Moolec Science SA
Q1 2024 Earnings Call Transcript

Published: 14 Dec 2023

[Michael Bowen:]

Good morning, and welcome to Moolec's Conference Call. My name is Michael Bowen, from ICR's, Strategic Communications and Advisory. [Operator Instructions] Please also note that today's session is being recorded. Moolec announced today's first quarter fiscal year 2024 business highlights yesterday after market closed. The document is now available on the company's Investor Relations website at ir.moolecscience.com. This morning, you will hear from Gaston Paladini, Chief Executive Officer and Co-Founder of Moolec Science, together with Amit Dhingra, Chief Science Officer; and Jose Lopez Lecube, Chief Financial Officer. In today's call, we will be referring to a presentation that will be available on the company's Investor Relations website. This conference call is mainly for informational purposes only. And during this call, the company will be making some forward-looking statements regarding future events and results. Statements that are not historical facts, including, but not limited to statements about the company's beliefs and expectations are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. Further information regarding these and other risks will be included in the company's annual report on Form 20-F filed with the SEC, later also available on our Investor Relations website. Now I would like to turn the call over to Moolec's CEO to comment on our business and recent developments. Gaston, please go ahead.

[Gaston Paladini:]

Thank you, Michael. Hello, everyone. I am happy to present our quarterly business update conference call. I want to thank you all in advance for your interest and support. Not much time has passed since our last update, but this quarter has been another solid period of performance and development. After having a great 2023 fiscal year, where we announced many great breakthroughs in our development, we certainly continue to steadily deliver and execute on our strategies. I would like to start by outlining today's agenda on Slide 3. First, let me briefly review Moolec's business opportunity. Second, our Chief Science Officer, Amit Dhingra, will walk you through our latest scientific and operational progress. Third, Moolec's Chief Financial Officer, Jose Lopez Lecube, will go through our financial highlights from Q1. Let's move now to Slide 4. This morning, I will start our remarks by quickly reemphasizing the important work we do here at Moolec. Moolec is using science to bypass dependence on animals by genetically engineering plants to produce the proteins of animals in addition to the native plant proteins. Moolec is at the forefront of contributing a solution to the current unsustainable food industry. We are a science-based food ingredient company using molecular farming, a cutting-edge technology to move away from traditional practices and over-consume resources and contribute to excessive gas emissions. A cutting-edge technology to move away from traditional practices that over-consume resources and contribute to excessive gas emissions. Let's move now to Slide 6. To quantify the massive market opportunity ahead, we are exposed to a very large agro-market sitting in an $829 billion market by 2025, mostly represented by processed meat such as burgers, sausages, meatballs, ground meat, nuggets, cold cuts, et cetera. Moolec focuses on these big markets on top of their genetic protein niche due to the good scientific and product development results we have obtained. And in comparison to the chart we showed last quarter, we have included iron supplementation as one of our addressable markets. Our ingredients can be applied not only to the food ingredient industry but also to the pharmaceutical, nutraceutical, supplementation and others. I would like to comment on our product development and research team for their excellent work in developing revolutionary products. And I would like to hand the call over to Amit, Moolec's Chief Science Officer, to comment on our scientific and operational progress. Amit, over to you.

[Amit Dhingra:]

Thank you, Gaston. I will provide an update on our scientific and operational progress section of today's agenda. Let's go to the Slide 8. First, I will highlight the progress on our gamma-linolenic acid, safflower oil, which we call GLASO. During the first quarter of fiscal year 2024, which corresponds to calendar year June to September 2023, we successfully harvested 35 hectares of GLASO with a notable yield of 1.8 tons per hectare, which exceeds average yields by approximately 50%. At the same time, we maintained expression levels of up to 60% from the previous harvest, exceeding our original expectations by 10%. We have been in the process of scaling up our operations as we move towards commercialization, and we expect to plant between 100 to 350 hectares in fiscal year 2024. In 2025, we still have plans to harvest, crush, and market our 2024 GLASO seed. And we continue to actively engage in discussions with potential clients and partners to expand and advance our GLASO business. This will result in risk reduction as we prepare to launch our inaugural molecular farming product. Moreover, it represents a crucial step towards diversification in terms of our product portfolio, as well as resilience against potential challenges from weather and geography. On to Slide 9. Let us walk together through our process of discovery to selection to get that one selected event of molecular seed for our soy 1, the first product of our piggy soy platform. Our ultimate goal is to get to that one transgenic event that has the best combination of the highest expression level of animal protein and yield performance. Then that seed is multiplied for further work. For discovery, we started by synthesizing DNA or the gene coding for animal proteins of interest. After that, the gene was inserted into an expression vector. As I explained to you during our first conference call in May, 2023, a vector is like a truck that allows us to deliver the cargo of gene expression components into the cells and integrate the DNA coding for animal protein into the plant DNA so that the animal protein can be expressed stably in the transgenic lines through different generations. During the genetic transformation stage, vectors are inserted into plant chromosomes. Plants expressing the desired animal proteins were then selected by using PCR and were grown in cultures. In this project, we first started with 550 zero generation or T0 transgenic events that were narrowed down to 256 transgenic generation 1 or T1 events using PCR tests that allowed us to know whether or not those events contain the desired animal protein genes or not. Thereafter, the remaining events were further narrowed down using the main KPIs from the plants where we finally selected 140 second generation transgenic or T2 transgenic events. We are currently at the developmental stage. We have just finished harvesting and analyzing our third generation or T3 transgenic events using animal protein level of expression as our key selection criteria. I will discuss the results in the next slide. To complete the process first, we will select some of these transgenic events and we will test them in the field to see how they behave under real agronomic conditions in order to finally select the best event. In the next slide, I will provide details about the expression level of the animal protein, which is myoglobin observed in the soy 1 seeds. Slide 10 shows our soybean seeds consistently expressing high level of myoglobin both in the second and third generation of seeds. The exceptional expression levels of myoglobin achieved in the piggy soy platform remains consistent across two generations. This chart shows 16 selected events and the corresponding level of animal protein expression for transgenic generation number 2 or T2, which is the green bars. And that was tested in June this year. And generation number 3 or T3 represented by gray bars tested in November this year. You can see that the expression values for T3 correlate with T2. While expression values reached up to 26.6% total soluble protein in the T2 generation. And in T3, we were able to achieve 20.4% total soluble protein expression in one of the lines. Overall, this is a demonstration that the animal protein continues to express stably through the generations. We expect these expression values to stabilize with the advancement of generations and identification of completely homozygous lines. I would also like to point out that these T3 expression analyses were performed at our own lab, the Moolabs located in College Station, Texas. As depicted in the prior slide, we will finally narrow our selection of events to the one best candidate after testing the performance of several selected events in the field. Now, an update on our fully equipped molecular biology lab. I'm very pleased to share with you that Moolec has successfully set up Moo Labs, a fully owned plant molecular biology lab in a research incubator space operated by Texas A&M University College Station, Texas. Our lab became fully operational in September of 2023. And this is where I oversee our plant molecular farming team. As I said, the lab is currently 100% operational and our aim is to focus efforts here in the molecular characterization of the transgenics produced by Moolec. The company is able to now perform a significant part of R&D in plant biology projects here at this location. Compared to conducting research via third party labs as done in the past, the initiative to centralize Moolec's molecular farming research will establish a clear chain of command, facilitate quick implementation of decisions, ensure higher standard quality control, and improve the timeliness and quality of work while reducing costs. These new facilities have already come to generate cost and time savings for each of the phases of the R&D projects we've completed there thus far, which have demonstrated, accelerated and streamlined development compared to the use of third party labs. Overall, I would like to thank my research team for the quality work they've been producing. I will now hand it over to my colleague, Jose, for the financial overview. Thank you.

[Jose Lopez Lecube:]

Thank you, Amit. And good morning to everyone. It is a pleasure to be providing Moolec 's business update for the first quarter of fiscal year 2024. Today, I would like to take some time to review our latest highlights with regards to revenues, expenses, and gas utilization. Please keep in mind that all numbers mentioned today are in U.S. dollars, unaudited, and based on IFRS, unless otherwise stated. During the first quarter, revenues increased to $1.7 million versus $0.9 million in the last quarter, representing a growth of 92% quarter-over-quarter. This growth was primarily driven by a full quarter consolidation of our acquired business versus only two months last quarter. In addition, revenues were also positively impacted by higher average pricing and higher volumes than last quarter. In terms of costs, our operations benefited from stable soy origination from local farmers and more favorable market conditions. As a result, there was a cross margin increase versus last quarter. Quarterly expenses have remained in line with our historical track record with no significant changes except for admin expenses of approximately $1.9 million, which were significantly lower than last quarter. Admin expenses in the previous quarter of approximately $3 million were exceptionally high, mainly due to one-time items such as accounting provisions and end of fiscal year non-cash payments. Finally, our operational cash utilization, this quarter of approximately $1.8 million remains in line with our historical track record of controlled cash expenses while supporting R&D progress. As mentioned in our previous earnings call, Moolec has recently closed a capital raise with strategic investors resulting in $10 million of cash contributions and $21 million of income in-kind contributions, which strengthens our liquidity position. We are pleased with the evolution of the business this quarter and remain focused on the execution of our R&D pipeline. I would like to take some time to thank our partners and investors for their support as we continue to work towards building value for our stakeholders. I will now turn things over to Michael for the Q&A portion of our call. Thank you.

[A - Michael Bowen:]

Thank you, Jose. At this time, our management will be taking questions. You may submit questions through the chat box directly to me or by using the hand-raising function. We ask those who would like to participate in the Q&A session to right-click their image, click rename, and enter their firm and full name before asking a question. Okay, thank you, everybody. While we are assembling a roster of questions, we've had a couple come in over the Internet and email. So I will start off by asking them now. So give me one second. Okay, the first question is, what are the biggest advantages of setting up Moolab at Texas A&M? Why is it such an advantage to not use a third-party lab as you've done in the past? And then finally, could you help us think about the cost savings as a result of setting up Moolab? Thank you.

[Gaston Paladini:]

Well, thank you so much, Michael, for the question. Good morning to everyone. Thank you so much for attending our business at day-to-day. Well, personally, I'm really happy to have a self-owned molecular biology lab in Texas. And there's a lot of upsides by getting our lab running now, fully operational with our team. I'm happy also that Amit Dhingra is here and he's leading the lab itself by being located in Texas. So hand it to Amit to fully explain the benefits, the upsides, the savings, you know, because when we - going back to when we founded Moolec, it makes sense at that time to start working with third parties, with great partners. But now that the progress and the great masters are getting now to a very good result, we need to take control of that intellectual property and about that seeds and all the processes. So there's a lot of upsides by getting our lab. I'm sorry, Amit, please go ahead and give more colors about the...

[Amit Dhingra:]

Sure. Thank you, Gaston. And good morning, everybody. Thank you for joining us today. So there are different phases of this discovery and development piece. The big part is that there are certain aspects of the work that we had outsourced, but now that we do have those transgenic events, we need to move rapidly towards deployment, scale up towards market. So how do we get there is we want to control all that material. It really provides protection to our intellectual property, of course. But also we can be - we are very nimble. If we need to do different types of analyses, we don't have to go farm it out because every time we do that, we waste time. At this particular stage, it really makes us more efficient in cost savings. Also, we are not paying overheads to a third party for their work because that's all our work itself. And we have access to some excellent scientists, plant biologists, senior plant biologists in our group. Bruce Williamson, who's really - he's very well trained in different areas and can really move very quickly. Thank you.

[Michael Bowen:]

Okay. Thank you for that. Actually, at this point, we're going to take our first question from Brian Wright from ROTH MKM. Brian, I'm going to - we're going to unmute you. I'm going to let you ask live. So give that a try. If not, I can read your question. Go ahead.

[Brian Wright:]

Thanks. Sorry about the operator error here, I'm sorry about that. Thanks for allowing me for the question. First of all, congrats on both the financial results and on the operating and R&D development during the quarter. What I was just struck with is just given those yields on GLASO are so impressive, just thoughts on potentially accelerating that commercial development or even advancing that commercialization model to maybe a royalty-based model to kind of get in the market quicker. And just kind of like your thoughts on that.

[Gaston Paladini:]

Sure. Well, thank you so much, Brian. And yes, we are happy for this strong GLASO yields. We are happy because, by the way, the timeline is on track. And this is very important, specifically in the scale-up stage. To get the proper amount of seeds, of tons of seeds, do not forget that we went from a bunch of grains to tons. So everything is on track and we are happy about that. We are not expecting to accelerate the process because this is a part of the process. We still need to crush the grains and get the product into the market. But we are quite optimistic of that process so far. Going to your second question, royalty model, I want to point out that the royalty model is always a possibility in Moolec since we are focused on intellectual property and get our own IP for our own seeds. This option could be executed to expand different territories. Talking specifically about GLASO, we are focusing this product in the U.S. and we are getting fully control of the process of our seeds. So it's an option, it's a possibility, we are very open to explore it. In the meantime, we are focusing the process to get fully control of our products and deliver it to customers directly.

[Brian Wright:]

Great, thank you. If you don't mind, I've got a couple more. Or I could go back in queue, whichever works best for you all, for the team

[Gaston Paladini:]

No, no, go ahead.

[Brian Wright:]

Okay, thank you. It looks like the T3 for piggy soy, really strong again, up around that 20% level. Is that where you think, as you go from T3 to T6, is the thought in, that's well above your initial expectations to begin with by multiple factors. But is that kind of a reasonable expectation for like when you get to T6, in that 20% content range?

[Gaston Paladini:]

Well, first, I'm glad that you are putting focus on the level of expression, because definitely the level of expression is one of our main KPIs, of scientific KPIs. Don't forget that when we started, our first expectation was 5%. Now we are talking about 20%, so that's amazing. But I will pass to Amit to fully explain how the level of expression will continue, without our expectation for the future generations.

[Amit Dhingra:]

Hi, Brian. That's a great question. And since you have seen - when you get a chance to see the slides, we can tell that the expression level is still stabilizing. So in T3, we are at 20%, which means that we expect these levels to stabilize around this level. And of course, when we do agronomic, when we do field trials, that's when the real answer will come out. We can expect there is equal possibility that we might even get higher levels, because of proper fertilizer use, proper photosynthesis in the field as well. So we're very optimistic based on what we've observed so far. However, the stabilization at 20% is really great observation for this generation of seeds.

[Brian Wright:]

Great, great. And then, Jose, on a finance question, so revenue was higher than expected, and gross margin was a bit higher than expected as well this quarter. Should we think about, as we get to harvest in the second half of the year, how to think about that in terms of cash flow? Is it just kind of keep thinking about that kind of similar kind of range of the $2 million a quarter? Or is there some potential improvements depending on how the processing and once the harvest comes?

[Jose Lopez Lecube:]

Sure. Thank you, Brian. Sorry, Gaston, well, I took the question directly. But look, I think that the impact of the drought in Argentina, we're still going to see that throughout the next couple of months. So it will be difficult to originate soy. So we're going to see that impact until May, June of next year. So but in terms of cash burn, what I would say that the most important thing here is that we will control, we will have a controlled cash flow as we have had in the past. We're going to keep that track record while continue progressing our R&D pipeline. We're very good at delivering milestones and keeping our cash burn controlled. So, you know, look, going forward, of course, is going to be some increase in the cash burn, specifically probably related to the campaign of GLASO starting in mid-calendar year 2024. So again, controlled cash flow in the short term, probably increasing second half of calendar year next year, even the GLASO campaign.

[Brian Wright:]

Okay, thank you. That's very helpful. And then I guess just a bigger kind of picture question. How should we think about the proposed economic reforms and, any impact on the business, positive or negative, just - how to think about that impact on any potential impact on that from that to the company?

[Gaston Paladini:]

Jose, do you want to expand?

[Jose Lopez Lecube:]

Sure, I believe, Brian, you're talking about the elections, or the changing government in Argentina, correct?

[Brian Wright:]

Correct. Yes.

[Jose Lopez Lecube:]

Okay. Look, I think it's too soon to tell. The government just took office two days ago, they announced several measures that we are seeing then explained a little bit more as days go by. So there was a devaluation of the Argentine peso. Moolec is not a company that has a huge exposure to Argentina. We do have some exposure to Argentina. So, you know, theoretically, devaluation should mean lower costs in terms of dollar denominated expenses. But again, I would say, Brian, too soon to tell. It's been only two days and as days go by, we will know more about the measures and how they have an impact on Moolec. Again, Moolec has a limited exposure to Argentina, but it does have an exposure.

[Brian Wright:]

Okay. That's great. Congrats again on all the progress and thanks for letting me ask some questions.

[Gaston Paladini:]

Thank you, Brian. All right. Thanks, Brian.

[Michael Bowen:]

If you have any other questions, either raise your hand or jump back into the chat and we'll turn you live again. In the meantime, we have a question from Tom McGovern at Maxim Group. Tom, we'll flip you live. Go ahead. Make sure you unmute yourself.

[Tom McGovern:]

Hi, guys, can you hear me?

[Michael Bowen:]

Yes, we can.

[Tom McGovern:]

First of all, congrats on the quarter. I just have a real quick question here relating back to Moolabs. So just kind of high level, how are you guys looking at the relationships you guys currently have with other third party labs? Do you expect, first of all how many third party labs are still in use? And maybe where are they located? And then kind of, again, high level, as you look at this moving forward, do you expect to continue to utilize third party labs or will you eventually start to transition? I know you already said significant, but almost all or maybe all of your R&D efforts to company owned and managed labs. Thank you.

[Gaston Paladini:]

Good. Good question. Well, we are still using third party labs. One is Wisconsin Crop Innovation Center in Madison, Wisconsin. The other one is a specific lab in Washington State University. And we do use partially some efforts in [indiscernible] that's a company of a quality in Argentina. So we have third parties in different locations. I'm sorry - and we also have some efforts in the U.K. for a specific thing in Cranfield University. So Vivek Narisetty for Molecular Biology works there as well. I think it's very important to have our self-owned lab to concentrate the efforts, cost savings and specifically to get fully control of our intellectual property and seed. But as Jose said, Moolec management will really focus on cash expenses and invest really wisely. So there are specific efforts from the scientific team that make sense to do it in a specific third party labs. And some other ones make much more sense to have it internally in our cell phone lab. So we are pragmatic, but we always put really, really focused on control and intellectual property because that's where the value is. One of the value for Moolec is to have fully control and trustability of where our seats are, where our strengths are, and how to protect the IP. I don't know, Amit, if you want to expand my answer.

[Amit Dhingra:]

Sure. Thank you, Gaston. And thanks, Thomas. Thanks for your question. I think continuing where Gaston left off, the strategy is really to see if we need a lot of infrastructure to accomplish something, which will be a very large overhead cost. Of course, we don't want to do that inside if we can outsource it in a third party lab. What we are doing in Moolec right now, it's a one-time investment of creating a system where we can do the analysis piece. So the question going forward would be depending on the volume of things we have to do. I think that these partnerships also have another advantage. It provides access to us to additional ideas, to additional thoughts. As a scientist, we are always trying to innovate, bring more value, intellectual property value to the company. And so these relationships have another advantage to be maintained. But as Gaston said, we just have to be very pragmatic on where we invest in our efforts and in the end generate value through intellectual property generation. Thank you, Thomas.

[Tom McGovern:]

Great. I appreciate your response. Congrats again on the quarter.

[Michael Bowen:]

Okay. As a quick reminder, if you have any questions, you can submit to the chat box or raise your hand and we can turn you live to ask your question. In the meantime, we have a second question in coming from the Internet. So the question is, could you please elaborate on what are the majors - what's the major significance of moving from greenhouses to field trials?

[Gaston Paladini:]

Good question. Well, it's a good question because that is what is happening as we speak. You know, we are transitioning from greenhouses, environment control stage into field trials because I want to point out before going to Amit that he could explain it much better than me. It's that the competitive advantage of Moolec is to keep the commodity cost. And the soybean will get - Moolec soybean will get the commodity cost if we perform with good yields in open fields, not in environment control. And so it's a very important transition, not only for the whole path, also to confirm level of expressions and plant performance, and also for the regulatory process. But Amit, please give more color about that.

[Amit Dhingra:]

Yes, that's a great question. First of all, it's part of the process of going through that pipeline. I was sharing with you where we started 550 events, and then we've narrowed it down to the 16 events that I showed you on a slide where we are seeing variable expression of myoglobin in this. And the big part that we have to go through all of this is going from controlled environment, where the light intensities are not at the level that will allow for maximum production or expose the plants to the elements. Because eventually, as Gaston said, how do we get commodity prices for soybean? We have to do field production anyways. And the good part is soybean production is very routine across the world. And once we find those, we will basically do trials with several of these lines in the field. And the one that performs the best in terms of stability, agronomic performance, as well as high expression levels, is what we will continue to go towards commercialization with. Thank you.

[Michael Bowen:]

Okay, we have another question coming in by email. And the question is, could you please help us understand what the most important operating metrics that investors should focus on each quarter and also annually as well? Thank you.

[Gaston Paladini:]

Thank you, Michael. Good question. I think that the best way to address this question is to share with the audience how the management sees our value creation. So before handing to Jose, he explained this part of our narrative quite well, is that there is not only one. There's not only one vertical to see. We have four different pillars. And inside each of these pillars, investors could find metrics that we internally follow and really focus on. But this is very important to consider all and not just only one. I don't know, Jose, if you want to get into each of these verticals fully explained. The value creation of Moolec from our view.

[Jose Lopez Lecube:]

Sure. Thank you, Gaston. Look, we think that the correct way of looking at Moolec is on three strategic pillars of value creation. So the first pillar is, of course, product development and science. And I will put inside that bucket, for example, the expression levels on piggy soy and how we evolve in our product development. Second, I would say very important is how we move forward with the regulators. USDA, FDA, and how our R&D progress works hand-to-hand with how we progress with the regulators as they have to be articulated. Third is how we create intellectual property and how we present patents, provisional patents, and other intellectual property protection mechanisms that we will use. Third - I'm sorry, fourth, I would say how we build relationships and how we formalize relationships with the market, with strategic players, and how that translates into partnerships and alliances. Again, we believe that we are in a market that we can progress much more quickly if we build bridges and relationships with well-established players in the ingredients and the biotech industry in general. So I would say that those are the four buckets, which we internally continuously monitor ourselves and how we are progressing in each one of those four buckets, which we believe are key for creating value for our business model.

[Michael Bowen:]

Okay, thank you, Jose. At this time, we are showing no further questions. So we want to thank everybody for joining our first quarter fiscal '24 conference call. And at this point, I will turn it back over to Co-Founder and CEO, Gaston Paladini for closing remarks.

[Gaston Paladini:]

Well, thank you, Michael. Thank you all for joining us today in our conference call. We are really, really excited about the prospect that lies ahead for Moolec for sure. We are working really hard to execute our strategies, our plans, and bring value to our stakeholders. I want to thank all our team, Moolers, great work. Also, thank our partners and our investors for their continued support. And thank again for joining us today. And I'm really looking forward to updating you in our next quarter. So happy holidays. Have a great day. Bye-bye.

[Michael Bowen:]

Thanks, everybody. You can now disconnect.