Cibus Inc (CBUS) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Calyxt Full Year 2017 Financial Results Conference Call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Simon Harnest, Vice President, Corporate Strategy and Finance. Please go ahead, sir.

Thank you very much. Thank you, and welcome, everyone, to Calyxt's Fiscal Year and Fourth Quarter 2017 Financial Results Conference Call. Joining me on the call today with prepared remarks are Federico Tripodi, our Chief Executive Officer; Manoj Sahoo, our Chief Commercial Officer; and Bryan Corkal, are Chief Financial Officer.

Yesterday evening, Calyxt issued a press release reporting our financial results for the fourth quarter and 12 months ended December 31, 2017. This press release is available on our website at www.calyxt.com.

As a quick reminder, we will make forward-looking statements regarding financial outlook in addition to regulatory and product development plans. These statements are subjects 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-K, 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 our first fiscal year investor call since going public last July. We are extremely proud of our accomplishments in 2017 and are even more excited about what is to come in 2018.

At Calyxt, we are pioneering a mindful revolution of our food system. We are building and leveraging our business model as a specialty food ingredient company powered by our proprietary, industry-leading, gene-editing technology platform, called TALEN. We are thrilled to see the pace of focus and development in the field of gene editing has picked up tremendously over the past 12 months. We see this as a validation of Calyxt's sole focus on gene editing as a technological disruptor. Calyxt is at the forefront of this development as the first publicly traded gene-editing company in the field of food and agriculture. We are preparing to commercialize our first novel high-oleic soybean product by the end of this year. I will start by sharing a few highlights of this program before handing over the call to Manoj, our Chief Commercial Officer, who will then go into more detail.

Over the past 2 months, we have successfully contracted over 11,500 high-oleic soybean acres with over 60 farmers. This is an increase of over 1,500 acres and 10 farmers since our last public release less than 2 weeks ago. What is even more exciting for us than this number is our extremely high farmer retention rate year-over-year. Over 90% of our existing farmer partners have signed up to replant our high-oleic soybeans this season. Furthermore, on average, each repeat farmer is more than doubling their Calyxt acres year-over-year.

Last December we launched our 2018 High-Oleic Premium Grower Program and a seed-distribution relationship with the Farmers Business Network, a pioneering approach for both FBN and us. We are very pleased by the capabilities and synergies that FBN brings to the table and could not be more excited about this partnership. With access to a growing network of progressive farmers across the entire U.S. and, more specifically, in our target region, we are looking forward to building out our grower program with FBN. Farmers in South Dakota and Minnesota have already enrolled in Calyxt's 2018 premium program.

On the food customer side, we continue to get active interest. Around a dozen small to large food company customers are currently engaged to test our high-oleic soybean oil across food service and food ingredient applications. These food company customers are in different stages of evaluating our oil for multiple end-use applications including frying both chips and meat, bacon, salty snacks and vegan meat-replacement products. On completion of these evaluations, these companies could become early adopters of our high-oleic soybean oil in their specific market categories. Manoj, this is a good starting point for you to go into more detail. Please go ahead.

Thank you, Federico. I would like to talk about our progress and what to expect as we build out our high-oleic supply chain over the coming months, including 1, seed production; farmer contracting; crusher relationships and logistics.

Let's start with seed production. This year, along with grain production acres, we intend to plant our additional acres for seed production. The number of acres for seed production planted in 2018 puts a cap on the number of high-oleic soybean acres that we can potentially contract in 2019. This is also a key driver for our working capital needs in 2019. As we approach spring planting, we'll be deciding on the number of acres for seed production in 2018, the objective here being to balance working capital requirements with ensuring seed availability for next year's acres is not a constraint.

As you know, farmers are our key partners in building up the supply chain. Our commercial team implemented some innovative ideas for 2018 grower contracting. We are very happy with our grower retention.

A key driver for existing growers to repeat planting was the connection with the Calyxt story about healthier foods and our team's personal touch. Our recent partnership with FBN provided a good launch pad for grower relationships through their existing grower database and the synergies we both bring to the table. In addition to this, we believe the most effective way to establishing a relationship with growers is a personal investment in face-to-face meetings. In these one-on-one meetings, we share Calyxt's mission about healthier foods and how growers play a key role in helping Calyxt to fulfill our mission, and this really connects with them. Our team organized multiple oversubscribed town hall meetings to share Calyxt's story with growers. Farmers in our target regions are really excited to be part of the gene-editing story, be an early adopter of new technologies and work with a small innovative company like us to have more options for their farming operations.

Obviously, there are certain challenges as it relates to grower acquisition. We are a very young brand that is not well known to growers, which is why it is important for us to tell our story directly. For example, our closing rate increased orders of magnitude when sharing Calyxt's story through one-on-one interactions such as lunch-and-learns as opposed to traditional seed-selling approaches which are transactional. We also chose to be highly selective for quality farmland and therefore did not enroll certain growers because of (inaudible) limitations.

As Federico mentioned earlier, we're pleased to have a high retention rate of 2017 growers with over 90%. Above that, our repeat growers will, on an average, be planting more than 2 times their last-year acreage with Calyxt high-oleic varieties. As of today, we have more than 60 growers contracted in 2018 for our high-oleic soybean program, with a total of more than 11,500 acres contracted. Overall, these farmers collectively farm 125,000 acres, half of which is expected to be planted with soybeans this year. More than a quarter of soybeans that are anticipated to be planted by these farmers consist of Calyxt's high-oleic variety.

On the crusher relationship, we continue to advance discussions with multiple crushers. As farmer contracting transitions into final phases, we'll be focusing on crushers and logistics over the summer to finalize the most optimal contractual arrangement with 1 or multiple crush plans, keeping in mind grain logistics and logistics for soybean meal and high-oleic shipments to potential customers.

Now I want to transition from supply chain buildout to growth drivers. As we all know, launching new high-oleic varieties is important to enable midterm acres acquisition growth in additional regions and growers. Our breeding program continues to make significant progress.

The traditional breeding program started in 2016 with 24 diverse populations. To further accelerate breeding, Calyxt deploys a contrast season, planting in South America. For our class of 2021 beans, over 3,000 lines were advanced to South America trials, and out of that, up to 800 are planned to be advanced to the U.S. this spring. We are on track to add 2 to 4 additional HO varieties by 2021.

Furthermore, Calyxt's proprietary TALEN-powered accelerated breeding program is designed to speed up traditional breeding through the precision of gene editing. Through our technology, we know from the start which plant cells have the desired edit, and we can grow the final plant from a single cell. Our objective with accelerated program is to be able to convert existing varieties farmers like to a high-oleic version. Today we have gained commercial access to over 100 non-GMO [finished] varieties which are now available to our scientists to test our gene-editing ability. Our intent is to one day be able to convert many varieties at once using our TALEN gene-editing technology as a new breeding technique in the industry. This can further accelerate availability of additional elite varieties for commercialization.

The breeding program will allow Calyxt to launch multiple elite varieties of high-oleic soybeans with improved agronomic traits such as disease resistance across multiple maturity groups. This, as you can assume -- imagine, has a very strong impact on our commercial strategy. The breeding program will be a key enabler for Calyxt to expand our supply chain to multiple additional crushers while at the same time allowing farmers to allocate a higher percentage of their portfolio to Calyxt high-oleic soybean variety, all the while maintaining the diversity, as farmers typically plant 3 to 4 varieties of soybean.

With that, I would like to hand over the call back to Federico.

Thank you, Manoj. I would like to put our high-oleic soybean oil into the macro context. Why are we so interested in our high-oleic soybean oil?

The food industry, primarily driven by consumer preferences, is seeing a major trend towards healthier fats and oils. There are also regulatory tailwinds from the FDA action on trans fats. The FDA has declared trans fats not generally recognized as safe, or GRAS, and human food must no longer contain partially hydrogenated oils by June 18 of this year.

Other countries are also starting to follow the U.S. in initiating action on trans fats and partially hydrogenated oils. For example, Health Canada finalized a ban on partially hydrogenated oils through a Notice of Modification, adding partially hydrogenated oils to the List of Contaminants and Other Adulterating Substances. This ban will come into force on September 15 later this year. Argentina recently added high-oleic soybean oil to the Argentina Food Code, the local equivalent of Codex. This set specifications and could allow Calyxt high-oleic soy to be sold and claimed as such. We believe that high-oleic soybean oil's relevance and impact is continuously increasing, and we are placing the Calyxt story right into this trend.

On the customer front, we are in active discussions with around a dozen food companies customers who have shown interest in evaluating our high-oleic soybean oil for various food applications, including food service, frying and as a food ingredient. Approximately half of these customers are large consumer packaged-good companies. Their interest is not only in evaluating high-oleic soybean oil but also in understanding potential ways Calyxt's unique gene-editing platform can be leveraged to solve existing pain points and anticipated consumer needs by creating specialty food ingredients. We are actively exploring these discussions and are looking forward to sharing more updates on this front at the end of the year following our harvest of our high-oleic soy fields.

On the regulatory front, the U.S. has a consistent and predictable framework. We had anticipated that it may take years to get clarity around the global regulatory framework for new plant breeding techniques. We are excited to see how fast things are moving with multiple countries on this front.

On the USDA regulatory side, we have received Am I Regulated letters for 6 products across 4 different crops, and we are expecting additional news from the USDA confirming nonregulated status for additional Calyxt products. We have received approval in Chile and Argentina for our first soybean submissions, and we are pleased to see this as a global trend of a favorable regulatory environment.

In January 2018, the European Court of Justice Advocate General published a nonbinding opinion that mutagenesis products are not GMOs. This sets a positive base for gene-editing products in the European Union.

Developments in other countries include the recent publication in Brazil of an annex regulation defining most new breeding techniques, which include gene editing, as non-GMO, and establishing an evaluation process for gene-edited products. Colombia has published a draft policy proposing a process to evaluate gene-edited products within a certain time frame.

With that, I would like to hand over the call back to Bryan, our CFO, to discuss the financial results. Bryan?

Thank you, Federico. Calyxt successfully completed its first fiscal year as a public company. I'm pleased to report that we made positive progress on all our corporate goals while maintaining a disciplined spend.

We ended the fourth quarter with a cash balance of $56.7 million, and during the quarter, Calyxt incurred $5.9 million in cash burn, including $1.6 million in IPO costs that were paid for in the quarter. Eliminating these IPO costs, Calyxt incurred approximately $1.4 million per month in cash burn. Last year, our operating cash burn was $12.8 million, or approximately $1.1 million per month. With this modest spend, we advanced several products in our R&D pipeline and set the groundwork to launch our first gene-edited product in 2018, high-oleic soybeans.

The IPO and sale leaseback were 2 major cash inflows that provided Calyxt with over $60 million in cash in 2017. These inflows set us up financially to execute our strategy and fund operations through mid-2019. During the IPO and detailed in the S-1, we outlined our strategy for the use of cash to deliver on our business milestones.

Looking forward to 2018, we anticipate that the cash burn will increase as we continue to expand our R&D team to advance key products in the portfolio and build out our commercial capabilities. We continue to project a cash burn rate in the range of $2 million to $2.2 million per month, not including working capital for grain purchases, after the 2018 harvest.

In 2017, our net loss was $26 million. The net income includes a significant noncash expense of $12.1 million for stock options. For the stock-option plans we currently have in place, we expect a noncash stock-option expense in the neighborhood of $2 million per quarter in 2018.

As we execute our plan to build a premier gene-editing company, I would like to highlight our progress in building the first-ever concept-to-fork facility, leveraging gene editing in the food sector. We have been working diligently with the developer to manage the investment. We are currently projecting that the total project cost will be less than originally budgeted and cost under $18 million. 100% of the savings will be reflected in lower lease payments once we occupy the facility in the spring of 2018.

Before handing it back over to Federico, let me share our forecast for cash burn in the near term. We will incur expenditures for seed production and promotional activities. In particular, a lot of work has started to condition, treat, bag and tag seed for the 2018 campaign. For Q1 2018, we project a cash burn rate in the range of $6 million to $7 million. In acknowledgement that we are still operating at a net operating loss and have a requirement to continuously invest in R&D and commercial capabilities, we will be evaluating alternative sources of financing such as equipment leases and loans for working capital to build off our successes in 2018 and grow the business dramatically in 2019.

In closing, our team is focused on building R&D and commercial expertise in a measured and disciplined approach. The cash raised so far funds our growth through mid-2019 and underpins the launch of our high-oleic soybeans.

So with that, I'll pass it back to Federico.

Thank you, Bryan. We are very pleased with the progress we have made in building our capabilities in gene editing and preparing to launch our first product. We believe that we are at the very forefront of a true revolution in the world of agriculture. Our strategy is to establish a commercial footprint by commercializing the first ever gene-edited agricultural product, our high-oleic soybean program. We then intend to leverage our success in this market segment and use the same business model to advance one product after another. Take the analogy of Amazon, that started as an online bookstore. For Calyxt, our high-oleic soybean oil is just the beginning, our books.

We will extend our lead in developing a broad portfolio of high-value food ingredients such as high-oleic soybean oils, improved-composition canola oils and high-fiber wheat flours, and we will continue to advance our pipeline of crops with added benefits for both the environment and consumers.

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'll pass it back to Simon.

Thank you so much, Federico, for the great overview. I would now like to open the call to questions. Joining for Q&A will be Federico, Bryan and Manoj.

(Operator Instructions)

Our first question comes from the line of Akshay Jagdale with Jefferies.

Thanks for all the details. Very, very helpful. A lot of good progress. I wanted to first ask about the farmer side of things. Again, a lot of good progress, ahead of our expectations. Can you share with us some color on the economics there in terms of the premiums that you might be offering to farmers? Obviously -- and the performance of the seeds themselves in terms of the yields? Maybe give us a little bit of color there, and I have a couple follow-ups.

Yes. So maybe I'll start with the premium program, and Manoj can add a little bit more color. What we've done this year is we have structure -- tiered incentive structure for farmers contracting in 2018, and there's multiple tiers that include identity preservation, as well as other incentives. Manoj, maybe you can add a little bit more numeric to that.

Sure. The total incentives actually range between $0.55 to $0.90 per bushel over CBOT, depending upon the size and the terms of the contract. So it's a portfolio of contracts which will be executed to farmers.

And the difference between those, everybody, is there's a basic identity preserve component, there's an early adopter to motivate growers to try new technology, and there's a storage premium and some volume-based discounts. So depending on the combination of those factors, a particular farmer could be in the $0.55 or in the $0.90 range.

Got it. And is that generally sort of -- how has that trended for you in terms of your expectations, generally speaking?

I think that this is in line with the market conditions. Non-GMO varieties command between -- around $1.00 premium over CBOT in the market, so we expect to be in that range.

And we have not changed this program since we started the program in December. So this is the same terms that we started with, and we've been able to accomplish the numbers that we shared today without changing this basic structure of the program.

No, that's excellent. I mean, it's well below what we were assuming, so you're hitting all your targets there. I wanted to ask Manoj about the conversations with the potential customers. You -- there's a lot there, but again, can you give us a little bit more color on -- is there any conversations right now on pricing? Is it too early? Looks like the scope of your conversations is much broader than just high oleic, which is pretty exciting. But can you just help us get into those sort of boardrooms and give us some color on what's going on there? I mean, it sounds great, but what are their concerns? What should we be concerned about? I mean, I guess if I was them I'd be concerned about can you deliver x amount of product, right? So maybe you can address that, and anything you can say about pricing, just generally, would be great too.

No, happy to give you a little more color. As Federico said, that we are in active discussions with around a dozen. Half of them are those larger consumer packaged companies. Half of -- the other half is small to midsized customers. And Akshay, you know the industry pretty well; the larger companies take a little more time than the smaller ones, so we expect the small to midsized companies to be the early adopters. Too early to comment on the magnitude of the premiums, but that is our underlying assumption with the discussions that there will be a premium, and because this is a unique oil, it will not be linked to any commodity price privately negotiated between Calyxt and the food company with regards to. What's more exciting is the specific applications we are talking about, because each of these customers can actually become an early adopter in that market segment, which becomes pretty good. I call it the beachhead strategy whereby, because it's used by company xx, it becomes pretty easy to be used by others in that sector as well. Yes, that's a fair question about the supply chain reliability, but the fact that we have over 60 growers and over 11,500 acres is actually reassuring to food companies because they now see the buildout of the supply chain, which actually helps them get their heads around it and be more excited about the product. And agree, very excited that it's more than high-oleic soybean oil.

Okay. And just one last one for Bryan: Can you give us -- I mean, is there some rule of thumb that maybe you can help us with in terms of the working capital investment that's needed, or if you can give us some guidance on that now that you have, obviously, a decent amount of clarity on acres, et cetera? Or maybe I'm misunderstanding. Maybe there's a little more clarity that you'd need to provide that. So can you give us some help on that?

Sure. Thanks, Akshay. The rule of thumb I would suggest is $500 to $600 per acre, and generally that would be paid out immediately upon delivery of grain at harvest.

So you just take that times the 11,500 acres, that's what you would need initially, but that gets -- obviously that gets turned over pretty quickly as you sell the product, right?

Yes. We would convert it, the meal, fairly quickly, within a month or 2, and then the oil gets titrated to the market a little slower, so initially probably 4, 6 months or so for the oil. And the meal is a big piece of the revenue or the volume, so a 50/50 meal-oil split is probably fair.

Yes. And if you look at the timelines, Akshay, in spring, we'll be planting the grain production and seed. Over the summer, we'll be engaged in in-season support to growers. And then fall/winter is the harvest of the soybeans. We anticipate the first commercial crush to be in the winter, like Q4 '18 or into Q1 '19. Meal is sold in 2 to 4 weeks, as Bryan said, and then the soybean oil is sold over that quarter. And then this whole cycle repeats itself every quarter till we plan for 2019 and the harvest, so there's a seasonality to it. So just to give you a perspective of our timeline with regards to what to expect in the coming months about the commercial launch of the high-oleic soybean oil.

Our next question is from the line of Daniel Jester with Citi.

So I just wanted to follow up on the premium comment that you guys just made. Does that $0.55 to $0.90 per bushel, is that the entirety of what you're offering to growers, or do you have to compensate for yield drag separately?

That's the entirety of the premium offered to growers. We have done things like testing their fields for soybean cyst nematode presence to help make sure that we have the right agronomics and that we're placing in the right fields. So we're providing agronomics support, we're providing testing to make sure we're placing the product in the right field, but that's the entirety of the premium we offer to growers.

Okay. And then on your acreage numbers, so a few weeks ago you were at 10,000 acres with 50 farmers; now, 11,500 on 60 farmers. It seems like these later farmers are growing -- are going to grow smaller portions of the soybeans. So can you just kind of talk us through sort of how these late-season conversations are going, and at what point do you close the books and say, it's not going to be the end of March because this tipped into April. Can you just kind of walk us through the next couple of weeks and how we can be thinking about that?

So Federico, feel free to jump in; I'm going to get started. I think our idea is to enroll high-quality growers. That's #1. And I'll think we'll continue till spring planting. Goal is to be around 70 growers in total and somewhere in between 12,000 to 15,000. The main impact here is to seed the market to create the supply chain for 2019, so it's a means to an end. And once we reach 70 or 15,000 acres, we'll reevaluate our capacity of our team to provide in-season support, because what is primary importance is that experience with us and ultimately to have a very high retention rate. Because as we all said, we operate around that circle. So very excited about the growers and their interest in us.

Okay. And then just, I think, Manoj, from your comments -- prepared comments, it does seem like there's a lot of high touch going on to seal the deal with these farmers. As you go -- maybe it's a little bit too early to kind of think about learnings for 2019, but do you think that you need to have more sales folks on the ground coordinating with these farmers, or -- than you had previously thought? And just maybe thinking about sort of the selling process and the different avenues that you're going about it.

We would be actually using the in-season support with the farmers to continue with that high-touch strategy. We already have hired a couple of agronomists who have decades of industry experience and have -- were in that region, so they'll build -- bring that relationship and personal touch with farmers. We'll continue that approach, because we are a young brand. We have to tell why we are delivered and what's in it for them, have that conversation, and that's better done in a personal, one-to-one, small-group setting rather than in an electronic way. That's what we have found.

So maybe just to add a little bit more color to that, when we started in December, Farmer Business Network was important for us to know which growers were growing non-GMO in the region and to know who to approach. More often than not when we approach those growers, they have never heard of Calyxt. So we had a whole educational component we had to do in a short 2 to 3 months. What's going to be different for us in 2019 is now we have the full season, and an agronomic team, and a relationship with the Farmer Business Network, and some of these growers that are going to be growing our material in the region. So this is going to be a year-long conversation, first to establish who Calyxt is and then again, around harvest, then talking about the 2019 growing premium program. So we think this is going to be a key growth point for us as we get growers more familiar with our story and our brand.

Okay, great. And then just one last quick one for Bryan: I think you talked about a $6 million to $7 million per-quarter cash burn. If I recall correctly, last time you gave guidance, it was about $6 million, so I'm wondering, are you seeing any inflation or sort of any items that we should be thinking about in terms of your cash use? Thanks.

Thanks, Dan. So for the full year, the cash burn is $2 million to $2.2 million per month. So for that full year, you can just multiply that by 12. And then for the quarter, I said $6 million to $7 million, and so you've kind of got 2 trends happening in the quarter. You have the building up of our R&D capabilities and commercial capabilities, so that's ramping up from a fairly modest number, but then layered over top of that, we are preparing to get seed ready for this 2018 campaign, so it's a bit of a seasonal bump of where we're seeing some seed production costs come in. So that's why Q1 is maybe a little higher at $6 million to $7 million.

Our next question comes from the line of John Baumgartner with Wells Fargo.

Maybe one for Manoj: Just wanted to be clear on the customer side of things. With the trans-fat guidelines changing in June, to the extent that a food manufacturer is not choosing to go with Calyxt right now, do you have a sense as to what the popular alternative is for them at this point? I guess, what have you learned or what are you learning about the range of alternatives as you've begun this client prospecting?

Sure, happy to. As you know, FDA has been talking about trans-fat ban, leading up to it -- the ban in 2015. And that's per Grocery Manufacturers Association in 2015. Still 15% of the trans fat remain to eliminated from the food -- human food consumption. Companies have to switch over to premium oils, and some of them had more complicated supply chain and needed to be imported. Some of them are tree-based oils, which are -- availability is limited. If you look at trends, some of the things have been high-oleic sunflower oil, which is a pretty good oil but has the unique challenge of the flavor profile. Industry also developed high-oleic canola oil, which again, needs to be imported, and it's a different crop altogether. It can be grown in very limited quantities in the United States. And there's also palm oil, which can be no trans fat, but then it leads to issues around very high saturated fat, and FDA had some guidelines regarding lowering high saturated fat in human food. So it's kind of -- the industry has been looking out for an alternative which has a good fat profile while having the same flavor, and this is an opportunity, and that's why we're seeing some strong interest.

Great. And then just one follow-up on the technology side, and maybe this is better posed to Dan, but I think just in terms of some of the industry research being done on CRISPR and the inclusion of the cytidine deaminase and the [adenine] deaminase, which I guess addresses some of the issues with mutations in the CRISPR approach, how are you still thinking about the relative efficiency advantages of TALEN over CRISPR at this point? I mean, do you still see that performance gap being sustained?

I mean, I can share maybe a little bit from the scientific side. We actually just published a very sophisticated study a couple of weeks ago as it relates to knock-ins against knock-outs, so there's technicalities here, but that depend on knocking in certain genes versus knocking out certain genes. And we have shown in, for example, I mean, just as a relation, in T-cells in humans, double knock-in efficiencies with double knock-out efficiencies of 68%. And that's almost twice as high as on the CRISPR side. However, there are certain things that relate to the plant sciences where you have to do more or less knock-outs so that the efficiencies can vary, but so far we've never seen an inferior efficiency with TALEN as it relates to CRISPR; it's more the opposite that is true.

Our next question is from the line of Jon Hickman with Ladenburg Thalmann.

Can you repeat how many varieties you expect by 2021? Was it 2 to 4 new varieties?

Yes. It'll be 2 to 4 new varieties.

Okay. And then -- okay. And you're -- you said that you're bringing up 800 lines from South America to test here in the United States, and that that will lead to 2 to 4 new varieties? Is that what I got?

Yes, Jon. I think -- that's how it works. It's a funnel, so you will start with a very high number and then narrow it down to the best 2 to 4 for the conditions that you [have].

Okay, and then one last question: Federico, if we were talking a year ago at this time, how many acres were you planning to have in production? I mean, is the 15,000 target, is that what you were looking at last year, or have things gone well enough that you've expanded your horizons?

I think what -- if we were talking a year ago, what we were thinking is, how are we going to approach this large number of farmers? From my experience in the seed industry, traditionally you have to talk with about 4 farmers to get 1 to buy your seeds, and that is not in an identity-preserve-type contract in a non-GMO. That's just in commodity soybeans. So I think a year ago, Manoj was not around, we didn't have a commercial organization, and we were -- I was thinking, how are we going to have all these conversations with farmers? How are we going to have the seed available? And how are we going to even know which farmers to talk to? So I think that the big progress for us for this year was to lay all those -- that yellow brick road that has led to this tremendous success. And I always said, and I continue to say, acres are the consequence. What matters is getting the farmers and retaining them, and I am very pleased with the work we've done in the last year in this front.

Okay. And my last question is, if you get to 15,000 acres, is that the total, or is that just production and seed -- the seed is different, growing the seed for next year? Is it separate --

No, that's different. The seed would be in addition to those. What we're talking about, 70 growers and 15,000, is for grain production, which will be used to produce oil.

Okay. And the seed production will be on top of that?

On top of that, which will be used to plant for next year.

Our next question is from the line of Kenneth Zaslow with BMO Capital Markets.

Hi, it's Vishal, on for Ken. I wanted to follow up on an earlier question on FBN. Now that you've been in the partnership for a few months, do you think your inclusion in it can be incremental to your initial long-term forecast of farmer adoption, or do you think that's too early to tell?

So Ken (sic) [Vishal], I -- this is Manoj. I just want to clarify the question, what -- the question was that the FBN relationship, is it incremental to our existing, or what do you think -- it's too early to tell? Is that the question?

Yes, like, the initial forecast that you sort of outlined, like where you had thought that you'd be able to adopt maybe 2,000 to 3,000 farmers by 2022, do you think your inclusion in this network can be incremental to that number?

So I think -- here's how I would say that. I think we are very pleased with the capabilities and synergies that FBN brings, and I think the incremental thing would be more the quality of the network. And as Federico said, this is -- the acres are a consequence, so it's a means to an end. And what it does is that it helps us get to additional regions very quickly and build out our supply chain. The ramp-up will probably be more dependent upon working capital and our capacity to launch additional high-oleic varieties. Obviously, the FBN network provides us that base, or the launch pad, for future growth.

So maybe just to clarify and add more color to what Manoj said, we believe FBN is an enabler to our commercial path that we have laid out. We're happy with how we're working together and how it could help us in the future as well, but however, we believe the ramp-up will be more dependent on other factors as well. Like Manoj said, working capital and our capacity to launch additional varieties are probably the main factors that will define our capacity to ramp up in the next 3 to 4 years.

Our next question is from the line of Edwin Gordon with 4C Advisors.

Just one quick question relating to the working capital build. How should we look at that on a quarterly basis? Is -- I assume that one should see a cyclical buildup and then a decline. Your thoughts on that?

Yes, thanks, Edwin. You're thinking about it right. You would see the buildup happen at harvest, so more towards Q4. It would peak and then it would come down over about a 6-month period in the initial years.

Our next question is a follow-up from the line of Akshay Jagdale with Jefferies.

Federico, I just wanted to ask you a question more broadly about the pipeline. There's a lot going on, as always, and that's great. Can you highlight for us, since we last spoke in this type of forum, what's -- what are the top 2 or 3 most exciting things that have happened, in your opinion, for the future of your company?

Thanks, Akshay. I think from a pipeline perspective, if we look back in 2017, we made significant progress. I think maybe 2 to 3 things that I would highlight: We mentioned the number of products that we have put through the USDA Am I Regulated process. 6 products across 4 crops that are declared nonregulated using gene editing is unprecedented for any company of any size. So we are -- we're very, very proud of that accomplishment. Furthermore, as we think of developing products, that's the first step. We have been able to advance more products in the field. We have been able to do things such as create flour of our high-fiber wheat flour product, which we are now testing in-house. And we have been able to advance our work in products such as improved-oil-composition canola. So that's kind of the crop product perspective. The other pillar that I've seen a lot of progress we've made is in our capacity to accelerate our gene-editing capabilities through rapid prototyping, transformation and acquisition of different germplasms so that we can bring additional products to the market. And then the third pillar that I'm very pleased with is looking at the macro context of the regulatory framework, and specifically not only in the U.S. but globally. We are seeing things moving really fast, and that creates tailwinds and a favorable environment for us to operate. As we look forward to 2018, I think we'll continue to see progress in those pillars. We'll continue to see products that we could advance to our pipeline, that we test in the field, that we get more Am I Regulated letters, and that we start testing the functionality of our food ingredients. We'll see, as Bryan mentioned, we have a new facility coming up with kitchen facilities for food development as well as state-of-the-art gene-editing facilities and automation, so we'll continue to make progress on our facilities and people-hiring plans. And we anticipate that we'll continue to hear favorable news from both the regulatory and an intellectual property perspective as we continue to make progress on our position on both fronts.

That's helpful. And just as a follow-up to the conversations that you're having with customers on high oleic, what stuck with me is the larger companies wanting to have sort of broader conversations. How -- I mean, how is that shaping, if at all, how you're thinking about your pipeline? Am I sort of reading into that differently? Like, are they thinking more of partnering with you? Have they given you some ideas that you weren't thinking about before? Or does it help prioritize your pipeline? I'm trying to get a better sense of what that truly means, those conversations with these larger food companies.

So we've told all of you we want to be a specialty food ingredient company that is focused on health and wellness and consumers. In order to do that, the 19 products we have in our pipeline are just the beginning. And these relationships with food companies and other players in the health and wellness space will help us make sure that we are pursuing the right products with the right frameworks around the right products. So I see the potential here is not only around our existing pipeline but what other things could we and should we be doing that are aligned with our vision and our strategy on how we deploy food -- gene editing in the food system? So this is something that we'll hopefully be hearing more about over the course of the next year.

Yes. And just to give you a perspective, Akshay, I come from that industry. The incumbents are challenged because they do not have access to technology and views; traditional methods, which take decades, if not years. The food industry is realizing that gene editing or new plant-breeding techniques is a paradigm shift, and recall Federico's comments that the ability to ramp up certain components which are held here and ramp down certain components which [may not be] as earlier, provides a lot of opportunities for the larger food companies, which are playing catchup with the smaller, more nimble-footed counterparts. And that's where we get a lot of interest. Early stages of discussion, but things can happen very quickly on that front.

Thank you so much, everyone. We really appreciate your time and all the great questions. I will pass it back on to Federico for a closing remark.

2017 was truly a transformational year for us at Calyxt. Thank you for sharing it with us. We look forward to a 2018 marked with a commercial and a supply-chain successes while we continue to grow our capability to mindfully disrupt the food system. Thank you again for your time today, and until Q1.

Thanks, guys.

Thank you.

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