Cibus, Inc. (CBUS) Earnings Call Transcript

Good afternoon and welcome to the CBIS Third Quarter 2026 Results Conference Call. [Operator Instructions]

Thank you and good afternoon. I would like to thank you for taking the time to join us for the CBIS third quarter 2026 financial results and business update conference call and webcast. Presenting with me today is Greg Gocal, our chief scientific officer, 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 the 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 you in your analysis of our business. And with that, I would like to turn the call over to Greg. Thank you, Carlo, and good afternoon, everyone. Three months ago, on my first call as CEO, I described three ways our CBIS platform technology creates value: platform programs that generate revenue today, royalties as our traits reach acres, and partnerships that deepen over time. Today, I will briefly report against those three and share a bit on why each one is important. I also want to spend a few minutes on what makes our direct breeding platform faster than the other two most common forms of improving a seed. The first tier of our business is platform programs. Let me start with biofragrances. We have initiated the manufacturing process for anticipated production runs of our first biofragrances, and our partner has asked for larger quantities of two more to advance its product development. The reason this program exists is that consumer products companies want fragrance ingredients made in a more sustainable way. Ours are grown with proprietary yeast and extracted after fermentation, rather than made from petroleum or harvested at scale from fields of flowers. It is the same platform applied to a microbe instead of a crop, and it's the first place where something we designed is being prepared for scale-up towards commercial production. The second program is new. In September, we announced a partner-funded program with Crystal Crop Protection to develop traits for mustard in India, and the work began in the quarter. Why mustard and why India? India grows more mustard than any other country. Mustard is almost 1/3 of its oilseed production, and India imports more than half of the edible oil it consumes. Indian mustard yields run roughly 1/3 below the leading producing countries, and breeders have struggled for decades to close that gap. Disease and weeds can take 1/3 of the yield, and India's growers have none of the herbicide-tolerant or disease-resistant varieties that competing producers rely on. Those are the kinds of traits we make, and our platform can make several edits at once in a partner's own varieties. India's government has made this a national mission, with a target of nearly doubling the country's oilseed harvest by 2030 and 2031, and it names genome editing among the tools that will be used to get there. We believe India's rules for edits with no foreign DNA support a path to the field, and Crystal Crop Protection will evaluate the traits in India. A better mustard crop could mean more income for the growers and more of India's cooking oil grown at home. The third program is in the United Kingdom, where we are developing resistance to a disease called light leaf spot in oilseed rape, which is similar to canola. Light leaf spot is one of the most damaging diseases of Britain's oilseed rape crop, and it costs British growers an estimated GBP 300 million in 2020, an unusually severe year, and the fungicides that used to control it are losing their efficacy. A consortium of farmers, breeders, and research institutes, funded in part through the Farming Innovation Programme of DEFRA, the U.K.'s environment and farming department, chose Cibus to make the edits in elite winter oilseed rape, and that work is on schedule. Both crop programs are funded by others, a government-supported consortium and a seed company paying Cibus to put a trait into their plants. The second tier is trait royalties led by rice. For farmers, weeds cost yield and quality. In rice, the hardest to control are grass weeds, and the worst of them is weedy rice, which is almost genetically identical to a rice plant, so that anything that kills it also kills the rice. Conventional herbicides have never had a good answer for it. We developed our rice traits so that a farmer can control these weeds without harming the rice. This quarter, we reported the first results from our trial in the rice varieties grown in Latin America, and they were positive on trait performance. Interoc has now begun testing our traits in its own varieties in Ecuador, with results due in the first quarter of 2027. We continue to advance towards a definitive commercialization agreement with Interoc. Once commercialized, royalty revenue will be tied to the acres planted with seeds carrying our traits, and we expect rice to be the first crop where that model applies. Peter has the trials and the launch timing. The third tier is deepening partnerships. A quarter ago, we announced that Interoc widened its letter of intent from two traits to five. This quarter, it is the John Innes Centre, a leading plant science institute in the United Kingdom. In 2022, it brought us its nutrient use efficiency discovery to edit into oilseed rape and rice. The light leaf spot gene target we are editing into oilseed rape came from the same institute and its partners at the University of Hertfordshire. Two discoveries, two programs with us, and we are exploring more with them. A partner that comes to us for one trait and asks for the next is where we believe this platform's economics can build. We expect that traits after the first can be faster and cheaper for us and the partners, and that one trait has the potential to go to multiple partners, crops, and geographies. Over time, the relationship can turn from a project into a pipeline. Now, let me spend some time on what makes our direct breeding platform different. Every crop in the world is the product of plant breeding, and breeding has always been indirect. To add a trait, a breeder crosses its best variety with a donor plant that carries the trait. The offspring is only half the variety the breeder wanted, and so it is crossed back round after round until the parent variety's genetics are fully recovered with the trait included. That takes most of a decade in development and testing before years of growing enough seed to sell. The first generation of gene editing technology shortened the search for the right change, but most commonly its editing machinery was introduced into the plant's DNA, so the machinery had to be bred out again through those same rounds. And if several changes were made at different places in the genome, some of those were lost while the machinery was being bred out. Every one of those routes spends its years growing whole plants season after season. Cibus takes a different approach. We take a single cell from the seed company's own best variety. We make the changes in that cell, several edits at once if the customers want them, and with editing tools that do their work and then break down. None of our editing tools are inserted into the plant's DNA, so our customers have nothing to breed out afterwards. We confirm the changes while they are still cells in a petri dish. The edited cells grow into small clumps, and from those, we grow back whole edited plants. The variety that comes out is the variety that went in, now carrying the new traits, and it goes back to the seed company for its own testing and commercial development. We call this direct breeding. And I want to highlight two very important outcomes that differentiate direct breeding from the ways of the past, because they are why I believe this platform has the potential to generate revenue at scale. The first is speed. In canola, we are able to return a customer's germplasm with trait edits within 12 to 15 months, and our goal is to achieve a similar turnaround of edits in other crops. The second is several edits at once. When inserted editing machinery has to be bred out, every extra edit multiplies the cleanup. Our platform leaves no machinery, just highly targeted edits, so a customer can ask for several edits at once. And we do all of this inside our own partners' elite varieties. Unlike some larger companies, we sell no seeds and no chemicals, so we do not compete with our customers for seed sales, and seed companies of any size can work with us. Let me turn to our resources and how that informs our near-term strategy. We are scaling up our near-term revenue streams, but have financial constraints that we aim to overcome in the interim, which is keeping our team tightly focused on outcomes. In my first 100 days, we reviewed every program, every expense, every opportunity with the lens I described in August. What drives near-term revenue, what strengthens the balance sheet, and what unlocks value in what we have already built? The review confirmed our focus on the two programs closest to revenue, sustainable ingredients and rice. It confirmed that we keep targeted investments in the programs we believe can create significant long-term value, nutrient use efficiency, and disease resistance among them. We will limit incremental growth investment to our highest priority opportunities, and we will manage it inside the cash usage objectives we have given you. In short, we are more focused than ever on accelerating our priority programs within the same spending envelope. Carlo will give you the numbers and tell you how we are thinking about the balance sheet. With that, let me hand it to Peter. Peter?

Thanks, Craig, and good afternoon, everyone. I will focus on what changed this quarter. The programs I do not mention stand where they were in August, and the press release carries their status. Let me start with sustainable ingredients. In August, I walked you through the steps between this program and commercial revenue. Here is what has moved. Our partner has confirmed that both of our first two ingredients are approved for use in its products. We have initiated the manufacturing process to scale up for our anticipated production runs. And we presented additional biofragrances to our partner, which has since requested larger quantities of two of them to advance its product development and continues to evaluate the other. Our estimate of the opportunity has changed. In August, we described a $20 to $40 million peak annual revenue opportunity. We are now operating under a direct sales model rather than the royalty model we previously assumed, and on that basis, when fully commercialized, and assuming a portfolio of eight ingredients, we believe our biofragrances business could represent up to approximately $100 million in peak annual revenue. So turning to rice, the most important thing this quarter is that our traits are now being tested where it counts: in our customers' own varieties, in the customers' own fields in Latin America. Before we edited Interoc's own varieties, we validated both traits in Latin America in non-Interoc genetics. Those trials went in the ground in April, and the results came back in August. Both traits performed well in that local environment. The test that matters commercially is in the ground now. In May, we delivered Interoc's own varieties with our traits, and Interoc planted them in Ecuador in late September. The same trials produce the data our customers need to expand the herbicide labels to rice carrying our traits. We are working with our customers toward an agreed commercialization plan for Latin America, which we expect would include demonstration plots, and we are targeting initial commercial launch as early as 2028. The validation trials in our customers' own varieties will be a key factor in setting that timing. Turning to the United States, launch is paired with Albaugh's herbicide registration, and current planning targets 2029 or 2030. Our customers include both inbred and hybrid programs, and we are working with each on the seed production and stewardship plan that fits its market. Beyond our seven customers, we are preparing the regulatory dossier to bring our trait material into Brazil, and our discussions in India continue. However, Latin America remains the primary near-term driver of royalty revenue, and it represents the bulk of the roughly $200 million annual addressable royalty opportunity we have described for our rice trait portfolio across an estimated 5 to 7 million peak addressable acres. Let me turn to the broader opportunity pipeline. So beyond the two priority programs, six things have moved this quarter. On light leaf spot, the work is advancing on schedule. Winter oilseed rape has to go through a cold period before it will flower, so the edited plants are going through that right now, and the next milestone is seed from those plants for trait testing. Our other canola program in the United Kingdom is pod shatter reduction. Seed pods that split open before harvest drop their seed on the ground, and this trait keeps them closed. It now has three years of field trials in customers' own varieties behind it, and we have filed a notification with DEFRA, the U.K.'s Department for Environment, Food & Rural Affairs, and received approval to plant it in England under the country's rules for precision bred crops. In nutrient use efficiency, NUE, the trait targets how a plant's roots take up fertilizer, the whole package rather than nitrogen alone, and it has potential use across rice, wheat, and oilseed rape. We told you in August that we expected to transfer edited canola material to the John Innes Centre in the third quarter. The material is ready, multiple edited seed lines with their unedited parent. We are finalizing the material transfer agreement, and the transfer is now expected in the fourth quarter. The centre will test the trait in spring oilseed rape, and we are starting the same edit in rice this quarter. Our second generation canola herbicide tolerance trait gives growers another option against weeds that are hard to control in canola. We completed our 2026 field trials at three locations, and the trials confirmed tolerance to the target herbicide. In India, the mustard work with Crystal Crop Protection that Craig mentioned has started with the step every new crop goes through on platform development: taking a single cell from Crystal Crop's own mustard varieties and growing it back into a whole plant. Once that works, the editing can begin. In soybean, this quarter we validated the editing reagents for our sustainable ingredients program, which is the step before an edited soybean plant. The common thread this quarter is execution. Gene targets from our partners are being edited into elite seed company lines. The nutrient use material is ready for transfer to the John Innes Centre, and the pod shatter plants have approval for trial planting in England. Every one of these programs remains available for partnership. Let me move to global regulatory progress. The regulatory considerations underlying our launch timelines have not changed. So let me focus on what is new, which is Europe. This was the first quarter for implementation work under the European Union's new rules, approved in June and in force since July, with the two-year implementation period running to 2028. The European Commission is writing the secondary legislation and implementing acts. We follow that process closely through the industry associations like the International Seed Federation (ISF), Euroseeds in Europe, and ASTA in the United States. The detail of the implementing acts is what decides how quickly a disease resistance or pod shatter trait can be submitted. Our first planned submission remains pod shatter reduction in winter oilseed rape in England under its own framework and then in the European Union once the implementing regulations are final. In Latin America, regulatory policies continue to develop, and we work closely with our seed company customers and the national agencies. And with that, let me hand it to Carlo for the financial review. Carlo?

Thank you, Peter. Looking at our financials for the third quarter, cash and cash equivalents as of September 30, 2026, were $10.7 million. For the first nine months of 2026, cash used in operating activities improved by approximately $7 million compared with the same period in 2025, a reduction of approximately 19%. Taking into account the impact of implemented cost-saving initiatives and without giving effect to potential financing transactions that Cibus may pursue from time to time, we expect that existing cash and cash equivalents are sufficient to fund planned operating expenses and capital expenditure requirements into early in the first quarter of 2027, though we expect to need to raise additional capital in the near term. Moving to our operating results for the third quarter, revenue was $0.8 million for the quarter, compared to $0.6 million in the year-ago period. For the nine months, revenue was $3.5 million against $2.6 million, an increase of 35%, primarily earned under our collaboration agreements for the sustainable ingredients program. In the third quarter, we also began earning under a new partner-funded research program for Indian mustard. Research and development expense was $7.9 million compared to $10.8 million in the year-ago period. SG&A expense was $5.4 million compared to $5.3 million. Combined operating expenses declined by about $2.7 million year-over-year, reflecting the cost actions I will describe in a moment. Below the operating lines, non-cash royalty liability interest expense to related parties was $9.8 million for the quarter, compared to $9 million in the year-ago period, reflecting interest accruing on the royalty liability balance, and that remains the largest single driver of the gap between our operating loss and our net loss. I want to be precise about it. This interest expense is entirely non-cash. It does not affect our cash runway or our operating cash usage. Non-operating income, net, was $0.4 million, and it included grant income for our light leaf spot program in the United Kingdom and a grant supporting our soybean work. Partner and government funding supports the development of parts of our trait pipeline. Net loss was $21.9 million for the quarter compared to $24.3 million in the year-ago period. Net loss per share of Class A common stock was $0.29 compared to $0.44. Turning to cost structure, during 2026, we took several actions to lower our cost base structurally. We reallocated resources and made select reductions to our workforce. We consolidated all of our laboratory work at our main facility on Nancy Ridge Drive in San Diego. We reviewed every corporate and back-office function. That review lowered our support function costs, reduced what we spent on consultants and other outside vendors, and tightened control of travel and other discretionary spending. We also simplified our legal entity structure, integrated our financial systems, and increased our use of technology and AI-enabled tools to make the team more productive. These actions gave us a more efficient operating structure while we continue to invest in our highest priority commercial and development programs. With respect to our net cash usage, the third quarter's cash use in operating activities was $9.3 million, and we continued to anticipate exiting 2026 at approximately a $35 million annualized net cash usage run rate. Craig gave you the conclusions of the capital allocation review. From my seat, the point is simple: the opportunity set across the platform is larger than we can fund ourselves. So we are balancing disciplined near-term cash management with selective investment in programs that can create future growth, and we are managing that investment within the cash usage objectives we have set. One last point on the rice royalty model, because the launch timing Peter described is what drives it. Royalties would be paid on the acres planted with seed carrying our traits, so they would begin with the first commercial seed in Latin America and build as adoption widens from there. Nothing about that model changed this quarter. With that, operator, we are ready to take questions.

[Operator Instructions] We'll take our first question from Matthew Venezia with Alliance Global Partners. Please go ahead.

How does your direct breeding tech, as you describe it here, stack up to the current industry standards, specifically in gene editing? And then I'll have a follow-up.

Matt, thank you so much for the question. Can you hear me okay?

Yes, I can.

Great. Yes, the direct breeding... When I joined as CEO about 5 months ago, I really did kind of a deep rethink on what really were the competitive advantages for Cibus, how we were really positioned well in the gene editing world and kind of to make an impact overall. And it really boiled down to this direct breeding, as you pointed out. The key thing is that all of breeding that's been happening up until now has really been this indirect process of taking two different plants or multiple plants and trying to join them together over multiple breeding cycles to get where you wanted to go. And that could take 10 years, 15 years, or more. Gene editing really allowed them to identify and tune the specific traits that they wanted, but they had to use agrobacterium in essence to infect these plants, get those traits into that genome, and then breed out that machinery, that gene editing machinery, or they had to really stick in transgenic components into the crops. And, again, you had to spend multiple breeding cycles over multiple years getting out that machinery. And 25 years ago, the people here who founded Cibus said, "What if we could just make exactly the targeted edits that we want in a plant and just turn it into a plant very simply? Just do it from a single cell, like a stem cell, what we call a protoplast, add some reagents, have those reagents make very specific targeted changes to the genes, and then from those single cells just in petri dishes, take it through clumps of cells, then back into plants, and then produce those edited seeds." It took them really 25 years to develop and perfect this technology, and that is what they have developed. They have done that process. Basically, they can go from single cell back to plants in 9 different crops. We have 5 crops that we're actually developing and editing so that we can actually turn those into products today. The other ones can be commercialized as well. So, and we have the fruits of this labor; we have actually products in the field as well. We're doing great things on rice. There's a number of other products that we talked about. And the speed advantage that we have and the cost advantage that we have over the competitors is to me the advantage and the opportunity for Cibus right now. So the speed advantage is that we can go from that single cell with the traits through to plants in 12 to 15 months. That's proven. That works today. We can do multiple traits as well. And so for the partners that we work with, they don't have to wait 7, 10, or 12 years to get new traits into their lines. We can work with their elite seeds that they're using today, incorporate that, and get them back an edited version of their own line by the next growing season. And that is what gives them tremendous competitive advantage in the marketplace. That's why people like Inari have gone from a two-trait deal to a five-trait deal with us. It's faster, and it costs everyone a lot less, and it advances the quality of the crops much more quickly. So that's fundamentally what we're excited about, kind of boiling it down. It's the difference between having to plant thousands of acres of crops in a breeding program versus working in petri dishes, which is what we do.

Well, thank you for the overview there, Craig. Very helpful. And then just kind of a housekeeping one for me on biofragrance. Can we anticipate the revenue ramp in 2027 now that the manufacturing process has begun on your two initial biofragrance molecules? And can you give us just a little bit more color there on the timeline?

So, we are working on that. Basically, the partners are doing formulation right now on that. And so once we get formulation wins, in essence, then we get a purchase order and that converts into revenue. So that's the process that we're in right now and that's what we're looking to accelerate as much as possible. We were just with a partner last week and shared with them over 20 different scent possibilities for them. And they asked us immediately for larger scales of two of those additional scents so that they could work on formulations for those as well. So it's a very nice, close relationship with the partner. Everything's moving as fast as it can, and we are advancing on the manufacturing side so that when we get good visibility on those purchase orders, we're going to have that product for them and be able to turn that around quickly.

Great. Thank you very much for the overview and thanks for taking my questions. I'll hop back in the queue.

[Operator Instructions] Our next question comes from Sameer Joshi with H.C. Wainwright. Please go ahead.

On the sustainable ingredients biofragrances that we just discussed, I just want you to understand, will it be contract manufactured or are you going to, or is there any CapEx expected to be expended to work this effort? And part two of that question is once it is up and running, previously we had royalty assumptions. What are sort of the gross margin assumptions and operating expenses assumptions for this direct manufacturing model?