Yield10 Bioscience, Inc.
Q3 2017 Earnings Call Transcript

Published: 11 Nov 2017

[Operator:]

Welcome to the Third Quarter 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:]

Thank you, Doug, and good afternoon, everyone. Welcome to Yield10 Bioscience Third Quarter 2017 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 third quarter 2017 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 turn to Slide 2. Please note that 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. Those risks include risks and uncertainties detailed in Yield10's filings with the SEC, including the company's most recent 10-K and 10-Q. 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, and 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. In July, we raised $2 million in net proceeds in an offering of common stock and warrants. We ended third quarter 2017 with $3 million of cash. We expect the cash in hand, together with revenue expected under current government grants, will support our operations into first quarter of 2018. Net operating cash usage for the first nine months of 2017 was $6.3 million. We estimate net cash usage for the full year 2017 will be approximately $8 million to $8.5 million, including anticipated payments for restructuring costs due this year. We will continue to identify ways to access capital through the financial markets, generate revenue through grants and collaborations and manager expenses. On November 2, we filed an S1, signaling our intent to raise capital required to strengthen our balance sheet. In 2018, our plan is to continue development of C3003 as a novel yield trait crop in feed crops and to advance our portfolio of additional valuable traits accessible through genome editing. On our P&L, let's review the financial results that are reported as continuing operations. This captures our crop science-related activities as well as administrative and infrastructure support for the Yield10 business. We reported a net loss from continuing operations of $2 million, or $0.59 per share, for the third quarter of 2017. We reported $200,000 in grant revenue, $1.1 million in R&D expenses and $1.1 million in G&A expenses in the third quarter. The per share result reflects the 1-for-10 reverse stock split that was effective in May. Our continuing operations results include certain restructuring costs which will be paid through May 2018. For more details on our financial results, please refer to the earnings release. Now let's turn to Slide 4, recent accomplishments. We made solid progress in third quarter. Yield10 was named the sub-awardee on a 5-year $10 million DOE grant for research to identify new strategies for boosting oilseed yield in Camelina. Michigan State University is leading the grant, and Yield10 is the industry partner. We expect to receive $3 million in funding over the period of the grant to support the associated research activities. The research program will focus on integrating our two discovery platforms to identify new genes and gene combinations to improve yield in Camelina. We expect this to have application to other important crops, and we will continue to pursue opportunities to fund our research activities with non-diluted funding when available to us. We also announced that USDA-APHIS confirmed nonregulated status for our genome-edited C3008a Camelina line. This represented our first submission for a nonregulated trait, and with the response received from USDA-APHIS, we have now validated our in-house capability in this area. We believe there are significant opportunities for genome editing in crops. We are currently working on a multi gene-edited oilseed line based on traits C3008a, b and C3009 as an upcoming submission. In addition, C3007 and C3010 may also be accessible through genome editing, and we are targeting – targeted at increasing oil content in oilseed crops. The CRISPR genome editing tool is of high interest in the ag space, and a few weeks ago, DuPont Pioneer and the Broad Institute made an announcement indicating they are joining forces to make nonexclusive licenses to their foundational CRISPR/Cas9 IP available widely to the ag center – sector. We'll have to see how this develops, but view it as a good sign for innovators like Yield10. We added an additional patent application in our technology, bringing the total filed this year to 5, and we are completing our field tests of C3003 in Camelina and canola, and expect to announce the results of the studies later in fourth quarter. Let's now turn to Slide 5. First, I'd like to recap our vision for any new listeners. Yield10 is developing gene trait technologies for food and feed crops to produce higher yields with lower inputs of land, water and fertilizer. Yield10 is addressing a compelling market opportunity and is aligned with compelling global megatrends. These are global food security, where estimates of global population growth will put pressure on resources and drive increased demand for food, including increased protein consumption as the standard of living rises worldwide. In developed nations, Yield10 is aligned with a focus on health and wellness and the demand for foods within an improved nutritional profile. The company is aligned with food safety and sustainability, as there is a growing interest in the seed to plate value chain, and with innovation in agriculture driven by new technology approaches such as Big Data, metabolic modeling and genome editing. In our call today, we will highlight the focus and ways we are advancing our business to fulfill our mission and bring our agricultural innovations forward in development to capture significant opportunities in the marketplace. Let's now turn to Slide 6. The yield challenge. Yield10's goal of achieving step-change increases in major grown crops is very challenging, so it's useful to provide some contents around this goal based upon the industry experience over the last 20 years and from history. The ag biotech majors have made massive investments over the last 20 years, screening thousands of individual plant genes to improve crop performance, largely unsuccessfully. This is in part due to the reality that the knowledge of plant genome didn't exist 20 years ago and was being developed in parallel. At the same time, the major success of early ag biotechnology was based on using microbial genes to impart new functionality of infrastructure to crops, to develop crops that were herbicide-tolerant, pest-resistant and, more recently, drug-tolerant. The major differences between modern corn and its ancient ancestor, teosinte, are well documented, and the five or six key transcription factor genes responsible for these – for those major changes have also been identified. For the most part, the activity of these genes was reduced to turned down, essentially reducing key control points. Based on this background, the key question is how do we identify the next series of key genes to pick a crop like corn to the next level of yield? Let's now turn to Slide 7, technology platform. To better understand the challenge, consider the corn genome, which is predicted to have around 39,000 functional genes. Of these, around 2,400 are transcription factors or plant gene regulators. Testing all two gene combinations of transcription factors in corn would require over 3.3 million individual experiments. There's therefore a need to create advanced computational tools for predicting the right combinations of plant genes which could be targeted for editing to improve crop performance. We find it useful to compare the flow of carbon through a plant to the flow of traffic in a major city. Changing a single traffic light in the city will not increase the flow of traffic into the city and direct it to a specific location. We believe that plants which capture and utilize carbon more efficiently will enable more robust crops capable of increased seed yield. So we need to enable the crop to fix more carbon and be able to direct the condition of fixed carbon to seed production. There are two key components in plants. Metabolic pathways in gene regulators such as transcription factors, which coincidentally are the focus of our two independent discovery platforms. Using a road map analogy, metabolic pathways constitute the carbon conversion infrastructure and transcription factors constitute the genetic traffic lights that direct changes in plant metabolism in responses to environmental or developmental conditions. Our smart carbon grid for crops platform, our metabolic engineering platform, has already proven useful in identifying a number of our C3000 series of traits, including C3003, which is an algal gene that adds new metabolic functionality to crops. Using our T3 Platform, we've identified the C4000 series of transcription factor gene traits. Analysis of high yield plants developed in the T3 Platform program also provided new data on changes in metabolic activities in the engineered high photosynthesizing switchgrass crops. We're currently repeating that work with C4001 and C4003 in rice and wheat and plan to do so in corn, even as we integrate the two platforms. In a crop like modern hybrid corn, which already produces vastly more seed than it needs to reproduce, our initial objective will be to reduce or even eliminate the activity of the transcription factors that signal the plant it has already produced enough seed. Accordingly, our approach is to turn down the sequence of transcription factors, a red light, which signal the plant to stop sending carbon to the seed. The challenge is to identify the combinations of these transcription factors that can be done, regulated by editing to accomplish that goal. Here we have already made significant progress with the C4004 trait alone, and in combinations with the additional 23 transcription factor gene targets from our T3 Platform. The same logic applies to the metabolic infrastructure, where we need to identify the combinations of genes in specific metabolic pathways to optimize the targeted outcome. In the meantime, Yield10 is working to develop, translate and demonstrate the commercial value of new – both regulated and genome-edited trait genes already identified in our discovery platform in major crops, and continues to identify additional genome editing targets for improved crop performance in several key food and feed crops, including canola, soybean, rice and corn. Let's now turn to Slide 8, our pipeline of traits. Here we have a summary of our traits in development. We have seed yield traits such as C3003 that will be regulated, and our current focus is to deploy them in larger acreage crops that are already GMO. In 2017, for the C3003 trait, we focused on developing fund-approved points, higher seed crops, and deepening our understanding of how it works. Later this quarter, once we have completed our analysis, we'll be reporting those results. In addition to the progress we are making with C3003, we have a pipeline of additional traits and are currently focusing on ways or knowledge we may be able to develop using genome editing. These fit into two categories

[Lynne Brum:]

Thanks, Oli. So let's open the call to analyst Jay Albany of SeeThruEquity.

[Jay Albany:]

Thanks for taking my questions and congratulations on the results. Congratulations on this DOE grant. Could you further describe, I guess, the timing and pace of the monies you'll receive? And maybe how this could accelerate the progress on your T3 platform?

[Lynne Brum:]

Yes. Thanks, Jay. We'll have Kristi take that question.

[Kristi Snell:]

Dave, in September, we were informed that Yield10 would be a sub-awardee on a new grant that is led by Michigan State University, and our share of the grant is almost $3 million over the 5-year period of the grant. Since different years have different tax associated with them, yearly expenditures will be quite different each year and will fall somewhere between $485,000 and $700,000 per year. As far as accelerating progress on the T3 platform, it's important to understand that – what we have previously done with the T3 Platform. We have previously used it to search for global regulatory genes or master gene switches that control the expression of multiple genes to increase photosynthesis and biomass yield. In the new DOE program, we'll be taking a slightly different approach and will be looking for master gene switches that impact important value drivers of oilseeds, which are the total oil content of the seed and the total seed oil per acre. And in this work, we expect to identify genes that serve as control points for increasing oil and seed yield. So this new approach in the grant targeted to oilseeds will help run the overall utility of the T3 Platform. It's also important to note that, while this work will be done in the oilseed, Camelina, we expect the results to be transferable to other larger acreage oilseed crops such as canola and soybean.

[Jay Albany:]

I had a follow-up, if that's okay. The USD confirmed on – USDA confirmed nonregulated status. Do you think you could remind us of the scale of the opportunity there? My understanding is that the decision might be able to – the process might be able to be replicated with other crops, and maybe that would help in any partnership conversations in the future?

[Lynne Brum:]

Okay. Yes, so taking our plan forward with nonregulated status from APHIS – USDA-APHIS means that conducting field tests is very straightforward, and it's not subject to the regulation and the permitting needed for GMO traits. And sources in the industry have estimated that it may take just three to five years to introduce the nonregulated trait produced through genome editing. It's important to note that, even with the nonregulated status from USDA-APHIS, food crops may still be subject to regulation by FDA. So having created the genome-edited Camelina line, and having prepared a package for review that was accepted by USDA-APHIS, this provides us with confidence that we understand what is required to get confirmation of nonregulated status from USDA-APHIS through their MI-regulated process.

[Lynne Brum:]

So Oli, back to you for another question. We had a question submitted by a shareholder, and they asked, what do you see ahead in terms of activity around business development going forward?

[OliPeoples:]

You know, Lynne, so the Yield10 team has been very productive in 2017. But given the way our business strategy is shaping up, it's pretty clear we will need to increase our business development activities, which is where I already spend a considerable amount of my time. Our goal is to form R&D partnerships and license agreements both to expedite the development of our technologies and as a source of revenue.

[Lynne Brum:]

Great. Thanks, Oli. And now I'll turn the call back to you for concluding remarks.

[Oli Peoples:]

Well, thanks to everyone for joining us on the call tonight. Thank you to the entire Yield10 team that has worked so hard to execute the transitions to the crop business focus on today. Well, it's going to meet our key milestones in 2017. And thanks as well to our shareholders. We look forward to talking with you again in our next call.

[Lynne Brum:]

Good night, everyone. You may now disconnect.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.