Moolec Science Q3 2024 Earnings Call Transcript

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May 30, 2024

There are 8 speakers on the call.

Operator

Good morning, and welcome to the Molok Sciences Third Quarter 2024 Conference Call. My name is Bill Zim of ICR Strategic Communications and Advisory. During this conference call, all participant lines will be muted until the management's remarks when there will be a question and answer session. Please also note that today's session is being recorded. Today, Mulek announced its Q3 fiscal year 2024 business highlights.

Operator

The document is now available on the company's Investor Relations website at ir.mulekscience.com. This morning, you will hear from Gaston Paladine, Chief Executive Officer and Co Founder of Molag Science together with Jose Lopez Lecube, Chief Financial Officer and Amit Dhingra, Chief Science Officer. In today's call, we will be referring to a presentation that is available on the company's Investor Relations website. Moving to Slide 2, this conference call is mainly for informational purposes. And during this call, the company will be making forward looking statements regarding future events and results, which are not historical facts, regarding future events and results, which are not historical facts and include, but are not limited to statements about the company's beliefs and expectations.

Operator

Forward looking statements involve inherent risks and uncertainties. Further information regarding these and other risks are included in the company's annual report on Form 20 F filed with the SEC, also available on the company's Investor Relations website. Now moving to Slide 3, I would like to turn the call over to Mulex CEO, Gaston. Please go ahead.

Speaker 1

Thank you, Bill, and good morning to everyone. It's a pleasure to once again provide our latest business update. Today's agenda will address 3 main topics. First, I will highlight our outstanding progress on Piguisoy. 2nd, Amit Dhingra, Mulek Chief Science Officer, will walk you through our highlights on saflour platform.

Speaker 1

And finally, Jose Lopez de Cubel, our Chief Financial Officer will present our financial highlights from Q3. Let's move now to the next slide. I want to share with you how proud I am of our team consistent execution on all fronts. Today, I would like to hone in on our news breaking success on the regulatory pathway with our achievement of piggy soil. I cannot simply describe how big of an accomplishment it is to be the 1st company in the industry to obtain regulatory approval of this kind from the USDA APHIS.

Speaker 1

As I said before in the press release from this particular topic, Mulek is unlocking the power of plants by leveraging science to overcome climate change and global food security concerns. I am very proud of the Mulek team creating value for the shareholders and the planet at the same time, while rewriting the history of biotechnology. With this approval, USDA AFIS RSR has then piggy soy and likely to post increased plant based risk related to non engineering soybeans thus giving MULAC a green light to move and ship our products without individual permits relating to the IFS regulation. For those new to the story, MULAC developed a unique and patented soybean platform technology under the trademark piggy soy. Our scientific team has achieved high level of expression of animal meat proteins in soybeans, where the seeds exhibited forcing protein expression level up to 26.6% over total soluble protein.

Speaker 1

Now turn to the next slide, so we can share with you why we understand piggy soy is relevant for our planet. In MULAC, we work daily with the mission to create food ingredients that can make a positive impact on the food industry environmental footprint and further strengthen food security. First of all, the industry is already growing soybeans in order to feed pigs that are then slaughtered to produce processed meat products and cuts of meat. Roughly 1 acre of traditional soybean can feed 10 pigs used for livestock. To produce these livestock, it is estimated that more than 60,000 liter of water are required and that the process produce around 5 50 kilograms of CO2 equivalent emissions.

Speaker 1

Now talking about Mulep, in contrast, if we achieve to farm 1 acre of PIKI soil, this acre could potentially produce pork meat proteins equivalent to the same 10 pigs as well, while not requiring any additional water to produce them and will not produce extra CO2 emissions. Is that amazing? Turn with me to the next slide to see what we understand is piggy soy value proposition. I would like to give you one perspective on the attractive value presented by our piggy soil platform and why we are confident it is a market potential going forward. This is currently how the industry works.

Speaker 1

As highlighted in the previous slide, the industry consumes a significant amount of soybeans used as animal feed to support livestock, later slaughtered for meat. The industry is also using traditional soy protein ingredients, which are the generic soy commodity plants used as meat extender or fillers in the processed meat product such as sausages, burger, nuggets, meatballs, dumplings and so on. By the way, this kind of product represent 70% of the $1,000,000,000,000 global meat market. That's huge, 700,000,000,000 dollars market. These traditional soy protein ingredients contain no meat flavors and other meat properties when compared to meat and need to be mixed with extra ingredients, mostly chemical, colorant and flavoring in order to provide different functionalities to processed meat products.

Speaker 1

By the way, I am very well acquainted with this traditional meat industry since I'm part of the 4th generation of one of the largest processed meat players in South America, Paladino. So now let's talk about Mule and what Mule will offer. Mule will leverage commodity supply chain, introducing science at the beginning of the value chain as new ingredients for food companies. Remember, we started with seeds. And how will we do this?

Speaker 1

Well, piggy soil will be a unique product used as a meat replacement, as an ingredient with a higher level of nutrition, could potentially put the same iron content, flavor and color as true meat. As a result, food processors could replace part or eventually all additives used for coloring and flavoring as well as real meat from slaughterhouses. Now I leave you with Ami Dhingra, Mulek's Chief Science Officer, who will provide an overview of Mulek Science and piggy soy milestones on top of the safflower platform highlights. Amit, over to you.

Speaker 2

Thank you, Gaston, and good morning to everyone. As critical as our regulatory approval milestone is, we continue to work on commercializing our product. I want to emphasize our team's excellent track record of effectively delivering on scientific and product development milestones. From the discovery stage in 2020 to the planned transformation stage, regulatory approval applications and patent applications, we have consistently produced results and continue to build our IP portfolio and file regulatory applications in other territories. With the approval from the USDA AAFIS, we started field trials at 3 different locations in May 2024 with 4th generation seeds.

Speaker 2

Everything is progressing on schedule and as planned originally. Starting next year, we will strategize the breeding of the selected events and scale up the production in 2 to 4 years. The commercialization process will likely begin in 2027, 2028. We look forward to updating you on our progress and implementation of our plans in subsequent business updates. Moving on to the next slide, I would like to highlight our recent achievements for Mulek's safflower platform in terms of product development and intellectual property.

Speaker 2

Moving on to Slide 10. I will begin with our team's progress on gamma linoleic acid safflower oil or GLASSO. This nutritional oil has many varied applications, such as dietary supplements and functional foods, cosmetic and personal care, pharmaceutical industry, food and beverage, animal nutrition and others. We are proud to share that our GLASSO is now in the pre commercialization stages. In February of 2024, we started trial production of glassware at our toll processor facility as we optimized, processed and produced roughly 5 tons of material to develop pre commercial collaborations.

Speaker 2

We began planting in April May 2024. We have successfully contracted 600 acres of production with key growers to plant glass of seeds for crushing purposes. We have additionally contracted another 60 acres, which have been planted for seed production. We expect to produce roughly 200 to 400 tons of safflower during this production season. Shortly before the year ends, we plan to harvest, crush and market our 2024 glass of seeds as we engage with potential customers and partners.

Speaker 2

Now to the next slide. I would like to highlight our exciting progress on SPC2 product. 2 U. S. Patents were granted for SPC2.

Speaker 2

These patents extend the protection of our technology and processes that were used to increase the expression levels in safflower seeds until 2,041. Building up on our intellectual property portfolio is one of the strategic pillars at Moon Lake. To protect our leading edge innovations in the coming years, we continue to pursue patents for all technologies and processes across strategic geographies. Now I'd like to turn the presentation over to my colleague, Jose, for the financial overview. Thank you very much.

Speaker 3

Thank you, Amit, and good morning to everyone. It is a pleasure to be providing this business update of Mulek for the Q3 of fiscal year 2024. Today, I would like to review our latest highlights with regards to revenues, expenses and cash utilization. In particular, we are introducing year over year figures from quarter over quarter comparisons as we have completed 4 quarters reporting as a public company. We are confident that this change in how we report the progress of Mule will provide our stakeholders with a more comprehensive understanding of the evolution of the business given that year over year comparisons offer a more stable view of the company progress.

Speaker 3

Please keep in mind that all figures mentioned today are in U. S. Dollars, unaudited and based on the right from IFRS unless otherwise stated. Let's move on now to Slide 13. During the Q3, normalized revenues and other income excluding IIS 29 increased year over year from nil to approximately $1,300,000 This increase was due to the consolidation of the soy protein ingredient business, which occurred in April 2023.

Speaker 3

Normalized costs of goods sold increased as well on a year over year basis from nil to close to $1,000,000 resulting in a gross margin of around 18%. On the expenses from this quarter, SG and A and R and D have increased to $2,300,000 from $1,400,000 in Q3 2023. This increase in expenses is mainly related to non cash items such as depreciation, amortization and equity incentives as well as the consolidation of the soy ingredient business. We continue to be confident in our conservative approach to expenses, while delivering significant milestones and supporting company growth. In terms of cash utilization, operational cash flow this quarter was approximately $2,700,000 which includes close to $1,400,000 allocated to lower accounts payable mainly related to transaction costs.

Speaker 3

On a year over year basis, operational cash utilization has decreased from $4,200,000 in Q3 2023, given that this quarter we have had significantly lower cash payments associated with listing costs. Finally, our cash position of approximately $4,300,000 as of Q3 2024 was strengthened by approximately $2,000,000 of additional funding received during the end of April 2024 as a result of the utilization of the equity line of credit in place with Nomura. We are very pleased with how Mule continues to deliver significant milestones such as the USDA AAFIS regulatory approval of piggy soil, while maintaining an adequate corporate structure and a cost efficient strategy. I will now turn things over to Peter for the Q and A portion of our call. Thank you.

Operator

Thank you, Jose. At this time, our management will be taking questions. You may submit questions through the Q and A chat box by submitting your name and firm in the chat and typing your question. Please be advised that we will ask you to unmute your line to ask your question live. We ask those who would like to participate in the Q and A, if your name and firm is not indicated on your profile, please submit your name and firm in the Q and A box before asking a question.

Operator

Again, you may submit questions through the Q and A chat box.

Speaker 4

Before we take questions from the live queue, we have received a few questions via email. The first question is as follows. This quarter, you highlighted USDA approval for piggy soy. Can you provide more color on significance of this achievement, what's next and the opportunity you see?

Speaker 5

Well, thank you, William. Hi, everyone. Thank you for joining us today. Pleasure to be here with Munich team. Also very, very good question.

Speaker 5

We are really happy of being the first molecular farming company by achieving this kind of USDA approval. The U. S. Government and the agencies telling us that there's no such a fast risk in planting our animal proteins in U. S.

Speaker 5

Soil. Very happy of that. We I think personally that this is this achievement is beyond Munich. I'm quite proud of Amit and Martin Salinas, Hank and Bruce and let's say all the Mulek team to achieve this great milestone, because I personally believe this they are right in the history of biotechnology. They are unlocking in some way molecular farming by getting these kind of approvals.

Speaker 5

So what's next? Well, in terms of operations, field trials, we are planting as we speak piggy soy in 3 different locations in the United States without permits because now it's approved. That will brings a lot of information in terms of product development, in terms of the next step of a regulatory front, that will be FDA. So we have already started conversation with the FDA. So we quite understand how the FDA framework works.

Speaker 5

I'm quite optimistic of how our regulatory team works. So really looking forward to continue providing information to regulators and pushing this product from a bunch of seats to tons and commercialization. So thank you for the question. And again, very happy and I take this opportunity to congratulate Munich's team now in this earning call for this great milestone. Thank you.

Speaker 4

Thank you, Gaston. In the business update, you mentioned Glaso was in pre commercialization stages. Can you talk more about the types of customers and timing of commercialization for Glaso?

Speaker 5

Sure, I could do that. Well, yes, GLASSO product is a pre commercialization strategy. The type of sorry, of customers for GLASSO and GLA oil will be pet foods, dietary supplementation, the companies that provide dietary supplements, ingredient companies that blends nutritional oils, not only omega-six, that's GLA Glaso, also omega-three is very complementary to the EPA and DHA, omega-three oils. And nutritional beverages, that will be another application as well and some specific tooth applications. So customers and potential customers are all around this category of products.

Speaker 5

And this as you said before, William, in the question, I don't know who is answering, but who is asking, but this is true. We are very close to hit the market with Glazo. We are planting around 600 acres in Idaho, U. S. For commercial purposes and in active conversation with customers to hit the market hopefully, but the beginning of by the first part of the 2025 calendar year.

Speaker 5

So we are working hard to deliver. Oleg is a science based food ingredient company and this is definitely a scientific product, science based product and a huge market understanding that GLA market is around $1,500,000,000 globally per year. So the opportunity is quite big.

Speaker 4

Great. Thank you, Gaston. On Piggy Soi, when can you expect commitments from customers? Have you had feedback from potential customers so far?

Speaker 5

Good question. Well, it's hard to say a specific timing of customer commitments. But I can say that we are receiving very good feedback from potential customers and different stakeholders that are very interesting in receiving samples of piggy soil. Actually, we have already started delivering some samples, but we haven't had too many seeds to crush and deliver samples. So we are actually multiplying seeds, making a seed increase.

Speaker 5

Actually, this is happening as we speak. As I described before, in our field trials, we are also increasing the seeds to get more seeds to crush prepare sample for potential customers. So MULA is a science based company, but it's an ingredient company explaining the ingredient business. That's how the ingredient business work. You need to deliver samples, co work with established players, co work with the R and D departments, make that and that relationship take time.

Speaker 5

This is not just plug and play. You need to co work in some way with the customers, in the applications. We are in great conversations on what Picky Soil, but let's go step by step.

Speaker 4

Okay. Thank you, Gaston. Now we're going to take our first question from the live queue. The first question comes from Thomas McGovern, Maxim Group. Thomas, at this time, we actually

Speaker 5

Sorry, William, to interrupt, but I saw Scott Fortune raising his hand from the beginning of the earning call. Sorry, Thomas, but I would prefer to prioritize Scott's question, if you don't mind, William.

Speaker 4

Okay. That's fine. We can go we'll take Thomas next. So we'll go to Scott Fortune at ROTH MKM. Scott, please unmute your line and proceed.

Speaker 6

Thank you. Thank you for the questions. I appreciate all the color and the progress you've made here, but just provide a little more color on the conversations you're having with you mentioned ingredient foods and dietary supplements. I know you've given out a number of samples and delivered to kind of to those different companies, but just a little more color on how those conversations what's the feedback for ahead of this glass. So you're still looking to commercialize this in early 2025 here, that'd be helpful from that standpoint.

Speaker 6

Thanks.

Speaker 5

Sure. Well, good question, Scott. Well, unfortunately, I can't reveal names now about who these potential customers are. But what I can say is that we are, in some cases, working to close offtake agreements and some commercial agreements. So that will come for sure.

Speaker 5

And that's part of the commercial conversation. And that's definitely the output that Mulek needs to actually progress and move forward with the commercialization of these products. But what I also can say about PG soy is that this interest is coming from multiple ways. So we are focusing on food in case of piggy soil. And that will be the majority of the excitement comes from food applications.

Speaker 5

But we all know that soybean is a very well understood ingredient for feed, for pet foods and for some other applications as well, feed and food goes to hand to hand. So we are also receiving interest from different other industries as well. Again, we are prioritizing food. That's where our focus is from now. But let's as I said before, it's quite tuned to talk now about the soy progress.

Speaker 5

Glasgow, well, yes, probably we will keep you updated very soon in the following business updates earning calls.

Speaker 6

I appreciate that. Thanks. And then one more question for me, just providing a little color around the YEA-one kind of the skill up process here and timing to arrive at kind of the characterization prototypes to achieve regulatory compliance Just kind of an update on that side of the business from your aspect here.

Speaker 5

Sorry, I didn't understand the question. Could you please come again, Scott?

Speaker 6

Color around the YEA-one scale up?

Speaker 5

Yes. 1. Yes.

Speaker 6

You guys didn't update that, but just a little more color on that in achieving regulatory compliance as you move forward, just a little bit of help from that standpoint.

Speaker 5

Sure. Sure. Yes. Well, yes, one is on track. We use our last business update to talk deeper about PIER1.

Speaker 5

We are right now multiply sorry, this is well, we would not be multiply, we'll be scaling up this product with our partner, Grupoisut, in Europe. We are using their facilities to scale up this product. And that scale up stage will also bring us samples and information from regulators to in the United States. So quite similar to PD Soil, we are in multiple fronts with regulators, open channels to provide information from both products. This is moving quite nicely, but we need to respect regulatory pathway and framework.

Speaker 5

And I'm quite happy of how our regulatory team internally in MULAC with David Heron as an advisor, regulatory advisor of our whole team is handling all the different and multiple regulatory fronts for ER1. So this goes in parallel. We probably will expect some results, not talking about regulation, but I'm talking about overall in the products. The yeast will yeast could eventually go faster than plants, because it's a controlled environment. And plants, you need to in terms of plants, you need to respect the biology times, the campaigns and the multiplication quite more I will not say easy, but quite faster to scale up in liters in a controlled environment than in tons in open field.

Speaker 5

So but I will summarize my answer to YEAH-one and PiguSoi and moving forward with FDA in parallel with open channels providing information. All the things that we are doing now is to fine tune product development and gather information to providing for the regulators in the United States.

Speaker 6

Thank you. Congratulations again the USDA in really moving molecular farming forward for the industry. I'll jump back in the queue. Thanks.

Speaker 5

Thank you so much, Scott. Yes. Thanks.

Speaker 4

Thanks, Scott. Our next question comes from Thomas McGovern at Maxim Group. Thomas, please unmute your line and proceed. Thank you.

Speaker 7

Hey, guys. Yes, so a lot of my high level questions were addressed. So I just wanted to focus now kind of taking a step away from MULAC and looking more at Argentina's economy as a whole right now. So in April, for the first time in 6 months, Argentina achieved single digit inflation rate on a monthly basis. So I was just wondering how your outlook on the hyperinflationary environment in Argentina has kind of changed in the recent months?

Speaker 7

And if you expect this trend of declining inflation rates to materially impact Nulak moving throughout the calendar year and then into 2025? Thank you.

Speaker 5

Well, thank you, Thomas. And I saw that you skipped the previous question because I have already addressed it. So thank you for that. Well, I will leave the floor to Jose to explain and talk deeper in inflation rates and the Argentinian business. Before that, I can say that Argentinian inflation is going down for sure.

Speaker 5

So 8.8 should be crazy, but compared with the 5 month rate before this is definitely going down. Our President, I'm saying now because I'm personally in Argentina. So our President now is in the expanding the network for investment in Argentina. So it's a good momentum for the country now. But definitely, the main topic should be inflation and how the other C and E economy will recover.

Speaker 5

So Jose, please go ahead and get deeper into Thomas' question.

Speaker 3

Sure. Hi, Tom. Thanks for the question. So, look, Mulek has a global operation with presence in the U. S, in Europe and in Argentina as well.

Speaker 3

So that provides Mulep with some exposure to the Argentine FX movement and the inflation as well. So having said that, our business present in Argentina has, for the most part, revenues denominated in U. S. Dollars. So from that perspective, inflation movement shouldn't have a large impact on the underlying business.

Speaker 3

On the cost front, we do have some costs denominated in local currency in Argentine peso. So from that end, there is some exposure to the inflation that fly through our cost structure. So conceptually, I would say the following. If there is when there is an devaluation of the Argentine peso that has some positive impact on the cost front for us given that we have some cost denominated in Argentine peso. When there is inflation or there is high inflation that kind of raise our cost in the middle in Argentine pesos a bit.

Speaker 3

So it all comes to what is how devaluation and inflation move along. If devaluation is higher than inflation, then that has some positive impact on our cost. If inflation is higher than devaluation, that kind of has some potential higher cost on our P and L. But again, our costs denominated in Argentina peso is a small part of our overall cost structure. Now looking forward, what can we expect?

Speaker 3

It's too soon to tell, but what we are seeing is a gradual devaluation of the Argentine peso at 3% per month, okay? And a strong decline in inflation from 25% at the beginning of the year now falling to single digits. So if things continue in this way, you should see a match between inflation and devaluation. So that provides a stable some stability in real terms for the local currency. Hopefully, I answered the question, Tom.

Speaker 7

Yes. Thanks for that response. It was very helpful. All right, guys. We'll go back in the queue.

Speaker 7

Thank you.

Speaker 4

Okay. At this time, it appears that there are no further questions. Therefore, I'd like to turn the call back over to MULAC's CEO, Gaston, for some closing remarks.

Speaker 5

Well, thank you, Williams. Well, I really want to thank Catalina Jones, our Chief Sign Office sorry, Chief of Staff and Sustainability Officer, so for handling all the this great business update from our side and also thanks the ICR team to help us as usual. I also thank you all here, all the audience for joining us on today's conference call. Thank you for that. We are very, very happy, as I said before, of this USDA approval.

Speaker 5

MOLLEG is definitely a flagship in molecular farming. This is a proof of that. And I am also happy that the MULERS are providing value, Adolie, for the shareholders and all the stakeholders of Mulek, also for the planet. Because if we farm a PD soy, this definitely could be very beneficial for our planet in terms of carbon and water footprint compared with livestock. And believe me, that's where I come from.

Speaker 5

My name Paladine is one of the most famous meat brands in Argentina. I'm very well acquainted with the traditional meat value chain. I'm very proud of my family business, but we need to understand what we need to find alternative solutions to produce the same animal proteins and meat proteins with science and technology to overcome the near challenges in the food system. And we need to address carbon and water footprint for sure. So that's what Pihitoi does.

Speaker 5

So going back to the final remarks, So I'm happy, as I said, to share with you this solid execution of the Mueller, the team. So and we will continue working hard to step ahead for sure. A big thanks also to our partners, to our investors and the analysts that are following us and for the and for all the our supporters and followers. And thanks again for joining us today. We look forward to updating you in the next quarter for sure.

Speaker 5

Have a wonderful day or wonderful afternoon there in Europe for our European followers. Thanks.

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Key Takeaways

  • USDA APHIS approval was granted for PiggySoy, making Molok the first molecular farming company allowed to ship protein-expressing soybeans without individual permits under USDA regulations.
  • PiggySoy soybeans express up to 26.6% animal meat protein in total soluble protein, offering a plant-based solution that could match the output of 10 pigs per acre without extra water use or CO₂ emissions.
  • Field trials of 4th generation PiggySoy seeds are underway at three U.S. locations, with breeding and scale-up plans targeting product commercialization in 2027–2028.
  • The safflower platform’s gamma-linoleic acid oil (GLASSO) is in pre-commercial stages, with 600 contracted acres and 5 tons produced in trials, aiming for a market launch in early 2025 for supplements, pet food and functional foods.
  • In Q3 FY2024, normalized revenues rose to ~$1.3 million with an 18% gross margin, SG&A and R&D expenses increased to $2.3 million, and cash on hand was ~$4.3 million after a $2 million equity financing.
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Earnings Conference Call
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