Welcome, everyone, to this session of our January 2025 MicroCap Conference. I'm Alex Hantman, and I serve as an equity research analyst here at Sidoti & Company. Today, I'm pleased to be in conversation with CEO, Chairman, and Co-founder Rory Riggs of Cibus, ticker C-B-U-S. During the presentation, please feel welcome to submit questions using the Zoom Q&A interface at the bottom of your screen. After the presentation, we'll open to your questions. And with that, Rory, I'll turn it over to you.
Thanks very much. For those who don't know, Cibus, we're the leaders in gene editing in agriculture. Really, we have this vision of industrializing breeding. The way you industrialize breeding is because gene editing can be so efficient that we announced a week ago that we now could take a customer's plant, edit it, and return it to them within 12 months. This is the—and around the world, we're being regulated as conventional breeding. That's what industrial breeding is: having an ISO-controlled factory setting where you can take a plant and in 12 months put it in, edit it. Because of that, it really changes how the whole idea of trait development and breeding happens in the industry. Our business is breeding traits and crops for royalties. Monsanto started this business.
Monsanto probably gets $5 billion a year in royalties from having traits in plants so the plants don't die when they spray with Roundup. 95% of all soybean, corn, canola, and cotton have this trait in them. And it allows you to spray a crop and kill the weeds without killing the plant. This is a big area in agriculture. Our focus in this is the big crops: canola, rice, soybean. We'll do the others in a moment. Our focus is those three. Together, they have over 500 million global acres. Our trait focus is really straightforward: weeds. Farmers need to be able to have traits in weeds. The whole chemical business in agriculture is based on crops that have traits so the plants don't die when you spray.
Disease is one of the biggest killers in farming and one of the killers of productivity in farming, and it's something you can't do with breeding, and so these are two areas that we want to separate ourselves and a huge area for us to work with. Our business is pretty simple. Somebody gives us their plant, we give them a trait, and for every acre they sell with that trait, we collect a royalty. It's done throughout the industry. It's the heartbeat of how this industry works. We have collaborations already with all the major players. My business, at the end of the day, is going to have literally a dozen customers, and they're all the big seed companies. The idea is to be part of their breeding system.
So as they're doing all their things, they have an easy, efficient way for testing our traits and for us being able to test their traits. We have an amazingly strong management team. We've been together for 25 years, and we're here to try to solve one of the big problems. Greg and Peter, and Noel have written some of the seminal papers in agriculture. I've been in biotech my whole life. If you've ever heard of a company called Sugen, I was a Co-Founder of that. I ran a company called Biomatrix. With Biomatrix, I built two ISO-manufacturing facilities for biological devices. That's what we're doing here. We're building a international standards plant for gene editing. I co-founded a company called Royalty Pharma, which is the largest acquirer of royalties and drugs. And the way I look at Cibus, Cibus to me is Royalty Pharma for agriculture.
This is a business where we're going to collect royalties. The difference is we don't buy these royalties. We produce them. What is this thing called a trait business? Traits are the backbone of seed competition. Seeds don't have organs. They don't have legs. All they have is a genome. And the way this breeding works is you try to make that genome in the seed as efficient as possible to collect yield and hopefully to protect it against things like insects and weeds. And so that's the nature of the business. All the seed companies do this, and there are a few independent companies like ourselves, Pairwise, and Inari, who are also in the business of trying to create traits. Our focus is productivity traits. Productivity traits, like Monsanto, they're traits where your job is to make farming costs less and hopefully have higher yields.
You're paid by whatever that cost savings is for a crop. You share it between the farmer, the seed company, and the trade company. Monsanto set the rules. It tends to be a third, a third, a third, depending on the strength of your trade hire. But that's the business. At the end of every year, the accountant goes out to the field and says, "All right, how many third-party traits do we owe money on for this crop, for the number of bags sold?" Corteva is famous for talking about how much they pay in royalties for traits they've in-licensed from other people. Traits are important not only because each individual crop can have hundreds of millions of acres, but if you solve a problem in one crop, you can roll it over in disease. We're working on something called Sclerotinia, or white mold disease.
White mold is the biggest killer in canola, second biggest killer in soybean. It has evolved a major disease in every major vegetable. So once you do it in one, you can move it from crop to crop to crop. In addition, you're not limited to one trait per crop. In weeds, where we're launching rice right now, we're going to have three different traits that we have right now for different herbicides that we can all put in. And then when we're done, we'll be able to give you all three of those traits in one production run and have it back to you in 12 months. And that's really the scale of the plant business because of how many acres there are and how broad traits can go once you institute them.
Around the world, gene editing being heralded as one of the big saviors for sustainability in agriculture because we don't introduce foreign materials. The traits we produce are virtually identical to the same traits you get from conventional breeding. That's why country by country, they've changed their regulations to treat traits like ours, similar to the traits for conventional breeding. Europe, two years ago, the Parliament passed a law which would make us non-GMO and treat us like breeding. They're right now working through the mechanics to be able to prove that, to put it in law. That's the idea. The idea is we can have this facility that can create traits, and these traits would be globally acknowledged as being comparable to conventional breeding. What's the business?
The key to us, for a lot of people, they think the business here is what trait do you have and how much you're going to pay, and the difference we had is we always thought that gene editing allowed us to change the whole business model, allowed us to create a semi-automated end-to-end breeding process where somebody sends me their ready-to-market germplasm. I can edit and return it to them. That allows you to, if you look at breeding, what you do, you put two seeds together, then you plant them and you see how you did in the field. It's a random process as opposed to saying, "Oh, if you change these three edits, I should have this attribute," and what we're telling these people is that if you have three edits, we can put it in your plant, return it to you.
You've got a list of ideas you want to do. Our technology is going to let the industry have the ability to really speed up the development of traits. And then once they're sped up, to be able to speed up the commercialization of traits. This is a key thing. The business model is as much the process as it is the traits we're creating. When you look at traits, it's pretty straightforward. There's five main areas: weed management, we're using insecticides, we're using fertilizers, and we're using fungicides. And each of these things are pretty well recognized in the industry, and that's what we're all trying to use. You said we're focused really on disease, and we're focused on weed management. The good thing about traits is that you can see them. In the upper left-hand corner, there's three slides.
We have three different traits that make plants tolerant to herbicides. One is in rice for something called HT3, and you look at the picture, you see on the left is a picture of a crop we sprayed with our herbicide and everything died. On the right is the same crop, but has this trait in it, and everything lived, and that's how these traits work. HT3, same thing in rice. They live and die. In canola, we have a new trait. About two decades ago, GMOs kind of got banned. There haven't been new traits for new chemistry. So HT2 is a new chemistry that we're putting in canola, but the idea that this is a new chemistry that would make it available for things like soybean and corn and cotton that haven't had new chemical traits for a long time.
Disease, we're right now working in canola for something called Sclerotinia, but as we develop our soybean platform, we totally expect the same trait to be used in our soybean, and pod shatter is our first trait. Pod shatter keeps the sheath around the seeds and canola from blowing in the wind and cuts down the loss from high wind conditions in farming. Really important trait that will be our first remedies for that product, and the key thing to this is when we do traits and transfer them to customers, we have no more work afterwards. They now have that trait. They plant the seeds, and then they pay us per acre for each seed they sell that has our trait in it. That's how Monsanto does no work. They've given this trait out to people, and so what we get is royalties.
When we look and say that it can be a $100 million a year royalty, it's an annual royalty. It's an annual royalty booked for every year that the crop is sold. In rice, we believe that just the first herbicide traits we're talking about have upwards of $300 million of expected royalties around the world. In canola, we think pod shatter is over $100 million a year royalty. We think HT2 could be 100. It's not getting all of canola. It's getting probably a third of canola. We get into those types of numbers. Canola's a 50 million-acre market, and a third of it would be, let's say, 20 million acres or so. Those are the numbers we're talking about. Sclerotinia is a big killer, both in soybean and canola.
That if we're perfecting that trait as we do it, we have two big trials going on right now that we expect to hear from in the next 60 days. But it's really the first big disease trait. And it's successful in both soybean and canola. We're very comfortable with the industry. It's really excited about it, and we're working with many people in the industry to put it out. But it gives you the idea of the ultimate scale of the plant business and what it means to have millions of acres that you want to get a trait in. And as opposed to Monsanto, who gets $10 plus $1 million an acre for over 300 million acres, our sights are we don't need those to make our business grow. But that's the business we're going into, and we're pretty excited about it.
Our business and our trait machine is based on taking a single cell and growing it into a plant, and that's what allows us to have a time-bound model for breeding. The soybean, we haven't done yet. Nobody's done it, but we're very close to being able to have a single cell modeled into a plant, and when we do it, it just gives you the idea of the magnitude. Just Brazil and the U.S. are 200 million acres. There's five companies that control over 80% of it, and so what you'll hear from us this year is, can we achieve a soybean platform and start achieving validation of both a new herbicide and a disease platform? And we're really excited about that because that really changes the whole scale of our business, and it's what we've been working for for 25 years.
So with that, I'll stop and ask questions. I hope that was clear.
Rory, that was very helpful context. Thank you for sharing. Maybe we could just zoom out a little bit. For folks newer to agricultural industrialization, could you talk a little bit about the evolution of GMOs and how those came to get a bad rap, and then how the regulatory environment became a little bit more nuanced and favorable? So yeah, the evolution of the regulatory environment and now how it positions you well across the U.S. and the E.U.
Thanks. It's critically important. The U.S. allowed GMO, but put a lot of restrictions behind it. It was Europe that really banned GMOs. It was Europe that basically said, "You can not only not grow there, you can't export to it." When you export to it, it's almost like treating GMOs like drugs.
It could take five years to get that through. The U.S. was one of the leaders in saying that gene editing was safe. There's a thing called "Am I Regulated?" You can go online. We have 15 approvals in "Am I Regulated?" I think the next closest person has three. Everything we've done, we've put through that system. Latin America has been very open on it. Canada, who's a leader in this area, just passed a bill allowing us. They're passing the bills to allow us to plant. Europe passed a global legislation. Parliament passed legislation, and now we're working through the mechanics to get it approved. We're pretty comfortable it will be. We think we're into 2025, that we'll end 2025 with probably a pretty close for us on global acceptance of gene editing as conventional breeding.
Great context. Thank you. Maybe we can also just talk a little bit about some of the recent news. I think this week you announced a direct offering. So could you talk a little bit about kind of what prompted that raise and use of funds?
I'd be happy to. It's great. We raised $23 million. And insiders have invested in this group that were in this business. And it came with a warrant. And a warrant accelerates when soybean gets approved. And so we look at it almost as a doubling offer. The people who came in investing this round came in fully expecting to put up the exact same amount of money again when soybean is approved. And the proceeds here is we're not just building traits. We're building a business. So the money is really funding the fundamental platform that is letting all of our traits come out.
It's sort of like saying, "I got a factory. I got to run and produce parts." And so you got to pay to have that factory run because the people bring the customers in. And as opposed to a research company, we're totally focused on being a product-based company. And all of our expenses are what we think is necessary to be able to commercialize them. And our burn rate is plus or minus $50 million a year. And it doesn't take that much traits to cover that number.
Very helpful context. And in terms of what that fundraise unlocks, could you talk a little bit about how it gives you firepower to be competitive? Are there other companies in this sort of gene editing, plant regulatory environment? One person in particular asked about a competitor, Inari.
Inari is a big competitor, but a much bigger valuation than I do, as you know. They just raised $150 million, a $2 billion valuation. But their business is to try to create yield, like style, try to get plants that have yield. They haven't said they're going to create a gene editing business. They haven't created a facility which you can take somebody's customer and put it in. So our focus on productivity traits is really singular in this industry. And our focus on having breeding being a business by itself, that nobody else is saying they're in the breeding business. But Inari, they have two good traits, and it's all yield. The giants also gets money for yields for the richest guys in the world. So it's not a bad business to be in the yields.
But we also think that Monsanto has productivity traits, and we probably model ourselves more after Monsanto. That's helpful. Absolutely. Thank you for clarifying. And I think recently, earlier this month, you also announced production standards for your gene editing process. Could you talk about why that's a critical step in the industrialization of plant breeding? You have to be here 25 years ago. We didn't even know how to do gene editing. And to suddenly realize that 25 years later, if you give me your plant in less than 12 months, I can give it back to you with an edit in it. And part of that process is not just being able to do it, but we work really hard with the industry to have quality control standards.
They know when we gave them back the plant, it would just be our traits and wouldn't have any other effect. It's called genotyping. And so there's a whole mixture. When you do isogenic processes, it's really having really detailed steps within a process. So it's really cool. And the industry gets it. And we're getting great feedback because they all have all these traits they're dying to produce. But there's no real simple way for them to put it in their germplasms. And we believe what this does is gives everybody a real roadmap to say, "Let's work together."
Thank you. In terms of the roadmap, I know right now you're in a stage of having R&D funding revenue. Could you give us a little bit of the picture of how that transition into commercial revenue and maybe the timing of that revenue? Is it royalties, licensing fees, that kind of stuff?
Really important. On the R&D funding, the good funding people trying to build sustainable ingredients of the whole business. The business money we're modeling for is money where customers have traits in their plants and are selling the seeds. Rice and canola are our two leads. What we've said is we expect in 2026, the first canola plants being planted with royalties, probably not till 2027. But once they in rice, but once they start, we have now two big customers with a couple million acres in Latin America and expecting a third. We have Nutrien and another company in America. And so we're in Albaugh, who's going to be their chemical partner with big chemical companies to launch it. And so you're working towards probably a start in 2027 of having herbicide package and seeds.
But it's an ongoing business that starts at that point. It's really the start of the whole franchise. That's helpful.
Yes. Yeah, that was helpful. So I guess, again, folks newer to the name, maybe now they're understanding how the regulatory environment has changed. They're understanding the transition from R&D to commercialization. Could you give a little bit of history around trends in the stock price and talk about some of the near-term catalysts as well?
My stock price and near-term catalysts, that's thanks. You wanted that to be the hardest question. So thanks. Let's go back. No, it's been a really tough year. We went public. It took a while to get registered. And we ended up in the market with a cash need overhang. And it really killed us over the last year.
We're really proud that we hit all of our major industrial milestones over the last year. Everybody who follows us knows that. I think what this last financing did, plus a doubling of it when we believe we have soybean, really solidified us. Now we're all walking through and saying, "How does Europe finally get approval?" We're clear that nobody else is really talking about nobody knows whether these other competitors' products will pass Europe. They basically said, "Oligonucleotide-Directed Mutagenesis works." Soybean's a big thing because it's 200 million acres and we'll start signing other customers around with it, which is a huge thing. Two, we have two big disease traits in the pipeline. What we've done a good job of doing is making you track it.
We told you when we edited it, when we took it to the greenhouse. Because when we announced these, we're going to be able to tell people we had really good trials and disease, and we're able to deliver them in less than a year. Both of those are pretty important, and we expect the first one in the next 30 days and the next one probably within the next 90 days. Those are pretty good milestones.
Yeah, and I know it's a tough question, but I think it's an important part of the story.
All good. I think we're at our point of inflection. The fundraising we just did and the big announcement of the industrialization of breeding, I think this is what I, as one of the major shareholders, have been waiting for. I think it's really an important inflection now with the news to be able to start regaining ground.
And so what I'm hearing, right, you now have the dry powder. You have some of the early commercial partnerships. And you have some exciting trials kind of expanding and potentially converting over the next year. Is that right, Rory?
That's right. And really, we have three developed traits in rice. These are traits we have full field trials on. So that's why people are buying them. But our two advanced traits, disease and HT2, are just finishing their developmental stage. We'll have field studies in each of them. So those are really what are going to drive us. The numbers are so large in soybean that if you can start getting real royalties on soybean sales, it will match any pharmaceutical products.
And so we're actually pretty excited that the advanced traits we have. We just still keep getting really good data as we put them in a greenhouse or field. And we're pretty open. We think you have a test in the next 30 days, a test in the next 90 days. And we're pretty confident that not only we're going to be able to show positive data, but that we're going to be able to show we're able to do it within 12 months.
That's great. And a question from the audience. Is there any trait work that you're doing around climate change, extreme weather resistance?
We've done work in those areas. And we have some really good data in the paper in Nature for something for nitrogen use efficiency. Everybody wants to get rid of fertilizer. And so we're doing some work on those things. But our focus right now is to get our current products cash flow positive. That's what my investors want. But the neat thing about industrialization is all these papers are being written. We know edits you have to make. We've written a paper on how to grow wheat and rice in the Middle East, which is all about being able to plant with less water, right? And so we know the traits and we have technology to do them. We're just now focused on getting our current products in the marketplace and trying to get cash flow in.
I understand. And we're almost at time. So maybe for the last question, could you sum up the value proposition for investors who might be looking within plant breeding and plant gene editing, or even broadly at ag tech investment opportunities?
I'd love to. To me, this is Royalty Pharma for agriculture. I've worked so hard to get to this point that we're now at a point that our market cap is plus or minus $100 million. And each of the traits we're launching are going to have $100 million per year annual royalties. So we think what you're watching right now is the finite amount of time until cash flows. And the cash flows we're developing are the equivalent of large pharmaceutical drugs. And so that, to me, is the value proposition, is that we're doing all the pieces necessary so you know I can do it. And two, that you'll see the data from it. And so if you see data from it in the field and you know I can edit it, it means I can put it in anybody's crop. And that's the value proposition.
It's hard when you're starting a brand new industry and nobody knows how to see it. But it's not that new in the fact that everybody else in the industry in the GMO world is collecting royalties. So it's not illogical that everybody in the gene editing world is going to collect the same royalties, right? And so you just have to get them into the crops. And the fact that these people are signing on, they're signing on because they've seen our field trials and they're excited about them and they're putting them out. So to me, that's the value proposition. You're getting in because of the market. I think I'm a big investor. I was a big investor in the last round because I just believe this is the best value play I could say.
I didn't always think I'd describe myself as a value play, but I'm totally a value play right now. Thanks.
That's great. Thank you, Rory. And with that, we are at time. So I'd like to thank you for the overall presentation and sharing the seed of this story with us. And I'd also like to thank everybody listening for spending time with us today.