Arcadia Biosciences announces third quarter 2019 financial results and business highlights
−− Company announces plans for hemp seed sales, highlights first GoodWheat sales commitments and USDA approval of HB4 soybeans
Nov. 8, 2019
“We achieved important progress during the third quarter in both product commercialization and continuing research and development in each of our three strategic crop categories – hemp, wheat and soy,” said Matthew Plavan, president and CEO. “We continue to lay the foundations for rapid revenue growth, across multiple product lines in 2020 and beyond, with notable acceleration of our hemp genetic innovations to enhance the enterprise value of our growing germplasm estate.”
Last week, the United States Department of Agriculture (USDA) issued their interim final rule for hemp production. This long-awaited guidance further codifies the contents of the 2018 Farm Bill and is the next step forward for the expansion of legal hemp cultivation in the United States.
With this new ruling, states must mandate procedures for testing hemp crops for tetrahydrocannabinol (THC), the psychoactive compound, and disposing of “hot” crops that exceed 0.3% THC.
“Now that the THC content of U.S. hemp crops will be closely monitored by the USDA, the hemp research we have underway in Hawaii and California is more valuable than ever,” said Plavan. “We are bringing modern breeding science and genomics technology to develop high-quality non-GM hemp varieties with improved uniformity, stability, resiliency and yield, enabling farmers to maximize the value and profitability of this newly-legal crop.”
Plavan continued, “As an agricultural technology company accustomed to working within USDA and the U.S. Food and Drug Administration (FDA) regulated sectors, we welcome these rules, which enable us to move forward with our plans for both cannabidiol (CBD) production and hemp germplasm improvement.”
Earlier this year, Arcadia gave guidance for significant revenue generation over the next two years, projected to exceed $10 million in 2020 and $30 million in 2021. Based upon this revenue growth, the company expects to generate net cash from operating activity by mid to late 2021, with sustained profitability thereafter.
“We are working hard every day to bring consumers new and improved healthy food options, while maintaining a single-minded focus: profitable growth.”
Recent Operating and Business Highlights
Arcadia launches Archipelago Ventures, Hawaiian hemp joint venture. In Q3, Arcadia launched a strategic joint venture with Legacy Ventures Hawaii to grow, extract and sell superior sun-grown hemp. The partnership, Archipelago™ Ventures, joins Arcadia’s extensive genetic expertise, resources and cultivation facility in Hawaii with the proven extraction and commercial capabilities of Legacy and its partner Vapen CBD. The result is one vertically integrated supply chain, from seed to sale, enabling Archipelago to deliver superior hemp extract which harnesses the islands’ unique geographic and climate advantages for growing hemp year-round. The partnership also provides access to world class extraction facilities and a channel to key international markets for hemp and CBD. Since the JV launched in August, Archipelago has tripled its acreage in Hawaii with the addition of two new licensed growers.
Expanded hemp operations in three states. Arcadia established a hemp research facility in California in Q3, and recently partnered with an Oregon research company to conduct field research in that key hemp territory. As a result, Arcadia now has operational locations in three geographies to produce hemp and hemp seed – Hawaii, California and Oregon – and is well equipped to test varieties and advance breeding activities under multiple climate conditions with improved access to more germplasm. Arcadia plans to begin sales of hemp seed and hemp extracts, including CBD, in the fourth quarter.
Advanced hemp genomics and breeding platform development. Arcadia’s R&D team achieved key milestones in technology demonstration, producing its first unique variety and executing a number of varietal crosses to generate new performance characteristics and identify valuable attributes. The company expanded its genomics capabilities with new personnel to further accelerate trait development.
Global commercial agreement for GoodWheat. Arcadia signed a global collaboration agreement with Bay State Milling Company and Arista Cereal Technologies. The agreement secures a U.S. route to market for the company’s high fiber GoodWheat, which will enter the North American market as part of Bay State’s HealthSense™ flour. Arcadia has secured an initial purchase commitment from Bay State for bread wheat to be delivered in 2020.
USDA approval for HB4 Drought and Herbicide Tolerant Soybeans. HB4 soybeans are now approved by the three largest soybean producing nations: the United States, Argentina and Brazil. Full-scale launch in Argentina will occur once China grants import approval, which is expected in late 2020. In the meantime, Verdeca, a joint venture with Bioceres Crop Solutions, is in negotiations with several commercial partners and soybean producers to prepare the North American market for this new trait.
In the third quarter of 2019, revenues were $392,000, compared to revenues of $370,000 in the third quarter of 2018 and first nine months 2019 revenues were $753,000, compared to $1.0 million during the same period of 2018. The $267,000 decrease in the nine-month period was largely the result of the wind down in government grant and contract research activity. Arcadia expects product and trait revenues from hemp and wheat to start replacing government grant and contract research revenues in the coming months.
Operating expenses in the third quarter and first nine months of 2019 were $6.6 million and $16.1 million, compared to $4.5 million and $13.5 million in the third quarter and first nine months of 2018. Cost of product revenues were $53,000 more in the third quarter of 2019 compared to the third quarter of 2018 due to higher GLA sales. There was a GLA inventory write-down in 2018 that was not present in 2019, which generated the $107,000 decrease in cost of product revenues from the first nine months of 2019 compared to the first nine months of 2018. Research and development (R&D) spending increased by $597,000 and $863,000 in the third quarter and first nine months of 2019 compared to the the same periods in 2018, primarily due to additional soybean pre-commercial activities, higher employee expenses and hemp related costs. General and administrative (SG&A) expenses for the third quarter of 2019 were $1.5 million and $1.9 million higher than in the third quarter and first nine months of 2018, mainly the result of additional employee-related expenses, consulting fees and stock compensation expense, as well as increased marketing and public relations activities. Third quarter 2019 stock compensation expense included $662,000 of one-time charges for the accelerated vesting of a consultant’s performance-based warrants and the modification of our former CEO’s stock options in connection with his separation.
Net Income (Loss)
Net loss for the third quarter of 2019 was $14.2 million, or ($2.04) per share, a 419 percent decrease from the $4.5 million net income recognized in the third quarter of 2018. Net loss for the first nine months of 2019 was $22.6 million, or ($4.01) per share, compared to the net loss of $12.8 million for the first nine months of 2018. The difference for both periods was largely due to the change in the fair value of the common stock warrant and common stock adjustment feature liabilities, which is driven by the number of common stock warrants outstanding, as well as the change in the stock price. Net loss for the third quarter and first nine months of 2019 included non-cash expense of $7.8 million and $6.8 million for the change in the fair value of common stock warrant and common stock adjustment feature liabilities, as compared to $8.4 million and $6.0 million of non-cash income recorded in the third quarter and first nine months of 2018.
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