Business context and reporting period
Filing identity: The request identifies Cibus, Inc., but the supplied Form 10-Q is for Calyxt, Inc. (Nasdaq: CLXT), a Cellectis-controlled, early-stage gene-editing company. This summary reflects the filing provided, not a Cibus filing. The reporting period is the three months ended March 31, 2018.
Calyxt develops gene-edited crops and had no product sales. Its lead candidate, high oleic soybean, was in Phase III testing; the company expected to begin commercialization by the end of 2018. Cellectis owned approximately 79.1% of Calyxt at quarter-end.
Financial performance and position
Amounts below are in U.S. dollars; income and cash-flow figures are for the three months ended March 31. Balance-sheet figures compare March 31, 2018 with December 31, 2017.
| Metric | Q1 2018 | Comparable / prior date |
|---|---|---|
| Revenue | $11,000 | $55,000 in Q1 2017 |
| Operating expenses | $4.307 million | $2.844 million in Q1 2017 |
| Operating loss | $4.296 million | $2.789 million in Q1 2017 |
| Net loss | $4.370 million | $2.832 million in Q1 2017 |
| Loss per share, basic and diluted | $0.16 | $0.14 in Q1 2017 |
| Net cash used in operating activities | $6.565 million | $1.707 million in Q1 2017 |
| Cash and cash equivalents | $50.703 million | $56.664 million at Dec. 31, 2017 |
| Total assets | $71.867 million | $72.167 million at Dec. 31, 2017 |
| Total liabilities | $18.007 million | $14.691 million at Dec. 31, 2017 |
| Finance lease obligations | $14.757 million | $10.148 million at Dec. 31, 2017 |
| Accumulated deficit | $58.918 million | $54.548 million at Dec. 31, 2017 |
Cost of revenue was zero in both periods, so a meaningful product gross margin is not available. Revenue was immaterial and arose from research and development agreements; the filing does not provide a meaningful operating margin. No income tax expense was recorded. Cash used in investing was $41,000 and cash provided by financing was $645,000, primarily from option exercises, net of deferred costs. Cash declined by $5.961 million during the quarter.
Liquidity was supported by approximately $58.0 million of net IPO proceeds received in 2017. Management believed quarter-end cash would fund operations through a significant portion of 2019, while cautioning that actual cash needs could be higher and additional funding may be required.
Material changes versus the prior comparable period
- Revenue fell 80% to $11,000, reflecting the company’s deliberate reduction in third-party R&D work as it shifted resources to internal product development.
- Operating expenses increased 51.4%. SG&A rose 103.7% to $3.214 million, driven by professional services, expanding executive and personnel costs, and stock-option expense. R&D fell 13.7% to $1.093 million, primarily due to less subcontracted research and a stock-option expense reduction.
- Net loss increased 54.3% to $4.370 million. Operating cash use rose to $6.565 million from $1.707 million, with the filing citing higher headcount, legal costs, and seed production and storage costs.
- Finance lease obligations increased to $14.757 million, mainly in connection with construction of the new headquarters. Property and equipment, net, rose to $18.767 million.
Outlook, risks, contingencies, and unusual items
- Management expected high oleic soybean commercialization by year-end 2018. This was a forward-looking expectation, not a reported result; development, field trials, supply-chain readiness, customer acceptance, and any applicable regulatory requirements could affect timing.
- The company expected losses and expenses to increase as it develops products and builds commercial capabilities. It had not generated product revenue and stated that it might need additional capital; financing may be unavailable or dilutive, and a shortfall could force reductions or delays in programs.
- Forward purchase commitments with growers were approximately $7.0 million at March 31, 2018, up from $1.6 million at December 31, 2017. These commitments were not recorded as liabilities because the seed and grain had not been delivered.
- The new headquarters arrangement is accounted for as a finance lease during construction. The company reported approximately $14.5 million of related finance lease obligation in the note and $14.757 million of total finance lease obligations on the balance sheet. After construction, estimated annual base rent was approximately $1.4 million, plus other net-lease costs. Cellectis guaranteed lease obligations, subject to termination conditions, and Calyxt agreed to indemnify Cellectis if its guarantee becomes effective.
- Calyxt filed suit against Bayer in Delaware Chancery Court on March 12, 2018, seeking a declaration that a TALEN technology license was properly terminated for alleged breach and enforcement of post-termination obligations. Calyxt did not expect significant losses from the case, but warned that an adverse outcome could allow Bayer or successors to use the licensed technology to compete. The outcome is uncertain.
- Cellectis provided management and other services; Q1 expense under the management agreement was $580,000. Amounts owed to Cellectis were $742,000 at quarter-end. Related-party obligations bear interest at 12-month EURIBOR plus 5%.
- Revenue concentration was high: three customers accounted for 80%, 15%, and 5% of Q1 2018 revenue. The filing also identifies risks from regulation, consumer acceptance of gene-edited foods, competition, weather and seasonality, intellectual property, and dependence on counterparties.
- The company reported effective disclosure controls as of March 31, 2018 and no material changes in internal control over financial reporting during the quarter. It reported no material changes to risk factors from its 2017 Form 10-K.
Important facts for investors to verify
- Confirm the filing issuer: the supplied document is Calyxt, Inc., not Cibus, Inc.
- Check whether the high oleic soybean reached commercialization on the stated timeline and whether required regulatory, supply-chain, and customer milestones were met.
- Monitor cash burn against the stated runway through a significant portion of 2019, and assess the timing and terms of any additional financing.
- Track construction completion, total finance-lease obligations, and the eventual rent and operating costs of the new headquarters.
- Follow the Bayer license litigation and its potential implications for Calyxt’s TALEN intellectual-property rights and competitive position.
- Assess the risks attached to the approximately $7.0 million of unrecorded grower purchase commitments and the company’s highly concentrated, currently immaterial revenue.