Mr. Johann Tergesen reports
BURCON REPORTS FISCAL 2022 THIRD QUARTER RESULTS
Burcon NutraScience Corp. has released its results for the fiscal third quarter ended Dec. 31, 2021.
Operational highlights for the third quarter ended Dec. 31, 2021:
During the quarter, Burcon:
- Recorded a 41-per-cent quarter-over-quarter increase in royalty revenues from its licensee, Merit Functional Foods Corp.;
- Supported Merit in completing the commissioning of its first-of-its-kind pea protein and canola protein production facility;
- Advanced Burcon's pipeline of plant-based protein technologies through research and development work at its Winnipeg technical centre;
- Advanced the due diligence process and negotiations with a number of existing and new potential strategic partners on opportunities to commercialize Burcon's innovative plant-based protein technologies;
- Received eight patents covering the company's novel technologies for the extraction and purification of pulse, soy and canola oilseed protein ingredients and the high-purity proteins produced therefrom. The company's intellectual property portfolio now consists of 307 issued patents in various countries, with 73 in the United States, as well as 215 active patent applications, including 35 in the U.S.
During the quarter, Merit Foods:
- Announced that its first-of-its-kind pea and canola protein production facility in Winnipeg, Man., is fully scaled and commissioned;
- Achieved the production output threshold -- as defined under the amended and restated licence and production agreement with Burcon -- for the flex production facility to have attained commissioned status;
- Increased production output to reach over 80 per cent of planned production capacity;
- Increased production and sales of its best-in-class pea and canola protein ingredients;
- Received an additional $4.95-million equity investment from its joint venture partner, Bunge Ltd.;
- Received a co-investment from Protein Industries Canada to develop high-quality plant-based meat alternative products using its pea and canola protein ingredients;
- Achieved an AA score with the British Retail Consortium (BRCGS) Global Food Safety Certification, a leading global quality and food safety program;
- Continued to expand its sales pipeline through an aggressive sales outreach program as a plant-based protein ingredient solutions provider.
Subsequent to quarter-end:
- Burcon announced it will transition to a new president and chief executive officer;
- Burcon filed five additional U.S. patent applications covering technologies for the production of sunflower seed protein and pulse protein ingredients.
"During our fiscal 2022 third quarter, Burcon's team supported Merit Functional Foods in resolving the final challenges to the process of commissioning Merit's first-of-its-kind plant protein production facility," said Johann F. Tergesen, Burcon's president and chief executive officer, adding: "With commissioning of phase 1 complete, Merit's flex production facility is now capable of supplying leading food and beverage customers with true commercial-scale quantities of its highest-purity pea and canola proteins. Merit is on track to achieve production targets, which will in turn support Merit's forecast for the sell-in phase with its consumer packaged goods (CPG) company customers. Merit forecasts to reach full allocation of its phase 1 capacity by the end of calendar 2022."
Merit's protein sales increased 41 per cent quarter-over-quarter yet remain disproportionately small compared with the potential production capability of Merit's production facility. During calendar 2021, Merit's focus was on completing the commissioning process, and ensuring protein product quality. As such, Merit was frequently occupied with incorporating processing modifications and reconfiguring its facility and was therefore unable to produce product for delivery to customers. However, in the last quarter, Merit has worked with and supported the quality assurance and safety audit teams of a number of major CPG companies as part of those entities' procurement process. In addition, Merit continues to work closely with hundreds of CPG companies looking to develop new ingredient solutions or reformulate existing applications using Merit's innovative pea and canola protein ingredients. Merit's sales prospects are encouraging, and the company expects to see many more consumer products using Merit's proteins to be available on store shelves this coming year.
During the past quarter, Burcon's joint venture partner, Bunge, exercised its option under the amended and restated unanimous shareholders agreement dated Aug. 27, 2020, to invest an additional $4.95-million into Merit. Merit also received a further co-investment from Protein Industries Canada, amounting to one-half of the $7.6-million project cost of a new project aimed at developing innovative plant-based meat alternative products. Merit's partners in the project include Winecrush Technology, Wamame Foods and Wismettac Asian Foods. The goal of the partnership is to develop and distribute throughout Europe, Asia and North America, a line of meat alternatives to pork and Wagyu beef. This is an excellent opportunity for Merit to showcase the versatility and functional capabilities of its high-purity pea and canola proteins in meat alternative applications.
During the quarter, Burcon continued discussions with potential joint venture partners interested in commercializing Burcon's other innovative plant-based protein technologies. Burcon and its potential partners conducted further due diligence and carried out other activities in support of negotiating these potential partnerships during the quarter. The company is confident its unique technologies for alternative protein sources, including sunflower seed, hemp and oats, arising from Burcon's core protein extraction technology platform, produce valuable differentiated protein ingredient solutions.
Burcon's patent team continued to strengthen its already substantial intellectual property portfolio with the addition of eight patents this quarter. The patents cover novel processes for the extraction and purification of protein ingredients arising from pulse, soy and canola crops. Subsequent to quarter-end, Burcon filed five additional U.S. patent applications to further protect its high-value extraction technologies to produce protein from sunflower seed and pulse crops.
Subsequent to quarter-end, Burcon announced that after co-founding Burcon more than 23 years ago, Mr. Tergesen will be stepping down as its president and CEO effective Feb. 28, 2022. To ensure an orderly transition, he will continue as an adviser to the company and Burcon's board of directors. Burcon has engaged an executive search firm specializing in the food and agribusiness sectors, to assist in recruiting a new chief executive officer.
Financial results (in Canadian dollars)
Royalty revenues from Merit totalled $45,000 in the third quarter, as compared with $32,000 in the previous quarter. The nominal royalty amounts reflect Merit's continuing commissioning process during the period.
Third quarter loss totalled $1.5-million or one cent per basic and diluted share. This compares with a loss of $1.1-million or one cent per basic and diluted share in the same year-ago quarter. Following the investment by Bunge into Merit during the current quarter, Burcon recorded a dilution gain of $961,000 as a result of Burcon's ownership interest in Merit decreasing from 33.3 per cent to 31.6 per cent.
Merit recorded sales revenues of $1.2-million during the quarter, representing sales of pea and canola protein products, as well as sales of commodity items and byproducts.
Burcon recorded $1.2-million as its share of loss in Merit Foods for the third quarter of fiscal 2022, as compared with $460,000 in the same year-ago quarter. Merit Foods' loss reflects its stage of development as it continued to commission the flex production facility during this quarter.
Gross research and development expenses totalled $895,000 for the three months ended Dec. 31, 2021, as compared with $604,000 in the same year-ago quarter. The increase in R&D expenses is due mainly to higher stock-based compensation expense, salary increases and staff additions. The company began deferring canola and pea development expenses from the second quarter of fiscal 2020. During the current quarter, Burcon allocated $623,000 of R&D costs to deferred development costs. As Burcon's pea and canola technology that is under licence to Merit is now capable of operating in the manner intended by management, Burcon will cease to the capitalization of costs to deferred costs related to its pea and canola technology and begin amortization of the intangible asset as of Jan. 1, 2022.
Gross intellectual property expenses did not change significantly from the same year-ago quarter. During fiscal 2022 third quarter, Burcon allocated $192,000 of IP expenses to deferred costs. As noted above, Burcon will cease to capitalize intellectual property expenses related to its pea and canola technology and begin amortization of the intangible asset from Jan. 1, 2022.
General and administrative expenses increased by $431,000 for the current fiscal quarter as compared with the same year-ago quarter. The increase is due mainly to higher stock-based compensation expense, staff additions, professional fees, investor relations and insurance expenses.
At Dec. 31, 2021, cash balances totalled $9.4-million compared with $14-million at March 31, 2021. Management believes it has sufficient resources to finance its expected level of operations and working capital requirements to April, 2023. This estimate does not take into account potential proceeds from outstanding convertible securities or royalty revenues from its licence agreement.
Conference call details
Burcon will hold an investor conference call and webcast on Monday, Feb. 14, 2022, at 5 p.m. ET.
A link to the webcast of the conference call will be available on Burcon's website under presentations. The webcast will also be archived for future playback.
Investors interested in participating in the live call can dial in using the details below:
Date: Monday, Feb. 14, 2022
Time: 5 p.m. Eastern Time (2 p.m. Pacific Time)
Toll-free dial-in (North America): 1-855-327-6837
Dial-in (toll/international): 1-631-891-4304
Conference ID: 10017719
About Burcon NutraScience Corp.
Burcon is a global technology leader in the development of plant-based proteins for foods and beverages. With over two decades of experience formulating high-purity proteins that have superior functionality, taste and nutrition, Burcon has amassed an extensive patent portfolio covering its novel plant-based proteins derived from pea, canola, soy, hemp, sunflower seed, among other plant sources. In 2019, Merit Functional Foods Corp. was established between Burcon and three veteran food industry executives. Merit Foods has since built a state-of-the-art protein production facility in Manitoba, Canada, that is producing, under licence from Burcon, best-in-class pea and canola proteins for the food and beverage industries.
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