Yield10 Bioscience, Inc.
Q1 2018 Earnings Call Transcript

Published: 11 May 2018

[Operator:]

Welcome to the First Quarter and 2018 Financial Results and Business Update Conference Call for Yield10 Bioscience. During the call, participants will be in a listen-only mode. The presenters will address questions from an analyst as well as questions submitted by shareholders as part of our call today. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference call over to your host, Yield10 Vice President of Planning and Corporate Communications, Lynne Brum.

[Lynne Brum:]

Great. Thank you, Tim, and good afternoon, everyone. Welcome to the Yield10 Bioscience first quarter 2018 conference call. Joining me on the call today are President and CEO, Dr. Oli Peoples; Vice President of Research and Chief Science Officer, Dr. Kristi Snell; and Chief Accounting Officer, Chuck Haaser. Earlier this afternoon, we issued our first quarter 2018 news release. This release as well as slides to accompany our presentation today are available on the Investor Relations section of our website at yield10bio.com. Let’s now turn to Slide 2. Please note as part of our discussion today, management will be making forward-looking statements. These statements are not guarantees of future performance and therefore, you should not place undue reliance on them. Investors are also cautioned that statements that are not strictly historical constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause the actual results to differ materially from those anticipated. These risks include risks and uncertainties detailed in Yield10’s filings with the SEC, including the Company’s most recent 10-K. The company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call. I’ll now turn the call over to Oli.

[Oli Peoples:]

Thanks, Lynne. Hello, everyone, and thanks for joining our call today. Please turn to Slide 3, and let’s cover a few financial highlights starting with the balance sheet. We ended first quarter of 2018 with $11.6 million in cash, cash equivalents and short-term securities on the balance sheet. And operating cash usage for the first quarter was $3 million and reflects lower grant revenues as well as expenditure on employee bonuses compared to $2.4 million and net cash usage in first quarter last year. We have no debt in our balance sheet. We had approximately $10 million common shares outstanding at the end of the first quarter. All preferred shares issued in December 2017 offering have been converted to common shares as of the end of the first quarter. We estimated net cash usage for the full-year 2018 will be approximately $9 million to $9.5 million, and this range includes payments of $500,000 we completed in early May for our final restructuring costs. We expect our cash on hand together with revenue expected under current government grants to support our operations to a number of technology proof points into mid-2019. Let’s now review the quarterly operating results. We reported a net loss for the first quarter of $2.3 million or $0.24 per share. We reported $0.1 million in grant revenue, $1.1 million in R&D spend and $1.3 million in G&A spend. Last fall we announced that Yield10 was named subawardee on a new DOE Grant to boost – to study boosting oil in Camelina. We began work under the grant last fall and this work continue through the first quarter. Due to the timing of the contract, we expect grant revenue of approximately $114,000 works through the first quarter plus payments for new activities conducted in the second quarter to be reflected on our second quarter revenue. For more details on our financial results, please refer to the earnings release. Before I move on, I’ll mention that we will hold our annual shareholder meeting on May 23. I would like to our shareholders review our proxy statement and return your proxy card, so your votes can be tabulated. Now let’s turn to Slide 4, our recent accomplishments. Yield10 is developing gene trait technologies for food and feed crops to produce higher yields with lower inputs of land, water and fertilizer. We’re making solid progress so far in 2018. And our accomplishments this quarter really primarily t advances we’ve made in R&D. Kristi will elaborate on this, but here is a high level view. We have completed planning and permitting related to our upcoming 2018 field test. We plan to field test versus a C3003 in Camelina and Canola to evaluate events for increasing seed yield. We also plant small plots of soybean to perform seed bulk up to provide of the field grown seeds for studies time to 2019. And we will field test of first genome-edited plant and test of C3008 trait in Camelina that sites in the U.S. The goal of our field testing program is divide us with data improve points that will enable us to choose the best defense for future studies. In the first quarter, we completed the a genome-editing milestone with a combined edit of three traits C3008a, C3008b and C3009 in Camelina. We plan to seed non-regulated status from USDA-APHIS to enable future field testing of this trait combination in the U.S. Our team published two recent research papers in the peer-review Journal Plant Science. The first one describes a technology approach using metabolic engineering to increase crop yield. The second paper reports for the first time data showing that C4003 dramatically boost biomass yield in switchgrass. We also recently filed the new patent application related to using global transcription factors or GTFs and then approach to boost seed yield in corn. As a recent accomplishment suggests, we are on track on the R&D front. We will continue to focus on achieving the key corporate milestones we’ve laid out for 2018. Let’s now turn to Slide 5. Yield10 is well-positioned for 2018. Our objective is to assemble a rich pipeline of yield traits to create a compelling value proposition and market opportunity for growers and ag tiers alike. We are focused on deploying our R&D resources to generate proof points with our traits and key commercial crops through tests conducted in the field and in greenhouse studies. We also plan to make USDA-APHIS submissions to enable the potential on a cost-effective path to field test in U.S. with genome-edited traits. We believe the generating proof points in our traits based on our activities planned for 2018 will create interest and opportunities for licensees and collaborations overtime. Let’s now turn to Slide 6, pipeline of traits. We have seed yields such as C3003 that will be regulated and our current focus is to deploy them in large acreage GMO crops. In 2018, we expect to generate additional proof points for the C3003 trait in Camelina, Canola and soybean. Our metabolic model suggest that maybe traits like C3004 that can compliment C3003 to further increase its yield distinct performance and we continue to study these traits. We have two categories of genome-editing traits in our pipeline. Our oil enhancing traits include C3007, C3008a, C3008b, C3009 and C3010. We also have the C4000 series of the transcription factor genes and a number of these are very exciting in their own right. But in addition have been instrumental and enabling us to begin identifying combinations of transcription factors for genome-editing to improve crop performance. Our key objective of this platform is to generate revenue by providing R&D services for the ag sector. Across all these areas, we see opportunities for licensing our partnerships as we demonstrate the value proposition of our traits and technology platforms. With that, I’d like to turn the call over to Kristi for an update on our R&D progress. Kristi?

[Kristi Snell:]

Thanks, Oli, and hello, everyone. In my presentation today, I’ll describe some other recent advancements in our R&D pipeline. Please turn to Slide 7. In our lead trait gene, C3003 is introduced into plants. It enables plants to be more efficient in capturing carbon through photosynthesis, resulting in higher seed yields. This activity involves a unique biological mechanism and we believe it has the potential to improve yield in a wide range of C3 crops. We have continued to study the mechanism of C3003 and believe that impacts photorespiration, a wasteful process that competes with photosynthesis. In 2017, Yield10 filed four additional patent applications on technologies related to C3003, based on new insights from our metabolic modeling work. We’ll continue to expand our understanding of C3003 at the metabolic level, including through the work that our collaborator Professor. Danny Schnell, and his team are performing under their new daily grant. The Monsanto research license we signed in late 2017 provides the path for C3003 to be tested in elite soybean germplasm and eventually in combination with C3004. C3003 is a key trait in our pipeline and we will continue to build our knowledge about the trait in our field testing program. Let’s turn to Slide 8. On this slide we have a three-year snapshot of our field work with C3003. The 2017 column summarizes the data we obtained in our field tests last year with the key results being the data on second generation C3003 in Camelina and the data on first generation C3003 in Canola. We obtained encouraging results in those field tests and have discussed this data in detail on prior occasions. Let’s turn to Slide 9. The 2018 field test program will be the third season of field test for the C3003 trait and our most expensive. We plan to evaluate several generations of C3003. Please note when we talk about different generations of the C3003 trait, what this means is, we are activating the C3003 genes in the plant at different locations, times and levels to optimize performance. The main objectives of this study are

[Oli Peoples:]

Thanks, Kristi. I’m sure you will all recognize the terrific progress, our technology team has made under Kristi’s leadership, since we became Yield10 in January 2017. And I’m confident there is much more to come as we progress throughout the rest of this year. Let’s now turn to Slide 15. Genome editing completes the tool box for enhancing crop yield and value by enabling precision editing of gene combinations. On March 28, the USDA release the statement, saying that genome editing is equivalent to techniques traditionally used by plant breeders to generate beneficial traits and as such does not carry additional risks requiring USDA oversight. Given the work we’re doing, we found a statement very encouraging. Traits produce using genome-editing, we have a lower cost of development and a shorter time to commercial introduction. Opening the market to the development new traits by small ag innovators. Yield10 hasn’t had the series of novel genome editing targets, as well as the powerful gene editing discovery capability. We anticipate that we are race to identify Smart Editing Targets in the form of gene combinations to improve crop performance. Let’s now turn to Slide 16. Our traits in development provide us with multiple potential paths to revenue, driven by our yield traits and unique capabilities. Our major North American commodity crops, we think, we can accelerate development through working as soon as possible the ag majors. Our approach is to develop sufficient technical data to gain their interest and then provide a low hurdle for them to begin deploying and testing our traits in elite germplasm using their resources. Here we anticipate license agreements with milestone payments to Yield10 and participation in downstream economics. This is exactly the approach we have taken with Monsanto for C3003 and C3004 in soybean. The next path is specialty in niche crops, including specialty oils. There’s a lot of innovation going on in this area, with ag majors and with companies deploying genome edited traits to improve oil composition. We see opportunities to stack traits to improve yield and ore composition. We envisage a non-regulated path to market and JV-type agreements with a significant share of downstream economics. Here the potential number and types of partners is much larger than handful of companies in the commodity ag seed space. The third-party revenue involves our technology platforms, where we can accelerate innovation based on the ongoing integration of our two discovery platforms to predict gene combinations for crop improvements and provide access to this capability of this service to the sector. To date, we have accessed government grants and relationships with leading plant scientists and we plan to expand this by layering on R&D support for partner-funded programs. We plan to provide more color on our technology platform in future investor communications. Further, as we see the market demand from nutritional oils increase, such as high yield soybean, there is a potential to deploy genome editing traits to directly increase the oil content of the seed, which would further increase the economic value of the crop. Let’s now turn to Slide 17, milestones. Yield10 is a strong pipeline of exciting crop technologies, which we believe will help us build significant value in the business. In 2018, we would conducting field tests of C3003 in Camelina and Canola at sites in Canada. We anticipate planting in second quarter and reporting out results in fourth quarter this year. On the research license Monsanto is currently working with C3003 in soybean. In 2018, we will also continued independent development of C3003 in soybean, but we have confirmed that we have sufficiency from a few ads we will plant to test that was in the field this year, I will continue to work with C3003 and rice. We will continue to progress oil enhancing targets using CRISPR genome editing. I will also progress our C4000 series of traits and rice and corn in the months ahead. We believe the data we are generating across our traits and platforms, as well as our next-generation trait gene discovery platform will position us well to secure ag industry collaborations. We filed new patent applications and our discoveries in 2018. We’ll continue to work we’ve been doing with our academic partners in the underlying science and expect much of their work to be published in academic journals and presented in scientific conferences. We’re expecting to be very productive in 2018 and beyond. So let’s now turn to Slide 18 to wrap up. Our team is making good progress towards meeting our milestones for 2018. We’re executing a focused program for C3003, advising new constructs of the yield trait and we are seeing it translate from Camelina into Canola and soybean important North American oil seed crops. Our unique approach to trait discovery is led to the identification of promising genome editing targets, and we will be working to further develop these targets to improve seed yield oil content under biomass. Taking this all together, we have a clear vision for our business, defining the commercial opportunity in three areas

[Lynne Brum:]

Great. Thank you, Oli. And now, Tim, can you please poll for questions?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Jay Albany of SeeThruEquity. Please proceed with your question.

[Jay Albany:]

Hey guys, this is Jay from SeeThruEquity. Thanks for taking my call and congratulations on the progress so far.

[Kristi Snell:]

Thanks, Jay.

[Jay Albany:]

My first question as do with Monsanto. Is there any additional color or maybe something you can point to with respect to how this partnership is progressing. I know it’s pretty recent but anything at additional you can say that will be great.

[Oli Peoples:]

Well. Hi Jay, this is Oli. Thanks for joining the call. I’ll start by saying that the Monsanto agreement was a major milestone for Yield10 at the end of last year. And we’re delighted to have Monsanto working on C3003 in soybean. At the start of this year, the Yield10 team provided Monsanto with what they needed, so they can begin the soybean transformation process with C3003. It simply takes a lot longer to develop soybean lines under the plant like Camelina or Canola for that matter. Monsanto is the world leader in developing biotech traits in soybean. So it’s great to have them working in C3003 with a unique capabilities and capacity. Our new business model for working with ag major, its also attracted the interest of other parties for both additional gene traits as well as other crops. We have some discussions ongoing and our goal is to work with additional ag companies to bring forward new yield traits. Any other questions, Jay?

[Jay Albany:]

Sorry. I was just looking at the year in the testing C3003 for soy Canola and Camelina reported pretty consistent results. Can you just refresh in prior trials, can you just refresh our memory as to sort of what would be a success with some benchmarks we can look for when you report results in the future.

[Oli Peoples:]

Yes. So increasing crop yield other than through the use of herbicide or insect traits through use yield losses largely been an attractive both challenge in the ag buyer space. So I think it’s important for us to recognize that in terms of the big picture. We’ve seen a lot of potential at C3000 for a large impact, but we’re still learning more about the trait and how best to deploy it in major crops. With respect to expectations there’s just not a lot of guidance and provide given the uncertainty around every growing season. And as you know every growing season is different with different weather conditions. We do expect to actually go to the trial and generate a lot of useful data and insights into the performance of C3003 in three different crops for the first time. Hopefully at a minimum we can show that results achieved in Camelina can be repeated in Canola and soybean to a large North American crops. It should also help to validate our Camelina fast field testing system as a robust platform technology for developing crop traits. Does that answer your question?

[Jay Albany:]

Thanks so much. I just have one more. So we’ve been tracking progress on I know you have a growing portfolio, but we’ve been tracking progress on C3003 for some time now with consistent reporting with encouraging results. Could you maybe expand a little bit bigger picture sort of how you think about the trait off of near-term partnerships versus waiting out for a potentially larger way to trait value as you test for as crops.

[Oli Peoples:]

That’s always the issue in this space. There’s always a tradeoff between near-term grant money if you like and long-term value capture with innovations. That’s particularly the case where the best path to maximize market penetration lies in licensing or partnering, which is the case for C3003. The C3003 genes comes from biology, so what’s going to be a regulated trait. We also know what is potential in Canola soybean and possibly corn. All of which are currently GMO. The seed sector in North America for these crops is dominated by three ag majors farm from the recent industry consolidation and perhaps BASF for this acquisition of the Bayer Canola acquisition. So early on, as we develop the strategy for Yield10, this was a key topic of discussion. Decision was to focus on capturing long-term value for our shareholders. This means we need to derisk the technology and avoid getting locked up prematurely an exclusive arrangements for the major crops. No doubt this makes management task a little harder, but we think it’s the best approach for Yield10 and this also reflects the approach of success the reason Ag bio space. With regard to timing of potential revenue in the Monsanto agreement, they’ve around three years due to their evaluation, during a shortly after which we have the right to negotiate and exclusive license of soybean. So if all goes well the first revenue from this relationship to be from the typical payments associated with executing a license.

[Jay Albany:]

Okay. I think that appears my questions all done up. Thank you.

[Operator:]

There are no further question. Pardon me. You may continue Ms. Brum.

[Lynne Brum:]

Yes, thank you. So, yes, thanks, Jay and thanks for your questions tonight. We’ll now turn to a question submitted by a shareholder, which is this. Can you detail your current and future expected use of CRISPR/Cas9 platform? And Kristi, will you take that question?

[Kristi Snell:]

Yes. Sure, Lynne. There’s no question the CRISPR system is a very cool technology possibly a game changer for ag innovation companies. Is it really levels the playing field for small companies? And as you know, we’re very actively using it at our facility in Canada. This year we will be testing – will field test our first edited USDA-APHIS non-regulated Camelina line in the field, mainly it’s a case study to establish this capability at Yield10. And we’ve also talked about a triple gene edited line, where we’ll be providing more guidance as the year unfolds. To given the experience of the industry over the last 20 years using both DMO and advanced breeding tools, it’s hard to imagine changing just the single plant gene and achieving step change improvements in the farming. So we believe its required either introducing new genes like C3003, not present in plant to bring new metabolic functionality or path changing the activity of combinations of planting, which is now achievable through the CRISPR system. The key here is knowing what combinations of genes to change and which is why we’re investing in our green gene trait discovery platform. And this platform is described in detail in our 10-K.

[Lynne Brum:]

Great, thank you, Kristi. I’ll now turn the call back to Oli to wrap up.

[Oli Peoples:]

Thanks, Lynne. Yield10 team is working hard to progress traits to fulfill our mission to produce step change improvements to crop yield to ensure global food security. Thanks to our employees for a job well done in first quarter of 2018. Thanks also to our shareholders for your support and thanks to everyone for joining the call to night. Thank you.

[Lynne Brum:]

Great. Thank you, everyone. You may now disconnect.

[Operator:]

This concludes today’s call. You may disconnect your lines at this time. And have a wonderful rest of your day.