Evogene Ltd.
Q2 2018 Earnings Call Transcript

Published: 8 Aug 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's second quarter 2018 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. [indiscernible]. As a reminder, this conference is being recorded August 8, 2018. 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 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. 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 obligations 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 second quarter 2018 results conference call. With me today as usual is Alex Taskar, our CFO and joining us is Ido Dor, General Manager of the Ag-Biologicals division. After my overview of our three Ag divisions and two subsidiaries, Alex will discuss our financial results for the second quarter of 2018. As mentioned in our previous call, each quarterly call we will focus on a different division or subsidiary of Evogene to provide more color and details. Therefore in today's call, following Alex, Ido will provide more insight into our Ag-Biologicals division that was established in 2015 and is an exciting and promising activity. We will then open the call for your questions. I will start my comments with a short review of the highlights in our three Ag divisions. Let's start with our Ag-Seeds division, led by Dr. Arnon Heyman, focused on improving seed traits using GM and non-GM technologies. The activities of this division are divided into three segments based on trait category

[Alex Taskar:]

Thank you Ofer. Let me begin with reviewing our balance sheet. Evogene continues to maintain a strong financial position with approximately $62.3 million in cash, cash related accounts and bank deposits as of June 30, 2018, which represents cash usage of approximately $9.5 million during the first half of 2018 and approximately $3.6 million dollars during the second quarter of 2018. The cash usage during the first half of 2018 includes prepaid expenses and nonrecurring payments of approximately $1 million, mainly in the first quarter of 2018. Assuming the currently expected course of business, we estimate that our net cash usage for the full year of 2018 will be in the range of $14 million to $16 million. Let's now turn to the statement of operations. As we have discussed in prior calls, Evogene's revenues to-date have consisted primarily of research and development revenues, reflecting R&D cost reimbursements under our various collaboration agreements. The majority of these agreements also provide for development milestone payments and royalties or other form of revenue sharing from successfully developed products. More specifically, revenues for the first half of 2018 were $0.7 million in comparison to $1.9 million during the first half of 2017. Revenues for the second quarter of 2018 were $0.4 million in comparison to $1.2 million reported in the second quarter of 2017. This respective decrease of approximately $1.2 million and $0.8 million and the related decrease in cost of revenues mainly reflect the reduction in collaboration activities under our agreement with Monsanto, as this multi-year collaboration advances from gene discovery and validation, which was largely done by Evogene, to pre-development efforts, conducted by Monsanto. Moving on, research and development expenses continue to be our single largest category of expense. The R&D expenses for the first half of 2018 decreased to approximately $7 million compared to $8 million for the same period in 2017. Likewise, our R&D expenses for the second quarter of 2018 decreased to approximately $3.5 million compared to $ 4 million dollars for the second quarter in 2017. This decrease in large part reflects operating efficiencies achieved as a result of our new corporate structure that became effective at the beginning of this year. Operating loss for the first half of 2018 was approximately $9.6 million, in comparison to approximately $10.4 million in the first half of 2017. Operating loss for the second quarter of 2018 was approximately $4.7 million in comparison to approximately $5.2 million in the second quarter in 2017. The decrease in operating loss was mainly due to decrease in R&D expenses as described, which was partially offset by an increase in business development expenses. The net financing expenses for the first half of 2018 were $0.5 million in comparison to the net financing income of $0.8 million in the corresponding period. The net financing expenses for the second quarter of 2018 were $0.1 million in comparison to net financing income of $0.4 million in the comparable quarter in 2017. This decrease in the first half of 2018 is mainly due to an increase in the USD/Shekel exchange rate in the second quarter of 2018 which negatively affected the company's Shekel-based portfolio and unrealized reevaluation of marketable securities following the increase in the U.S. treasury bond interest rate. So despite the decline in operating loss following the new corporate structure, the loss for the first half of 2018 increased to $10.2 million in comparison to $9.6 million in the first half of 2017 due to the increase in the net financing expenses. Net loss in the second quarter of 2018 increased to $4.8 million compared to $4.7 million in the second quarter in 2017. I would like now to turn the call over to Ido Dor, who leads the Ag-Biologicals division. Ido?

[Ido Dor:]

Thank you Alex. I am very happy to take part in Evogene's quarterly conference call. My name is Ido Dor and I have been with Evogene for more than six years, filling various business development and managerial positions. I have led the Ag-Biologicals activity since its initiation in 2015 and a year ago, once it was separated into a division, I took the role of Evogene EVP and General Manager of the Ag-Biologicals division. The Ag-Biologicals division's mission is to improve agriculture productivity, sustainability and consumer's health through the introduction of microbiome-based Ag-Biologicals. Ag-Biologicals are products that originate from natural sources such as microbials, plant extracts and natural enemies used for the improvement of crop productivity by enhancing the plant's performance or enabling better protection from pests. Crop productivity improvement today is dominated by improved seed traits, Ag-Chemicals and nutrient product solutions. This is a market of more than $200 billion a year. Currently, we see the following trends influencing this market

[Operator:]

[Operator Instructions]. The first question is from Karim Sawabini of Moon Capital. Please go ahead.

[Karim Sawabini:]

Hi gentlemen. Quick question is, you guys are working on a lot of projects yet to see any revenue from them. Are there any thoughts about the ability to monetize or sell stakes in some of these businesses that you are creating to create value for shareholders in the near-term? Thanks.

[Ofer Haviv:]

Hi Karim. This is Ofer. The way that we see how we are going to monetize and expand our activity in the next years will be from three sources. The first one is from our current cash. The second and I think that it will be something that we could do report from R&D fee coming from new collaboration that the company will engage and this is something that is in different stage of discussion. And I think, as I mentioned earlier in previous teleconference, that we see an increase in interest of the big company to engage again in this type of collaboration. And the third, in certain cases, when we will establish activity of a division in separate entity or if there is activity that's already organized as a separate entity, we could see in the future a situation that we might raise fund for this specific activity to fund a future product development pipeline. So this is the main resources and regarding revenue from product, so as Ido mentioned here, that's taking the revenue from selling end product in 2021. We are also expecting to start to see some revenue coming from Evofuel to more this number. But the three main sources for cash is as I described earlier.

[Karim Sawabini:]

So just as a quick follow-up. So if there is no revenue, really tangible revenue coming from products in the three years, is there anything in the next 12 months that will assist in reducing the cash burn that you guys can start to realize or receive? [indiscernible].

[Ofer Haviv:]

I am not sure that I understand your question. Can you repeat it once again?

[Karim Sawabini:]

Yes. I am saying, you expect revenue generating product by 2021, which is in three years. My question is, before that time, do you expect in the year or so to do any type of agreements where you will receive upfront payments to offset the cash burn that the company continues to spend over the years?

[Ofer Haviv:]

The answer is yes.

[Karim Sawabini:]

Okay. And can you give us an idea of what types of numbers we are talking about in terms of the kind of upfront payments you could be receiving?

[Ofer Haviv:]

I can't give specific numbers but I think that for a company like Evogene, if our burn rate is around, we are talking about more than $10 million a year, so I think that we are not talking about tens of thousands of dollars or hundreds of thousands of dollars. Probably we are talking more in the range of millions of dollars. So I think this is more or less the number, our method for Evogene burn rate. So if it was less than this number, so I won't this as a significant source for Evogene activity.

[Karim Sawabini:]

Okay. So sorry, I don't understand that. So if Evogene is spending $15 million or so a year, what kind of revenue upfront payments would you hope to achieve if you are starting some of these collaborative agreements? Is it in the millions or is it less than that, as in, i.e., it's not that significant?

[Ofer Haviv:]

It's in the millions.

[Karim Sawabini:]

Okay. And that's something that you can expected in the next 12 months?

[Ofer Haviv:]

Based on ongoing discussions. And again, it's a looking-forward statement. So the answer is yes.

[Karim Sawabini:]

Okay. Great. 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 03-925-5901. Internationally, please call 972-3-925-5901. Mr. Haviv, would you like to make a concluding statement?

[Ofer Haviv:]

Yes. I would like to thank everyone that participated in the call today. Thank you and good day.

[Operator:]

Thank you. This concludes Evogene's second quarter 2018 results conference call. Thank you for your participation. You may go ahead and disconnect.