Evogene Ltd.
Q4 2019 Earnings Call Transcript

Published: 4 Mar 2020

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Evogene’s Fourth Quarter and Full Year 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 March 4, 2020.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 these 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 the call over 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 full year 2019 conference call. Joining me today is Ms. Dorit Kreiner, our CFO. I will begin my comments today with a few opening words regarding Evogene’s value proposition as we emerge from a pivotal year in the company's history. I will then review the activities and accomplishments of our subsidiaries in 2019 and discuss some anticipated milestones for 2020. Following my comments, the Dorit will summarize Evogene’s financial results for the fourth quarter and the full year 2019. We will then open the call for your questions.Let's begin. 2019 has been a turning point in the life of the company. During the year, we completed our organizational change as was presented at the beginning of 2018. This entailed establishing five subsidiaries each utilizing Evogene’s unique computational biology capabilities in order to create novel products in different life-science-based markets including human health, agriculture, industrial applications. The completion of the organizational change placed us at the competitive position to translate the value of our capabilities in computational biology to novel products in the upcoming years.Our computational biology technology, the unique CPB platform, leverages the revolutions in big data and artificial intelligence while incorporating a deep understanding of biology. The CPB platform disrupts conventional life-science product development methodology currently challenged by inefficiencies by computationally design the core components, the heart of life-science products, microbes, small molecules and genes. The uniqueness of our computational design approach stems from our ability to successfully address multiple product attributes at the beginning of the discovery process of relevant core components rather than one at a time during the development phase. This is expected to reduce both time and cost, but much more importantly increase the probability of reaching a successful product launch.As described in previous calls, we utilized the CPB platform to develop novel product pipelines both independently and with partners, mainly for human microbiome based therapeutics, medical cannabis, ag-biologicals and ag-chemicals. To capitalize on the value of our diverse activities, we established a new corporate structure in which each market area is organized as a separate subsidiary with clear business targets. While as mentioned, the CPB platform serves as their main core technological advantage.Our subsidiary in main business targets as outlined in my letter to the shareholders in early 2019 include advancing product development in their respective pipelines, establishing go-to-market strategies, including growth via direct sales or through existing and new collaborations; and securing additional independent financial resources if and when required. With respect to the first two points, as I will indicate later in my comments, we are very pleased with the initial achievements reached during 2018 by our subsidiaries following the organizational change.Regarding the last point, I would like to highlight that we are actively evaluating alternatives to address the financial needs of each subsidiary. We aimed to support our subsidiaries in a manner that will not only provide the capital needed to support and accelerate their activities, but this will maintain shareholders value for all Evogene shareholders. A good example of this is the Corteva investment in Lavie Bio announced in August of 2019. With the completion of the organizational change, during 2019, we already began to see the value of this new structure, so that accomplishment achieved in each of our subsidiaries during the year.We expect to see the fruit of this new strategy in the coming years as demonstrated by the following targeted milestones for 2020. I will begin with Lavie Bio, which focuses on the development of ag-biological products, microbes that when applied in the field improved crop productivity. The company was established at the beginning of the year. Still in August 2019, Lavie Bio secured an external strategic equity investment from Corteva, which included $10 million in cash and the transfer of holdings in Corteva’s subsidiary, Taxon Biosciences, for 28% of Lavie Bio’s shares.In addition, during 2019, Lavie Bio’s most advanced product program bio-stimulants for wheat continue its advancement as planned. During 2020, Lavie Bio planned to file for regulatory approval for a wheat bio-stimulant product and to advance to the pre-commercialization phase in preparation for its targeted 2022 commercialization. Lavie also successfully completed and received positive results from vineyard trials in Europe for its bio-fungicide program for fruit and vegetables and intended to initiate additional trials into 2020. Moving on to Biomica which is focused on the development of human microbiome-based therapeutics. In 2019, Biomica showed significant advancement in its various programs, particularly in its immuno-oncology program where the team completed the first pre-clinical study. Looking to 2020, Biomica planned to extend pre-clinical studies in this program and initiated the scale-up process and first GMP production of drug candidates towards first in man proof-of-concept clinical trials in 2021.Let’s move now to our subsidiary Canonic focused on the development of medical cannabis based products. Having only been established this year, Canonic has already achieved several important milestones including the receipt of the regulatory approval for its activities, the establishment of its dedicated facilities for cannabis breeding and the successful import of a diverse genetic seed collection for its product development program.The team has now initiated the development of cannabis varieties with unique genomic profile for medical cannabis products. In 2020, Canonic plans to demonstrate yield improvement in its unique cannabis line and conduct pre-clinical studies to support the development of Canonic medical cannabis product. In 2021, Canonic plans to undertake pre-commercial activities towards commercialization, our first product in early 2022.Let's move on to AgPlenus, which is focused on developing ag-chemicals with high degree of safety and low environmental impact. In 2019, significant progress was achieved in the herbicide pipeline with Hit-to-Lead optimization efforts, including promising greenhouse results of compounds confirming a new mode of action. I would like to remind that the main challenge the herbicide market is facing today is the growing resistance to existing commercial solution and a new mode of action herbicide is expected to address this.The main target for this problem in 2020 is to reach the phase of lead chemical, which will represent an economically significant milestone and expected to enable a later stage type collaboration agreement. Last but not least, Casterra focused on providing ag solution for the lucrative castor oil industry. The company commenced semi-commercial trials and decided to focus efforts on the Brazilian market. In 2020 Casterra plans to see initial commercial castor seed sales in Brazil. In summary, Evogene made significant progress throughout 2019 and is positioned in a much better place than it was a few years ago to bring the revolution of computational biology to the design of novel life-science product.While our unique technology can be applied to wide varieties of lifestyles market, I believe we have chosen to focus on area that will be proven to be lucrative. I look forward to providing incremental updates throughout the year as we continue to execute on the strategic initiative laid out at the beginning of the call.With that I would now like to turn over the call to Dorit.

[Dorit Kreiner:]

Thank you, Ofer. I will begin by reviewing our cash balance.Evogene continues to maintain a strong financial position for its activities, with approximately $47 million in cash, cash related accounts and bank deposits as of December 31,2019. Cash usage amounted to approximately $17.6 million during 2019 and $5.2 million during the fourth quarter of 2019, in range with its cash usage estimate for 2019 of $16 million to $18 million.$17.6 million of Evogene’s consolidated cash is appropriated to its subsidiary, Lavie Bio, including a $10 million investment received from Corteva during the third quarter of 2019.For the full year of 2020, we estimate that our cash usage, excluding Lavie Bio and without any funds raised by our subsidiaries or payments from a significant collaboration, will be within the range of $14 million to $16 million. This cash use is mostly appropriated to Evogene’s subsidiaries, mainly Biomica, AgPlenus, Canonic and Evogene’s expenses as a public company such as D&O insurance and others. Evogene does not have bank debt.Let's now turn to the statement of operations. As discussed in prior calls Evogene’s revenue to-date has consisted primarily of research and development revenues. These revenues represent R&D cost reimbursement and milestone payments 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 mostly represent product development activities of the Company and its subsidiaries, which include computational work, lab & greenhouse assays, field-trials and pre-clinical studies carried out by third parties.R&D expenses for 2019 were $15.8 million in comparison to $14.7 million in 2018. R&D expenses for the fourth quarter of 2019 were approximately $5 million in comparison to approximately $4 million in the fourth quarter of 2018.The increase in R&D expenses during the quarter is attributed to payments made to third parties for pre-clinical studies conducted for Biomica and field trials conducted in target locations for Lavie Bio, as well as the acquisition of a genomic-unique seed collection for Canonic.Operating loss for 2019 was approximately $21 million in comparison to $20 million in 2018. Operating loss for the fourth quarter of 2019 was $6.9 million in comparison to $5.3 million in the fourth quarter of 2018.The loss in 2019 decreased to approximately $19 million in comparison to a loss of approximately $21 million in 2018. The loss for the fourth quarter of 2019 was $6.7 million in comparison to a loss of $5.8 million during fourth quarter of 2018.With that said, we would now like to open-up the call for any questions you mayhave. Operator?

[Operator:]

Thank you. [Operator Instructions] The first question is from David Draiman of Draiman Asset Management. Please go ahead.

[David Draiman:]

Hi everybody. Thanks for taking my questions. With regard to Lavie Bio beyond Corteva’s 20% holdings what additional value are they adding to Lavie? Are they bringing the products to – helping to bring the products to commercialization?

[Ofer Haviv:]

Hi, this is Ofer. So Corteva is holding 28% in Lavie Bio and they in order to receive the same equity they invest $1 million and they also transfer all of their holding in their subsidiary in the area of pathological tax zone. By doing so actually they really put their focus on developing the future ag-biological products in significant ways through a Lavie Bio, meaning that there is a real expectation from Corteva that their future product will come from Lavie Bio, R&D pipeline.So knowing this, this is in a way an explanation why and how Corteva can assist Lavie Bio in advancing their product pipeline to the market. As an example in the area of corn and soybean Corteva have a preferred right in the marketing a Lavie Bio product at the market.In addition, they have a board member to participate in all of the Lavie Bio strategic discussion. And of course he contributes a lot to our understanding the market and the market needs. And another example is that in some cases, when they are entering into an opportunity through their network, they might want to present this opportunity to Lavie Bio. So the bottom line because – this in a strategic investment of a Corteva in Lavie Bio, represent a strategic step of Corteva in a, their expectations from Lavie Bio in the future. So they are it's taking a significant role in helping Lavie Bio in developing its product, but much more importantly in the commercial aspects of Lavie Bio activity.

[David Draiman:]

Thanks. The Corteva deal actually is sort of sounds like an excellent demonstration of another company, unlocking the inherent value of subsidiaries that you have are you, is Evogene trying to mimic this sort of strategy with other subsidiaries.

[Ofer Haviv:]

So I think that in my comments for today to the conference, I mentioned that we are in the process of evaluating financial needs of our subsidiaries. Which means that yes, we are looking for additional fundraising for certain of our subsidiaries. There is the, we are evaluating two main direction. The first one is the same type of investment like we made with the Corteva – in Lavie Bio to bring together with Corteva meaning that you're looking for strategically investor, but you're also looking for a financial investors as well.I think that maybe the best outcome from this then ongoing process is that we might enter into some financial round that will include financial investors and strategic investor in the same round. And this is will send a very strong message to the capital market on the value of our additional subsidiaries and like I hope that we send with respect to Lavie Bio.

[David Draiman:]

Terrific. Thank you very much for taking my questions. Good luck with 2020.

[Ofer Haviv:]

Thank you.

[Operator:]

[Operator Instructions] The next question from [indiscernible], please go ahead.

[Unidentified Analyst:]

Hello Ofer. Thank you for taking my question. I'm looking at the cash usage for 2020 and you say the cash usage will be between $14 million to $16 million without a significant collaboration. Can you give any borders to this, how much money should we save if you sign a significant collaboration. Thank you.

[Ofer Haviv:]

So when we're talking about significance, the first – thank you for this question. Just – we have to emphasize two points. The first one is, as we mentioned that it's not including, significant collaboration but it's also, it's not including fundraising for our subsidiaries. I mean if you're looking at the total cash that the company is looking for the end of the year. So, exactly like what's happened with Corteva we hope that at the end of the year at least certain of our subsidiaries will raise money to support their future activity. But I would like to return to your specific question. When talking about strategic collaboration, I'm talking on it at least few millions of dollars per year, in such a collaboration. So this is the type of collaboration I’m talking about.

[Unidentified Analyst:]

Okay. Thank you very much. Good luck.

[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 03-925-5904, internationally please call 972-3925-5904. Mr. Haviv, would you like to make your concluding statement?

[Ofer Haviv:]

Yes. Thank you. Thank you all for joining the call today. I look forward to updating you with our progress over the next few months. Thank you and good day.

[Operator:]

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