. As we recently reported, we are excited to now have Cibus’ new stand-alone gene-editing production facility. Cibus believes that RTDS and the Trait Machine process represent the technological breakthrough in plant breeding that is the ultimate promise of plant gene editing, high-throughput gene-editing systems that are able to work as an extension of customers’ breeding programs. The Trait Machine enables the standardized reproducible system that develops traits in a fraction of the time and cost of conventional breeding with GMO processes. There is another aspect of the Trait Machine that has an equally important benefit to this new era: The ability to develop prototypes and to accelerate commercialization once the trait is developed. Prototypes validate specific edits in a crop that lead to a validated trait. Cibus is focused on complex traits that involve multiple edits and in some cases, multiple genes. In many cases, such as disease or nitrogen-use efficiency traits, the ultimate product will consist of multiple modes of action. Prototyping multiple modes of action is difficult, but it is impossible in conventional breeding. This is a core attribute of the Trait Machine. It is why we believe that we will be able to develop traits for many of the critically important traits like disease resistance that have been elusive using conventional breeding or GMOs. To us, these benefits are integral to our vision for the future of breeding. Back to you, Rory.

Rory Riggs

Analyst

Our best example of what Peter was talking about, regarding the timeline for the development of new traits, given the technology he’s helped develop, is our Sclerotinia trait. Sclerotinia is a really important trait in both canola and soybean. It’s at amazing losses. And then we believe that this royalty between the two crops is well over $0.5 billion a year of royalty. But what we’re most excited for both this discussion is you see on this chart, the timeline for development. And timeline for development for this thing, it’s exactly in line with our proposition of 4 to 6 years of development timeline for given the trait from the time you do it first. And you can watch us manage this trait and see how well we are managing this because it’s an excellent benchmark for you to think about how we do. When we started at Cibus, we blindly assumed that we would not be considered GMO. Our dream was that if we could start developing technology that resulted in traits that are indistinguishable conventional breeding, we’d be regulated like conventional breeding. While we have to admit this vision has taken a long time. However, over the last few years, virtually all major markets have either passed legislation or on a road to pass legislation that would regulate traits from our technology similar to the traits from conventional breeding. The last holdout and the most critical GMOs, the European Union in July proposed new legislation or something called new genomic techniques, or NGT. If pasted, the EU would regulate traits from our technologies as conventional-like. In the we built, first built, we believe the remaining holdouts will quickly complete their process. In the meantime, the U.S., the UK and most of the Latin American countries have already passed…

Operator

Operator

[Operator Instructions] Our first question comes from Laurence Alexander with Jefferies. Your line is open.

Laurence Alexander

Analyst

Good morning. So I guess, just first of all, with the cash burn, can you just characterize whether it is expected to be steady, front-end loaded, back-end loaded? And how much of what you’ve sketched out as your initial cash burn is tied to products that are not the first 3 commercial products.?

Rory Riggs

Analyst

Thanks, Laurence. I just want to say one note before we start. We actually thought our slides were going to match up to the language. We apologize if it didn’t for the people on the call. And I’ll let Wade walk through the cash. We expect it to be even, believing what – I think the question of cash burn, where we are and how we manage it is a critically important question for all shareholders. Wade, do you want to take a shot?

Wade King

Analyst

Sure. Laurence, this is Wade. So our operating burn currently is about $6.5 million per month. We expect that to trend up at the end of this year towards $7 million per month dollars. That obviously supports all of our facilities. It includes the new Oberlin facility, which is our dedicated Trait Machine facility in San Diego. Of course, our headquarters in Nancy Ridge, it includes also the Roseville facility associated with the old Calyxt, and that’s 43,000 square feet. So it takes into account, obviously, both our operating needs and also our capital expenditures associated with making those – all those facilities fully operational from a Trait Machine standpoint. We added 80 people last year to the company, and we’ve moderated the increased headcount since then. So we expect, frankly, the capital needs for the company to be steady from here, incremental increases associated with adding individuals and CapEx requirements to those facilities on an ongoing basis. So hopefully that addresses your question. Once again, $6.5 million per month, trending up to $7 million per month and then steady from there.

Laurence Alexander

Analyst

Okay. Great. And then just secondly, can you unpack the difference between a trait going into kind of the breeding collaboration versus the transfer stage? And once it gets into the transfer stage, what the timeline is for cash revenues to hit your P&L and cash flow statement? Can you just walk through kind of the cadence of the – particularly for the 3 products that you’ve already commercialized?

Rory Riggs

Analyst

Excellent question. So we’re starting to transfer trait developed to our customers. And we – what we – guidance we’ve given, Laurence, is that we think it will take 2 to 3 years for them to do the things they necessary to validate, register, build up a seed inventory and get launched. And so we expect 2 to 3 years after we transfer to a customer that we’d start to see revenues. We think that, that could be a little bit faster in rice because of the nature of how the rice market works. But in the canola market, we think that those are really solid numbers. And in the rice market, we’re going to learn, but because of the nature of how rice is transferred and work, I think that it could be faster.

Laurence Alexander

Analyst

Then just one last clarification, and then I’ll hop back in the queue is once the product is launched, can you give a sense for the lag, if any, for you to be paid? Do you get paid at the into the planting season, the end of the harvest? Can you just walk through kind of what – how the model should work in terms of getting the royalty payments to start flowing through to you?

Peter Beetham

Analyst

So Laurence, this is Peter Beetham. Thanks for that question. I think that with regards to canola and our relationships with all our customers, it will be basically at the end of what they call counting bags at the season. They plant, and then when they get all their returns in, so around midyear, they’ll come back to us with an analysis of exactly how many bags were sold, and then the royalties per acre will be sent back to us.

Wade King

Analyst

And I’ll just add, Laurence, this is Wade, that, that sums up to the fact that our expectations, we like giving ranges, sort of have royalties showing up on the P&L from customer shipments in the range of 2025 to 2026 first royalties. And then, obviously, free cash flow generated in the range of 2026 to 2027 first free cash flow generation. So hopefully, that gives you a range of metrics as it relates to model expectations.

Rory Riggs

Analyst

Can I get one more, just – I always – you’ve heard me, Laurence, say that I look at this a lot like the movie business. At the end of the season, suddenly you look at all the players and figure out who you have to pay royalties to. And so the way Peter explained it is, from our understanding, exactly what happens in the ag business. At that point, they look at all the customer, the pay a lot of royalties out, and they look at all their people, they have royalties, too. And I think the whole industry reflects our royalties essentially at the same time.

Laurence Alexander

Analyst

Okay, great. I’ll drop back in queue. Thanks.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from Steve Byrne with Bank of America. Your line is open.

Steve Byrne

Analyst · Bank of America. Your line is open.

Yes, good morning to you. I have a couple of questions about the potential to put HT2 and Sclerotinia in soybeans. First, can you highlight what is HT2? Is there – does that represent a different mode of action from the multitude of herbicide tolerance transgenic traits that are in soybeans right now? So is it – is that different? But perhaps you could highlight whether there’s any difficulty putting your gene-edited traits into soybeans that are full of transgenic traits. There’s some talk out there that if there’s a transgenic herbicide trait in there, it makes it pretty difficult to do gene editing in there. Can you comment on that? And then with respect to putting a gene edited trait into a crop that – like soybeans that gets exported, does that require European import approval for the gene-edited trait, which obviously now is essentially precluded? But as you highlighted, that regulatory operation is set for streamlining. So is that – do you need that European and regulatory change in order for you to get – to put these gene-edited traits in soybeans that are going to be exported? And then sorry, but one last one on this, and that is you put your gene-edited traits in soybeans. In some parts of the world, those seeds are saved. Do you have any concern about being able to collect royalties on your gene-edited traits, given the grain handler can’t detect it?

Peter Beetham

Analyst · Bank of America. Your line is open.

Thanks, Steve. This is Peter. I think I’ve got most of your questions.

Rory Riggs

Analyst · Bank of America. Your line is open.

It was one question on…

Peter Beetham

Analyst · Bank of America. Your line is open.

So first of all, we are so excited about the abilities of what we have in front of us with soybean. I think the – as you mentioned, HT2 and Sclerotinia tolerance are 2 traits that are really going to change how people think about trades and soybean, not just here in the U.S. but in South America as well. So I think the HT2, I can tell you, is a – it is a new mode of action. And with our partners, we’ll be looking to add those, stacked potentially in soybean that allows farmers to have a much broader weed control system. So in some cases where they may need some additional herbicide tolerance that allows them to control really tough weeds. So it gives you a really great opportunity to think through the product lineup, adding HT2. This is something that a number of our partners have talked to us about. And as you know, we have a relationship with GDM in Latin America. And that is one of the areas that we’ll be working with them on. The other area is also is also Sclerotinia. So white mold in soybean is a really important trait. We do see the potential to stack this on with other approved event transgenics. I think the other question you mentioned was EU import. And the way we understand it right now is that, again, there’ll be approved events that you’ll be able to work – that already are imported into Europe. But the gene-edited add – addition, understanding that the proposal that they just approved in July will also – not only planting in Europe but also pave the way for imports and exports, and so we’re excited about that. Then the last question I think you had was save seeds. We are an independent developer. We work with our customers to provide traits. The customers will be managing how that goes to market. And with regards to safes, they deal with that on a yearly basis. And I think they manage that very well and understand that there are some areas of the world that farmers will save seeds. So we have no concerns about taking the traits to market and having safe seeds.

Steve Byrne

Analyst · Bank of America. Your line is open.

Thanks for answering this one quick question, Peter. One real quick one for you, and that is to Sclerotinia. Would you have any interest in expanding into fruits and vegetables? I can imagine there could be interest there.

Peter Beetham

Analyst · Bank of America. Your line is open.

So Steve, that’s a great question. I think the way I look at Sclerotinia, it’s one of our blockbuster traits. The beauty of our technology that we’re bringing to the marketplace is it goes across crops. And so you have this understanding of disease resistance you can take from canola to soybean and then into other crops that have white mold problems. So that’s something we’d love to do in the future. Right now, as a company, we’re really focused on – as Rory mentioned, in the script of the deck, we are really focused on our first 2 crops with the 3 traits, expanding to 3 crops and 6 traits. But in the future, the ability to take the technology across crops and then also across different traits is really exciting for us.

Rory Riggs

Analyst · Bank of America. Your line is open.

And you should know that, if I can add, that this exporting is such an important topic within the European legislation, is our understanding as they proposed it. That problem will be solved for us, which is a really big event for us.

Operator

Operator

[Operator Instructions] Our next question comes from Bobby Burleson with Canaccord Genuity. Your line is open.

Bobby Burleson

Analyst · Canaccord Genuity. Your line is open.

Hi, thanks for taking my questions. Sorry about any background noise here, we’re at our growth conference. So I guess my first one kind of, I guess, touches on the end of your last answer. When we start thinking about the learnings from crop-to-crop or even trait-to-trait, are there synergies that start to gather in terms of customer overlap or with the germplasm, where it eases maybe the pathway to additional collaborations and kind of derisk things, going forward, once you get some momentum?

Peter Beetham

Analyst · Canaccord Genuity. Your line is open.

So Bobby, this is Peter again. Again, that’s the part that, from a technology standpoint, we’re so excited. We understand the – what to add it probably better than most companies. We’ve had a really strong history of understanding edits, complex traits like disease resistance. So understanding those what you need to edit, allows you to think more broadly, and there are synergies associated with that. So when I say broadly, it means that not only Sclerotinia but other diseases that are caused by packages like as well as rust and other diseases that are really important constraints on agriculture broadly. So you’re absolutely right, this is an opportunity to use that synergy to go across a number of different diseases.

Bobby Burleson

Analyst · Canaccord Genuity. Your line is open.

Great. And then maybe just understanding the technology mode here outside of patents, your Trait Machine process and how you’ve created something that’s time bound and reproducible, what aspect of the different stages that you guys outlined there is perhaps outside of ideation may be the most difficult for some of your partners to replicate on their own in terms of doing this in-house?

Peter Beetham

Analyst · Canaccord Genuity. Your line is open.

Thanks, Bobby. It’s Peter again. I would say that the time bound and reproducible Trait Machine is one of the most exciting things I’ve seen in the company in the history. It is – as you saw on the slides, it’s a 3- to 5-year process. What’s been most exciting for me is to see the ability of the team to take single cells through the whole regenerated plants. This is something that is not standard in any cell biology around the world. And so I think our abilities in that area is not just getting 1 or 2 cells to divide and go in to regenerate it. We’re talking about millions, so an efficiency rate that is beyond what you can even – what even I imagined a few years ago. So I think that for us, that allows us really to know about the secret sauce that is central to what we’re doing in our cell biology team.

Rory Riggs

Analyst · Canaccord Genuity. Your line is open.

And I’d just add a point to that from ideation, without having the ability, one, to be able to do complex edits and secondarily have this regeneration model, which we call a crop-specific Trait Machine process, it’s really hard to think through how to – after you ideate, how to do a complex trait. And really it’s because of that, that we now have this three to five years, and you can see it in the Sclerotinia results that we’re pretty confident that it’s just – you’ll just laugh and I’ll comment [indiscernible] maturity award because we grow these cells up and have a crop at the end and it’s pretty well timed. And that’s – I appreciate the question.

Bobby Burleson

Analyst · Canaccord Genuity. Your line is open.

Great. And then maybe one last quick one here on nitrogen use efficiency. Curious whether or not any traits that you introduced there are compatible with engineered microbial solutions that might be applied around the plant, around the root structure? Is this symbiotic with other solutions that are externally applied? I know it’s early stages in terms of what you’re exploring there.

Peter Beetham

Analyst · Canaccord Genuity. Your line is open.

So Bobby, this is Peter again. Another great question. When you think about nitrogen use efficiency or what we often call it nutrient efficiency, there will be synergies in symbiosis with microbes in the soil. We have a number of different targets, we’ve studied and looked at on nitrogen use in plants. And it is – a lot of the interaction does happen within the soil. It also happens within the plant. So we’re looking at a number of different targets, primarily because we have a technology that does target multiple genes and multiple edits. So it really does open the opportunities for us to look at what is out there on the biological side and how we might actually have some synergies and interactions on that front. So yes, it’s an exciting opportunity.

Rory Riggs

Analyst · Canaccord Genuity. Your line is open.

And you framed it well that when you look at nitrogen use efficiency, it’s above-the-soil and below-the-soil traits. And then our first one is below-the-soil trait, but you’ll learn as we go forward how they divide.

Bobby Burleson

Analyst · Canaccord Genuity. Your line is open.

Fantastic. Thanks for taking my questions.

Rory Riggs

Analyst · Canaccord Genuity. Your line is open.

Thanks, Rory.

Operator

Operator

[Operator Instructions] We have a question from the line of Laurence Alexander with Jefferies. Your line is open.

Laurence Alexander

Analyst

Sorry, just a couple of follow-ups. First, with the collaboration evaluation with Bayer, or if you want to speak more generally. First, are you prohibited from entering into similar evaluations with other seed companies? And second, can you give some sense of what the kind of the holy grail here is, what the blue sky – kind of what the targeted efficiency gain that you want to deliver that would then be split between you and them in terms of a value sharing? And what’s the goal with the collaboration, can you just try and quantify it?

Rory Riggs

Analyst

It’s a great question because it goes to the core of our business model. And we now have customers in all the crops. Let’s say we have 12 customers in each one, it’s the same model that they send us their elite germplasm. We then, with elite germplasm, try to work with an initial trait. And so in canola, for example, everybody starts with a pod shatter collaboration agreement, where we try to put pod shatter into their lease germplasm. And our goal as a business is that once people see how that works, that we will then turn that into broader collaboration agreements, and we expect you to hear of us signing into broader collaboration agreements. And in those broader collaboration agreements, we expect to do two things: one, be able to advance our pipeline of traits. So if you’re in Sclerotinia, it’s not a secret that if we – if you’re in canola, if we have Sclerotinia developed that they all have really indicated they would love to have that trait in their germplasm, so that’s how you extend to a broader – and secondarily, everybody seems to have ideas now as they understand what our process is to be able to evaluate new ideas. And I think the way we look at Bayer is just in that agreement is just to understand, like a lot of our customers, how does our process work, how efficient is it and how to think about it with respect to our current traits or future traits. And I think that everybody needs to go through that sort of valuation before they can sign on and go, "All right, I’m ready to put you into my system." And this is sort of Bayer putting themselves in that process and working with us.

Laurence Alexander

Analyst

And then you mentioned whether – you mentioned kind of everybody in the industry cross-licenses technology. With you – royalties, how much of a drop through to EBITDA do you expect to see? I mean, will you be having any technology licenses or leakage that we should be taking into consideration?

Rory Riggs

Analyst

Could you rephrase that? I’m not sure I totally understood that, I apologize.

Laurence Alexander

Analyst

So when you receive royalties – some companies in this sector when they receive royalties, they then have to pay IP payments to other companies. They settle up. There’s a fair amount of leakage. I’m just curious as to what you think if you get a certain royalty amount, what the contribution to EBITDA should be?

Rory Riggs

Analyst

Thanks very much. First, you should know also with – so far, everything we’re doing is nonexclusive. We’re working with people generally across all these crops, and we’d like to kind of be the utility that we can be all exclusive. As far as to traits, we don’t have any other technology royalties that are due. We have a 10% royalty that’s due to early on in our financing. We did a royalty financing where the investors got a 10% royalty in our revenues. And so that would be a deduction from our revenues. And secondarily, we have created a foundation for investing in sustainable agriculture in development countries. And that’s a – after we get $50 million of royalties, there’ll be a 2% deduction to this nonprofit to start doing developmental work in agriculture. Other than those, there are no other deductions.

Laurence Alexander

Analyst

Okay. Great. And then just lastly, probably a predictable answer on this one, but what’s your bandwidth or appetite for M&A if other early-stage biotech assets become available the way Calyxt was?

Rory Riggs

Analyst

That’s a great question. We’re – as we – the next 1.5 years, we’re so focused on getting our five products out there. I want to you give a 2025 to just say, "You’ve got your three platforms going your trait are rooting, we have our customers." At that point, we really would love to be able to start thinking through how the industry shapes and how we can be a real participant in the industry, and we’d be open to it. I think for the moment, we’re really focused on doing what we’re promising.

Laurence Alexander

Analyst

Okay. Thanks.

Operator

Operator

Thank you. This concludes our question-and-answer session. I would now like to turn the call back over to Rory Riggs.

Rory Riggs

Analyst

Thanks so much, Joanne. This is really – for all of us, this is sort of – we now realize we’re public. This is kind of cool. With our real public offering, we put our documents together. We really are focused and we really are excited about where we are with our traits and where we are with this process. So thanks for following us, and I hope to be able to show you really how the progress works in this new industry. The idea of having an independent trait producer is a new concept for agriculture. And I think that the reception we’re getting from customers and the quality of the traits we’re developing is helping us to get to that point, but the Calyxt still helped us. So thanks very much for listening, and we look forward to talking to you in future calls.

Operator

Operator

This concludes today’s conference call. Thank you for your participation.