Evogene Ltd.
Q4 2015 Earnings Call Transcript

Published: 1 Mar 2016

[Operator:]

Ladies and gentlemen thank you for standing by. Welcome to Evogene’s Fourth Quarter and Full-Year 2015 Results Conference Call. 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 1, 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 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:]

Good day everyone. Thank you for joining us on this call. With me today are Eyal Leibovitz our new CFO, and Assaf Oron our Executive Vice President of Corporate Development. I will begin the call with opening remarks; Eyal Leibovitz will then comment on our financial results for the quarter and full-year, followed by Assaf Oron who will provide the status update. We will then open the call for any questions you may have. In our last conference call, we described our new company structure that was established in order to support the continuous growth of our various areas of focus. Consistent with this organizational change in the future conference calls I intend to have additional company executive join me on the call so they can shed light on the strategic activity areas. My remarks today will consist of two parts. First, will be a brief overview of our unique integrated R&D infrastructure, which is a décor of our company. Including a few recent examples of its biologic predictive power from our ongoing product programs. In this overview I would also like to give special emphasis to genome editing a new enabling technology currently available for trait improvement research. We expect the implementation of this disruptive technology to provide substantial additional value, extraction of facilities for our discovery infrastructure. The second part of my prepared remarks will be a brief review of some key strategic decisions we have made during the past few years which significantly impacted three defining aspects of our Company. Our activity scope, our organizational structure and our financial strength. These decisions brought us to our corn positioning and are providing the direction, resources and engine for our continuing growth and development. As stated, I will touch with the brief overview of our unique integrated R&D infrastructure. Our technology platform utilize and integrates innovative computational capabilities such as big data integration and analysis, which is driven by our proprietary expertise in genomics, plant science, chemistry, micro-biology, and other scientific knowledge bases. Today, this unique infrastructure supports not just a multiple product oriented programs with in our more mature yield improvement and plant disease activities, but also our expanding efforts in the areas of Insect Control, Ag-chemistry and Ag-biologicals. We are proud to be increasingly recognized by world leading companies for our expertise and capabilities with which we are able to address multiple key unmet needs in the agriculture world. Our recently announced collaborations agreement with BASF, the world’s largest chemical company, to develop novel herbicide is a recent demonstration of this acknowledgment. It place me to state that every year we have more results that validate the predictive capabilities of our unique and broadening applicable science based infrastructure. As an example, we just recently reported positive results for our discovered genes in corn and soy testing conducted by our partner Monsanto. These are the first result on the test that carried out pursuant to a Trait-First methodology implemented as part of our multi-year collaboration with Monsanto, which focus on yield enhancement and abiotic stress resistance. Assaf will elaborate on this shortly. Another example as we announced in July 2015 is our discovery and successful validation implants of the first set of novel herbicide target representing a key milestone in our product program in this very important area of agriculture. The discovered target are now the subject of a unique approach again combining science and computational technology for the discovery of chemical molecules that can inhibit target functionality resulting in weed death. This result both in yield improvement and in ag-chemistry further demonstrate the broad applicability of our unique science driven big-data integration, analysis and prediction capabilities will provide Evogene with its primary competitive advantage. We also believe that these successful results are important milestone on our way to achieving together with our partner break-through product for farmers world-wide. In our continuing efforts to expand and enhance our discovery infrastructure a key focus at present is on genome editing and emerging and very exciting new technology for genome manipulation. Genome editing is gaining high traction in both pharma and agricultural as this technological enabler is designed to allow the precise modification of any part of given genome, either human, animal or plant in highly efficient and robust manner. This disruptive technology open up significant new opportunity for trait improvement. However, in order to apply this powerful new tool, one must first identify the specific area in the genome in which modification would lead to a trait improvement as well as the desired modification. This is significant discovery of challenge requiring both [place] understanding and computational approach to the side what to edit. This is exactly what Evogene’s technology was built to do. Our unique predicted technology infrastructure were established to systematically identify those specific sections of genome that are responsible for the biological function of trait of interest in order to allow their modification. Therefore, we are uniquely positioned to provide significant value on what to edit in any use of genome editing. Based on this we expect to position ourselves as the key player in the application of this exciting new technology further expanding the value proposition we offer to our partners. Now I'd like to go ahead and elaborate on a few important decision we have made during the past few years that help positions us to rapidly take advantage on future opportunities in the agricultural world. As previously mentioned, this decision significantly impacted three defining aspects of our Company. Our activity scope, our organizational structure and our financial strength. The first decision directly impacting our scope of activities was to broaden our areas of focus beyond our core yield enhancement activity. The market segments we have chosen to pursue with our broadly applicable discovery infrastructure, our market that hold substantial opportunities where there are significant unmet needs and were best on our unique advanced and integrated R&D infrastructure, we believe we can provide the most advanced solution. In implementing this decision to broaden our scope, we now have ongoing activities in gene discovery for insect control, target and small chemical molecules discovery for novel herbicide and most recently discovery and development of ag biological as bio-stimulant. In this three different markets, we are well positioned to take advantage of the opportunities as we possess innovative capabilities and unique scientific expertise to enable discovery and development of novel ag product. The second decision we made relates to our organizational structure and was discussed in our last quarter call. This new structure which is now been fully and successfully implemented groups all of our line operations into two main hubs, crop enhancement and crop protection. However, the structure is only a framework, we believe the real key factors are the professional that give life to the structure. Israel is an ag science world leader and we are very successful in hiring highly qualified professionals for our multi-disciplinary teams and grooming internal managers. We are also pleased with the new team at our St. Louis site in the U.S., which now consists of eight employees. In total more than 80% of our employees are R&D professional and over 30%hold PhD degrees. The third decision relates to our financial strength and ensuring that we will have the capital we need to pursue our objectives. Here I will only relate to our decision to take additional funding via U.S. IPO in 2013 through which we raised approximately $77 million net. This additional funding is now allowing us to pursue our additional areas of growth and development while still maintaining financial health. Of course for a development stage company growing and diversifying as we are having sufficient capital along this very careful budgeting and control must always be of the highest priority. This decision has proven to be a very important one for the Company, especially when considering the state of the financial market since the time and the effect of very low commodity prices on the short-term decision of our collaboration partners. Following me Eyal will review our 2016 financial results and provide an overview of our financial strength. To summarize, we began 2016 with strong sense of accomplishment and priding what we achieved during 2016. In particular with respect to the much broader activity base we have established. With continued expansion of our unique research and development infrastructure, we believe we now have the organization, the required financial resources and the industry recognition that will allow us to make key contributions in large and increasing number of substantial agriculture based market. Thereby providing our Company with the pest continued growth and the potential for substantial long-term profitability. With this, I will turn the call over to Eyal Leibovitz, who will review our 2016 financial results. Following Eyal, Assaf Oron will provide a status update for our key operating areas. Eyal?

[Eyal Leibovitz:]

Thank you, Ofer and hello everyone. As the newest member of Evogene’s management team I would like to note how excited and pleased I am to join and energize and focused in the ag technology space. I look forward to sharing this excitement with you in the coming months as the Company’s newly appointed CFO. Turning to financial, first with respect to the very important issue for Company such as Evogene, that is liquidity, as noted on the balance sheet, we continue to maintain a strong financial position. We ended the fourth quarter with approximately $100.7 million in cash and equivalents representing a decrease of $15.6 million for the year ended December 31, 2015. With respect to our cash balance, I would point out that an additional $1.9 million shown on the balance sheet as a trade receivable as of December 31, 2015 was received a few days after the close of the year. Assuming regular course of business and no new revenue source such as additional collaborations, the Company estimate that it is net cash usage for the full 2016 will be in the range of $14 million to $16 million. Moving to the statement of operation, currently our reported revenues are largely research revenue reflecting R&D cost reimbursements under certain of our collaboration agreements. Looking ahead, our future revenues and profitability are expected to be largely related to milestone payments, royalties and other revenue sharing arrangements derived from existing and future collaboration. Specifically, revenues from research and development payments for the year 2015 were $11.0 million compared with $14.2 million for 2014. Revenues research and development payments for the fourth quarter of 2015 were $2.4 million compared with $3.6 million in the fourth quarter of last year. This net decrease largely results from the previously disclosed amended work plan with Bayer and Syngenta as well as a decrease in research and development cost reimbursement according to our collaboration agreement. As a reminder and as stated in previous quarters, our revenue from R&D related activities fluctuate from quarter-to-quarter, depending on the nature and timing of our collaboration agreements. Prior to our U.S. IPO, research revenues were a key contributor to our financial stability. However, given the strength of our balance sheet, that is no longer the case. Going forward and on a case-by-case basis, we are considering self-financing or jointly financing with our partner, certain activities under our collaboration, particularly with respect to our newer growth areas. Although, this would result in less short-term R&D revenues than would otherwise be the case, our goal is to maximize long-term revenues consistent of course with 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 statement of operation. The first line item is cost of revenues representing those R&D activities conducted in support of our ongoing collaboration and the second is R&D expenses which refer to expenses incurred by Evogene for self-funded research activities and infrastructure enhancement. The total R&D type expenses continue to be by far the company’s largest category of expenses. Combining these two line items total R&D type expenses were $22.7 million for the year of 2015 compared with $23.7 million for 2014. Total R&D expenses for the fourth quarter of 2015 were $6.1 million compared with $6.7 million for the fourth quarter of last year. The decrease arise mainly from the following two reasons; first, is the decrease of our ongoing collaboration expenses as the result of the amended work plans. Second, the increase is the exchange rates U.S. dollar versus Israeli Shekel affecting the company's Israeli Shekel expenses in terms of U.S. dollars. The decrease was partially offset by an increased in non-cash share based compensation and an increase in our self-funded activities mainly in the new growth area mentioned by Ofer and which will be more fully described by Assaf Oron our Executive Vice President, Corporate Development who I am now turning call over to.

[Assaf Oron:]

Thank you, Eyal and good day everybody. I would like to provide you with an update of our operations and activities. I will be begin my status update with our crop enhancement operating hub. In our seed traits product programs for yield and abiotic stress tolerance were progressing in accordance to our work plan. And are pleased with the progress we are seeing. Under our major collaboration with Monsanto as mentioned by Ofer we recently announced positive results for the company’s discovered genes and corn and soy testing conducted by Monsanto this season. These are the first results under test carried out pursuant to a Trait-First methodology implemented as part of our ongoing multi-year collaboration. The new Trait-First methodology which leverages and utilizes knowledge unlock through the collaboration has enabled the two companies to identify and prioritize the serious of key enabling traits that are expected to improve plants overall performance leading to yield improvement. As well as the traits attribute required for achieving these key traits. The positive results reported for a subset of the 1000 genes represent a key step towards achieving the target plant trait for yield improvement and confirm Evogene’s computational predictions for this set of novel genes with respect to the underlying trait attributes. Further testing of these genes will now be undertaking while the parties evaluate additional previously discovered genes from the collaboration as well as new ones. In the area of ag-biological we’ve recently initiated discovery activities for the improvement of yields and resistant to abiotic stresses which we refer to as our bio-stimulant activity. Bio-stimulants are substances and microorganisms that are applied to plants or soils to improve crop yields, quality and tolerance to abiotic stresses. They are applied as seed coating or through [a full-year] manner in the field. Today the majority of current market products show limited efficacy and insufficient stability in various environmental conditions. Through leveraging our existing technology and accumulated know-how based on over a decade of research in the field of yield improvement we target to address this market need. We’re currently in the discovery phase screening and evaluating potential bio-stimulant on target crops. We foresee this segment as Ofer stated as a growth opportunity for Evogene. Moving to our crop protection operating hub, first with respect our herbicide program which is our initial activity in our chemistry 2015 has been a remarkable year for this program with two major achievements. The discovery and validation and plants of novel target and the entry into a collaboration agreement with BASF the world's largest chemical company for a novel herbicide discovery and development. Under the terms of the agreement Evogene will utilize its biology driven computational discovery approach to identify potential candidate chemicals for novel herbicide. BASF will use its proprietary advanced platform to screen the candidate chemicals in order to experimentally validate their biological effects on weeds. Successful candidates from this collaboration will be further developed by BASF. Weed resistance is a pressing issue for growers across the world. Their herbicide market alone is estimated at approximately $25 billion and rapidly growing as there is an increasing resistance to the existing herbicide products in the market. Therefore, the need for novel solutions in this market is greater than ever. We are extremely pleased and proud to have team with BASF after only a few years following our decisions to focus our capabilities on this major field. We believe that the combined knowledge and experience of the companies will lead to development of breakthrough solutions for this critical need. With respect to our insect control activities, during 2015 we achieved a significant milestone with the successful completion of the first computational discovery round for microbial genes with insecticidal properties. The discovery round utilized a unique computational technology infrastructure consisting of a proprietary microbial-based database and a dedicated analysis platform, BiomeMiner. The candidate genes are currently being validated against target insects at the Company's R&D site in St. Louis, Missouri. We are expecting initial validation results during 2016. And our various seed trait programs for plant disease we are progressing in accordance to our work plans. In our nematode program, we’re making progress towards soy transformation capabilities under our agreement with Syngenta with a team in place to support this activity. In relation to our stock [indiscernible] Asian Soybean Rust programs I am glad to say that these two are progressing and on track, as genes are in different stages of validation in both Evogene and in the partners pipeline. Moving to Evofuel, our wholly-owned seed subsidiary currently focusing on caster. We've completed most of the sowing for the 2015, 2016 sowing season in the multiple field trial sites in Brazil, Argentina and Mexico. The number and scope of field trial site this year is the highest we've conducted yet. And we look forward to driving these field activities into commercial sales over time. Looking forward, we expect to continue working with our existing partners and to pursue potential new collaborations. With that said, I would like now to thank you for your time. And we’ll now be glad to address any questions you may have about these or other items in our statements during the Q&A session.

[Operator:]

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

[Christopher Parkinson:]

Good afternoon everyone. Just a quick question on - so you’ve clearly done all your efforts with Monsanto given your recent comments and releases. And Assaf you mentioned a few in your prepared remarks, but can you just comment on the two to three other collaborations which you are most excited about and why potentially some of that have been overlooked by the market given the focus on Monsanto? Thank you.

[Ofer Haviv:]

So regarding the other collaboration - Chris this is Ofer answering the question. So regarding the collaboration they are also advancing. The reason that you are putting so much focus on our collaboration with Monsanto is that as we announced at the beginning of this year more than 1,000 from Evogene gene are today in Monsanto pipeline and this is probably the most extensive work and collaboration today conducting the world in the area of yield improvement for corn, soybean where the end target is improving seed trait. Since this is the majority of our activity and the number of gene there is so huge, so the expectation is according to this effort. And this is why we are putting so much emphasis and focus on this activity.

[Christopher Parkinson:]

Okay, perfect. And then just you clearly made a lot of - a lot of progress on your own efforts prior to your collaboration with BASF, but can you just give us a little more color on the recent progression since you signed and then also what’s your degree of confidence on development, once again obviously on some of that in your prepared remarks. But what are the key drivers of that confidence relative to peers and what others have tried in the chemical markets prior to your initiatives.

[Ofer Haviv:]

You can imagine that I need to be very careful on how much I can disclose especially after we signed the collaboration agreement, but there is two important milestones in such a collaboration from Evogene side. The first one is to identify the novel target and then to identify the chemistry this is going to bind to this targets and its activity which lead to the - with that. Before we announce the collaboration we announce that we identify few novel targets that were not known to the industry as a potential targets to work on. I think that we are very confident and feel very comfortable with this statement and I think that this is what one of the motivation for BSF to work with Evogene. The probability to find today novel targets that industry wasn’t focused on is not to very high and if we were comfortable to announce something to this so this is a very important achievement that no other company can announce. The next stage is to identify the chemistry and here there is - we believe that we are presenting a very unique approach on how to identify this chemistry and its relaying not just on to understand the chemistry aspect of the molecule, but also to understand the plant biology and what’s needed in order to the small molecule to get into the plant cell to find that specific protein and then to bind to it and profit activity. And I think that what we present to reassess in this area it was another major reason for them to believe that together we can make a difference. So and based on some activity we conducted in Evogene even before the collaboration we are quite positive on what we are going to see in this area in the next few years.

[Christopher Parkinson:]

Perfect.

[Assaf Oron:]

Yes, Chris this is Assaf. Maybe to add to that because you also asked on how is this different from existing efforts in herbicide discovery. So I mean target base discovery has been tried in the past, but I think the biggest efforts were maybe a decade ago and today we have much better data and much better tools to predict and find those targets and then we are once that we announced on our targets that are to the best of our knowledge from screening IP and articles are totally novel. Beyond that we are basing also our chemical discovery on highly on advance computational tools and I think one of the examples that Ofer gave on not only seeing that chemical will bind, but also to use predicted models to actually make sure that the chemistry will penetrate through plant into the relevant organs. And for that for example, we are using predictive models based on a lot of data that’s been only available in the past few years and that to our knowledge we don’t know if anybody else who is using predicted models actually to predict that as well. So we are feeling very positive towards the next step of predicting chemistry that will work.

[Christopher Parkinson:]

That’s great color. Thank you.

[Operator:]

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

[Brett Wong:]

Hey guys, good to talk to you. Thanks for taking my questions. First, so it seems looking to partner with entities focusing on gene editing given the synergies with your current technology. So there is only a handful of companies out there now with gene editing tools and of those they have largely partnered with ag majors already. So just wondering if you’ve already had some conversations with potential partners or this is really just an early stage effort. And then beyond that what additional resources will you need to pursue this opportunity and are you concern that you are starting to spread yourselves little tooth in?

[Ofer Haviv:]

So I want to explain the following, when you’re talking about genome editing so from Evogene perspective it’s a new enabling technology that actually can take all the aspects that we already generated to you and utilize it in order to improve a seed traits. So if Agrobacterium it’s the enabling technology that took a gene and introduced into the plant DNA in random position. So here you are using the genome editing and you will edit the gene in a very precise way. Still you need to know what is the gene and what is the editing you need to - actually to do in order to improve the trait. Now why I am emphasized is because from our perspective companies that claim or they have the technology for genome editing if they are working today with Monsanto, DuPont, Syngenta or any other partner this is great - this is exactly what we are looking for because the trust of the collaboration is going to be exactly the same like the one that we have with Monsanto while they have an access to the Agrobacterium license for gene transformation meaning that we will work with Monsanto, we are going to use our technology to identify the genes, we will use our technology in order to identify what is the specific editing we need to conduct and then Monsanto through their license for the enabling technology they will conduct this modification in the plant - in the target growth itself. So we hope this all of our partners will have an access to this technology because to improve our position and increase the value of what we are offering. So it just another technology to use the know-how, the assets, the IP that Evogene generated in the last few year and I hope this explain how we see this new technology and how it’s going to affect positively on Evogene.

[Brett Wong:]

Yes that’s really helpful. Thanks. The other piece I wanted to dig into here was obviously there has been a lot of discussion or potential consolidation happening. You just talked to the impact that you are seeing from that recent consolidation or toxic consolidation in the industry, how do you see the industry longer-term and how do you see the impact of your ability to partner with tenant key players?

[Ofer Haviv:]

Okay. Thank you for this question. Talking about Syngenta being acquired by ChemChina, so from our perspective for Evogene it could be from no different to where the situation before to hopefully even positive. As we understand from a public information the idea is that Syngenta will continue as a standalone company from press releases and what we learn is that they still going to invest a lot in innovation in their R&D activity. So I think that if we are going to see changes we hope that it will be positive because and now there will be hopefully the stronger financial supports and one major shareholder to drive the strategy of this company and I think that it can help the decision process to be improved and I think it can help for company like Evogene to be part from the strategy of a company like Syngenta and know what area we can work with them and what is the main interest. So I think that in case of Syngenta it will be something between no different to positive. Taking about DuPont and Dow, so till now we didn’t succeed to build a relationship with Dow, because it’s mainly was Agrichem Company and with DuPont we already have some - we have an intensive collaboration more than one project. So they are now going to emerge so I think that we will have now exit also to the Dow. In addition, I think that it probably will now create an interesting competition between the new entity DuPont, Dow and Monsanto and especially in the area of seed. So again I hope I am not wrong but usually competition between the giants is positive for company like Evogene because both of them will look more aggressively on innovation and to strength their pipeline and hopefully now they will have relevant resources because when you combine the budget of this two companies I think that there will be more room to work with companies like Evogene. So I think that especially that because it’s Dow and DuPont I think that is also will be positive for Evogene.

[Brett Wong:]

It sounds great. Thank you, Ofer.

[Operator:]

[Operator Instructions] There are no further questions at this time. I see there we have a follow-up question from Brett Wong of Piper Jaffray. Please go ahead.

[Brett Wong:]

Hey guys, one more just thinking on the same line around consolidation I guess, obviously there has been - it’s been a difficult few years for ag and you’re seeing a bunch of the majors as well as all ag entities companies cutting resources. Just wondering how that has impact excuse me impacted you guys and your ability two partner either now or as you see a longer-term?

[Ofer Haviv:]

So for the short-term it’s not - makes our life to be easy to enter into significant collaboration agreement and it have a negative effect on us, but I think this for the long-term it will be positive because what’s happened and this is really what we see when we are talking with this companies, when they are cutting expenses that actually cutting skills exist in their R&D department. And yes, maybe now they are getting the cutting expenses, but in year from now, two years from now, you know at the end of the day you need innovation, because you need to bring a new product to the market and then a Company like Evogene they are currently we don’t have any issue with our financial strength and we continue to invest in building our technology to strength our product pipeline et cetera. So we are going to be so relevant and for all of this Company and it’s only a matter of time few things will change. This is a typical cycle in the agriculture industry so another year, another two years things will change then all of these Company will look around and they need to bring innovation, they will have budget for to enter into collaboration and we will be in amazing position to enter to this types of collaboration. We will have strong pipeline product and all the technology in place and I think it will be an amazing time for Evogene. So yes, for the short-term it’s not easy still, we enter into collaboration with BSF, still we are talking with some other partners today on entering into some collaboration, but yes, it’s not easy, but in the long-term I think this is going to be great for Evogene.

[Brett Wong:]

Okay, great. Thanks a lot guys.

[Operator:]

There are no further questions at this time. Before I ask Mr. Ofer Haviv to go ahead with his closing statements. 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 03-925-5900. Internationally, please call 972-3-925-5900. Mr. Haviv would you like to make your concluding statement.

[Ofer Haviv:]

Thank you everybody. I appreciate you time this afternoon and I am look forward to continuing to update you on the progress next quarter. Thank you and good-bye.

[Operator:]

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