Evogene Ltd.
Q2 2022 Earnings Call Transcript

Published: 31 Aug 2022

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's Second Quarter 2022 Results Conference Call. All participants are present in listen-only mode. Following managements formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded August 31, 2022. Before we begin, I would like to caution that certain statements made during this earnings conference call by Evogene's management will constitute forward-looking statements that relate to future events, risks and uncertainties regarding business strategy, operations, and future performance and results of Evogene. I encourage you to review Evogene's filings with the U.S. Securities and Exchange Commission and read the note regarding forward-looking statements in today's earnings release, which states that statements made in the earnings release and in a similar way on this earnings conference call that are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For example, Evogene is using forward-looking statements in this call when it discusses expected path to value creation, including potential fundraisings at the subsidiary level, its and its subsidiaries, expected trials and their expected results, studies, product advancements, commercialization, launches, pipelines, milestones, potential collaborations, and other plans for 2021 and 2022, expected burn rate, the potential advantages of its technology and its anticipated entry into new fields of activity. All forward-looking statements made herein speak only as of the date of the announcement of results. Many of the factors that impact whether forward-looking statements will come true are beyond the control of Evogene and may cause actual results to differ materially from anticipated results. Evogene is under no obligation to update publicly or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. We expressly disclaim any obligation to do so. More detailed information about the risk factors potentially adversely impacting our performance can be found in our reports filed with the U.S. Securities and Exchange Commission. That said I would now like to turn the call over to Ofer Haviv, Evogene’s CEO. Ofer, please go ahead.

[Ofer Haviv:]

Thank you for joining us today for our second quarter 2022 conference call. We are very happy to have you with us and review with you important recent events that took place in Evogene Group. The first patient dose in the Phase 1 clinical trial announced by Biomica and the announcement on the strategic collaboration and the $10 million investment of ICL in Lavie-Bio. We are very pleased with these developments, which we believe provides evidence to the value that Lavie-Bio and Biomica have and continue to create and I will cover this shortly. Today joining me on the call is Russ Putland, EVP Commercial & General Manager of Lavie-Bio, Inc. to provide some additional color on their activities and go over some of the upcoming milestones we expect. The financial [Technical Difficulty] can be found in today's press release and Yaron Eldad, our CFO will provide a short summary. Following that we will all be happy to take your questions. Before I start to review the recent events, I want to emphasize that we continue to strengthen Evogene’s management team. As I discussed last quarter, we made a number of changes to expand Evogene’s management, and I'm very happy to announce the latest addition to our team. In June, we added Eyal Ronen as Executive Vice President of Business Development. Eyal brings us over 20 years of extensive business development experience with biotech companies. Eyal’s focus is to create and bring us additional value by building new partnerships or forming new subsidiaries, leveraging our technology engines, and expanding our activity into new areas. Evogene has significant untapped potential held within its technology engines and Eyal’s focus is to realize some of that value. I congratulate Eyal and trust he will be a key asset to Evogene. We are already seeing some of his positive impact. I would like to now discuss the two important events that took place in the last few months. The first event was reported on July 26th by Biomica, our subsidiary focusing on developing drugs based on human microbiome. The company announced that the first patient was dosed in its Phase 1 clinical trial taking place in Rambam Health Care Campus, a hospital in the North of Israel in Haifa. The trial is designed preliminary to evaluate the safety and tolerability of Biomica’s microbiome based immuno-oncology, drug candidate BMC128, in combination with immune checkpoint inhibitor in patients with either non-small cell lung cancer, melanoma, or renal cell carcinoma. The drug candidate is a consortium of microbes which we identified and selected through a detailed functional microbiome analysis using prism tools, a high resolution microbiome analysis platform, which is powered by Evogene’s MicroBoost AI tech engine. As the trial is open label we expect preliminary results and the first data point read out in early 2023 as the first patients conclude their treatment programs. We are targeting to complete this in the second half of 2023. This development demonstrates that our tech engines can be leveraged across multiple industries. While Evogene is traditionally leveraging its tech engines to [Technical Difficulty] cultures, Biomica’s latest achievement is a proof that there is a huge market of [Technical Difficulty] that we are uniquely positioned for playing an important role. The second important event was announced on August 17th, the strategic collaborations and a $10 million investment by ICL in Lavie-Bio [Technical Difficulty] focusing on developing our biologicals. I would like to provide you some color on the collaboration and investments. Lavie-Bio and ICL engaged in a multiyear strategic collaboration to develop novel bio-stimulants. For those of you who are less familiar with ICL, ICL Group is a leading global specialty minerals company listed on the New York Stock Exchange and in Tel Aviv with a $13 billion market cap. [Technical Difficulty] solutions for the global food [Technical Difficulty] markets, via its global resources of bromine, potash, and phosphate. It is highly focused on technological innovation to create impactful solutions for sustainability challenges in the global food and agriculture markets. Especially in a time of food scarcity, high prices, and macroeconomic uncertainty, Lavie-Bio and ICL shared vision is to enhance global food quality, agriculture sustainability, and increase its productivity. [Technical Difficulty] operation is to combine Lavie-Bio’s ag biological expertise and MicroBoost AI powered technology with ICL’s fertilizer experience enabling the development of new and innovative products for agriculture. As part of this collaboration, ICL has made a $10 million investment in Lavie-Bio. The investment was structured under a SAFE, a simple agreement for future equity. The $10 million investment that has already been received allows Lavie-Bio to build a pipeline of products focused on developing novel bio-stimulant product to enrich fertilizer efficiency. ICL will join as the shareholders of Lavie-Bio, to Evogene and Corteva, a major agriculture company listed in New York, with a market cap of $44 billion. And I'm very proud that these two agriculture giants have shown a strong interest in what Lavie-Bio has to offer. I believe that Lavie-Bio is now well set on a phase for significant achievement and its success over the coming years. From the Evogene standpoint this investment in Lavie-Bio is an additional key milestone that demonstrates the power of our business model whereby we are leveraging the value of our tech engines through dedicated subsidiaries. It shows that our hard work in building, investing [Technical Difficulty] our subsidiaries, all of which are leveraging our underlying computational predictive biological tech engine is the right strategy and bears fruit. The $10 million investments in Lavie-Bio will also allow its activity to power ahead while lowering the need for Evogene’s financial resources. This will enable Evogene to advance other new promising activities, while ensuring that Lavie-Bio is moving ahead at full speed. I want to hand over to Russ Putland, EVP at Lavie-Bio, who will go into some more details on the recent activities and progress. Russ, please go ahead.

[Russ Putland:]

Thank you Ofer. I'm very happy to have been asked to participate in the Evogene analysts call today. It's the first time I've participated in such a call and given that I'd like to introduce myself. As Ofer mentioned, my name is Russ Putland and I am Lavie-Bio’s Executive Vice President of Commercial and General Manager at Lavie-Bio’s U.S. subsidiary. I joined Lavie-Bio in May of 2021 and have previous experience in commercial leadership and strategy with FMC, DuPont, and Cargill spanning over 30 years. I'm excited to be able to share Lavie-Bio’s progress and direction with you today. I'll start at the high level and then we can work down into some of the detail. The world's population continues to grow and consumer sophistication is increasing. We are faced with the challenge of producing food not only sustainably but also profitably for farmers. We at Lavie-Bio have accepted this challenge and are well positioned to lead agriculture in this biological segment. Lavie-Bio uses microbiome selected naturally occurring microbes that create positive effects in plants. Lavie uses these microbes to establish living factories in chosen crops, surpassing the efficacy, consistency, and the stability of not only other existing biological competing products, but measuring up to current synthetic commercial products. We are fortunate to be blessed with the strong proven partners in Corteva Agriscience, a global leader in crop protection and seeds, and now ICL and our new collaboration agreement focusing on novel bio-stimulant products that will enrich and improve fertilizer efficiency. When you have access to leverage Corteva and ICL’s successful organizations and couple them with Evogene, our parent company's core competency of computational biology, this is where unique and breakthrough products are born. In early 2022, we sold out of our plant production of Thrivus Inoculant, the brand name of our new product for use in wheat crops in the U.S., and it was part of our first soft launch. It was a relatively small amount and our intended purpose was to demonstrate our launch capability in the areas that include production, marketing, and sales, all in preparation for a significant accelerated growth in 2023. I want to add that we recently made a decision to change our Bio-Inoculants name from Result to Thrivus as we believe the new name Thrivus strongly represents our brand and its expected performance. Thrivus Inoculant for use in spring wheat was launched in the market at exactly the right time when you consider increasing global supply shortages, resulting from unfavorable environmental conditions in these key growing geographies. Also, we need to highlight the Russia Ukraine war, as these are two of the largest wheat exporters. This further supports the immediate need for increasing wheat yields globally. We have chosen to distribute our products [indiscernible] market direct and as the case with in 2022 with United Agronomy and indirect in the future. It is important that farmers have the necessary access to purchase Thrivus and realize the benefit of increased root development, biomass, and ultimately three to four bushels of yield per acre, representing an average of 4% to 6% in increased wheat yield. As our strategy marches toward 2023, we are finalizing the expanded production for next year's growing season. Our increased production will fuel expansion in North Dakota, Montana, and Minnesota, the spring wheat belt in the United States. We are on track with our plans to launch in Western Canada for the 2024 growing season and in parallel, we are continuing with our plans to expand Thrivus into new geographies, namely Europe and Israel from 2025 onward, with partners from around the globe. Additionally, we will be working to advance and broaden the crop use label with additional crops such as durum, oats, barley, soybeans, and canola and we will update with [indiscernible]. Moving to our bio pesticides pipelines, our Bio-Fungicide Fruit Rot Program is progressing as we'd expect. And we continue to see exciting results in our field trials conducted in vineyards. Prior to the end of 2022 we expect to submit a regulatory dossier with the Federal U.S. EPA for our leading candidate LAV.311. The standard timeline registration tends to take about 18 months, and we will continue to update as we progress. Our intent is to soft launch in 2024 growing season pending regulatory approval. It is important for me to emphasize that this significant progress I described could not be achieved without the fruitful activity between the R&D group at Lavie-Bio and Evogene, and more specifically the MicroBoost tech engine that boosted our pipeline. I want to thank Ofer and all the Evogene staff for their ongoing support of our activities at Lavie-Bio. Thank you for spending this time with Lavie-Bio, we look forward to speaking with you again as we hit our goals and achieve our milestones. With that I'll turn things back to Ofer. Back to you Ofer.

[Ofer Haviv:]

Thank you, Russ. In summary, Evogene today is at a key inflection point whereby we are meeting critical milestones and the inherent value of our subsidiaries is becoming increasingly obvious. Evogene goals in the new term is to continue to bring high value adding partners and investors at the subsidiary level who understand and can value the potential from the products that our subsidiaries are developing. This, we believe will demonstrate in a very public way, the significant untapped value contained within our activities. We continue our discussion with potential strategic and financial investors towards potential fundraising and partnering at the subsidiary level and to the extent permissible under security laws we intend to provide updates. Our target is that each subsidiary would have its own financial resources to support its activities until its success while at Evogene in addition to being a major shareholder, continue to play a major role in maintaining and building the competitive advantage through our tech engines. In parallel and maybe even more importantly, we are targeting and exploring the potential to establish new activities that can benefit from our technology. This is Eyal Ronen’s our new EVP of Business Development’s main mission, and I aim to elaborate on it more during our next quarterly analyst call. Over to Yaron and the financial review. Yaron.

[Yaron Eldad:]

Thank you Ofer. I will now provide the financial summary. Evogene continues to maintain a solid financial position for its activities with approximately $35.3 million in consolidated cash, cash related accounts, bank deposits, and marketable securities as of June 30, 2022. Approximately $3.6 million of Evogene’s consolidated cash is appropriated to its subsidiary Lavie-Bio. We do not have any bank debt. These amounts do not include the $10 million investment of ICL in Lavie-Bio, which was completed during the third quarter. During the second quarter of 2022 the consolidated cash usage was approximately $9.3 million or approximately $6.4 million, excluding Lavie-Bio. Out of the $9.3 million $1.7 million is a non-cash charge related to foreign exchange expenses due to U.S. dollar and Shekel exchange rate differences and a decrease in the market value of marketable securities on our balance sheet. As we've previously discussed, our full year net burn rate excluding exchange rate impacts in 2022, is expected to be in the range of $26 million to $28 million, including Lavie-Bio, an $18 million to $20 million excluding Lavie-Bio, which manages its own cash position. I would like now to highlight some specific items on the P&L. Revenues for the second quarter was $312,000 in comparison to $135,000 in the same period the previous year. Revenues were primarily due to the initial sales of Lavie-Bio’s Thrivus product and sales of Canonic products in the Israeli market. R&D expenses for the quarter, which are reported net of non-refundable grants received were $5.4 million in comparison to $5 million in the same period the previous year. The increase in R&D expenses were primarily due to the increase in Lavie-Bio’s R&D activities, and Biomica’s recent start to its Phase 1 trial. Business Development expenses were approximately $1 million for the second quarter of 2022 in comparison to $700,000 in the same period the previous year. The increase in the business development expenses was primarily due to recruitment of business development personnel. General and administrative expenses remained stable and for the second quarter of 2022 were $1.7 million in comparison to $1.8 million in the same period in the previous year. Operating loss for the second quarter of 2022 was $8 million in comparison to $7.4 million in the same period in the previous year. Financing expenses for the second quarter of 2022 were $1.7 million in comparison to financing income of $600,000 in the same period in the previous year. The increase in financing expenses was mainly due to the U.S. dollar and Shekel exchange rate differences between periods and a decrease in marketable securities value as I mentioned earlier. The net loss value for the second quarter of 2022 was $9.8 million in comparison to a net loss of 6.9 million in the same period in the previous year. As Ofer mentioned earlier, ICL invested $10 million in Lavie-Bio via a SAFE mechanism. For those of you who are less familiar with a SAFE investment, I would like to elaborate. SAFE stands for a simple agreement for future equity, and today has become a common investment agreement tool due to its simplicity. It is an agreement between a company and an investor, whereby the investor transfers the funds into the company immediately, which will convert automatically to equity at the next fundraising at a discount from the share price to be determined in this future round. The ICL investment into Lavie-Bio was concluded in mid-August, and enables Lavie-Bio to continue further development, growth, and increased value prior to completing its next financial round. As Ofer mentioned, we continue to pursue strategies to strengthen Evogene Group cash position, ensuring our subsidiaries are well capitalized, and also have value adding investors and partners to advance their goals. Finally, in the near term, while the capital markets remain volatile, we are looking to lower expenses by reducing activities with distant milestones. With that both Ofer and I would now like to open the call for any questions you may have. Operator.

[Operator:]

Thank you. [Operator Instructions]. The first question is from Kristen Kluska of Cantor Fitzgerald. Please go ahead.

[Kristen Kluska:]

Hi, good morning and good afternoon, everybody. Thanks for taking my question. The first one I had in regard to Lavie-Bio, could you discuss some of the specific components of the particular data that led to the collaboration with ICL? And I guess how are you thinking about the potential for other deals moving forward? And of the key players in the field, do you believe that there's a lot of overlap in synergies in the activities across both bio-stimulants and bio-pesticides?

[Ofer Haviv:]

Okay, so this is Ofer and I will take this question. And thank you for participating in our analyst call. So, in the long-term strategy of Lavie-Bio, we are intending to be the world leading in the world of a mainly bio-pesticides. But of course, we can use our technology also in the area of a bio-stimulant and one of the things that we really see significant value is working together with a fertilizer company that has a broad experience in using fertilizer. And we believe that in the future there will be more and more products that will combine fertilizer and bio-stimulant. And we thought that ICL would be a great partner to work with Lavie-Bio. ICL are located -- their headquarters is here in Israel. They have research centers worldwide. And I think that this could create a very, very nice synergy. The field that we are going to focus then is bio-stimulant and we are -- and it's not related to bio-pesticide, and it's quite a different type of microbes and its very different type of regulatory processes. I don't see too much of overlap between bio-stimulant and bio-pesticides. So we will continue all of our activity in the area of bio-pesticides based on the results and the business plan of Lavie-Bio, it's not far from the relationship with ICL. I feel it will be the program that we are going to run with them which will be in addition to what we already have in our pipeline.

[Kristen Kluska:]

Okay, thanks so much for that. And then I had another question in regards to Biomica. So we're under a month away from the advisory committee meeting for a different microbiome based product. So, while it's another indication and a different mechanism, could you talk about the importance of the meetings and really understanding what the FDA is looking for? And also, what a first potential approval in the microbiome class could mean for your company?

[Ofer Haviv:]

The connection wasn't very well, can you repeat the answer, please?

[Kristen Kluska:]

Yeah, so I was asking in regard to an advisory committee meeting that's scheduled for another microbiome based product, how important this could be for the field with first potential microbiome based approval, but then also helping a company like Biomica, just to understand what the FDA is looking for again because it is a newer drug class, and we haven't seen any approval yet?

[Ofer Haviv:]

I'm less familiar with this specific meeting you are talking about. what I can do, I'm sorry that Elran is not participating in this call, he is abroad. But I will ask him to contact with you and address this question if it's okay.

[Kristen Kluska:]

Yeah, absolutely. Thanks. And then just last for me, how are you thinking about balancing the cash on hand in light of the subsidiaries moving forward, but then also looking to expand your technology applications into other fields as well, thanks again?

[Ofer Haviv:]

Okay, so I think that in my script the main message is that we are expecting that our subsidiary will have their auto resources. I think that we are in a good shape now with Lavie-Bio and we might extend this investment in the company in the future. We are talking with additional investors and I think that we are also talking with another subsidiary with another set of investors, that they might will invest in this company as well. So what I'm trying to say is that our target is that each subsidiary will have its own financial resources. And the need for Evogene’s budget will be as received cash from Evogene will -- through the years will be lower. And this will allow us to use the money that we already have to invest in additional new opportunity. And this is one of the purpose of -- that we recruit Eyal Ronen, our EVP, Business Development, because there are so many other different areas that can benefit from our technology. And I think that at least in some cases, what we might look also is to do a collaboration agreement in the area that our subsidiary are not participate and the type of collaborations can inject also cash to the company. So, that is just maybe upfront payments, milestone and royalty, same type of structure that we did in the past. So this will be another way to fund future activity in Evogene. So bottom line, when I'm looking on how we're going to start our financial funding in the future, so the subsidiaries we are planning to fund their activity through additional investments conduct by third parties [ph] and also through collaboration agreements that some of them are now discussing. And with respect to Evogene, we have our financial resources and we are also looking for additional opportunity to use our technology to generate revenue. And we're also always looking on the capital markets to see what is the position and in what -- and looking for additional opportunity to raise money. But at least in the short term, the main focus -- the main focus is going to be to bring more cash to our -- in the subsidiary level through a fundraising and collaboration.

[Kristen Kluska:]

Great, thanks.

[Operator:]

The next question is from Brian Wright of ROTH. Please go ahead.

[Brian Wright:]

Thanks. Good morning. Congrats on the quarter. And I apologize if I missed this, They're literally doing construction outside my window. So, did you provide any kind of valuation parameters for the 10 million investment in Lavie?

[Ofer Haviv:]

So unfortunately, we are limited from disclosing the specific details of the SAFE contract as for various business and various competitive reason and the partner involved to maintain those details confidential. However, what I can say is that we are very, very pleased with the deal, including the terms and believe it is good for all parties involved; Lavie-Bio and ICL and especially Evogene and its shareholders. I think that in any event, when this investment will be converted into share, it will be very positive for Evogene shareholders definitely based on the current market valuation of Evogene as company itself. So we can't disclose but I think that this is something that I'm quite proud about.

[Brian Wright:]

Great. It sounds like there might be some minimum valuation parameters?

[Ofer Haviv:]

Yes, yes. Yes.

[Brian Wright:]

Awesome. Great. Thank you. Just a detailed question on the quarter, could you give us a little more granularity between kind of the Lavie and Canonic on the quarter and any kind of color on that for modeling would be very helpful?

[Ofer Haviv:]

What I can say is that we are expecting to see some increase in revenue from Canonic activity in the second half of this year. We are planning to launch new varieties this very market just addressing the demand for a high THC. We hope to launch those products during September-October. So currently, without getting into the details, currently we don't see the job that we were looking in the Canonic revenue from the existing products. But the expectation is that in the second half of the year we will start to see a change in this mean. So more or less, it's -- again, I can't disclose too much but you can look at previous reports and you can try to calculate the numbers.

[Brian Wright:]

Okay, thank you.

[Operator:]

The next question is from Brett Reiss of Janney Montgomery Scott. Please go ahead.

[Brett Reiss:]

Hi, thanks for the opportunity to ask a question or two. This might be for Mr. Putland. Since you would -- the spring read are getting greater yields. Do you use the same amount of water so in effect water usage was going down per unit?

[Russ Putland:]

Yeah, so in terms of -- yes, I have got it. In terms of water use, there is a slight gain. You know, we're in the process of mapping out that environmental footprint and that kind of the carbon realm as we speak. I don't know that we're far enough along to comment specifically on the amount of water efficiency or nutrient efficiency that we've gained. Clearly we do gain with a nutrient uptake and efficiency. We've seen that clear. It is notable and once we've got that mapped out a little more clearly, I think we'll share that with the public, but we're not in a position today to do that.

[Brett Reiss:]

Right, right. If you have favorable news on that, I mean, it's a real important topic, so that would excite people, I don't have to tell you that?

[Russ Putland:]

I'm actually working on that as we speak. I'm looking at our sustainability measurements around land use efficiency, energy use, and GHG emissions. So we should have something in a relatively short period of time. And we will surely share that not only for our benefit, but just to kind of backdrop all the good things that are happening with the Bio-Inoculant.

[Brett Reiss:]

Great, great. Now, the Phase 1 trial, where the results will come out in early 2023, if you see favorable results prior to that are you -- is it in your control to release that to the market or it's your joint venture partner who controls the news flow on that trial?

[Ofer Haviv:]

So, we receive the results from the hospital that is executing in the clinical trial, when they receive it themselves. So yes, we along the clinical trial we are receiving the information. And we might decide if we'll have enough data during the time of the clinical trial, we will share this information with the public. So we don't -- we're not necessarily we need to wait until the end of the clinical trial.

[Brett Reiss:]

That sounds good. Last one, for me. Just can you talk about the 312,000 in revenues. So some of it is from Lavie-Bio embedded in that, are there seasonality, things that you can educate us on? And then Canonic is less of a seasonal type of product, sales cadence if you could just give us some color on that?

[Ofer Haviv:]

I think you described it correctly with respect to selling Lavie-Bio product. It is a seasonally type of product and I think that as Russ described it, this year it was mainly to make sure that we have all the parts in place. And we were very, very proud that the minute that we finished the production, we sold almost everything. Maybe we could produce more but this wasn't our main intention to generate significant revenue. It was mainly to make sure that we are doing everything correctly and it looks that we succeeded in this target. Next year, the production is going to be in a few order of magnitude higher and I hope that we will see the same results this year. With respect to a Canonic product so here the revenue is generated through all the years because you grow the crop in greenhouses, so it's less affected by the weather. Yes, it's going to have effect on the quality of the product. Usually it's better to grow during spring and summertime. But still you can grow with this crop in the cannabis during the winter. So you can generate revenue through the year. And as I described just now, we are expecting to launch a new set of products during -- some of them in September, some of them in October, and I will be more than happy to share with you on the performance of those new variety at the next day analyst call. But we are quite positive about the performance of the new variety.

[Brett Reiss:]

Great, thanks for taking my questions.

[Operator:]

[Operator Instructions]. There are no further questions at this time. Before I ask Mr. Ofer Haviv to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin two hours after the conference. In the U.S. please call 1-888-326-9310. In Israel, please call 03-925-5901. Internationally, please call 972-3-925-5901. Mr. Haviv, would you like to make your concluding statement?

[End of Q&A:]

[Ofer Haviv:]

Yes. Thank you all for joining the call today. I look forward to updating you with our progress in our next call. In the meantime, I will be presenting at the H.C. Wainwright Conference in September, and attending the LD Microbe [ph] Conference in October. And I look forward to seeing some of you there. Thank you and good day.

[Operator:]

Thank you. This concludes Evogene’s second quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.