Cibus, a leading developer of gene-edited traits for major crops, detailed its second-quarter financial results and corporate updates, emphasizing significant strides in its technology and commercial operations.
The company is advancing its non-GMO herbicide tolerant (HT) traits in rice with a 2027 launch target, and has made notable progress in canola traits for disease resistance and nutrient use efficiency.
Cibus reported a cash balance of $30 million and acknowledged an increase in R&D expenses and net loss over the previous year. With its products recently approved in Canada, Cibus is poised to tap into substantial markets for canola, wheat, and soybeans.
Key Takeaways
- Cibus is on track to become a top independent gene-edited trait developer, focusing on non-GMO crops like canola, rice, soybean, wheat, and corn.
- The company plans to introduce HT traits in rice by 2027, potentially accessing 6 million acres and earning $120 million in annual royalties.
- Cibus has made advancements in canola traits, with field trials in North America and the UK, and is developing the first Nutrient Use Efficiency gene edit in a major North American crop.
- The company is exploring partnerships for the development and commercialization of wheat traits and aims to operationalize the soybean platform by the end of 2024.
- Cibus also sees growth potential in the sustainable ingredients market, with a partnership in the biofragrance sector and anticipated product shipments next year.
- Financially, the company faces increased R&D expenses and a higher net loss compared to the previous year but maintains a solid cash position.
Company Outlook
- Cibus aims to launch HT traits in rice by 2027, focusing on the U.S. and Latin American markets, with strategic partnerships in Asia.
- The company is working towards development and commercial agreements related to wheat in 2024 and operationalizing the soybean platform by year-end.
- Cibus sees sustainable, low-carbon ingredients and materials for consumer packaged goods as a valuable opportunity, comparable to their rice business.
Bearish Highlights
- The company reported an increase in R&D expenses and a higher net loss compared to the previous year.
Bullish Highlights
- Cibus has successfully completed milestones for disease-resistant and herbicide-tolerant traits in canola.
- The approval of Cibus products in Canada opens a significant market for canola, wheat, and soybean crops.
- The company's advancements in nutrient use efficiency could optimize global fertilizer use.
Misses
- Despite technological and commercial progress, the company's financials reflect increased R&D spending and a net loss.
Q&A Highlights
- Cibus discussed a partnership to enhance nutrient uptake in crops through its canola platform.
- The company is developing multiple herbicides for rice and wheat and is optimistic about the potential of their advanced traits to generate substantial royalties.
Cibus (ticker not provided) has showcased a robust pipeline of gene-edited traits during its second-quarter earnings call, with a clear focus on innovation and market expansion. The company's progress in developing and commercializing non-GMO crops with enhanced disease resistance, herbicide tolerance, and nutrient use efficiency positions it favorably for future growth.
While financial challenges persist, Cibus's strategic moves, particularly in entering new markets and forming partnerships, signal a strong commitment to its long-term vision. The potential to generate significant royalties underscores the company's confidence in its technology and the value it could bring to the agricultural sector.
InvestingPro Insights
Cibus's financials and stock performance have raised concerns among investors. The company has been rapidly depleting its cash reserves, with a recent report highlighting a cash balance of $30 million. This figure is critical as it underscores the company's need to manage its resources efficiently while continuing to invest in R&D and commercialization efforts.
The stock price has also been under considerable pressure, reflecting investor sentiment. According to InvestingPro data, the stock has experienced a sharp decline over the last week, month, and six months, trading near its 52-week low. This trend aligns with the InvestingPro Tip that the stock has taken a significant hit recently, which could be indicative of broader market concerns or specific challenges faced by the company.
In addition, the company's valuation metrics present a mixed picture. With a market capitalization of $180.82 million, Cibus is trading at a high revenue valuation multiple, which could suggest that the market is pricing in future growth expectations. However, the company's P/E ratio of -0.46 and an adjusted P/E ratio of -1.59 for the last twelve months as of Q2 2024, combined with a PEG ratio of 0.12, indicate that profitability remains a distant goal, as analysts do not anticipate the company will be profitable this year.
Investors seeking a more in-depth analysis can find additional InvestingPro Tips for Cibus, which provide further insights into the company's financial health and stock performance. Currently, there are 11 more tips listed on InvestingPro that can help investors make more informed decisions. For those interested in exploring these tips, they can visit https://www.investing.com/pro/CBUS for a comprehensive view of Cibus's financial outlook.
Full transcript - Cibus Inc (CBUS) Q2 2024:
Operator: I’d like to turn the conference over to Wade King, Chief Financial Officer. Sir, please go ahead.
Wade King: Thank you and good afternoon. 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 Of 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 would like to begin this call with a high-level update on our business activities in this quarter and in this year. Following my remarks, Peter will walk you through our recent developments in more detail. In addition, he will review the value proposition for all of our developed trades and discuss how we’re doing on our expected 2024 milestones to help you understand why we are so excited with our progress. Wade will then finish with a discussion of the financials. I’d like to start by reviewing the business we created last year when we merged Cibus and Calyxt (NASDAQ:CLXT). When we merged, we were the two leading gene-editing companies in terms of owning the foundational patents and technology for gene-editing in agriculture. These cover exclusive proprietary use of the foundational intellectual property in the agricultural gene-editing industry, including our GRON Editing Technology Platform, the exclusive use of TALENs in agriculture, and in certain geographies, the exclusive use of CRISPR Technology in agriculture. When we created this gene-editing powerhouse, we had a stated mission to become the leading independent gene-edited trait developer for the major crops, canola, rice, soybean, wheat and corn. Selling GMO-based traits to seed companies is a huge industry in which seed companies on an annual basis pay billions of dollars in royalties to trait developers for specific traits. These attributes are genetic expression in a plant that is associated with a specific plant attribute, such as herbicide tolerance or disease resistance. A great example of our trait strategy is the traits we have developed for herbicide tolerance. Herbicide tolerant traits are the mainstay of the GMO trait industry. The principal attribute of a herbicide tolerant trait is that the trait enables plants to survive when a farmer sprays herbicides on the plant. In other words, these traits enable farmers to kill the weeds with herbicides without killing the crop. The GMO herbicide tolerant traits were developed using foreign materials from other plants, and as such, they face severe regulations or banning, which virtually stop GMO trait innovation in crops such as rice and wheat. The difference is that with our gene editing technology, we can develop herbicide tolerant traits without using any foreign materials, and that our traits are indistinguishable from traits developed using conventional breeding. This is why, globally, regulations are changing to regulate traits from our technology as traits from conventional breeding. This is why we’re excited about the prospects for our rice and wheat crop platform. We can now develop families of herbicide-resistant traits in crops that did not have GMO traits. In addition, gene editing has created opportunities in areas that have been difficult to develop using GMO technology because of the complexity required to develop specific traits. Disease resistant traits are a perfect example of complex traits. In disease resistant traits, we were initially focused on Sclerotinia white mold disease, that are critically important in canola and soybean. These are traits that have a direct, positive impact on farming yield, cost and efficiency. The promise of gene editing is that it can address areas like disease resistance. This is why traits that make plants resistant to disease is such an important focus for Cibus. Agricultural trait royalties are very similar to the massive royalties paid in the pharmaceutical industry for technology associated with each drug. There are virtually no drug producers in the pharmaceutical industry, nor seed companies for the major crops that do not pay significant royalties to third parties for licensed technology for their products. This is our business model. Using our proprietary technologies, we can develop complex seed traits in a fraction of the time and cost of conventional or GMO breeding, and that with our technologies, we are able to accelerate the path toward commercialization. When we announced our merger, we established major milestones to track our progress in becoming the leading trade developer to seed companies in these major crops. We divided our milestones into three categories. First, new crops. We track milestones that follow our progress in developing new crop platforms and technologies. This, for example, means providing updates on a recent development of an operational platform for wheat, our expected soybean platform in 2024 and our recent patent expansions for new technologies. Second, new traits. We track milestones that follow our progress in developing new productivity traits and assigning agreements with seed companies. This means providing updates on the developments within our trait portfolio and the commercialization of these traits, such as our advances in commercializing herbicide tolerant traits in rice and the progress in our advanced traits for disease and herbicide tolerance in other crops. Third, regulatory. We track milestones that follow our progress in gaining regulatory approvals for gene editing. Here, we have been tracking regulatory procedures for gene editing on a global basis, such as the recent Canadian approval, the approval in the U.K., and the positive parliamentary vote in February. I’m disappointed in the delay in the final regulatory approval in the EU. Post the parliamentary vote, the EU process continues positively, and other countries globally, like Canada and the U.K., are continuing to adapt their regulation for gene-edited traits to be similar to traits developed using conventional breeding. We continue to see a groundswell of support internationally for gene editing to be the technology that will be critical in solving the world’s challenges to address food scarcity and the next generation. Most importantly, we are really excited because we have continued to meet our milestones. We are rapidly establishing ourselves as the leading trait innovator and developer that is addressing unique needs within these major crops. Reflecting on our recent accomplishments, the second quarter was another strong quarter for our commercial and technological progress. It caps what has been a great first half for Cibus, and frankly, a great launch of an important new company. Peter will take a deeper dive for the recent progress, but I want to highlight a couple of key accomplishments supporting our trait portfolio. In the second quarter, we successfully completed edits in our important third mode of action for our Sclerotinia-resistant trait, and successfully completed an initial edit for our first mode of action for a nutrient-use-efficiency trait. Both of these are extremely important as we broaden our opportunities set for new traits. Commercially, we are making great progress in launching our herbicide tolerant trait platform in rice. In this quarter, we signed an agreement with FEDEARROZ, one of the largest rice seed companies in Latin America, which brings our rice partnerships to four leading companies in the U.S. and Latin America, including Interoc in South America and Loveland Products, a new subseries of nutrients in the U.S. In addition, we recently reported important field data in support of tag-gene-edited tolerant traits in rice. Building our herbicide-tolerant platform in rice is important to us. We expect in 2024 and 2025 to continue to expand our presence in the Americas and in Asia, both in companies working with us and in new traits. These milestones will continue to demonstrate our progress commercially and our momentum in developing new traits and new technologies. With that, I’ll pass the call over to Peter. Peter?
Peter Beetham: Thank you, Rory, and good afternoon to everyone. It really has been a transformative first half of 2024 for Cibus, marking significant progress in our commercial development, our trait pipeline, and the global regulatory landscape. I’d like to re-emphasize how far our business has come. While it can be challenging to appreciate the arduous path towards generating an annual recurring royalty stream, we believe we are really close. Importantly, we continue to move our customers’ genetics through the development phase, and I would like to start by explaining how we see commercial development at Cibus. Commercial development at Cibus is defined by our ability to make gene edits in customer crop genetics that provide them with a new desirable characteristic or trait, and to confirm our edits with multiple field trials. For each trait, field trials validating their effectiveness are a critical element and an important milestone toward ultimate commercialization. In each case, our traits in the fields are compared with the customer’s seeds without the trait. These first-hand observations of the trait’s effectiveness are invaluable to our commercialization process. We’ve experienced this with each of our developed traits, with customers signing on after first reviewing our field test results. You can see some photos of this on our website with one of our herbicide traits in rice. It’s a clear example demonstrating the performance of our gene-edited herbicide tolerant crops. On one side, you see a crop that has survived the herbicide application while the weeds do not, and on the other side, you see the control crop that didn’t contain our edits and the crop was devastated by the herbicide. Excitingly, earlier this week we announced yet another milestone in rice where we initiated the first stacked gene-edited traits for herbicide tolerance. In this case, we reported that trait effectiveness was also promising after initial field trial. These traits can provide an excellent weed management solution that creates value for Cibus, seed company customers, and more profit and sustainable options for farmers. Today, I’d like to focus on a couple of key areas of achievement. First, being the further expansion of our developed rice platform and customer base, as Rory just mentioned, and the second being breakthroughs in canola, which we confirmed edits in canola for our advanced traits. Sclerotinia resistance also known as white mold disease and herbicide tolerance, HT2. So let’s start with the progress on our rice platform. We’ve gained significant commercial momentum in rice and are experiencing increasing customer demand for our HT1 and HT3 traits, which coincided with our reporting of successful field trials back in January 2024, underscoring the significant market opportunity we see in rice. In addition, this last quarter, we have observed initial trials showing the amazing opportunity to further weed management solutions with the stacked gene-edited traits I mentioned earlier. As we’ve discussed before, rice represents a major opportunity given the industry’s continued challenges in developing conventional herbicide tolerance systems. Remember, the widespread adoption of herbicide tolerant GMO traits in over 95% of canola, soybean, and corn crops highlights both the potential for similar uptake in rice farming and the limitations of current agricultural technologies. We are working with our rice customers to enable launching of our HT traits in rice as early as 2027. Our current partnerships could provide access to 6 million rice acres and an annual royalty opportunity target we currently estimate at approximately $120 million. The United States and Latin American markets are our primary focus for rice but have a developing strategic partnership for Asia as well. In addition to our momentum in rice, we continue to make progress in canola. We are doing important field trials in canola and winter oilseed rape in the U.S., Canada, and the U.K. In addition, we’ve successfully made significant progress in our advanced trait pipeline, which I’ll turn to now. Advanced traits in canola include disease resistance, new herbicide tolerance and Nutrient Use Efficiency, we call NUE. The enormous commercial opportunities of these three trait areas are not only the clear value of productivity and sustainability, but these traits also represent significant opportunity to be expanded to other crops like soybean. This quarter, we successfully completed our edit milestones in our canola franchise with a third mode of action for our Sclerotinia or white mold resistance trait. It’s an incredibly important step to provide durable resistance to this disease in canola and other crops, including soybean. With the editing complete, the plants containing these edits will be evaluated in controlled environment growth rooms with results expected later this year. For our herbicide tolerance trait, HT2, we’ve completed another generation of edits in canola and anticipate greenhouse results later this year. We believe this trait, once available, has the potential in multiple crops to be the first gene-edited trait to achieve 100 million acres of yearly use, representing one of our largest opportunities. As a further reminder, Sclerotinia and HT2 are multi-crop traits, meaning that the efficacy we expect to achieve in canola would translate to other crops, including soybean, and eventually the company would have the opportunity to earn royalties across multiple crops for the same trait. We also achieved an important milestone with the initial editing for Cibus’ first Nutrient Use Efficiency, NUE trait in canola. We believe this to be the first NUE gene edit in a major crop in North America. This is a significant milestone not just for our company, but for the entire agricultural industry, as there is mounting pressure on crop production to use fewer fertilizers produced using fossil fuels. Let me explain why this is so important. NUE traits are part of a very large category of traits relevant to all crops. These traits have the potential to make fertilizer use more efficient on a global basis without compromising the yield that farmers expect and rely on. In essence, NUE traits would provide a solution to optimize farmers’ agricultural practices while maintaining productivity. This achievement is also significant because it represents our first use of the trait machine process to operationalize a third-party developed trait. This demonstrates our company’s ability as a development partner to take gene edits identified by third parties and successfully make edits in our platforms to develop a trait. In addition to the achievements within our pipeline of developed and advanced traits, we continue to make progress with our crop platforms. Earlier this year, we successfully completed our crop platform in wheat, providing us a potential access to the largest global grain crop as measured in planted acres. This enables us to develop productivity and sustainability traits addressing major challenges for wheat farmers worldwide. Since achieving this breakthrough in wheat, we have been actively engaged in discussions with potential seed company partners, with herbicide tolerance and disease resistance traits being a key focus of those discussions. Based on these discussions, we believe we are on track to enter into initial development and commercial agreements related to wheat this year. We also expect to initiate the first edit toward developing traits for wheat. Finally, our advanced soybean platform is another exciting opportunity for us and, as I’ve mentioned before, one of the more challenging endeavors in plant biology. We are making steady progress and we still anticipate this platform will be operational with initial editing completed by the end of 2024. That achievement would allow us to penetrate the vast soybean market, which encompasses over 200 million addressable acres. But it’s more than just about market size. We expect our soybean platform to serve as the foundation for our sustainable ingredients business, which is a key component of our company’s long-term growth strategy. We see significant opportunity in being able to develop sustainable, low-carbon ingredients and materials for the consumer packaged goods industry. Our goal with this business is to be able to create products that do not negatively impact the environment during production, use or disposal. And with that, I’ll pass the call to Wade to briefly review our financials. Wade?
Wade King: Thank you, Peter. Looking at our financials for the second quarter, cash and cash equivalents were $30 million as of June 30, 2024. Moving to our income statement, I would like to start by noting that the second quarter of 2024 isn’t directly comparable to that of the prior year’s second quarter of 2023, given the merger with Calyxt that closed inter-quarter at the end of May 2023. Specifically, the prior year period only reflects one month of our combined company results. Please keep this in mind as I make reference to the prior year results. R&D expense was $13 million for the second quarter of 2024, compared to $8.4 million in the year ago period. The increase was primarily related to increased lab supplies and facility expenses and increase in employee headcount and an increase in stock-based compensation expense for restricted stock award grants. These expenses were partially offset by $1.3 million in one-time expenses due to the closing of the merger transaction in the year-ago period. SG&A expense was $9.3 million for the second quarter of 2024, compared to $11.1 million in the year ago period. The decrease of $1.8 million is primarily related to $6.5 million in one-time expenses due to closing of the merger transaction in the year-ago period. This was partially offset by an increase in headcount, increased consulting and legal fees, and an increase in stock-based compensation expense for restricted stock award grants. Royalty liability interest expense, a non-cash item, was $8.7 million for the second quarter of 2024, compared to $2.6 million last year, an increase of $6.1 million. This was related to the liability assumed in the May 31, 2023 merger with Cibus Global, LLC. Net loss was $28.5 million for the second quarter of 2024, compared to net loss of $20.5 million in the year-ago period. For additional details about our financials for the second quarter of 2024, please refer to our press release and filings for the SEC. That concludes our financial discussion. Rory, now back to you for your closing remarks.
Rory Riggs: Thanks, Wade and Peter. As we explained, this quarter has been very important for a number of reasons. This has been an important period for building our weed management platform in rice. We ended the quarter with four leading seed company customers in rice, representing approximately 40% of the addressable acres. In addition, with our recent field studies for stacked traits, we’ve begun to build our product offering to establish ourselves as the leading weed management solution in the important rice industry. The progress in advanced traits is key, because they are the backbone of our current trade offering in canola, where we have 10 customers. In addition, these traits are expected to be the backbone of our product offerings in soybeans. This concludes our remarks, Operator. Could you open the call for questions?
Operator: Certainly. [Operator Instructions] All right. We will take our first question from Scott Fortune with ROTH Capital. Please go ahead.
Nick Anderson: Hey. Good afternoon. This is Nick off for Scott. Congrats on the quarter. The first one for me…
Rory Riggs: Thanks.
Nick Anderson: … just on the soybean side, getting up to speed there, wanted to unpack that market opportunity a little more and just the timing around monetizing and maybe reaching some of the other milestones you’ve mentioned achieving in that segment. Just a little more color on the soybean side would be helpful. Thank you.
Rory Riggs: Thanks. That’s great. One, we are -- as we’ve said, we’re making our conversion, our single-cell conversion and we’re very close. It’s one of those days we don’t know when it’s going to happen and then we’re going to wake up. We’re very comfortable it’s going to happen in 2024. And when it happens, it unlocks a bunch of opportunities. First, it’s a very concentrated crop. 200 million acres and the top -- we believe the top four guys are all really interested in working with us on Sclerotinia and NQ1, but Sclerotinia importantly. So what we expect is as we get the pipeline approved, the pipeline validated, that we would one by one sign with each of the partners, have their germplasm. We’re already working with a company called GDM, which is the largest company in Latin America, and they have interest in our crops. So we’ll start by editing their crops. We expect to be editing them by year-end this year, to be in a position to work with them next year in developing a platform in soybean. Additionally, there’s a big movement by all the consumer product package goods companies in terms of changing some of their composite oils, which are resilient and challenged sources. And so we’ve just increased our -- the money paid to us to develop an alternative for the lauric oils, and the soybean platform is going to be our key to that and so we think that soybean is really important. One, because the number of acres and the value of a crop like Sclerotinia. And secondly, building a brand new industry in sustainable ingredients is a really, really big opportunity, and we’re excited about that and so they’ll both start happening together at the same time. Was that helpful?
Nick Anderson: Yes. Helpful. Thank you. Second one for me, just kind of piggybacking on the sustainable ingredients side, wanted to unpack that opportunity a little bit more. You mentioned targeting your launch in 2025, but can you just give us a little more color about what you believe this segment could look like longer term, and if there’s any additional investment needed to kind of get this program up and running?
Rory Riggs: So this is an investment that’s being funded by the corporations. So we’ve been funded. P&G has funded us in this project to-date to develop these products, and the intent is to work with the other consumer product companies. So we think the sustainable ingredients is a really big category across many of the consumer product goods. And the other side, they have a fragrance business, and we have a business called Nucelis. We’re very, very good at differentiating essence and editing of yeast and building products from it. And so we’re working very closely with them to hopefully start shipping biofragrance-like products next year. We think that the whole sustainable ingredients business could be a value of the same size as the rice. It’s a really, really big opportunity and it will happen as soon as we have the soybean platform. We expect they’re making edits in these platform and fermentation. We’re already making the products and we’re validating our process right now to be in the position to start shipping. And so it’s a big category that will start with fragrances and then move to oils as opposed to soybean.
Nick Anderson: Great. That’s it for me. I appreciate the color.
Rory Riggs: Thanks for taking the time.
Operator: Thank you. We’ll take our next question from Matthew Venezia with Alliance Global Partners (NYSE:GLP). Please go ahead.
Matthew Venezia: Yes. Hi, guys. Congrats on the quarter. Very good to hear from you all. My one question for today is, are you planning on transferring HT1, HT3 stacked traits to customers only in the stacked version in rice or do you think you would be transferring them separately at all, just like HT1 by itself or HT3 by itself?
Rory Riggs: That’s a great question. The bread and butter of the herbicide business is having stacked traits. That’s what GMO made their name. And so if you go into rice and corn, they have probably five different herbicide stacks. And what we’re really saying is that the same thing is going to happen in the non-GMO crops, and we’re going to be leading in that field. And so think of the stacked trait as one where we’ll offer each of the traits individually, and then we’ll start developing stacked traits with each of them individually. And we have four different herbicides we’re working on right now to try to complete the opportunity in stacks that we’d expect to have it available so that, depending on where you are, the farmer and the seed company can sell a seed that has the ability for the farmer to be able to pick the herbicide that works best for them. It’s the way you get it. We’re not so much in the trait businesses, though. It’s the weed management businesses. For the weed management business, you need to offer a seed that has a bunch of different ways for the farmer to manage the weeds. And to do that for the different levels or pre-plant and fair plant, you need the ability to handle a bunch of different ones. And we’re alone in this field, and we’re pretty excited about the ability to lead them by having a whole group of stacked traits. Was that helpful?
Matthew Venezia: Yes, Rory. Thanks, Rory. I appreciate you taking the question.
Rory Riggs: Peter, do you want to add?
Peter Beetham: Yeah. Let me add a little bit to that, because I think this is such a great question. And it is one of the things that I’m most excited about, being able to bring to the market opportunities for farmers to control their weeds. As Rory said, this is the weed management business. Weeds are a huge headache for farmers globally, and it really saps their productivity. It costs a lot of money to actually use herbicides across the crop. They use diesel or they fly on using aerial sprayers. As I mentioned, it can be as much as $120 per acre just to control weeds. So for us, bringing forward the opportunities, as Rory mentioned, one, it’s exciting for the farmers, but the seed companies, being able to provide those offerings. So it helps with regards to weed resistance management and having the multiple stacked traits. And as Rory said, in soy and corn, this has been done for many years, and but it has been done with GMOs. So the non-GMO crops like wheat and rice haven’t had those opportunities. So that’s why I think bringing HT3, HT1, and others to the marketplace, not just in the U.S., but Latin America and into the Asian markets, is very exciting that we’ve made so much progress in such a short amount of time.
Matthew Venezia: All right. Well, thank you, guys. Much appreciated.
Rory Riggs: Thank you. Yeah. Great question.
Operator: Thank you. We’ll take our next question from Austin Moeller with Canaccord. Please go ahead.
Austin Moeller: Hi. Good afternoon. My first question here, can you go into detail about what processes will be undertaken in the second half to evaluate those edits made in canola for Sclerotinia and Nutrient Use Efficiency in HT2?
Rory Riggs: Peter, let me go, in each of those, the first thing you’re doing for Sclerotinia and HT2, in Sclerotinia, you have two different modes of actions we’ve had field studies on. And I’m really excited that our third, which I think is really going to be the blockbuster of the three, you’re waiting first for just greenhouse data and growth room data and we’ll get into the field until next year. But we are -- the first thing is to look at the greenhouse data and the same thing is true of HT1. Because we’ve made the edits, the next step in the edit, there’s so many good assays right now, is to validate the value of those things in the greenhouse and then because we have customers, how quickly we can move it as the customers are involved in here.
Peter Beetham: Yeah. Thanks, Rory. I think that, we talk about the modes of action for disease resistance. And it’s important to understand that’s the beauty and uniqueness of what Cibus is doing is, Rory often talks about antivirals as an analogy in the pharmaceutical business and this is the same for us. Having multiple modes of action for disease resistance is the ability to give durable resistance to crops against diseases like Sclerotinia. So we’re excited to see the second half of this year with the third mode of action, as Rory said, in our growth chambers and greenhouse to validate the trait. We know it’s going to work. We’ve got good evidence already as the other modes of action. Bringing them all together is the next step for us. And the customers that we talk to and that we have with our canola franchise, we see them very excited by this. It is one of the complex traits that we’ve talked about and the uniqueness of what we do to address those complex traits. You asked about, the herbicide tolerance and also NUE. And they’re the same. We have assays already for HT. We understand what we do to address the next stage of showing that the crop is tolerant to that particular herbicide. And then with regards to NUE, we are at the -- that’s come on faster than we expected and we’re excited because I think the, as I mentioned in my remarks, it is one of the biggest opportunities we have globally and bringing forward the NUE traits, the first set of edits is just the first generation and we’ll look forward to reporting on those later this year.
Austin Moeller: Great. And just a follow-up. Will the cost saving initiatives mentioned in the release to conserve capital slow down the rate at which further editing and development work on new traits will be completed and would that move like greenhouse and field testing to the right or not particularly?
Rory Riggs: No. We have three big platforms. Weeds, disease and NUE following that -- the --our focus right now is really to make sure these get going and these start making money and we can break out of them. And so our focus has really been on theirs. And there’s nothing we’re doing that’s going to stop the growth and building of those. It’s just sort of rationalizing and understanding what we need to build the rest of the business. But the big things we care about, which is getting this herbicide tolerance in rice and wheat is really just a really big category and we already have a bunch of herbicides to work with. And with disease, we have our patterns. It’s really more a development process. Is that helpful?
Austin Moeller: Excellent. Thanks for the details.
Rory Riggs: Yeah.
Operator: Thank you. We will take our next question from Sameer Joshi with H.C. Wainwright. Please go ahead.
Sameer Joshi: Yeah. Thanks for taking my question. Just a few clarifications. It was a good presentation. The press release is pretty detailed. On the sustainable ingredients, you say there will be -- there has been a material increase in funding for 2024 and for 2025. Is this a prospective thing or have you seen some initial funding increases already?
Rory Riggs: Could you repeat that just so I can get it clear?
Sameer Joshi: Yeah.
Rory Riggs: About the increase funding.
Sameer Joshi: For the sustainable ingredients sort of milestones, you have a material increase in funding…
Rory Riggs: Yeah.
Sameer Joshi: …this year and the next year?
Rory Riggs: Yeah. I think our partners are as excited or more excited than we are. I think that we really have, really, we’re all convinced that, and we’ve made great progress in understanding the edit, that we can modify soybean in a way to really address the profitability if any of these things are trying to change and we’re really excited about the biofragrance. And so this increase in funding was just the ability for us to accelerate and be sure we’re ready as the soybean comes right out of that bear [ph].
Peter Beetham: Yeah. I do. I agree, Rory. I think what’s been exciting and encouraging over the last six months at Cibus is there’s an appetite for plant-based solutions. And as Rory’s mentioned, we’ve got some partnerships already with companies that want to fund this research. And so it’s not just soybean. It’s beyond that as well. I think we’re seeing a real appetite in the market for people coming to us with a pull-through strategy of saying, we really need this sustainable ingredient and it really does meet their sustainability goals. And so part of that is to expand even things like different fuels or different oil profiles, as Rory mentioned. So soy is a really great basis for that. I think there is -- and we’d love to move forward on other crops that we’ve talked about before, like peanut, where we’ve got some plant-based opportunities that will be good for human health, for non-allergenic peanuts. There’s lots of opportunities in this space and this is an area where we’re getting funding towards some of these opportunities for sustainable ingredients. So a very exciting area that is part of our growth for long-term growth.
Rory Riggs: Also…
Sameer Joshi: Yeah…
Rory Riggs: Yeah. Go ahead.
Sameer Joshi: Go ahead. Go ahead.
Rory Riggs: As you can see, they’re funding the buy. They’re funding because they want this and they’re scoping out where do acres and how to build it. So this was a real development plan. And we decided we weren’t going to go after output products unless customers are willing to fund it and build a business around it.
Sameer Joshi: Yeah. Yeah. And I also noted, Rory, you say that this opportunity could be as big, if not bigger, than the other businesses as well.
Rory Riggs: Yeah. It’s really interesting. I think we’d look at it as rice, canola, and wheat close behind soybean. They’re all three really big platforms and both of them have the ability to take us to our expense -- take us to our current expense level, but more importantly, to build the business that we think we’re going to build.
Sameer Joshi: And I think we may have discussed this previously, but the Canadian approval in May of this year. Can you talk about the size and the scale of the market that this opens up for you?
Rory Riggs: Good market. And so one by one, as these countries approve it, it’s really just, obviously, it’s big for canola. It saves time on increasing, but it’s a really good example of how around the world they’re all starting to approve it and they’re all passing the same things to put us in the category where we’re regular, as I mentioned, breeding. And the U.K. may be small, but we’re just doing our first field trial in the U.K. and we’ll soon have results from a field trial in the U.K. So each of these approvals just build the whole idea that not only are we alone in this field, but we’re alone in this field with technology that we can make these edits, and these edits are going to be regular, it’s like breeding. So, we -- I think my team is excited about Canada, just because how respected our team thinks about Canada.
Peter Beetham: Yeah. Excuse me. I’ll just add a little bit to that, because I love flying across Canada and seeing how much yellow flowering there is. There’s 22 million to 25 million acres of canola in the prairies. And so, but not only that, you’ve also got a really strong wheat market, and soybeans move north as well. So, you’ve got three of our crops that we’re working on, and so Canada is one of our key markets, for sure.
Rory Riggs: And they do have an environment where Sclerotinia resistance would be pretty important.
Sameer Joshi: Great. Great. That’s good to see. And that you have tabs on this market, that’s good to see as well. Last one for maybe Wade. The SG&A expense of $9.3 million on a GAAP basis, it is sequentially higher. Is there a reason for that and should we expect for the next two quarters to four quarters similar levels of SG&A?
Wade King: I think you’ll see it be pretty consistent looking ahead. Remember, this is the last quarter we’ll be reporting results whereby the comparable year, the comparable period from prior year is a mixed bag given the merger. We expect, frankly, our cash spend to be very consistently $5 billion above going forward. And so, you’ve got a good blend of obviously development activity, production activity, and of course, the G&A supporting the fundamentals of the business. But in any event, I think you will see that SG&A spend to be rather consistent looking ahead with, once again, total cash spend approximating $5 million a month.
Sameer Joshi: Understood. Thanks for that. Congratulations on all the progress and good luck.
Rory Riggs: Thanks. And we’re moving, each of the platforms are doing a pretty good job of signing on customers and pulling along. So, thanks.
Operator: Thank you. We’ll take our next question from Steve Byrne with Bank of America (NYSE:BAC). Please go ahead.
Steve Byrne: Yes. Thank you. Just curious, what’s the mechanism of action behind this nitrogen or Nutrient Use Efficiency? Is it reducing the nitrogen content in the crop or is this really more root system related better ability to assimilate nutrients that are in the soil?
Rory Riggs: Peter?
Peter Beetham: Thanks, Steve. Let me start by saying that we -- we’ve reported on this as one of our first times where we’re working with a partner as a third-party to bring in edits to our canola platform. We’re excited we made this very quickly. It is more associated with nutrient uptake in the crop. There’s many modes of action that we’re going to go after, Steve. I won’t go into the specifics today, but fundamentally, it is not just nitrogen that we’re looking at. It is more the whole NPK fertilizer opportunity. And I think that, like a lot of our opportunities in being able to do complex edits, we’re looking at multiple ways to enhance the use of nutrients in crops. And so, for us right now, it’s more on the root side. But within the plant, we hope to also bring on other edits that have a multifactorial way of getting to Nutrient Use Efficiency. So, yes, a really cool mode of action that is more nutrient-based.
Steve Byrne: Very good. And then one question on the Sclerotinia trait. Is there any risk that if you are successful at putting that edit into soybeans, that it might have a different effect on fungal resistance than it does in canola or are you confident in that ability?
Peter Beetham: Well, really, the work that we’ve done in our R&D team, Steve, would actually point to the opposite. That it’s actually a little bit better in soybeans.
Steve Byrne: Okay.
Peter Beetham: We’re able to do some early assays now. You have to get it in the plant. You have to get it in the greenhouse. You have to get it in the field to test it. But we are -- the work that we have done and the assays we’ve analyzed give us a lot of comfort that we are going to be successful.
Steve Byrne: Very good. Thank you.
Rory Riggs: Thank you, men.
Peter Beetham: Thanks, Steve.
Operator: And there are no further questions at this time. I’ll turn the call to the management for any closing remarks.
Rory Riggs: Thanks. And thanks, everyone, for listening. I think, as I said at the end, we’re most excited about how far we’re moving this rice platform. And it’s such a good example of weed management and the dollar value of it and the size of the rice market. It’s such a big opportunity. And a lot of questions here on advanced traits, and for good reason. Both of our advanced traits are potential $1 billion royalties across the markets and so how they move and their inflection is really important and so we’re tracking pretty closely how we build those into our platform. So thanks so much, guys, and look forward to next quarter. I’m all done, Operator.
Operator: Thank you. This does conclude today’s program. Thank you for your participation. You may disconnect at any time.
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