Evogene Ltd.
Q4 2018 Earnings Call Transcript

Published: 13 Mar 2019

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's Fourth Quarter and Full Year 2018 Results Conference Call. All participants are at 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 March 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 the 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 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 those 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 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 fourth quarter and annual 2018 results conference call. I would like to welcome our Interim CFO, Ms. Dorit Kreiner, who will be joining us for the first time today. Dorit brings over 20 years of senior financial management experience, most recently serving as Chief Financial Officer at various companies. Previously, Dorit also served as Director of Finance in Evogene between years 2004 to 2011. My comments today will focus on an overview of our strategy, how it was implemented in 2018, reviewing some key achievements during the past year, particularly with respect to product advancement and new collaboration and to share some expectations that we have for 2019. My comments are mostly based on the letter to the shareholder which was published today so I strongly recommend reading it as well. Following my comments, Dorit will discuss our financial results for the fourth quarter and full year of 2018. We will then open the call for your question. For this annual call, we will not highlight a specific subsidiary or division as in prior quarters and we will resume this custom in our next conference call for the results of the first quarter of 2019. Before I start reviewing our strategy and its implementation in 2018, I would like to note that although we are very proud of our achievements and of the world-class company that Evogene now represent, there is an area where we have not been successful and that is conveying to the investment community the commercial potential of the unique product discovery and development capabilities that now exist at Evogene. It is our expectation that the new corporate strategy and execution of our 2019 work plan will begin to address these shortcomings. So let's begin. Evogene's strategy relies on the unique capabilities of the computational predictive biology platform, the CPB platform, which is at the heart of all of Evogene product development activities in various life science markets. It is the result of a decade-long multidisciplinary effort to integrate deeper understandings of key aspects of biology, with the most advanced computational methodologies, in order to provide predictions of next generation product in diverse life science markets. The CPB platform has been designed to provide more accurate results and predictions, using revolutionary approach for the creation of novel products. This approach is relevant all the way from discovery through final product development. It is accomplished by computationally identifying and integrating the critical biological criteria for a successful product upon initiation of a program. This enables the CPB platform to first predict the most relevant candidates from our comprehensive databases to begin the candidate selection, validation and product development process, and thereafter, to guide the process, their ability to make and evaluate candidate selection and prioritization. According to this criteria, upon the initiation of the program significantly increases the probability of successful product development, while decreasing time and cost. The broadly applicable CPB platform, as you can understand, is relevant to a wide variety of markets and life science fields. We are fortunate enough to be able to choose the most suitable market to maximize Evogene's corporate value. To do so, Evogene business strategy on selecting the markets to focus on based on meeting a number of criteria, mainly market size, a well-recognized unmet need for next generation product, an understanding of the scientific roadblocks that prevent others from developing next generation product, and most importantly, the expectation that our CPB platform and unique methodology provide us a significant competitive advantage in addressing them. As we greatly expanded our areas of activity in recent years, we’ve recognized that a traditional corporate structure would not be the most efficient and productive framework for gaining maximum and timely valued from our CPB platform. Therefore, we are now operating with the structure consisting of Evogene as a technology hub, which is responsible for both maintaining and expanding the CPB platform, and providing R&D services, and a growing group of divisions and subsidiaries that benefit from the CPB platform's unique capabilities. The main trigger in converting market-focused divisions to subsidiaries is Evogene believe that this structure provides more value to Evogene shareholders as a standalone company with access to the CPB rather than as an internal division. This will allow the new company to pursue its mission and meet the following objectives; advance its product development and pipeline, establish its go-to-market via direct sales or through existing and new collaboration, secure additional financial resources if and when required. After describing our strategy, let's now focus on the implementation. Currently, Evogene's areas of focus address three general fields. Agriculture, human health and life science based industrial applications. In the field of agriculture, we have three specific market focused operating units. AgPlenus, formerly our Ag-Chemical division, focusing on the development of novel herbicides and insecticides, LaVie Bio, formerly our Ag-Biological division, focused on, bio-stimulant and bio-pesticides, and our Ag-Seeds division, focus on improving seed traits, through genomics, utilizing GMO and non-GMO approaches, and focus on yield and abiotic stress, disease resistance and insect control seed traits. In the human health field, our subsidiary biomarker has the mission of developing therapeutics, based on microbes and small molecules in the area of immuno-oncology, multi drug resistance organisms, and GI related disorders. In the broad field of life science based industrial markets, our initial activity is our subsidiary Evofuel. Evofuel is making significant progress in developing the first fully integrated supply solution, within the rapidly growing field of castor oil-based industries. I would now like to go over some select achievements during 2018. With respect to product development, AgPlenus are known in its novel Mode-of-Action herbicide program. That herbicidal effectiveness was demonstrated in early 2018, and later in the year we announced reaching biological proof of new Mode-of-Action. In our subsidiary LaVie Bio, in the current bio-stimulant program, positive second year field the results were achieved. Additionally, in the wheat bio-stimulant program, we announced Phase advancement following positive results. Regarding our Ag-Seeds division, inserts control genes demonstrated effectiveness against insect with resistant to current solution indicating new Mode-of-Action. Last but not least, Evofuel and in agricultural equipment manufacturer SANTINI announce addressed through in mechanical harvesting for castor bean, which has been a major bottleneck in the commercialization of the castor bean crop. We have also signed new collaborations during 2018. AgPlenus, entered a multi-year collaboration with BASF for the development of novel insecticides. The Ag-Seeds division entered two collaborations, the first one, with IMAmt, a leading developer and marketer of cottonseed in the field of insect control traits in cotton, and the second one with TMG, a leading plant breeder to develop nematode resistance soybean through genome editing. To summarize, as I stated at the beginning of my comments, we are very proud of our continuing achievements and of the world-class company that Evogene now represents. Looking forward, we expected 2019 to be pivotal year as we further developed our product pipelines and continue to evolve our organization. It is our expectation, that the achievements we anticipate during 2019 with respect to the group's internal pipeline, existing a new collaborative activity and continued evolutions of our corporate structure will better convey the commercial potential of Evogene to the investment community. Being more specific with respect to our group's internal pipeline, during 2019 some of our expectations include, AgPlenus reaching an initial lead in our novel mode of action herbicide products program and discovery of novel molecules hits for insecticides. LaVie Bio optimization and development of formulation and fermentation capabilities; examining performance of fleet candidates in field trial, in target locations mainly in the USA. Ag-Seed division, insect control toxins are expected to undergo validations in target crops. Biomica to enter pre-clinical studies in its immuno-oncology program. Evofuel to advance to commercial scale field trials in target locations Argentina and Brazil with full mechanized harvesting. With respect to new collaborations, there will be an increased focus on strategic relationships for joint product development. Last, but not least, as part of our evolving corporate structure each of the subsidiaries should secure additional financial resources, if and when required. In addition, Evogene will continue to examine new areas, in which our Ag-Seed division with its plant genomic capabilities can create value in relatively short time. With that, I would now like to turn the call over to Dorit for her review of our financial results. Dorit?

[Dorit Kreiner:]

Thank you, Ofer. I'm happy to be joining you today on this call. I will begin by reviewing our balance sheets. Evogene continues to maintain a strong financial position with approximately $54.5 million in cash, cash related accounts and bank deposits as of December 31, 2018. This represents cash usage of approximately $17.3 million during the full year of 2018 and approximately $3.7 million during the fourth quarter of 2018. Excluding the impact of the U.S. dollar Israeli Shekels exchange rate in the fourth quarter of 2018, as I will immediately explain, the net cash usage during the full year of 2018 would have been $16.6 million in line with the company's revised forecast. During the fourth quarter of 2018, Evogene converted U.S. Dollar denominated marketable securities to Israeli Shekels, as most of the company's expenses are Israeli Shekel based. The translation of the Shekel based cash balance to U.S. dollar, the company's reporting currency, at the end of the period, impacted the reported cash balance in dollars by $0.7 million. For the full year of 2019, we estimate that our net cash usage will be in the range of $16 million to $18 million, assuming that none of our subsidiaries secure external financial resources, such as through collaboration or external fund raising. This forecast is derived from the advancement of the company's activities to later stages of product development, which include free trials and pre-clinical studies provided by third parties. This effect is moderated by operating efficiencies achieved with the new corporate structure. The company does not have bank debts. 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. This revenue represents R&D cost reimbursements under our various collaboration agreements as reflected in the cost of revenue. The majority of these agreements also provide for development milestone payments and royalties or other forms of revenue sharing from successfully developed products. Gross profit for 2018 was approximately $0.3 million in comparison to approximately $0.5 million during 2017. Gross profit for the fourth quarter of 2018 was approximately zero in comparison to approximately $100,000 for the fourth quarter of 2017. Moving on, the R&D expenses for 2018 decreased to approximately $14.7 million, compared to approximately $17 million for 2017. Our R&D expenses for the fourth quarter of 2018 decreased to approximately $3.9 million, compared to approximately $4.7 million for the fourth quarter of 2017. This decrease in large parts reflects operating efficiencies achieved as a result of the ongoing implementation of our new corporate structure, which was initiated at beginning of 2018. Operating loss for 2018 was approximately $20 million in comparison to approximately $21.9 million in 2017. Operating loss for the fourth quarter of 2018 was approximately $5.3 million in comparison to approximately $6 million in the fourth quarter in 2017. The decrease in operating loss was mainly due to the decrease in R&D expenses as described above and a decrease in G&A expenses, which was partially offset by an increase in the business development expenses. The net financing expenses for 2018 were approximately $0.8 million in comparison to net financing income of approximately $1.1 million during 2017. The net financing expenses for the fourth quarter of 2018 were approximately $0.6 million in comparison to net financing expenses of approximately $0.2 million in the comparable quarter in 2017. This decrease in the fourth quarter is due to the translation of the Israeli Shekel nominated marketable securities to U.S. Dollar as I described earlier. So despite of the operating efficiencies achieved with the ongoing implementation of the new corporate structure, the loss for the full year of 2018 remained stable at $20.8 million in comparison to the full year of 2017. Loss in the fourth quarter of 2018 decreased to approximately $5.8 million, compared to approximately $6.2 million in the fourth quarter in 2017. With that said, we would now like to open up our call for any questions you may have. Operator?

[Operator:]

Thank you. Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions] First question is from Geoff Gilbert of Inukshuk Investments. Please go ahead.

[Geoff Gilbert:]

Morning, Ofer. Congratulations on the progress.

[Ofer Haviv:]

Yes. Hi. Thank you for this.

[Geoff Gilbert:]

As a longtime investor in Evogene, I can appreciate your effort to convey the value to the investment community. Obviously, the last several years have been a little bit tougher on the share price, but I think beyond the progress scientifically that you guys are achieving, value often comes when the actions provide results, which then provide revenues and oftentimes speak louder than the reorganization of the corporate structure. And one of my main concerns is, how the new structure recognizes value, not for Evogene, but for shareholders. We see how it more easily secures financing if and when you spin out each subsidiary, as Evogene spun out Compugen years ago. But can you perhaps shed a little color and describe how as a shareholder we will be able to realize and more importantly retain value if shares are spun out and not necessarily distributed to shareholders?

[Ofer Haviv:]

Thank you for this question. Actually, part of the reason to the new -- to this new structure, it's -- which wasn’t the main motivation, but it was part of the reason is actually to address the concern you just now raised. Think about the following. When we have assets under the logo of Evogene and the assets today are -- it did not generate revenue, because it's still under development for the market, for people that they are maybe not specialized in every area that Evogene has operated, is hard to put a clear number represent the value of this activity that later on will be reflect in the share price. But think about the following that, in a way, what we are doing now, is we are setting some of those assets that we internally see, the value of this activity, into a separate entity. And in case that we will raise the money for this entity, not necessarily because we know -- we need the money to keep the activity more in order to expand activity. By doing so, there will be a clear valuation for the assets, because apart from the fund raising, the external investor that could be a strategic investor or could be a financial investor, he need to evaluate these assets in order to know what is the pre-money valuation. In a way, for this specific asset now, it's like you are taking an expert that is evaluate for our shareholders the value of this asset. And he does not give you the numbers, actually invest in this assets based on this valuation. And I think that this could be a message from our investors, what this asset -- not to their shareholders -- not just to our current shareholders, but actually to the market what is the value of those assets, which I really hope -- you know you can never predict how the capital markets will act, but I really hope that it will be reflected that the share -- that the price per share of Evogene. And at least for certain of the activity that we span out, we have some nice expectation about evaluation in case that we will enter and complete such transaction, which I believe can sent a clear message for the capital market on some of Evogene’s existing assets and the value of it.

[Geoff Gilbert:]

Fair enough. I appreciate the explanation. Just a little bookkeeping with the cash burn, can you -- I saw the previous and the expected for the year with some of the activity in some of the subsidiaries outside of stock financing is that going to impact Evogene’s cash burn in any part of 2019 or 2020?

[Ofer Haviv:]

So, the numbers that we are putting in at the projection is for all of -- the whole of Evogene Group, so the projections as we put in, it include the expectation of the expenses that will come from the subsidiaries. As we stated in the press release, this is a conservative numbers assuming that we want -- that none of this -- our company will raise money as I described earlier or enter into a collaboration that will inject money to the subsidiaries, because all of the subsidiaries, especially, if we are keeping the majority, it's apart from the Evogene Group, a total cash. So, what I expect is that in the next year, I mean, the numbers that we put is representing the total the maximum cash usage that we are expecting. The year after I think that we can’t project -- I can't disclose this information, of course, but I don't expect that it will be above these numbers. Actually I'm expecting to see, again, it's too early, but I think that it should be decline. This is a long-term projection. But again, we can’t disclose no numbers, but I hope that it give you the same high level feeling of what we are planning to do. And all of these numbers are again under the assumption, not fundraising for -- by the subsidiaries and no strategic collaboration that will inject cash to the companies.

[Geoff Gilbert:]

Appreciate that. Just one final question if you could give a little bit of an update more specifically on Biomica. There was some timelines you had described middle, end of last year and I was wondering if you could give us details on that progress?

[Ofer Haviv:]

Okay. So, what I can disclose is that during this year, we finalize the program that we would like to support. We -- I think that in today’s release, we mentioned that we are expecting this year in one of the program that we will start animal study, which I think this is quite an important step forward in the preclinical study in animals, in the immunotherapy area of activity. I hope this maybe, we would be – we will be able to announce some additional progress in the first half of this year. But it looks very good. I'm actually quite amazed from the progress we've made in this area knowing that we are talking about human health that by itself, it's very complicated. And it was -- it's a new area for Evogene as an industry, to move into this area. And we are a year late from the initiation and the interest that I see from talking with the company in the field and with investors, when we present what we achieve in this area, it's a – it's very encouraging, very encouraging. So we have a very strong team here. We already start to see results coming from the computational walk we already conduct. We succeed to build here a very strong and a comparative database that we are digging into each using our algorithm. And it looks good and what is really amazing from my perspective is that we are using lot of our understanding from the area of a plant microbiome, where we are working in this area in the last few years, and also from the ag-chemical division that we are operating in this field from 2014. And we are really modified some of this algorithm. And we are then running it on a – the relevant databases and very interesting stuff pop-out and we are now picking some of them into pre-clinical study.

[Geoff Gilbert:]

Sounds good and equally progress in GI related disorders?

[Ofer Haviv:]

Yes. There is a progress there, but I can't disclose it. As I said, I hope to be able to share more information during the first half of this year. I need to keep some good news for the upcoming quarter. I can’t disclose everything.

[Geoff Gilbert:]

All right. I appreciate it. Look forward to it. Thanks.

[Ofer Haviv:]

Thank you.

[Operator:]

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 039-255-901. Internationally, please call, 972-392-55901. Mr. Haviv, would you like to make a concluding statement?

[Ofer Haviv:]

Yes. Thank you. I would like to thanks everyone that participated in the call today. I would like to end by saying that we appreciate the support of our loyal shareholders and their continuing confidence in the company. We believe that we have created a substantial asset and expect 2019 to highlight their true value. Thank you and good day, everyone.

[Operator:]

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