Gene editing has caused a lot of excitement in agriculture technology circles for its potential to produce crops, and even animals, with improved characteristics. The technique, which enables undesirable traits — such as intolerance to heat — to be edited out of a genome, or preferred traits — such as high nutritional content — to be enhanced, has also been lauded as a “non-GMO” method of advancing breeding; creating crops with characteristics that many argue would naturally appear over generations through evolution without the introduction of any foreign DNA.
With consumer acceptance of GMO food at all time lows, this technology could be a game changer for many sectors and last week the public markets got their first chance to access it in an agricultural context.
Calyxt, a Minnesota-based subsidiary of French biopharmaceutical company Cellectis, successfully spun out from its parent and raised $64.4 million in an IPO on the Nasdaq stock exchange. While pricing at the bottom of its $8-$10 a share range — revised down from an earlier $15-$18 range — the stock was a hit on its first day gaining 30% and reaching a high of $11.25. The offering was also oversubscribed, with the underwriters selling their optional over-allotment. It is currently trading around $10.70 with the ticker CLXT.
“We’ve seen a level of awareness of gene editing overall, both in the industry and the investment community that has been increasing steadily since about a year ago when I joined the company,” said Calyxt CEO Federico Tripodi, who told AgFunderNews that investors are eager to get involved in this new wave of seed design. “We think there is a tremendous amount of momentum and need from the food and ag industry for gene editing, and investors didn’t have vehicles for investing in gene editing for food and agriculture,” he offered as the reasoning behind taking the company public as opposed to other ways of funding expansion.
Calyxt uses a gene editing technique called TALEN, which is similar but not identical to the perhaps better-known CRISPR Cas-9 gene-editing tool, which was invented by Nobel prize hopeful Jennifer Doudna. (Read about their differences here.) For agriculture, CRISPR Cas-9 is being used by Caribou Biosciences, a startup founded by Doudna, to produce a waxy corn in partnership with DuPont Pioneer.
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Calyxt has a broader public product pipeline including a potato variety that doesn’t bruise, high-fiber wheat, low-gluten wheat, herbicide tolerant wheat, lower saturated fat canola, and high-oleic soybeans.
According to Tripodi, investors in the IPO included “some of the largest funds in the world.” Investors names will not be released until the company’s next SEC filing.
“You go into these processes a little bit blind because you don’t know what the market is going to tell you until the day you price the IPO. Our objective was to get the company public and to raise funds to help us build the company and we accomplished both things and we are very happy with the outcome,” said Tripodi, who joined the team last year after nearly 20 years at Monsanto.
Despite lowering the price by one third between the road show and the opening bell, the offering was a success and will serve as a source of encouragement for the rest of the gene-editing field, others told AFN.
“This IPO — and Calyxt’s success — are evidence of the confidence that the public has in these technologies, their likely regulatory approval, and the growing demand for improved agricultural genetics,” another genetics startup told AgFunderNews.
Before Calyxt’s Nasdaq debut Belldegrun said, “Historically, we’ve seen difficulties in IPOs in the agriculture sectors for R&D companies with no revenue and with no product on the market. If this is a well-received IPO, it’s going to be incredibly supportive and a strong statement for ag technologies in the markets. We believe that it should be well-received because the technology warrants it.”
New Tech, Newer Business Model
As well as working in a frontier industry, Calyxt is pursuing a novel business model. Like many startups in the agricultural inputs space, the company will license certain traits to seed companies to sell to farmers, such as herbicide tolerance.
But, for crops with traits intended to appeal to consumers — such as high-oleic soybean oil, which has a more favorable fatty acid profile than conventional soybean oil — Calyxt will partner with each link in the supply chain to sell a finished ingredient to food manufacturers.
High-oleic soybean oil will, in fact, be Calyxt’s first product on the market, Tripodi said. “We are going to sell the oil directly to food industry players and in order to do that, we have developed partnerships in which we are outsourcing our supply chain and coordinating with seed production companies, growers, crushers, and oil packagers and distributors.”
Tripodi acknowledged the size of this undertaking, but stressed his belief in its importance in ensuring the integrity of the final product: “Having good coordination and orchestration of that supply chain is critical to align the interests and incentives of very diverse constituents leading all the way to the consumer.”
Calyxt will use the proceeds of the IPO to build out its team, which currently has under 30 members, according to Tripodi adding “we need to build a commercial organization.” Tripodi will also be beefing up the firm’s R&D capabilities to get products to market faster.
The new capital will also go toward amassing inventories of seeds, oils, and grains to ensure a consistent supply of the product once they start selling in 2018.
Regulation and Perception
As the pricing might suggest, it wasn’t all plain sailing for Calyxt’s stock exchange debut, with most of the expressed hesitation around the IPO focused on the hazy regulatory outlook for gene-editing, according to investment media. Seeking Alpha wrote “Regulatory Hurdles Keep Us Cautious On This (Otherwise Exciting) IPO” and characterized gene editing as having a “high degree of regulatory uncertainty.”
Currently, gene edited produce is not regulated by the USDA, and therefore not labeled at GMO, because it does not contain any foreign genetic material. In a letter to the producer of the first gene-edited mushroom, the USDA wrote “a GE organism is deemed a regulated article if it has been genetically engineered using a donor organism, recipient organism, or that is an unclassified [or unknown] organism, or the administrator has reason to believe it is a plant pest.”
While the lack of regulation has caused concern in several circles, industry stakeholders seem confident that regulation won’t hamper their progress.
“The USDA has been very consistent in its interpretation that the products we have made by removing DNA are not regulated under their framework. We have five products that have gone through that process,” said Tripodi.
Though it looks like most gene-edited plant products will not be subject to additional regulation outside of the norm for food and agricultural products, debate is still continuing around the “noxious weed” classification under the Plant Protection Act, which allows for restrictions on the propagation of any crop that could be a pest. The definitions within this rule are what is being questioned by the industry, expressing concern that gene-edited products could fall under this rule in some interpretations. Public comment for such rules at the USDA and FDA closed in June and new proposed regulations have not been published by either agency.
Said Belldegrun, “We generally think that the regulatory environment is going to get easier as more is understood about the technology and products coming to market. And that’s why I think Calyxt’s IPO is important because we’ll have products in the market sooner and the regulatory process will get easier.”
But public — and investor — opinion is another story. Early media reports about Calyxt’s potatoes that don’t bruise called the technology “genetically modified,” which technically is accurate, because the genetics of the potato have been altered. But the terms genetic modification and GMO have taken on a meaning and stigma in the public discourse that goes beyond the literal definition of the phrase.
The task ahead will be to introduce the public to gene editing in stark contrast to the GMOs that came before. The plan, according to stakeholders, is to focus on the personal benefit, and not get too bogged down in the science.
“I think there’s much more focus today on presenting gene editing as a potential consumer beneficiary as opposed to a scary scientific advancement. I think Caribou and Calyxt and others are focused on showing consumers the power of benefits to them as opposed to just benefits to farmers’ productivity,” said Belldegrun.
Tripodi confirmed similar intentions for marketing Calyxt’s products with the benefit to the consumer paramount. He said that food products containing Calyxt high-oleic soybean oil will likely not have the company’s name on the package, but will contain language about the benefits of the new oil.
Today, scientists announced the first CRISPR-edited human embryo, so the public crash-course in gene-editing may be starting right now.
Calyxt sold 7 million shares at $8, leaving Cellectis with around 80% of stock. The bookrunners were Citigroup, Jefferies, Wells Fargo Securities, BMO Capital Markets and Ladenburg Thalmann.