Cibus Inc (CBUS) 2017 Q3 法說會逐字稿

Greetings and welcome to the Calyxt third-quarter 2017 earnings results. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Simon Harnest, Vice President of Corporate Strategy and Finance for Calyxt. Thank you, you may begin.

Thank you and welcome, everyone, to Calyxt's third-quarter 2017 financial results conference call. This is our first investor call since going public. Joining me today on the call with prepared remarks are Federico Tripodi, our Chief Executive Officer, and Brian Corkal, our Chief Financial Officer of Calyxt.

Yesterday evening, Calyxt issued a press release reporting our financial results for the third quarter and nine months ended September 30, 2017. The press release is available on our website at www.calyxt.com.

As a reminder, we will make forward-looking statements regarding financial outlook in addition to regulatory and product development plans. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent Form 10-Q on file with the SEC. I would now like to turn the call over to Federico.

Thank you, Simon. Good morning, everybody, and thank you for joining us today. Welcome to all our new shareholders. We are thrilled you have chosen to invest in this exciting Company that has transitioned from a bootstrapped gene editing technology startup to a product based specialty food ingredient supplier.

The highlight for the third quarter financial results for Calyxt was definitely the successful initial public offering that netted $58 million after underwriter discounts and fees. In addition, so much progress has been made since then that it is hard to believe we became a publicly traded Company only four months ago.

Today I will cover some business updates on three key pillars. First, our progress towards commercialization for our high oleic soybeans. Second, key development milestones for our product pipeline. And finally, progress in executing against our vision.

I am pleased to announce that the preparations for commercialization for high oleic soybeans are proceeding according to plan -- green light ahead. On the food company front, we have now produced sufficient quantities of 80% high oleic oil, which we are using for pre-commercial product development activities.

We have started early discussions with potential customers, around a dozen in total so far, who are interested in value-added solutions and are excited to evaluate our oil. We are optimistic that demand is building for our high oleic oil given the amount of inbound interest from large and midsize food companies.

Our harvest has progressed swiftly and is now 100% complete. We plan to use the majority of the grain for business development activities. We have now produced more high quality seed than what we need to meet our 2018 launch plans. Conversations with farmers and partners in our target region are ongoing. We feel confident about our acre target and our execution plan for this upcoming season.

I know many of you want to know how many acres, how many farmers, etc. As a young Company we have too many moving parts this early in the season that can impact those numbers. We anticipate providing an update on those key metrics for the first time in March and periodically on future calls.

On the high oleic breeding and development front we continue to make accelerated progress on second-generation products. Years ago we started a small breeding program for high oleic varieties. Today I am pleased to share that our class of 2021 high oleic soybean varieties are advancing to winter nurseries.

Additionally, we have accessed 60 non-GMO varieties which our team is screaming for accelerated conversion to high oleic using our gene editing technologies.

The second pillar that continues to capture the attention of the industry is our accelerated capacity to develop products and the wealth of intellectual property that is owned and developed by Calyxt. We are extremely pleased by our pace of progress.

Our pipeline development process is characterized by its speed with three to six years from start to finish. We recently announced that two products were advanced from discovery to Phase 1 of development: improved oil composition canola and herbicide tolerant wheat.

We now have nine products in Phase 1 or later. We have accomplished this in a short seven years after founding Calyxt. This marks an unprecedented range of intellectual property from consumer focused products to new herbicide tolerant capabilities for staple crops such as wheat.

I am excited about the development of our first canola product as it is poised to expand our improved oils franchise and further our mission to create healthier specialty ingredients and become a preferred partner to the food industry. We believe our canola platform is second to none and we look forward to sharing more progress on this business opportunity in the future.

The food industry continues to seek for simplified natural and chemical free solutions to address consumer trends and health needs. While speed of development is a must-have to our customers, legacy solutions have failed at delivering speed and precision.

As I look into the future I want to reinforce my vision for the Company, to develop healthier products for consumers at unparalleled speed. Through automation we are working to create shelf focused food ingredient samples from idea to fork in 12 to 18 months. These can truly disrupt the food ingredient industry.

Our wheat capabilities continue to be validated by strong technical results. Our powdery mildew resistant wheat, a farmer trait designed to reduce the amount of fungicide sprayed in the wheat crop, has been harvested in the field, producing in excess of 300 pounds. Additionally, in collaboration with a university, we have been able to confirm powdery mildew resistance under controlled fungal infestation conditions for two wheat varieties we have already created, one spring and one winter.

The wheat genome is complex with 17 billion base pairs and six copies of every gene. What makes our progress so outstanding is the fact that our TALEN technology has been able to deactivate all six copies of targeted genes, resulting in a plant with all of the targeted genes deactivated at the same time in one shot.

What clearly defines our competitive advantage is that it would be mathematically impossible to accomplish this without gene editing. And we have demonstrated the expertise and know-how to apply our gene editing technology sufficiently in multiple crops. To date we have applied our skills to create healthier food ingredients for consumers and more valuable traits for farmers in a wide range of crops. In addition, all of our products contain no foreign DNA, in line with how things happen in nature.

This is a good segue into the regulatory aspects of gene editing. We continue to see a positive trend by regulatory bodies in the US and globally. We have received approval in Chile and Argentina for our first soybean submissions. The USDA has recently ruled our alfalfa product developed in collaboration with S&W Seeds as non-regulated. This brings our total USDA non-regulated product count to six across a total of four crops. We believe Calyxt is the first company to achieve these milestones in soybeans, wheat, alfalfa and potatoes.

The final pillar I want to highlight today is related to our focused execution against our near-term milestones. Brian will highlight our discipline in spend and cash preservation while delivering the amazing progress I have shared with you today. Our new site construction started and is proceeding according to plan. The structure and foundation are in. This transaction has netted a positive $7 million in cash flow for the Company.

This new concept to fork facility represents a foundational component for the transformation of our Company into a health focused partner to both consumers and the food industry. It will enable our growth in the areas of food and culinary sciences, rapid prototyping for food ingredients at (inaudible) speed, and increase our gene editing skills significantly through process automation.

In 2017, we expect to generate more transformations than in all previous years of the Company's history combined with modest resource increases. Imagine what we will do with our future capabilities. We have made good progress in building our team by hiring experienced employees and consultants in the areas of field sales, consumer development, regulatory affairs, research and development, finance and legal. We still have work to do and roles to fill as we prepare the Company for rapid and continued growth.

In conclusion, I am very pleased with our business and financial progress as a newly minted publicly traded Company. We have successfully raised additional money through the sale-leaseback and continue to invest in a very systematic and disciplined manner. With this I would like to turn the call over to Brian Corkal, our Chief Financial Officer.

Thank you, Federico. The highlight for the third-quarter financial results for Calyxt was the successful initial public offering of 8,050,000 shares at $8 a share. The IPO netted $58 million after underwriter discounts and fees of approximately $6.4 million. Cellectis remains our majority shareholder with 79.8% of the shares.

A major component of our future growth will be underpinned by a state-of-the-art facility with a gene editing laboratory, a food demo kitchen and offices. In September we broke ground on this facility. We entered into a sale-leaseback whereby we sold the land and warehouse to a developer who in turn is building the custom facility for us. This arrangement netted us approximately $7 million in cash.

The IPO and sale-leaseback were two major cash inflows that provided Calyxt with over $62 million in cash as of September 30, 2017 and sets us up financially to execute our strategy. The team continues to execute the strategy with extreme financial discipline.

In the third quarter we had an operating cash spend of $1.9 million. The R&D spend in the third quarter increased $5.2 million year-over-year as we added people to our R&D team and advanced key products in the portfolio that Federico talked about. With the successful IPO we also recorded a non-cash expense of $4.8 million in R&D for stock-option expenses related to grants from 2014 to 2017.

And finally, our sales, general and administration spend in the third quarter increased $5.2 million year-over-year as we built out our management team and we incurred a significant non-cash expense in the third quarter of $4.5 million in SG&A related to the stock options granted since 2014. The total non-cash stock option expense in the quarter was $9.3 million.

Before handing it back over to Federico, let me share our forecast for cash burn in Q4. During the IPO, and detailed in the S1, we outlined our strategy for the use of cash delivered on our key business milestones. We expect cash burn to tick up as we hire scientists and build our commercial footprint.

In addition, we are actively looking at in-licensing intellectual property, engaging in regulatory activity, supplementing our knowledge of the food industry, and understanding our customers' needs. We expect our current cash position to be sufficient to fund operations through mid-2019.

In recognition that we are still pretty revenue and have a requirement to continuously invest in R&D and commercial capabilities, we will be vigilantly looking for alternative sources of financing such as equipment leases and loans for working capital.

In closing, our team is focused on building our R&D and commercial expertise in a measured and disciplined approach. The cash raised in July funds our growth and underpins the high oleic oil soybean launch. So with that, I'll pass the call back to Federico.

Thank you, Brian. We continue to see significant advancement in the product pipeline and I am thrilled to see that the first state-of-the-art gene editing and food kitchen concept to fork facility will extend our lead in developing a broad portfolio of high-value food ingredients such as high oleic soybeans, improved oil composition canola and high-fiber wheat.

I look forward to sharing with you the advances we are making with the launch of high oleic soybeans as we head to the spring planting in the upper Midwest. Preliminary discussions with farmers and customers give us confidence to say that we will be successful in launching the first gene edited product in 2018.

Thank you for your time today and I look forward to seeing you at one of the upcoming conferences we will be attending. So with that I pass it back to Simon to share with you our upcoming schedule.

Thank you, Federico. We would like to thank you for attending our first investor call and we look forward to seeing you at one of the upcoming conferences we are attending. Today and tomorrow we will be at the Morgan Stanley Chemical and Ag Conference in Boston and on Thursday, November 16 we will be at the Hallum Alpha Select Conference in New York City. Finally, we will be at the Citibank Biotech Materials Conference in New York City on November 28 and 29.

I want to thank you again very much for your attention. And I would now like to open the call to questions. Joining for Q&A will be Federico Tripodi and Brian Corkal.

(Operator Instructions). Daniel Jester, Citi.

I was just wondering if you could comment a little bit more about your seed production this year. I think you said that you had sufficient seeds from the past harvest for the commercial launch. What does that mean for any seed production that you may do in Latin America this winter?

And then also on that topic, you have been working with this seed for several years now. What kind of things can you pass along to your potential farmer customers for this upcoming spring who may not be as familiar with growing non-GMO soybeans? Thank you.

Thank you, Dan. Two comments. So, on Latin America we have been growing our seed for more than four years across North and South America. For the preparation for the launch we are at a point that we do not need to go to South America in preparation for the 2018 planting. So the seed we have harvested is now getting ready to be conditioned over the winter and bagged in preparation for the 2018 planting.

We are doing activities in Latin America for our 2021 class of new varieties and with other parts of our breeding program. But Latin America is no longer a critical path for the 2018 launch. We have produced the seed we will be planting in the spring.

On the second part of your question, how are we communicating with farmers? We had a program this year; we have about 12 farmers that have grown our soybeans and they all had to work with non-GMO type herbicide tolerant packages.

We feel there is a growing interest in non-GMO solutions in the target region where we are growing our soybeans as farmers are fighting challenges of herbicide tolerance in some target weeds with the traditional chemistries they have been using. So we think there is this opportunity.

We are currently working not only with our farmers that are in a way our spokespeople in the region, but with a growing field force that we are hiring both through consultants and full-time employees. And we are setting up the right partnerships to help us reach those farmers and communicate our opportunity to sign off-take agreements and grow our soybeans in 2018.

For us the more important thing done, in my opinion, in 2018 is going to be that we execute with quality and that we ensure that farmers have a great experience with our Calyxt brand as we penetrate the market as a new Company.

Okay, great. That's very helpful, thank you. And you talked a bit about your initial customer conversation about the oil. I believe you said that you had been talking to both large- and medium-sized customers. Can you give us any more color about how those initial conversations are going? And is there any sense as to when you would start signing formal agreements with these customers?

Yes, so the initial conversations, I guess the surprise we had is our initial strategy was to approach mid-size and small-size customers that tend to sometimes move faster and have smaller volume needs from the supply chain in the early years. The surprise we had that we have been proactively approached by larger companies that are looking for zero trans fat solutions.

That's been a little bit of a surprise and we have engaged in those conversations, although we understand that our supply chain -- it has limitations on the scale for the first two to three years. The feedback we're getting is there are many companies looking for solutions in cases in which they have sometimes a single source or a less than ideal solution because of flavor or supply chain. So we are getting really good receptivity.

On the contracts, it is our expectation that because we are in the process of setting the supply chain, a lot of that would happen towards the end of next year as we get ready to have the oil and we have the certificate of analysis. So we think that by the time we get contracts with customers that's going to be more of a second and third year type of expectation.

So, we will sign contracts for testing and evaluating the oil and we're in the process of doing so right now. But as far as commercial off-take agreements, we think it's going to take a little bit longer.

Okay, thank you. And then just one last one for Brian. Clearly this quarter had some moving pieces in terms of stock comp expense on your income statement. You've given us some color about the cash burn rate. But anything else that you want to share in terms of how we should be thinking about your cash expenses over the next two quarters ahead of the commercial launch? Thank you.

Sure, on the cash, we always talked about burning cash at a rate of about $1 million a month. We were a little lower than that in this quarter. But going forward looking at the next couple quarters, I could see us finally ticking up. We are aggressively looking to hire people. We made some key hires in the last two or three weeks. We've got increased rent expense now that we are leasing the facility for the greenhouse and land and then the new construction.

So, it will take us a little while to get to, say, the $2 million per month mark that we think is more of a steady-state. I think we'd be in the $1.2 million's to $1.4 million per month in this quarter. But it is moving upwards from where it is today.

Great, thank you very much.

Akshay Jagdale, Jefferies.

Hey, Akshay. Hey, it's Simon. Really quick, we've also got to wrap up in about one minute because we have such a busy schedule here today. But we can follow-up with all you guys this week with a call. I'm so sorry for cutting this a little bit short this morning, but I want to make sure you all get your questions answered. So Akshay, just let me know one question and we can wrap it up.

Okay, so I have one -- so one question for Federico would be the part that you said was surprising which is more caused proactively from larger customers on high oleic. What does that tell you about where the pain point truly is? So there's many reasons for the high oleic product to be successful, and those would all be reasons for customers to pay a premium. And the number one reason was it's obviously non-reg -- it's not regulated, right, the product, it's non-GMO.

So, it seems to me that the other pain points, which are the viability and so on and so forth, are probably even greater than you thought. So, what does it actually -- the fact that these larger customers are calling you, what does that tell you about your -- what the pain points are and actually what that means for the premium that you might garner? Thank you.

That's an excellent question. I think it's too early to tell. We are starting to engage in a meaningful way right now. But if I look into the dynamic what it seems is there is a problem that the industry is trying to solve and the solutions are insufficient today and it could be a number of things.

It could be the functionality of the oil specifically, the alternative. But it could also be the supply chains that are commoditized. And there's many players that are not looking to provide high-value solutions as opposed to high-volume solutions. So it could be that having multiple players that provide high-value solutions is beneficial in these types of products.

So we will learn a lot more. I would love to answer your question. I don't know on the premiums what it means. I think most important for us is to get customers experiencing the product as soon as possible so that we can start building those relationships and getting better intelligence on both volume and margins.

Thank you, guys. I'm sorry that that has to be it for now. But I will send you all an email to follow-up directly. Thank you so much for your questions.

Thank you and bye.

Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.