Calyxt files for $109M IPO: The Digest’s 5-Minute Version

July 13, 2017 |

A technology unlocking value in agriculture through accelerated breeding comes to the public markets. No time to read the 101,000 words on the complete IPO filing?

Here’s our 5-minute version, with a translation of the risks into English.

In Minnesota, Calyxt has filed an S-1 registration statement for a proposed $109 million initial public offering.  The company is aiming for a post-IPO valuation of $461 million. Prior to the completion of this offering, Calyxt has been a wholly owned subsidiary of Cellectis, and post-IPO Cellectis will continue to own a controlling share block.

The company’s secret sauce? It’s ability to asses a trait in less than two years and commercialize it in as short as six years with a significantly reduced development cost.

Here’s the S-1 registration, in a conveniently downsized 5-minute Digest version — with some commentary along the way as to what is driving value in the Calyxt model, opportunities for the intrepid investor, and some risks which we have translated from the ancient and original SEC into modern English.

Company Overview

We profiled the company, in “Frontiers of gene-editing, and why Calyxt is one to watch”, here.

At its heart, it’s a company about transformation in basic food feedstocks. But where the technological imperative for years has been about, to use an example, more corn and cheaper corn — with the resulting focus on rate and yield — Calyxt is overtly focused on performance. On better food. Dialed in at the gene level, through gene editing.

The Pipeline

From the S-1: “We have developed a robust product pipeline with our proprietary technology. Our first product candidate, which we expect to be commercialized by the end of 2018, is a high oleic soybean designed to produce a healthier oil that has zero trans fats and reduced saturated fats…We believe each of these product candidates addresses a potential multi-billion dollar market opportunity.”

Calyxt reports that it has a High Oleic Soybean (Consumer Trait); High Fiber Wheat (Consumer Trait); and Herbicide Tolerant Wheat (Farmer Trait) in advanced development — many more candidates in earlier stages. Commercialization is in 2018 for the first traits.

The Technology

From the S-1: “Using our proprietary technologies and expertise, we edit the genome of food crops by using our “molecular scissors” to precisely cut DNA in a single plant cell, use the plant’s natural repair machinery to make our desired edit and finally regenerate the single cell into a full plant. We believe we are able to develop targeted traits—some of which would be nearly impossible to develop using traditional trait-development methods—quicker, more efficiently and more cost effectively than traditional trait-development methods.”

The Intellectual Property

From the S-1: “ As of May 31, 2017, we have licensed approximately 16 U.S. patents, 49 U.S. patent applications, 65 foreign patents, and 121 foreign patent applications.

The Commercial Strategy

From the S-1:  “Our commercial strategy is centered on two core elements:

1. Developing healthier specialty food ingredients for the food industry to benefit consumers.

2. Developing herbicide tolerance and other agriculturally advantageous traits for farmers.

The Commercialization Plan

From the S-1: We have several products under development including: high oleic soybeans, powdery mildew resistant wheat, cold storable potato, high fiber wheat, reduced browning potato and herbicide tolerant wheat.

“We intend to pursue a vertically integrated business model for our soybean product candidate that we believe will provide three potential revenue opportunities: 1- seed sales to farmers. 2 – Oil sales to food companies. 3 – Meal sales to animal feed companies.”

The Technology

From the S-1: “We edit the genome of food crops by using our “molecular scissors” to precisely cut DNA in a single plant cell, use the plant’s natural repair machinery to make our desired edit and finally regenerate the single cell into a full plant. We are able to develop targeted traits—some of which would be nearly impossible to develop using traditional trait-development methods—quicker, more efficiently and more cost effectively than would be possible using traditional trait-development methods.

The Market

From the S-1: “The United States is experiencing a dramatic increase in the prevalence of food-related health issues. In addition to being an underlying cause of some of the most prevalent diseases in western society, an unhealthy diet is a contributor to three of the ten leading causes of death: heart disease, diabetes and stroke. Approximately 43% of US deaths in 2012 were caused by these diseases. Furthermore, a 2010 study suggested that poor diet and diet-related risk factors, such as high blood pressure and high cholesterol, were linked to 63% of deaths.

As a result of the increase in food-related health issues, consumers have developed an increasingly heightened awareness of the role that dietary habits play in long-term wellness. This trend is especially prevalent in wealthier, developed nations where consumers have greater access to information that is helping to shift their consumption habits. According to a 2016 survey of U.S. grocery shoppers, 74% of the surveyed shoppers said that the food they eat at home could be healthier.

The Risks, Translated from SEC-speak into Plain English

Among the lowlights of reading S-1 registrations are the endless pages of risk disclosures couched in an alloy of SECspeak and legalese.

We offer these excerpts from the original S-1, and a translation into English, prepared by our Digest lexicologists.

In SEC-Speak: We are an early-stage gene-editing company. We have never commercialized a product candidate and we may lack the necessary expertise, personnel and resources to successfully commercialize any of our product candidates. Our products are still in development, and there is no established market for them.

In English: “That unfinished room in the back of the office with almost no one in it, that’s the commercialization department.”

In SEC-Speak: We have incurred significant losses since our inception, have no commercial products and anticipate that we will continue to incur significant losses for the foreseeable future. 

In English: “We became so good at spending Cellectis’ money that we’d like to spend some of yours, too.”

In SEC-Speak: We face significant competition and many of our competitors have substantially greater financial, technical and other resources than we do. 

In English: “This competitive edge will self-destruct in 10 seconds.”

In SEC-Speak: The successful commercialization of our product candidates depends, in part, on public acceptance of genetically engineered agricultural products.

In English: “With our secret ability to control consumer’s brains, we will command them to love GMO foods.”

In SEC-Speak: The overall agricultural industry is susceptible to commodity price changes and we, along with our food manufacturing customers and farmer customers, are exposed to market risks.

In English: “Don’t forget the wonderful years of Farm AId.”

In SEC-Speak: “We may need to raise additional funding, which may not be available on acceptable terms or at all. 

In English: We’re out of money!

In SEC-Speak: “Farmers may not recognize the value in our farmer-centric products. The commercial success of our farmer-centric products will rely on convincing farmers of the benefits to yield and natural resource usage.”

In English: “Not in my field will you put that thing!”

In SEC-Speak: “Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.”

In English: “Please watch Twister before investing.”

In SEC-Speak: “We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.”

In English: “We’re not suing anyone in friggin’ Burundi, so there.”

In SEC-Speak: “We depend on key management personnel and attracting and retaining other qualified personnel, and our business could be harmed if we lose key management personnel or cannot attract and retain other qualified personnel.”

In English: “Come work at Calyxt and enjoy our lovely Minnesota winters.”

In SEC-Speak: “Our independent registered public accounting firm has identified a material weakness in our internal control over financial reporting which requires remediation…there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.”

In English: Our earnings statements may be FAKE NEWS! and we wouldn’t even realize it.

Calyxt as it sees itself:  6 Competitive Strengths

From the S-1: “Our competitive strengths include:

 • Proprietary technologies creating a powerful platform to design and develop new products.

• Innovative portfolio of product candidates.. We are currently developing a diversified portfolio spanning across five core crops—soybean, wheat, canola, potato and alfalfa—and a multitude of product candidates.

• Significant barriers to entry. We command a first-mover advantage in the editing of genes in plants.

• Faster, cheaper and innovative product development. This contrasts with traditional genetic modification methods which we believe require thousands of plants to achieve the same result. We developed our high oleic soybean from concept to field in under four years and expect to commercialize this product by the end of 2018.

• Supply chain flexibility. We plan to develop consumer traits and leverage existing supply chain capacity and our existing relationships to provide differentiated specialty ingredients to food companies.

• A world-class management team with deep industry expertise.”

Financing to date

From the S-1: “We are an early-stage company and have incurred net losses since our inception. As of March 31, 2017 we had an accumulated deficit of $31.4 million. Our net losses for the three months ended March 31, 2017 and for the years ended December 31, 2016 and 2015 were $2.8 million, $12.1 million and $5.9 million, respectively.

Cellectis has guaranteed funding for our operations through August 2018, which guarantee will not be released, modified or otherwise affected by the timing of, or amount raised in, this offering.

The bottom line

Here’s the good news. It’s in the hottest tech area (gene editing) with the right focus (trait development) in a sector big and ripe for disruption (advanced nutrition)  The potential is gold — no doubt about it.

Couple of things we especially like: As CCO Manoj Sahoo told The Digest:

“We are not stopping at four. Where can we make the food for the consumers better? One advantage of bigger markets is that you can get scale. In more niche markets, it is about finding the right partners. And it’s months and quarters not years. We can do things much faster. Order of magnitude quicker. Especially the science part of it. I have not seen a team of scientists as capable as this team. We can do things in 18-24 months that other companies will take five years, because it is a simpler but more powerful technology.”

Here’s the bad news. It’s early. Commercialization is essentially in 2018, and this IPO is supposed to support that — while profits, growth are usually the drivers of IPO interest. But hot biotech offerings often turn the accepted wisdom on its head — and an advanced nutrition company with real fangs when it comes to disruption might be just the ticket.

The complete S-1 registration statement

All 180-or-so pages in their glory. The complete S-1 registration statement is here.

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