Burcon NutraScience's (BUR) COO Johann Tergesen on Q1 2015 Results - Earnings Call Transcript

Aug.14.14 | About: Burcon NutraScience (BUR)

Burcon NutraScience (NASDAQ:BUR)

Q1 2015 Results Earnings Conference Call

August 14, 2014, 5:00 p.m. ET


Johann Tergesen - President and COO

Jade Cheng - Chief Financial Officer

Randy Willardsen - SVP, Process


Spencer Churchill - Paradigm Capital

Geoff Castle - Kestrel Holdings

[Steven Musilsky] - Spencer Edwards


Good afternoon everyone, and thank you for participating in today’s conference call to discuss Burcon NutraScience Corporation’s fiscal first quarter of 2015, ended June 30, 2014. Joining us today are Johann Tergesen, President and COO of Burcon; Jade Cheng, the company’s Chief Financial Officer; and Randy Willardsen, Burcon’s Senior Vice President of Process.

Following their remarks, we will open up the call for your questions. 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 today’s call.

Before we begin, I would like to remind everyone that this call is being recorded and will be available for telephone and webcast replay through September 14, starting later this evening. Please see today’s press release or Investor Relations section of the company’s website for replay instructions.

Now, I would like to turn the call over to President and Chief Operating Officer of Burcon, Johann Tergesen. Sir, please go ahead.

Johann Tergesen

Thank you, Greg. Good afternoon everyone, and thanks for joining us today. It’s been a short interval since our year-end call on June 23. However, in that short time, the capital markets have become much more alive to the specialty ingredient industry and there’s been a re-rating of the business valuation upwards.

This isn’t a surprise to us. We continue to see consumer led demand for health and wellness, and it’s making itself felt through a decade-long decline in sales for soft drinks, decade low growth rates in traditional fast food businesses, and the positive price discovery from recent M&A activity in the specialty ingredients sector, especially surrounding ingredients for taste, nutrition, and texture.

During the past quarter we saw continued progress in ADM’s commercial rollout of the Clarisoy line of soy proteins. While we continue to progress our Peazazz pea protein strategy, and we also completed a rights offering which put significant additional capital into Burcon’s treasury.

But before I go into this further, I’d like to first turn the call over to our CFO, Jade Cheng, who will take us briefly through the financial results and details for the quarter. I’ll then return to expand further about our progress and market opportunities and trends, and then we’ll open up the call for your questions.

Jade Cheng

Thank you, Johann. Earlier today, our fiscal first quarter results were issued in a news release and filed with SEDAR, as well as posted to the investor relations section of our website. Trying to our income statement, revenues totaled $25,000 in the fiscal first quarter of 2015, which was consistent with the prior quarter and the same year ago quarter.

These revenues were derived mainly from deferred initial license fee payments from Archer Daniels Midland. Royalty revenue from the sale by ADM of Clarisoy produced from the semi-works facility have been marginal. The main purpose of the semi-works plant has been to provide commercial samples for market development purposes and to facilitate other product development work.

Our net loss for the first quarter of fiscal 2015 was $1.4 million, or $0.04 per basic and diluted share. This compares to a net loss of $1.6 million, or $0.05 per basic and diluted share in the same year-ago quarter.

Research and development expenses were $604,000 in the fiscal first quarter, as compared to $617,000 the same year ago quarter. There were minor decreases in laboratory operation costs this quarter, due mostly to lower repairs and maintenance expenditures.

General and administrative expenses were down in the fiscal first quarter from $1,010,000 to $841,000. The decrease is due mostly to lower patent-related expenses, as Burcon abandoned certain noncore U.S. canola patents that the company deemed to be unessential to achieve our strategic objectives, and also to patent applications that has entered national phase in the first quarter of last year.

At June 30, 2014, our cash balances totaled $5.4 million, as compared to $1.4 million at March 31, 2014. In April of this year, Burcon completed a rights offering that provided net proceeds of $5 million. We believe we have sufficient resources to fund our expected level of operations and working capital requirements until at least July of 2015.

This estimate does not take into account potential proceeds from outstanding convertible securities, royalty revenues from the sale of Clarisoy soy protein, or the commercialization of Peazazz.

I would like to refer you to our complete financial statement and the more detailed management discussion and analysis of our results that is available in the investor section of our website at Burcon.ca, as well as on SEDAR.com.

Now, in terms of our patent portfolio, Burcon received three U.S. patent grants this quarter. Our IP portfolio now comprises 192 issued patents in various countries, including 55 in the U.S. as well as more than 360 active patent applications, including 60 additional U.S. patent applications.

Since inception, Burcon has expended approximately $10.8 million on patent legal fees and disbursements to strengthen our patent portfolio in various countries and file patent applications for new inventions. We will continue to pursue our patent strategy, aggressively seek protection for new technologies, as well as protect our current technologies.

Now, with that, I’d like to turn the call back to our COO and president, Johann Tergesen. Johann?

Johann Tergesen

Thanks, Jade. As I noted at the beginning of today’s call, this quarter saw the continued progress of the commercial rollout of the Clarisoy line of soy proteins, advancement of partnership discussions on our Peazazz protein, and the completion of our rights offering.

As announced in the previous quarter, Burcon had received a notice of allowance for its Clarisoy composition of matter patent from the U.S. Patent and Trademark Office. This commercially important patent was officially granted during the current quarter. This marks the first-ever Clarisoy composition of matter claims to be allowed.

Composition of matter claims are highly valued because they provide protection over the unique commercially valuable attributes of a particular substance, rather than for the methods by which it was produced.

During the quarter, Burcon completed an oversubscribed rights offering of 1.8 million common shares for a total of $5.25 million, with net proceeds of $5 million. There was overwhelming demand for the common shares, and the rights offering was oversubscribed by approximately $9.8 million.

Doing a rights offering can be viewed as a signal that the capital markets have not been open for Burcon. However, in the short time since our last call, we’ve witness a bit of a sea change in the capital markets’ view towards specialty ingredient companies.

As you’re likely already aware, ADM and Dupont dominate both the U.S. and global soy ingredient markets. As stated in ADM’s most recently quarterly conference call, specialty proteins experienced a record quarter, and given ADM’s position in the global soy protein ingredient market, specialty proteins likely made up a healthy percentage of the overall ingredients division.

To paraphrase a discussion from ADM’s recent quarterly conference call, in which they announced the start of construction of their specialty protein complex, to be built in Campo Grande, Brazil, ADM’s specialty protein complex will take 18 to 24 months to build, and ADM is looking for it to cash flow in the summer of 2016. They added that ADM specialty proteins had another record quarter, selling very, very well, and there is a lot of pull from ADM’s customers, so this plant cannot come fast enough.

Burcon’s management is not surprised to hear this from ADM, and it is consistent with other information we are seeing that suggests the consumer driven health and wellness trend continues to build, and in particular, there continues to be pent-up demand for specialty proteins.

Over the course of the past few quarters, when I speak with our shareholder base, the overwhelming question I receive from shareholders is along the lines of, is ADM committed to making Clarisoy a success? Witnessing the developments and announcements we’ve seen from ADM during the past quarters, we can confidently say Clarisoy is one of ADM’s branded ingredients.

For example, in ADM’s recent news release, we note that the phrase, “Clarisoy beverage protein” has recently been added to ADM’s food and wellness boilerplate. As a category, Clarisoy has become ADM’s beverage protein, which is consistent with ADM’s remarks in their acceptance of the 2012 Interbev Award, where they said, “This is a testament to the significant role we expect Clarisoy to play in the future of the beverage industry around the globe.”

Additionally, in a recent interview with Food Business News, ADM, in commenting on the creation of their new foods and wellness division, was quoted as saying, “Two years ago, we created a market facing unit to innovate better with customers. It was staffed with marketing, sales, and applications people who work in food and wellness. So we have [unintelligible] plans to become more relevant in that journey. This acquisition is going to enhance our abilities in this area.”

The acquisition they’re speaking of is ADM’s intended acquisition of Wild Flavors GmbH for $3.1 billion, which, if completed, will significantly expand ADM’s specialty food ingredient offering.

Wild Flavors is a leader in natural flavors and extracts offering food and beverage companies full flavor and ingredient solutions. They’re headquartered in Switzerland, with 2,300 employees and operations in 23 countries. They’re renowned as an innovative partner in beverage development, featuring customized products with superior taste and natural colors, as well as deep commercialization expertise to rapidly move products from concept to the market.

Importantly for Clarisoy, Wild has a high growth customer base with more than 3,000 customers in more than 130 countries, 28 state of the art research and innovation centers, 418 scientists and applications specialists, and 35 sales offices with 16 production facilities.

In discussing the Wild acquisition, ADM’s chief executive officer, Patricia Woertz, was quoted saying, “Together, ADM and Wild Flavors will create one of the leading flavor and specialty ingredient companies in the world, with sales approaching $2.5 billion and significant room to grow.

In addition, Wild Flavors will be able to reach more customers with an expanded portfolio of innovative ingredients, and ADM, with our own sizeable specialty ingredients business, will have an enhanced platform for the commercialization of our higher-margin food and wellness ingredients.

The acquisition of Wild complements ADM’s specialty ingredient portfolio. ADM has been strong in the food in the U.S. and with large food and beverage consumer products group companies, whereas Wild has been strong in beverages in Europe and with small/medium enterprises. ADM has been strong in texture, function, nutrition, and now Wild brings taste and flavors to the platform.”

In fact, recently, in a number of articles that I’ve read, Patricia Woertz has been quoted as saying, “Taste is king.”

Again, from Burcon’s perspective, and how it relates to opportunities for the sale of Clarisoy, we were encouraged to see additional ADM management commentary wherein they have great expectations in what Wild’s flavors may do for ADM in the beverage segment.

Here’s some quotes from what we’ve been seeing in the food industry media. It’s a market we’ve been working in, particularly with our Clarisoy and [Fibrasol] products. It’s why we see this as the perfect combination in the U.S. They, being Wild, have a strength in energy drinks. They also are working in areas like flavored teas and flavored waters. Also, we see opportunities to work in the areas of milkshakes and smoothies for food service companies.

ADM has capitalized on an expense opportunity with Wild Flavors, which will be a significant prospect for Burcon as Wild has a leadership role in beverages globally. ADM has announced that its foods and wellness group, in which Clarisoy is marketed under, will merge with Wild Flavors to become Wild Flavor and specialty ingredients division.

ADM highlighted the attributes of the new business unit as being all of the following. Retaining Wild Flavors management and expertise, products will see margin and growth rates accelerate through a systems approach and a broader customer base. The combined expertise and portfolio propels business into new segments. And that it will be a platform for bolt-on acquisitions.

As we have stated in the past, Burcon does not receive sales and revenue guidance from ADM. However, they have given some color through their recent public statements for their specialty proteins business, stemming from their intended acquisition of Wild Flavors. ADM has forecasted Wild Flavors specialty ingredients to have $2.5 billion in revenues in 2015, with revenue targets of $5 billion in five years and $10 billion in ten years.

Given the high single growth rate of each component division, ADM will be looking for cross-selling synergies, new product sales, and acquisitions to drive the balance of the growth. We’ve witnessed a change in capital market perceptions of our industry since this past March, when ADM first announced their intention to expand to full commercial production of Clarisoy.

The change is that the capital markets now understand ADM’s strategy to become one of the top global specialty ingredient companies, with enough of a footprint for that division to be one of ADM’s growth engines.

Operationally, and building on last quarter’s announcement of ADM’s intention to expand commercial production to a full-scale Clarisoy production plant, ADM has launched a new version of Clarisoy at this year’s Institute of Food Technologists annual meeting and food exposure in New Orleans.

ADM introduced Clarisoy 170, a soy protein ingredient that is ideal for partial or full replacement of dairy protein in neutral beverage applications with a pH of 7 or higher. It has a clean flavor and smooth mouth feel that’s perfect for adding protein to neutral beverage systems.

Currently, the Clarisoy portfolio offered by ADM consists of six different versions of Clarisoy marketed as being made from a sustainable protein source providing improved nutrition and having price stability. The six versions are branded as Clarisoy 100, Clarisoy 120, Clarisoy 150, Clarisoy 170, and 180. Each has its own unique attributes from low to high protein inclusion, low to neutral pH applications, transparency, and dairy replacement.

In all of ADM’s marketing materials for Clarisoy, it is evident that ADM is promoting Clarisoy as a high-quality protein source, sustainable and price stable, in order to compete with the volatile supply and pricing of dairy proteins.

Recent developments indicate that ADM is well-positioned to market and sell Clarisoy as a specialty protein ingredient on a global scale. Together with ADM’s, and in the future Wild’s, comprehensive suite of systems-based solutions, Clarisoy is poised to be a major protein ingredient offering in the food and beverage market. We feel confident that the ADM/Wild application teams will continue to bring new versions of Clarisoy to the market based on consumer demand.

Looking at the broader ingredient market, we continue to see specialty ingredient companies driving to broaden their ingredient portfolio offering in an effort to provide more of a one-stop formulation experience, especially in regards to taste, nutrition, and texture. But broadening the portfolios will create more distribution, and Peazazz is an excellent prospect within that backdrop.

External R&D will play an increasingly important role for ingredient providers seeking to exploit and maintain the demand situation for protein ingredients. In that regard, we have advanced our discussions with multiple parties who are interested in our Peazazz pea protein. We’re every bit as confident in the commercial value of our Peazazz pea protein as we are in our Clarisoy soy protein. They’re truly great protein ingredients.

Peazazz pea protein has a uniquely clean flavor without the earthy or vegetable taste or aroma, like you’d find with the standard pea proteins that are currently on the market. Moreover, Peazazz’s exceptional solubility in low pH or neutral pH beverage applications make it extremely versatile and easy to formulate with. Peazazz is also hypoallergenic and non-GMO, two attributes that are in high demand by food and beverage manufacturers.

During the past quarter, we’ve been exploring, with a few select companies who we think would make excellent partners, the various ways to bring our unique Peazazz pea protein to market. Discussions with these potential partners have included possible license or joint venture partnerships, all with the goal of bringing the next major planned phase protein ingredient to market in the most efficient and timely way we can.

We’ve spent 14 years to achieve our current knowledge base. We have 192 issued patents, and we have another 360 patents in review. We have a solid record of consistent and continuous innovation, and we believe there is more to come. We invent and innovate. We have filed patents which we believe are commercially valuable, and we continue to innovate and patent.

Now, with that, I’d like to open up the call to questions. Operator, can you please provide the instructions?

Question-and-Answer Session


[Operator instructions.] And we’ll take our first question today from Spencer Churchill with Paradigm Capital.

Spencer Churchill - Paradigm Capital

In terms of the first full-scale plan that ADM is going to be building, obviously they’re pretty tight-lipped about timing and size. But I’m just wondering, have you guys, through your contacts in the industry, and your observations, been able to ascertain any internal thoughts on when this might occur and also how large it might be?

Johann Tergesen

Unfortunately, the answer to both questions is no. We do not know how large, and we do not know when or where, in fact, ADM is building. They have been keeping that confidential to themselves.

Spencer Churchill - Paradigm Capital

And Peazazz, I think last time we spoke you mentioned you’ve narrowed it down to a handful of discussions. And I believe we thought that perhaps something could come this summer. So I’m just wondering, what is your thinking in terms of timing with that opportunity?

Johann Tergesen

Well, what I can tell you is we absolutely are having excellent discussions with a number of companies. And in fact, I just arrived back into Vancouver yesterday from one of those discussions. And I’d love to be able to commit to a time when we expect those discussions to convert to a deal, but unfortunately we can’t.

What I can expand on is to say that the discussions that we are having, in the case of two different parties, are talking about an agreement where when the agreement would actually be inked, it would be in fact a commitment to move to market. And so it’s quite different from the structure that we had with Archer Daniels Midland, whereby ADM was first under the agreement that we had with essentially a multiyear period to build and operate a semi-works facility.

So the exact timing is out of our control. We’re very pleased with the depth of the conversations we’re having with respect to all of the areas that you would anticipate in looking at a product like this. Everything from regulatory approval to engineering to applications and sales and even in some cases already having discussions with potential customers. But as to when we can have a deal in place, that’s out of my control.

Spencer Churchill - Paradigm Capital

Perhaps maybe if you could comment on the nature of the discussions given, as you said, change in perception of the market on the industry, as well as obviously ADM’s own increasingly hopeful comments.

Johann Tergesen

I think that’s a good question. In fact, just yesterday, when we were meeting, there were three of us from Burcon that traveled down to meet this very significant U.S. based company, we were actually having some fun discussions about pea protein, how a pea protein has come from sort of nowhere. Four or five years ago, when we were first doing our key research and filing patents, to suddenly being such an incredible and timely protein.

So there’s no question that the parties that we are talking to want to move forward. They’re excited about pea protein and novel proteins. They’re excited about the protein industry in general. But the nature of dealing with these very large companies is that they have large teams and systems that they go through. And so it’s, I think, to be expected, that it takes time to progress through the process, ultimately to an agreement.

Spencer Churchill - Paradigm Capital

And one last one on the Peazazz. I think we talked last time that you perhaps were leaning towards a JV type arrangement, where there would be a manufacturing plant that would be split between the two of you, versus a traditional, or what you’ve done with ADM in terms of licensing. Are you still in that camp?

Johann Tergesen

We’re definitely entertaining that. Absolutely. For a whole variety of reasons, but we believe that we could do quite well being part owner, you know, joint venture owner, of an initial production facility. And you know, look forward to being able to come to the market with a signed deal in hand, if in fact we do take that approach, to source the financing that we would need for our side of that capital commitment.


And our next question will come from Geoff Castle with Kestrel Holdings.

Geoff Castle - Kestrel Holdings

I just wanted to get a little bit more color from you. I guess you did say that ADM was going to be cash flowing from their Brazilian plant in 2016. Could you kind of translate that into terms of royalty revenue for Burcon, what that phrase means from your point of view?

Johann Tergesen

The challenge with that yet is ADM has not yet indicated to us that they will be producing Clarisoy in Brazil or in any specific location. I was just quoting what ADM has been saying with respect to the demand they’re seeing for protein. They’re obviously building a facility there. They’ve announced that. They’re talking about it being specialty protein. It could be a location to produce Clarisoy. So it’s extremely difficult for me to be able to go from that comment to what it’s going to mean to us in terms of royalty.

What we did get from this quarter, and what’s, I think, important, and what’s out there for everybody to see, is the amount that ADM is talking about Clarisoy in industry publications, in the interviews they’ve done, as I noted, in the boilerplate, literally, of the news release that they put out with respect to their purchase of Wild Flavors. If you go onto ADM’s website and you read that news release, it mentions Clarisoy right in ADM’s boiler.

Again, I appreciate that it’s a bit frustrating that we don’t have more specifics, but we don’t. I can tell you that in the recent quarter, one of the biggest industry publications in the food industry is actually called Food Industry News, and earlier this week, the newest edition landed on my desk, and literally the cover story was ADM’s purchase of Wild.

And you know, you follow that story, and there’s a quote in there by Juan Luciano of ADM saying that is exciting for them, and [fibrasol] and Clarisoy. So, you know, we can see ADM making this huge commitment, but really, we do not have the specifics.

Geoff Castle - Kestrel Holdings

So I guess we’re just going to, at some point, well, you might found out with a few weeks’ notice, but I guess at some point, we’re going to start seeing new revenue coming over the quarterly financials. That’s how we’ll find out it’s being sold?

Johann Tergesen

Basically, and you’ll know essentially as soon as we do. Because ADM, by the way, is aware of this also, that at the point in time when they disclose to us that they have a facility, or are building a facility, or are operating a facility, or making sales, they know that it will be material to us, and that we’ll be issuing a news release within 24 hours. So yes, to answer your question, yes, that’s when we’ll know, and that’s when you’ll know.

Geoff Castle - Kestrel Holdings

And I guess is there anything else that we should be looking for, particular types of product launches or things like that, which, even though the word Clarisoy might not be in the ingredient label, that we would expect? Do you have a hunch? Would it be an energy drink or something like that that would be kind of the first customer use of Clarisoy?

Johann Tergesen

You know, there’s so many products that it could appear in. I would expect it to appear in ready to drink beverages. I would expect it to appear in juice-based products, and yes, in sport energy beverages. If you want to talk about things that you can watch for, I wouldn’t be surprised if you see ADM do other acquisitions that might relate to Clarisoy.

They’ve got an excellent PowerPoint presentation on their website that’s talking about their acquisition of Wild, and they describe it as being an important base for, I think they call it, add-on acquisitions, or maybe tuck-ins or something, or bolt-on I believe is what they say. And we would not be in any way surprised if that was something that would be further positive news for Clarisoy.

Geoff Castle - Kestrel Holdings

In your view, what is the optimal time if the board of Burcon were considering selling the company? Is the optimal time to do that post the Peazazz agreement? Is it after a couple of years of sales of Clarisoy? Do you have any view of when’s a better time to think about selling the company, if it were to come to that? Or is that just going to be dependent on who gives you a call?

Johann Tergesen

You know, I can tell you honestly, I don’t believe we’ve had that conversation, what would be an optimum time. I would personally say that we’re very excited about ADM’s acquisition of Wild, and we think that, for the exact reasons that Patricia Woertz herself gave in many of her interviews, where she said, you know, hey, look, Wild has 3,000 customers, many of whom are the companies that are really doing the innovation in the world, the food and beverage companies that really actually going out there and putting new products on the market, ones that would contain things like protein ingredients or antioxidants or whatever the case may be.

So we’d love to see ADM close that deal, which we fully expect to happen in the very near future, before the end of the year, and then let that expanded team take advantage of this exciting product, Clarisoy, at a perfect time, when the world is literally demanding protein. It’s essentially the hot ingredient.

So I’d love to see a good runway there. And in the meantime, we can focus our effort, Burcon’s management team, and we are doing this, on commercializing Peazazz, so that we can create both of these powerful royalty drivers in the future, whether it’s royalty or whether it’s through a joint venture, I don’t know with Peazazz. But these two different legs of what we’re building here.

I think my answer would be we need some run room here. Give us a few years here to really add value.

Geoff Castle - Kestrel Holdings

This is just with respect to kind of investor relations activity. My perception is that Burcon is a bit of a tired story in Canada. And so despite the fact that you’re kind of announcing all the good news that people had only hoped and dreamed of three or four years ago, there isn’t that much excitement about the stock in Canada. And I was wondering whether, as a news story in the United States, it might have a bit more traction. Could you just comment on sort of your investor relations activities in Canada and the U.S. and what you see in terms of the market perception of Burcon?

Johann Tergesen

Sure, and that’s another excellent question, by the way. And I say that because we literally had discussed that at the board level. We talked about the fact that we do have what I would call a fatigued shareholder base in Canada.

We have put a significant amount of effort into trying to raise awareness of the company in the U.S. Mike Kirwan and I have been on a number of times down to the U.S. meeting with analysts, meeting with investment bankers, most importantly, meeting with portfolio managers, etc., in institutional investors.

And what I can tell you is we do in fact get an excellent audience down there. You know, it’s actually a little bit frustrating when you hear it from the perspective of an existing Burcon shareholder. They look at it and think, wow, somebody else has had to be invested in this for 14 years, and I have the benefit of being able to come in right now, right at this sort of nexus point of A) the protein ingredient market being so hot, so much demand for food and wellness, health and wellness, etc. The partnership with ADM just at the point where it’s about to bear fruit.

You know, from the U.S. market’s perspective, it’s excellent. The one thing that we run into as a challenge is illiquid market. So we quite often find ourselves meeting with institutional investors who get quite interested, but then are challenged by how they could get a position.

To answer your question, we’re very focused on the U.S. market. We will continue to be focused on the U.S. market, and have every expectation of being there a number of times this fall, and after that. Specifically, to take advantage of the NASDAQ listing we have, to take advantage of the relationship we have already with ADM, which has an excellent frame of reference with U.S. investors.

And then ultimately, we believe we can do the same thing with a partner in the U.S. for Peazazz. Both of the truly major companies that we’re talking to with respect to partnering for Peazazz are U.S. based. We are talking to some European companies, but the most advanced discussions are with US-based companies.


Next, from Spencer Edwards, we’ll move to [Steven Musilsky].

[Steven Musilsky] - Spencer Edwards

I’m in the U.S. and I just received your investor relations package today. [laughs] The timing is pretty amazing, and then I go onto your site, and I just happened to see that there was a call, and I’m on it. So I’m really very, very new to the story.

But my question is, as I’m going through this, and on the Peazazz, it says, you know, it tastes cleaner. I’m a consumer of pea protein myself, and I work in investments, but I actually use the product, pea protein, and I see the benefits of it over, say, soy. Healthwise, it just seems like a better choice.

Now, Peazazz, it’s clean tasting. I’ve tasted a number of pea proteins. Where can I taste the Peazazz protein? What products? Are you guys at, say, Mother’s, or Whole Foods, or any places like that, where I can actually taste the Peazazz?

Johann Tergesen

Unfortunately, the answer to that is no, not yet. So who is getting the chance to taste it now is essentially the companies that we’re looking to potentially partner with, and some significant food and beverage companies. In fact, we only provide samples of the product to companies once they’ve agreed to sign a material transfer agreement. And the reason why is because we are still very actively filing intellectual property patenting over our pea protein.

We did launch Peazazz at IFT 2013, which was held in Chicago last July. And we had excellent response. In fact, it was a phenomenal response. IFT is world’s largest food ingredient show. It’s where literally everyone companies to see new innovations. And ultimately, it’s a big selling event in the food industry.

And so we had the chance there to demonstrate a couple of products. We were demonstrating two beverages. One was essentially like a milk style beverage, neutral pH, that was vanilla flavored. Very, very mildly vanilla flavored. And again, the flavor was exceptionally clean with respect to the protein source, and a low-pH fruit-based beverage.

So that’s what we’ve been doing with respect to it. In fact, just yesterday, we were, again when I was at this meeting with a potential partner, we were focusing on what the really key, key attributes of this protein, that really differentiates it from the existing pea proteins on the market, is in fact clean flavor.

What that means is really absence of flavor, lack of flavor. Food companies want to be able to incorporate protein ingredients into their products in many instances because they want to be able to put protein on the label. It’s part of what ADM calls foods and wellness, or the health and wellness trend. Consumers more and more are looking at the labels.

And so if you can have a protein ingredient that you can incorporate in that doesn’t bring detrimental flavor or mouth feel, texture issues, etc., that’s what they want. Ultimately, what also benefits pea protein, and you, I guess, alluded to this in terms of your choice of pea protein over soy, is to avoid any other baggage that might come.

Soy protein and dairy protein, the two existing major proteins in the world, already require allergen labeling. So if you’re going to put either dairy protein or soy protein into a product that you have, you have to mark on the label essentially a cautionary warning, contains. Contains soy, contains dairy, etc. Pea protein doesn’t have that.

In addition, pea protein is non-GMO. It has an excellent what I would call public awareness to it, pea protein. And that’s part of the reason why it’s become so hot lately, why we’re literally reading, on a regular basis, news stories about it. It’s also why all of the major producers of it in the world have expanded their capacity.

So you can’t sample it in the stores just yet, but that’s what we’re working on, is putting in place a partnership to bring the product to market.

[Steven Musilsky] - Spencer Edwards

That’s one of the hurdles that I looked at, is that I have a lot of socially conscious investors that would buy into things like this. Because, you know, you probably know that down in Southern California there’s a company that I was an investor on early on, the largest natural beverage company, with the highest penetration rate. It’s like Reed’s. And it’s just a $5 stock, but my clients, I was able to buy it for them at $1 and it went up to $8. So my clients, if I said, hey, look, we should invest in this, it would be a pretty simple thing to do.

But doing it when I was able to get them to invest in those things, when the stock was cheap, I was able to give them samples of it. Another thing I’ve invested in that was all natural that clients have done well in is investing in Stevia. And I stumbled across yours, and said, wow, how come I’ve never even ran across it.

I think a lot of investors in the U.S. just have a negative taste towards Canadian stocks in a general sense. Not saying that your company would do this, but a lot of companies just remain in the “we’re fixing to,” “we’re trying to,” “we’re hoping to.” And then [unintelligible] move from that stage, and they don’t know how to bridge that gap from being a development company to moving to sales, to moving to earnings, where the earnings hit the bottom line, in a significant amount, where the stock holders actually make a significant amount.

That is probably the main objection that you're getting, right, from U.S. investors? They normally have had a few winners in the Canadian markets, and more losers than winners?

Johann Tergesen

I think that most of the investors that we have in the U.S. are essentially looking for an opportunity, a point in time, to invest in Burcon where there will be some liquidity. I haven’t had that particular issue put in front of us, and I think the reason why is because, with a company like Archer Daniels Midland driving forward on the lead product, I don’t think that there’s much concern about will it happen? I think it’s a question of how big is ADM going to make it, and how soon? And all the recent evidence is that ADM intends to make this a very large product and to do it in, I think, about as short an order as you can, considering how large they want to make it.

[Steven Musilsky] - Spencer Edwards

Can you, in simple layman’s terms, for a new investor, break down how the math would look? You know, what percentage of the sales would you get? How does that work? How does the math work to benefit shareholders of Burcon?

Johann Tergesen

We can’t do that. As a publicly listed company, if we actually start making projections like that, then we will be obligated to actually provide updates to them every single quarter and have those numbers audited. So we are unable to do that, like any other company that’s in our position. But thank you for your call, Steve.


That does conclude our question and answer session. I would now like to turn the call back over to Mr. Tergesen for any additional or closing remarks.

Johann Tergesen

Thank you, operator. I’d like to thank the continued support of our staff, our partners, and shareholders. And we look forward to speaking to you on the next call. Thank you very much.


Before we conclude today’s call I’d like to take a moment to read company’s Safe Harbor statement. All statements made by management during this call that are not based on historical facts are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 under provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

Such forward-looking statements include but are not limited to those made by Mr. Tergesen, Ms. Cheng and others regarding Clarisoy’s or Peazazz’s commercial success or plans for commercial success, expectations for ADM’s production or commercialization plans, the company’s ability to maintain sufficient resources to fund its operations and working capital requirements and the company’s ability to develop and protect its intellectual property.

While management has based any forward-looking statements made during this call on current expectations, the information on which such expectations are based may change. Such forward-looking statements are or forward-looking information involve risks, uncertainties and other factors that could cause actual results, performances, prospects and opportunities to differ materially from those expressed or implied by such 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’s plans and expectations include the actual results of marketing activities, adverse generic, economic, market or business conditions, regulatory changes and other risks and factors detailed herein and from time to time in filings made by Burcon with securities regulators and stock exchanges included in the section entitled Risk Factors in Burcon’s annual information form dated June 23, 2014.

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 undue reliance should not be put on such. You are urged to carefully review and consider any various disclosures in the company's annual information form for the year ended March 31, 2014, as well as any other public filings made with SEDAR since this date.

Finally, I would like to remind everyone this call is being recorded and will be available for telephone replay through September 14, 2014 starting later this evening. Please see today's press release or the company's Investor Relations section on the website for replay dialing-in instructions.

Thank you, ladies and gentlemen for joining us today for our presentation. You may now disconnect.

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