Yield10 Bioscience, Inc.
Q4 2017 Earnings Call Transcript

Published: 9 Mar 2018

[Operator:]

Ladies and gentlemen, welcome to the Fourth Quarter and Full-Year 2017 Financial Results and Business Update Conference call for Yield10 Bioscience. During the program, participants will be in a listen-only mode. The presenter 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. Thank you. You may begin.

[Lynne Brum:]

Thank you, Adam, and good afternoon, everyone, and welcome to the Yield10 Bioscience fourth quarter and full-year 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 fourth quarter and full-year 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. 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 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.

[Oliver 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 2017 with $14.5 million in cash in the balance sheet. In December, we reached $30.1 million net proceeds in an underwritten public offering, which significantly strengthened our cash position. Additional details on the offering and the underlying securities are available in our press release and SEC filings. Net operating cash usage for the full-year 2017 was $8.2 million, which was within our guidance range of $8 million to $8.5 million. We estimated net cash usage for the full-year 2018 will be approximately $8.5 million to $9 million, including payments in the first-half of the year of $500,000 for final restructuring costs. We have budgeted an increase in R&D spend this year just for an expanded field test program, as well as the evaluation of a greater number of potential yield traits. We expect to continue to identify ways to bring down certain infrastructure costs building on the progress made in 2017. Our cash on hand together with revenue expected under current government grants will support our operations to a number of technology proof points into mid-2019. On our P&L, let’s review the financial results that are reported as continuing operations. For the full-year 2017, we reported a net loss applicable to common shareholders from continuing operations of $10.8 million, or $3.29 per share. Full-year net loss includes a $1.4 million adjustments related to the accounting from a deemed dividend associated with the issuance of the Series A preferred shares in the December offering. For full-year 2017, we reported $900,000 in grant revenue, $4.6 million in R&D expense and $5.6 million in G&A expense. For the fourth quarter of 2017, we reported a net loss applicable to common shareholders of $4 million, or $0.99 per share, which includes a charge related to the deemed dividend. In the fourth quarter, we reported grant revenue of $100,000, $1.2 million in R&D expense and $1.4 million in G&A expense. For more details on our financial results, please refer to the earnings release. Now let’s turn to Slide 4, 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 made solid progress throughout 2017. In December, we granted a nonexclusive research license to Monsanto for the evaluation of C3003 and C3004 in soybean. This agreement has a 3.5-year term consistent with the time needed to produce test and evaluate new traits of soybean. Monsanto is a leader in commercialization of biotech traits as a world-class soybean development program and the resources to test constructs and events on a scale well beyond what Yield10 can do in-house. The goals of Monsanto program are to test C3003 alone and in combination with C3004 in their proprietary soybean lines. The highlight of the fourth quarter was the completion of our field test for C3003 in Camelina and Canola. The results were encouraging and we’re well into preparations for 2018 field test program. During our call, Kristi will present a summary of the 2017 data and outline our plans for 2018. Turning to the third accomplishment on this slide. In 2017, we assembled a series of traits to produce more oil and seeds with a focus on genome editing. In September, we received from USDA-FAS confirmation that our genome edited C3008, while trait is deemed nonregulated by the agency. More recently, we completed genome editing in Camelina of a triple combination, C3008a, C3008b and C3009. In early 2017, we took an option from University of Missouri to a trait we’ve named C3007. We plan to complete the license and in-license and related traits C3010 this year. Let’s now turn to Slide 5. Yield10 is well-positioned for 2018. We made very solid progress in 2017 which has positioned us well 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 a cost-effective path to field test in the U.S. for genome edited traits. We believe, generating proof points in our traits based on our activities planed for 2018 will create interest and opportunities for licensees and collaborations with us. Let’s now turn to Slide 6, pipeline of trait. 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 large acreage GMO crops. In 2018, we expect to generate additional proof points for the C3003 trait in Camelina, Canola and soybean. The C3004 trait gene may complement C3003 to further increase its performance. We have a pipeline of additional traits that we may be able to develop using genome editing, which fit into two categories. Our oil enhancing traits in C3007, C3008a, C3008b, C3009 and C3010. We then 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. Let’s now turn to Slide 7, value creation model. If our gene traits can produce such change in crop yields, then there is an opportunity for significant value to accrue to the grower, the seed company and to Yield10. On this slide, we have an illustrative example of the annual revenue opportunity for Yield10, canola, soybean and corn, yield gene traits based on the 2016 North American harvest. If you look at the commodity soybean, as this model, there’s the potential of about 300 million annual revenue potential to an innovator bringing a 20% yield increase to the crop. 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 oil content of the seed, which would further increase the economic value for crop. Let’s now turn to Slide 8, genome editing in ag. Genome editing completes the tool box for enhancing crop yield and value by enabling precision editing of gene combinations. Thus, genome editing does not introduce foreign DNA into plants, the USDA may treat – trace develop using this support just nonregulated, significantly reducing product development timelines and cost. A typical regulated GMO trait will take an average of 14 years and an average cost of $130 million for full global deregulation. Some estimate suggest that timeline is as little as three to six years for development of a new trait using genome editing with the development cost that could be as low as less than $10 million. This opens the market through the development in 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. An announcement by DuPont Pioneer and the Broad Institute that they plan to take make nonexclusive licenses for CRISPR/Cas9 IP readily available in their space is encouraging. But we’ll have to wait and see how that unfolds. We anticipate that we have race to identify Smart Editing Targets in the form of gene combinations to improve crop performance. As you’ll see in Kristi’s presentation today, we are covering many targets based on our discovery platform. Let’s now turn to Slide 9, the commercial strategy. 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 envisaged [ph] a nonregulated path to market and JV-type agreements with 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 path to revenue involves our technology platforms, where we can accelerate innovation based on the ongoing integration of our two discovery platforms, 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 provide – plan to provide more color on our technology platform in future investor communications. With that, I’d like to turn the call over to Kristi for an update on the R&D progress. Kristi?

[Kristi Snell:]

Thanks, Oli, and hello, everyone. In my presentation today, I’ll provide an update on our R&D pipeline. Please turn to Slide #10. In our leading trait gene, C3003 is introduced into plants that enables plants to be more efficient in capturing carbon-free photosynthesis, resulting in higher seed yields. This activity involves a unique biological mechanism and has the potential to improve yield in a wide range of C3 crops. We have continued to study in 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 data work that our collaborator Danny Schnell, and his team are performing under their new daily grant. The Monsanto research license provides the path for C3003 to be tested in their elite soybean germplasm and eventually in combination with C3004. Let’s turn to Slide #11. The 2017 field test program is the second season of field test that we had conducted for the C3003 trait and we analyzed several generations of C3003. Please note when we talk about different generations of C3003, 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 were

[Oliver Peoples:]

Thanks, Kristi. Let’s turn to Slide 16 milestone. Yield10 has a strong pipeline of exciting crop trait technologies, which we believe will help us build significant value in the business. In 2018, we will be conducting field tests of C3003 in Camelina and Canola at sites in Canada. We anticipate planting in the second quarter and reporting out results in fourth quarter this year. Under the research license, Monsanto is currently working with C3003 in soybean. In 2018, we will also continue independent development of C3003 in soybean, where we plan to test some events in the field this year and exceed bulk offer permitting, and we’ll continue to work with C3003 and rice. We made a lot of progress on the genome editing front in 2017. In 2018, we will continue to progress oil enhancing traits using CRISPR genome editing. We’ll also progress on C4000 series traits rice and corn Monsanto had. 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 five new patent applications in 2017 and we’ll continue to file patent applications in our discoveries in 2018. We’ll continue to work we’ve been doing in our – with our academic partners in the underlying science and expect much of the work we have published and academic journals are presented in scientific conferences. We frankly, currently have submitted papers under review and expect publication in the first-half of 2018. We also plan to participate in relevant scientific and industry conferences. We’re expecting to be very productive in 2018 and beyond. So let’s now turn to Slide 17 to wrap up. 2017 was our first year of operating as Yield10. Our team made good progress, meeting our milestones and building on those accomplishments, we are well positioned for 2018. We’re also executing our 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:]

Thanks, Oli. Adam, can you poll for questions?

[Operator:]

Thank you. Ladies and gentlemen, at this time, we will be conducting our question-and-answer session. [Operator Instructions] And we have a question from the line of Jay Albany from SeeThruEquity. Please go ahead.

[Jay Albany:]

Hello, thanks for taking my question, and congratulations on the financing and on the Monsanto agreement. It seems like you guys have accomplished quite a bit this quarter. My question is on the Monsanto agreement. This clearly is a significant development for the company. Is there anything more you can share about the scope of the deal? Any upcoming milestones with Monsanto that we should be aware of?

[Oliver Peoples:]

Yes, Jay, thanks, Jay. There’s not an awful lot we can share. But what our client say is, the Monsanto arrangement really provides the validation of thoughts from leader in soybean for the approach we’re taking, particularly with C3003. Our team has provided technical information we have so far for C3003 to the Monsanto team, So they can do the transformations in the soybean lines. Just from there, it will take sometime to get to stabilize line in field test data. I don’t know what Monsanto will feel comfortable saying as the program progresses, we’ll have to see how that plays out. But in the meantime, we’re continuing to develop C3000 soybean ourselves independently, albeit at a much smaller scale, and we quite again try and get some of these events enter the field this year. If we can get enough season wrap up in property matters, we’ll update Monsanto on any new findings, as our goal is to assist them in anyway we can to make their work with C3003 as successful as possible.

[Jay Albany:]

Thanks very much. I notice the deal was described in your release as nonexclusive. Can we assume that other deals potentially your discussions with partners potentially in the works and is there any you can say to update us on these?

[Oliver Peoples:]

Yes, sure. Look, I think, for the last two-plus years as we’re initially formulating the thesis behind Yield10 and then launching it last year, we’ve been in conversation with most of the ag players formally about Yield10 and trait discovery platform. Two things are different going into 2018. First, I think the Monsanto arrangement helps validate our science. And second, we have a much solid concept of working with ag majors through our open innovation model. I mean this – we’re trying to make it basically easily for them to work with our traits, while preserving our rights going forward. And so, we have a pretty large pipeline of traits. We have a lot of flexibility how to engage interested parties. But overwriting all of that, I think, one thing I’m pretty sure certainly, I remember, and that is genome editing is a game changer for agriculture. And there is certainly some low-hanging fruit opportunities out there for modified seed compositions, but nutrition oils are reducing some compound that may not be as healthy. But we think there is a compelling need for smart systems like integrated technology platform we are developing to identify combinations of genes to address the yield gap. And this is an area where we bring some unique skills.

[Jay Albany:]

Okay, great. Thank you for taking my questions and congratulations, again.

[Oliver Peoples:]

Thank you.

[Lynne Brum:]

Thanks, Jay. Thanks a lot. And Adam, I’ll just pose a question to Oli and Kristi with respect to some of the comments we made today with respect to our guidance for 2018. In particular as we are bumping up our net cash usage guidance for the year, bringing it just a little bit over where we were for 2017 and then at the same time, restructuring cost kind of running off. We’ve got a little bit left for this year, but as compared to last year that will be reduced. So how are you looking at using that additional capital and the Yield10 business in 2018?

[Oliver Peoples:]

I think we’ll predict exclusive from – right from the start of Yield10. That’s our intention to focus resources on technology proof points. So we’re going to invest a bit more in R&D in 2018 than we did in 2017. Kristi, can you elaborate on a few areas, where where we see[indiscernible].

[Kristi Snell:]

Yes, sure. We’ll be making targeted incremental investments in R&D in 2018 all in support of generating proof points. We made one key hire in all of 2017. And in 2018, we’ll hire a couple of physicians in Canada related to our work in the Greenhouses and supervision of our field test. Field tests itself are pretty cost perspective. But we’ll spend more on field test in 2018, because we’re going to be testing more traits, and we’re going to be working with three different crops. We’ll also be adding to our bioinformatics capability in Auburn, and we’ll be testing and developing more genome edited lines. And I think we’ll get a lot of leverage with a small number of hires we make in the additional data that we’ll generate.

[Oliver Peoples:]

Yes Kristi. Look, I think we’re pretty confident that this increase resource in R&D will serve as well in 2018, which is why we made the decision to make the increase.

[Lynne Brum:]

Would you just wrap up the call then?

[Oliver Peoples:]

Yes. So the Yield10 team is working hard to progress traits to fill our vision to produce the change improvements to crop yield to ensure global security. I thank their employees for a job well done in 2017 and for a very productive start of 2018. Thanks also to our shareholders for your support and thanks, everyone, for joining the call to night.

[Lynne Brum:]

Great, everyone. The call has now concluded. You may now disconnect. Thank you.