Burcon NutraScience Corp

TSX:BU

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Burcon NutraScience Corporation's Fiscal Year 2024 Second Quarter Results ended September 30, 2023.

Joining us today are Kip Underwood, Burcon's Chief Executive Officer; and Jade Cheng, the company's Chief Financial Officer. Following their remarks, we will open up the call for questions. [Operator Instructions] Then before we conclude today's call, I'll provide the company's safe harbor statement with important cautions regarding the forward-looking statements made during this call.

Now I would like to turn the conference over to CEO of Burcon, Mr. Kip Underwood. Sir, please go ahead.

[Kip Underwood, executive]

Thank you, operator, and thank you, everyone, for joining us this afternoon. Fiscal 2024 second quarter marks a number of new beginnings for Burcon 2.0. Our team set out to execute a revised Burcon 2.0 strategy, and we delivered the first of many proof points with a direct line of sight to revenue in 2024.

We are excited to share with you our progress to date, along with opportunities we are pursuing to rapidly bring our innovative proteins to market. We continue to see market opportunity driven by the growth of plant-based dairy and beverage segments, where Burcon's best-in-class, high-purity proteins can offer consumers a better sensory experience.

Consumers are maintaining or increasing their consumption of plant-based foods and beverages, driven by their desire for a healthier lifestyle and for a healthier planet. We firmly believe the value proposition of our protein ingredients will allow us to capture a meaningful portion of the global multibillion-dollar protein ingredients market.

We are encouraged by the progress of our commercialization efforts this quarter and expect to continue at a break net pace to reach commercial revenue in 2024. Speed to market for all of Burcon's protein technologies remain a top priority for us. There are a number of opportunities we are actively pursuing, and we are excited to discuss our progress during the call today.

Before I get into it, I'd like to turn the call over to our Chief Financial Officer, Jade Cheng, to provide a brief overview of the financial results for the quarter. After which, I will return to provide my remarks and discuss our bullish business outlook for the fiscal year. We will open the call to questions following our remarks. Jade, please go ahead.

[Jade Cheng, executive]

Thanks, Kip. Earlier today, our financial results for the second quarter of fiscal 2024 were issued in the news release and filed with SEDAR as well as posted to the Investor Relations section of our website.

During this quarter, we recorded $184,000 of royalty revenue from the receiver sale of Merit's pea and canola products as compared to $112,000 of royalty revenue from Merit sales of pea and canola products in the same year ago quarter. For the second quarter of fiscal 2024, we reported a net loss of $1.4 million or $0.01 per basic and diluted share as compared to $3.2 million or $0.03 per basic and diluted share in the same year ago quarter.

The lower loss this quarter as compared to the first quarter of last year, is due mainly to the share of loss in Merit recorded during the second quarter of last year and to lower operating expenses. Research and development expenses totaled $909,000, down from $1.1 million in the same year ago quarter. The decrease is due mainly to lower intellectual property expenditures and stock-based compensation expense.

General and administrative expenses totaled $803,000 as compared to $987,000 in the same year ago quarter. The decrease is a result of cash conservation measures we have undertaken to reduce expenses, which have resulted in reductions in investor relations expenses as well as expenses that related to the U.S. listing.

Overall, cash operating expenditures have decreased 16% this quarter over the same year ago quarter, with G&A and IP cash expenses down by 24% this quarter over the same period last year. The company continues to implement cost-cutting measures where appropriate. Our cash balances totaled $2.2 million as of September 30 as compared to $1.5 million at March 31, 2023.

During the quarter, our largest shareholder, large-scale investments agreed to extend the maturity date of the first tranche of our secured loan for 1 year to July 1, 2025. Burcon expects its current cash resources to fund its operations to February 2024, and further to February 2025, if conditions for advance under the second tranche are satisfied.

These dates may potentially be extended if the company receives funding or generates revenues from other sources, including government assistance and pilot plant processing and scale-up validation services.

With that, I'd like to turn the call back over to our CEO, Kip Underwood. Kip?

[Kip Underwood, executive]

Thanks, Jade. This quarter marked a number of new beginnings for Burcon 2.0. The first of many proof points is our partnership with HPS Food and Ingredients. Through a renewed approach to commercialization, we executed a plan that rapidly launched our hempseed protein to market. This was our first deliverable under Burcon 2.0, a capital-light partnership that can quickly develop the market and commercialize Burcon's hempseed protein, allowing us the opportunity to achieve revenue in under 18 months.

The demand for high-purity clean tasting hempseed protein isolate is growing. Our 95% hempseed protein is poised to create a new category of premium plant proteins from hemp. According to research end markets, the global hemp-based food market is set to more than double in the next 5 years, growing at a rate of over 15% to reach USD 3.1 billion.

Based on Burcon's internal estimates, we see a potential opportunity of over $100 million for us. Since the launch of our 95% hempseed protein at IFT first back in July, Burcon and HPS prioritized customer engagement by providing product samples, sharing product data and collaborating with prospective customers to develop in food applications.

Customer interest from IFT first far exceeded our expectations with over 60 CPG companies requesting samples of our 9% hempseed protein isolate. I can tell you that based upon my experience, this level of interest and reception to a new ingredient launch would impress even the major ingredient companies. We then carry that momentum through to additional trade shows, showcasing our hemp protein at Natural Products Expo East in September and again at SupplySide West in October. Customer reception has been nothing short of enthusiastic, prompting Burcon and HPS to expedite our plans to commercialize hempseed protein.

We are happy to report that key pieces of equipment are in route to our partner manufacturer for installation. Our team will be working closely with our partner manufacturer to install the key pieces of equipment and begin test runs of our hemp process, with commercial production expected to start early 2024.

As for our sales funnel, numerous prospective customers are undergoing product evaluation and formulation trials in various consumer applications, including beverages, sport nutrition, snacks, bars, baked goods and plant-based dairy. We have a handful of customers who are in late stages of product development, and we anticipate that a number of them may commit to purchase orders once Burcon can demonstrate consistent production on a commercial scale.

It is worth noting that scaling up a novel ingredient from pilot to commercial through traditional methods could range anywhere from 24 to 36 months or even longer. For perspective, Burcon and HPS are on track to achieve first commercial sale within 18 months of our product launch back in July. As we've mentioned before, speed to market is a top priority for us. We are optimistic about our hemp opportunity, and now we believe we have a direct line of sight to revenue in 2024.

Another new beginning for Burcon is our strategic outlook for the company. During the quarter, we brought in industry experts to pressure test our Burcon 2.0 strategy by assessing our operational framework, value propositions, market and competitive landscape. Our team is fully engaged and brought into the strategic planning process.

Coming out of the strategy session, we gained clarity on our path forward and are excited about our future. We completed a deep dive on all of our protein technologies, validated our key differentiating benefits and quantified the potential opportunities. With a deeper understanding of our target markets, our internal estimates confirm we are participating in a growing multibillion-dollar market with Burcon's potential opportunity at well over $600 million for all of our value propositions.

The overarching goal is for Burcon to become a market-leading plant protein solutions provider, a company it has always aspired to be. Another highlight coming out of our strategy session was unlocking additional value in our sunflower protein technology. For traditional ingredient processing yields a lead product and byproducts or waste streams. Burcon sunflower process yields 2 valuable protein ingredients, a Sunpower protein isolate and a protein concentrate, each with its own unique functionality and target applications.

In addition to attributes such as high purity, exceptional taste and color, Burcon sunflower proteins are also non-GMO, gluten-free and clean label, exhibiting a health halo that consumers want. Our sunflower process is truly 1 of a kind. We expect our sunflower proteins to compete and have the right to win in a number of categories, such as sports nutrition, lifestyle products, dairy alternative snacks, meat extensions and bakery to name a few.

This translates to a potential market size of over $400 million for Burcon sunflower proteins. Needless to say, we are extremely excited about bringing our sunflower proteins to market so that we can capitalize on this sizable opportunity. Moreover, unlocking the additional value proposition further strengthens the economics of our sunflower value proposition, adding to an expected healthy operational margin.

We believe Burcon sunflower process has many advantages from an operational standpoint. It produces 3 high-value products, sunflower oil, isolate and concentrate, but little to no waste streams in the process. We are ecstatic about the potential of our sunflower proteins creating significant value for Burcon. And as such, we are actively pushing forward on various paths to market, including discussions with potential partners as well as bringing it to market ourselves.

On the financial side, we are pleased to report that our cost-cutting efforts in the past year have resulted in 16% reduction in costs across the board, while maintaining efforts required to execute our Burcon 2.0 strategy. During the quarter, we worked closely with protein industry standard a government funding cluster that specifically supports and fosters growth of cannabis plant-based sector on a project to accelerate Burcon's hemp and sunflower protein technologies valued at $7 million.

We are in the final stages of securing a co-investment from FICC for a portion of the total project cost and expect that this co-investment will help offset some of our protein commercialization costs. This is 1 of a number of nondilutive funding programs that can help support our cash runway, and we will continue to capitalize on nondilutive funding sources wherever possible.

As previously stated last quarter, our second tranche of $5 million of the total $10 million loan from Burcon's largest shareholder is still available to us should we need the funds in the future. If we meet the conditions for drawing down the second tranche, our cash runway would extend further to February of 2025.

We achieved strategic clarity this quarter something we needed during these challenging times. We are aligned around our business plan and are confident moving forward on our Burcon 2.0 strategy. With the goal of transforming Burcon into a revenue-generating ingredient company. With a direct line of sight to revenue in 2024, we can achieve our first of many wins to come.

We believe that winning is contagious. As we stack wins, we are building momentum. 2024 could become a transformative year for Burcon and we look forward to bringing that to fruition to propel Burcon into its next stage of growth.

With that, I'd like to now open the call up to questions. Operator, can you please provide the appropriate instructions.

[Operator]

[Operator Instructions] I'd like to hand the question-and-answer session over to Paul Lam, Director of Investor Relations for questions from the webcast.

[Paul Lam, executive]

Thanks, Sarah. We have a few questions from the webcast. First question is from a private investor. Could you provide an update on the company's efforts towards potentially acquiring Merit functional foods out of receivership.

[Kip Underwood, executive]

Thanks, Paul. So we've always believed that there's a role for us to play with Merit. In the end, the assets at Merit were purpose-built for our technology. That participation may come out in a variety of ways. One is we are still actively pursuing the purchase of the assets with partners; two, if someone else were to successfully purchase those assets, we could speak to them about licensing or work with them possibly to contract manufacture our products and launching themselves.

Any way this works out, again, we believe there's a role for us to play, and we look forward to the day when the receivership process is concluded, and we can move forward.

[Paul Lam, executive]

Thank you, Kip. Next question also comes from a private investor. There's still partnership discussions ongoing for sunflower technology. If so, how are those coming along?

[Kip Underwood, executive]

As we mentioned in our address, we are extremely excited about sunflower. Again, it's very unique. And the work we did over the summer really dive into the value prop. We uncovered a whole new value angle with what we call product bee the sunflower concentrate. It's very rare in a new ingredient offering that you get really 2 value-added ingredients servicing different markets to drive both customer benefit and financial performance.

Because of that work, we took a step back with specific partners and are going -- now going through the process of relaunching our sunflower technology to the broader market. And as we get results from that effort, we will update -- were needed again, but tremendously excited and really believe that sunflower is poised for long-term fantastic success in the plant-based protein world.

[Paul Lam, executive]

Thanks, Kip. Next question also comes from a private investor, I would remind shareholders and investors to please put down your name so that we can credit the questions. Question is, what is the level of customer interest in the hemp protein so far?

[Kip Underwood, executive]

As we have stated, the market and customer excitement for hemp protein has far exceeded any expectation I had, right? So to the point that us and our partner, HPS, have accelerated our commercial relation efforts and have signed on to run our first commercial production in early 2024.

What's driving that primarily is a handful of customers right now already providing direct purchase intent once we prove full-scale commercial capability. So I could not be more excited at both our partner HPS and the market reception from the offering.

[Paul Lam, executive]

Okay. And last question comes from Harry Ramon. Great opening, but years after years of promising return, but nothing has happened, when is leadership team planning to deliver solid results. Do you see Burcon going back up to around $4 to $5 in share price.

[Kip Underwood, executive]

Thank you for the question. And again, thank you for our shareholders patience over the years. What I can say is what I hope we're doing with our shareholder base is building credibility. In May of this year, we laid out our Burcon 2.0 strategy, 3 key pieces: identify alternative revenue sources, get closer to our customers and gain influence or control over the manufacture of our ingredients.

What the teams have done since then is we have done a deep dive across all of our value propositions. We have launched Burcon's first ever ingredient by itself with our partner, HPS Food Ingredients, our hemp protein isolate. We have gained market feedback on that to the point we have secured production -- commercial production capability with our partner in early 2024.

What I hope these specific items do is add proof points to the words. It's demonstrate that we have a strategy, we have a plan, and we are executing that plan. We are excited about our future. We're excited about our strategy and believe firmly that there is a path forward for Burcon to be a cash flow positive, market leading plant-based protein company and hope that all of our shareholders will come along for that ride.

[Paul Lam, executive]

Thank you, Kip. The next question comes from Joe Sawyer. Is pea and canola protein viable only if Burcon is successful rejoining partners in the Merit facility or does management have an alternative plan?

[Kip Underwood, executive]

So I think first pea and canola proteins are clear will be part of the plant protein market future, right? And I think there's a place that has unique capability. And among those, Burcon's technology is uniquely differentiated to help companies produce plant-based food offerings that meet consumers' needs.

Relative to supply, yes, the Merit assets or purpose-built for these are certainly a clear route to market, and they are not the only route to market. As state we continue to evaluate our capital-light model, our contract manufacturer model as a way to get our plant proteins to market is a proof point.

And we will continue to evaluate both a contract manufacturer, capital-light route market as well as seek a way to work with the Merit assets, be it purchased with a partner, contract manufacturer or that was just assets in another way.

[Paul Lam, executive]

Thanks for your question, Joe. I think that's all the questions we have. Operator, passing it back to you.

[Operator]

[Operator Instructions] That's all the questions we have for today. At this time, this concludes the question-and-answer session. I would like to turn the conference back over to Mr. Underwood for any closing remarks.

[Kip Underwood, executive]

Thank you, operator. I would like to thank our team for their efforts over the past quarter. They are passionate about our future and it shows in their work. I would also like to thank our shareholders for their patience as we execute our Burcon 2.0 strategy and position Burcon NutraScience for the next wave of plant-based food growth.

Again, thank you all for your time.

[Operator]

Before we conclude today's call, I would like to take a moment to read the company's safe harbor statement. This call contains forward-looking statements or forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements or forward-looking information involve risks, uncertainties and other factors that could cause actual results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements.

Forward-looking statements or forward-looking information can be identified by words such as anticipate, intend, plan, goal, project, estimate, expect, believe, future, likely, can, may, should, will potentially and similar references to future periods. All statements other than statement of historical facts included during this call are forward-looking statements.

There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements or information. Important factors that could cause actual results to differ materially from Burcon plans and expectations include the actual results of business negotiations, marketing activities, adverse general economic, market or business conditions regulatory changes and other risks and factors detailed herein and from time to time in the filings made by Burcon with securities regulators and stock exchanges including in the section entitled Risk Factors in Burcon's annual information form filed with the Canadian Securities Administrators on www.sedar.com.

Any forward-looking statement or information only speaks as of the date on which it was made, and except as may be required by applicable securities laws, Burcon disclaims any intent or obligation to update any forward-looking statements. whether as a result of new information, future events or otherwise. Although Burcon believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance, and accordingly, investors should not rely on such statements.

Finally, I would like to remind everyone that this call is being recorded, and the webcast will be available for replay on the company's website starting later this evening. Thank you, ladies and gentlemen, for joining us today for our presentation. You may now disconnect.