Moolec Science - Q3 2023

Transcript

Martín Taraciuk (Head of Investor Relations)

Good morning, welcome to Moolec Conference Call. My name is Martín Taraciuk, and I'm Moolec Head of Investor Relations. During this conference call, all participants will be muted. After management's remarks, there will be a question and answer session. Please also note that today's session is being recorded. Moolec announced its third quarter fiscal year 2023 business highlights yesterday after market close. A press release is now available on the company's investor relations website at ir.moolecscience.com. This morning, you will hear from Gastón Paladini, CEO, Chairman, and Co-founder of Moolec Science, together with Amit Dhingra, Chief Science Officer, and José López Lecube, Chief Financial Officer and Director. In today's call, we will be referring to a presentation that will be available on the company's investor relations website.

This conference call is mainly for informational purposes only. During this call, the company will be making some forward-looking statements regarding future events and results. Statements that are not historical facts including, but not limited to statements about the company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. Further information regarding these and other risks are included in the company's annual report on Form 20-F filed with the SEC and available on our investor relations website. I would like to turn the call over to Gastón to comment on our business and recent developments. Gastón, please go ahead.

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

Thank you, Martín. Hello, everyone. I'm thrilled to present our first business update conference call as a public company. I want to thank you all in advance for your interest and support. These few months have been exciting for Moolec due to all the milestones we are about to share now. I would like to start by outlining today's agenda on slide three. First, we have been able to deliver scientific and operational milestones in a very short period of time. We have made significant progress on different fronts, such as R&D and regulatory matters. Secondly, we are happy to announce integrations on both downstream and upstream capabilities. Thirdly, I would like to walk you through the execution of Moolec business plan in order to implement our short, medium, and long-term strategy. Last, we will show our significant highlights on the financial front.

Let's move forward now to the next slide, where I will share our latest scientific and operational milestones. On the cheese and nutraceutical program, we are moving accordingly to schedule with our safflower molecular seeds multiplication campaigns for both SPC2 and GLASO products. In the last one, GLASO, we have achieved expression levels of approximately 60%, which is 10% above our expectations, significantly improving the GLA oil yield. I would like to highlight that last March, we received regulatory clearance from the USDA-APHIS for our GLA production safflower plants. On the meat replacement program, new proteins were successfully expressed in the several hosts, and other ones reached the transformation stage. We were able to scale up our prototyping operations from 3 liters to 300 liters, PCR analysis confirmed the transgenic events contained the desired animal genes in PCs.

Moving now to slide six, I want to show you a summary of how our pipeline status looks today. In terms of research and development for new products, Moolec is at the forefront of the plant-based animal protein food ingredients and is committed to being a leader in this field. Our team is working really hard in the development of revolutionary products through a process of discovery, transformation, development, selection, and a scale-up into production, while simultaneously undergoing regulatory approvals with agencies like the FDA and the USDA. Displayed in orange, you can observe our latest progress as of today. Project Soy 2 and 3 moved from discovery to transformation stage since the feasibility assessment and contract design were successfully concluded. Also, the regulation pathway for GLA safflower oil, GLASO, was completed after we received regulatory status review clearance, as I previously mentioned.

Let's now turn to slide seven, where Amit Dhingra will present a bit of scientific dive into our soybean project. Amit, go ahead.

Amit Dhingra (Chief Science Officer)

Thank you very much, Gastón. In this chart, I will walk you through how we work through the process of discovery to selection to get that one selected event. Our ultimate goal is to get to that one transgenic event that has the best combination of the highest expression level of animal protein and yield performance. That seed is multiplied for further work. For discovery, we started by synthesizing DNA or the gene coding for animal proteins of interest. After that, the gene was inserted into an expression vector. A vector is like a truck that allows us to deliver the cargo of gene expression components into the cells and integrate the animal protein DNA into the plant DNA, so that the animal protein can be expressed stably in the transgenic lines through different generations. During the genetic transformation stage, vectors are inserted into plant chromosomes.

Plants expressing the desired proteins are grown in cultures and selected by using PCR. In this project, we started with 550 zero generation or T0 transgenic events that were narrowed down to 256 transgenic generation 1 or T1 events using PCR tests that allowed us to know whether or not those events contained the desired animal protein genes. Soon after, the remaining events were further narrowed down using the main KPIs from the plants, where we finally selected 140 second-generation transgenic or T2 transgenic events. We are currently at the development stage. We will get to third generation or T3 transgenic events using animal protein level of expression as the key selection criteria. We already have some significant results regarding expression levels.

Once we have these three transgenic events, we will test them in the fields to see how they behave under real agronomic conditions in order to finally select the best event. Let's move to the next slide, where I will provide additional details on the regulatory clearance from the USDA. On March 31st, Moolec received regulatory status review clearance from USDA APHIS for our GLA-producing safflower. As you can imagine, this is an exciting and a major milestone. This huge milestone marks the completion of this project's regulatory pathway in the US. Collectively, now we have approvals from the FDA on the final product for human and animal consumption, and USDA APHIS for planting genetically modified safflower seeds in the US soil. What does this RSR approval mean?

It means that Moolec's GLA safflower plants pose no greater plant pest risk than non-genetically engineered safflower plants, according to regulation found at 7 CFR Part 340. How does this impact us at Moolec? It increases the efficiency of our upstream operations by decreasing operating costs that we would have incurred if the crop was regulated. It makes our operations more agile due to the fact that we no longer need permits to import into the state movement or grow these plants in the United States. It is also very important to highlight that the USDA's green light increases awareness of molecular farming as a safe technology, it sets a precedent and a pathway for regulatory approvals for all of our products in the future.

Let's go to slide nine, where I would like to explain the scale of progress achieved in our operations so far. Looking closer at our products, SPC2 and GLASO, which are in the scale-up stage. These products have demonstrated encouraging results with regards to seed multiplication. On the left side of the slide, you can see the scale-up of seeds for the SPC2 chymosin-producing safflower. We went from 0.7 hectares to 27.4 harvested hectares last January, which equates to a 42 times expansion of genetically modified safflower seeds. At the center, you can observe the scale-up of GLASO seeds. This year, we planted 20 hectares that we expect to harvest this fall in October 2023. This equates to a 25 times expansion of transgenic seeds. Last year, 60% of the total oil in GLASO's safflower seeds was GLA.

That is 10% more than our initial projections and expectations. This is significant for us because it improves the economics that we estimated for this project. Lastly, on the right part of the chart, you can observe the growth in scale from a lab to a semi-pilot facility. We increased the size of our reactor 100 times, coupled with a 6-fold increase in biomass yields. Thank you, and back to you, Gaston.

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

Thank you, Amit. Let's move forward now to the next topic in our agenda, which addresses the integration of upstream and downstream capabilities. Let's move ahead to slide 11. On the business front, our team has been working to grow and develop our products and business, both organically and inorganically. We are always actively analyzing value-added opportunities. On April 11 this year, we were pleased to announce and disclose the acquisition of a plant-based ingredient capability. This include a state-of-the-art soybean processing facility, with 10,000 tons per year of installed capacity that is already fully operational. These facilities are strategically located in a soybean corridor to maximize raw material origination, and focuses on the development of textured vegetable products, TVP, that serve as food ingredients in meat substitute, as meat replacement.

This capability bring to Moolec Science a highly experienced team, with a 10-year track record on production and commercialization of soy protein ingredients. This will be complementary in areas such as product development, sales, and engineering. The deal terms include $6 million, of which $2 million was paid in cash at closing, $0.5 million at six months, and the rest will be paid with MLEC shares, from which $0.5 million will be transferred in 12 months, and the rest with a vesting period, subject to meeting certain business metrics during the next 3-4 years. Let's go now to slide 12. You can see a lot of soybeans here. This is because we are pleased to announce today that we have signed a memorandum of understanding, or an MOU, with Bioceres Crop Solutions Corp.

We believe this has synergies with the acquisition we had just discussed. This strategic deal will give Moolec the possibility to finance working capital needs for the next 18 to 24 months. The MOU formalize and reaffirms the commitment and alignment with one of our main shareholders and backers. It brings an ESG approach that consolidates C24 strategy, that I will explain in the following slides. The deal will consist of Bioceres delivering up to 20,000 tons of HB4 soybeans progressively over the next three years. Soybeans will be paid at maturity with common shares or cash at the option of Moolec. Moolec's Chief Financial Officer will later explain more details about the financial side of this deal. Moving now on to slide 13. I would like to point out how important and complementary the HB4 soybean deal is for Moolec.

It will bring us the opportunity to build our value chain and use of molecular farming technology on top of a traceable and sustainable platform. Bioceres have been developing HB4 technology for almost 20 years as a drought-tolerant technology in soybeans. HB4 platform supplies around 100 farmers, helping to lower water and carbon footprint, the use of chemicals, and recollecting farming practices information, thanks to this technology. The combination of molecular farming technology with the HB4 platform will contribute to the transition towards carbon neutrality, agricultural regeneration, work inclusion, transparent value chain, and a clear end product label information focusing on traceability. Let's now continue to the next chapter of this presentation, where we will address the company's business plan overview. I would like to start this chapter by stressing the massive size opportunity that Moolec has ahead.

The total addressable market, or TAM, expected for 2025 for all of our products is approximately $827 billion. That is near the trillion-dollar figure. This is huge. On the left side, from a top-down approach, the TAM includes processed meat from the traditional industry, alternative proteins, nutritional lipids, and rennet. On the right side, we have the serviceable addressable market, or SAM, that is approximately $37 billion. We have built the figure from a bottom-up approach that includes, first, $22.4 billion from the non-meat ingredient market, such as flavoring, coloring, binders, and texturing, that are used both in the traditional and alternative protein industry to extend and improve processing meat and plant protein organoleptic properties. Second, $13 billion for TVP, or texturized vegetable protein market, that is used as a food ingredient for direct human consumption.

Many of you may not know, TVP is used to complement processing meat products to make them affordable, and also in the main source of protein, using meat analogs as meat replacement. Finally, we have $1.5 billion for gamma-linolenic acid, or GLA, and $0.3 billion for chymosin serviceable markets, which were narrowed by product type, geography, and applications. Overall, the growth of our target market will be mainly driven by double-digit growth figures in the alternative protein industry. Let's move to the next slide. Moolec's platform has integrated a network of farmers, sustainable soybean procurement, an industrial demo center to replicate and scale with partners globally, keeping an asset-light approach and a network of customers that are food producers and distributors in 14 countries in three different continents that give us market understanding.

Please now turn to slide 17, where I will explain in phases of our business plan execution. Moolec's business plan execution has four consecutive stages. As we move forward and start climbing those stages, we will be able to deliver more value-added products with similar cost structures and thus higher margins. In stage one, we were crushing traditional soybean seeds with our current industrial capabilities. The end product from this process is a soybean textured vegetable protein, or TVP, that is sold across the world to food companies and distributors in the traditional and plant-based industries for human consumption, mainly as meat replacement. By signing the definitive documentation of the deal with Bioceres, we will start in stage two. We incorporated the HB4 Soy to have a more sustainable product that the world is demanding, and we can sell due to a traceability and a lower CO2 footprint.

In stage three, we will leverage the company's technological experience to enhance and adapt processes, prototype, and incorporate future clients for Moolec Soy 2.0 TVP that has Moolec's technology. Finally, in stage four, we expect to have animal proteins inside Moolec's molecular seeds, and have our ingredients by contracted growers with potential partnerships and process it in Moolec's own and third-party facilities. I would now like to hand the call over to José to give a review of our financial highlights.

José López Lecube (CFO and Director)

Thank you very much, Gastón, and good morning to everyone. It is a pleasure to be providing the first business update of Moolec. Today, I would like to take some time to review our corporate structure after listing, run through the latest financial highlights, and provide color on what strategic initiatives we are pursuing. Please keep in mind that all numbers mentioned today are in US dollars, unaudited, and based on IFRS, unless otherwise stated. Moving on now to slide 19. After business combination effectiveness and subsequent commencement of trading in Nasdaq, our corporate structure still reflects a very strong presence of our original shareholders, manifesting a renewed vote of confidence in our progress as a company. As a spin-off of Bioceres Group, a proven leader in life sciences, we maximize efforts and traction by combining technologies in mutually beneficial partnerships, as described in previous sections.

This has also positive financial implications we will touch on in the following slides. Moving forward to slide 20. I would like to go through our underlying financial strategy and the most important events that occurred for the company. The current year has proven to be challenging for financial markets. After business combination with LightJump and subsequent listing on January 3rd, Moolec received $10 million of proceeds, facing a high level of redemptions in line with market trends. As of the 31st of March, we have $6 million of cash and cash equivalents. We continue navigating a difficult year for financial markets. We are managing our cash position efficiently, while at the same time, putting in place initiatives to generate increasing positive operating cash flow.

In order to manage our cash position in the short term, we have negotiated payment schedules for the majority of listing expenses, issued $2 million of debt through one of our subsidiaries at 0% interest rate, and expect to maintain controlled OpEx in line with our historical burn. The negotiated payment schemes for the listing fees will alleviate cash needs in the short term and smooth payments through March 2024. The $2 million of debt issuance offsets the upfront payment of our recently acquired downstream capabilities. Moolec has a historically low cash burn, while at the same time proving to progress in R&D projects. We expect this trend to continue throughout the rest of 2023 calendar year, with no significant increases of R&D and moderate increases in our administrative expenses.

In parallel, our objective, as mentioned, is to increase operational cash flow while deferring share issuance. In order to achieve this, we have acquired an operational asset with a revenue-generating pipeline. This transaction was structured with 50% share-based payments, deferred through 2024, 2025, and 2026. We have signed a memorandum of understanding with Bioceres Crop Solutions, with the objective to secure the majority of raw material costs, also with a deferred share-based payment of three years. As we continue working with Bioceres on definitive documentation, this agreement will significantly decrease raw material cash expenses and generate liquidity for R&D and expansion of operations. Let's now turn to slide 21, where I will explain the equity subscription memorandum signed with Bioceres in more detail.

Upon closing of definitive documentation, Moolec would have access to up to 20,000 tons of HB4 soybeans progressively in the next three years in a mutually agreed delivery schedule. We expect this to cover the majority of raw materials needed for our downstream capabilities in the next 18-24 months.

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

This transaction will also allow Moolec to defer the payment of soybean for three years. At that maturity, Moolec will have the option to pay for a principal of $14 million, plus a payment in kind of 9% with common shares or cash. Throughout the life of the instrument, Insud will have the option to do an anticipated conversion to common shares at a strike of $11 per share. I will now turn things over to Martín for the final Q&A portion of our call. Thank you.

Martín Taraciuk (Head of Investor Relations)

Thank you, José, Gastón, and Amit. At this time, our management will be taking questions. You may submit questions through the chat box, directly messaging me, or by using the hand-raising function. We ask those who would like to participate in the Q&A to right-click their image, click Rename, and enter their firm and full name before asking a question. Again, if you have questions, please raise your hand or send the questions through the chat box. We have our first question coming from Brian Wright from Roth Capital, and the question is: Can you talk about molecular farming technologies' first quarter results?

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

Sure. Well, thank you, Brian, for that, and good morning to everyone. Very pleased to start this Q&A and to be hosting this first business update for Moolec as a public company. Again, thank you, Brian. It's a good question, of course, because we are definitely a science-based company focusing molecular farming technologies by being pioneering with this tech. I will pass the post to Amit to explain our significant progress in molecular farming, specifically in the safflower seeds, as that we are in scale-up stages, and also in our soybeans and pea in the labs and greenhouses stages. Amit, please move forward and please bring more details to Brian.

Amit Dhingra (Chief Science Officer)

Sure. Thank you, Brian, for your question, and good morning, everyone. I'm very excited about this update, sharing this update about Moolec Science. In the first quarter, I'll start with the three sections. Of course, we talked about safflower. We have quantified the expression of GLA oil, which, as we shared earlier, out of the total oil content, 60% of the oil is GLA, and that is really exciting for us. We also talked about the RSR or the regulatory approval, which now allows us to move forward with, you know, several aspects. The regulatory approval is completed for one of our products, which is really significant, as you can imagine. That's the first part of that. Now I'll switch to soybean.

In soybean, we are already at T2 generation. Once we integrate these expression cassettes or the vectors that produce that animal protein, we have confirmed by PCR, we have moved these onto the second generation already. We are also right now in the process of confirming the expression levels. We are seeing some significant results. We are in the process of confirming everything right now, which is really exciting to see this all materialize together. Those plants are in the greenhouses right now. As soon as we confirmed everything, we'll move them to the multiplication stage, where we can then start working with those products. Finally, in peas, we have confirmed that the peas that we have selected by PCR have the gene that we want to express.

Those plants are currently in the greenhouse, going through the motions of getting to the different generations. It is very important to see the stability of this expression cassette that is stably integrated over multiple generations. That's a standard in the industry or just in the process of creating, utilizing the molecular farming technology. That's a quick update on what we've been working with that. Thank you. Anything else to add, Gastón? Over to you.

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

Yes. No, I think it's a, it's a very good answer. Thank you, Amit. Of course, Brian, we could get deeper into the technology in a one-to-one or maybe in another question. I'm reading now. Sorry, Martín, that I jump here. Jessica just sent a question regarding the HB4 platform, HB4 soybean from Insud. Jessica says: How does this differ from traditional soybean? Quick answer is that this is a technology that Insud have been developing for more than 20 years as a drought-tolerant technology in soybean and also in wheat. Lower carbon footprint, a water footprint as well, lower use of chemicals.

This platform has the possibility to gather information and to get the traceability technically from seed to fork, because this technology also is included in a whole platform of traceable farmers. We know where these seeds and grains come from, and specific information about this production. You also make a question regarding what will the HB4 soybean acquired from Bioceres be used for? That's a very important questions because it's not also a an strategic upstream acquisition, you know, so a financial acquisition that José could explain later on.

Because this is technically the raw material that we need for our downstream, brand new capabilities to produce TVP, Textured Vegetable Protein. That's the base of our ingredient, this is based on soy, of course. I don't know if the audience know, soy proteins are one of the best meat analog, meat replacement in the food industry. In the traditional food industry, replacing meat in the processing meat industry and also in the alternative industry. We have the procurement of this soybean to produce ingredients right away. That's quite important for us, for our current operation. José, I don't know if you want to expand the question. If not, we could go directly to Brian's question, new question.

José López Lecube (CFO and Director)

Sure. No, thank you, Gastón, and again, it's a pleasure for me to be part of this first business update. What I would say about the Bioceres deal is that it has, you know, different levels of positive implications for Moolec. Of course, we're working on definitive documentation and definitive terms, but as you mentioned, you know, the first positive implication is the soybean traceability. That will be used for Valora or the recently acquired assets that Gastón mentioned. It is very important that for these recently acquired assets, we have a secure source of raw material.

On top of that we have in place a scheme that, you know, guarantees a working capital through a structure that will allow us to be fair or to pay the soybean in three years. You know, Moolec would have the optionality to pay for that soybean in three years in cash, or with equity. That is very positive in terms of the funding of Moolec overall.

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

Thank you, José. Martín, you want to read Brian's new question?

Martín Taraciuk (Head of Investor Relations)

Yes, we have Brian's new question. The question is: What is the practical effect of the GLA expression levels at 60%, 10 above expectations? You mentioned on the call this was a function of all oil yields. How does this compare to current standards?

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

Thank you, Martín. Thank you, Brian. I think it's a very, very good question. Well, you know, the level of expression for us is one of the most important KPIs, as a science-based company, because we are producing foreign molecules and specific high-value ingredients in each plants. If we could get better results of a level of expression in seed, that's very positive for us.

I will leave that question to Amit to better explain this is a specific milestone for Moolec from the scientific point of view, and also from the business point of view, because this is when the science and the business join and connect by getting good results in the lab and in the fields. Amit?

Amit Dhingra (Chief Science Officer)

Yeah. Thank you, Gastón. The big part is that you asked the question about what... how does it compare? The total oil yield or total oil content in soybean is 40% of, you know, it contains 40% oil.

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

In sunflower, sorry, Amit, it's not soy.

Amit Dhingra (Chief Science Officer)

Sorry, sorry. Yeah, sorry. I was going on that side. It's about 23% total, but oil in safflower. As you can see, my first such presentation, I can be a bit nervous, right? Anyway, 23%, then of that, 60% of the oil content, of total of that is GLA, and it does not significantly impact the total oil content. This is a value add, but this is coming from the fields, actually, this is in real agronomic conditions. It can fluctuate here and there a little bit, but I think just getting that 10% extra in the last year's season, that we had, that's, of course, has a practical implication on the economics of production as well as, which José can speak to better.

I think generally speaking, it doesn't change the plant. There was no impact on the plant's, you know, performance. Nothing really changed. This is, again, a great example of how you can produce a value-added product in a crop without having a detrimental effect. That doesn't apply universally, but in this particular case, for sure, that we've been able to see a very good achievement of this milestone. We were expecting 50%, and it's at 60% today. Thank you.

Martín Taraciuk (Head of Investor Relations)

We don't have any more questions. Please, if you wanna ask another question, raise your hand or type your question on the chat box. This concludes our Q&A session. At this time, I would like to hand the call to Gastón for final remarks.

Gastón Paladini (Executive Chairman, CEO, and Co-Founder)

Thank you, Martín. I will really like to thank you all again for joining us today. It's a great milestone for Moolec as a private company by being here hosting our first business update. Well, as you surely know, we are focusing on building value for our stakeholders, of course, saving the planet by planting the future of food with molecular farming technologies. That's our core, that's our goal, that's what we are. That's why we are here, that's the main reason why we are here creating the future of food with Moolec. We definitely want a better future for all, that's why we really push founders here with this tech in food.

We value your feedback and support, of course, and look forward to updating you again soon. The best is yet to come. Stay tuned. Thank you so much.