Evogene Ltd.
Q2 2015 Earnings Call Transcript

Published: 9 Aug 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Evogene’s Second Quarter 2015 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, August 5, 2015. 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 relates 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 made in those earnings releases in a similar way on the earnings conference call that are not historical facts, maybe 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 announce of the 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 U.S. Securities and Exchange Commission. That said, I would now like to hand the call over to Ofer Haviv, Evogene’s CEO. Ofer, Please go ahead.

[Ofer Haviv:]

Good day, everyone, and thank you for joining us. On the call with me is Sigal Fattal, our CFO. I will begin the call with an overview of the too most recent announcement we made representing the progress in our growth areas insect control and ag-chemical. I'll then briefly touch on the other areas of the business before handing over the call to Sigal to comment on our financial results for the quarter. Assaf Oron, our Executive Vice President, Business Development in the U.S., but he will join us for the Q&A session, which followed our prepared remarks. This past few weeks has been very rewarding from the standpoint of Evogene ongoing corporate growth and development. As we indicated at the time of our U.S. IPO in late 2013, Evogene intended to allocate a large portion of the IPO proceed towards certain new opportunities with substantial growth potential and a real need of innovation to drive the next generation of ag product development. And with all of our market focused operations this new activity and efforts were to be accomplished leveraging the technological resources and knowledge we have gained over the prior 10 years and leverage them toward additional substantial growth areas. The success of these efforts was well demonstrated by the two milestone announcements made recently. First in our insect control program, the successful completion of our first computational round of microbial genes for insect control. And second, was in our ag-chemical program the recovery and validation of our first plant target for herbicide. Let me give you a bit more detail on those two important accomplishments. First, with regard to our announcement in the early of insect control, this is a remarkable achievement continuing that in a relatively short period of time, we were able to leverage our knowhow and technology to tackle a new field that we present an earlier in the market with significant barriers to innovation. As you may recall, on our last call Assaf review in detail about our activity in this field and the fact it will present a significant market opportunity, we sell those insect control trade containing a microbial toxin estimated at approximately $4.5 billion annually. In this area, where insect resistance to current solutions is growing and future product will most likely have to include on microbial gene, the challenge is the sheer size of the microbial gene pool, which includes hundred of millions of potential genes. Evogene develop a unique computation technology in order to address this challenge and the announcement we made this week represent a key milestone in our insect control program. The successful completion of the first computation discovered around for microbial gene. Importantly, in this discovery around in addition to the set of novel genes discovered, we also identified previously known microbial genes that are recognized for their insecticidal activities providing us with the high level of comfort with the step to the quality of the novel gene and their likelihood to eventually yield a commercial product. And a next step, this genes would not be validated in our R&D site in St. Louis against coleopterous and Lepidoptera insects. This insect families include some of the most devastating insects to crop yield such as corn rootworm and corn earworm and we look forward to seeing the result of these validation effort as soon as next year. Moving on to our herbicide discovery program, where we also achieved a significant milestone recently. A few quick benchmarks on the state of the herbicide market today for those on the call are less familiar with this field. The field of agricultural chemical has a current annual market of close to $50 billion of big herbicides are the largest segment representing over $26 billion. This is a huge market opportunity with extreme industry interest, mainly because the industry has been trying for over 20 years to bring to the market in a view of the growing weed resistant to existing chemical, a new herbicides to look in that represent a new mode of action or manner to kill with. The challenge here is twofold, to identify a new essential target one which is critical to the lack of the weed and to develop a chemical compound that combine to this target and block its activity causing weed death. To address this challenge Evogene has introduced a novel approach of integrating predicted biology with chemistry. What this mean is that we leverage the proprietary understanding of plant biology and genomics. We have obtain over the past decades to guide our chemical discovery activities. We applied this approach both to the identification of novel target and to the identification of the chemical compound that will inhibit the activity over the selected target. To support both this effort, with this unique biology driven start to end technology platform consisting on pointer for the discovery of novel target and point it for the discovery of chemical compounds. The development of this infrastructure provided the foundation to achieve the milestone we announced last month. The discovery and successful validation implant of the first set of novel target. This is a significant event for Evogene herbicide program, particularly in view over the potential for these targets to represent a new mode of action. We believe that our approach of relying on biological understanding to drive both diversification of the target and the chemical selection process differentiate us from the traditional discovery activities being undertaken in the industry. Therefore, we’re very excited by not only the speed with which we identified these novel target, but also by our believe that this approach has the potential to strongly influence both the quality of the target selected and the likelihood of successfully identifying and appropriate chemical for the development of the final herbicide product. Let me give you a couple of examples. When we have set the relevant of the target for product development, we evaluate the potential of the target structure functionality and its ability to buying to a chemical compound already in the initial selection process. Another example is that we select target that only existing plants and not in other living organisms. The reason for that is to ensure that the final chemical solution will only impact plant life and other aspect of the environment. The target discovery milestone is also important as it serve as additional validation that our computational based approach for the development of agricultural based product works and has the potential to change industry dynamics when it came to development of next generation of agriculture based product. The target we discovered will now move on to the next stage of the herbicide program. The identification of chemical molecule that our designs to inhibit the activity over the discovered target. Once identified and then validated on a variety of weeds this chemical molecules could then serve as the basis for the active ingredient in the development of a future herbicide product. From commercial standpoint, at this stage of the program we’re evaluating future avenue for the advancement of the program. Considering the values pros and cons of the protein a collaborative partner at this stage for self funding the program to later stages. In addition to this milestone, we continue to see important progress in the other areas of the business. Specifically, in the area of yield interest, we continue to see our product program continuing to progress according to their work plan. With evolving understanding the next generation of yield improving product, we must probably would be based on a combination of genes rather than just one gene the teams are increasingly making effort to define the desired product attribute that need to be combine together in order to reach stable, broad acreage, high yielding product. Before I turn the call to Sigal I also want to briefly touch on our activities in Evofuel. This quarter most of Evofuel focus and that of our Brazilian partners SLC and Insolo was divested at the preparation of the field for harvest which will take place later this month. Our main pre-commercial fields in Piauí and Bahia additional testing sites in Northeast Brazil. Evofuels activities in Brazil also include working with CNH to test the harvesting combine; they are developing and with other collaborator such as Embrapa to further adjust our growth protocol. In summary, we’re looking across the various areas of the business, we’re extremely excited with the initial progress we have made in advancing our newest areas of focus insect control and herbicide discovery to the next stages of product development and continue to be pleased with our efforts in narrowing the gap to successful product introduction in our more established areas. With that said, I would now like to hand over to Sigal to comment our quarterly financial statement published today. Sigal?

[Sigal Fattal:]

Thank you, Ofer, and hello, everyone. Looking at our financial statements released earlier today. Let us first direct your attention to our cash position. As noted on the balance sheet, we continue to maintain a strong financial position ending the second quarter of 2015 with approximately $110 million in cash and equivalents representing a decrease of $3.2 million during the quarter and result any corporate debt. Moving to the statement of operations currently our reported revenues are largely research revenues reflecting R&D cost reimbursement under certain of our collaboration agreements. However, looking ahead our future revenues and profitability is expected to be largely related to milestone payments, royalties and other revenue sharing arrangements derived from existing and future collaborations. Specifically revenues from research and development payments for the first half of 2015 were $5.3 million compared with $7.5 million in the first half of 2014. This net decrease largely results from the previously disclosed amended work plan with Bayer. Looking at this line item quarter by quarter, we can see that the impact of the revised work plan stabilized with revenues for the first quarter of 2015 at $2.7 million versus $2.6 million for the second quarter of 2015. As I mentioned in the past, prior to our U.S. IPO research revenues were key contributors to our financial stability. However, given the strength of our balance sheet that is no longer the case. Going forward and on a cash-by-cash basis, we intend to consider self financing or jointly financing with our partners certain activities and the future collaborations and possibly in some cases under existing collaboration particularly with expect to our new growth areas. Although, this would result in less short-term R&D revenues then would otherwise be the case, our goal in negotiating the over financial terms will be maximize long-term revenues consistent of course was maintaining our financial strength. Next as pointed out in prior calls, our total expenses for R&D type activities are accounted for in two separate line items in the statements of operation. First is cost of revenues representing those R&D activities conducted in support of our ongoing collaborations, and the second big R&D expenses, which referred to expenses incurred by Evogene for infrastructure enhancements and other self-funded research activities. Self-funded R&D expenses totaled $7.2 million for the first half of 2015, compared with $6 million in the first half of 2014. This increase mainly relates to the investment we are making in the discovery programs are for two growth areas

[Operator:]

Thank you. Ladies and gentlemen, at this time we will now begin the question-and-answer session. [Operator Instructions] The first question is from Chris Parkinson of Credit Suisse. Please go ahead.

[Chris Parkinson:]

Perfect, thank you. Regarding your announcements over the last two weeks on the herbicide and insect resistance initiatives, is this fair to say that those came ahead of schedule or are they relatively in line with your development expectations? And then also regarding each initiative, how much far there can you run with each without signing with a partner, so basically how much runway is there? Any color would be appreciated. Thanks.

[Ofer Haviv:]

Hi Chris, this is Ofer. It’s great to talking with you. I will take the first – your first question and Assaf will address the second part. So regarding the first question, if we are ahead of our schedule, so the answer is yes. Especially in – the Assaf identifies microbial genes that are predicted to be toxin for insects and I mean we are already quite proud about it. I think that we succeed to solve some significant issues in the technology aspects earlier than what we expected and we are very pleased about it. Regarding the second part, the second question, Assaf can you address it?

[Assaf Oron:]

Yes, of course. So there are two fields, the first is the issue of insect resistance, so where the announcements stated that we have discovered novel toxins that we believe to trail some novel mode of action. These are toxins that have been now discovered. The next stage is to validate and feeding assays, the meaning is that in a way you overexpressed the protein that you discovered and you put it in an assay where the actual insects eats that protein and you see if it has any toxic effect. That is something that we still have not done, have now initiated doing and is something that we are planning to do in-house. Actually that activity will be in our St. Louis facility. And that is an activity that that we will go within the next six months for example for this first set of genes. Then we usually do some repeats of those assays. The next stage if you see their toxic activity is going into target plant work. And for that stage, we do need a partner that would actually put it in a relevant [indiscernible] corn, soybean according to the relevant cropping insect. So in short we can move along all the way to show validation results in feeding assay and then would collaborate with the partner that would take in downstream. With respect to herbicides, we have now completed the validation of our target discovery activity after now we know that there are proteins within the plant that if we inhibit their activity the plant died. Now what we need to do is discover the chemistry that would actually do that. So what we are doing internally now is using our computational platform PointHit in order to discover the chemistry itself. And then we will have a library of chemistry for screening. At this stage, we do have internal capabilities in order to screen that chemistry over plants where you would like to see signs of plants dying, when using that chemistry. But there is also a possibility to do some of that work through already existing screening platforms that the big agro chemical companies have as well. So in short, we in-house can continue and we will continue to discover the chemicals themselves and then screen them over plants. And in any event of that case, we will look for partners that would take chemistry that has worth and will improve its performance in order to take it downstream into broad field training.

[Chris Parkinson:]

Perfect, thank you.

[Assaf Oron:]

I hope that answered your question, Chris.

[Chris Parkinson:]

No, very certainly I appreciate it. And just a quick follow-up, its – I’m sure it’s fairly clear to you that a lot of investors remained pretty zoned in on the pipeline advancements or just the hope for pipeline advancements with Monsanto and understandably. So but can you comment on other areas of your pipeline with your other partners which you believe are showing a lot of promise and – or aren’t necessarily on investors radar screens as much as they should be?

[Ofer Haviv:]

This is Ofer. I think that [indiscernible] in addition to the collaboration with Monsanto, we have relationship with DuPont on certain genes that will license to them before we enter into the broad collaboration with Monsanto, which I think that there is also a nice progress with them. And in the area of plant disease, we are now in the stage that we start to receive – this year, we would start to receive some initial feedback on our gene. Probably, the good thing that we will know what – how our genes are advancing in Phase I in our partner pipeline. I’m not sure that we will be able to disclose all of this information because the expectation for the gene to move to Phase II is still in – it will need another year or so. So our gene are advancing in our partner – in partner pipeline in Phase I, not necessarily we can announce moving to Phase II. We will try to discuss with our partners to try to share information from Phase I with our investors, hopefully they will agree to do so and then we’ll be happy to update you in at the end of this year.

[Chris Parkinson:]

Perfect, thank you very much.

[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 the replay of this call is schedule to begin two hours after the conference. In the U.S., please call 1-888-782-4291, in Israel please call 03-9255-904, internationally please call 9723-9255-904. Mr. Haviv, would you like to make your concluding statement.

[Ofer Haviv:]

Thank you, everyone. I appreciate your time today and I look forward to continuing to update you on our growth and other exciting developments next quarter. Thank you.

[Operator:]

Thank you. This concludes Evogene’s second quarter 2015 financial results conference call. Thank you for your participation. You may go ahead and disconnect.