Evogene Ltd.
Q2 2016 Earnings Call Transcript

Published: 11 Aug 2016

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's Second Quarter 2016 Results Conference Call. All participants are present in 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 August 11, 2016. 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 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 your joining us on this quarterly conference call. With me today are Eyal Leibovitz, our CFO; and Eran Kosover, who heads our Crop Protection Operating Division. I ask Eran to join us for the Q&A session continuing this quarter we have had some expecting advancements in the value of programs that he overseas. I will begin the call with brief introductory comment with respect to some of our most recent development and achievement across our various market segments. Please note, that as mentioned in our press release today and our SEC filing, during my talk I will be referring to a short slide presentation that is also been added to our website. This presentation shows some of the results we are seeing both in our lab and greenhouses, as well as in several tests conducted in Israel and overseas and I encourage you to follow the slides in parallel to the call as I will be referencing to them in this remark. Eyal will follow me and briefly comment on our financial results for the second quarter. As previously mentioned, we will then be joined by Eran to answer any questions you may have. As I indicated in our last quarterly call, we entered 2016 with a very strong sense of accomplishment with respect to their robust R&D infrastructure that we have built and its applicability for developing next generation high culture product. Just three years ago, Evogene Research and Development program were almost entirely focused on fixed rates, and within this market segment, many improving yield and abiotic stress tolerance. Since then, we have grown to a company that has levered its unique technology platform to address multiple product opportunities in three multi-billion dollars market segment. Expanding our fixed rate activity to include insect control in addition to yield and stress and entering the ag-chemical and ag-biological market segment. I would like to focus my prepared remarks today on providing you with an insight into some of the advancements and the encouraging initial results we are seeing in key programs within these three market segments. Some of these activities are in the frame of existing collaboration with world leading seed in ag-chemical companies and some are currently being pursued as internal program. Let me talk with our yield and abiotic stress activity which as previously mentioned is the most mature activity within our seed traits market segment. As a reference on Slide 6, as part of our collaboration with Monsanto in yield and abiotic stress, earlier this year we announced promising results from Target Crops side. With Evogene discovered the genes, conducted last year across several locations in the U.S. This results which successfully demonstrated the capability of our genes to improve the predicted trait attribute in corn and soybean are extremely encouraging for us as we believe they will present an important step towards achieving yield improvement. We are very proud of the fact that in the years we have been working with Monsanto, over 1,000 Evogene genes have entered Monsanto's product development pipelines and we are pleased with the indication and the feedback we are seeing so far. There are still much work to be done to reach a commercial product, but the positive results achieved to-date are allowing us to increasingly shift our activity focus from gene discovery to pre-development efforts for already discovered genes. This effort also support the addition and advancing of our best candidate genes further in the product development process mostly through computational optimization and contraction of new gene combination. This natural evolution to the next stage in the development process will lead to reduction in the program cost structure as our previous focus on gene discovery in model plant validation where much more resource intensive than the competition work we will now be undertaking to support the predevelopment activities. I’ll now direct my remarks to the area of interest control which is the more recent product focus within our fixed rate market segment. Although we only initiated our activities in this early 2014, earlier this year we already announced that several of the genes identified as part of our collaboration with Marrone Bio Innovation, a collaboration supported by the BIRD Foundation have demonstrated toxic activity against target insects. You can see those results in Slide 7. These insects are members of the Lepidoptera and Coleoptera insects orders resistance to which represent a trait value of several billion dollars. This positive toxin also display very low genomic similarity to non-toxin families, potentially representing a normal action which would provide an important solution for the growing resistance of insects to existing product. We are now in the process of further categorizing this toxin in additional that including in-planta validation. Additional candidate toxin which are not part of the collaboration with Marrone are being screened in feeding assays including microbial genes from uncaptured bacteria which represent a very promising new source of unexplored bacterial diversity. I would like to also provide you with an update on our two most matured disease control seed trait product program, nematode resistance in soybeans and black sigatoka resistance in banana. Slide 8, indicates the success of our soybean nematode resistance program which is being pursued in collaboration with Syngenta. As a reminder, nematodes are fall worm impacting plants growth. Following positive results received in model system including genes transformation event displaying us to 70% cyst reduction ,this promising genes are now undergoing stable soybean transformation at our facilities in St. Louis and are expected to begin validation tests in 2017. To the right of Slide 8, our results from our joint program with Rehovot to develop banana varieties displaying resistance to black sigatoka, damaging banana disease, threatening commercial plantation worldwide. Rehovot is an Israeli based propagation and biotechnology company serving as a major research and consultation center for the global banana industry. As demonstrated on the slide in initial field trial conducted in highly affected growth earlier in Central America genes discovered by Evogene have displayed positive results for black sigtoka resistance. These genes are currently undergoing a larger scale field trial. Promising initial results are also coming through in our Promotor Discovery program. Promotor are segment of Gene A the twin use with appropriate genes determine the expression happens for the genes in the plant. In the presentation prior-to-date you will not from the example shown on Slide 9 that we were able to validate that our predicted promotors led to the desired highly statistic genes expression patterns we were looking for. This initial result are encouraging continuing the selection of the most appropriate promotor that control the expression of the genes of interest is a crucial component to the successful development of the desired trait in the plant. Let us move now to our second market segment Ag-Chemicals, where our activities are currently focused on herbicides. As you can see on Slide 11, herbicides which are commonly referred to as weed killer currently represent a market of approximately $25 billion. Herbicides are chemical the toxic to plant and are applied to kill unwanted weeds. Over the fact to-dated with resistance to existing herbicides solution is occurring mainly due to the over use of this chemical that act on a very limited number of norm mode of action in plants. The key avenue for resisting this challenge would be the discovery of new chemical molecule which work on new mode of actions or pathways to serve as the basis for the next generation of herbicides solutions. In order to discover such chemical Evogene is focusing on two main activities. The first is the discovery of novel target and by target I’m referring to vital plant micro molecule that take part in essential biological processes so called mode of action in weeds. The second activity utilizes a unique methodology in order to discover chemical molecules that can inhibit the functionality of this identified target resulting in weed death. This chemical molecule would then serve as the basis for the development of commercial herbicides product. With respect to the first activity in July of last year, we announced the discovery and testing validation in plant of the first set of novel plant target for herbicide, results of which are highlighted on the left hand side of Slide 12. This target a part of the collaboration with BASF signed in last quarter of 2016. With respect to the second activity we are currently in the process of recovery of chemical compound predicted to inhibit this specific novel target. In parallel to these efforts in 2015 we also initiated effort for chemistry discovery of herbicide through a variety of alternative approaches utilizing our unique computational capabilities. Compounds that have been identified through this alternative approaches are now being testing in lab and greenhouse test. As you can see on the right hand side of the Slide 12, some of our predicted compounds are already displaying initial positive results in doing how the testing on a panel of weeds. The most promising compound will undergo additional transformation and advance testing every progress in the product development sidelines. Our third and last market segment is Ag-Biological and I would like to share our initial results in this activity as well. Ag-Biological are microorganism that when applied to plants or soil improve crop performance. They are applied at seed coating or [indiscernible] in the field. The challenge arrives in identifying the microbial strain or strain combination out of the huge diversity of microbial strains surrounding the plants that will generate the desired impact. Our current focus for this activity is on identifying specific microbial strain for improving crop user quality and tolerant to other stresses. Although our Ag-Biological activity was only initiated last year and is therefore our youngest area of activity. Once again to the leveraging of our existing technology and humiliated knowhow we were able to quickly began acquiring the deep understanding of the beneficial interaction between plants and microbial strains. This past quarter we completed the first validation effort of our computational prediction and we’re very pleased to see that approximately 40 bacterial strain candidates demonstrated positive performance in model plants and corn greenhouse testing. You can see an example of this result on Slide 16, some of these promising bacterial strains are currently undergoing field trials and are expected to progress to the next development stages during 2017. In sum, I believe the initial positive result we’re seeing across our three market segments are extremely encouraging as they continue to demonstrate the potential to provide the basis for novel next generation product addressing some of agriculture most significant market needs and opportunities. Most importantly, this impressive result and the relatively short timeframe in which they were achieved are further testaments to the power and accuracy of the predicted capabilities provided by our science based technology platform established over the past decade and continuing to be expanded and enhanced. This platform has been designed to be broadly applicable and the success in doing so is now being demonstrated as we address very diverse market segments. Each with it on discovery pathways but all of which nasal on the core of our capabilities bringing plant science and computational power together. Before I turn the call over to Eyal to discuss the financial results for the quarter, I want to publicly welcome the new Board and Management appointments that were announced today. Sarit Firon has been appointed as a member of our Board of Directors bringing with her extensive board and financial experience having served as CFO for over two decades and currently serving on several other boards. Yuval Ben-Galim will join our senior management team as Chief Operating Officer has an impressive and extensive background in managing big data in high technology operations, very appropriate experience to support the continued development of our unique technological infrastructure. Yuval will be replacing Assaf Kacen as COO. Assaf has been with the company for 7 years and is leaving to pursue a PhD degree in biology. I would like to thank his time at Evogene has to do with his new chosen task and I wish him all the best with his academic studies. With that said let me turn the call over to Eyal Leibovitz who will review our financial results for the quarter.

[Eyal Leibovitz:]

Thank you, Ofer. Looking at our financial results for the first half and the second quarter of 2016, we continue to maintain a strong financial position ending the second quarter of 2016 with approximately $97 million in cash and cash equivalent representing a decrease of $1.9 million for the quarter and $3.8 million for the first six months of 2016. The net cash uses reflect our discipline spending despite growing investment across our growth area and increase in self funded activities. Looking ahead to the remainder of 2016, we believe that our net cash spend will be somewhat higher over the second half and for the year as a whole we expect to be at the lower range of our previously disclosed net annual cash usage of $14 million to $16 million. Moving to the statement of operation, currently our reported revenue are largely research and development revenues reflecting R&D cost reimbursement under certain of our collaboration agreements. In general, these agreements provide for development milestones payments and royalties and other form of revenue sharing from successfully developed products and therefore longer term we anticipate that our future revenues and profitability will largely reflect the receipt of payments from our existing and future collaborations. Specifically revenue from research and development payment for the first half of 2016 was $3.8 million compared with $5.4 million for the first half of 2015. Revenue for the second quarter of 2016 were $1.8 million compared with $2.7 million for the same quarter in 2015. This decline reflects the net decrease in research and development cost reimbursement in accordance with the terms of our collaboration agreement including the shift in major activities in our collaboration with Monsanto as mentioned by Ofer. This shift is also partially reflected in our cost of revenue. Here you can see that collaboration related expenses for the six months ended June 30, 2016 was $3.1 million compared to $3.8 million for the same period in 2015. Cost of revenues for the second quarter of 2016 were $1.6 million compared to $1.9 million for the same period in 2015. A portion of the affected resources are being redirected to support our internal self funded program in our growth market segment. As such you will see that research and development expenses for the six months ended June 30, 2016 was $7.8 million compared to $7.2 million for the same period in 2015. Research and development expenses for the second quarter of 2016 was $4 million compared to $3.7 million for the same period in 2015. These expenses are largely related to expansion of self funded activities primarily focused on the development of computational genomics platform and discovery and validation activities in our key growth engine, inset control, -chemical and ag-biologicals. Operating losses for the first half of 2016 was $9.8 million compared with $8.8 million for the same period in 2015 and $5.2 million for the second quarter of 2016 compared with $4.6 million for the second quarter of 2015. The increase in operating loss is mainly due to the decrease in revenue and increase in self funded research expenses discussed above which were partially offset by the decline in other expenses category. Finally net loss for the first half of 2016 was $7.8 million compared with a net loss of $8.4 million for the same period in 2015. Net loss for the second quarter of 2016 were $4.5 million compared with a net loss of $5 million in the second quarter of 2015. The decline in net loss is attributed to the increase in financing income reflecting the company’s company strong cash position. With that said, I’d like to thank you for your time and open up the call for any question you may have.

[Operator:]

[Operator Instructions] The first question is from Chris Parkinson of Credit Suisse. Chris, please go ahead.

[Chris Parkinson:]

Perfect, thank you. Could you just cover a little more on all the current field trials you have across the globe, obviously you’ve mentioned some already in the U.S., where they compare on a year-on-year basis just in terms of acreage, types of seed hybrids, varieties et cetera and then just generally where you’re expecting to go over the next two or three year and if there are any that are particularly exciting. Thank you.

[Ofer Haviv:]

This is Ofer, and I will try to address your question but we can’t disclose the full information because it’s confidential information coming from our partners but I think what we can disclose is that today a significant number of Evogene genes is undergo a product cannibalization mainly in corn and soybean in different location in United States as part from our coloration with the big seed companies including Monsanto, DuPont, Biogemma but you can imagine the majority is with Monsanto. We also have field trials in Central America focusing on our relationship with Rahan targeting Black Sigatoka in banana. We also have field trials but as far from our, the activity of our subsidiary Evofuel in Brazil, Argentina and in Mexico but this field trials are mainly focusing on the cluster bean variety that we’re developing as part of the Evofuel activity.

[Chris Parkinson:]

Perfect, that's plenty of color, thank you. And then also - you already mentioned the promotors as a successful new initiative, and you've launched a few other new initiatives actually over the 12 to 18 months or so. Can you just talk a little bit more about how you’re planning to further leverage these various platforms potentially together, it sounds like you are pretty excited about that. And do you believe the overall enhanced platform could potentially lead to additional collaborations. Thank you.

[Ofer Haviv:]

I am not sure that I understand your question, can you repeat it once again, because exactly the promotor and I'm not sure if your question was focusing on the promotors or on the overall company activity?

[Chris Parkinson:]

Overall company activities, it seems like you’ve added a new few new potential growth pillars and I was just wondering if you potentially kind of into repackaging that total platform to potentially get new collaborations?

[Ofer Haviv:]

Okay. So in this conference call we decided to focus mainly on the result from the ongoing activity and in a way we didn’t focus a lot on the technology the platform that we’re using, the core technology that we’re using which you can definitely use it into more areas and what the company is focusing on now. And we are in continuous process of evaluating how we can use the core technology that Evogene develop to more, to additional area and really to capture the value for what we built here. I am planning in the next teleconference quarterly update to focus more about on the technology and how we see this technology and how it’s involved to support the different area in agriculture and maybe even outside of the agriculture world because what you don’t hear it has a huge value which what you see now is just a piece from what you can built on this technology. And again as I said it, really amazing in such a short time period in the last two, three years we built a very short presence in ag-chem, ag-biological insect control and I think that result will show you today is just the beginning of what we’re going to see in the next few years. So yes, you can use it to other area.

[Chris Parkinson:]

Perfect. Thank you.

[Operator:]

The next question is from one Brett Wong of Piper Jaffray. Please go ahead.

[Brett Wong:]

Hi, thanks Ofer for taking my questions. Just wondering if any of the company priorities have changed given the ongoing progress across your segments and then maybe you kind of less the opportunities by priority if you see them right now and I know there are - a lot of different opportunities that have potential value, but kind of get a better sense how you’re thinking internally?

[Ofer Haviv:]

So I think that what I can disclose is that, we increased significantly our investment in every total in many - in ag-chem insect control and ag-biological and in the way the activity in the [indiscernible] is reduced a little bit. The main reason is because we deliver to our partner so many genes and currently we have a very nice result on. So the focus now is really more to extent the gene that we already discovered, and a positive result to the next phase. So bringing in more and more genes it’s not but knowing that in Monsanto 500 with more than 1000 genes coming from Evogene collaboration and we have a nice numbers of genes that show positive results. So we are now focusing more on how to advance those genes to checking and probably there we’re going to see reduce in the level of activity and increase in insect control, ag-chem and ag biological. But it is really nice also in three areas that they mentioned is the time to see a significant result is a lot faster than even not expressed. As we enter into this earlier in the last two, three year and we already have a very nice results and there is more in the pipeline, I can't disclose in this stage. So we are very encouraging to visit in the early. Regarding what might happen in the future, yes we are looking on some maybe additional activity that can generate value from using our technology and we are looking for early - make in the type of problems that Evogene can solve using our technology and that you can reach to significant market in a relatively short period of time at market you can look for when you talking in biology.

[Brett Wong:]

Okay, great, thanks for that. And then you previously mentioned that given the current consolidation in ag-biotech that it's limited to the additional potential agreement in your near term, are you continuing to see that?

[Ofer Haviv:]

So I think consolidation process that we are going through it creates positive things and negative things. The negative things that, it's not easy to catch management attention when such a significant transaction is happening because everybody is also trying to evaluate what’s going to happen in the day after. But in the other hand it also create a very, very interesting opportunity, because each company is trying for the same position in such processes and it's open up to connected for Evogene. So it’s going in two direction and we are – based on the relationship we built in the past dated with a lot of this company, I think that there is a very strong positive impression on Evogene in this companies and we are talking with the people and especially now when you have you this result, I’m expecting that would be triggered to things that will happen in the future. It is different when you have applied on what you want to do compared to when you a future result coming from your lab and greenhouses results.

[Brett Wong:]

Yes, definitely. Very good. Thank you for the color Ofer.

[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 our participants that a replay of this call is scheduled to begin two hours after the conference. In the U.S. please call 1-877-456-0009. In Israel, please call 03-925-5936. Internationally, please call 972-3-925-5936. Mr. Haviv, would you like to make your concluding statement?

[Ofer Haviv:]

Thank you. In closing I want to thank you board for your continuing interest and support and for giving us opportunity today to share with you summary of most recent achievements. We look forward to continuing to update you with our progress in our municipal area of activity. Thank you once again.

[Operator:]

Thank you. This concludes Evogene's second quarter 2016 results conference call. Thank you for your participation. You may go ahead and disconnect.