CALYXTPAR The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q and with our 2020 Form 10-K, including the Consolidated Financial Statements and Notes incorporated therein. EXECUTIVE OVERVIEW We are a technology company focused on delivering plant-based innovations and solutions with substantial disruption potential across multiple industries. We are a leader in gene editing with exclusive access to proprietary TALEN® technology for use in plants, which we used to successfully commercialize the first gene edited food product inthe United States . We have a robust development pipeline that spans multiple crops and that is focused on several important trends, including functional nutrition, regenerative agriculture, sustainability, plant-based protein, animal nutrition, and industrial uses.
Our capital-efficient business model comprises three differentiated go-to-market strategies, as follows:
•
licensing agreements with downstream partners with respect to traits we
develop in exchange for negotiated upfront, milestone, or annual payments and
potential royalties upon the licensees' commercial sale of products.
• Seed Sale Arrangements: Through agreements for traited seed we have produced.
• Technology Licensing Arrangements: Through technology licensing agreements
with third parties in exchange for negotiated upfront and annual payments, and
potential royalties upon the licensees' commercial sale of products.
While we will opportunistically engage in arrangements under each of these strategies, we have determined to pursue trait development and licensing arrangements with respect to all of the products currently under development.
For technology and trait licensing arrangements, we expect that our customers
will primarily be seed companies, biotechnology companies, germplasm providers,
large agricultural processors, others in the relevant crop's supply chain, and
growers, who would, in each case, utilize our technology for their own trait
development in specified crops. We will seek to develop relationships with
strategic customers where our product candidates are most likely to benefit from
the counterparty's deep agronomy, product management, and commercialization
expertise. Placing our products and traits with such strategic customers will
reduce our expenses and downstream risk exposure, while allowing us to pursue
diversified growth across multiple revenue streams.
We believe that our primary focus on trait development and licensing provides a
capital-efficient, lower-cost, and highly scalable approach. Our strategy is
based on focusing on our core strengths in research and development, including
gene editing, plant breeding, and trait development. We will continue to focus
on advancing our technologies toward developing high value innovations and
plant-based solutions with substantial disruption potential, while leveraging
our partners and licensees to manage commercialization and the associated costs
and risks. We believe that focusing our efforts on our technology and trait
development expertise, while contracting with commercialization partners or
licensees for downstream execution strikes a balance where we are best
positioned for cost-efficient paths to market.
We are currently exploring product and partnership opportunities in various
crops for potential applications across a variety of industries, including food,
nutraceuticals, energy, and agriculture. Focusing primarily on our trait
development and licensing go-to-market strategies, we are well positioned to
nimbly develop plant-based input solutions for specific downstream issues,
including consumer preferences, sustainability, cost, quality, and regulatory
compliance. As of the date of this report, we have eight projects in later stage
development, including two in Phase 3.
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A summary of our product development as of
PRODUCT1 DEVELOPMENT PHASE CROP TARGET COMMERCIAL
PLANTING YEAR
Improved Phase 3 Alfalfa 2021
Digestibility
High Fiber Phase 3 Wheat 2023
High Oleic, Low Phase 2 Soybean 2023
Linolenic (HOLL)
Marketable Yield Phase 1 Hemp 2023
Low THC for Food,
Fiber, & Phase 1 Hemp 2024
Nutraceutical
Winter (Cold Phase 1 Oat 2026
Tolerant)
High Saturated Fat Phase 1 Soybean 2026
Enhanced Protein Phase 1 Soybean 2027
Flavor
1 The agronomic and functional quality of our product candidates and the timing of development are subject to a variety of factors and risks, which are described in Part I, Item 1A, "Risk Factors" of our 2020 Form 10-K.
During the quarter we stopped development of our improved oil HOLL product, which was being developed with a target of higher HOLL oil content that was intended to reduce costs per pound of oil under our prior go-to-market strategy. During the quarter, we also determined to pursue trait development and licensing arrangements as our baseline go-to-market strategy. While we will opportunistically engage in seed sale arrangements, our intention is to license all products under development as traits. We intend to move our current high oleic soybean product to this go-to-market strategy in 2022 and we are currently in discussions with potential licensors. This transition further reduces our capital requirements for these products and is expected to deliver high margin royalty revenue streams when those traits are commercialized by the licensors in future years.
Select Recent Achievements and Developments:
• Completed preliminary composition analysis of our next generation soybean
product's fatty acid profile. We intend to partner with third parties to
bring this product to market as an alternative to other premium oilseeds.
• Achieved the successful completion of transformation of the hemp genome. The
ability to transform hemp will enable further advancements, including trait
delivery, gene editing, and advanced plant breeding, and is expected to
accelerate hemp variety development.
• Executed new seed sale agreement with an affiliate of a current grain
customer, a continuation of the relationship established through their
purchases of grain.
• Sold more than 50 percent of the 2020 grain crop to Archers
(ADM), with the remaining grain projected to be sold throughout 2021 under
existing contracts.
• Promoted
this role
including finding partners for the development and commercialization of our
traits and products, and she will also be responsible for communications
activities, including corporate communications, public relations, and
product marketing.
• Appointed world-renowned plant-biochemistry experts to new Scientific
include including
Center;
of Chemical Engineering at
Former Global Function Head for Molecular Biology at BASF Biosciences. The
Calyxt Scientific Advisory Board will focus on the identification of high value targets for development and commercialization.
• On
Officer.
termination without cause, and in the first quarter of 2021 we recorded
million of cash expense for separation-related payments as well as an
additional non-cash charge of
recognition of sign-on bonus paid to
payments to
in
recapture of non-cash stock compensation expense from the forfeiture of
certain of
performance stock units.
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We are an early-stage company and have incurred net losses since our inception. As ofMarch 31, 2021 , we had an accumulated deficit of$176.9 million . Our net losses were$10.0 million for the three months endedMarch 31, 2021 . We expect 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. We expect that our expenses will be driven by:
• continuing to advance the R&D of our current and future products;
• conducting additional breeding and field trials of our current and future
products;
• seeking regulatory and marketing approvals for our products;
• acquiring or in-licensing other products, technologies, germplasm, or other
biological material;
• maintaining, protecting, expanding, and defending our intellectual property
portfolio;
• making royalty and other payments under any in-license agreements;
• seeking to attract and retain new and existing skilled personnel;
• identifying strategic partners and licensees and negotiating agreements under
the applicable go-to-market strategy;
• addressing the impacts of the ongoing COVID-19 pandemic, including
implementing expense reduction efforts and seeking to bolster our liquidity
position considering changing business needs and uncertain macro-economic
conditions; and
• experiencing any delays or encountering issues with any of the above,
including due to COVID-19 and its impacts.
OUR RELATIONSHIP WITH CELLECTIS AND COMPARABILITY OF OUR RESULTS
We are a majority-owned subsidiary of Cellectis. As ofMarch 31, 2021 , Cellectis owned 64.5% of our issued and outstanding common stock. Cellectis has certain contractual rights as well as rights pursuant to our certificate of incorporation and bylaws, in each case, as long as it maintains threshold beneficial ownership levels in our shares. We hold an exclusive license from Cellectis 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.
Cellectis has also guaranteed the lease of our headquarters facility.
FINANCIAL OPERATIONS OVERVIEW
Revenue
For the three months ended
Cost of Goods Sold and Inventory
Certain grain costs, net of the benefit from our seed activity, are capitalized to inventory. Additional costs or benefits are recognized as incurred. Any valuation adjustments to inventory are recognized as incurred. Until the fourth quarter of 2020, cost of goods sold included crush and refining losses that are expensed as incurred since they do not add to the value of the finished products. Gains and losses resulting from commodity derivative contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts to floating prices are recorded in current period cost of goods sold. Because we expect to sell grain at market prices, the economic effects of the hedges being recognized currently are expected to be fully offset when we sell the grain in a future period.
Research and Development Expense
Research and development (R&D) expenses consist of the costs of performing activities to discover and develop products and advance our intellectual property. We recognize R&D expenses as they are incurred.
Our R&D expenses consist primarily of employee-related costs for personnel who research and develop our product candidates, fees for contractors who support product development and breeding activities, expenses for trait validation, purchasing material and supplies for our laboratories, licensing, an allocation of facility and information technology expenses, and other costs associated with owning and operating our own laboratories. R&D expenses also include costs to write and support the research for filing patents.
Selling, General, and Administrative Expense
Selling, general, and administrative (SG&A) expenses consist primarily of
employee-related expenses for selling and licensing our products and
employee-related expenses for our executive, legal, intellectual property,
information technology, finance, and human resources functions. In periods prior
to 2021, these expenses also included employee-related and other expenses for
selling soybean oil and meal, soybean acreage acquisition, and managing the
soybean product supply chain. Other SG&A expenses include facility and
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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 our information systems, and costs to market our 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, and interest expense on our financing lease obligations. It is also driven by balances, yields, and timing of financing and other capital raising activities. Non-operating expenses
Non-operating expenses are expenses that are not directly related to our ongoing operations and are primarily comprised of gains and losses from foreign exchange-related transactions and disposals of land, buildings, and equipment.
Anticipated Changes Between Revenues and Costs
As we execute upon our streamlined business model, we expect the composition of our revenues and costs to evolve. Future cash and revenue-generating opportunities are expected to primarily arise from seed sales, trait development and licensing activities, and licensing arrangements. Under trait development and licensing activities, revenues are expected to arise from up-front, annual or milestone, and royalty payments upon the licensees' commercial sale of products. Under licensing arrangements, revenues are expected to arise from up-front, annual, and royalty payments upon the licensees' commercial sale of products. Because our strategy is based on focusing on our core strengths in research and development, gene editing, and trait development, we expect R&D expenses to be the primary area of increase in our expenses. At the same time, because our streamlined business model relies on third parties assuming responsibility for agronomy infrastructure, product management, and commercialization, we expect that SG&A expense will decline as the new models are fully implemented.
Recent Developments - COVID-19 Update
As previously reported, our operations inMinnesota are classified as critical sector work under theState of Minnesota's COVID-19 executive orders. Accordingly, most of our laboratory workers have continued to work onsite at our headquarters throughout the pandemic, and our R&D programs and seed distribution activities have not experienced material delays. In accordance with our COVID-19 Preparedness Plan,Minnesota executive order requirements, and guidelines promoted by theCenters for Disease Control and Prevention , we have implemented health and safety measures for the protection of our onsite workers, have maintained remote work arrangements for our non-laboratory personnel, and have implemented, as necessary, appropriate self-quarantine precautions for potentially affected laboratory personnel. During the quarter endedMarch 31, 2021 , the COVID-19 pandemic did not have a material impact on our operations. However, a resurgence or prolonging of the COVID-19 pandemic, governmental response measures, and resulting disruptions could rapidly offset such improvements. Moreover, the effects of the COVID-19 pandemic on the financial markets remain substantial and broader economic uncertainties persist, which may make obtaining capital challenging and have exacerbated the risk that such capital, if available, may not be available on terms acceptable to us. There continues to be significant uncertainty relating to the COVID-19 pandemic and its impact, and many factors could affect our results and operations, including, but not limited to, those described in Part I, Item 1A, "Risk Factors" of our 2020 Form 10-K. - 18 -
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
A summary of our results of operations for the three months endedMarch 31, 2021 and 2020 follows: Three Months Ended March 31, 2021 2020 $ Change % Change Revenue$ 4,402 $ 2,377 $ 2,025 85 % Cost of goods sold 6,745 3,884 2,861 74 % Gross margin (2,343 ) (1,507 ) (836 ) (55 )% Research and development expense 3,050 2,787 263 9 %
Selling, general, and administrative expense 4,258 6,298
(2,040 ) (32 )% Management fees and royalties 30 62 (32 ) (52 )% Interest, net (346 ) (398 ) 52 13 % Non-operating expenses (1 ) (11 ) 10 91 % Net loss$ (10,028 ) $ (11,063 ) $ 1,035 9 %
Basic and diluted net loss per share
0.07 21 % Adjusted EBITDA 1$ (6,827 ) $ (8,237 ) $ 1,410 17 % 1 See "Use of Non-GAAP Financial Information" elsewhere in this report for a discussion of Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and a reconciliation of Adjusted EBITDA to Net loss, the most comparable GAAP measure. Revenue Revenue was$4.4 million in the first quarter of 2021, an increase of$2.0 million , or 85 percent, from the first quarter of 2020. The increase was driven by sales of a portion of the 2020 grain crop as compared to the first quarter of 2020, when we were selling soybean oil and meal. As ofMarch 31, 2021 , we had sold over 50 percent of the 2020 grain crop.
Cost of Goods Sold
Cost of goods sold were$6.7 million in the first quarter of 2021, an increase of$2.9 million , or 74 percent, from the first quarter of 2020. The increase was driven by higher volumes of product sold, higher average prices paid for grain as a result of increases in commodity market prices for soybeans, and$0.2 million of unrealized commodity derivative losses from hedging contracts sold to convert our fixed price grain inventory and fixed price Forward Purchase Contracts to floating prices to link them to market, consistent with how we expect to sell the grain. These increases were partially offset by the benefits resulting from the advancement of our soybean product line go-to-market strategy.
Gross Margin and Adjusted Gross Margin
Gross margin was a negative$2.3 million , or negative 53 percent, in the first quarter of 2021, a decrease of$0.8 million or 55 percent from the first quarter of 2020, driven by higher volumes of product sold, higher cost of product sold as a result of increases in commodity prices for soybeans, and$0.2 million of unrealized commodity derivative losses from futures contracts sold to hedge our fixed price grain inventory and fixed price Forward Purchase Contracts. These increases were partially offset by higher selling prices and benefits from the advancement of our soybean product line go-to-market strategy. Adjusted gross margin, a non-GAAP measure, was negative$1.3 million , or negative 31 percent, in the first quarter of 2021, compared to negative$1.2 million , or negative 49 percent, in the first quarter of 2020. The improvement on a percentage basis was driven by benefits resulting from the advancement of our soybean product line go-to-market strategy.
See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted gross margin and a reconciliation of gross margin, the most comparable GAAP measure, to adjusted gross margin.
Research and Development Expense
R&D expenses were
Selling, General, and Administrative Expense
SG&A expenses were
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The decrease was driven by lower non-cash stock compensation expense of$2.8 million from the recapture of non-cash stock compensation from forfeitures of unvested stock awards, lower personnel costs as a result of the reduction in cost following the advancement of the go-to-market strategy for our soybean product line, and other cash expenses also decreased from the first quarter of 2020. These decreases were partially offset by an increase of$2.4 million in Section 16 officer transition expenses and increase in certain insurance costs.
Management Fees and Royalties
Management fees and royalties were
Interest, net
Interest, net for the first quarter of 2021 was essentially flat compared to the first quarter of 2020.
Net Loss and Adjusted Net Loss
Net loss was$10.0 million in first quarter of 2021, an improvement of$1.0 million , or nine percent, from the first quarter of 2020. The improvement in net loss was driven by$2.7 million of lower non-cash stock compensation expenses as a result of a recapture of non-cash stock compensation expense from the forfeiture of unvested stock awards, fewer stock awards granted, and lower stock award values, partially offset by a$2.4 million increase in Section 16 officer transition expenses and a$0.8 million decrease in gross margin. Adjusted net loss was$8.8 million in the first quarter of 2021, an improvement of$2.0 million , or 18 percent, from the first quarter of 2020. The improvement in adjusted net loss was driven by the benefits resulting from the advancement of our soybean product line go-to-market strategy and other reductions in operating expenses.
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$0.27 in the first quarter of 2021, an improvement of$0.07 per share, or 21 percent, from the first quarter of 2020.The improvement in net loss per share was driven by the change in net loss.
Adjusted net loss per share was
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$6.8 million in the first quarter of 2021, an improvement of$1.4 million , or 17 percent, from the first quarter of 2020. The improvement was driven by the benefits resulting from the advancement of our soybean product line go-to-market strategy and other reductions in operating expenses.
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.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our primary source of liquidity is our cash and cash equivalents, with additional liquidity accessible, subject to market conditions and other factors, from the capital markets. As ofMarch 31, 2021 , we had a total of$20.4 million of cash, cash equivalents, short-term investments, and restricted cash. Short-term investments consist of corporate debt securities and commercial paper with more than 90 days to maturity at issuance. All of these amounts are convertible to cash within 90 days except for$1.0 million of restricted cash associated with our financing leases. Current liabilities were$6.3 million as ofMarch 31, 2021 . Accordingly, we have cash, cash equivalents, and short-term investments sufficient to fund all short-term obligations as of that date. - 20 -
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Our liquidity funds our non-discretionary cash requirements and our discretionary spending. Working capital is our principal non-discretionary funding requirement. In addition, we have contractual obligations related to our recurring business operations, primarily related to lease obligations. Our principal discretionary cash spending includes capital expenditures.
Gene editing is a highly regulated activity, and we incur significant expense related to our monitoring of, and compliance with, applicable regulatory requirements inthe United States . To the extent that we opportunistically pursue business arrangements that bring innovations developed forNorth America to new territories, we would be required to incur significant additional regulatory costs in order to comply with applicable regulatory requirements outsidethe United States . We incurred losses from operations of$9.7 million for the three months endedMarch 31, 2021 , and$10.7 million for the three months endedMarch 31, 2020 . As ofMarch 31, 2021 , we had an accumulated deficit of$176.9 million and expect to continue to incur losses in the future. We have$1.5 million outstanding under our Paycheck Protection Program loan as ofMarch 31, 2021 . We have applied the proceeds from the Paycheck Protection Program loan toward qualifying expenses and onOctober 21, 2020 , as modifiedDecember 29, 2020 , applied for forgiveness of the full principal amount and all accrued interest. OnApril 8, 2021 , we were notified by the SBA that the full amount of our Paycheck Protection Program loan had been forgiven. We expect to record income in the second quarter of 2021 for the full amount of the loan and the associated accrued interest.
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