Company Overview
We were incorporated in the State of Delaware in 2010 and are a majority-owned subsidiary of Cellectis. We are a technology company focused on delivering plant-based innovations and solutions with substantial disruption potential across multiple industries. We are a leader in gene editing with exclusive access to proprietary TALEN® and other technologies for use in plants, which we used to successfully commercialize the first gene edited food product in the United States. We have a robust development pipeline that spans multiple crops and that is focused on several important trends including consumer health and sustainability.
We are pursuing projects in large addressable markets including oats, hemp, and soybeans. We expect to commence additional projects in our areas of focus based on additional technological advancements we make, and researched ideas generated by our newly formed Scientific Advisory Board. We expect to use a variety of technologies to develop these product candidates.
Using our proprietary technologies and expertise, including TALEN gene editing technology exclusively licensed to us in the field of agriculture, we develop crops with targeted traits quickly and more cost effectively than through traditional methods. Our technologies enable precise cuts to DNA in a single plant cell, and then the plant’s natural repair mechanism occurs resulting in the edited plant. We then regenerate the edited single cell into a full plant. We believe that we can assess the viability of a trait in less than two years by utilizing these proprietary technologies.
Our capital-efficient business model comprises three differentiated go-to-market strategies. Specific deal structure and the amount and timing of cash flows and revenues 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. Summaries of potential revenues and cash flows of our go-to-market strategies are as follows:
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Trait Development and Licensing Arrangements: Through development and licensing agreements with downstream partners with respect to traits we develop in exchange for negotiated upfront, milestone or annual payments and potential royalties upon the licensees’ commercial sale of products.
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Seed Sale Arrangements: Through purchase agreements for traited seed we have produced.
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Technology Licensing Arrangements: Through technology licensing agreements with third parties in exchange for negotiated upfront and annual payments, and potential royalties upon the licensees’ commercial sale of products.
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For technology licensing and trait and product development and licensing arrangements, we expect that our customers will primarily be seed companies, biotechnology companies, germplasm providers, large agricultural processors, others in the relevant crop’s supply chain, and growers, who would, in each case, utilize our technology for their own trait development in specified crops. For seed sale arrangements, we expect that our customers will be seed retailers and large agribusiness companies, including millers and crushers, or others in the relevant crop’s supply chain, with developed agronomy infrastructure and commercialization expertise. Across each of these go-to-market strategies, we will seek to develop relationships with strategic customers where our product candidates are most likely to benefit from the counterparty’s deep agronomy, product management, and commercialization expertise. Placing our products and traits with such strategic customers will reduce our expenses and downstream risk exposure, while allowing us to pursue diversified growth across multiple revenue streams.
We believe that our streamlined business model with differentiated go-to-market strategies provides a capital-efficient, lower-cost, and highly scalable approach. Our strategy is based on focusing on our core strengths in research and development, including gene editing, plant breeding, and trait development. We will continue to focus on advancing our technologies toward developing high value innovations and plant-based solutions with substantial disruption potential, while leveraging our partners and licensees to manage commercialization and the associated costs and risks. We believe that focusing our efforts on our technology and trait development expertise, while contracting with commercialization partners or licensees for downstream execution strikes a balance where we are best positioned for cost-efficient paths to market.
In late February 2019, we commercialized our high oleic soybean oil and meal products and began generating revenue from their sale. In August 2020, as part of the broader transition of our business model, we announced a change in the go-to-market strategy for these products and as a result are no longer marketing high oleic soybean oil or meal and instead will sell the underlying grain throughout 2021. We restructured our personnel to support the execution of our streamlined business model, including staffing adjustments related
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to soybean processing and product sales. We have contracted to sell all of the grain from the 2020 crop at prices to be determined on the basis of agricultural commodity market prices in effect at the time our planned deliveries of grain are agreed upon, with the purchaser responsible for crushing the grain and marketing and selling the resulting oil and meal. In 2021 we expect to move this product to the seed sales go-to-market strategy, where we will sell seed outright to processors who will contract acres with growers and purchase the resulting grain produced. We will recognize revenue on the sale of seed.
We are currently exploring product and partnership opportunities in various crops for potential applications across a range of industries, including food, nutraceutical, energy, and agriculture. Applying our streamlined business model with differentiated go-to-market strategies, we are well positioned to nimbly develop plant-based input solutions for specific downstream issues, including consumer preferences, sustainability, cost, quality, and regulatory compliance. As of the date of this report, we have nine projects at Phase 1 or later in our development process across alfalfa, hemp, oats, soybeans, and wheat.
Our current seed product line is focused on the United States. This may expand over time to other geographies, as we opportunistically pursue business arrangements that bring seed innovations developed for the United States to new territories. We will also pursue trait development and licensing as well as technology licensing opportunities globally. Any such potential geographic expansion will be subject to customer demand and regulatory requirements, among other factors.
Market and Industry Overview
Our focus on output trait development activity strategically positions us to take advantage of market trends toward healthy and sustainable innovation that we expect to drive demand for our development expertise.
Our near-term focus is on products in these areas:
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functional nutrition, which is in high demand as consumers look for healthier ingredients in their food;
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regenerative agricultural practices, which are being utilized to benefit soil health and the environment;
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sustainability, which has gained momentum as stakeholders increasingly pursue practices that can contribute to combatting climate change, including by focusing on soil health, water management, and fertilizer usage;
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plant-based protein, which is increasingly becoming a staple on menus and commanding premium shelf space in supermarkets, with consumer demand for the health and sustainability benefits of non-animal sourced proteins expected to continue to grow; and
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animal nutrition, which is important across agriculture given the impact it has on the environment, as well as from a consumer perspective, for pet food that delivers nutritional benefits with better and higher performing ingredients.
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We anticipate our technology licensing activities to span a broad range of potential crop development markets.
Our Technology
Our proprietary technologies and intellectual property portfolio are focused on TALEN, CRISPR, and other adjacent technologies, data analytics, plant breeding, systems, and work processes. Our suite of technologies enable us to edit the plant genome by knocking out genes or making precise gene edits. We take advantage of our knowledge about plant gene function to identify and select beneficial genetic variation that results in traits of value. A key difference between our current gene edited trait product portfolio and transgenic organisms is that a transgenic product contains foreign DNA whereas our products contain no foreign DNA.
Our gene editing platform relies on our capacity to custom design DNA-sequence specific cutting enzymes (nucleases) for a chosen gene and our capability to enable such custom-made nucleases to make a desired edit into the living plant cells we want to edit. Our platform also relies on precisely chosen binding elements that can specifically recognize unique DNA sequences and can be tailored to target such sequences in a chosen gene or genetic region.
We use transcription activator-like effector nucleases, or TALEN, as the foundation of our gene editing platform. TALEN first recognizes a specific DNA sequence and then precisely induces a controlled DNA double-strand break. A DNA double-strand break is the key to unlocking gene editing. The removal of nucleotides (through non-homologous end-joining) can result in gene inactivation or a gene knock-out. If a DNA fragment from a different region of the genome with a similar sequence to the TALEN binding site is provided at the time of the DNA break, then the DNA fragment can be moved or copied into the targeted region of the plant genome to repair a broken gene (through homologous recombination). We are currently focused on using gene knockouts and gene repair to develop new traits, which result in products containing no foreign DNA.
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Key Advantages of Calyxt’s Technology Platform
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Precision—We are able to design single or multiple TALEN to edit at any selected gene or set of genes within the plant’s genome.
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Efficiency—A large percentage of cells treated by TALEN bear the desired gene edit. Because of this efficiency, only a handful of plants must be regenerated to recover those with edits in the target gene. This efficiency drives down development cost. Recently published research from the University of Illinois1 demonstrates TALEN gene editing is more efficient than CRISPR-Cas9 in compact DNA.
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Cost—We have successfully edited genes in several plant species and can generate thousands of TALEN per week. When combined with the efficiency benefits of TALEN and streamlined regulatory requirements, we believe our platform is very cost effective compared to others.
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Speed-to-Market—We have a strong intellectual property position with respect to TALEN technology, its use to develop product candidates, and proven regulatory expertise in bringing these products to market, which enables our development cycle to commercial planting availability to be as fast as five to six years, including assessing the viability of a trait in as little as two years.
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1 “TALEN outperforms Cas9 in editing heterochromatin target sites”, published: January 27, 2021, Jain, S., Shukla, S., Yang, C. et al. TALEM outperforms Cas9 in editing heterochromatin target sites. Nat Commun 12, 606 (2021).
The following chart depicts our development process:
Intellectual Property
Intellectual property protection is key to our business. As of December 31, 2020, our patent estate is composed of patents and patent applications owned by us and in-licensed from other parties. Most of the in-licensed patents and patent applications are licensed from Cellectis or the University of Minnesota. The license from Cellectis includes technologies invented at Cellectis, technologies invented at Calyxt when we were a wholly owned subsidiary of Cellectis, and technologies licensed to Cellectis from third parties. We also have access to additional patents and patent applications through in-licensing agreements with other research institutions and universities.
Our patent portfolio is directed to: (1) gene editing tools, (2) enabling technologies, (3) product concepts, and (4) germplasm.
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(1)
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Gene Editing Tools: Gene editing tools are the core of our portfolio with almost 300 patents and patent applications focused on plant gene editing technologies using meganuclease, TALEN, or CRISPR technologies as well as broad-spectrum technologies that can be used with multiple gene editing platforms. Most of our patent estate related to gene editing tools is licensed to us by Cellectis and the University of Minnesota, with the remainder either in-licensed from other research institutions or owned by us.
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(2)
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Enabling Technologies: Enabling technologies are technologies used to develop products once the gene editing nuclease has been designed. The majority of our enabling technology patent estate was developed by us and either owned by us or licensed to us by Cellectis, with the remainder in-licensed from the University of Minnesota and other research institutions.
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(3)
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Product Concepts: Product concepts include gene edited crops (e.g., TALEN edited high oleic soybean plants) and resulting food products (e.g., Calyxt’s high oleic soybean oil). All of our patent estate covering product concepts was developed by us and are either owned by us or licensed to us by Cellectis.
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Germplasm are plant varieties developed by us as part of our plant breeding program. Our germplasm patents and patent applications cover germplasm we developed.
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We are actively involved in the prosecution and protection of our key technology, which globally includes approximately 80 patent families comprised of approximately 300 patents and over 100 patent applications. Of those patents, approximately 40 have been issued in the United States, with the remaining issued in key geographies outside the U.S., primarily Europe, Japan, and China. This number also includes European patents validated in individual European countries. Of those patent applications, approximately 30 are pending in the United States, with the remaining pending as international applications or country-specific applications in key geographies outside the U.S.
Individual patent terms extend for varying periods of time, depending upon the date of filing of the patent application, the date of patent issuance, and the legal term of patents in the countries in which they are obtained. The issued patents that we have in-licensed will expire on dates ranging from 2021 to 2037. If patents are issued on the pending patent applications owned by us or that we have in-licensed, the resulting patents are projected to expire on dates ranging from 2022 to 2040. For more information regarding the risks related to our intellectual property, please see “Risk Factors—Risks Related to Intellectual Property.”
License Agreement with Cellectis
Through our license agreement with Cellectis, we have access to intellectual property that broadly covers the use of engineered nucleases for plant gene editing. This intellectual property covers methods to edit plant genes using “chimeric restriction endonucleases,” which include TALEN, CRISPR/Cas9, zinc finger nucleases, and some types of meganucleases. We believe this umbrella intellectual property applies broadly across gene editing in plants and makes us a key player in the gene editing intellectual property space.
Under our license agreement with Cellectis, we have exclusive sublicense rights (subject to existing non-exclusive sublicenses to third parties) to intellectual property exclusively licensed to Cellectis from the University of Minnesota in the field of researching, developing, and commercializing agricultural and food products, including traits, seeds, and feed and food ingredients (excluding any application in connection with animals or animal cells). These patent applications cover the use of DNA replicons for gene editing.
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We have also been granted a non-exclusive license to use the TALEN trademark in connection with our use of licensed products under the agreement. Any improvements we make to the in-licensed intellectual property are owned by us and licensed back to Cellectis on an exclusive basis for any use outside of our exclusive agricultural field of use. The exclusivity of our license agreement with Cellectis is subject to certain non-exclusive licenses Cellectis granted to third parties in the field of research.
In consideration for the license from Cellectis, we are required to pay to Cellectis, on a product-by-product and country-by-country basis, a royalty of three percent of net sales less certain items as defined, including costs for grain and seed of any products that are covered by the patents licensed from Cellectis. In addition, we are required to pay Cellectis 30 percent of revenue we receive for sublicensing our rights under the agreement to third parties. Our payment obligations to Cellectis will expire upon the expiration of the last-to-expire valid claim of the patents licensed to us by Cellectis.
Under our license agreement with Cellectis, and as between the parties, Cellectis has the first right to control the prosecution, maintenance, defense and enforcement of the licensed intellectual property and we will have the right to step in and assume such control with respect to the patents owned by Cellectis and exclusively licensed to us under the agreement if Cellectis elects to not prosecute, maintain, defend, or enforce such patents. In certain circumstances, if Cellectis elects to abandon any patents owned by Cellectis and exclusively licensed to us under the agreement, we have the right to assume ownership of such patents. In addition, some of the intellectual property that is licensed to us by Cellectis consists of a sublicense of intellectual property originally licensed to Cellectis by the University of Minnesota. Our license from Cellectis is subject to the license agreement between the University of Minnesota and Cellectis and should our activities under such sublicense violate the license agreement between Cellectis and the University of Minnesota, we are responsible for any related damages that Cellectis may incur. In addition, we are required to reimburse Cellectis for any payments made by Cellectis to the University of Minnesota pursuant to the license agreement between the University of Minnesota and Cellectis to the extent that such payments are required to be made as a result of our applicable activities. Under the license agreement between Cellectis and the University of Minnesota, the University of Minnesota has the first right to control the prosecution and maintenance of the licensed intellectual property.
Our license agreement with Cellectis is perpetual. However, it may be terminated at any time upon the mutual written agreement of both parties, either party’s uncured material breach of the agreement, or upon certain bankruptcy and insolvency related events.
License Agreement between Cellectis and Regents of the University of Minnesota—TALEN
In January 2011, Cellectis entered into an exclusive license agreement with the University of Minnesota, which was amended in 2012, 2014 and 2015. Pursuant to the agreement, as amended, Cellectis and its affiliates were granted an exclusive, worldwide, royalty-bearing, sublicensable license, under certain patents and patent applications owned by the University of Minnesota, to make, use, sell, import, and otherwise dispose of products covered by the licensed patents, in all fields of use. These licensed patents relate to TALEN molecules and their use in gene editing.
Pursuant to the agreement, with respect to the agricultural field, Cellectis is required to pay to the University of Minnesota a yearly fee, as well as a commercialization fee for every seed variety containing new traits developed using the licensed technology. Cellectis is also required to pay the University of Minnesota milestone payments based on the net sales of licensed products in the agricultural field. Cellectis must also pay the University of Minnesota certain patent-related expenses for prosecuting and maintaining the licensed patents; and under our license agreement with Cellectis, we are obligated to reimburse Cellectis for these prosecution costs.
The agreement will expire upon the expiration of the last to expire valid claim of the licensed patents. The University of Minnesota may terminate the agreement upon advance written notice in the event of the insolvency or bankruptcy of Cellectis, and immediately upon written notice if Cellectis challenges the validity or enforceability of any licensed patent in a court or other applicable authority. Cellectis and the University of Minnesota may terminate the agreement by written notice in the event of the other party’s breach that has not been cured within a specified number of days after receiving notice of such breach.
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License Agreement between Calyxt and Regents of the University of Minnesota—CRISPR
In December 2014, we entered into an exclusive license with the University of Minnesota, pursuant to which we were granted an exclusive, worldwide, sublicensable license under a specified patent application and any patents that issue therefrom owned by the University of Minnesota relating to the use of the CRISPR-Cas9 technology to make use, and commercialize products covered by the licensed patents in any field of use. Pursuant to the terms of the agreement, we must use commercially reasonable efforts to commercialize the licensed technology and to manufacture, offer to sell, and sell licensed products as soon as practicable and to maximize sales. We must also achieve certain sales- and patent-related milestones.
Per the terms of the agreement, we paid the University of Minnesota an upfront license fee. We are also required to pay an annual fee, patent-related expenses for prosecution and maintenance of the licensed patents, and a percentage of any revenues received by us under sublicenses. If we undergo a change of control and wish to assign all our rights and duties under the agreement, we must pay the University of Minnesota a specified transfer fee.
Unless earlier terminated under the terms of the agreement, the agreement will continue in effect until no licensed patent is active and until no licensed patent application is pending. The University of Minnesota may terminate the agreement for our uncured breach of the agreement upon 90 days’ prior written notice, or 60 days’ prior written notice if the breach relates to our payment obligations under the agreement. The University of Minnesota may also terminate the agreement, upon 10 days’ prior written notice, if we file for bankruptcy or become insolvent. The University of Minnesota may also immediately terminate the agreement if we or our agents or representatives commences or maintains an action in any court or before any governmental agency asserting or alleging the invalidity or unenforceability of the licensed patent rights. We may terminate the agreement for The University of Minnesota’s uncured breach of the agreement upon 90 days’ prior written notice. We may also terminate the agreement at any time upon 60 days’ prior written notice.
Trademarks
As of December 31, 2020, we have four issued trademarks in the United States.
High Oleic Soybean
We developed a soybean trait that produces oil with a fatty acid profile that contains 80 percent oleic acid, 20 percent less saturated fatty acids compared to commodity soybean oil and zero grams of trans fat per serving.
Prior to adopting our current go-to-market strategies, our high oleic soybean seed was sold either directly by us or through distributors to farmers, and we then purchased and processed the resulting grain and sold the resulting oil and meal products. In late February 2019, we commenced commercial sales and began generating revenue.
In August 2020, as part of the broader transition of our business model, we announced a change in the go-to-market strategy for these products and as a result are no longer marketing high oleic soybean oil or meal, and instead will sell the underlying grain throughout 2021. We are still obligated to purchase seed and grain pursuant to our 2020 grower contracts. We have contracted to sell all of the grain from the 2020 crop at prices to be determined on the basis of agricultural commodity market prices in effect at the time our planned deliveries of grain are agreed upon. During 2020, we also successfully exited most of the toll-based contracts associated with the operation of our identity-preserved supply chain.
With the adoption of our streamlined business model, in 2021, we expect to move this product to the seed sales go-to-market strategy, where we will sell seed outright to processors who will contract acres with growers and purchase the resulting grain produced. We will recognize revenue on the sale of seeds.
Our high oleic soybean seed sales are targeted directly to soybean processors, who will contract for acres directly with growers and will drive demand for the seed. In addition to its favorable fatty acid profile, oil produced from our high oleic soybean also has desirable characteristics that we believe will make our soybean seed attractive.
The high level of oleic acid in oil produced from our high oleic soybean enhances oxidative stability compared to other premium and commodity oils. This eliminates the need for partial hydrogenation, and thus little to no trans fats are produced during oil production. Furthermore, oil produced from our high oleic soybean offers up to a threefold increase in fry-life and reduced polymerization upon frying at high temperatures. The oil produced from our high oleic soybean is also neutral in flavor, odorless and colorless, which are desirable features in the food ingredient market as a result of the limited impact on the sensory characteristics of the final food product.
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Oil produced from our high oleic soybean has also found applicability in markets outside of food, including the industrial lubricant market, where its characteristics enable it to act as an attractive alternative to other plant-based oils or fossil-fuel based lubricants.
For our high oleic soybean, we introduced a single variety in the northern United States in 2017, which was designed to grow well in parts of South Dakota and Minnesota and remained our only variety in the market during 2018 and 2019. We contracted more than 17,000 acres in 2018 and more than 36,000 acres in 2019.
For the 2020 planting season, we sought to increase acreage and diversify weather risk, and launched five new soybean seed varieties, which expanded our maturity groups and expanded our growing regions to include South Dakota, North Dakota, Minnesota, Iowa, and Nebraska—the states in which over 45 percent of the total United States soybean acres are grown. Because of weather and other factors, we planted approximately 72,000 acres in 2020, short of our initial goal of 100,000 acres contracted. We intend to support broader geographical coverage with the launch of new soybean varieties in 2021 and 2022.
Through our streamlined model, we expect to recognize revenue and see the benefits of positive gross margin when we sell seed, unlike under our legacy approach where those amounts were recorded as a reduction of the purchase price of purchased grain.
Our Product Pipeline
We identify product concepts from our own research and inbound interest from potential collaborators. We continue to refine our trait portfolio and seek to take advantage of the largest market opportunities. We categorize our stages of development, all of which are pre-commercial, as follows:
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Discovery, where we identify genes of interest or make initial development crosses between favorable breeding lines;
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Phase 1, where we conduct our gene editing and or produce our initial breeding stock with desired traits, produce the initial seed for testing, and voluntarily consult with applicable regulatory authorities;
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Phase 2, where we perform validation testing and currently voluntarily consult with applicable regulatory authorities; and
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Phase 3, where we or our collaborator develops the first commercial-scale pilot production and performs final testing prior to commercialization.
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As of December 31, 2020, we had a total of nine product candidates in our development pipeline at Phase 1 or later, comprised of two product candidates in Phase 3, two product candidates in Phase 2, and five product candidates in Phase 1. Our target is for at least five product candidates to be available for commercial planting from now through 2024, including our improved digestibility alfalfa product in 2021, our high fiber wheat product candidate as early as 2023, and three additional product candidates thereafter.
Our December 31, 2020 pipeline gives effect to a prioritization process, which halted development on several legacy, pre-IPO project concepts that no longer aligned with our strategy.
A summary of our pipeline at December 31, 2020 is as follows:
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DEVELOPMENT PHASE
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TRAIT1
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TARGET COMMERCIAL PLANTING YEAR
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TARGET GO-TO-MARKET STRATEGY
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Alfalfa
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Phase 3
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Improved Digestibility
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2021
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Trait
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Wheat
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Phase 3
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High Fiber
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2023
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Trait
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Soybean
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Phase 2
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High Oleic, Low Linolenic (HOLL)
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2023
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Seed
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Hemp
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Phase 1
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Marketable Yield
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2023
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Seed or Trait
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Hemp
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Phase 1
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Low THC for Food, Fiber, & Nutraceutical
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2024
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Seed or Trait
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Oat
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Phase 1
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Winter (Cold Tolerant)
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2026
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Seed or Trait
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Soybean
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Phase 2
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Improved HOLL
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2026
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Seed or Trait
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Soybean
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Phase 1
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High Saturated Fat
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2026
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Seed or Trait
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Soybean
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Phase 1
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Enhanced Protein Flavor
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2027
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Trait
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1 The agronomic and functional quality of our product candidates and the timing of development are subject to a variety of factors and risks, which are described in this annual report under the caption “Risk Factors.”.
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We are also actively negotiating agreements with potential partners with respect to specific opportunities for which development activity would only commence upon reaching a commercial agreement. These projects are not included in the preceding table and would only be reported if we reach a development agreement with a partner.
Improved Digestibility Alfalfa
Alfalfa is a key feedstock in the production of milk from dairy cattle. The dairy industry is a significant producer of greenhouse gas and user of water. Dairy herds also produce substantial amounts of solid waste. Our alfalfa is designed to enable dairy producers to reduce their footprint in all three areas. We developed an alfalfa trait that has reduced lignin content in the stem of the plant, enabling it to be more digestible by livestock. Because the alfalfa is more digestible, fewer cows are needed to produce the same quantity of milk, potentially reducing the aggregate amount of water consumed and waste produced.
We developed our improved quality alfalfa in collaboration with S&W Seed Company (S&W) and have granted S&W an exclusive license for improved quality alfalfa seed in the United States and several geographies outside the United States excluding the European Union, United Kingdom, Ukraine, Russia, and India. The new alfalfa seed will be sold as part of the S&W seed portfolio and branded IQ™ Alfalfa (IQA). This marks our first commercial trait license agreement. We expect the commercial product to launch in 2021 following the completion of field trials, testing and any voluntary regulatory consultations.
High Fiber Wheat
Fiber is the indigestible portion of food that is essential for healthy digestion. Research has shown that fiber plays an important role in maintaining digestive health, lowering cholesterol, stabilizing blood glucose levels, and controlling weight gain. In recent years, the awareness of the health benefits of high fiber diets has increased. This has translated to a strong growth in demand for high fiber food products.
We are developing our high fiber wheat product candidate, which could be used to produce white flour with up to three times more dietary fiber than standard white flour while maintaining the same flavor and convenience of use. In March 2018 we received confirmation from USDA that our high fiber wheat is deemed non-regulated pursuant to APHIS’s regulatory procedures. We began planting high fiber wheat in field trials in 2018 and continued testing in 2019 and 2020.
During the first quarter of 2020, we were notified that a significant portion of our high fiber wheat plants were damaged in field trials due to improper aerial chemical applications by unaffiliated third parties. While we are continuing to assess the impact of this damage on the overall development process and timeline for this product candidate, it has delayed our development by at least one year. This product candidate is currently in Phase 3 of our development pipeline. Our Phase 3 development activities in 2021 will include testing the product concept in field conditions, completing food application studies, and voluntarily consulting with FDA. Given the damage to our field trials described above, the timeline for the trait to be available for a commercial launch is uncertain, but not expected before 2023. In line with our strategic advancement of the business model in high oleic soybeans, we plan to introduce our high fiber wheat innovation as a licensed trait through leading wheat ingredient companies.
High Oleic, Low Linolenic (HOLL) Soybean and Improved Oil Soybean
Our HOLL soybean is our second-generation high oleic product candidate. Food processors desire an oil that delivers higher performance with an improved nutritional profile, ideally one that offers flexibility for blending for flavor specifications. This second-generation soybean product candidate will have the same high oleic content of our first-generation high oleic trait product with the additional benefit of an ultra-low linolenic acid content, which improves the flavor and blending performance. This project also includes our third-generation soybean product candidate, an HOLL soybean with a higher oil content, intended to drive improved economics through incremental crush margin to the processor.
These products are currently in Phase 2 of our development pipeline with targeted availability for commercial plantings in 2023 and 2026, respectively.
Winter Oats
Our trait concept could potentially support the growth of high-quality oats to meet increasing consumer food and feed demands. Our goal is to develop a winter-grown version of oats for food and feed consumption that could also be used as a winter cover crop, with the potential to improve direct-to-consumer farmgate revenue for winter cover crop farmers and generate carbon credits for farmers. Oat is America’s second-largest plant-based dairy product, and oat protein is positioned for inclusion in the burgeoning plant-based protein
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market. We believe our oat project could support climate resilience, making oats more competitive economically and able to be grown in new regions of the continent, and over the longer term, in additional regions of the world.
This project, which is expected to deliver sustainability benefits once commercialized, is in Phase 1 of our development pipeline with targeted availability for commercial planting in 2026.
Hemp, including Marketable Yield and Low THC for Food, Fiber, and Nutraceuticals
Our projects in hemp target the protein, nutraceutical, fiber, and advanced materials markets. Our first efforts are focused on standardizing the crop for broad acre adoption, reduced risk hemp production, and modernizing the breeding process. We anticipate that our hemp innovations will initially come to market as licensed seed, breeding platform tools or traits, and commercialized by leading germplasm and hemp-based ingredient and material companies.
This product is in Phase 1 of our development pipeline with targeted availability for commercial planting in 2024.
High Saturated Fat Soybeans as an Alternative to Palm Oil
High saturated fat soybeans is another trait we have in development, which could potentially be used as a U.S.-grown alternative to palm oil. There are significant sustainability and supply chain reliability challenges with palm oil, certain of which we believe could be overcome with this prospective oil alternative. We believe our innovation can be a replacement for palm oil which is today used as a food ingredient, in frying, in cosmetics and personal goods, in animal feed, and as an industrial ingredient. We intend to optimize the saturated to unsaturated fat ratio, which gives soy a palm oil-like quality while maintaining agronomics and yield as well as delivering taste and performance improvements.
The current project is in Phase 1 of our development pipeline with targeted availability for commercial planting of 2026.
Government Regulation and Product Compliance
Gene editing is a relatively new technology and the regulatory schemes around the world are continuing to evolve in how countries regulate gene edited crops and food products. Neither we, nor our commercial partners, currently deploy Calyxt technology for use outside of the United States. In today’s global market, overall business development strategy for plant biotechnology companies depends, in part, on the availability of regulatory clearance in strategic export markets, which enables broader flexibility for product expansion and is a key consideration in evaluating global trade opportunities. Regulatory predictability is critical in order to establish accurate product launch strategies. The costs of achieving clearance in foreign countries is often high and there can be no assurance we will be granted clearance on terms favorable to us, if at all.
During the course of 2020, there have been positive regulatory developments with respect to the global regulatory landscape for gene edited products, including the adoption in Japan of guidelines establishing a voluntary consultation process. However, in certain key jurisdictions, including the European Union, China and Mexico, the regulatory path to market for gene edited products remains uncertain.
The United States and the European Union are the two leading jurisdictions, with distinct regulatory regimes applying different rules and requirements.
United States
In the United States, the Environmental Protection Agency (EPA), the U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA) are primarily responsible for overseeing agriculture and food regulation and safety. Biotechnology is regulated in the United States under the “Coordinated Framework for Biotechnology”.
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Biotechnology products are subject to EPA regulatory review if they contain plant-incorporated protectants, which refer to pesticides (such as insecticides) produced in plants. As our product candidates do not contain any plant-incorporated protectors, our product candidates are not subject to regulatory review by the EPA.
Under the Plant Protection Act (PPA), the USDA requires anyone who wishes to import, transport interstate, or plant a regulated article to apply for a permit or notify the Animal and Plant Health Inspection Service (APHIS) that the introduction will be made. Regulated articles are defined in the Code of Federal Regulations (CFR) 7 CFR Part 340.1 as “any organism which has been altered or produced through genetic engineering which USDA determines is a plant pest or has reason to believe is a plant pest.” If APHIS determines the product to be regulated, the product may be subject to extensive regulation, including permitting requirements for import, handling, interstate movement, release into the environment, and inspections.
In the last seven years, we submitted petitions to APHIS for eight of our product candidates and received confirmation from APHIS that it does not consider any of the seven to be regulated articles under the Plant Protection Act. The eight product candidates include our high oleic soybean, high oleic low linolenic soybean, high fiber wheat, improved digestibility alfalfa, and cold storable potato. The remaining three submissions were for product candidates for which we are either pursuing derivatives or no longer pursuing at this time. There can be no guarantee of the timing or success in obtaining nonregulated status from APHIS for our other crops or that the governing regulations will not change.
The FDA has oversight of food safety and security pursuant the Food, Drug, and Cosmetic Act, or FDCA and is primarily carried out by its Center for Food Safety and Applied Nutrition. The FDA regulates ingredients, packaging, and labeling of foods, including nutrition and health claims and the nutrition facts panel. Foods are typically not subject to premarket review and approval requirements, with limited exceptions.
The FDA offers a voluntary consultation process to determine whether foods derived from new plant varieties including genetically modified plant varieties require premarket review and approval. Developers routinely consult with the FDA prior to marketing and, in most cases, foods derived from plant varieties developed with biotechnology are not subjected to premarket review and approval processes.
We have completed voluntary consultation with the FDA for our high oleic soybean. After review, the FDA had no further questions concerning human food ingredients or animal food derived from our high oleic soybean.
European Union
If we want to market and sell our products in the European Union (the EU), we would only do so once they have gained appropriate regulatory clearance. The procedures for evaluation and authorization of GMOs are established by Regulation (EC) 1829/2003 on genetically modified food and feed and Directive 2001/18/EC on the release of GMOs into the environment. An application for authorization must be submitted under Directive 2001/18/EC if a company seeks to release GMOs for experimental purposes (e.g., field tests) and/or to sell GMOs, as such or in products, in the market (e.g., cultivation, importation or processing). In turn, an application for authorization must be submitted under Regulation (EC) 1829/2003 if a company seeks to sell GMOs in the market for food and feed use and/or food and feed products containing or produced from GMOs. At the national level, EU member states can restrict or prohibit GMO cultivation in their territories by invoking grounds such as environmental or agricultural policy objectives, town and country-planning, land use, coexistence, socio-economic impacts, or public policy.
In addition, Directive 2001/18/EC, Regulation (EC) 1829/2003 and Regulation (EC) 1830/2003 establish specific labeling and traceability requirements for GMOs and products that contain or are produced from GMOs. Finally, Directives 2002/53/EC and 2002/55/EC require genetically modified varieties to be authorized before they can be included in a Common Catalogue of Varieties, which would permit the seeds of such genetically modified varieties to be marketed in the EU.
A ruling of the European Court of Justice (ECJ) in July 2018 provided a broad interpretation of the concept of GMO in the EU and a narrow interpretation of possible exemptions to the associated rules. Even with respect to exempted organisms, EU member states may subject them to the obligations under Directive 2001/18/EC or to other obligations.
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Competition
The market for plant-based technology products is highly competitive, and we face significant direct and indirect competition in several aspects of our business. Competition for improving plant genetics comes from conventional and advanced plant breeding techniques, as well as from the development of genetically modified traits. Other potentially competitive sources of improvement in crop yields include improvements in crop protection chemicals, fertilizer formulations, farm mechanization, other biotechnology, and information management. Programs to improve genetics and chemistry are generally concentrated within a relatively small number of large companies, while non-genetic approaches are underway with a broader set of companies. Additionally, competition for providing more nutritious ingredients for food companies come from chemical-based ingredients, additives, and substitutes, which are developed by various companies.
In general, we believe that we face competition from both large agricultural biotechnology, seed, and chemical companies, certain of which have been actively involved in new trait discovery, development, and commercialization, and from specialty food ingredient companies, which are generally focused on providing solutions to the food industry through chemical, synthetic, or other methods. Many of our competitors—particularly large chemical companies—have substantially larger budgets for research and development (R&D), product commercialization and regulatory process management than we do.
We also face competition from trait research and development companies as well as agricultural research universities and institutions. Given the global importance of agriculture, there are several companies, research universities and institutions that specialize in R&D of agricultural yield and product quality traits. Because these competitors typically focus on a limited number of traits and do not generally have the product development, gene editing technologies, and regulatory infrastructure necessary to bring traits to market, they generally out-license trait technologies to large industry players with in-house development and regulatory capabilities at a relatively early stage of development.
We believe that we can compete favorably based on our expertise and the precision, specificity, cost effectiveness and development speed of our proprietary technologies. Nevertheless, many of our current or potential competitors, either alone or with their R&D or collaboration partners, have significantly greater financial resources and expertise in R&D, manufacturing, testing, and marketing approved products than we do.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products faster, with lower research costs or with more desirable traits than we can.
Research and Development
Our R&D team has technical expertise in molecular biology, biochemistry, bioinformatics, genetics and genetic engineering, plant physiology and plant breeding. Our R&D activities are conducted principally at our Minnesota facility and we also conduct breeding activities through third parties in the United States and its territories and South America. We have made, and will continue to make, substantial investments in R&D. We incurred R&D expenses of $11.1 million in the year ended December 31, 2020, $12.2 million in the year ended December 31, 2019, and $10.4 million in the year ended December 31, 2018.
Human Capital
As of December 31, 2020, we employed 59 employees, 38 of whom were in R&D. Our multidisciplinary team includes experts in biology, chemistry, plant genetics, agronomy, data science, and other related fields. As early leaders in the field of gene editing for plants, members of our management team have invented TALEN, one of the premier gene editing tools. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Our employees are a critical asset. We believe that a critical component to our success depends on the ability to attract, develop, and retain key personnel. Recognizing the core importance of our personnel, we attract human capital by providing competitive wages and benefits, and support our employees by promoting health and safety, providing training and development programs that build professional skills, and adhering to our code of conduct and business ethics at all levels of Calyxt.
Human capital management strategies are developed collectively by senior management and are overseen by our Board of Directors. We are committed to efforts that ensure that the workplace is respectful, equitable, ethical, and fosters an inclusive work environment across our workforce.
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Information about Segment and Geographic Revenue
We operate in a single segment and geography. Accordingly, no additional segment or geographic information is being presented.
Seasonality
Seed sales are expected to be seasonal and are anticipated to be primarily a function of the purchasing and growing patterns in North America. Seed sales may shift somewhat between quarters, depending on planting and growing conditions, with seed partners’ inventory most typically at its lowest level at the end of our fourth fiscal quarter, which is consistent with the agricultural cycles in our major markets. Additionally, our receivables are expected to be at their lowest levels in our fourth fiscal quarter, primarily because of the seasonality of our sales.
Corporate Information
We were incorporated in Delaware on January 8, 2010 and our majority stockholder is Cellectis S.A. (société anonyme). Our principal executive offices are located at 2800 Mount Ridge Road, Roseville, MN 55113, United States of America, and our telephone number is +1 (651) 683-2807. We also maintain a website at www.calyxt.com. The information contained in, or that can be accessed through, our website is not part of this report.
Available Information
We file or furnish periodic reports and amendments thereto, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, proxy statements, and other information with the Securities and Exchange Commission (SEC). On our website located at www.calyxt.com, you can obtain, free of charge, this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all our other filings with the SEC as soon as reasonably practicable after we electronically file or furnish such information with the SEC. Information contained on our website is not incorporated into this Annual Report on Form 10-K. In addition, the SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. The website can be accessed at www.sec.gov.
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This section includes a discussion of what we believe to be the most significant important factors that could affect our business, operating results, financial condition, and the trading price of our common stock. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may occur or become material in the future. You should carefully consider these risk factors in connection with Part 2, Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” the consolidated financials and the other information in this Annual Report.
Risks Related to Our Business and Operations
We have a limited operating history, which makes it difficult to evaluate our current business and prospects and may increase the risk of investment.
We are an early-stage biotechnology company with a limited operating history that to date has been focused primarily on R&D. Investment in plant-based technology product development is a highly speculative endeavor. It entails substantial upfront R&D investment, primarily in the areas of field trials to support regulatory filings and pre-launch breeding, and there is significant risk that we will not be able to edit the genes in a particular plant to express a desired trait. Moreover, the regulatory pathway for our product candidates can be uncertain and could add significant additional cost and time to development.
Our limited operating history may make it difficult to evaluate our current business and our prospects. We have encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly developing and changing industries, such as the plant-based technology industry, including challenges in forecasting accuracy, determining appropriate investments of our limited resources, gaining market acceptance of the products made using our gene editing platform, managing a complex regulatory landscape, and developing new product candidates.
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the next several years.
Our net loss was $45.1 million for the year ended December 31, 2020, $39.6 million for the year ended December 31, 2019, and $27.9 million for the year ended December 31, 2018. As of December 31, 2020, we had an accumulated deficit of $167.2 million. The amount of our future losses will depend, in part, on our revenues and expenses associated with sales of our high oleic soybean seed, the timing of the introduction of additional products, our ability to identify and contract with collaboration partners, and revenues and expenses associated with technology licensing. The net losses we incur may fluctuate significantly from year-to-year and quarter-to-quarter, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.
We cannot assure you that we will generate increases in our revenues, successfully contract with third parties who will commercialize our product candidates or generate revenue from licensing or attain a level of profitable operations. Based on our history of losses, we do not expect that we will be able to fund our longer-term capital and liquidity needs through our cash balances and operating cash flow alone. To fund our longer-term capital and liquidity needs, we expect we will need to secure additional capital. Our business plan and financing needs are subject to change depending on, among other things, the success of our efforts to grow revenue and our efforts to continue to effectively manage expenses.
We face significant competition and many of our competitors have substantially greater financial, technical, and other resources than we do.
The market for plant-based technology products is highly competitive, and we face significant direct and indirect competition in several aspects of our business. See “Item 1. Business – Competition”. Many of these competitors have substantially greater financial, technical, marketing, sales, distribution, and other resources than we do. As a result, we may be unable to compete successfully against our current or future competitors, which may result in reductions in revenue, reduced margins, and the inability to achieve market acceptance for our products. We expect to continue to face significant competition.
Many of our competitors engage in ongoing R&D, and technological developments by our competitors could render our products less competitive or obsolete, resulting in reduced revenues compared to our expectations. Our ability to compete effectively and to achieve commercial success depends, in part, on our ability to: develop new products with properties attractive to collaboration partners; identify and contract with third parties who will collaborate with us on the development and testing of products we develop, and contracting with those same third parties for the commercialization of those products. We may not be successful in achieving these factors and any such failure may adversely affect our business, results of operations and financial condition.
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From time to time, certain competitors may seek to license our technology. We have, in the past, entered such licensing arrangements and may enter such arrangements in the future. Some of these companies may have significantly greater financial resources and may even compete with our business. In such circumstances, competitors could use our technologies to develop their own products that would compete with products commercialized by our collaboration partners.
We also anticipate increased competition in the future as new companies enter the market and new technologies become available. Our technology may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors that are more effective or that enable them to develop and commercialize products more quickly or with lower expense than we are able to. At the same time, the expiration of patents covering existing technologies reduces the barriers to entry for competitors. If for any reason our technology becomes obsolete or uneconomical relative to our competitors’ technologies, this would prevent or limit our ability to generate revenues from the commercialization of our products.
Our business activities are currently conducted at a limited number of locations, which makes us susceptible to damage or business disruptions caused by natural disasters or acts of vandalism.
Our current headquarters and R&D facilities, which include an office, labs, greenhouses, and field-testing plots are in Roseville, Minnesota. Our seed production takes place primarily in the United States and its territories with contra season production also occurring in Argentina. Third party warehousing for seed storage, and our limited number of processing partners (e.g., storage and transportation) are all currently located in the Upper Midwest region of the United States. We take precautions to safeguard our facilities, including insurance, health and safety protocols, and off-site storage of critical research results and computer data. Particularly in the case of insurance, our insurance may not cover certain losses, or our losses may exceed our coverage limits. A natural disaster, such as a hurricane, drought, fire, flood, tornado, earthquake, or other intentional or negligent acts, including acts of vandalism, could damage or destroy our equipment, inventory, development projects, field trials or data, and cause us to incur significant additional expenses to repair or replace the damaged physical facilities, which in the case of seed production may be the result of years of development work that is not easily or quickly reproduced, and increase the development schedule for our pipeline of product candidates.
To compete effectively, we must introduce new products that achieve market acceptance.
To remain competitive and increase revenue, we must identify and offer novel traits that appeal to potential collaboration partners or identify and contract with third parties for the development and introduction of new product candidates. If we fail to anticipate or respond to technological developments, market requirements, or fail to meet market demand, our revenues will not increase.
Development of successful products using plant gene editing requires significant levels of investment in R&D, including laboratory, greenhouse, and field testing, to demonstrate product effectiveness and can take several years or more. We incurred R&D expenses, including non-cash stock compensation expenses, of $11.1 million in the year ended December 31, 2020, $12.2 million in the year ended December 31, 2019, and $10.4 million in the year ended December 31, 2018. We must commit significant resources and may incur obligations (such as royalty obligations or milestone fees) to develop new products before knowing whether our investments will result in products the market will accept and without knowing the levels of revenue, if any, that may be derived from these products.
Development of new or improved plant-based products involves risks of failure inherent in the development of products based on innovative and complex technologies. Accordingly, if we or our collaboration partners experience any significant delays in the development or introduction of new products or if our new products do not achieve market acceptance, our business, operating results, and financial condition would be adversely affected.
Any collaboration arrangements that we may enter in the future may not be successful, which could adversely affect our ability to develop and commercialize our product candidates.
We are seeking collaboration arrangements with third parties for the development and commercialization of our product candidates. We will face significant competition in seeking appropriate partners. Moreover, collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts to establish and implement collaboration arrangements. The terms of any collaborations that we may establish may not be favorable to us.
The success of our collaboration arrangements will depend heavily on the efforts and activities of our partners. Collaborations are subject to numerous risks, which may include that:
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partners have significant discretion in determining the efforts and resources applied to R&D partnerships and may not commit sufficient resources to successfully advance a product candidate or achieve commercial success;
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partners could independently develop, or develop with third parties, products that compete directly or indirectly with ours;
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disputes may arise that cause the delay or termination of the research, development, or commercialization of our current or future products or that results in costly litigation or arbitration that diverts management attention and resources; and
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a partner’s sales and marketing activities or other operations may not follow applicable laws resulting in civil or criminal proceedings.
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If our field trials are unsuccessful, we may be unable to complete the development of product candidates on a timely basis or at all.
We rely on field trials to demonstrate the efficacy of product candidates that we develop and evaluate in greenhouse conditions. Field trials allow us to test product candidates in the field as well as to increase seed production, and to measure performance across multiple geographies and conditions. Successful completion of field trials is critical to the success of our product development efforts. If our ongoing or future field trials are unsuccessful or produce inconsistent results or unanticipated adverse effects on the agronomic performance of our crops, or if the field trials do not produce reliable data, our product development efforts could be delayed, subject to additional regulatory review or abandoned entirely. In addition, to support our commercialization efforts, it is necessary to collect data across multiple growing seasons and from different geographies. Even in cases where initial field trials are successful, we cannot be certain that additional field trials conducted on a greater number of acres or in different geographies will also be successful. Many factors that are beyond our control may adversely affect the success of these field trials, including unique geographic conditions, weather and climatic variations, disease, or pests, or acts of protest or vandalism. Field trials, which may take up to two to three years, are costly, and any field trial failures that we may experience may not be covered by insurance and, therefore, could result in increased costs, which may negatively impact our business and results of operations.
During the first quarter of 2020, we were notified that a significant portion of our high fiber wheat plants were lost in field trials due to improper aerial chemical applications by unaffiliated third parties. As a result of the crop destruction, the number of cultivars was reduced, which represents a significant reduction in the genetic potential of the wheat germplasm that carries the high fiber trait. The damage has resulted in launch size and regulatory timelines being adversely affected. We are pursuing available avenues of recourse against the unaffiliated third parties involved in the initial crop loss as well as the adverse impact upon the surviving germplasm lines.
The successful commercialization of our seed products depends on our production of high-quality seeds cost-effectively at scale and to accurately forecast demand for our products, and we may be unable to do so.
The production of commercial-scale quantities of seeds requires the multiplication of seeds through a succession of plantings and seed harvests. The cost-effective production of high-quality, high-volume quantities of any product candidates depends on our ability to scale our production processes to produce seeds in enough quantity to meet demand. We cannot assure that our existing or future seed production techniques will enable us to meet our large-scale production goals cost-effectively. Even if we are successful in developing ways to increase yields and enhance quality, we may not be able to do so cost-effectively or on a timely basis, which could adversely affect our ability to achieve profitability. If we are unable to maintain or enhance the quality of our seeds as we increase our production capacity, including through the expected use of third parties, we may experience reductions in customer demand, higher costs, and increased inventory write-offs.
Seed production delays could adversely affect our ability to deliver seed to our customers to meet farmer planting windows. Our dependency upon timely seed deliveries means that interruptions or stoppages in such deliveries, or delays or limitations with respect to seed production, could adversely affect our operations until alternative arrangements could be made. Such a delay would adversely affect our reputation and revenues. If we were unable to produce the necessary seed for an extended period for any reason, our business, customer relations, and operating results could suffer.
In addition, because of the length of time it takes to produce commercial quantities of marketable seeds, we will need to make seed production decisions well in advance of their sale. Our ability to accurately forecast supply can be adversely affected by several factors outside of our control, including changes in market conditions, environmental factors, such as pests and diseases, and adverse weather conditions. A shortfall in the supply of our seed may reduce revenue, damage our reputation in the market, adversely affect relationships, and could harm our business, results of operations and financial condition. In addition, our customers may cancel orders, request a decrease in quantity, or make returns, which may lead to a surplus of our products. Any seed surplus we have on hand may negatively impact cash flows, reduce the quality of our inventory, and ultimately result in write-offs of that inventory.
While we estimate that the potential size of our target markets for our products is significant, that estimate has not been independently verified and is based on certain assumptions that may not prove to be accurate. Our ability to accurately forecast demand is dependent on the timing of customer decisions, qualification cycles, and other factors outside of our control. As a result, these estimates could differ materially from actual market sizes, which could result in decreased demand for our products and therefore adversely impact our future business prospects, results of operation and financial condition.
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We rely on third parties to conduct field trials, perform research services, and produce seed for product candidates, and any performance issues by third parties, or our inability to engage third parties on acceptable terms, may impact our ability to successfully commercialize such product candidates.
We currently rely on third parties, such as growers, consultants, contractors, universities, and contract seed producers to conduct, monitor, support and oversee certain research and development activities, including field trials, and produce seed for us. In some cases, these activities are conducted outside of the United States, making it difficult for us to monitor the work being conducted by the third parties that we engage. Although we provide our third-party contractors with protocols regarding the production and handing of our product candidates, we have limited control over the execution of their activities. Poor execution or data collection, failure to follow required agronomic practices, protocols, or regulatory requirements, or mishandling of product candidates by these third parties could impair success. Any such failures may result in delays in the development of our product candidates or the incurrence of additional costs. Even if our third-party contractors adhere to our suggested protocols, field trials or seed production may fail to succeed for a variety of other reasons, including weather, disease or pests, improper timing of planting our seeds, or incorrect fertilizer use. Ultimately, we remain responsible for ensuring work performed is conducted in accordance with the applicable protocol and standards, and our reliance on third parties does not relieve us of our responsibilities. Should such third parties fail to comply with these standards, our ability to develop our product candidates could be adversely impacted.
Additionally, if we are unable to maintain or enter into agreements with third-party contractors on acceptable terms, or if engagement is terminated prematurely, we may be unable to conduct or complete our field trials or seed production in the manner we anticipate. If our relationship with any of these third parties is terminated, we may be unable to enter arrangements with alternative contractors on commercially reasonable terms, or at all. Switching or adding third-party contractors can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when any new third party commences work. As a result, delays may occur, which could materially impact our ability to meet our desired development timelines, our operations, and our profitability.
The unintended presence of our traits in other products or plants may negatively affect us.
Trace amounts of our traits may unintentionally be found in the products of third parties, which may result in negative publicity and claims of liability brought by such third parties or others against us. Furthermore, in the event of an unintended dissemination of our gene edited germplasm into the environment, or the presence of unintended trace amounts of our traits in conventional seed, or in the grain or products produced from conventional crops, we could be subject to claims by multiple parties, including environmental advocacy groups, as well as governmental actions such as mandated crop destruction, product recalls, or additional stewardship practices and environmental cleanup or monitoring.
The successful commercialization of our products may face challenges from public perceptions of gene edited products and ethical, legal, environmental, health and social concerns.
The successful commercialization of our product candidates depends, in part, on public acceptance of gene edited plant products.
Consumers may not understand the nature of our technologies, which may make consumers more susceptible to the influence of negative information provided by opponents of biotechnology. Other groups oppose biotechnology particularly as utilized in the food system and direct efforts to disrupt the forward progression of such biotechnology, both generally and with respect to specific applications. Some opponents of biotechnology actively seek to raise public concern about gene editing, whether transgenic or non-transgenic, by claiming that plant products developed using biotechnology are unsafe for consumption or their use, pose a risk of damage to the environment, or creates legal, social, and ethical dilemmas. The commercial success of our products and product candidates may be adversely affected by such claims, even if unsubstantiated.
In addition, opponents of biotechnology have vandalized the fields of farmers planting biotech seeds and facilities used by biotechnology companies. Any such acts of vandalism targeting the fields of farmers planting crops with our traits, our field-testing sites or our research, production, or other facilities, could adversely affect our sales and our costs.
Negative public perceptions about gene editing can also affect the regulatory environment in the jurisdictions in which we are targeting the sale of our products and the commercialization of our product candidates. Any increase in such negative perceptions or any restrictive government regulations in response thereto, could have a negative effect on our business and may delay or impair the sale of our products or the development or commercialization of our product candidates. Public pressure may lead to increased regulation of products produced using biotechnology, further legislation regarding novel trait development technologies, or administrative litigation concerning prior regulatory determinations, each of which could adversely affect our ability to sell our product or commercialize our product candidates. In addition, labeling requirements could heighten public concerns and make consumers less likely to purchase food products
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containing gene edited ingredients.
Additionally, we are currently exploring product and partnership opportunities in hemp, among other crops. Hemp, as defined in the 2018 Farm Bill as Cannabis sativa containing a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis, has been removed from the Controlled Substances Act and is legally distinct from marijuana/cannabis, which is Cannabis sativa containing a THC concentration of more than 0.3 percent on a dry weight basis. Because the hemp plant and the marijuana plant are both part of the same cannabis sativa species of plant, our activities with legal hemp may be incorrectly perceived as us being involved in federally illegal marijuana. Also, despite growing support for the cannabis industry and legalization of cannabis in certain states in the United States, many individuals and businesses remain opposed to the cannabis industry. Any negative press resulting from any incorrect perception that we have entered the cannabis space could result in a loss of current or future business. It could also adversely affect the public’s perception of us and lead to reluctance by new parties to do business with us or to own our common stock. Business partners, including but not limited to financial institutions and customers, may attempt to end, or limit their relationships with us due to this incorrect perception, which may negatively affect our business, financial condition, and results of operations.
Products that we develop, and food containing our products, may fail to meet standards established by third-party non-GMO verification organizations, which could reduce the value of our products to customers.
Certain third-party organizations offer verification programs that seek to identify non-GMO products to consumers. These organizations verify the status of products (such as foods, beverages, and vitamins) as non-GMO based on independently developed standards, and often authorize the display of specific markers or labels illustrating such status on the verified product’s packaging. Standards established by such third-party organizations for the verification of non-GMO status may differ from applicable regulatory legal standards applied by regulators in the United States. As a result, notwithstanding a determination as to the non-regulated status of a product pursuant to APHIS’s regulatory procedures (or a similar determination in other jurisdictions), our products, and third-party products that utilize our gene edited products as ingredients, may fail to meet more restrictive or non-scientific standards imposed by these independent verification organizations.
For example, there are third-party verification organizations that withhold non-GMO certification from products developed using gene editing technology, including a product that does not contain any foreign DNA, such as our current product candidates. Such a position means that some non-GMO seals or labels are not available for gene edited products.
If we are sued for defective products and if such lawsuits were determined adversely, we could be subject to substantial damages, for which insurance coverage is not available.
We may be held liable if any product we develop, or any product that uses or incorporates any of our technologies, is found unsuitable during marketing, sale, or consumption. For example, the detection of an unintended trait in a commercial seed variety or the crops and products produced may result in governmental actions such as mandated crop destruction, product recalls or environmental cleanup or monitoring. Concerns about seed quality could also lead to additional regulations being imposed on our business, such as regulations related to testing procedures, mandatory governmental reviews of biotechnology advances, or additional regulations relating to the integrity of the food supply chain from the farm to the finished product.
We may need to raise additional funding, which may not be available on acceptable terms or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
As of December 31, 2020, we had cash, cash equivalents, restricted cash, and short-term investments of $30.0 million. We believe our cash and cash equivalents will be enough to fund our operations into the second half of 2022.
Our business plan is to advance our soybean product to a seed go-to-market strategy, collaborate with third parties to complete the development and regulatory processes for our other product candidates, including new product candidates we agree to develop for third parties, and strategically license our technology. Based on our history of losses, we do not expect that we will be able to fund our longer-term capital and liquidity needs to execute our business plan and pursue our strategic goals through our cash balances and operating cash flow alone. To fund our longer-term capital and liquidity needs, we expect we will need to secure additional capital. Our business plan and financing needs are subject to change depending on, among other things, success of our product development efforts, our revenue, and our efforts to continue to effectively manage expenses. If we are ultimately unable to generate sufficient revenue to meet our financial targets, become profitable and have sustainable positive cash flows, we may be required to further reduce expenses, which could have a further negative effect on our ability to generate revenue, or we may be required to raise additional capital more quickly than we expect or we may need more capital than we expect.
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We may obtain future additional financing by incurring indebtedness or from an offering of our equity or convertible securities or both. To the extent that we raise additional capital through the sale of additional equity or convertible securities, current ownership interests will be diluted, and new investors may demand rights, preferences, or privileges senior to those of existing holders of common stock. Debt financing, if available, would result in increased fixed payment obligations and a portion of our operating cash flows, if any, being dedicated to the payment of principal and interest on such indebtedness. In addition, debt financing may involve agreements that include restrictive covenants that impose operating restrictions, such as restrictions on the incurrence of additional debt, the making of certain capital expenditures or the declaration of dividends. If we raise capital in the future, we cannot assure you that additional capital will be available in the amount or at the time we need it, or that it will be available on acceptable terms or at all. If we are unable to obtain sufficient funding on a timely basis, we may be required to significantly curtail, delay, or discontinue one or more of our research or product candidate development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, operating results and prospects and cause the price of the common stock to decline.
The extent to which the COVID-19 pandemic and resulting deterioration of worldwide economic conditions adversely impact our business, financial condition, and operating results will depend on future developments, which are difficult to predict.
As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and rapidly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders, and business shutdowns. In response to the COVID-19 pandemic and in accordance with governmental orders, we have also modified our business practices and implemented proactive measures to protect the health and safety of employees, including restricting employee travel, requiring remote work arrangements for non-laboratory employees, implementing social distancing, and enhanced sanitary measures in our headquarters, and cancelling attendance at events and conferences. Many of the suppliers, vendors, and service providers on whom we rely on have made similar modifications. There is no certainty that such measures will be sufficient to mitigate the risks posed by, or the impacts and disruptions of, the COVID-19 pandemic.
As a result of the COVID-19 pandemic and government actions to contain it, related volatility in the financial markets and deterioration of national and global economic conditions, we could experience material adverse operational and financial impacts, including:
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overall lower expenditures by potential commercial partners as a result of challenging economic circumstances arising from the COVID-19 pandemic and potentially continuing after the immediate crisis subsides;
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disruptions and delays to our R&D pipeline resulting from a shutdown of our headquarters due to expanded governmental restrictions or illness among our personnel as a result of COVID-19, increased absenteeism among employees, or delays with respect to raw materials necessary for our R&D activities;
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interruptions or delays in seed production or grain sales resulting from supply chain disruptions, including as a result of restrictions or disruptions to transportation or operational disruptions at warehousing, storage, crushing and/or refining facilities;
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overall reduced operational productivity resulting from challenges associated with remote work arrangements, limited resources available to our employees (particularly with respect to our business development employees for whom in-person access to our customers and customer prospects has been significantly limited) and increased cybersecurity risks as a result of remote access to our information systems; and
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constraints on financing opportunities resulting from dislocations in the capital markets, which may make it too costly or difficult for us to pursue public or private equity or debt financings on acceptable terms.
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The degree to which COVID-19 impacts our business and results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the severity, duration and geographic spread of the outbreak, and the global, national, and regional actions to contain the virus and address its impact, including travel restrictions imposed, business closures or business disruption.
The resumption of normal business operations after interruptions caused by COVID-19 may be delayed or constrained by lingering effects of COVID-19 on us or our suppliers, third-party service providers, counterparties in collaboration arrangement or licenses, or customers. Even after the COVID-19 outbreak has subsided, Calyxt may experience material and adverse impacts on its business, operating results, and financial condition as a result of the global economic impact of COVID-19 outbreak, including any recession that has occurred or may occur in the future.
The impact of COVID-19 may also exacerbate other risks discussed in this Item 1A. “Risk Factors”, any of which could have a material effect on us. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.
Risks Related to Our Industry
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The overall agricultural industry is susceptible to commodity price changes and we are exposed to market risks from changes in commodity prices.
Changes in the prices of commodities products could result in higher overall cost along the agricultural supply chain, which may negatively affect our ability to commercialize our products. We will be susceptible to changes in costs in the agricultural industry as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, product recalls and government regulations. As a result, we may not be able to anticipate or react to changing costs by adjusting our practices, which could cause our operating results to deteriorate. While we manage our exposure to changing commodity prices underlying sales contracts and supply agreements for grain and seed production by entering into commodity derivative transactions, those activities may not provide full mitigation of our exposure to changes in commodity prices, and as a result our results of operations and financial condition may be affected. See Item 7A “Quantitative and Qualitative Disclosures About Market Risk”.
Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.
Our and a farmer’s ability to grow our products is vulnerable to adverse weather conditions, including windstorms, floods, drought, and temperature extremes, which are quite common but difficult to predict, the effects of which may be influenced and intensified by ongoing global climate change. Unfavorable growing conditions can reduce both crop size and crop quality. This risk is particularly acute with respect to the Upper Midwest region of the United States in which we currently source our high oleic soybean grain. In extreme cases, entire harvests may be lost in some geographic areas. Such adverse conditions can result in harvesting delays or loss of crops for farmers and cause us to be delayed, or to fail entirely in delivering product to customers, resulting in loss of revenue. Furthermore, significant fluctuations in market prices for agricultural inputs and crops could also have an adverse effect on the prices of our products.
The ability to grow our products is also vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied, climatic conditions and the risks associated with ongoing global climate change. The costs to control disease and other infestations vary depending on the severity of the damage and the extent of the plantings affected. Moreover, there can be no assurance that available technologies to control such infestations will continue to be effective. These infestations can also increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, financial position, and results of operations.
Risks Related to Regulatory and Legal Matters
The regulatory environment in the United States for our current and future products is uncertain and evolving.
We incur significant expense related to our monitoring of, and compliance with, applicable regulatory requirements in the United States. Changes in applicable regulatory requirements could result in a substantial increase in the time and costs associated with developing our products and negatively impact our operating results. While the USDA and FDA currently have petition processes that we have successfully completed in the past, these processes, and the manner in which the USDA and FDA interpret their own regulations may change in the future, negatively impacting our speed to market and cost to launch product candidates. We cannot predict whether advocacy groups will challenge existing regulations and USDA or FDA determinations or whether the USDA or FDA will alter the manner in which it interprets its own regulations or institutes new regulations, or otherwise modifies regulations in a way that will subject our products to more burdensome standards, thereby substantially increasing the time and costs associated with developing our product candidates.
Additionally, we are currently exploring product and partnership opportunities in hemp, among other crops. Hemp is legally distinct from marijuana and recognized as an agricultural crop by the United States government. Federal and state laws and regulations on hemp address production, monitoring, manufacturing, distribution, and laboratory testing to ensure that that the hemp has a THC concentration of not more than 0.3 percent on a dry weight basis. Federal laws and regulations may also address the transportation or shipment of hemp or hemp products. As we continue to explore hemp as a product candidate, we may become subject to increasing regulation particular to hemp, which could require us to incur additional costs associated with compliance requirements.
The regulatory environment outside the United States varies greatly from jurisdiction to jurisdiction and there is less certainty how our products will be regulated.
The regulatory environment around gene editing in plants for agricultural products is greatly uncertain outside of the United States and varies greatly from jurisdiction to jurisdiction. Each jurisdiction may have its own regulatory framework regarding genetically modified agricultural products, which may include restrictions and regulations on planting and growing genetically modified plants and in the consumption and labeling of genetically modified foods, and which may encapsulate our products. To the extent regulatory frameworks
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outside of the United States are not receptive to our gene editing technologies, this may limit our ability to expand into other global markets.
Complying with the regulatory requirements outside the United States will be costly and time-consuming, and there is no guarantee we will be able to commercialize our products outside the United States.
We cannot predict whether or when any jurisdiction will change its regulations with respect to our products. Advocacy groups have engaged in publicity campaigns and filed lawsuits in various countries against companies and regulatory authorities, seeking to halt regulatory approval or clearance activities or influence public opinion against genetically engineered and/or gene edited products. In addition, governmental reaction to negative publicity concerning our products could result in greater regulation of genetic research and derivative products or regulatory costs that render our products cost prohibitive.
The scale of the commodity food and agricultural industry may make it difficult to monitor and control the distribution of our products. As a result, our products may be sold inadvertently within jurisdictions where they are not approved for distribution. Such sales may lead to regulatory challenges or lawsuits against us, which could result in significant expenses and management attention.
Government policies and regulations, particularly those affecting the agricultural sector and related industries, could adversely affect our operations and profitability.
Agricultural production and trade flows are subject to government policies and regulations. Governmental policies and approvals of technologies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives and import and export restrictions on agricultural commodities and commodity products can influence the planting of certain crops, the location and size of crop production, and the volume and types of imports and exports. Future government policies in the United States or in other countries may discourage our customers from using our products or encourage the use of products more advantageous to our competitors, which would put us at a commercial disadvantage and could negatively impact our future revenues and results of operations.
We may use biological materials in our business and are subject to numerous environmental, health and safety laws and regulations. Compliance with such laws and regulations and any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.
We are subject to numerous federal, state, local and foreign environmental, health and safety laws and regulations, including those governing laboratory procedures, the handling, use, storage, treatment, manufacture and disposal of hazardous materials and wastes, discharge of pollutants into the environment and human health and safety matters. Our R&D processes involve the controlled use of hazardous materials, including biological materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, or may otherwise be required to remediate such contamination, and our liability may exceed any insurance coverage and our total assets. Compliance with environmental, health and safety laws and regulations may be expensive and may impair our R&D efforts. If we fail to comply with these requirements, we could incur substantial costs and liabilities, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on our business of new or amended environmental, health and safety laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced. These current or future laws and regulations may impair our research, development or production efforts or result in increased expense of compliance.
Risks Related to Intellectual Property
We license a significant portion of our intellectual property from Cellectis, our majority stockholder, and the University of Minnesota, and principally rely upon Cellectis to prosecute and defend such intellectual property.
Our business relies heavily on the intellectual property we license from Cellectis and the University of Minnesota. If we do not comply with our obligations under the license agreements, we may be subject to damages, which may be significant, and in some cases Cellectis and/or the University of Minnesota may have the right to terminate the license agreement. Any termination of our license agreement with Cellectis or the University of Minnesota would have a material adverse effect on our business and results of operations.
Moreover, any enforcement of the licensed intellectual property could subject it to challenge by third parties and if any such challenge is successful, such intellectual property could be narrowed in scope or held to be invalid or unenforceable, which would materially impair any competitive advantage afforded to us by such intellectual property. There can be no assurance that Cellectis or the University of Minnesota will prosecute and maintain such intellectual property in the best interests of our business or at all, and, if Cellectis or the
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University of Minnesota fails to properly prosecute and maintain such intellectual property, we could lose our rights to such intellectual property, which would materially impair any competitive advantage afforded to us by such intellectual property. For more information regarding our license agreement with Cellectis or the license agreement between Cellectis and the University of Minnesota, please see “Business—Intellectual Property.”
Patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our competitive position.
The patent positions of biotechnology companies and other actors in our fields of business can be highly uncertain and involve complex scientific, legal, and factual analyses. The interpretation and breadth of claims allowed in some patents covering biological compositions may be uncertain and difficult to determine and are often affected materially by the facts and circumstances that pertain to the patented compositions and the related patent claims. The issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated, narrowed, or circumvented. Challenges to our or our licensors’ patents and patent applications, if successful, may result in the denial of our or our licensors’ patent applications or the loss or reduction in their scope. In addition, defending against such challenges may be costly and involve the diversion of significant management time. Accordingly, rights under any of our or our licensors’ patents may not provide us with enough protection against competitive products or processes and any loss, denial, or reduction in scope of any of such patents and patent applications may have a material adverse effect on our business.
Even if not challenged, our or our licensors’ patents and patent applications may not adequately protect our product candidates or technology or prevent others from designing their products or technology to avoid being covered by our or our licensors’ patent claims. If the breadth or strength of protection provided by the patents we own or license is threatened, it could dissuade companies from partnering with us to develop, and could threaten our ability to successfully commercialize, our product candidates.
If we or our licensors fail to obtain and maintain patent protection and trade secret protection of our product candidates and technology, we could lose our competitive advantage and competition we face would increase, reducing any potential revenues and have a material adverse effect on our business.
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.
Filing, prosecuting, and defending patents in all countries and jurisdictions throughout the world would be prohibitively expensive. Patent protection must be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.
Competitors may use our technologies in jurisdictions where we or our licensors do not pursue and obtain patent protection. Further, competitors may export otherwise infringing products to territories where we or our licensors have patent protection, but where the ability to enforce those patent rights is not as strong as in the United States. These products may compete with our products and our intellectual property rights and such rights may not be effective or enough to prevent such competition.
In addition, changes in, or different interpretations of, patent laws in the United States and other countries may permit others to use our discoveries or to develop and commercialize our technology and products without providing any notice or compensation to us or may limit the scope of patent protection that we or our licensors are able to obtain. The laws of some countries do not protect intellectual property rights to the same extent as United States laws and those countries may lack adequate rules and procedures for defending our intellectual property rights.
Furthermore, proceedings to enforce our licensors’ and our patent rights and other intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our or our licensors’ patents at risk of being invalidated or interpreted narrowly, could put our or our licensors’ patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded to us, if any, may not be commercially meaningful, while the damages and other remedies we may be ordered to pay such third parties may be significant. Accordingly, our licensors’ and our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
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Third parties may assert rights to inventions we develop or otherwise regard as our own.
Third parties may in the future make claims challenging the inventorship or ownership of our or our licensors’ intellectual property. We have written agreements with R&D partners that provide for the ownership of intellectual property arising from the relationship. Some agreements provide that we must negotiate certain commercial rights at a later date and others may not include clearly address the allocation of intellectual property rights. If we cannot successfully negotiate sufficient ownership and commercial rights to the inventions that result from our use of a third-party partner’s materials, or if disputes otherwise arise with respect to the intellectual property developed through the use of a partner’s samples, we may be limited in our ability to capitalize on the full market potential of these inventions. In addition, we may face claims by third parties that our agreements with employees, contractors, or consultants obligating them to assign intellectual property to us are ineffective or are in conflict with prior or competing contractual obligations of assignment. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property and associated products and technology, which could have a material adverse effect on our business.
In addition, the research resulting in certain of our in-licensed patent rights and technology was funded in part by the United States government. As a result, the United States government has certain rights to such patent rights and technology, which include march-in rights. When new technologies are developed with government funding, the government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention or to have others use the invention on its behalf. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to the United States industry. Any exercise by the government of any of the foregoing rights could have a material adverse effect on our business.
Any infringement, misappropriation, or other violation by us of intellectual property rights of others may prevent or delay our product development efforts and may prevent or increase the costs of our successfully commercializing our product candidates.
Our success will depend in part on our ability to operate without infringing, misappropriating, or otherwise violating the intellectual property and proprietary rights of third parties. We cannot assure that our business operations, products, product candidates and methods and the business operations, products, product candidates and methods of our partners do not or will not infringe, misappropriate, or otherwise violate the patents or other intellectual property rights of third parties.
The biotechnology industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may allege that our products, product candidates or the use of our technologies infringe, misappropriate, or otherwise violate patent claims or other intellectual property rights held by them or that we are employing their proprietary technology without authorization. Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. Any claim relating to intellectual property infringement that is successfully asserted against us may require us to pay substantial damages, including treble damages and attorneys’ fees if we or our partners are found to be willfully infringing another party’s patents, for past use of the asserted intellectual property and royalties and other consideration going forward if we are forced to take a license. Such a license may not be available on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same intellectual property rights or technologies licensed to us. In addition, if any such claim were successfully asserted against us and we could not obtain a license, we or our partners may be forced to stop or delay developing, manufacturing, selling or otherwise commercializing our products, product candidates or other infringing technology, or those we develop with our R&D partners.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention pursuing these proceedings, which could have a material adverse effect on us. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action, or challenge the validity of the patents in court, or redesign our products. Patent litigation is costly and time consuming. We may not have enough resources to bring these actions to a successful conclusion.
Any of these risks coming to fruition could have a material adverse effect on our business, results of operations, financial condition, and prospects.
We may be unsuccessful in developing, licensing, or acquiring intellectual property that may be required to develop and
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commercialize our product candidates.
Our programs may involve additional product candidates that may require the use of intellectual property or proprietary rights held by third parties; the growth of our business may depend in part on our ability to acquire, in-license or use these intellectual property and proprietary rights. However, we may be unable to acquire or in-license any third-party intellectual property or proprietary rights that may be key to development. Even if we can acquire or in-license such rights, we may be unable to do so on commercially reasonable terms. The licensing and acquisition of third-party intellectual property and proprietary rights is a competitive area, and several more established companies are also pursuing strategies to license or acquire third-party intellectual property and proprietary rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and agricultural development and commercialization capabilities.
In connection with his appointment as chair of our newly formed Scientific Advisory Board, Dr. Dan Voytas is no longer our Chief Science Officer, a position he held from our founding in January 2010 through February 2021. Our consulting agreement with Dr. Voytas, while he served as Chief Science Officer, and our current engagement letter with Dr. Voytas, as chair of our Scientific Advisory Board, each generally obligates Dr. Voytas to assign to us any intellectual property solely or jointly conceived, developed or reduced to practice by him in the course of the performance of his services to us. However, we do not have any rights, including any assignment or right of first refusal rights, to intellectual property conceived, developed, or reduced to practice by Dr. Voytas outside the course of the performance of his services to us, including in connection with his employment at the University of Minnesota.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license intellectual property and proprietary rights to us. We also may be unable to license or acquire third-party intellectual property and proprietary rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully acquire or in-license rights to required third-party intellectual property and proprietary rights or maintain the existing intellectual property and proprietary rights we have, we may have to cease development of the relevant program, product, or product candidate, which could have a material adverse effect on our business.
We intend to license certain product candidates that we develop and, in some cases, our TALEN technology to third parties and will be dependent on them to successfully commercialize these product candidates or product candidates developed with our technology.
In addition to our seed sale go-to-market strategy, we intend to license certain product candidates that we develop to third parties for commercialization and sale under their own brands. In addition, we may out-license our technology platform to permit third parties to develop specific traits in specific crops. Our licensee customers could be global food processing companies, seed companies, biotechnology companies, germplasm providers, and growers. Once we license a product candidate to a customer, they will typically oversee its commercialization. Where we license our technology platform to a customer, they will typically oversee its development and commercialization. In both cases, our ability to achieve milestone payments or generate royalties will not be within our direct control.
We license our primary gene editing technology, TALEN, from Cellectis and also license other technology from Cellectis and the University of Minnesota. Accordingly, the economic terms of our partnership and licensing agreements will need to consider royalty payments that we are required to make to our licensors on revenue we generate under our partnership agreements and license arrangements.
If our licensees are delayed or unsuccessful in their development and commercialization efforts, as applicable, or if they fail to devote sufficient time and resources to support the marketing and selling efforts of those products, we may not receive milestone and/or royalty payments as expected, and our financial results could be harmed. Further, if these licensee customers fail to market licensed products or products developed with our licensed technology at prices that will achieve or sustain market acceptance for those products, our royalty revenues could be further harmed.
Some of the licenses we may grant to our licensing partners may be exclusive, which could limit further licensing or partnership opportunities.
Some of the licenses we may grant to our licensing partners with respect to certain product candidates or for the development of specific traits in identified crops using our TALEN technology may be exclusive within specified jurisdictions, so long as our licensing partners comply with the terms of the license agreements. That means that once a product candidate is licensed to a licensing partner, we may be generally prohibited from licensing that product candidate to any other third party. For example, our license with S&W provides S&W with exclusive rights to our improved quality alfalfa seed in several jurisdictions, including the United States. Similarly, once our technology is licensed for a specific trait in a specific crop, we may be generally prohibited from licensing our technology to any other third party for purposes of developing the same trait in the same crop or from using our technology ourselves to develop the same trait in the same crop. The limitations imposed by such exclusive licenses could prevent us from expanding our business and increasing our
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product development initiatives with new licensing partners, both of which could adversely affect our business and results of operations.
Risks Related to Our Organization and Operation
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.
Our success depends to a significant degree upon the technical skills and continued service of certain members of our management and other key employees. The loss of the services of our management or key employees may delay or prevent the timely and successful execution of our business strategies and objectives. Additionally, most of our personnel are involved in research, development, and regulatory activities and competition for these highly skilled employees is intense. Our business is therefore dependent on our ability to recruit and maintain a highly skilled and educated workforce with expertise in a range of disciplines, including biology, biochemistry, plant genetics, agronomics, mathematics, agribusiness, and other subjects relevant to our operations. All our current employees are at-will employees, and the failure to retain or hire skilled and highly educated personnel could limit our growth and hinder our research and development efforts. There can be no assurance that we will be successful in attracting or retaining such personnel and the failure to do so could have a material adverse effect on our business, financial condition, and results of operations.
Our business and operations would suffer in the event of computer system failures, cyber-attacks, or a deficiency in our cyber-security.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, and the data transmitted across these systems, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of data loss or a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations or loss of our data, it could result in a material disruption of our product development programs. For example, the loss of field trial data from completed or ongoing or planned field trials could result in delays in our regulatory clearance and significantly increase our costs to recover or reproduce the data and add additional time to our product development timelines. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, damage to our reputation, and the development of our product candidates could be delayed.
Risks Related to Our Relationship with Cellectis
Cellectis controls the direction of our business, and the concentrated ownership of our common stock and certain contractual rights Cellectis has will prevent you and other stockholders from influencing significant decisions.
As of December 31, 2020, Cellectis owned 64.7 percent of our outstanding shares of common stock. Pursuant to our stockholders’ agreement, Cellectis will have certain contractual rights for so long as it beneficially owns at least 50 percent of the then outstanding shares of our common stock, including approval rights over a significant number of key aspects of our operations and management. In addition, though their rights are diminished compared to when they own more than 50 percent of our then outstanding common stock, Cellectis will also maintain certain significant rights, including a right to nominate a majority of our board of directors, as long as it beneficially owns at least 15 percent of the then outstanding shares of our common stock. As a result, Cellectis controls the direction of our business, and the concentrated ownership of our common stock and the contractual rights described above will prevent stockholders from influencing significant decisions.
If Cellectis sells a controlling interest in our company to a third party, stockholders may not realize any change-of-control premium on shares of our common stock.
Cellectis has the ability, should it choose to do so, to sell some or all its shares of our common stock to a third party, which, if sufficient in size, could result in a change of control of our company. In certain circumstances, a third-party buyer may not be willing to pay a premium over the current market price of our common stock to acquire a controlling interest in Calyxt. Our stockholders would not have the right to participate in Cellectis’ sale of our common stock to a third-party buyer nor would the third-party buyer be required to make an offer to acquire shares of our common stock from any stockholder other than Cellectis.
If Cellectis sold a controlling interest to a third party, any change-of-control premium on shares of our common stock would only accrue to Cellectis and not to any of our other stockholders. Additionally, through its ownership of a majority of our common stock and its
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contractual rights under the stockholders’ agreement, Cellectis will also determine whether a change of control of Calyxt occurs and if so, on what terms. In certain circumstances, including in connection with a proposed sale of Calyxt, Cellectis’ interests as a stockholder of Calyxt may be different than the interests of other stockholders.
We are a “controlled company” within the meaning of the rules of the NASDAQ and, as a result, rely on exemptions from certain corporate governance requirements. Our stockholders do not have the same protections afforded to stockholders of companies that are subject to such requirements.
Because Cellectis controls the majority of the voting power of our outstanding common stock, we are a “controlled company” within the meaning of the corporate governance standards of the NASDAQ. Under these rules, a listed company of which more than 50 percent of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement to have a majority independent board of directors or fully independent nominating and compensation committees. We are relying upon and expect to continue to rely upon some of these exemptions from the NASDAQ corporate governance requirements. Accordingly, not all stockholders will have the same protections afforded to stockholders of companies that are subject to all the corporate governance requirements of the NASDAQ.
Cellectis and our directors who have relationships with Cellectis may have conflicts of interest with respect to matters involving our company.
Our certificate of incorporation provides that none of Cellectis, or any of its officers, directors, agents, shareholders, members, partners, subsidiaries (other than Calyxt and any future subsidiaries) and their affiliates will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that Cellectis or any such individual directs a corporate opportunity to Cellectis or its affiliates instead of us, or does not communicate information regarding a corporate opportunity to us that such person or affiliate has directed to Cellectis or its affiliates.
Our certificate of incorporation also provides that neither Cellectis nor any of its affiliates or any of our nonemployee directors will have any duty to refrain from engaging in a corporate opportunity in the same or similar lines of business in which we or any future subsidiaries now engage or propose to engage or otherwise competing with us or any of our future subsidiaries.
Our license agreement with Cellectis does not restrict Cellectis from competing with us generally. Cellectis could develop and commercialize agricultural and food products that may compete with our current products or products in our pipeline using Cellectis intellectual property or technologies other than the gene editing technologies Cellectis has licensed to us. Cellectis could also use the licensed gene editing technologies to develop and commercialize products involving animals and animal cells and these animal-based products may be competitive with our plant-based products in certain circumstances.
One of our directors, Laurent Arthaud, is also a director of Cellectis, and Cellectis has the right to designate additional directors to serve on the Calyxt board of directors. Mr. Arthaud and any other directors designated by Cellectis who have relationships with Cellectis will have fiduciary duties to us and in addition will have duties to Cellectis.
Accordingly, there may be real or apparent conflicts of interest with respect to matters affecting both us and Cellectis, whose interests, in some circumstances, may be different than the interests of other stockholders or our interests.
Future sales of common stock by Cellectis or others of our common stock, or the perception that such sales may occur, could depress the market price of our common stock.
As of December 31, 2020, Cellectis owned 64.7 percent of our outstanding shares of common stock. Future sales of these shares in the public market will be subject to the volume and other restrictions of Rule 144 under the Securities Act for so long as Cellectis is deemed to be our affiliate, unless the shares to be sold are registered with the SEC. We are unable to predict with certainty whether or when Cellectis will sell a substantial number of shares of our common stock. The sale by Cellectis of a substantial number of shares, or a perception that such sales could occur, could significantly reduce the market price of our common stock.
The concentration of ownership of our common stock and provisions in our Certificate of Incorporation, Bylaws and Delaware law may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.
The fact that Cellectis owns 64.7 percent of our common stock and Cellectis’ rights under the stockholders’ agreement to approve a sale of Calyxt and other changes in our Board of Directors and management will prevent a third party from attempting to acquire control of Calyxt and prevent changes in our Board of Directors or management, even if a sale of Calyxt or the changes would be considered beneficial by many stockholders other than Cellectis.
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Following the first date on which Cellectis no longer beneficially owns more than 50 percent of the outstanding shares of our common stock, certain provisions of our certificate of incorporation, bylaws and other agreements may make it more difficult for a third party to acquire or discourage a third-party from attempting to acquire control of Calyxt. These provisions could also make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many stockholders, including transactions in which our stockholders might otherwise receive a premium for their shares of our common stock. Further, these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock, possibly depressing the market price of our common stock. As a result, stockholders may be limited in their ability to obtain a premium for their shares both while ownership of our common stock is concentrated with Cellectis and after.
Risks Related to Ownership of Our Common Stock
The market price of our common stock has been and could remain volatile, which could adversely affect the market price of our common stock.
The market price of our common stock has experienced, and may continue to experience, volatility in response to various factors. Between January 1, 2018 and December 31, 2020, the sales price of our common stock on the NASDAQ Global Market fluctuated from a high of $26.42 per share at closing to a low of $2.48 per share at closing. Some factors that may cause the market price of our common stock to fluctuate include our quarterly operating results, our perceived prospects, or the perceptions of the market of our pipeline, our new products or our technologies, changes in securities analysts’ recommendations or earnings estimates and our ability to meet such estimates, changes in general conditions in the economy or the financial markets, capital raising activity and other developments affecting us, our competitors or Cellectis.
These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their common stock at a favorable price or at all and may otherwise negatively affect the liquidity of our common stock.
We are an “emerging growth company” and have reduced disclosure requirements that may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and not being required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes”. If investors may find our common stock less attractive because of our reliance on these exemptions and, as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.