Calyxt, Inc.
Q2 2020 Earnings Call Transcript

Published: 9 Aug 2020

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Calyxt's Second Quarter 2020 Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. This conference is being recorded today, August 6, 2020. At this time, I'd like to turn the conference over to Chris Tyson, Senior Managing Director of MZ North America, Calyxt's Investor Relations Firm. Please go ahead.

[Chris Tyson:]

Thank you, and good morning. I'd like to thank you all for taking time to join us for Calyxt's Second Quarter 2020 Business Update and Results Conference Call. Your hosts today are Jim Blome, Chief Executive Officer; Bill Koschak, Chief Financial Officer; and Travis Frey, Chief Technology Officer. A press release detailing these results crossed the wires after the market closed yesterday and is available on the company's website, calyxt.com. Before we begin the formal presentation, I'd like to remind everyone that statements made on the call and 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 the company's SEC filings for a list of associated risks. This presentation also includes a discussion of adjusted EBITDA and gross margin as adjusted. Both are non-GAAP financial measures. In Calyxt's press release and its filings with the SEC, each of which is posted on the Calyxt website at calyxt.com. You will find additional disclosure regarding these non-GAAP measures. Reference to these non-GAAP financial measures should be considered in addition to GAAP financial measures and should not be considered a substitute for results that are presented in accordance with GAAP. Finally, this conference call is being webcast. The webcast link is in the Investor Relations section of our website at calyxt.com. At this time, I would like to turn the call over to Calyxt's Chief Executive Officer, Jim Blome. Jim, the floor is yours.

[James Blome:]

Thank you, Chris, and thank you for joining us today for Calyxt's Second Quarter 2020 Results Conference Call. Before I address the second quarter and the exciting advancement of our soybean products to a streamlined business model, I would first like to acknowledge our response to the COVID-19 pandemic. We have a dedicated and resilient team that continue to progress all our key projects through their development cycles throughout the second quarter, despite the impact of the pandemic. We have taken several actions to ensure the safety of our employees and our business, and I appreciate everything our team is doing to help ensure we stay safe and our projects remain on track. Calyxt was created with a mission to deliver disruptive, plant-based innovations with an initial focus on food and agriculture. With our high oleic soybean product, we were the first company to successfully deliver a proof-of-concept for food developed with gene editing technology. The success we achieved with this product has been amazing and represents a key milestone achievement for everyone at Calyxt. We quickly scaled up and within 15 months of our early 2019 launch, are supplying some of the world's largest companies in their respective industries. Having achieved proof-of-concept and pioneering regulatory success, we are advancing our go-to-market strategy for these products into a new commercialization program seeking to supply Calyxt's first product to large grain processors for their own soybean processing businesses. The first step in this new program is a sale of 300,000 bushels of soybeans to one of the world's largest processors. With this sale, the processor purchased our grain, and will market the oil, and we will market the meal. Moving upstream in this business enables us to capture greater value from our soybean product line sooner as we intend to partner with processors on the sale of seed and for the launch of future soybean product candidates. Finally, this transition focuses my management team on developing and capturing greater value from high-value innovations and plant-based solutions with substantial disruption potential. Our soybean product line is important to the success of Calyxt. It enabled much of what we are working on today that Travis will comment on later. A quick recap of the status of the soybean product line is as follows. Final 2020 planted acres were nearly 72,000 acres, representing a doubling of acres from the total planted in 2019. We have doubled acres 3 years in a row, demonstrating there is demand for products generated from our soybeans. In 2021, we intend to target seed sales to large grain processors, representing at least $3 million to $4 million in expected revenue as seed transactions will be revenue generating under the new go-to-market strategy. One of the world's largest processors has purchased 300,000 bushels of Calyxt soybeans, which represents a significant portion of the June 30, 2020 inventory. And the processor will retain the rights to process and sell the resulting soybean oil, while Calyxt will purchase and market the resulting soybean meal. We similarly aim to sell our remaining grain inventories and the grain that we are contracted to purchase from the 2020 crop year to large processes. Additionally, the talent mix for the next stage of our business must be adjusted and positions related to soybean processing and product sales are being eliminated. I would like to thank the Calyxt employees who separated yesterday. All of them helped us build a first of its kind business in the United States. Their contributions are valued, and I wish them well in their future endeavors. We expect upfront aggregate cash charges of approximately $0.6 million for severance and other related payments, and we expect to record a $0.9 million recapture of noncash stock compensation expense from forfeitures of unvested awards. We also expect to incur $0.5 million of additional cash charges over the next 12 months as we exit processing and transportation contracts. Most of the transition expenses will be recorded in the third and fourth quarters of 2020. The effective execution of our go-to-market soybean strategy decreases cash used by our soybean product line by over $45 million through 2022 and extends our cash runway into 2022. From our original focus on food and agriculture, today, our innovations have applications across a broad spectrum of industries. To drive value for our talent technology platform, our strategic focus is on trades with higher-margin downstream benefits for end users, differentiating us from others who are focused on traits developed to provide distinct benefits to the farmer. However, I do expect the Scientific Advisory Board announced today will offer ideas that could benefit growers and consumers over time. We will evaluate those along with other potential projects and prioritize those with the most attractive returns. Our commercial proof of concept, our strong intellectual property portfolio, and our position as a leader in gene editing, has led us to extensive talks with top companies across several industries, including food, pharmaceutical, energy, and agriculture. We plan to develop projects with partners that leverage our strength in trade development and gene editing and our partners' product commercialization expertise. Discussions with potential partners have focused on our development of plant-based solutions for specific downstream issues, including consumer preferences, sustainability, cost, quality, and regulatory compliance. By leveraging our partners' commercialization capabilities, this model will reduce our cash needs and enable efficient market penetration of Calyxt traits. We are well positioned to establish licensing arrangements based on our TALEN technology, expertise, and trade development, and leading know-how in gene editing field. Strategic licensing arrangements provide an opportunity for broad market penetration of our technology while we can achieve milestone or royalty payments through our licensees' commercialization efforts. For product development activities, our specific entry point into the value chain may vary by crop. Depending on several factors in crops like soybeans and wheat, we expect that the sale of seed to processors or other supply chain participants will provide the highest available margins and best path to delivering positive cash flow. For certain traits, we expect licensing arrangements to provide an efficient path to non-dilutive financing and potential revenue generation. With this, I would like to hand the call over to Travis Frey, our Chief Technology Officer, for an update on our commercial pipeline.

[Travis Frey:]

Thank you, Jim. I'm also excited about the advancement announcement made today and the possibility of delivering disruption to industries beyond food and agriculture using TALEN. As you know, our technology platform is founded on TALEN. TALEN is an advanced breeding technology that allows for precision targeting of existing genes within a plant's genome. The process is relatively straightforward. In the hands of our scientists, TALEN can be developed quickly. There are 4 steps, including identifying the DNA target, introducing the TALEN to the DNA and making the edit, observing the DNA repair itself, and then checking to ensure the outcome was as expected. We check exhaustively throughout the development process to ensure purity and confirm that no foreign DNA is present in the selected plans. TALEN has several important benefits compared to other editing platforms, which we believe makes TALEN the premier editing platform. TALEN can be engineered to bind any DNA sequence anywhere in the genome, regardless of how complex, resulting in a high degree of precision. TALEN is also very specific in how it matches to find a target and that specificity can be increased by simply adding more TAL domains. We believe our IP portfolio provides a clear path to commercialized gene-edited products. Our streamlined business model comprises 3 go-to-market strategies. First, licensing talent technology to third parties for use in their own development of specific traits for negotiated upfront annual fees and potential royalties from commercialized products. Second, trait and product licensing arrangements where we will seek to license Calyxt develop traits or products to downstream partners with commercialization expertise for negotiated upfront and milestone payments and potential royalties from commercialized products. Third, seed sales, where we will seek to negotiate agreements for the sale of seed with agricultural processors, including millers and crushers or others in the relevant crop supply chain, with these sales expected to generate revenue for Calyxt. Under the right circumstances, our licensing talent can be attractive for several reasons, including enabling others to advance the technology or for product ideas for which we do not have the time or resources to pursue. We intend to be strategic about how and to whom we license this technology. For each product candidate, we will evaluate which go-to-market strategies provide for the greatest value creation and most efficient path to bring the product to market. Our core go-to-market strategies provide differentiated path to commercialization and have the potential to resolve in cash payments throughout the development cycle. While we are using one of our licensing go-to-market strategies, we have 2 similar financial models. In the case of the TALEN license, we expect to receive fees upfront and then annually from any prospective licensee. Upon commercialization, by the partner, we expect to receive ongoing royalties. In the case of a trade or product license, we expect to receive fees upfront and then upon the achievement of major milestones from our partner. The earlier partners are identified, the more the development expense we can recapture from these payments. Upon commercialization by our partner, we expect to receive ongoing royalties. Revenue and cash may not be the same for upfront annual milestone payments due to the nature of the accounting rules that govern these types of transactions. However, we expect royalty revenue and cash flow to occur at the same rate. When using our seed sale go-to-market strategy, we expect that revenue generation will be driven by the seed sales, but we may also receive fees upfront based on the size of the opportunity. With these core go-to-market strategies, we are targeting high double-digit margins over time, depending upon the level of ongoing investment required by Calyxt. As we evaluate each opportunity, we assess the various go-to-market strategies and how each affects our ability to generate free cash flow. We then strive to bring the idea to market using the preferred strategy, always engaging potential partners as early as possible to enable the greatest value creation. You will see the pipeline shift as we go forward from proof-of-concept projects to new more disruptive projects in these same crops as well as several new ones. A couple of highlights from the pipeline include

[William Koschak:]

Thank you, Travis. I'm also excited by what is possible for Calyxt. Yesterday, we issued a press release describing our second quarter 2020 results. We also filed our Form 10-Q. Both documents are available on our investor website. Revenues increased by $1.9 million or 465% from the second quarter of 2019 to $2.3 million in the second quarter of 2020. The revenue growth was driven by 487 basis points of volume and 16 basis points of favorable product mix as we sold more oil in 2020 as a percent of total revenue than in 2019, both partially offset by 37 basis points of pricing, primarily the result of lower meal prices than the prior period. High oleic soybean meal was 79% of revenue in the period compared to 89% a year ago. Most oil revenue in 2020 was from a single customer, purchasing our oil to be used as a plant-based alternatives to synthetic fluids, and we expect to fulfill their remaining orders over the next 3 months. Gross margin, as reported, was a negative $3 million or a negative 131% in the second quarter of 2020, a decrease of $3.1 million from the second quarter of 2019. The decrease in gross margin in the second quarter of 2020 reflects the higher costs we've experienced during the high oleic soybean products proof-of-concept period. Primary drivers of gross margin, as reported, were net realizable value adjustments to inventory based on expected selling prices, bringing processing costs and a significant amount of excess seed produced for 2020 plantings. Gross margin as adjusted was negative $0.8 million or a negative 34% in the second quarter of 2020 as compared to a negative $0.3 million or 69% and in the second quarter of 2019. You should refer to the section of this deck regarding the use of non-GAAP financial information for a discussion of gross margin as adjusted and a reconciliation to the most comparable GAAP measure. Operating expenses were $8 million in the second quarter of 2020, a decrease of $1.6 million from the second quarter of 2019, driven by a decrease in Section 16 officer transition expenses of $0.5 million, $0.4 million of lower management fee expenses and $0.4 million less noncash stock compensation expenses. Net loss was $10.9 million in the second quarter of 2020, an increase of $1.5 million from the second quarter of 2019, driven by the increase in negative gross margins and partially offset by changes in operating expenses I described previously. Net loss per share was negative $0.33 per basic and diluted share in the second quarter of 2020, an increase of $0.04 per basic and diluted share from the second quarter of 2019. Adjusted EBITDA loss was $6.5 million in the second quarter of 2020, a decrease of $0.1 million from the second quarter of 2019. Here too, you should refer to the section of the deck regarding the use of non-GAAP financial information for a discussion of adjusted EBITDA and a reconciliation to the most comparable GAAP measure. Net cash used in the first 6 months of 2020 was $24.8 million compared to $17.3 million in the first 6 months of 2019, driven by the increase in net loss of $5.2 million and a decrease in cash flows from operating assets and liabilities, primarily the result of higher cash payments to growers and the halting of crush activity in early May. When looked at by activity, our soybean products consumed $10.1 million of cash in the first 6 months. Employees consumed $7.4 million, including the payment of 2019 incentives. R&D suppliers and professional services firms were the majority of supplier expenses and other expenses were primarily management fees, rent, and utilities. Calyxt expects its cash usage to improve in the second half of 2020 as it sells grain and its burn rate is reduced because of the headcount reductions. Looking forward, on an annual basis, we expect our burn rate to decrease by approximately $5 million annually when combined with other cost savings measures we have already implemented. Cash, cash equivalents, short-term investments, and restricted cash totaled $35.3 million as of June 30, 2020. On May 7, 2020, Calyxt issued 2020 financial guidance revisions and suspended guidance for revenue and adjusted gross margin that considered the impacts of the COVID-19 pandemic. Considering our announced results for the second quarter, the advancement of our soybean product line, and including the sale of an expected percentage of grain that we are contracted to purchase in the fourth quarter, our base case 2020 revenue expectation is between $17 million and $19 million. Cash usage for 2020 is expected to range between $43 million and $45 million, which includes an investment in accounts receivable and inventory at the end of the year of between $15 million and $17 million. Our target is to convert the year-end 2020 investment in inventory and accounts receivable of between $15 million and $17 million to cash in the first 60 days of 2021. Based on this grain purchase plan, our grain revenue in 2021 is expected to be between $22 million and $24 million with seed revenue incremental to that amount. We are able to complete the sale of all grains we are contracted to purchase in the fourth quarter of 2020, our revenue would increase to between $23 million and $25 million, with a corresponding decrease in 2021 grain revenue, and if we collected all of the related receivables, our expected cash usage in 2020 would be in the range of between $32 million and $34 million. The advancement of our soybean products to a streamlined business model focused on seed sales to agricultural processors positions Calyxt with an upstream go-to-market strategy that, over time, substantially reduces Calyxt's significant working capital investment, its exposure to the commodity markets, and complexity in the business model. From a financial standpoint, an effective advancement enables Calyxt to reduce its cash usage and realize higher gross margins faster and will extend our cash runway into 2022. Moreover, the migration upstream in terms of our soybean business with large processors also accelerates our trajectory to achieve positive cash flow from operations as the cash flow is expected from products coming to market by 2023, utilizing our differentiated go-to-market strategies are all expected to be accretive to gross margins and cash flow generation. During this period, and given the complexity of the time frame in multiple contracts, Calyxt is unable to provide guidance with respect to our gross margin. However, management is focused on cash usage and developing new partnership arrangements, leveraging our streamlined business model with differentiated go-to-market strategies. I would like to now turn the call back to Jim.

[James Blome:]

Thank you, Bill. We proved the gene-edited food product could be developed, launched with commercial success and now have found a more optimal way for it to be monetized in a business model that fits our company well. We will now focus our R&D and business development efforts to provide our shareholders with the benefits of a low complexity and highly accretive business model, characterized by lower non-R&D funding needs and over time, a higher-margin recurring revenue stream that also does not require a 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 will propagate future projects and will further sharpen our gene editing excellence and build on our successful track record and rapidly growing intellectual property portfolio. In summary, Calyxt's focus on disruptive innovation, utilizing plant-based inputs has energized our entire team. Through our streamlined business models 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 free cash flow. We believe the advancement of our soybean products and anticipated cash receipts from our product development efforts with partners extends our anticipated cash runway into 2022. I'm incredibly proud of our team for what they have built and how Calyxt is now positioned. We look forward to sharing more on the developing story at the upcoming 40th Annual Canaccord Growth conference on August 11 through 13; the Intellicyte 2020 Virtual Conference on August 12; the LD Micro Virtual conference on September 1 through 3; and the 22nd Annual H.C. Wainwright Virtual Global Investment Conference on September 14 through 16. Further details with respect to the key projects and business model will be communicated during Calyxt's soon to be announced Virtual Analyst Day in the fall of 2020. With that, I'd like to open the call for any questions. Operator, please go ahead.

[Operator:]

[Operator Instructions]. We can now take our first question. It comes from Ken Zaslow of Bank of Montreal.

[Kenneth Zaslow:]

Just a couple of questions. One is, can you frame the different products by how big the opportunity is, but the -- some sort of framework that we could kind of use by product of how big these products could be in terms of either the revenue generation, the licensing agreement, how do you think about them in order of magnitude?

[James Blome:]

Ken, thanks for the question. As we think about it, what we're focused on is how quickly can we get to positive cash flow and that cash flow could come from several sources, as Travis mentioned. As we think about the size of the opportunities, the ones that are in front of us are all significant. I think if you used an acreage projection for our HO soybeans, as you probably thought of before, that would be a great example of how to think about it. And for us, it's all about finding a partner to commercially plant in the case of a seed product. That particular opportunity or in the case of a trait, working with somebody to land on an idea and work through how we develop it. Our germplasm, their germplasm, we'll work through what that looks like.

[Kenneth Zaslow:]

When do you think you'll be cash flow positive [indiscernible]? When will you hit that milestone?

[James Blome:]

We haven't specified a particular year, but it has been accelerated from where we were under the prior go-to-market strategy for our soybean product.

[Kenneth Zaslow:]

And then my last question. On the soybean side, where you're no longer marketing your soybean oil product. Is that the understanding? But why would you keep the soybean meal? And how much of the product is already presold through grain processes? I know you said 300,000 to 1. But is the rest of the product? How do you think about [indiscernible] there?

[James Blome:]

So for the first of these sales that we're undertaking, the agreement specified as it was where they bought the grain, marketed the oil, and we market the meal. A significant portion of that meal has already been sold, and we expect to sell it all very quickly following the crush, which is going on now. We don't expect that to be the case going forward. We expect future sales to be just straight sales of grain, and we don't have to market anything..

[Operator:]

We can now move along to our next question. It comes from Ben Klieve of National Securities.

[Benjamin Klieve:]

First one regarding operations this year and planted acreage versus contracted acreage. What drove the planted acreage down to the 72,000 figure from your contracted acreage of 100,000?

[Travis Frey:]

Thanks, Ben. Good question. We targeted and had contracted over 100,000 acres. And as you saw last year and even this year in our targeted area, we didn't get all of the acreage planted that we had contracted due to some late weather and some issues with weather. But also as we evaluated some of our oil markets going forward, we also took some action to reduce contracted acres from planted acres due to the severe weather and the later planning dates and anticipated yields in combination with lower oil demands due to COVID.

[Benjamin Klieve:]

Turning to the next 12, 24 months here as your business transitions from the model that it had been to this new model here. The seed revenue that you guys are targeting for next year of $3 million to $4 million. Can you help us understand a couple of things from that? One, is the processor that you are currently working with for the 300,000 bushels, the same processor that will be purchasing seed in your view? And then how do you look at that maybe $3 million to $4 million number evolving over the subsequent year or two after next year?

[James Blome:]

Yes. Thanks, Ben. We're talking with several processors who have agronomy services and integrated processing arrangements. And so we will finalize those agreements with that group of people, and they're all fairly large processors. When we look at next year's $3 million to $4 million in seed, and that will be revenue under this type of agreement versus the way we're doing it now. It will be recognized revenue. We also will take our lead from our processor partners to see what oil demand return looks like. And we'll have the ability to supply seed beyond that if we get the indication that oil -- the oil markets have come back and will require that from our customers.

[Operator:]

We can now move along to our next question. It comes from Bobby Burleson of Canaccord.

[Bobby Burleson:]

So a couple of questions, more focused on consumer acceptance. You guys have established yourself as the first to commercialize or deliver real proof-of-concept on gene-edited food. Can we get your thoughts on how consumer acceptance evolves there. Obviously, a lot of pushback on GMO. Do you think that this distinction between GMO and gene-edited over time allows some of the gene-edited products to go into that non-GMO grain market?

[James Blome:]

Yes, good question. We've had -- on consumer acceptance, had really great response from our first product on the market. And as you know, we're the first person to go through that regulatory process. It is a different process from GMO because the finished product has no foreign DNA in it. So that's an easy thing to explain. It's helped expand our consumer acceptance. We're marketing our oil through the 2 largest foodservice companies in the United States with good success. And we're also seeing soybean oil replacing several other imported oils and some GMO oils. And so we see that as a bright spot. As we continue to support the United Soybean Board's penetration of soybeans, U.S. grown soybeans as a replacement for some of the imported oils. And so we'll continue to promote that. Non-GMO is part of that, but the help, the trans-fat and the other benefits have helped us with this product and local versus imported has been an important part of that. So I think the more products that come out under gene editing, the more education we continue to put in about the differences between the 2 and the comfort with this. Focusing on consumer health benefits has helped in this story and differentiation.

[Bobby Burleson:]

Q And you mentioned local versus import. It seems like the non-GMO grain is imported right now. We don't have the infrastructure really to move grain around and segregate it here. Do you see that infrastructure evolving to allow more local non-GMO grain across some of these other categories to really support transportation and kind of segregation of that grain?

[James Blome:]

That's a good question. We're seeing more and more identity preserved in non-commoditized crops being grown. So there are companies that specialize just in doing that. And we're seeing larger and larger companies spending -- appointing a portion of their large assets to this because the consumer wants it and tends to pay the premiums for it, and it brings American farmers back into some of these markets. So at these commodity prices on a global level, all local farmers are looking for an alternate revenue source or model. And these types of this drive coming up has driven all processors and even elevators to look for ways to separate out and get a premium for what the consumer is seeking right now.

[Bobby Burleson:]

And then just one about the hemp genetics that I assume get better predictability in terms of staying under the 0.3% THC requirement from the Farm Bill to qualify as hemp. And if that's been difficult for some hemp growers and some of the CBD oil processors. With legalization talk heating up, given the election season coming, broader cannabis legalization, would that impact demand for your genetics and hemp, if you see broader marijuana federal legalization?

[James Blome:]

Our hemp research and our hemp products are specifically limited to hemp, which means we have a THC level below 0.3%. Our focus is really around building hemp into a broad acre enabled product. And that means taking some of the risks out for growers and lenders, making sure that we can deliver very, very low or no THC levels, take some of the risk out of it for a grower who could risk potential loss of his entire crop [indiscernible] acreage if he goes beyond that. We're working to provide a product that isn't at risk of contamination from pollen and other things coming in for yield reducing into the crop. So that takes another risk away from growers and particularly ag lenders that are looking at this crop. And hopefully, what we're doing to provide a broad acre enabled crop will allow the farm program or the ag policies to engage this into national policy and put it into crop insurance plans and other things, and enable the crop to be a nice alternative, going back to the question before, for people looking for green high-fiber building materials and essentially a great source of protein. So those are the types of things that are possible if you knock down these other barriers. Our first foray of the hemp are about taking the first step in enabling this thing to become broad acre and mechanization, and in levels, and in lending, and in policy so that it can be considered for things certainly much broader than just the CBD oil market.

[Bobby Burleson:]

And then just curious whether or not you guys see an opportunity for plant-based [indiscernible] production that doesn't involve trans genetics. Impossible Foods got some pushback on their GMO in their Impossible Burger. But is there a way to generate sufficient amount of heme through gene editing, potentially through TALEN without trans-genetics?

[James Blome:]

Yes. We find this whole area of a big one for plant-based solutions, which is what we do. And so protein -- the plant-based protein replacements are an important part of our laboratory work and what we're working on. And Travis will tell you that a lot of this of what you're talking about is really about flavor and texture and different ways of addressing that. One company has chosen the path that you put out. We think there are other ways with our editing platform that we can go about the same problems, address the same solutions in a non-GMO approach.

[Bobby Burleson:]

Okay. Just one more quick one. Go ahead. Sorry, Travis.

[Travis Frey:]

I will echo what Jim said. It's a focus of ours. You'll see on our list of the pulses and the plant-based protein. We feel the key there is obviously flavor, and we will be looking for -- and we are developing ways to go after that part of the market and provide solutions that consumers are demanding right now.

[Bobby Burleson:]

Just one more quick one. It sounds like with a shift in go-to-market strategy, you guys don't foresee additional kind of heavy lifting in terms of proof of concepts to the degree that you had to deliver for the high oleic oil. It sounds like maybe that proof-of-concept for that work you did now maybe satisfies that need more broadly for TALEN for gene-edited food. And you're not going to be as capital-intensive in wheat and some other areas. How are you able to skip this step? Is there just you see kind of broader buy-in [indiscernible] initially here?

[James Blome:]

Good question. We're very proud of the pioneering work we did in regulatory and bringing the first product to the marketplace. And you'll see today, we described how we're advancing our business model from something that can be done with gene editing to really unique products that really extrapolate the value and unleashing the value of TALEN to really go after things that are really real problems and very unique problems in the marketplace. So that change and the speed at which we want to penetrate these markets led us to the 2 choices we said today. One is to move to a seed-based and go with partners who are very good at commercialization. And the second thing we announced is to broadly license or look at the opportunity to put TALEN in others' hands to bring these types of products to the market quicker. It's differentiating our revenue streams. It's getting faster and broader consumer acceptance. And it's really instead of having to do all of the heavy lifting, as you said, in areas that are not our core strategies is sales and marketing on the consumer end, partnering with some of the largest companies in the world. To do that and be prepared for the market when we bring the product for commercial launch as a seed.

[Operator:]

We can now move on to our next question. It comes from Adam Samuelson of Goldman Sachs.

[Adam Samuelson:]

Jim, Bill, Travis, I mean I'd love to get -- you have a pretty significant change in business strategy, fundamental change in business strategies that was announced this morning. I'd love to just get a little bit more reflection on the decision process that's put you down this path versus the prior commercialization kind of path that you were on. Obviously, it's something that you've been working towards. But help me think about how COVID might have accelerated this decision, how the adoption on the high oleic oil side with various food service and consumer branded packaged food companies might have influenced the thinking, kind of discussions with different financial parties as you thought about financing the working capital of the old model. And just how you kind of arrived at this being the right approach versus others? Or I mean, did you evaluate the sale of the company just from the value of the underlying technology? Just help me put that all together a little bit.

[James Blome:]

Sure, Adam. We built the system we built because no one had one to model after or to rent. So we felt it was really important as pioneers to prove that it could be done through the regulatory, through the growing, through the processing and through the marketing. And we did that. We had rapid expansion in 15 months and felt very good about it. One of the reasons we felt very good about our progress was at the beginning of this year, we were getting acknowledged by some of the largest companies in certain industries that they started bringing problems to us and our discussions ramped up quickly and different ideas and ideations and contacts, which led us, I think, was the success and the notoriety around the first proof of concept. So absolutely the right way to go for that period of time would have built the base for the ideas and the difference and the faster penetration ideas that we were getting with these new ideation and contacts we were having. So your second part of your question was how did COVID happen to appear at that same period of time. And I would say only that in the decrease in the restaurant business and the pause that we put on our crushing schedule to conserve cash and do certain things in that great period of uncertainty that we're still in. It allowed us the time to reconsider this as well and to implement this. So slightly related and provided the pause and provided it, but it was really, I think, built on the success, the notoriety, the contacts we were getting, the ideation we were getting. And in that pause, that said, I think we have proven to the world where we were at with that. It was the right way to do it. And it's now time to advance faster our business plan to these higher margin, more unique and disruptive plant-based solutions.

[Adam Samuelson:]

And then just thinking about the next 18 to 24 months. Obviously, there's some change in the corporate kind of structure that you announced concurrent with these results. As we think forward and what's the OpEx base of the company look like for the next couple of years as you start to engage with different other parties on different licensing or seed sale opportunities? Just trying to get a sense of what that -- how stable does the cash burn stay from an OpEx perspective? And does that have opportunity to grow if you actually have success? Or is there a leverage in that OpEx base moving forward?

[William Koschak:]

Good question, Adam. And from that perspective, our R&D expense last year was $12 million. We expect that to be similar in 2020. And looking forward, obviously, it will become the focus of our investment activity for both OpEx and CapEx. We do expect it to grow year-over-year over the next couple of years, knowing as well that product development agreements with partners should -- to the extent we get cash, at least partially, if not fully, offset whatever increases we have in R&D. Our goal is to actually fund part of that R&D through these types of agreements that we will strike over the next couple of years. From a G&A perspective, I'd expect it to be relatively flat over time. As we've said before, our investments there are largely behind us and anything that we would add would only be to support the R&D organization.

[Operator:]

[Operator Instructions]. We'll then move along to our next question. It comes from Robert LeBoyer of Ladenburg Thalmann.

[Robert LeBoyer:]

Just quickly. The previous strategy for expansion has been based on working with co-ops and existing entities in the supply chain to expand into different states and grow the number of farmers that are actually using your seeds. What I've seen today is that the new go-to-market strategy is using grain processors. So I was wondering how that fits with regional expansion or if regional expansion and penetration has been put on hold until the situation stabilizes? Or just how these 2 things fit together?

[James Blome:]

We have changed how we go to the market, but we haven't changed our research and development program. So we're continuing our breeding programs. We introduced 5 new varieties of soybeans to expand geographically. We're continuing to do that. And as we heard announced, our high oleic low linoleic product, our new entry in 2023 is also being developed and expanded geographically with the same types of thoughts that went into that. So we'll be seeking partners in integrated grain processing that also have access or own an agronomy or an agronomy company as well that can get these acres planted. And/or we have these contacts and great partners. We can be the intermediary and put them in direct contact with them to continue on as a base. That's up to them. But I think that would be an opportunity as well. So we're open to that. We've built a wonderful system. We have great partners that have brought us to this point. And it can be a part of the go forward, but that's up to the seed purchasing company that -- how they want to get it planted and harvested.

[Operator:]

This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Jim Blome for his closing remarks. Thank you.

[James Blome:]

Thanks to everyone for joining us on the call today. We have a dedicated and hard-working team at Calyxt who push themselves to further our mission every day. A sincere thanks from all of the management to all of you. We couldn't do it without you. Lastly, if we were not able to address all your questions on today's call, please feel free to contact us or our Investor Relations firm, MZ Group, who would be happy to answer them. We look forward to providing more updates at our Virtual Analyst Day in the fall of 2020, and that concludes our call for today. Operator?

[Operator:]

This concludes today's conference. Thank you for participation.