Cibus, Inc. Q2 FY2023 Earnings Call

Good morning, everyone, and thank you for joining us. Welcome to the Cibus Second Quarter 2023 Financial Results and Corporate Update Conference Call and Webcast. This conference is being recorded on August 10, 2023. I will now hand it over to Wade King, Cibus’ Chief Financial Officer. Please proceed, Wade.

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

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

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

Thanks, Wade. In addition to the financials, this quarter will also be a little different as we look at this quarter’s release as the inaugural call for Cibus as a public company. Because of this, the format will be a little different than a typical call. Our goal today is to begin to develop an understanding of who Cibus is, our business goals, strategy, and milestones. From here, the plan would be to do quarterly calls to review our finances and provide updates on our commercial progress as we launch our developed traits. The merger between Calyxt and Cibus was a great one-time opportunity to merge the two pioneers in gene editing. The union is significant because, in the early days of gene editing, Cibus, Cellectis, Calyxt’s agricultural subsidiary and the University of Minnesota, one of the founders of Calyxt, were the leaders that were developing the field of agricultural gene editing. All this essential agricultural gene-editing technology from this period now resides in Cibus. We’re really excited to be working with our colleagues from Calyxt and take advantage of all this great intellectual property. The merger also allowed us to become a public company. We believe 2023 was a good year for us to go public as it is the point of inflection year for us as we transition from R&D to a commercial company. As part of this transition, we laid out a list of 2023 milestones that were critical to this transition. We’re really excited because we have already accomplished many of our 2023 milestones and are on target for our remaining ones. The key milestones that we have accomplished are multifold. We first successfully made the initial transfers of our initial trait products. We have three developed traits: one for pod shatter reduction in canola and winter oilseed rape, and two for herbicide tolerance in rice. Our business involves editing our traits in elite germplasm customers and returning or transferring back to the customer their elite germplasm with a trait. Since our merger was announced in January, we have successfully returned our first three traits to a canola customer and two herbicide-tolerant traits to a rice customer. Additionally, we expect five more canola transfers in 2023. In addition, we opened the Oberlin facility, the industry’s first gene-editing production facility. This system is critical to our commercial model that involves editing a customer’s elite germplasm and enables us to perform these edits at a commercial scale. Finally, we have three traits in development. Two of these traits are in advanced stages of development, going through greenhouse and field validation. One of the traits is for Sclerotinia resistance. This is an important trait for both canola and soybean. We’ve already released very encouraging greenhouse results for this trait in Q2 ‘23. We expect more data on this important trait in the second half of ‘23. The last part of our business, which is helpful to discuss, is our ability to get major seed companies to work with us in breeding collaborations to develop our current traits, but also to develop new traits with customers. And so we are really excited to announce today that we have entered into a breeding collaboration with Bayer to test and validate our Trait Machine process and our ability to edit a lead germplasm and return back to customers their plants with edits in them. And then we have others following up, and this is a really big moment for us as we start to develop this whole new industry, where we can put advanced traits in the seeds in a fraction of the time and cost of traditional breeding. These milestones are what we mean when we say that 2023 is an inflection year for our business and is a path to a fully commercial company. Importantly, these milestones help frame this new industry of high-throughput gene editing that we are building. Our goal in the call is to use these milestones to form a base on which to report our progress in building the company in this new industry. In 2023, we started transferring trait products and customers' lead germplasm. We started production runs in the industry’s first high-throughput trait production facility. We signed an important collaboration agreement with leading seed companies to develop this industry further, and we had major regulatory milestones; anything that trades from high-throughput gene editing on our path to be regulated similarly that traits from 2023 have been quite a year. Now I’m going to break, and we’ve put a couple of slides together to walk you through our business, our goals, and our prospects and give you a framework so that as we quarter-to-quarter start educating you on our progress in our pipeline, you have a better position for you to understand this. I’d like to start this section with a slide we use every presentation, which is a slide of my senior management team. What’s really exciting about this company is as a co-founder, I have been a part of the Wade for over 20 years. It’s really exciting to come back and work with them again. We’re very excited that we recently hired the former General Counsel of Syngenta, and he ran their licensing. It’s really important for us as we start to build our business and our trait development business. A little background on who we are. Cibus is in the productivity trait business. As such, when we create products, we look at this line that shows the slope of productivity increases in the seed industry over the last 50 years. Our job is to help maintain or grow the slope of this line. That’s what people in the seed industry do, we’re in the seed industry. This is what editing does. It changes existing genes within a plant so that the plant can protect itself from things like the environment or disease. Importantly, our products directly impact the yield and cost of farming. In other words, our products impact the slope of this line. We are paid for our products based on seed sales with our traits. Our royalties are based on a percentage of the economics or value from our trait to a crop. This is essentially the same basis Apple pays Qualcomm for components Qualcomm supplies to your iPhone for an ingredient in a business. We’re paid for the value we bring to that product. In the seed industry, there are essentially three principal tools that are used to improve yields for the major crops. First is improvements in the germplasm, that’s the genetics of the seed itself; second, there are improvements in new traits; and third, there are chemicals, crop-protection chemicals. With the impact of climate change coming and the pressure to decrease chemical usage, germplasm and trait improvements are the center focus to date to improve productivity and scale. This is our business. The licensing of intellectual property associated with traits is an integral part of agriculture. The royalties paid for productivity traits for the major crops are estimated to exceed $10 billion. This is roughly equivalent to operating profit for the global crop protection chemicals business. The target market for productivity traits is roughly the same as the target market for the agricultural chemistry industry. Disease, pests, weeds, and the climate were all focused on the same general targets. The economics are very straightforward. For each crop, there are always two principal drivers of productivity trait royalties: first, the number of acres in a crop impacted by a specific trait; and second, the trait acres per plant for a specific trait. A great example of this is our first disease trait for Sclerotinia resistance. The number of soybean acres impacted by Sclerotinia is approximately 25% of the total soybean acres or roughly 50 million acres. The estimated trait range is approximately $7 to $10 per acre, which is estimated to be roughly one-third of the cost to manage Sclerotinia using fungicides. This equates to a $350 million to $400 million market for Sclerotinia resistance in soybean. The trait royalty market for this trait is much larger if you include canola and winter oilseed rape. But most importantly, these calculations are a great example of how to look at trait markets and determine the values for virtually every productivity trait on the slide. The BT trait is an excellent example of how our productivity traits work. These are real numbers, but BT is not our trait. BT is a very important trait in the industry. For corn and cotton, this trait revolutionized worm management and is currently used on over 90% of the acres grown for each crop, demonstrating the pervasiveness of this trait. Trait fees range between $10 and $15 per acre. The total royalty to pay for this trait across all crops is estimated to be over $4 billion a year. The math is pretty simple: total acres grown with this trait on them by trait fee or royalty paid per acre. This picture is meant to depict the process of conventional farming. Although a lot of technologies such as selective breeding have impacted this industry, it’s still a slow, random, and expensive process that has existed for centuries, if not millennia. GMO technologies have given us amazing impactful traits like the BT trait, but these technologies are still very lengthy and expensive. The most recent study estimated that GMO trait requires on average 16.5 years and $115 million from ideation. The promise of gene editing is it can be the digital moment in agriculture. These technologies can materially change the time and cost of trait development, and we believe it will restart the productivity book started with GMO technologies. I’d like to move that to Peter Beetham to explain this technology.

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

Our best example of what Peter was talking about regarding the timeline for the development of new traits, given the technology he’s helped develop, is our Sclerotinia trait. Sclerotinia is a really important trait in both canola and soybean. It incurs amazing losses. We believe that this royalty between the two crops is well over $0.5 billion a year of royalty. But what we’re most excited for this discussion is you see on this chart the timeline for development. The timeline for development for this trait is exactly in line with our proposition of a 4 to 6 years development timeline for given the trait from the time you do it first. You can watch us manage this trait and see how well we are managing this because it’s an excellent benchmark for you to think about how we do. When we started at Cibus, we blindly assumed that we would not be considered GMO. Our dream was that if we could start developing technology that resulted in traits that are indistinguishable from conventional breeding, we’d be regulated like conventional breeding. While we have to admit this vision has taken a long time, over the last few years, virtually all major markets have either passed legislation or are on a road to pass legislation that would regulate traits from our technology similar to the traits from conventional breeding. The last holdout and the most critical GMO market, the European Union, in July proposed new legislation concerning something called new genomic techniques, or NGT. If passed, the EU would regulate traits from our technologies as conventional-like. We believe the remaining holdouts will quickly complete their process once this has happened. In the meantime, the U.S., the UK, and most Latin American countries have already passed legislation. 2023 has been a watershed year for genetic regulations in agriculture. As I mentioned, we’re in a productivity trait business. The technology is at the forefront of gene editing in agriculture. One of the key benefits of merging with Calyxt is that the combined company now owns many of the core regional patents for gene editing in agriculture. The merger established a strong technology platform and leadership position as we move forward. Our goal in this section is to provide an overview of our business today and the progress we have made in trait development with our Trait Machine and the progress we have made in commercializing our initial development traits. The best evidence we have of the efficiency of the Trait Machine process is that we currently have a pipeline of six traits. Three of these traits are fully developed and shipping. One is a canola trait for pod shatter reduction. The other two are for herbicide tolerance traits in rice. We have strong demand for each of these traits. For pod shatter trait, we already have 10 customers that have entered into pod shatter breeding collaboration. Importantly, we made our first transfer to new seeds in Q1 this year. We expect to make five more transfers by year-end 2023 of this trait in our customers’ elite germplasm. Two of these traits are in advanced stages of development. One is for Sclerotinia resistance in canola, and the other is a tolerance trait for a novel herbicide in canola. Both traits are important traits for both canola and soybean. Sclerotinia resistance comprises three modes of action. We had previously recorded positive results from the first mode of action and recently reported encouraging results for the second mode of action. We expect to release additional greenhouse and field data by the end of the year 2023 for Sclerotinia resistance. The last trait is for nitrogen use efficiency. This is a critically important trait for most crops. This eventually will develop a plant that can maintain improved productivity with less fertilizer. We’re just initiating this trait in canola and rice. For each of our trait products, we will regularly be reporting our progress in the greenhouse and in the field, and it will be a regular part of our quarterly calls going forward. The trait business is a crop-by-crop business. Although traits are important in many crops, each trait in each crop can vary on many levels since traits are affected by different geographies and environmental conditions. Our customer is always a specific crop team in each seed company. In this way, you can think of a crop in Cibus as a business unit. You can see that we have a canola business unit, a rice business unit, and we’ll have a soybean unit that essentially works with these companies to try to develop our initial trait and the pipeline of traits that go with it. Soybean is important because it makes our Trait Machine operational in 200 million additional acres. Importantly, soybean farmers have been leaders in adopting new traits, especially the GMO trait. So we’re really excited about moving into that marketplace. We already have two traits that we have demand for, which we’re first launching in canola. The event of actually having a soybean platform is a really, really big thing for us that we expect to happen in the second half of 2023. As we’ve discussed, our crop-specific Trait Machine breeding process is the key to our business. The Trait Machine enables us to enter directly into customers' elite germplasm and return the germplasm to the customer with our edit. It also allows us to build high-throughput breeding collaborations with seed companies in a crop, where we could work with them to help them develop some of their own traits. This is our vision: crop-by-crop breeding partnerships with seed companies, where we operate as an extension of their crop-specific breeding operation. Currently, we have the Trait Machine operational in two crops, canola and rice. This means we’re in on those crops. By year-end, we expect to be Trait Machine operational in soybean, thus entering the trait business in soybean. By year-end 2025, we expect to be in the Trait Machine business in both wheat and corn. We’ve already built crop-specific Trait Machine collaborations with the seed companies in canola, rice, and soybean. Our business plans are pretty straightforward. We have a technology platform that enables us to develop more traits more quickly and with a faster speed to market. Using this technology, we have a pipeline of six traits, of which three are developed and launching, two are in advanced stages of development, and the sixth is just initiating the editing process. We currently have the Trait Machine operational in two crops, canola and rice. In addition, we are close to being Trait Machine operational in soybean. Together, we estimate the royalty potential of these crops for the three developed traits and two advanced traits to be $1.6 billion. It’s interesting to see that, on the canola side, we are validating and launching Sclerotinia and herbicide-reduction traits in canola. Those are the exact same traits that, when we validate our business model for soybean, we’re going to be able to go over and introduce to the soybean. It’s not going to require developing a whole new set of trait development. It’s transferring a trait from one crop to another, which is really powerful. Our goal right now is to get these five traits commercialized in these three crops. These are the targets we expect to update shareholders on in the quarters to come. It should be self-evident by now that we’re pretty excited about the milestones we’ve accomplished since we signed our merger agreement with Calyxt. Our remaining 2023 milestones are also foundational to our business plan. Our guidance in soybeans is obviously critically important. We have one of the two mega crops for trait development. We believe we will have the Trait Machine process completed for soybean by year-end. Placing soybean ties into our other two milestones: we expect to announce additional greenhouse and field data for our Sclerotinia-resistant traits and our HT2 trait in canola. These are the cornerstones for our advanced traits. They are huge traits for canola, but also huge traits for soybean. It’s our intention to start editing soybean for these traits as soon as our soybean platform is operational. Together, these milestones successfully move us from R&D to commercial, with over 250 million acres operational, a pipeline of six traits and major seed company partners through all new crops. We have signed trait collaboration agreements and transferred their germplasm to Cibus. Together, they complete important milestones that make 2023 a huge point of inflection for us, and we believe for gene editing in plants in general. This slide is particularly important because it is our milestone. This is our first guidance for our first quarter, and we hope you’ll agree with us on this. For the next quarter, we hope to tell you how far we’ve progressed in moving things forward. In general, this is how we take these quarterly calls; we’ll try to get you excited about some of the stuff we’re doing anyway to show you how the new industry moves. Thanks for listening to our business overview. As evident, our business is currently driven by our execution to get our developed traits launched commercially and together with developing traits to sell. The royalty potential in just these six traits in the three crops is immense, with material increases as we had in wheat and corn. These activities are really consistent with being a commercially driven company. We’re going to show the industry how gene-editing traits work. In our subsequent calls, we’ll focus on tracking our progress in hitting these milestones for each of these products and keep you posted on new trait developments. And with that, let’s go to Q&A. We’d love to take some questions.

Our first question comes from Laurence Alexander with Jefferies. Your line is open.

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

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

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

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

Excellent question. So we’re starting to transfer traits developed to our customers. What we have guided is that we think it will take 2 to 3 years for them to perform the necessary validation, registration, build up a seed inventory, and get launched. We expect 2 to 3 years after we transfer to a customer that we’d start to see revenues. We think that could be a little bit faster in rice because of how the rice market works. But in the canola market, we think those are solid numbers. In the rice market, we’re going to learn, but because of how rice is transferred and works, I think that could be faster.

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

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

I’ll just add, Laurence, this is Wade, that sums up to the fact that our expectations suggest that royalties will show up on the P&L from customer shipments in the range of 2025 to 2026. The first royalties are expected to come, and, obviously, free cash flow generated in the range of 2026 to 2027.

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

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

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

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

Thanks, Steve. This is Peter. I think I’ve got most of your questions. We are very excited about the abilities of what we have in front of us with soybean. As you mentioned, HT2 and Sclerotinia tolerance are traits that are really going to change how people think about traits in soybean, not just here in the U.S., but in South America as well. HT2 is a new mode of action, and we’ll be looking to add those, stacked potentially in soybean that allows farmers to have a much broader weed control system. In some cases, they may need some additional herbicide tolerance that allows them to control really tough weeds. It gives you a great opportunity to think through the product lineup, adding HT2. This is something that a number of our partners have talked to us about. We have a relationship with GDM in Latin America, and that is one of the areas we’ll be working with them on. The other area is Sclerotinia. White mold in soybean is a very important trait. We do see the potential to stack this on with other approved event transgenics. Regarding EU import, the way we understand it right now is that there will be approved events that you’ll be able to work that are already imported into Europe. The gene-edited addition, understanding that the proposal that was approved in July will also pave the way for imports and exports; we’re excited about that. As for saved seeds, we are an independent developer. We work with our customers to provide traits, and customers will manage how that goes to market. They handle it on a yearly basis, and they understand there are some areas of the world that farmers will save seeds. So we have no concerns about bringing the traits to market and managing safe seeds.

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

That’s a great question, Steve. I think the way I look at Sclerotinia, it’s one of our blockbuster traits. The beauty of the technology we’re bringing to the marketplace is it goes across crops. This understanding of disease resistance can be taken from canola to soybean and then into other crops that have white mold problems. That’s something we’d love to do in the future. Right now, as a company, we’re really focused on our first two crops with the three traits, expanding to three crops and six traits. But in the future, the ability to take the technology across crops and also across different traits is really exciting for us.

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

Our next question comes from Bobby Burleson with Canaccord Genuity. Your line is open.

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

So Bobby, this is Peter again. From a technology standpoint, we’re very excited. We understand what to add probably better than most companies. We’ve had a strong history of understanding edits, complex traits like disease resistance. Understanding those edits allows you to think more broadly, and there are synergies associated with that. When I say broadly, it means not just Sclerotinia but other diseases that are caused by packages like rust and other important constraints on agriculture. You’re absolutely right; this is a chance to use that synergy across a number of different diseases.

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

Thanks, Bobby. It’s Peter again. I would say that the time-bound and reproducible Trait Machine is one of the most exciting things I’ve seen in the company in its history. As you saw on the slides, it’s a 3 to 5-year process. What’s been incredibly exciting is to see our team's ability to take single cells through the entire regeneration process. This is something that is not standard in any cell biology around the world. Our abilities in that area allow us to manage millions of cells — an efficiency rate that exceeds what you might imagine a few years ago. So I think that our knowledge is the secret sauce central to what we do in our cell biology team.

I’d just add a point to that. From ideation, without having the ability to do complex edits and secondarily have this regeneration model, which we call a crop-specific Trait Machine process, it’s really hard to think through how to, after you ideate, how to do a complex trait. It’s because of that that we now have this three to five years; you can see it in the Sclerotinia results that we’re quite confident in.

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

Bobby, this is Peter. Another great question. When you think about nitrogen use efficiency or what we often call nutrient efficiency, there will be synergies in symbiosis with microbes in the soil. We have a number of different targets; we’ve studied various aspects of nitrogen use in plants. Interaction occurs within the soil and also within the plant. We’re looking at a number of different targets, primarily because we have a technology that targets multiple genes and multiple edits. It really opens up opportunities for us to explore the biological side and how we might have some synergies and interactions there. So yes, it’s an exciting opportunity.

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

Fantastic. Thanks for taking my questions.

Thanks, Rory.

We have a question from Laurence Alexander with Jefferies. Your line is open.

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

It’s a great question because it goes to the core of our business model. We now have customers in all the crops. Let’s say we have 12 customers in each one; it’s the same model that they send us their elite germplasm. We work with that elite germplasm to try to put in an initial trait. In canola, for example, everybody starts with a pod shatter collaboration agreement, where we try to put pod shatter into their elite germplasm. Our goal as a business is that once people see how that works, we will then turn that into broader collaboration agreements. We expect you to hear of us signing broader collaboration agreements. We expect to do two things in those agreements: one, be able to advance our pipeline of traits. If you’re in Sclerotinia, it’s not a secret that if we have Sclerotinia developed, all our customers have indicated they would love to have that trait in their germplasm. That’s how it extends to a broader... And secondly, everybody seems to have ideas as they understand what our process is to evaluate new ideas. Bayer is just working with us to understand how our process works and how efficient it is.

Then you mentioned whether – you mentioned kind of everybody in the industry cross-licenses technology. With your royalties, how much of a drop through to EBITDA do you expect to see? Will you have any technology licenses or leakage that we should be taking into consideration?

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

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

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

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

That’s a great question. As we look to the next 1.5 years, we’re so focused on getting our five products out there. I want you to give a 2025 to just say, 'You’ve got your three platform going, your traits rooting, and we have our customers.' At that point, we would love to think through how the industry shapes and how we can be a real participant in the industry, and we’d be open to it. For the moment, we’re really focused on doing what we’re promising.

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

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

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