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Cibus, Inc. (CBUS)

Q3 2023 Earnings Call· Sat, Nov 11, 2023

$1.41

-5.37%

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Transcript

Operator

Operator

Good afternoon, and welcome to the Cibus Third Quarter 2023 Results Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference over to Wade King, Chief Financial Officer. Sir, please go ahead.

Wade King

Analyst

Thank you, and good afternoon. This is Wade King, the Chief Financial Officer of Cibus. I would like to thank you for taking time to join us for Cibus' third 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. 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 along with our press release and corporate presentation are available on the Investor Relations section of cibus.com to assist in your analysis of the business. With that, I would now like to turn the call over to Mr. Riggs. Go ahead, Rory.

Rory Riggs

Analyst

Thanks Wade, and welcome to everybody on the call. I'll begin by highlighting several of our recent business and commercial updates. Then Peter and I will walk you through where we are and where we are headed. Lastly, Wade will finish with a brief discussion of the financials. The goal of this format is to provide you with an educational overview of our business, its pipeline and their prospects. So that you're better equipped with a solid foundation to better understand our company and to track our events and progress. With that, I'd like to discuss some of our recent business and commercial updates. Since going public in June of this year, we have been laser-focused on driving our evolution from an R&D company to a commercial company. As part of this transition, we underwent a strategic alignment in October, aimed at bringing enhanced focus to our primary commercial goal, which is furthering the advancement of our commercial activities. All of our resources and operations are now centered on completing the launch of our initial traits. Importantly, our three developed traits, Pod Shatter Reduction often referred to as PSR in canola, And in rice, HT1 Herbicide Tolerance number one and HT3 Herbicide Tolerance number three as well as the advancement of our soybean platform and bolstering the development of our advanced traits, Sclerotinia Resistance and HT2 in both canola and soybean. Notably, our realigned efforts have captured this focus and priorities. I'll speak to our progress each of these traits a little later on. Concurrent with our strategic realignment, we have also implemented some necessary cost reduction measures with the objective of preserving capital resources for the advancement of these five traits. We believe that refocusing on our strength and top priorities will position us well to achieve our strategic…

Peter Beetham

Analyst

Thank you Rory and good afternoon to everybody. As Rory just mentioned, Cibus' five trait, three crops model is at the forefront of agriculture's analog to digital moment. We say that, because with these gene edited traits, we are fundamentally changing the scale and speed of trait development in crops. The technologies behind our Rapid Trait Development System, RTDS allows us to edit a single cell extracted from plants that represent the best plant genetics in the industry. We term this as elite germ plasm. The edited cells from that elite germ plasm are then regenerated into an identical elite germ plasm with the targeted edits. This really is the key point of differentiation at Cibus from other gene editing technologies. With it, we have significantly reduced the time and expense of bringing new trait innovations to seed companies. Our focus continues to be scaling and acceleration of customers' gene edited elite genetics. Here's how high throughput gene editing, aka our trait machine works. Once we secure approval from the seed company to edit their germ plasm, and we physically receive the germ plasm from them, the developing of a product begins, as it enters the trait machine. As we shared last quarter, we opened the first high throughput semi-automated gene editing facility. And as Rory mentioned, we are excited to see our first customers edit their germ plasm transfers in 2023. And this new facility is set to deliver additional product at scale and acceleration over the next 24 months. It's important to note, that when we add a new trait to our portfolio, we don't have to invest in an entirely new machine. Instead, we simply use a new set of editing reagents. When we add a new crop to the platform, we just add in plug and…

Rory Riggs

Analyst

Thanks Peter. In summary, our commercialization efforts are well underway and are centered around advancing five traits with applications in three major crops, rice, canola and soybean. Combined, we believe this represents an addressable market opportunity of over $1 billion in royalties, and our three crop five trait model is just the beginning of what our capabilities can ultimately address. In addition to the five trait, three crop commercialization process, there are other elements that are also important to our commercialization efforts. The summer in agriculture is a key time for field studies and this year we had an extensive field trial schedule for each of our traits. We also worked with our customers in the fields, as we work together to launch our three developed traits. Additionally, in the third quarter, we established our first multi-locational field network for sclerotinia white mold resistant testing of various modes of action that are progressing through our pipeline. This field performance network is critical to advance and demonstrate the efficacy of existing and additional modes of action for sclerotinia resistance. 2023 has also been a key year in the development of a new global regulatory regime for gene editing technology, specifically gene editing technology that does not use transgenes. In the recent years, we have seen the introduction of policy enabling the use of gene editing without the use of transgene in multiple countries around the world. Most recently, on July 5, the EU College of Commissioners adopted the European Commission proposal on the Regulation of Plants obtained from New Genomic Techniques, often referred to as NGTs. The proposed regulation identifies conventional-like category NGT products that would be regulated as conventional varieties. Bringing EU closer to that of trading partners in North and South America, Australia and Japan. In the proposal, the Commission highlights the potential of NGTs to contribute to a more sustainable agriculture, climate resilience and food security. Under this proposal, products from Cibus' gene editing platform would be considered conventional-like. The EU is important for many reasons. First, it is a critical bellwether for the rest of the world. Second, it represents over 100 million acres that have not had access to GMO trait technologies. And third, there are approximately 20 million acres of winter oilseed rape grown in Europe, which ties directly into our own strategy. Our PSR trait has been developed for this market and we began field trials for this trait in the U.K. in 2023. The market is also suitable for our other advanced traits within our canola pipeline. These are major steps in the progression of our products and technology on a global basis. We will continue to monitor and update the progress on these regulatory advances as they occur, but we're on target for gene editing technology to be a globally approved methodology for advancing plant traits. Now I'll pass the call on to Wade to briefly review our financials.

Wade King

Analyst

Thank you Rory. Looking at our financials for the third quarter; cash and cash equivalents was $31.9 million as of September 30, 2023. We believe our cash and cash equivalents will enable us to fund planned operating expenses and capital expenditure requirements into the first quarter of 2024. R&D expense was $17.5 million for the third quarter of 2023 compared to $3 million in the year ago period. The increase was primarily related to increased lab supply and facility expenses, an increase in employee headcount and an increase in stock-based compensation expense for restricted stock awards. SG&A expense was $8.8 million for the third quarter of 2023, compared to $3.2 million in the year ago period. The increase was primarily related to an increase in headcount, increased consulting and legal fees, and an increase in stock-based compensation expense for restricted stock grants. Non-operating expense was $0.9 million for the third quarter of 2023, compared to non-operating income of $0.3 million in the year ago period. The decrease was due to changes in the fair value of the liability classified Class A common stock warrants. Net loss was $34.5 million for the third quarter of 2023, compared to a net loss of $6 million in the year ago period. For additional details about our financials for third quarter of 2023, please refer to our press release and filings with the SEC. That concludes our financial discussion. Rory, back to you for your closing remarks.

Rory Riggs

Analyst

Thanks, Wade, and many thanks to everyone for listening in. I can't tell you how excited we are to see what the future brings for Cibus. We believe that we are at a historic inflection point where we can, for the first time, bring rapid innovation to an industry that's hungry to solve the world's food shortages. With tailwinds from an improved regulatory environment and breakthroughs in trait development, our experienced team at Cibus is executing on the opportunities ahead of us as we continue to advance deployment of our traits to our customers' elite germ plasm to enhance their product offerings for the benefit of their farmer customer. We really look forward to updating you on the next call. Operator, that concludes our prepared remarks. You may now open up the call for Q&A.

Operator

Operator

[Operator Instructions] And our first question is from the line of Bobby Burleson from Canaccord. Please go ahead.

Bobby Burleson

Analyst

Thank you. Hi, Rory and team. So, I guess, my first question is just around helping us understand how to prioritize some of the efforts currently underway. So, if we can just look at some of the commercialization progress that you guys announced that took place over the quarter. Maybe help us rank that in terms of significance by total addressable market opportunity or time line or both?

Rory Riggs

Analyst

Thanks Bobby, that's a great question. We have these five traits, you totally realize they're prioritized. And our prioritize is really these three developed traits. And so, the emphasis here is saying, what happened in the last quarter to get rice further along? And what happened in the last quarter to get pod shatter further along? And I'll let Peter talk to some of it. But because of the work we've done in rice, we now have really big demand in Latin America. And we've already signed 1 big customer, which we think represents plus or minus 3.5 million acres. We have a number of others right in the target. And so, real progress has been the development we've done in the commercial customers. And these are customers who are now in the process of sending us their germ plasm and us putting our traits in their germ plasm. And so, our goal is over the next year to be able to take these germ plasms and get it back to them with their traits so they could launch it. And the progress, hopefully, you'll follow is the contracts we're signing and acreage to go with it and how fast we can turn around these germ plasms. The goal in this business is to get these germ plasms in people's crops so they can bulk up alone. And we're part of the launching process. So, when we ship back, we'll have a pretty good sense of the time when they bulk up and when they go. And on pod shatter, what's really interesting about pod shatter is, first, that we have 10 traits we've edited and we're in a different process of launching back. But I'd like Peter to talk about the big thing in pod shatter is the ability we're now able to do with field studies and field studies with the customers and the combination of getting them their germ plasm and their field studies. We have this model to get all three of these traits are going to be ready for planting around the same time. But for each one of these things, we need to be really clear about the things we're doing to get them ready for that time and to be able to say whether things got delayed, but more importantly, tell you why we're encouraged by where they are and how to think about revenues. Peter, do you want to throw a little bit on plants and field studies?

Peter Beetham

Analyst

I do. Thanks, Bobby, for the question and thanks, Rory. I think the best way to think about our progress, and I'm going to specifically talk about canola pod shatter is that, as Rory mentioned, we have 10 customers whose genetics, and I've mentioned it on the call, elite germ plasm in our hands and we're in the midst of transferring back to that. So, so far in 2023, we've transferred two of our customer lines back. The whole group of elite genetics that we have in the hand equates to accessing as much as 20 million acres over time. So what's exciting for us is that, that transfers are starting to occur. And then the field trials that we're doing with the canola hybrids with pod shatter traits in them were very successful this last summer. We're so excited to see the traits in the field in customer genetics. And then this winter, we'll be looking at canola hybrids in winter nurseries and really move to that next level of pre-commercialization performance evaluation in 2024.

Rory Riggs

Analyst

And then, Bobby, the other thing, we're so focused on these three crops and -- three traits and two crops. We just can't ignore the fact that we're so excited about soybeans. We're doing it in GDM germ plasm, but we really are excited that we'll be able to finish that this year. And once we do that, it's really this big opportunity that suddenly -- we believe once people think we have this single cell model that regenerates back into a plant in soybean, that we have a lot of customers who are in the soybean business. There's just a really big opportunity to build this business. Does that address your question?

Bobby Burleson

Analyst

Yes, it's very helpful. Yes, that's great. And then just a follow-up. Obviously, this EU draft on their proposed regulatory treatment of what I was calling NGTs, but I guess, there are lots of acronyms, sounds very positive. And I'm wondering, can you kind of draw a parallel between what they're talking about doing and what Canada has already done? And then, I guess, where is the demand coming from in the EU? Is this something that's been kind of in the works for a long time in order to change these regulations? Are they constrained in some ways, food security wise or re-evaluating how they're regulating other aspects of your food system and this is being pulled along with it?

Rory Riggs

Analyst

Thanks Peter, let me take the overview and let you go to specifics with the customers. I think it'd be helpful for them to understand. The actual customers we have in canola and how broad our demand is from the customers in canola and the fact that we can now do studies in the U.K. But the biggest shock we have, U.K. has been under a 3-year process to try to change their laws so the gene editing that doesn't include transgenes gets treated as conventional breeding. And there's really big consensus across Europe. The productivity in Europe has so gone down, not having any GMOs at all. And so, they need this law. And we -- when they did their safety study, they basically said our technology was safe and they drew it. But what surprised us was, this was probably three months before we -- when we said that in our press release, three months before we thought it would happen. And in the press release, they talked about taking it to Parliament in February. We're thinking of June. So we're pretty excited that there's really, not just forward progression, but they're trying to speed up the process to get it behind us. But, Peter, you might go -- if that's helpful, it's really quite an encouraging moment for all of us. And the U.K., having passed this, so we can now do field studies in the U.K. is a big deal because it allows us to start the progression of these products that are grown in Europe. Peter, you want to add to the customers?

Peter Beetham

Analyst

Yes, exactly, Rory. I think, Bobby, your question around this is really on point because it's clear that the EU is trying to accelerate this regulatory, which is not the normal state of affairs. And so, a number of our customers are based in Europe and are very excited with the opportunity to bring traits to market. Now, this is a -- the whole of Europe is a 100 million acre market that just hasn't had a lot of innovation in the last 30 years. To the point about improving sustainable agriculture, climate resilience and food security, they are big drivers for regulatory. So these tailwinds for -- to bring improved products onto the marketplace is really seen by our customers as a huge step. The fact is, we have three of our customers, genetics and the trials in the U.K., over the winter into the spring of 2024. That is a first for canola, winter oilseed rape. And it's exciting to see that because I think that alignment globally, and you mentioned Canada in your question, is seeing a lot of progress on the regulatory front for harmonizing where the regulatory agencies are on -- in Europe they call them new genomic techniques, but essentially products from gene edited technology and specifically ones like Cibus, where we have a non-transgenic process and a non-transgenic product. So they're harmonizing around the world. And that really opens up global markets for someone like Cibus.

Rory Riggs

Analyst

And we have a number of customers under contract already. And the neat thing is to think about this 100 million acres has never had a wheat trade ever. And we have three now. So it's a big opportunity for us. I'm sorry. I didn't get the instructions.

Bobby Burleson

Analyst

No, that's a great additional color. And to be clear, this also would cover imports into the EU.

Rory Riggs

Analyst

Yes. That is correct. The key to these laws are, once you do that, it means when we develop a trait, it will be treated like conventional breeding coming into Europe. For people who aren't familiar with it, Europe treats GMO products almost like drugs. It takes three to five three years to get approval. But suddenly everything we develop will have clear export approval. And I think that it's going to be a big moment for the industry. It will be a big moment for soybean. We'll introduce new trait...

Bobby Burleson

Analyst

Yes, understood. So, yes, this could be huge. And maybe just looking at where there is GM technology, existing in germ plasm, is there interest simply just because of the speed at which you can introduce a trait and at the lower cost where you'll potentially be stacked on some of these GM seeds as a significant part of what you're doing over time?

Rory Riggs

Analyst

It totally is. But pod shatter, they don't have that trait. And that's not one that's all about speed. The fact of the matter is, our team has actually developed real traits. So the first part is, there's actually real traits. And then the speed thing is the fact that, that literally if you send us your germ plasm in canola, now that Peter and Greg have figured out how to take a single cell from that germ plasm, edit it and grow it, that if you send us your germ plasm in 18 to 24 months, we can have our trait in your germ plasm ready to do field trials. And that's -- Peter, you want to add to that? I think that's...

Bobby Burleson

Analyst

It seems like that's an important distinction, right? Because people might be tempted to think this is purely gene edited seeds. But the market's much bigger, right? Because we're talking about pretty much all seeds where your technology has relevance.

Peter Beetham

Analyst

Yeah, totally. Let me add in, Bobby, because I think you hit on a really important point. For us who have been in tech for over 30 years, the recognition is that, there is limitations to GMO, major limitations on what you could do. In my mind it's like Windows 95. It's very old technology. Bringing forward gene edited traits is just bringing forward traits that are really valuable in the market. So there's markets where we can access it, where there has been a complete barrier to getting GMOs in, where you're free and clear with gene editing. And then there's going to be other markets, more global markets, perhaps in North and South America, where we'll be adding traits to genetics that already have traits. And so, that's -- the expansion and opportunity is huge. Plus the fact is that, gene editing can address traits like serotonin, like white mold, disease resistance, where other technologies could not in the past. So it's -- not only does it open up global markets, it opens up opportunities and traits that were never able to be done using other technologies.

Bobby Burleson

Analyst

Well, thank you, Peter. I'm going to let somebody else ask a question here. Because I realize that's four or five in a row. Thank you.

Rory Riggs

Analyst

All good. But, Peter, while he's breaking, can you tell them about India? India is such a big marketplace for both soybean and rice.

Peter Beetham

Analyst

Yes. I think India has nearly 100 million acres of rice. And it's a very fragmented market, but it is -- has a huge appetite for traits. And just recently Bayer released that they are targeting 20% of that market, so 20 million acres around, which is what they call direct seeded market in India. That's just an example of where you can -- a trait like herbicide tolerance is something that's really need to be able to do direct seeded rice. So there's an appetite, not only for opening up the markets to better genetics, but also genetics with traits. So India is a classic example of an emerging market in agriculture that will take on traits in rice, as well as canola. It's a little bit different in India than the different genetics than what's in North America, but it is a very close relative.

Operator

Operator

And our next question is from the line of Laurence Alexander with Jefferies. Please go ahead.

Kevin Estok

Analyst

Hi, good evening. This is Kevin Estok on for Laurence. Just 1 question for me. Just what extent has the volatility -- yes, so to what extent has the volatility in the ag market, I guess, distracted customers from research partnerships or change your timetable and our milestones for next year?

Rory Riggs

Analyst

I'll give a little bit and I'll leave it to Peter on the volatility of the markets. The good news is that, we're really focused on traits that are already developed, right? And we're trying to sell to, that we're not trying to focus on new research agreements as much. We want to see where we can develop what we have go out there and we haven't seen decrease, but more increase because people see we actually have actual traits that they can buy. Peter, you want to answer?

Peter Beetham

Analyst

No, I think the volatility is there, for sure. I think where traits play a role is in the seed industry for increasing farmers' productivity. And so, the appetite for our traits because is increasing, we see demand from our customers of additional genetics that they would like to have traits in so that they can deliver better profits for farmers by increasing their productivity. So, the volatility actually, in my mind, accelerates the demand and requirements for technologies like Cibus is delivering to the seed customers.

Rory Riggs

Analyst

It is a distinction between strict yield stuff and specific trait stuff, right? Specific productivity aspects of the traits which has been interesting, I think.

Operator

Operator

And Mr. Riggs, there are no further questions at this time. I will now turn the call back to you for closing remarks.

Rory Riggs

Analyst

Thanks, Tim, and thanks for the questions. I think that our goal in these calls now is to help you understand the progression. We have actual traits. And because of that, every quarter, like this was the field study quarter, every quarter there will be aspects to be able to track how well we are towards our goal of having this in the field being accessed by farmers. And so, I think that the things we've really talked about are: 1, besides mapping our progression, the two big things everybody's going to see is, can we do soybean and get it off? Because that's just a big value moment for us. And two, Europe seems to be accelerating. And so, as quick as we can get Europe behind us, suddenly we become a real three crop, five trait business model, and we become truly global. And we're really excited by it. And the most important part is just sort of understanding our progression and following it. If you guys have any more questions, please call. It's a really exciting moment for us to be able to track. Peter, you want to add anything, or I think that's a good...

Peter Beetham

Analyst

I think that's a good summation, Rory. Definitely an inflection point for where we are. Cool.

Rory Riggs

Analyst

Thanks, guys. Thanks, Tim. I think we're done.

Operator

Operator

That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.