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spk09: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to CBIS second quarter 2023 financial results and corporate update conference call and webcast. During today's conference call, all parties are in a listen-only mode. To ask a question during the session, you will need to press star 1 1 on your telephone, and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. This conference is being recorded today, August 10, 2023. At this time, I would like to turn the conference over to Wade King, CBIS Chief Financial Officer. Please go ahead, sir.
spk01: Thank you, and good morning. This is Wade King, the Chief Financial Officer of CBIS. I would like to thank you for taking time to join us for CBIS second quarter 2023 financial results and corporate update conference call and webcast. Presented 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, SEVIS.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 SEVIS 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 SEVIS.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?
spk04: 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 Kalix and CBIS, as merger agreement became effective on June 1st, 2023. That means the results reflect two months of Kalix and one month of the combined operations. I think the easiest way to understand this is to have Wade go over our financial presentation. Wade?
spk01: 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 second quarter 2023, please refer to our press release or filings with the SEC. As Rory described, we are excited to bring the two leaders of G-Editing and Agriculture together in our recent merger. Today, we are reporting financials as part of this transition from the legacy Calix business alongside the combined company business. Now for our second quarter of 2023 financial results. Cash and cash equivalents as of June 30th, 2023 is $50.9 million. The company believes our cash and cash equivalents will enable SEVIS to fund planned operating expenses and capital expenditure requirements 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, an increase in employee headcount, and an increase in stock-based compensation expense for restricted stock awards, award grants, and the acceleration of share investing associated with stock award agreements due to the acquisition of SEVIS 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 SEVIS Global LLC. Non-operating income was $1.3 million for the quarter ended June 30th, 2023, compared to $4.3 million in the year-ago period. The decrease of $3 million in non-operating 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 30th, 2023, compared to 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 30th, 2023, compared to 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.
spk03: Thanks, Wade.
spk04: In addition to the financials, this quarter will also be a little different as we look at this quarter's release of the inaugural call for SEVIS 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 SEVIS 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 trades. The merger between Calix and CBIS 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, CBIS, Selectus, Calix's agricultural subsidiary, and the University of Minnesota, one of the founders of Calix, were the leaders in developing the field of agricultural gene editing. All this essential agricultural gene editing technology from this period now resides in CBIS. We're really excited to be working with our colleagues from Calix and taking 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 chowder reduction in canola and winter oilseed grape, and two for herbicide tolerance in rice. Our business involves editing our traits in the elite germplasm of our customers and returning or transferring back to the customer their elite germplasm our trade. Since our merger was announced in January, we have successfully returned our first three trades to a canola customer and two herbicide-tolerant trades to a rice customer. In addition, 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. It 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 soybeans. We've already released very encouraged greenhouse results for this trait in Q2-23. We expect more data on this important trait in the second half of 23. Our 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're really excited today that we have entered into a breeding collaboration with Bayer to test and validate our trait machine process and our ability to edit leaf germplasm and return back to customers their plants with edits of them. And then we have others following that, but this is a really big moment for us as we start to develop this whole new industry where we can put advanced traits into 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 its path to a fully commercial company. Importantly, these milestones help frame this new industry of high-throughput G netting that we are building. Our goal in the call is to use these milestones to form a base from which to report our progress in building the company and this new industry. In 2023, we started transferring trade products and customers with journalism. We started production runs in the industry's first high-throughput trade production facility. We signed important collaboration agreements with leading seed companies to develop this industry further. And we had major regulatory milestones indicating that trades from high-throughput gene editing are on our path to be regulated similarly to trades from conventional breeding. For us, 2023 so far has been quite a year. Now, I'm going to break, and we put a couple 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 and our pipeline, you'd have a better position for which to understand us. 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 I was a co-founder, so I've been a partner with Peter and Greg for over 20 years now. Wade is my analyst at Biomatrix. I've known Wade for over 20 years, and it's really exciting to come back and work with him again. And then we're very excited that we recently hired the former general counsel of Syngenta, and he ran our licensing. It's really important for us as we start to build our business, our trade development business. A little background of who we are. CBIS is in the productivity trade business. As such, when we create products, we look at this line you see here. It's the slope of the 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 anything 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 that Qualcomm supplies to your iPhone. We're an ingredient in a business, and 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. And then there's improvement in new traits. And these are the traits that allow you to better manage the environment. And third, there's chemicals, crop protection chemicals. With the impact of climate change coming and the pressure to decrease chemical usage, germplasm and trait improvements are the central focus today to improve productivity at scale. This is our business. The licensing of intellectual property associated with traits is an integral part of agriculture. the royalties paid for productivity trades for the major crops is estimated to exceed $10 billion. This is roughly equivalent to the operating profit for the global crop protection chemicals business. The target market for productivity trade business is roughly the same as the target market for agricultural chemistry industry. Disease, pests, weeds, and the climate were all focused on the same general targets. The economics are very straightforward. For each cross, there are always two principal drivers of productivity trade growth. First, the number of acres in a crop impacted by a specific trade, and two, the trade acres per pay for a specific trade. A great example of this is our first disease trade for sclerotinia resistance. The number of soybean acres impacted by sclerotinia is approximately 25% of the total soybean acres, or roughly 50 million acres. Guest-made 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 to $400 billion market for sclerotinia resistance in soybeans. The trade royalty market for this trade is much larger if you include canola and winter oilseed rate. But most importantly, these calculations are a great example of how to look at trade markets and determine values for virtually every productivity trade. Next slide. The BT trade is an excellent example of how productivity trades work. And the slide we're seeing here is an illustrative slide. These are real numbers, but BT is not our trade. BT is a very important trade in the industry. For corn and cotton, this trade revolutionized worm management. It's currently used on over 90% of the acres grown for each crop, demonstrating the pervasiveness of this trade. Trade fees range between $10 and $15 per acre. The total royalty paid for this trade across all crops is estimated to be over $4 billion a year. The math is pretty simple. Total acres grown with this trade on them by the trade fee or royalty paid per acre. This industry is a lot like the movie industry. At the end of every season, the accountants total up their revenues and calculate the number of people, actors, or companies that have earned royalties. This happens every season in agriculture. New slide. 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 amazingly 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 work through causation. The promise of gene editing is it can be the digital moment in agriculture. These technologies can materially change the time and cost of trade development, and we believe it will restart the productivity boom started with GMO technologies. I'd like to move and let Peter Beetham sort of explain this technology. To understand really what we do, you really have to understand what is the big breakthrough that Peter and Greg have accomplished here.
spk05: Thanks, Rory, and good morning, everyone. CBIS's high-throughput breeding, or as we call it, the trade machine, changes the game. What separates SEVIS in the plant gene editing industry is its trait machine process. It is built using SEVIS's patented Rapid Trait Development System, or RTDS. The process from ideation, 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 Cebus's new standalone gene editing production facility. Cebus 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 a standardized reproducible system that develops traits in a fraction of the time and cost of conventional breeding or 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 a trait is developed. Prototypes validate specific edits in a crop that lead to a validated trait. CBIS 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, if 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.
spk03: Our best example of what Peter was talking about was
spk04: regarding the timeline for development for 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 has amazing losses and we believe that this royalty between the two crops is well over half a billion dollar a year royalty. But what we're most excited development for this thing fits exactly in line with our proposition of four to six years of development timeline for a given trait from the time you do a first edit. And you can watch us manage this trait and see how well we are at managing this because it's an excellent benchmark for you to think about how we do in new traits. When we started CBIS, 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 were indistinguishable from conventional breeding, we'd be regulated by conventional breeding. Well, 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 traits from conventional breeding. The last holdout? And the most critical of GMOs, the European Union, in July proposed new legislation with something called New Genomic Techniques, or NGT. If passed, the EU would regulate the trace from our technologies as conventional-like. If the EU Parliament passes this bill, we believe the remaining holdouts will quickly complete their process. In the meantime, the US, the UK, and most of the Latin American countries have already passed legislation. 2023 has been the watershed year for genetic regulations in agriculture. Next slide. As I mentioned, we're in the productivity trade business. The technology is at the forefront of gene editing in agriculture. One of the key benefits of merging with Calix is that the combined company now own many of the core regional patents for gene editing in agriculture. The merger established a strong technology platform and leadership position as we move 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. New slide, 12. 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 in shipping. One is a canola trait for pod shatter reduction. The other two are for herbicide tolerance in traits in rice. We have strong demand for each of these traits. For pod chatter trait, we already have 10 customers that have entered into pod chatter breeding collaboration. Importantly, we made our first transfer to new seed in Q1 this year. We expect to make five more transfers by year end 2023 of this trait in our customers' elite germ fossils. Two of these traits are in advanced stages of development. One is for sclerotinia resistance in canola. The other is a tolerance trait for a novel herbicide in canola. Both traits are important traits for both canola and soybean. Sclerotinia resistant comprises three modes of action. We had previously reported positive results for the first mode of action and recently reported encouraging results for the second mode of action. We expect to release an additional greenhouse and field data by the end of year 2023 for sclerotinia resistance. The last trait is for nitrogen use efficiency. This is a critically important trait for most crops. This eventually is trying to develop a plant that can maintain or improve productivity with less fertilizer. We're just initiating this trait in canola and in rice. For each of our trait products, we will regularly be reporting our progress in the greenhouse and in the field. And it'll be a regular part of our quarterly calls going forward. New slide. 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 the specific crop team in each seed company. In this way, you can think of a crop and SEVIS as a business unit. And from the slide, you can see that we have a canola business unit, a Bryce unit, and we'll have a soybean unit that essentially work 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 a leader in adopting new traits, especially the GMO traits. So we're really excited about moving into that marketplace. We already have two traits which we already have demand for that we're first launching in canola. And so 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. New slide. As we've discussed, Crop-specific trait machine breeding processes are the key to our business. The trait machine enables us to enter directly into a customer's elite germplasm and return a germplasm to the customer while they're at it. It also lets us build high-throughput breeding collaborations with seed companies in a crop where we can 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 operations. Currently, we are a trade machine operational in two crops, canola and rice. This means we're in trade business crops. By year end, we expect to be a trade machine operational in soybean, thus in the trade business in soybean. By year end 2025, we expect to be in the trade machine business in both wheat and corn. We've already built crop-specific trade machine breeding collaborations with seed companies in canola, rice, and soybean. Next slide. Our business plan is pretty straightforward. We have a technology platform that enables us to develop more trades more quickly and with a faster speed to market. Using this technology, we have a pipeline of six trades, of which three are development and launching, and two are in advanced stages of development, and the sixth is just initiating the editing process. We're currently trade machine operational in two crops, canola and rice. In addition, we are close to being trade between operational soybean. Together, we estimate the relative potential of these crops for the three developed trades and two advanced trades to be $1.6 billion. And what's really interesting when you see the slide is you realize that over 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 them to soybean. So it's not going to take developing a whole set of new trait development. It's transferring a trait from one crop to another crop, which is really powerful. Our goal right now is to get these five traits commercial in these three crops. And that's what we'd like you to grade us on. If we can, it's a huge opportunity for us and that we're all really excited about. These are the targets for which we expect to update shareholders in the quarters to come. New slide. 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 Calix. Our remaining 2023 milestones are also foundational to our business plan. Our guidance on soybeans is obviously critically important. It's one of the two mega crops for trade development. We believe we'll have the trade machine process completed for soybean by year end. Finishing soybean ties into our other two milestones for 2023. We expect to announce additional greenhouse and field data for our sclerotinia-resistant traits and our HT2 trait in canola. These are the cornerstones of our advanced traits. They're huge traits for canola, but also huge traits for soybean. Our intention is our editing of 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 agreements and have transferred their germplasm to SEBAS. Together, they complete important milestones that make 2023 the huge point of inflection for SEBAS, and we believe for gene editing and plants in general. This slide is particularly important because it lists our milestones. This is our first guidance with our first quarter, and we hope you'll grade us on this. And so the next quarter, we hope to tell you how far we've moved in moving things forward and in jump Thanks for listening to our business overview. As is evident, our business currently is driven by our execution to get the developed traits launched commercially and to get our developing traits developed. The relative potential of just these six traits in the three crops is immense. The material increases as we add wheat and corn. And 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 and hitting these milestones for each of these products and keep you posted on new trait development.
spk03: And with that, let's go to Q&A. We'd love to take some questions.
spk09: Thank you, sir. We'll now begin the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. Our first question comes from Lawrence Alexander with Jefferies. Your line is open.
spk02: Lawrence Alexander 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, 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?
spk06: Thanks, Lawrence.
spk04: Thanks, Gary. Can I say one note as we start? We actually thought our slides were going to match up to the language. We apologize if it didn't for the people on the call. And I'll let Wade walk through the cash. We expect it to be even. I think the question of cash burn, where we are and how we manage it, is a critically important question for all shareholders. So, Wade, are you going to take a shot?
spk01: Sure. Hey, Laura, this is Wade. So our operating burn currently is about six and a half million per month. We expect that to trend up at the end of this year towards seven million per month dollars. That obviously supports all of our facilities. It includes the new Oberlin's facility, which is our dedicated trade machine facility in San Diego. Of course, our headquarters in Nancy Ridge. It includes also the Roseville facility, associated with the old Calix, and that's 43,000 square feet. So it takes into account, obviously, both our operating needs and also our capital expenditures associated with making 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. So we expect, frankly, the capital needs of the company to be steady from here. You know, incremental increases associated with adding, you know, 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.
spk02: Okay, great. And then just secondly, can you unpack the difference between a trade 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 three, particularly for the three products that you've already commercialized?
spk04: So, I have some questions. So, we're starting to transfer traits or develop to our customers. And guidance we've given Lawrence is that we think it'll take two to three years for them to do the things they necessary to validate, register, build up a seed inventory and get launched. And so we expect two to three years after we transferred to a customer that we would start to see revenues. We think that that could be a little bit faster in rice because of the nature of how the rice market works. But in the canola market, we think that those are really solid numbers. And in the rice market, we're going to learn. But because of the nature of how rice is transferred and worked, I think that it could be faster.
spk02: And just one last clarification, and 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, the end of the harvest? Can you just walk through kind of how the model should work in terms of getting the royalty payments to start flowing through to you?
spk05: So, Lawrence, this is Peter Beetham. Thanks for that question. I think that, you know, With regards to canola and our relationships with all our customers, it'll 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 mid-year, 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.
spk01: And I'll just add, Lawrence, this is Wade, that that sums up to the fact that our expectations, we like giving ranges or to have royalties showing up on the P&L from customer shipments in the range of 2025 to 2026 first royalties, and then obviously free cash flow generated in the range of 2026 to 2027 first free cash flow generation so hopefully that gives you a range of metrics uh as relates to the model expectations and i get one more just
spk04: I always, you've heard me, Lawrence, say that I look at this a lot like the movie business. The end of the season, suddenly you look at all the players and figure out who you have to pay royalties to. And so the way Peter explained it is more understanding exactly what happens in the ag business. At that point, they look at all the costs, you know, they pay a lot of royalties out, and they look at all their people they owe royalties to, and I think the whole industry collects their royalties essentially at the same time.
spk02: Great. I'll drop back in queue. Thanks.
spk09: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. One moment for our next question. Our next question comes from Steve Byrne with Bank of America. Your line is open.
spk06: 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 is HT2? Does that represent a different mode of action from the multitude of herbicide-tolerant transgenic traits that are in soybeans right now? Is that different? Perhaps you could 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 obviously now is essentially precluded, but as you highlighted, that regulatory operation is set for streamlining. So do you need that European regulatory change in order 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 your gene edited traits given the grain handler can't detect it.
spk05: Thanks Steve. This is Peter. I think I've got most of your questions.
spk04: That was one question wasn't it?
spk05: So first of all, we are so excited about the abilities of what we have in front of us with soybean. As you mentioned, HT2 and sclerotinia tolerance are two traits that are really going to change how people think about traits in soybean, not just here in the US, but in South America as well. So I think the HT2, I can tell you, it is a new mode of action. And with our partners, we'll be looking to add those stacked potentially in soybean that allows farmers to have a much broader weed control system. So in some cases where they may need some additional herbicide tolerance that allows them to control really tough weeds. So it gives you a really great opportunity to think through the product lineup adding HT2. This is something that a number of our partners have talked to us about. And as you know, we have a relationship with GDM in Latin America. And that is one of the areas that we'll be working with them on. The other area is also sclerotinia. So white mold in soybean is a really important trait. We do see the potential to stack this on with other approved event transgenics. I think the other question you mentioned was EU import. And the way we understand it right now is that, again, there'll be approved events that you'll be able to work, that already are imported into Europe. But the gene edited addition understanding that the proposal that they just approved in July will also, not only planting in Europe, but also pave the way for imports and exports. And so we're excited about that. Then the last question I think you had was save seeds. We're an independent developer. We work with our customers to provide traits the customers will be managing how that goes to market. And with regard to saved seeds, they deal with that on a yearly basis. And I think they manage that very well and understand that there are some areas of the world that farmers will save seeds. So we have no concerns about taking the traits to market and having saved seeds.
spk06: Well, thanks for answering that one question, Peter. One real quick one for you, and that is sclerotinia, would you have any interest in expanding into fruits and vegetables? I can imagine there could be interest there.
spk05: So Steve, that's a great question. I think the way I look at sclerotinia, it is one of our blockbuster traits. The beauty of our technology, that we're bringing to the marketplace is it goes across crops and so you have this understanding of disease resistance you can take from canola to soybean and then into other crops that have white mold problems. So that's something we'd love to do in the future. Right now as a company we're really focused on as Rory mentioned in the script of the deck We are 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 then also across different traits is really exciting for us. Thank you.
spk04: This export thing is such an important topic within the European legislation, as our understanding, as they proposed it, that problem will be solved for us, which is a really big event for us.
spk08: One moment for our next question.
spk09: Our next question comes from Bobby Burleson with Canaccord Genuity. Your line is open.
spk07: Hi, thanks for taking my questions. I'm sorry about any background noise here. We're at our growth conference. So I guess, you know, my first one kind of, I guess, touches on the end of your last answer when we start thinking about, you know, the learnings from crop to crop or even trait to trait. Are there synergies that start to gather in terms of customer overlap where you know with the germ plasm where you know it eases maybe the pathway to additional collaborations and kind of de-risks things you know going forward once once you get some momentum so bobby this is peter again um again that's the part that you know from a technology standpoint we're so excited we understand the the what to edit
spk05: probably better than most companies. We've had a really strong history of understanding edits, complex traits like disease resistance. So understanding those, what you need to edit allows you to think more broadly and there are synergies associated with that. So when I say broadly, it means that not only sclerotinia, but other diseases that are caused by pathogens like Fusaria, as well as rust and other diseases that are really important constraints on agriculture broadly. So you're absolutely right. This is an opportunity to use that synergy to go across a number of different diseases.
spk07: 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 outline there is perhaps outside of ideation maybe the most difficult for some of your partners? to replicate on their own in terms of doing this in-house.
spk05: Thanks, Bobby. 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 the history. As you saw on the slides, it's a three to five year process. most exciting for me is to see the ability of the team to take single cells through the whole regenerated plants. This is something that is not standard in any cell biology around the world. And so I think our abilities in that area is not just getting one or two cells to divide and go into regenerated. We're talking about millions. So an efficiency rate that is beyond what even I imagined a few years ago. So I think that for us, that allows us, you know, really talking about the secret sauce, that is central to what we're doing in our cell biology team.
spk04: And I just add that it's on point too that from ideation without having the ability, one, to be able 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. And really, it's because of that that we now have this three to five years, and you can see it in the Sclerotinia results, that we're pretty confident that it's just, you laugh, I now call my factory a maternity ward, because we grow these cells up and have a crop at the end, pretty well timed, and I appreciate the question.
spk07: Great. Thank you for that. And then maybe one last quick one here on the nitrogen use efficiency. I'm curious whether or not any traits that you introduced 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.
spk05: So, Bobby, this is Peter again. Another great question. When you think about nitrogen use efficiency, or we often call it nutrient efficiency, There will be synergies and symbiosis with microbes in the soil. We have a number of different targets we've studied and looked at on nitrogen use in plants. And it is a lot of the interaction does happen within the soil. It also happens within the plant. So we're looking at a number of different targets primarily because we have a technology that does target multiple genes and multiple edits. So it really does open the opportunities for us to look at what is out there on the biological side and how we might actually have some synergies and interactions on that front. So yeah, it's an exciting opportunity.
spk04: And you framed it well that when you look at nitrogen use efficiency, it's above the soil and below the soil traits. And our first ones are below the soil trait, but you'll learn as we go forward how they divide.
spk07: Fantastic. Thanks for taking my questions. Thanks, Tommy.
spk08: One moment for our next question.
spk09: And we have a question from the line of Lawrence Alexander with Jefferies. Your line is open.
spk02: So, sorry, just a couple of follow ups 1st, with the collaboration evaluation with buyer, or if you want to speak more generally 1st, are you prohibited from entering into similar evaluations with other seed companies? And 2nd, can you give some sense of what the. kind of the holy grail here is what the blue sky kind of what the efficient targeted efficiency gain that you want to deliver that would then be you know split between you and them in terms of a value sharing and what's the goal with the collaboration can you just try and quantify it um it's a great question because it goes to the core of our business model and you know we now have
spk04: Customers in all the crops, let's say we have 12 customers, and each one, it's the same model. They send us their elite germplasm. We then, with that elite germplasm, try to work with an initial trait. And so in canola, for example, everybody starts with it. with a pod shatter collaboration agreement where we try to put pod shatter into their elite germplasm. And our goal as a business is that once people see how that works, that we will then turn that into broader collaboration agreements. And we expect you to hear of us signing into broader collaboration agreements. And in those broader collaboration agreements, we expect to do two things. One, be able to advance our pipeline of traits. So if you're in Sclerotinia, it's not a secret that if you're in canola, if we have Sclerotinia developed, that they all really indicated that they would love to have that trait in their germplasm. So that's how you extend to a broader. And secondarily, everybody seems to have ideas now that they understand what our process is to be able to evaluate new ideas. And I think the way we look at Bayer is just in that agreement. It's just to understand, like a lot of our customers, how does our... how does our process work, how efficient is it, and how to think about it with respect to our current trades or future trades. And I think that everybody needs to go through that sort of evaluation before they can sign on and go, all right, I'm ready to put you into my system. And this is sort of they're putting themselves in that process and working those.
spk02: And then you mentioned kind of everybody in the industry cross licenses technology. How much of a drop through to EBITDA do you expect to see? I mean, will you be having any technology licenses or leakage that we should be taking into consideration?
spk04: Could you rephrase that? I'm not sure I totally understood that. I apologize.
spk02: So when you receive royalties, some companies in this sector, when they receive royalties, they then have to pay IP payments to other companies. They settle up. Oh, great. There's a certain 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.
spk04: I'm glad you asked the question. Thanks very, very much. First, you should know also with a... So far, everything we're doing is not exclusive. We're working to people generally across all these crops, and we'd like to kind of be utilities that we can be non-exclusive. In terms of trace, 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. And so that would be a deduction of our revenues. And secondarily, we have created a foundation for investing in sustainable agriculture in developing countries. And after we get 50 million in royalties, there'll be a 2% deduction to this nonprofit to start doing developmental work in agriculture.
spk03: And other than those, there are no other deductions.
spk02: 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 Calix was?
spk04: That's a great question. The next year and a half, we're so focused on getting our five products out there. I want you at the end of 2025 to say, God, you've got your three platforms going, your traits are rooting, we have our customers. At that point, we really would love to be able to start thinking through how the industry shapes and how we can be a real participant in the industry, and we'd be open to it. I think for the moment, we're really focused on that and doing what we're promising.
spk01: Thanks.
spk09: Thank you. This concludes our question and answer session. I would now like to turn the call back over to Rory Riggs.
spk04: Thanks so much for joining. For all of us, we now realize we're public. This is kind of cool. We've put our documents together. We really are focused and we really are excited about where we are with our traits and where we are with this process. Thanks for following us and I hope to be able to show you really how the progress works in this new industry. The idea of having an independent trade producer is a new concept for for agriculture, and I think that the reception we're getting from customers and the quality of the traits we're developing is helping us get to that point, but the calyx steel helped us. So thanks very much for listening, and we look forward to talking to you in future calls.
spk09: This concludes today's conference call. Thank you for your participation.
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