CALYXTPAR The following discussion and analysis of the Company's financial condition and results of operations should be read together with its consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q and with its Annual Report on Form 10-K for the year endedDecember 31, 2021 , including the Consolidated Financial Statements and Notes incorporated therein. The Company uses the term "compounds" to describe compounds, molecules, and plant-based chemistries interchangeably.
EXECUTIVE OVERVIEW
Calyxt is a plant-based synthetic biology company. The Company leverages its proprietary PlantSpring ™ technology platform to engineer plant metabolism to produce innovative, high-value, and sustainable materials and products for use in helping customers meet their sustainability targets and financial goals. The Company's primary focus and commercialization strategy is on engineering synthetic biology solutions through its PlantSpring platform for manufacture using its proprietary and differentiated BioFactory ™ production system for a diverse base of target customers across an expanded group of end markets including the cosmeceutical, nutraceutical, and pharmaceutical industries. The Company also commercializes its PlantSpring technology platform by licensing elements of the platform and historically developed traditional agriculture seed-trait product candidates, as well as selectively developing product candidates for customers in traditional agriculture. The Company is an early-stage company and has incurred net losses since its inception. As ofJune 30, 2022 , the Company had an accumulated deficit of$203.4 million . The Company's net losses were$8.1 million for the six months endedJune 30, 2022 . The Company expects to continue to incur significant expenses and operating losses for the next several years. Those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year. The Company expects that its expenses will be primarily driven by: • Research and development (R&D) expenses to continue to enhance the capabilities of its PlantSpring technology platform;
• R&D expenses and potential capital expenditures to expand its BioFactory
production system from laboratory scale through various pilot vessel
sizes;
• other R&D expenses to further develop traditional agriculture seed-trait
product candidates for its licensee customers;
• to the extent not reimbursed by its customers, conducting regulatory
studies and other associated activities for its current and future
products under development;
• acquiring or
in-licensing
other products, technologies, germplasm, or other biological material;
• maintaining, protecting, expanding, and defending its intellectual
property portfolio, including intellectual property related to the
PlantSpring technology platform and BioFactory production system;
• seeking to attract and retain skilled personnel;
• identifying and negotiating agreements with customers, licensees, and
infrastructure partners; and
• experiencing any delays or encountering issues with any of the above,
including due to the
COVID-19
pandemic and its impacts.
BUSINESS UPDATE
Calyxt's business model for its proprietary PlantSpring technology and the BioFactory is customer demand-driven. During the quarter, the Company continued to advance its discussions with potential customers within its target end markets including the cosmeceutical, nutraceutical, and pharmaceutical industries. These are three key large end markets with customers that have current business needs to source finite plant-based chemistries. They are also markets known to be fast adopters of innovation that are actively seeking to reduce carbon footprints. For example, based on research from MarketsandMarkets 1 ,Calyxt estimates that the cosmeceutical ingredients market, which also includes personal care and flavors and fragrances, was a spend of more than$60 billion in 2020 and growing at a mid-single digit compound annual growth rate. This market includes large multinational cosmetics brands, regional and specialty brands, and flavor and fragrance houses who manufacture products or provide ingredients for those brands. 1
Source:
1. MarketsandMarkets,
Personal Care Ingredients Market - Global Forecast to 2025
,
2. MarketsandMarkets,
Global Color Cosmetics Market - Forecast Till 2020,
3. MarketsandMarkets,
Fragrance Ingredients Market - Global Trends & Forecast to 2019
4. MarketsandMarkets,
Flavors and Fragrance Market - Global Forecast to 2026
The breadth and depth of the Company's business development discussions continue
to grow. In the second quarter, the Company received nine new chemistries from
potential customers for evaluation, bringing the total number of chemistries
cumulatively evaluated for development with PlantSpring for production in its
BioFactory to 95. Of the 95 chemistries, 31 have met the Company's target
product profile, or TPP , criteria and are subject to further evaluation and
discussion with the potential customers. Additionally, the evaluated chemistries
include several that were identified by potential customers as having been
unsuccessfully attempted by others in the synthetic biology industry. As part of
the customer acquisition process, the Company is expecting to produce small
quantities of product for evaluation by the customer and as a result, the
Company believes the development cycle from contract signing to
commercialization may be shorter than 36 months because the period from lab to
pilot scale production may accelerate.
Leveraging the 31 customer demand-driven chemistries that have passed its TPP
criteria, the Company is currently negotiating term sheets with several
potential customers for the development of a select number of those plant-based
chemistries.
The Company is performing a pilot project for a potential high-value chemistry
for a large global consumer packaged goods (CPG) company. The Company expects to
deliver an engineered solution in early 2023. This could form the basis for a
formal engagement to complete development and produce the chemistry for that CPG
company, or another company in the space who may be interested in the chemistry.
The Company's goal remains two to four customer demand-driven compounds for
development by year end using its
Throughout the quarter the Company continued to work on scaling and standardizing production in its pilot BioFactory system and building out its AIML capabilities.
In the second quarter of 2022 the Company initiated discussions with multiple potential infrastructure partners and exchanged a term sheet with one of them. These potential infrastructure partners offer a global footprint and capabilities to enable the Company to have the speed to scale, as they have capacities from pilot to commercial scale production. These partnerships have the potential to enable the development and production of chemistries at industrial scale for customers within the Company's key end markets of cosmeceuticals, nutraceuticals, and pharmaceuticals. The Company's asset-lite approach enables the deployment of capital that would otherwise be spent on large scale manufacturing to its development of a robust customer base and accelerates the speed at which the Company can bring chemistries to potential customers. Since the Company refocused its licensing business in late 2021, it has developed its strategy for maximizing potential revenue from the licensing of its technology and plant traits. The strategy is two-pronged and reflects (1) a broad outreach to companies in the plant gene-editing and biotechnology space for their licensing of the Company's intellectual property assets and (2) the monetization of the Company's historically developed agricultural traits through their license to counterparties including seed companies, processors, and others. The Company is offering licenses for the many gene editing and breeding technologies in its patent portfolio, including its TALEN patent estate. In the second quarter of 2022 the Company procured term sheets for the licensing of its patents and for the licensing of its plant traits. For plant traits specifically, there has been significant interest inCalyxt's high fiber wheat and second generation high oleic soybean offerings. These term sheet discussions with potential licensees are continuing to advance.
The Company is targeting the execution of licenses in both the technology and trait licensing categories during 2022.
In the fourth quarter of 2021, the Company contracted with a large food ingredient manufacturer to develop a soybean intended to produce an oil that could serve as a replacement for palm oil. The project remains on track for a first quarter of 2024 completion. The food ingredient manufacturer is funding the Company's development costs over the term of the agreement and holds an option for future development and commercialization. InFebruary 2022 , the Company closed the Follow-On Offering of 3,880,000 shares of its common stock, Pre-Funded Warrants to purchase up to 3,880,000 shares of its common stock, and Common Warrants to purchase up to 7,760,000 shares of its common stock. The gross proceeds of the offering were$10.9 million , before deducting underwriting fees and estimated offering expenses. The Company plans to use the approximately$10.0 million in net proceeds from the offering for enhancing the capabilities of its BioFactory production system and increasing its capacity to produce at larger scales, continuing to build out the Company's PlantSpring technology platform and AIML capabilities, furthering customer relationships, and for working capital and general corporate purposes.
RELATIONSHIP WITH CELLECTIS AND COMPARABILITY OF RESULTS
The Company is a majority-owned subsidiary ofCellectis . As ofJune 30, 2022 ,Cellectis owned 51.3 percent of the Company's issued and outstanding common stock.Cellectis has certain contractual rights as well as rights pursuant to the Company's certificate of incorporation and bylaws, in each case, for so long as it maintains threshold beneficial ownership levels in the Company's shares. The Company holds an exclusive license fromCellectis that broadly covers the use of engineered nucleases for plant gene editing. This intellectual property covers methods to edit plant genes using "chimeric restriction endonucleases," which include TALEN ® , CRISPR/Cas9, zinc finger nucleases, and some types of meganucleases.
FINANCIAL OPERATIONS OVERVIEW
Revenue
Revenue is recognized from sales of products, from licenses of technology, and from product development activities for customers.
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Cost of Goods Sold
Cost of goods sold are recognized as products are sold. There are minimal costs of goods sold associated with the Company's technology licensing activities.
Research and Development (R&D) Expense
The Company's R&D expenses primarily consist of employee-related costs for personnel who research and develop its product candidates, fees for contractors who support product development activities, purchasing material and supplies for its laboratories, licensing, an allocation of facility and information technology expenses, and other costs associated with owning and operating its own laboratories and pilot BioFactory capabilities. This includes the costs of performing activities to discover and develop products and advance the Company's PlantSpring technology platform, including its intellectual property portfolio. BioFactory expenses from lab through pilot, unless incurred related to a specific product sold to a customer, are also classified as R&D expense. R&D expenses also include costs to write and support the research for filing patents. The Company recognizes R&D expenses as they are incurred.
Selling, General, and Administrative (SG&A) Expense
SG&A expenses consist primarily of employee-related expenses for selling and licensing the Company's products and employee-related expenses for its executive, legal, intellectual property, information technology, finance, and human resources functions. Other SG&A expenses include facility and information technology expenses not otherwise allocated to R&D expenses, professional fees for auditing, tax and legal services, expenses associated with maintaining patents, consulting costs and other costs of the Company's information systems, and costs to market its products.
Interest, net
Interest, net is comprised of interest income resulting from investments of cash and cash equivalents, short-term investments, unrealized gains and losses on short-term investments, issuance costs associated with the Common Warrants, and interest expense incurred related to financing lease obligations. It is also driven by balances, yields, and timing of financing and other capital raising activities. Non-operating income (expenses) Non-operating income (expenses) are income or expenses that are not directly related to ongoing operations and are primarily comprised of gains and losses from the mark-to-market of common stock warrants, foreign exchange-related transactions, and disposals of land, buildings, and equipment.
Anticipated Changes Between Revenues and Costs
As the Company executes upon its business model, it expects the composition of revenues and costs to evolve. The Company anticipates most of its revenues in the near-term to be from product development activities for customers for both the BioFactory and agricultural production and technology licensing arrangements. Future cash and revenue-generating opportunities associated with these activities are expected to primarily arise from up-front and milestone payments, annual license fees, and royalties. Over the next several years as the BioFactory begins to produce products for customers, it is anticipated those revenues will grow and surpass revenues from other sources. These revenues are anticipated to have strong positive gross profit margins over time. Recent Developments - COVID-19 Update In accordance with the Company's COVID-19 Preparedness Plan,Minnesota executive order requirements, and guidelines promoted by theCenters for Disease Control and Prevention , the Company implemented health and safety measures for the protection of its onsite workers, maintained remote work arrangements for its non-laboratory personnel, and implemented, as necessary, appropriate self-quarantine precautions for potentially affected laboratory personnel. OnMay 28, 2021 , nearly allMinnesota COVID-19 restrictions came to an end, including all capacity limits and distancing requirements - both indoors and outdoors. The Company's non-laboratory personnel returned to working onsite inmid-July 2021 . During the six months endedJune 30, 2022 , the COVID-19 pandemic did not have a material impact on the Company's operations. However, a resurgence or prolonging of the COVID-19 pandemic, governmental response measures (including vaccination requirements or other mandatory health and safety requirements) and resulting disruptions could rapidly offset such improvements. Moreover, the long-term effects of the COVID-19 pandemic on the financial markets and broader economy remain uncertain, which may make obtaining capital challenging and may exacerbate the risk that capital, if available, may not be available on terms acceptable to the Company. There continues to be uncertainty relating to the COVID-19 pandemic and its long-term impact, and many factors could affect the Company's results and operations, including, but not limited to, those described in Part I, Item 1A, "Risk Factors" of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . - 19 -
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
A summary of the Company's results of operations for the three months endedJune 30, 2022 , and 2021 follows: Three Months Ended June 30, 2022 2021 $ Change % Change (In thousands, except percentage values) Revenue$ 41 $ 11,880 $ (11,839 ) (100 )% Cost of goods sold - 11,527 (11,527 ) (100 )% Gross profit 41 353 (312 ) (88 )% Research and development 3,250 2,844 406 14 % Selling, general, and administrative 3,556 3,493 63 2 % Loss from operations ) (6,765 (5,984 ) (781 ) (13 )% Gain upon extinguishment of Payroll Protection Program loan - 1,528 (1,528 ) (100 )% Interest, net ) (16 (357 ) 341 96 % Non-operating income (expenses) 4,296 6 4,290 71,500 % Net loss ) $ (2,485$ (4,807 ) $ 2,322 48 % Basic and diluted net loss per share (0.$ 05 )$ (0.13 ) $ 0.08 62 % Adjusted EBITDA ) 1 $ (4,815$ (5,814 ) $ 999 17 % 1 See "Use of Non-GAAP Financial Information" for a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net loss, the most comparable GAAP measure.
Revenue, Cost of Goods Sold, and Gross Profit
Revenues were nominal in the second quarter of 2022, a decrease of$11.8 million , or 100 percent, from the second quarter of 2021. Cost of goods sold was zero in the second quarter of 2022, a decrease of$11.5 million , or 100 percent, from the second quarter of 2021. Gross profit was nominal, constituting 100 percent of revenue, in the second quarter of 2022, compared to$0.4 million , or 3 percent of revenue, in the second quarter of 2021. The decreases in revenue, cost of goods sold, and gross profit were driven by the late 2021 completion of the wind-down of the Company's soybean product line. Revenue in the second quarter of 2022 was primarily associated with the Company's agreement with a large food ingredient manufacturer to develop a palm oil alternative.
Research and Development Expense
R&D expense was$3.3 million in the second quarter of 2022, an increase of$0.4 million , or 14 percent, from the second quarter of 2021. The increase was primarily driven by an increase in allocated SG&A costs of$0.5 million as the Company adjusted its cost allocation methodology at the beginning of 2022.
Selling, General, and Administrative Expense
SG&A expense was$3.6 million in the second quarter of 2022, an increase of$0.1 million , or 2 percent, from the second quarter of 2021. The increase was primarily driven by higher stock compensation expense of$0.3 million , an increase of$0.4 million as a result of lease accounting adoption in 2022, which shifted amounts previously reported as interest, net to SG&A, and higher operating expenses of$0.1 million . These increases were partially offset by the benefit of higher cost allocations to R&D expense of$0.5 million .
Interest, net
Interest, net was nominal in the second quarter of 2022, a decrease of$0.3 million , or 96 percent, from the second quarter of 2021. The decrease was driven by the adoption of the lease accounting standard, which shifted amounts previously reported as interest expense to SG&A expense.
Non-operating income (expenses)
Non-operating income (expenses) were income of$4.3 million in the second quarter of 2022, an increase of$4.3 million , or 71,500 percent, from the second quarter of 2021. The improvement was driven by the mark-to-market of the Company's Common Warrants derivative liability, which declined in value due to a decline in stock price in 2022.
Net Loss and Adjusted Net Loss
Net loss was$2.5 million in second quarter of 2022, an improvement of$2.3 million , or 48 percent, from the second quarter of 2021. The improvement in net loss was driven by non-operating income (expenses) including the mark-to-market of the Company's Common Warrants derivative liability, partially offset by the gain realized on the forgiveness of the Payroll Protection Program loan in the second quarter of 2021. - 20 -
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Adjusted net loss was$6.7 million in the second quarter of 2022, an improvement of$1.2 million , or 15 percent, from the second quarter of 2021. The improvement in adjusted net loss was driven by the completion of the wind-down of the soybean product line in late 2021. See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted net loss and a reconciliation of net loss, the most comparable GAAP measure, to adjusted net loss.
Net Loss Per Share and Adjusted Net Loss Per Share
Net loss per share was$0.05 in the second quarter of 2022, an improvement of$0.08 per share, or 62 percent, from the second quarter of 2021. The improvement in net loss per share was driven by the improvement in net loss and a year-over-year increase in weighted average shares outstanding. Adjusted net loss per share was$0.14 in the second quarter of 2022, an improvement of$0.07 per share, or 33 percent, from the second quarter of 2021. The improvement in adjusted net loss per share was driven by the improvement in adjusted net loss and a year-over-year increase in weighted average shares outstanding. See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted net loss per share and a reconciliation of net loss per share, the most comparable GAAP measure, to adjusted net loss per share.
Adjusted EBITDA
Adjusted EBITDA loss was$4.8 million in the second quarter of 2022, an improvement of$1.0 million , or 17 percent, from the second quarter of 2021. The improvement was driven by the completion of the wind-down of the soybean product line in late 2021. See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted EBITDA and a reconciliation of net loss, the most comparable GAAP measure, to adjusted EBITDA. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDEDJUNE 30, 2022 , COMPARED TO THE SIX MONTHS ENDEDJUNE 30, 2021 A summary of the Company's results of operations for the six months endedJune 30, 2022 , and 2021 follows: Six Months Ended June 30, 2022 2021 $ Change % Change (In thousands, except percentage values) Revenue$ 73 $ 16,282 $ (16,209 ) (100 )% Cost of goods sold - 18,272 (18,272 ) (100 )% Gross profit 73 (1,990 ) 2,063 104 % Research and development 6,191 5,894 297 5 % Selling, general, and administrative 6,736 7,781
(1,045 ) (13 )%
Loss from operations (12,854 ) (15,665 ) 2,811 18 % Gain upon extinguishment of Payroll Protection Program loan - 1,528 (1,528 ) (100 )% Interest, net (33 ) (703 ) 670 95 % Non-operating income (expenses) 4,783 5 4,778 95,560 % Net loss$ (8,104 ) (14,835 )$ 6,731 45 % Basic and diluted net loss per share$ (0.18 ) (0.40 )$ 0.22 55 % Adjusted EBITDA 1$ (9,769 ) (12,641 )$ 2,872 23 % 1 See "Use of Non-GAAP Financial Information" for a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net loss, the most comparable GAAP measure.
Revenue, Cost of Goods Sold, and Gross Profit
Revenues were$0.1 million in the first six months of 2022, a decrease of$16.2 million , or 100 percent, from the first six months of 2021. Cost of goods sold was zero in the first six months of 2022, a decrease of$18.3 million , or 100 percent, from the first six months of 2021. Gross profit was nominal, constituting 100 percent of revenue, in the first six months of 2022, compared to negative$2.0 million , or negative 12 percent of revenue, in the first six months of 2021. The decreases in revenue and cost of goods sold and improvement in gross profit were driven by the late 2021 completion of the wind-down of the Company's soybean product line. Revenue in the first six months of 2022 was primarily associated with the Company's agreement with a large food ingredient manufacturer to develop a palm oil alternative.
Research and Development Expense
R&D expense was$6.2 million in the first six months of 2022, an increase of$0.3 million , or 5 percent, from the first six months of 2021. The increase was primarily driven by an increase in allocated SG&A costs of$1.0 million as the Company adjusted its cost allocation methodology at the beginning of 2022, partially offset by lower stock compensation and professional services expenses.
Selling, General, and Administrative Expense
SG&A expense was$6.7 million in the first six months of 2022, a decrease of$1.0 million , or 13 percent, from the first six months of 2021. The decrease was driven by higher cost allocations to R&D expense of$1.0 million .
Interest, net
Interest, net was nominal in the first six months of 2022, a decrease of$0.7 million , or 95 percent, from the first six months of 2021. The decrease was driven by the adoption of the lease accounting standard, which shifted amounts previously reported as interest expense to SG&A expense.
Non-operating income (expenses)
Non-operating income (expenses) were income of$4.8 million in the first six months of 2022, an improvement of$4.8 million , or 95,560 percent, from the first six months of 2021. The improvement was driven by the mark-to-market of the Company's Common Warrants derivative liability, which declined in value due to a decline in stock price in 2022.
Net Loss and Adjusted Net Loss
Net loss was$8.1 million in first six months of 2022, an improvement of$6.7 million , or 45 percent, from the first six months of 2021. The improvement in net loss was driven by the mark-to-market of the Company's Common Warrants derivative liability, the completion of the wind-down of the soybean product line in late 2021, and lower operating expenses. These improvements were partially offset by the gain realized on the forgiveness of the Payroll Protection Program loan in the second quarter of 2021.
Adjusted net loss was
Sec below under the heading ''Use of Non-GAAP Financial Information" for a discussion of adjusted net loss and a reconciliation of net loss, the most comparable GAAP measure, to adjusted net loss.
Net Loss Per Share and Adjusted Net Loss Per Share
Net loss per share was$0.18 in the first six months of 2022, an improvement of$0.22 per share, or 55 percent, from the first six months of 2021. The improvement in net loss per share was driven by the improvement in net loss and a year-over-year increase in weighted average shares outstanding.
Adjusted net loss per share was
Sec below under the heading ''Use of Non-GAAP Financial Information" for a discussion of adjusted net loss per share and a reconciliation of net loss per share, the most comparable GAAP measure, to adjusted net loss per share.
Adjusted EBITDA
Adjusted EBITDA loss was$9.8 million in the first six months of 2022, an improvement of$2.9 million , or 23 percent, from the first six months of 2021. The improvement was driven by the completion of the wind-down of the soybean product line in late 2021 and lower operating expenses.
Sec below under the heading ''Use of Non-GAAP Financial Information" for a discussion of adjusted EBITDA and a reconciliation of net loss, the most comparable GAAP measure, to adjusted EBITDA.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's primary sources of liquidity are its cash and cash equivalents, with additional liquidity accessible from the capital markets, including under its ATM Facility. That additional liquidity is subject to market conditions and other factors, including limitations that may apply to the Company under applicableSEC and Nasdaq regulations. As ofJune 30, 2022 , the Company had$11.9 million of cash, cash equivalents, and restricted cash. The Company's restricted cash balances are cash and cash equivalents deposited in an amount equal to future equipment rent payments, as required under its equipment lease facility. The Company may request the return of excess restricted cash collateral annually in December. The Company's restricted cash was$0.6 million as ofJune 30, 2022 . Current liabilities were$4.5 million as ofJune 30, 2022 . The Company's current cash, cash equivalents, and restricted cash is sufficient to cover all of its current liabilities as ofJune 30, 2022 . OnFebruary 23, 2022 , the Company completed a follow-on offering (the Follow-On Offering) and issued 3,880,000 shares of its common stock, pre-funded warrants to purchase up to 3,880,000 shares of its common stock (Pre-Funded Warrants), and common warrants to purchase up to 7,760,000 shares of its common stock (Common Warrants). In the aggregate, the Company received net proceeds of$10.0 million , after deducting approximately$0.9 million of underwriting discounts and estimated other offering expenses. The Pre-Funded Warrants were exercised in full onMay 4, 2022 , and subsequently settled with the counterparty. The Company's liquidity funds its non-discretionary cash requirements and its discretionary spending. Prior to the wind-down of the Company's soybean go-to-market strategy, working capital was its principal non-discretionary funding requirement. In addition, the Company has contractual obligations related to recurring business operations, primarily related to its headquarters and laboratory facilities. The Company's principal discretionary cash spending is for capital expenditures. The Company's capital expenditures include its pilot-scale BioFactory production system which became operational inDecember 2021 and may require additional capital expenditures in 2022 to support additional pilot-scale or commercial-level production based on customer demand. - 21 -
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