Yahoo Finance Cibus, Inc. (NASDAQ:CBUS) Q1 2024 Earnings Call Transcript
Cibus, Inc. (NASDAQ:CBUS) Q1 2024 Earnings Call Transcript May 11, 2024
Cibus, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the Cibus First Quarter 2024 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. Please go ahead.
Wade King : Thank you, and good afternoon. This is Wade King, Chief Financial Officer of Cibus. I would like to thank you for taking time to join us for Cibus' First Quarter 2024 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 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: Thanks, Wade. I'll begin today's call with a high-level update of our business this quarter. Then Peter will walk you through our recent Q1 commercial progress and discuss how we're doing on our expected 2024 milestones. Wade will then come back and finish with a discussion of financials. This was an amazing quarter for our commercial accomplishments and for the positive developments in the regulatory environment for gene editing. Much about this quarter is our successful transformation from an R&D-focused company to being the first commercial stage gene editing company. By commercial-stage gene editing company, we mean that we are in the business of commercializing validated gene edited traits. Our customers are seed companies.
We're not in the seed business. Our business is to sell validated traits to seed companies for annual royalties. In other words, we license traits that we have developed with our gene edging technology to seed companies. Our traits provide economic benefits to farmers such as helping manage your control weeds or providing resistance to specific diseases such as white mold or Sclerotinia. Our economic model is based on receiving annual royalties on bags of seeds sold with our traits based on these benefits. This is a common practice in the seed business industry. There are many traits that are licensed to seed companies for royalties. However, largely, this practice is the purview of licenses by seed companies to other seed companies. With the advent of gene editing, we believe that gene editing technology companies like Cibus will be the leaders in licensing new traits to seed companies in exchange for royalties.
We refer to our gene edging technology as the trait machine. The underpinnings of our trait machine is our precision Rapid Trait Development System or RTDS. RTDS is a crop-specific platform technology that comprises a system of gene editing technologies that is covered by over 400 patents issued or applied for. When we state that we have a platform crop, it means that we have successfully developed our RTDS technology in the specific crop that enables us to edit a single cell of a customer's elite germplasm, regenerate the edited cell and return the edited seed to the customer. This technology is especially important in complex traits requiring multiple edits such as our pod shatter reduction trait in canola and our Sclerotinia-resistant trait for canola and soybean.
Cibus has developed commercial RTDS platforms in canola and rice, and we just recently developed RTDS platform for weed, for which we are exploring commercial opportunities. Lastly, a key 2024 milestone is to develop an RTDS platform for soybean. Soybean is such an important opportunity for us because it has grown on over 200 million acres in just Brazil and the United States alone. We're excited that our trait machine was recently given an award by Fast Company Magazine for being one of its top 100 innovations in 2024. As noted in Fast Company's article on the trait machine, commercialization of this technology presents an analog-to-digital movement in breeding. The trait machine fundamentally changes the speed and cost of developing and commercializing complex traits.
It enabled us to do new complex traits development in as little as 3 years as compared to a traditional breeding process or GMO process, which takes over a decade. We can also do this at a fraction of the cost as well. The trait machine has also enabled us to speed up the commercialization of our traits because it allows us, on a shortened time line to transfer complex traits directly in the elite germplasm or a seed of our customers for commercialization. Peter will review in greater detail our progress this year for our developed platforms in canola and rice and in our development of new platforms for wheat and soybean. But I would like to touch on a couple of highlights for which we are really encouraged. First, we're ending this quarter with 10 customers for our pod shatter reduction trait in canola, demonstrating our success in building out our canola platform.
Each of these customers has already delivered to us their germplasm, enabling us to apply the Pod Shatter trait gene editing process. Our success in canola is why we consider this the year as the time we became a fully integrated commercial scale gene editing company. In Rice, we've also signed up some of the largest companies in the United States and Latin America, including Nutrien and Interoc for our 2 proprietary herbicide-resistant traits, HT1 and HT3. Herbicide-resistant traits are an agricultural mainstay because they fundamentally change how farmers manage one of the toughest challenges, weeds. The positive response to date for our two HT traits in rice is emblematic of the demand for these traits, and it is why we are working on advancing our third herbicide trait HT2 in other crops, including canola and soybean.
We believe this HT2 trait has the potential to be the first gene edited trait to achieve 100 million acres of yearly use, representing an immense opportunity for us. Lastly, I would like to provide a brief update on the recent regulatory advances for gene editing. A highlight for us at Cibus was February 7th. This is when the EU parliament voted to endorse the regulation of gene editing similarly to conventional breeding. This EU vote was an important inflection point in the global movement to regulate the new genomic techniques differently from GLO Technologies. While the EU still has work to do to negotiate and finalize its regulations, the importance of this parliamentary vote cannot be overstated as the EU is notorious for having the strictest regulations in the world.
Importantly, for the first time, we see with the EU parliamentary vote a powerful new alignment across the three major agricultural growing regions; North America, South America and now the EU and the UK. This development has been followed by similar ones in many other countries, such as Canada and Uruguay. With that, I'll pass the call over to Peter to go to some greater detail on the progression of our pipelines, trait platforms and the potential we have to deliver significant value for our shareholders. Peter?
Peter Beetham : Thank you, Rory, and good afternoon to everyone. As Rory discussed, this past quarter highlighted a major breakthrough for gene editing regulations. This is the moment we have been working towards for over a decade. And it is the culmination of years of education and discussion with many stakeholders to help the EU gain comfort with the promise of gene editing techniques as a means to realize their sustainability and food security goals. It really is a great moment for the company. As previously highlighted, our commercialization efforts are well underway with our three developed productivity traits. Pod Shatter Reduction, we call PSR in canola or Winter Oilseed Rape, WOSR and our herbicide tolerance or HT1 and HT3 traits in rice.
On our last call, we also focused on our progress transferring our PSR traits in canola to customers for commercialization. Today, I would like to focus on two significant achievements in Q1 2024. First, the expansion of customers for our developed traits in Rice HT1 and HT3, and second, the major breakthrough where we reported earlier this year, weak regeneration from single cells and why this is such an important milestone for our gene editing in another major crop. So let's start with the progress on our developed traits in Rice. As Rory mentioned, we have now signed four agreements with customers in Rice, two in the U.S.A. and two in Latin America. These include Nutrien here in the USA and Interoc in Latin America. I want to give you a sense of the scale of these agreements.
These four customers combined represent approximately 40% of all addressable rice acres across the U.S.A. and Latin America. The increasing demand for our HT1 and HT3 traits by customers coincided with our reporting of successful field trials in January 2024. Rice presents a major opportunity for us given the industry's challenges in developing conventional herbicide tolerance systems. These systems in rice have struggled to gain really good long-term market traction as we have quickly developed tolerance to herbicides and the solutions have not always been the best herbicides for the important weeds. This void in the market now presents a significant opportunity for Cibus' trait solutions, which have been shown to be very effective as demonstrated in our 2023 field trial results that indicated both HT1 and HT3 met or exceeded performance expectations when evaluated with proposed commercial herbicide application rates.
Demonstrating the demand for herbicide tolerance traits can be seen easily by the massive penetration of GMO-based HT traits, which today are still more than 95% of major crops such as canola, soybean and corn. What this does is underscore the potential for adoption by rice farmers while also showing the limitations of existing technological approaches to solve some of agriculture's most pressing challenges. Let me explain why HT traits are valuable. Rice farmers use selective herbicides and cultural methods such as flooding to control weeds. Unfortunately, selective herbicides are very inefficient and costly in rice. In fact, USA State Extension Services estimate that the cost of herbicides can exceed over $130 per acre in the Mid-South. This process includes as many as four applications and in many cases in the USA are applied by aerial sprayers.
However, the promise of introducing a gene edit to the variety with herbicide tolerance traits is greater weed control, lower input costs, that is less herbicide, and lower application expenses which together offer a significantly cheaper and more efficient solution for the farmer. The second focus topic for today is wheat. Wheat is one of the world's most important cultivated crops. It is a staple in many diet and is responsible for 20% of people's caloric intake, making it one of the world's most important food crops. Wheat flour is consumed in breads, pasta, cookies, crackers, confections, among other things. For Cibus, wheat is one of the five major crops we are focused on to develop editing with our scalable high throughput trait machine.
Since we announced our breakthrough in January, we have been exploring partnerships with leading wheat seed companies around the world. Developing traits for wheat is a potentially huge opportunity given that improved varieties and new hybrids of wheat have not been beneficiaries of GMO traits. The USDA estimates that there are over 500 million acres of wheat grown globally, with an estimated 100 million of those acres residing in the developed markets of North America, Europe and Australia. For Cibus, our approach in wheat is similar to that of our other crops, which is to say that we are taking precision shots at trait opportunities that address known problem indiscernible that reduces our pacing. And in the case of wheat, we believe there's immediate opportunity in fungal disease resistance and nitrogen use efficiency.
In addition to the incredible achievements within our developed traits, we continue to make progress with our two advanced traits. Sclerotinia resistance also known as white mold resistance and our herbicide tolerance HT2 trait, and we continue to work on advancing our soybean platform. Starting with our first advanced trait, Sclerotinia resistance. Last year, we achieved a milestone in stacking two different modes of action against Sclerotinia into canola and successfully demonstrated effectiveness in greenhouse tests. And in 2024, we expect to receive greenhouse results for the third mode of action for Sclerotinia in canola, bringing us one step closer to commercialization of this key traits. Our other advanced trait is a herbicide tolerance trait we call HT2.
This trait enhances productivity by targeting broadleaf weeds that have grown resistant to herbicides in key crops, including canola and soybean. Essentially, the importance of HT2 is similar to how I described weed control options for rice. We believe this trait has the potential to be the first gene edited trait to achieve 100 million acres of yearly use, representing an immense opportunity for us. Following our successful completion of edits in HT2 in canola in 2023, we continue to expect greenhouse results in 2024, which will be important in demonstrating the effectiveness of these traits. As a reminder, both of these advanced traits, Sclerotinia and HT2 are what we call multi-crop traits. This means that they have potential efficacy across multiple crop types including canola, wheat, oilseed rape and soybean.
And not only does this present a commercial opportunity to earn royalties across multiple crop types based on the same trait, but it also allows us to apply the learnings and synergies we've unlocked in existing crops to new crops. The efficiency created here is a key competitive advantage when it comes to expanding penetration of new crop types. Finally, we continue to be optimistic that by year-end, our soybean platform will be operational allowing for penetration of this large addressable market. Developing our soybean platform remains a key strategic initiative, serving as the foundation for our sustainable ingredients business focused on plant-based alternative oils for customer applications. And with that, I'd like to now pass it on to Wade to briefly review our financials.
Wade?
Wade King: Thank you, Peter. Looking at our financials for the first quarter. Cash and cash equivalents were $24.5 million as of March 31, 2024. From a cash flow perspective, for the three-month period ended March, we used $13.5 million of cash from operations, which implies a monthly burn rate of approximately $4.5 million. Through a combination of optimizing resources and implementing cost-saving measures, we have reduced our operating cash flow burn rate down to approximately $5 million per month. We believe this represents the appropriate level of cash burn needed to fund planned operating expenses and capital expenditure requirements going forward. This should extend our current cash runway into the third quarter of 2024.
In terms of financing activities, we raised $6.2 million of net proceeds via regular equity sales in the first quarter and a further $9.5 million in the second quarter to date. Moving to our income statement, which I'd remind everyone isn't directly comparable to that of the prior year period given the merger with Calyxt that closed in May of 2023. Please keep this in mind it is a reference to the prior year period's results. R&D expense was $12 million for the first quarter of 2024 compared to $2.2 million in the year ago period. The increase was primarily related to increased lab supply and facility expenses, an increase in employee head count and an increase in stock-based compensation expense for restricted stock award grants. SG&A expense was $7 million for the first quarter of 2024 compared to $2.3 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 award plans. Royalty liability interest expense, a noncash use was $8.3 million for the first quarter of 2024 compared to no expense last year. This is related to the liability assumed in the May 31, 2023 merger with Cibus Global LLC. Net loss was $27 million for the first quarter of 2024 compared to a net loss of $5.4 million in the year ago period. For additional details about our financials for the first quarter of 2024, please refer to our press release and filings with the SEC. That concludes our financial discussion. Rory, now back to you for your closing remarks.
Rory Riggs: Thanks, Wade, and many thanks, everybody, for listening to us. The progress we have made with the scalable commercialization of our company and our products is testament to our vision for leading an agricultural revolution through the advances in gene editing. Our vision is to operate as an extension of the seed companies breeding operation. Together with the seed companies, our goal is to help farmers address their sustainability, productivity and environmental challenge at a fraction of the time of cost previously available through conventional breeding or GMO methods. As I hope is evident, Cibus is leading the charge into this new gene editing era. As we look ahead to advancing our activities for the balance of 2024, we anticipate further showcasing our commercial progress with our customers for our developed products while also hitting key milestones for our advanced traits and new crop platforms.
Thank you guys all for the same. Operator, that concludes our prepared remarks and could you open it up for Q&A.
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