Evogene Ltd.
Q3 2019 Earnings Call Transcript

Published: 13 Nov 2019

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Evogene’s Third Quarter 2019 Results Conference Call. All participants are present in a listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded November 13, 2019.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 their earnings releases, which states that statements made in those earnings releases and in the 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. 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 over the call to Ofer Haviv, Evogene’s CEO. Ofer, please go ahead.

[Ofer Haviv:]

Thank you, and good day, everyone. We appreciate you joining us today for our third quarter 2019 conference call. Joining me today are Ms. Dorit Kreiner, our CFO; and Dr. Elran Haber, CEO of Biomica, Evogene’s human microbiome pharmaceuticals subsidiary.In my comments today, I would like to begin by discussing the recent quarterly investment in our subsidiary, Lavie Bio. This investment is a major milestone for both Lavie and Evogene as Corteva’s investment represent the first major third-party financial and commercial implementation of our new corporate strategy which are outlined earlier this year. Following this, I will briefly review our other subsidiaries’ recent progress. Following my comments, Elran will provide an overview of Biomica and the progress they have made, and the Dorit will summarize Evogene’s financial results for the third quarter of 2019. We will then open the call for your questions.Let’s begin. As described in our shareholders letter earlier this year, Evogene’s strategy is based on maximizing the utilization of our unique and broadly applicable CPB discovery and development platform through a group of subsidiaries, each focused on a different market. The individual market areas that we chose to focus on have been carefully selected based on the well-recognize need for next generation products combined with evidence that our CPB platform can overcome the primary barriers to developing each next generation products. Each of these subsidiaries has its own experienced management, including product development and commercial teams, but a primary competitive advantage is an exclusive license from Evogene for the use of the CPB platform in the respective areas.From a financial standpoint, Evogene intends to provide financial support to each of these subsidiaries until they reach the point of maturity, whereby their progress in assets, warrant and attractive valuation from third parties. Lavie Bio, our subsidiary, focusing on developing our biological products recently reached the stage of maturity. Lavie Bio has been working with the Corteva team since 2017 as part of the collaboration focused on the development of biostimulants for corn.For those of you who are less familiar, Corteva is an ag company that was established following the merger of Dow and DuPont with a market cap of over $19 billion. Based on the strong relationship established, Corteva decided to invest $10 million in Lavie Bio and merger the complimentary capabilities of its subsidiary, Taxon Biosciences into Lavie Bio in return for equity of Lavie Bio. This transaction have now been completed resulting in Corteva holding approximately 30% share of Lavie and Evogene maintain a majority holding of approximately 70%. Corteva also has representative on Lavie Bio’s Board of Directors.The highly synergistic IP and assets from Taxon are being merged into Lavie’s platform and we will share with you in the coming quarters how this is further stressing Lavie’s infrastructure and product pipeline. Lavie will also benefit greatly from the experienced rich and leading market position of Corteva in view of Corteva holding certain computerization rights mainly to Lavie Bio’s future products for corn and soybean.As previously mentioned, these agreements are significant milestone not only for Lavie Bio but for Evogene as well. Evogene achieved increased financial flexibility in the near term and gained significant knowhow for pursuing similar investment in other subsidiaries in the future. Furthermore, and very importantly, this is a clear proof of concept for Evogene’s shareholders value building strategy based on leveraging its unique CPB platform through a serious of market focused subsidiaries. In addition to Lavie Bio, we now have another four separate subsidiaries and an internal division, each focused on different life science bit field of activity. As mentioned, all benefits and are connected to our underlying computational platform, the CPB.As I shared in my letter to our shareholders, from early 2019 these companies have three main objectives; the first, to advance their product development and pipeline; the second, to establish go-to-market strategies including growth via direct sells or through existing and new collaborations; and the third, to secure additional independent financial resources if and when required. I am proud that we have not only completed this significant change in our corporate structure, but we are already beginning to see each company make notable progress toward achieving the above mentioned objectives.To demonstrate these achievements, I would like to share with you few recent developments in addition to Lavie Bio’s agreements with Corteva, all of which further illustrate the rapid implementation of our new corporate strategy. I would like to start with Biomica, one of our human health-focused subsidiaries, which recently announced several pieces of news in respect to their product development pipeline.The first and most important of this announcement is the positive preliminary results in preclinical studies achieved in the immuno-oncology program, demonstrating improved antitumor activity. The second announcement is Biomica’s advancement to preclinical studies in its inflammatory bowel disease program. This is the second program to enter preclinical studies in addition its immuno-oncology program. The third announcement is a new collaboration with the Weizmann Institute of Science, a world-leading research institution based in Israel to develop a selective treatment against antibiotic resistant bacteria. Biomica has in-licensed IP and knowhow generated by Nobel Prize winner, Prof. Ada Yonath. As I mentioned at the beginning of the call, Elran will elaborate more on Biomica’s achievement in a few minutes.Moving to Canonic, our subsidiary focusing on developing medical cannabis product, Canonic recently announced the initiation of its cannabis cultivation and breeding program of cannabis variety with unique genomic profiles for the development of medical cannabis products. This initiation of the cultivation and breeding program follow the successful import of collection of widely genetically diverse cannabis line, the establishment of specialized R&D facilities and the receipt of the required regulatory approval for cannabis activity from the Israeli Medical Cannabis Agency.Moving now to our agriculture subsidiaries, I will start with AgPlenus, our subsidiary focusing on added chemicals. This company is also advancing its product pipeline and has recently expanded its herbicide pipeline with an additional two chemical families to include a total of five chemical families with validated new mode of actions. In its insecticide program, the first molecules resulting from discovery efforts are being synthesized and are expected to enter insect screening within the next few months.With respect to Lavie Bio, in addition to the significant milestone achieved with the investment of Corteva, Lavie Bio also made a notable progress in its product development with the team reaching a significant milestone in its biofungicide pipeline for fruit and vegetable. In this program, Lavie Bio has moved forward to the advanced development stage following successful vineyard trials in Europe. Likewise, in its bioinsecticide program, Lavie Bio has completed the discovery stage and has built a promising pipeline targeting pest in corn and soybean.Lastly, I would like to update you regarding Casterra, our life science-based industrial applications for food subsidiary. In the last year, Casterra has undertaken semi-commercial trials in both Brazil and Argentina. Following the results of those trials, Casterra has decided to focus on the Brazilian market, which has a well-developed castor market with several castor oil manufacturers providing a substantial demand for castor grain, and where Casterra now has a local representative.To sum up, our subsidiaries has made significant progress with the product development over the last few months. I am very pleased that the implementation of our new corporate strategy, it’s running smoothly and our subsidiaries are experiencing growth. I look forward to providing updates on each company as they continue along the path to commercialization.With that, I would now like to turn over the call to Elran.

[Elran Haber:]

Thank you, Ofer. I’m happy to be taking part in Evogene’s quarterly conference call. By way of introduction, my name is Elran Haber and I’ve been the CEO of Biomica since the beginning of 2018. Prior joining Biomica, I served as CEO for Therapix Biosciences, where I lead the company to a successful IPO on NASDAQ and advanced the company’s programs to clinical stages. I also spend more than 10 years as Chairman and Board member at various companies, some of them publicly traded and some of them privately held, and also served as senior executive roles in various life science companies and private investment firm. I would like to begin by giving some background on Biomica, Evogene’s subsidiary that focused on human microbiome. I will then provide an update on our operating activities.To give you some background, the microbiome refers to the brilliance of microbes living in and on our bodies. These microbes play a critical role in food digestion, protection from disease and production of nutrients. There is a large body of evidence regarding the microbiome role in wide area of illnesses and Biomica’s mission is to discover and develop novel therapies for microbiome-related human disorders by using our unique competitional predictive biology platform.The microbiome market space is currently an area of high industry and financial community interests. As of today, almost every big pharma company is taking stake in the space, and since 2014 more than $1.5 billion actually has been invested in standalone microbiome companies. Rapidly growing with the projected 70% of compound annual growth rates, the microbiome market space provides a multibillion dollar market opportunity.More importantly for Biomica, the key discovery and development challenges of microbiome-based therapeutics are big data driven and the challenges today is how to make sense of – to make sense out of the enormous amounts of raw data. Current practices employ biological approach. But the problem is that that this approach is similar to finding a needle in the haystack. However, these challenges are precisely the type that can be uniquely addressed by the proven capabilities of Evogene’s world-leading CPB platform, allowing Biomica to move forward with the novel and very powerful approach.We believe that in order to succeed we must utilize the robots competitional technologies and you are able to integrate big data from our proprietary databases and perform analysis using artificial intelligence and other tools to provide and prioritize drug candidates relevant to the medical disorders. Biomica is a pioneer in the field of high resolution microbial function analysis combined with detailed taxonomic analysis and clinical data. The competitional tools developed by Evogene over the years are particularly adapted extremely large databases. At Biomica we have taken these tools and adapted them to Biomica’s development and requirements providing us with the ability to intervene either by selectively eliminating pathogenic microbes or by supplementing the patient with beneficial microbes.With these advantages, we are very proud of our rapidly developing early stage pipeline. Our pipeline can be divided into three main programs; immuno-oncology, GI related disorders including IBS and IBD, and multi-drug resistant organisms. I’ll start with the first program in the immuno-oncology. It has been shown in various studies published in the scientific literature that one of the main reasons that some patients may not respond to immunotherapies is due to the differences in patient’s microbiome. Our initial focus in this area is lung cancer. In this program, we have been able to identify microbe consortia; it’s basically a cocktail of microbes that aim to improve the clinical response to immune checkpoint inhibitors therapies. Through immuno they’re modulating combination therapy. To give you an idea on the potential of this market, checkpoint inhibitors are projected to generate more than $50 billion in revenue by 2025.Recently, we have we announced that we’ve been – we’ve completed an initial animal study with positive preliminary results, wherein antitumor activity was tested in mice treated with BMC121 and BMC127. BMC121 and BMC127 are rationally designed live bacterial product consortium compromised of unique microbes that harbor specific functional capabilities with the potential to enhance immunologic therapeutic response and facilitate antitumor immune activity through multiple biological processes. We intend to further evaluate these results of the study in future studies.On our second program, addressing GI related disorders. GI disease related disorders include two main unmet medical needs including IBS, which is functional bowel disease and inflammatory bowel disease, IBD, which includes two main types of disease, mainly ulcerative colitis and Crohn’s disease. IBD affects approximately 43 million patients in the U.S. alone. While the percentage of IBD is increasing, the overall patient response to current available treatments is limited to only approximately 40% to 60%. The current market size for IBD products is around $10.5 billion.Biomica’s program aim to develop novel microbiome based drug for IBD that triggers multiple mechanisms for the reduction of intestinal inflammation. We have detected an area from microbial functions associated with the states of inflammation and remission, as well as specific bacterial strains carry out anti-inflammatory function. BMC321 and BMC322 are rationally-designed live bacterial products consortium, compromised of unique microbes that harbor multiple functional capabilities with the potential to reduce gut mucosal inflammation. These drug candidates are currently being evaluated in preclinical studies using multiple IBD animal models.In our third program, targeting multi-drug resistant organisms, we are focused on two main microbes. The first one is C. diff or clostridium difficile infection. And the second one is more recently MRSA.I’ll start with the first one with the C. diff or CDI shortly, is the most common hospital acquired infection estimated to be over 600,000 a year in the U.S. and increasing cause of morbidity and mortality. Our approach is to utilize our drug candidate BMC201 and then antibiotic inhibitor of C. diff toxin, which is responsible for the symptoms associated with C. diff infection. While preserving healthy gut microbiome, Biomica utilized a unique virtual screening process for identification and design of small molecular agents with selective activity towards C. diff toxin. The economic cost associated with C. diff infection is estimated as $5.4 billion in the U.S. mostly due to hospitalization costs.Moving on to the MRSA, MRSA is multi-drug resistant bacterium responsible for several difficult to treat infections in humans, leading to tens of thousands of annual cases of mortality in the U.S. Current medical treatments include broad spectrum antibiotics, which are becoming increasingly ineffective. The MRSA market is projected to reach approximately $4 billion by 2025. Biomica recently announced that it will collaborate with the Nobel Prize winner Prof. Ada Yonath at the Weizmann Institute of Science to develop a selective treatment against antibiotic resistant bacteria.To summarize, we have advanced to preclinical studies in two of our programs, the immune-oncology project and the GI related disorders with preliminary results in our immune-oncology project. In 2020, we expect to continue our work and to share more results on this program and also to share initial results in our GI related disorders program. We also expect to advance to preclinical studies in our C. diff infection program. Finally, I want to stress that we are open to further discussions with investors. And if you would like to speak with us, feel free to connect with Evogene’s investor relations team.With that, I would like to turn the call over to Dorit. Dorit?

[Dorit Kreiner:]

Thank you, Elran. I will begin by reviewing our balance sheet. Evogene continues to maintain a strong financial position with approximately $52.1 million in cash, cash related accounts and bank deposits as of September 30, 2019. Cash usage amounted to approximately $12.3 million during the first nine months of 2019, and $3.7 million during the third quarter of 2019. Evogene’s consolidated cash includes $10 million investment in its subsidiary, Lavie Bio, received during the third quarter of 2019.For the full year of 2019, we estimate that our cash usage will be within range it provided of $16 million to $18 million. I will also like to update that as approved in Evogene’s general shareholders meeting, we made the annual payment for our directors’ and officers’ liability insurance during the fourth quarter of the year, which was substantially higher than in previous years due to changes in D&O insurance market conditions.Evogene’s consolidated cash use is mostly appropriated to its subsidiaries, mainly Lavie Bio, AgPlenus, and Biomica, with funds also used for the establishment of infrastructure and greenhouses for Canonic. The company does not have bank debt. In our year-end results conference call, we intend to share our expected burn rate for 2020.Let’s now turn to the statement of operations. As discussed in prior calls, Evogene’s revenues to date have consisted primarily of research and development revenues. These revenues represent R&D cost reimbursement and milestones under our various collaboration agreements, as reflected in the cost of revenues. The majority of these agreements also provide for royalties or other forms of revenue sharing from successfully developed products.R&D expenses for the third quarter of 2019 was $3.6 million in comparison to $3.9 million in the third quarter of 2018. R&D expenses mostly represent product development activities of the company and its subsidiaries, which include computational work, lab & greenhouse assays, field-trials and preclinical studies provided by third parties.Operating loss for the third quarter of 2019 was $4.9 million in comparison to $5.1 million in the third quarter of 2018. The loss for the third quarter of 2019 decreased to $4.5 million in comparison to a loss of $4.8 million during third quarter of 2018.With that said, we would now like to open up the call for any question you may have. Operator?

[Operator:]

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from David Dreman of Dreman Asset Management. Please go ahead.

[David Dreman:]

Hello, everybody. I have a few questions about the various subsidiaries. First off with Biomica for Elran, can you go into more detail of how the microbe – microbes impact immunotherapies and the potential for big pharma if they would be interested in?

[Elran Haber:]

Sure. So, first, thank you for the question. As you may know, immunotherapy is basically the activation of the immune system against tumors. And in recent years, mostly in late 2017, 2018, it was heavily investigated why some patients respond to immunotherapy and some does not. And one of the reasons this was discovered was that non-responders to immunotherapy have a basically different microbial profile. And we were able to identify based on a number of patients, a large number of patients that we’ve investigated.The difference in the microbial profile is due to the activity of those microbes. If you actually think about it, the entities that communicate the best with the immune system is the microbes and microbes can actually activate the immune system or to suppress the immune system. And for non-responders, most of the microbes that are present in their gut are microbes that have the ability to suppress the immune system.So basically if you change the microbial profile and you will provide the patients with microbes that harbor the capabilities, the activities to trigger the immune system, you would have a much more potent immunotherapy. So this is in a nutshell idea. And yes, obviously since immunotherapy is the most significant revenue generating source for most of the big pharma, I can say that currently big pharma has expressed quite interest in the combination of changing or supplementing the patient with different kinds of microbes in combination to immunotherapy. And we’ve seen a number of publication and collaborations of big pharma in the States and in Europe with microbiome companies in order to enhance the effect of their immunotherapy and to provide the patients with higher benefit.

[David Dreman:]

Thanks. That’s really helpful. Moving to the Corteva investment. First off, congratulations. Can we expect more deals like this in 2020 for the company?

[Ofer Haviv:]

Hi, thanks for this question. This is Ofer. And the evident policy with respect to our subsidiaries is that we are – we will financially support our subsidiaries until the stage that they will reach maturity and they will have the ability to raise their own financial resources in a reasonable valuation. I think that some of our subsidiaries are reaching to the stage or they will reach to the stage during next year.Some of our subsidiaries, even though we initiate them not too far ago since they are acting in a very hot areas, and since they are using our CPB platform, that tells them to build a very impressive pipeline relatively in a very, very short period of time. Especially, when you’re talking about biology, usually everything takes much, much longer. So I think that, again, of course you can commit, but I think – I can see some of our subsidiaries raising money during the next year as well.

[David Dreman:]

Okay. Thanks for that. And then finally, I’ll seed the line for somebody else, but just quickly about Canonic, the cannabis subsidiary. Can you talk a little bit more about how this is different from other cannabis companies out there? What’s your differentiator?

[Ofer Haviv:]

So, first, Canonic is Evogene’s subsidiary is mainly focusing on the uniqueness of the genomic of the variety that we are developing. While our idea is that at the end of the day, what’s been making the difference is the quality of the product that you are distributing to the patient. And in order to achieve this there is two important things that we are doing here in Evogene in order to support Canonic to make the different, the first one is that we have the ability really to explore what are the genes that are responsible on the production of the different cannabinoids.And we are more focusing on cannabinoids, which cannabinoids by the way, it’s the chemistry that is responsible on the cure of the pain or any other thing that that patient relief from. So we are focusing on rare cannabinoids and that is to increase their production of these cannabinoids in the plant so to have a stronger effect on the patient, and in addition, it will be a stable. So the effect that the patient will get from using our variety, it will be more or less the same. And we using the day after day the same type of product.So one thing is, yes, we need to focus on the plant genomics in order to identify what is the right genes that are responsible on the cannabinoid production and over express them to increase the quantity. The second thing that we – I think that Evogene can contribute to Canonic in being a difference is what are the right cannabinoids if you would like to focus. And this is really nice to mention this after talking – after Elran presenting a bionic activity because it’s through our activity to support Biomica we learn a lot how to connect genomic data with medical data.And one of the things that we are planning to do in Canonic is really connect between medical data from people that are using cannabinoids –using cannabis. And the medical results that it creates and you get this data from the patient. So when you have the medical data and you have the genomics of the plant that they were using, you can identify what is the right, the specific cannabinoid that can lead it to the positive effect on the patient. And then this is the type of cannabinoid if you would like to increase its quantity. So it’s – so to summarize two important things, the first one, what is the right cannabinoid to focus on, and second is we have the ability to find a way to increase the quantity of these cannabinoids really to differentiate our product from other company.

[David Dreman:]

Great. That’s really helpful. Good luck on the coming quarter.

[Ofer Haviv:]

Thank you.

[Operator:]

The next question is from Ben Jaafar [ph], Private. Please go ahead.

[Unidentified Analyst:]

Hello, Ofer. Thank you for taking my call. I would like to speak about the miscommunication you have regarding the sale price actually. You have $52 million in cash and you’ve just got a big investment that represents, I think a value of over around $70 million of your share of Lavie Bio and the market cap is around $38 million. So what are you doing?

[Elran Haber:]

So this is a question that we are all struggling with. And one of the things that we are doing is that we are now working with a new investor relationship company and we are planning to really increase the number of meeting with the investors, really tell the story of Evogene in a clearer way. And I believe that you would start to see the change in the direction of our share, hopefully during the next year. So I think that the bottom line is meeting more extensively with investors, maybe we need to go through some our marketing materials and make them easier to understand. And I believe that we’ll start to see when the market will recognize the value that Evogene creates, it will – you will start to see that effect.In addition, we probably should participate in more conferences to expose Evogene to a broader audience. So bottom line, it’s going to be hard work in telling the Evogene story to more and more people and especially with the current volume. I think that it will be enough to find few serious investors and the whole momentum of our share will change significantly. So this is what we are planning to do.

[Unidentified Analyst:]

Okay, thanks a lot. The second question is regarding Biomica, what is the minimal price tech you want to raise money, let’s say next year?

[Ofer Haviv:]

Can you repeat the question, please?

[Unidentified Analyst:]

Yes, I’m talking about the minimal tech price you’re looking at Biomica that you want to raise the money accordingly.

[Ofer Haviv:]

Okay. So basically this is something obviously that Biomica will need to do in order to promote an expedited process of drug development, raise the additional funds. And this is something that is being currently discussed with our Board of Directors and obviously in collaboration with our shareholders, our largest shareholder, this is the Evogene group. And I think since we haven’t disclosed it yet, this is something that will obviously be disclosed after we could do so in the next couple of weeks or month. But this is a process that’s currently undergoing and I hope that we could provide more answers once those facts will be disclosed through Evogene’s press releases and discussions with the investors as well.

[Unidentified Analyst:]

Okay. Thank you very much and good luck.

[Ofer Haviv:]

Thank you.

[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 03-925-5900, internationally please call 972-3-925-5900.Mr. Haviv, would you like to make your concluding statement?

[Ofer Haviv:]

Thank you all for joining the call today. We appreciate your time and attention. As I mentioned earlier, we have a number of exciting announcement on the horizon across our subsidiaries. I look forward to updating you on these pieces of news as well as on our progress in general over the next few months. Thank you and good day.

[Operator:]

Thank you. This concludes Evogene’s third quarter 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.