Roseville, Minnesota, USA
November 5, 2020

• Execution of Commercial Agreement with S&W Seed Company on IQ™ Alfalfa Product, Marking Calyxt’s First Trait License Agreement
• Significant Progress Achieved on Soybean Product Transition Plan
• Third Quarter 2020 Revenue Increases 77% to $5.2 Million Year-On-Year
• Cash Runway Extended into the Second Half of 2022

Calyxt, Inc. (NASDAQ: CLXT), a plant-based technology company, has reported its financial results for the third quarter ended September 30, 2020.

Execution of commercial agreement with S&W Seed Company on IQ™ Alfalfa product, marking Calyxt’s first trait license agreement:

• Based on long-term U.S. sales projections, the agreement could potentially generate more than $10M of license revenue over the life of the pending patent for the trait.
• The enhanced trait gives farmers the opportunity to produce alfalfa forage for livestock with improved digestibility, which may lead to greater animal performance. The trait is designed to result in a higher value alfalfa produced on the same acre with the same inputs, putting greater profitability in the hands of the farmer. 
• IQ Alfalfa adds value to the market as a high-quality alfalfa with a strong yield that delivers benefits to growers as well as the dairy and cattle industries.

“As our first trait license agreement, this alfalfa launch represents a milestone in the execution of Calyxt’s three go-to-market strategies,” said Jim Blome, CEO of Calyxt. “It is a great demonstration of Calyxt’s ability to work collaboratively, choose traits to enhance value, do the research to make it happen, and support S&W Seed Company in bringing advanced plant science to market.”

Significant progress achieved on soybean product transition plan:

• Executing on the advancement of our soybean products to a streamlined go-to-market strategy that was announced in August.
• Staffing adjustments related to soybean processing and product sales, as well as the gradual exit of supply chain contractual commitments that are not associated with the ongoing seed go-to-market strategy, are progressing on schedule.
• Contracted grain purchases, subsequent sales of grain, and the wind down of other contractual obligations are on-track to be completed in late 2021.
• As of today, all current inventory of soybean oil and meal has been sold, and we are negotiating with large processors for the sale of all remaining grain inventories as well as the grain from our 2020 grower production contracts. The grain sales are projected to occur at then-current market prices.
• Our revenue for the quarter increased 77% compared to the prior year third quarter to $5.2 million because of these selling activities, including the sale nearly all our 2019 grain crop during the quarter.
• We intend to target seed sales to large grain processors, representing at least $3 million in projected 2021 revenue.

Additional Third Quarter 2020 and Subsequent Operational Highlights:

• Appointed current board member Yves Ribeill, Ph.D., as Chairman, and Laurent Arthaud (Cellectis-nominated Board member) as Director.
• Commenced execution on differentiated go-to-market strategies that are expected to optimize our TALEN® technology platform and accelerate our trajectory toward positive free cash flow.  Our go-to-market strategies are as follows:
  • Seed Sale Arrangements: Through purchase agreements for the direct sale of seed, with such sales expected to generate revenue for Calyxt.
  • Trait and Product Licensing Arrangements: Through licensing agreements with downstream partners with respect to Calyxt-developed traits or products for negotiated upfront and milestone payments and potential royalties upon commercial sale of products.
  • TALEN® Licensing Arrangements: Through licensing agreements with third parties with respect to our technology for negotiated upfront and annual fees and potential royalties upon commercial sale of products.
• Patent portfolio continues to grow with allowances across multiple families and geographies, including TALEN and CRISPR gene editing tools.  Filed patent applications focus on gene editing enhancements as well as new technologies in hemp, pulses and oats.
• Appointed Dan Voytas, Ph.D., to chair new scientific advisory board. The scientific advisory board is expected to address near-term pipeline opportunities, longer-term large-scale opportunities, and the development of Calyxt’s approach to ESG issues.
• Appointed Sarah Reiter as Vice President of Business Development.  Sarah is a plant-based technology and agribusiness leader who has focused on establishing world-class partnerships and value chains that lead to the successful commercialization of emerging technologies for companies of all sizes. Sarah will make a strong contribution to the overall commercial strategy for Calyxt’s future products, including the prioritization of markets, customers, and product types.
• On October 20, 2020, completed a registered direct offering of 3.75 million shares of the company’s common stock at a purchase price of $4.00 per share, resulting in gross proceeds of $15 million; Cellectis S.A., Calyxt’s majority shareholder, purchased 1.25 million shares in the offering.

Third Quarter 2020 Development Pipeline:

During the third quarter we advanced four of the projects in the table below from Discovery to Phase I of our development process, and today we have eight projects at Phase 1 stage or later in development across alfalfa, hemp, oats, soybeans, and wheat. We are also exploring improved protein and flavor profile in pulse crops, with several options under consideration.

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 our filings with the Securities and Exchange Commission.

2 These projects were advanced from Discovery to Phase I of our development process during the third quarter of 2020.   

Calyxt is also actively negotiating agreements with potential partners with respect to specific opportunities for which development activity would only commence upon reaching a commercial agreement.  These projects are not included in the preceding table.

CEO Summary

“The third quarter of 2020 was marked by two key milestones: an initial validation of our licensing business model with the execution of our agreement for Calyxt’s alfalfa product candidate and the continued transition of our soybean products to a seed go-to-market strategy,” said Jim Blome, Calyxt CEO. “We expect to continue selling grain in the fourth quarter, and the overall transition timeline remains on track.”

“We proved a gene edited food product could be developed and launched with commercial success, and now we have found a more optimal way for it to be monetized, in a business model that fits our company well. In terms of our go-to-market strategies to optimize the TALEN technology platform, we are focusing our R&D and business development efforts to provide our shareholders with the benefits of a less complex and highly accretive business model characterized by lower non-R&D funding needs and, over time, a higher margin recurring revenue stream that does not require significant capital investment to operate. We anticipate the structure of future agreements and the amount and timing of cash flows will vary depending upon several factors, including cost to develop, size of the opportunity, and the stage at which a partner or licensee enters the development process. Success here would propagate future projects and will further sharpen our gene-editing excellence and build on our successful track record and growing intellectual property portfolio.” 

“We believe there is a significant market opportunity for products developed with our TALEN technology, including these major areas: first, developing crops that grow in a changing world – this is a large and close-in area of opportunity where we seek to address changes in consumer trends and preferences as well as sustainability challenges our potential partners are facing; and second, transforming farm economics – where we seek to deliver products that result in increased financial benefit, like providing cover crops that could be monetized as a second source of income off the same acre,” added Blome.

“Calyxt’s focus on disruptive innovation utilizing plant-based inputs has opened new doors during the third quarter and our continuing conversations with potential partners are progressing nicely. Through our streamlined business model with differentiated go-to-market strategies, we are targeting diverse revenue streams across multiple industries, a high double-digit margin profile, and an accelerated path to positive free cash flow. We believe the advancement of our soybean products, anticipated cash receipts from our product development efforts with partners, and new cash infusion extends our anticipated cash runway into the second half of 2022.” 

“We look forward to sharing more on our developing story with respect to the key projects and business model during Calyxt’s Virtual Analyst Day on November 17, 2020,” concluded Blome.

Financial Results for the Three Months Ended September 30, 2020

• Revenue increased by $2.3 million, or 77 percent, from the third quarter of 2019 to $5.2 million in the third quarter of 2020. The revenue growth was driven by 15 basis points of volume and 64 basis points of pricing, both partially offset by 2 basis points of unfavorable product mix as we sold more meal in 2020 as a percent of total revenue than the prior period. Most oil revenue in 2020 was from a single customer purchasing our oil to be used as a plant-based alternative to synthetic fluids, and we expect to fulfill their remaining orders in the fourth quarter of 2020.
• Cost of goods sold increased by $3.5 million from the third quarter of 2019 to $7.1 million in the third quarter of 2020. The increase in cost of goods sold reflects the higher volume of product sold, the impact of lower costs associated with products sold in 2019 because $2.8 million of grain costs were previously expensed as R&D, $1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts from fixed to floating prices, consistent with how we expect to sell the grain, and a $0.2 million increase in the net realizable value adjustment to period-end inventories. These increases were partially offset by lower product costs and the benefits resulting from the advancement of our soybean product line go-to-market strategy.
• Gross margin was a negative $1.8 million, or a negative 35 percent, in the third quarter of 2020, a decrease of $1.2 million, or a negative 16 percent, from the third quarter of 2019. The decline in gross margin in the third quarter of 2020 reflects the impact of lower costs associated with products sold in 2019 because $2.8 million of grain costs were previously expensed as R&D, $1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts from fixed to floating prices, consistent with how we expect to sell the grain, and a $0.2 million increase in the net realizable value adjustment to period-end inventories. These increases were partially offset by lower product costs and the benefits resulting from the advancement of our soybean product line go-to-market strategy.
  
  Gross margin, as adjusted, was negative $1.3 million, or negative 24 percent, in the third quarter of 2020, as compared to negative $2.5 million, or negative 86 percent, in the third quarter of 2019. The improvement was driven by higher selling prices, lower product costs, and the 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 gross margin, as adjusted, and a reconciliation of gross margin, the most comparable GAAP measure, to gross margin, as adjusted.
• Research and Development (R&D) expenses decreased by $1.4 million to $2.2 million, driven by a decrease in stock compensation expense of $0.5 million from the recapture of non-cash stock compensation expense from the forfeiture and modification of unvested stock awards. The same period in 2019 also included $0.5 million of expense to write off R&D tax credits that were no longer realizable.
• Selling & Supply Chain expenses decreased by $0.9 million to $0.4 million, driven by a decrease in stock compensation expense of $0.6 million from the recapture of non-cash stock compensation expense from the forfeiture of unvested stock awards, partially offset by higher year-over-year compensation expenses.
• General & Administrative expenses decreased by $0.7 million to $4.2 million, driven by a decrease in stock compensation expense of $1.0 million and lower personnel costs of $0.5 million, partially offset by an increase in insurance costs.
• Restructuring costs include the impact of severance and other expenses resulting from the action we initiated in August 2020 to advance our soybean product line go-to-market strategy.
• Net loss was $9.5 million in the third quarter of 2020, an improvement of $1.2 million from the third quarter of 2019. The improvement was driven by a reduction in non-cash stock compensation expenses of $2.1 million, partially offset by a decline in gross margins of $1.2 million, and $0.4 million of restructuring costs. The same period in 2019 also included $0.5 million of expense to write off R&D tax credits that were no longer realizable.
  
  Adjusted net loss was $9.3 million in the third quarter of 2020, an improvement of $2.6 million from the third quarter of 2019, driven by the 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 net loss and a reconciliation of net loss, the most comparable GAAP measure, to adjusted net loss.
• Net loss per share was $0.29 in the third quarter of 2020, an improvement of $0.03 per share from the third quarter of 2019, driven by the change in net loss.

  Adjusted net loss per share was $0.28 in the third quarter of 2020, an improvement of $0.08 per share from the third quarter of 2019, driven by the change in adjusted net loss.
  
  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 loss was $7.1 million in the third quarter of 2020, an improvement of $1.8 million from the third quarter of 2019.
  
  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.
• Net cash used in the third quarter of 2020 improved by $4.2 million to $5.8 million, driven by a $4.6 million net decrease in cash flows used by operating assets and liabilities, primarily the result of the timing of cash payments to growers and changes in inventory balances year-over-year, and a $0.6 million reduction in purchases of land, buildings, and equipment, as the improvement in net loss of $1.2 million was driven by a $2.1 million decline in non-cash stock compensation expense.
• Cash, cash equivalents, short-term investments, and restricted cash totaled $29.4 million as of September 30, 2020.

CFO Summary

“The third quarter of 2020 was highlighted by the significant progress we made on transitioning our soybean products to a streamlined go-to-market strategy. The sales of grain to a large processor resulted in 77% growth in our revenues to $5.2 million. We shed most of our freight leases and other soybean-related costs in the period,” said Bill Koschak, CFO of Calyxt. “We expect to sell the remaining grain we own or will purchase at market prices, and, to help protect the cash margins of those sales, we have utilized commodity derivatives to convert our fixed price exposures to market.”

“Our adjusted gross margin performance in the quarter was as expected based on the mix of product sold and following the announcement we made earlier in the quarter to advance our soybean products to a streamlined go-to-market strategy. We sold all our soybean oil and meal inventory in the quarter and have sold nearly all our 2019 grain inventory. These results demonstrate the on-track progress we are making toward completing the transition of the products on schedule.”

“We also signed a commercial license agreement early in the fourth quarter for our improved quality alfalfa trait. Following completion of remaining regulatory work, the agreement provides for royalty payments on seed sales, which we estimate could reach approximately $10 million over the life of the pending patent for the trait. This is one small but illustrative example of the earnings potential Calyxt has, which we expect to unlock with our future project launches executed with a similar go-to-market strategy,” said Koschak.

“After the closing of the third quarter Calyxt completed a capital raise with gross proceeds of $15.0 million, which together with the advancement of our soybean product and anticipated cash receipts from our product development efforts with partners extends our projected cash runway into the second half of 2022. Investors in the SEC-registered, direct capital raise included Cellectis, our largest shareholder, and new institutional investors. We believe the support of Cellectis and our new shareholders is a testament to our go-to-market strategies,” concluded Koschak.

Website: http://www.calyxt.com

Published: November 9, 2020