Biotalys NV (BTLS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Biotalys Half Year 2022 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO, Patrice Selles. Please go ahead.

Thank you, and welcome, everybody, for the half year 2022 results of Biotalys. I'm very happy to be here today with Wim Ottevaere, our Chief Financial Officer, and to be able to present to you the agenda related to these financial results today. The first thing that we're going to look at together will be the highlights of the first half of this year, of course, give you an update on Evoca, our first biofungicide product and the progress that we have made in the course of this year as well, guiding you through some pipeline and partnership updates as well as some important corporate updates related to the evolution in the first half of the year. And Wim will also cover, before we look at the outlook, the financials for this half year. The business highlights first for Biotalys, I would like to stress the continued successful development of Evoca, our first protein-based biocontrol product that has demonstrated again in field trials during the course of the year, the efficacy level that we can reach, an ideal product positioning in grades in order to be able to maintain the level of efficacy of what we can see with the chemical pesticides as of today, brings Evoca into a new arena in terms of being able to position itself for biocontrol product as well as what we do today with the chemical pesticides. This is really an important step that we continue to demonstrate with our investment in field trials year-after-year. What has been extremely important for Evoca as well, of course, has been the classification around the new mode of action by the flag that we will go into, demonstrating to the industry and to the growers that with biological products, you can increase the toolkit to manage the challenge of resistance within different high-value crops, helping the growers to maintain their yield and to increase the quality of their products. Getting to Evoca, of course, is a key point for us, but the platform behind the generation of Evoca is an important aspect of what Biotalys is putting the investment at play and especially related to the protein expression and the manufacturing at cost of Evoca and the next-generation products that are coming. And we have shared and we have been able to reach yields of manufacturing that are outpacing what we had in the former segments. And as such, eventually bringing Evoca as a commercial product by the near future reaching in 2026. At the same time, with the great success that we have been having internally, we have also been able to manage engagements with key partners such as Novozymes to explore further additional runs beyond the one that we are doing today to go further into the cost of goods reduction and making Biotalys as fast as possible, becoming margin generating on our future product, and that has been a key achievement to be able to bring on board such a partner. We have also built around the Evoca the supply chain through the engagement with Olon, the manufacturer in Italy and Kwizda Agro, the formulator of our product in order to be able to bring the true value of our product into the hands of the growers through these professional appointments. And finally, also, what we'll be looking at is the fact that we have enhanced during this first half year, not only our Board of Directors, but also our executive teams to be able to move forward with the further development of our platform and internal capabilities and accelerate the development of our pipeline moving forward. With that in mind, just to position by sales, I would like to remind us that food production remains at the heart of an unprecedented challenge. We have all seen this year in a very acute manner, the challenge of the climate change, the droughts and the impact that it has in our own gardens on the ability for us to grow the food that we need. We continue to target a population growth that will require more people to feed with the same amount of land and potentially less land, if we think about the impact again on the climate change and we need new solutions to be able to address this challenge. And at the same time, we see that resistance management, the development of new disease, not only for us humans, but also on our planned systems is drastically impacting our ability to match the requirements for feeding the entire population as we move forward. So the food security, the nutrition and the ability for us to deploy the new tools that will allow us to do that is even more acute in 2022 as compared as what it was in 2021. And that has been recognized, as you can see on that slide, with the documents that the FAO is developing on an annual basis. What does that mean for Biotalys for us, that we are even more at the center of the change that is required to address a number of key challenges that we had in our food system, especially related to food loss and food safety. You should know now that with our platform, which is differentiated that address multiple market needs, we can address the challenge of food security, providing that the growers can use these new tools with innovative mode of actions, helping us to fight resistance and to maintain the yields that we are losing in many areas, many aspects because we do not have enough innovation in the other agricultural areas, such as chemical pesticides. And we can circumvent that by the platform and the technology that we bring. At the same time, food safety, biodiversity and soil protection can be ensured by the technology that we bring through the use of less pesticides during the growing season, having an impact on the chemical residues that we will find on our food and of course, with the notion that our products are proteins, they will biodegrade and as such, ensure that there is no impact on the environment. This is even more crucial when you think about the impact of the biodiversity that we have today. And finally, of course, the speed to market is even more important as we need this tool as rapidly as possible. We cannot wait another decade to be able to help the growers feed us and feed the rest of the population. With that in mind, I would like to give you a short update about Evoca and where we are today. We have shared with you that Evoca is indeed a new tool for biocontrol. Over the course of the years in the development phase that have led us to be so close to the market as we are today, we've been able to demonstrate that biological protein-based biocontrol can be performing at par with the chemical pesticides in IP and integrated pest management programs, the programs that our growers are using to feed us and to grow our food today. I've mentioned to you that the new mode of action for resistance management has been identified for Evoca. And I would like to point out that over the last decade, over the last decade, there has been only 3 new classification, the like that Evoca gained this year with all the investment that has been done in the chemical pesticide and other areas. And through our platform, we demonstrate that we can strike right away with the first product, gain that classification and help the growers to fight the resistance and the industry to see the power of our platform. The convenience, the storability and the ability to use the product in a reliable manner is very important for our growers. And with Evoca, we've been able to achieve the formulation and storability that helps the growers not only not to have to take any specific action on our product, but to use that with any other product that they are doing today. In the same way they are using, this is very important when it comes to the competitive technologies that are coming to the market today, what Biotalys demonstrates that we can help the growers to work with the tools, the equipment they have today and without having to worry about other investments. We are looking at the regulatory approval for Evoca, and we will come back to that very early in 2023 for the U.S. and by the end of '24 for Europe, which is making us towards -- ready towards the market calibration in the next few months. The product is a contact fungicide. So basically, what it will do against 2 key disease that are absolutely detrimental for our fruits and vegetables, it will prevent the botrytis and the powdery mildew to develop on our crops, which is one of the key tools that the growers are looking for today. On the point of the food safety, of course, we have demonstrated in certain crops that we can reduce by up to 2/3 the amount of residues that will sit on the fresh produce. This is incredibly important for our growth in the context of getting them to access most of the value for the investment that they are doing on growing these crops. And the best quality they have, the less chemical residues, they have, the higher value they will get. Finally, with the protein-based biocontrol and in the expectation of the regulatory approval, we will have a product with enhanced safety for not only for the growers, but also for all the workers in the field. And as the first crops that we go within the course of 2023, we are looking at strawberries, wine table grapes and expansion into other fruits and vegetables to start with as we work with our partner, Biovest in bringing this product to the market first in the U.S. I'd like to highlight to you one of the results, like we couldn't do more than that today, that we have with the validation of Evoca strength in certain field trials, outperforming the leading chemicals in bud form ROS suppression in certain trials that we have looked at. So just to give you an example, you can see 3 big blocks in the middle of the slide that you can see. The first one is the untreated control, meaning that we do nothing on this plant, and we let them fully being impacted by the disease. The second one is what we call the full chemical fungicide rotation, which means that we use a chemical at flowering then at bunch closure and then the [ Verizon ] and then we have this rotation during the course of the season. And the one that we compare it with is where we replaced the first chemical at flowering with our product, Evoca, with adjuvants, which is normal within this type of applications. And what you can see in that context is that not only do we have a control that is significantly good as compared as the untreated check, but it's better by around 19% as compared as the chemical rotation tool. So we can outperform with our product and having excellent penetrative control on grape wine. And when we apply that at flowering, we can definitely have a clean start, which is unseen to position in the market a biological product and to come this early in the season to have an impact on the future quality of the products. So again, the strong validation for Evoca in our platform in terms of our ability to generate products that could outcompete the chemical and replace the chemical pesticides. I mentioned to you that we are on track towards the market calibration, and we have mentioned through the discussion with the EPA that our dossier has completed all the checks, the prelaminated technical screening. We have a continuous engagement with the EPA, and we have now a date related to the expected regulatory approval for Evoca at the beginning of the year 2023. This is slightly shifted as compared, as we said previously, at the end of 2022 linked to multiple reasons that I have nothing to do with Evoca, but mostly linked to the amount of work that the EPA has to deal with and the fact that this is an incredible innovation that is the first of its kind in the market. And there are a number of questions that needs to be addressed that we are currently doing with the EPA. I talked to you about the new classification by the flag. I'm not coming back to that. I think this is a really important differentiating factor. And at the same time, I wanted to mention again our exclusive partnerships with Biovest, a global leader in the biocontrol and pollination space in covered crops, who is basically taken together with Biotalys these products with the recent acquisition that we have done in the U.S. market, plant products and beneficial insectary and will be able to get us access to the growers to the early adopters to bring our product into market calibration space. Further to the results that we've had internally, I'm very happy to see also that Evoca has been named the world's bioprotections -- in the world bioprotection certainly this year, the best biofungicide products of the year. I think this is a recognition that goes beyond what we can see within our own field trials because this is a recognition from the industry that an innovation, a breakthrough innovation coming from our platform has an incredible potential to become a key player in certain disease and in certain crops today. And I think that was together with Frederic Grimault, one of our colleagues here and incredible recognition that we have received a little bit earlier this year. Moving into the pipeline and the partnership updates. I'd like to share with you and reiterate where we are in terms of our transformative pipeline. Evoca with what we have shared to our investors and shareholders so far, is that the first generation that is right now coming into the market, it's a market calibration. It will help us to position the products and create the demand that is necessary, but it is not a margin-generating product for Biotalys. However, with the results that I've shared with you related to the manufacturing efficiency increase by 500%, we are now foreseeing that through a second generation and then a third generation, we will get Evoca to the market by 2026 with a product for full commercial launch. This was not foreseen previously, but we are now very confident that we are getting to that point. We have continued progress of our other programs into the pipeline today. BioFun-6, of course, the insecticide and bactericides that are through the platform development, helping us to demonstrate the capability of the technology beyond the fungicide space that we have been focused on. And then, of course, continue the work that is ongoing with the exploration of partnerships. We will hopefully be able to share more in the near future around these elements. And the one partnership that is close to our heart as well with the Gates Foundation related to disease that are impacting small holder growers in Africa as well. So a lot of work being done by the team and, of course, continuous development of the platform with our new CFO. I will talk about that in a minute, and the ability for us to further deploy this pipeline and the technology in novel areas. I just wanted to take a few minutes to remind why Biotalys brings the best of both worlds between what currently exists into the conventional agricultural space with the chemicals and the microbials. I think it is fair to say with the results that we've had this year that we have moved forward in terms of the scalability, the cost of goods, the fermentation optimization, both internally that we have demonstrated as well as through the partnerships that we have been able to put in place. We have demonstrated definitely now that new mode of action is truly accessible to our platform that we are sustainable by essence because of the nature of the proteins and that we can reach the performance and the consistency of the chemical pesticide and certain times outperform these chemical pesticides for an efficiency in terms of market entry in terms of cost of development and time of development that are very competitive with what exists in the chemicals space today. And you can see that the other solutions that are on the market today, including both chemistries and microbials as 2 examples, have got their own challenges when it comes to sustainability when it comes to the ability to find backups to file IP certain times on leaving microorganisms and to be able to grow them as well. All of that makes and put Biotalys in a unique spot as a company to be competitive in the field of the biocontrol as we continue to move forward and to develop our pipeline. We can't do it all by ourselves. We have been establishing within Biotalys and a satellite version, you know that we are not owning our manufacturing space, for example. But through the incredible partnership network that we have created over the last couple of years and including this year, especially around Olam, Kwizda, Novozymes, Biovest and just before that the Gates Foundation, we have been able to attract incredible organization around us to de-risk, to accelerate and to grow our organization faster than we could do by ourselves by leveraging their capabilities, but also by minimizing the amount of investment that we have to do in the space to be able to be successful. And that is what we continue to do at Biotalys to accelerate the growth through these partnerships. The last element to keep in mind is that what we are looking at today is the Crop Protection segment as an organization, and we continue to explore with partners, not only in the crop protection, but also in the entire food value chain. We believe that our technology has the potential to be used way, let's say, longer during the course of the full value chain because of its intrinsic safety as compared as chemical pesticide and that through harvest, both harvest and the retail, we are developing also engagement with partners in order to be able to address not only a push in the market with our partner, Biovest, our first product but also a future pool to realize that the technology that we bring is so different than breakthrough that the demand that is coming from the consumers or from the shipper packers, the integrated food industry that are looking at produces with different level of pesticide residues, for example, pushing them towards helping us, applying that in their own produces as they bring them to the consumers. A short view on the corporate update, and I will start before leaving the place to our CFO. I'd like to highlight the strengthening of our Board this year by bringing on Michiel van Lookeren Campagne, who has been in the industry for a very long time, the ag industry. He was recently the Director of the CSIRO, which is a public agricultural institute in Australia. And he's been joining us bringing a wealth of knowledge around innovation and bringing product to the market as well. And at the same time, I'm thrilled that we indeed brought together with us, Carlo Boutton, our Chief Scientific Officer. Carlo has joined just recently, May. It seems already with the work that he's doing together with us that he's fully part of the family of the company and bringing a lot of new ideas, new concepts that are helping us to foresee further development of our platform and capabilities as we move forward. 2 key people that are helping Biotalys to continue to grow. And then I would like to move into the financials and leave the space for our CFO, Wim Ottevaere.

Yes. Hello, everybody. Thank you, Patrice. So you see here the results end of June. And as you can see, our operating income of EUR 1.1 million increased versus last year and this income, as you know, is related to grant income from VLAIO and from the Bill & Melinda Gates Foundation. Our R&D expenses increased also, I would say, and that is absolutely in line with the progress we have made in our pipeline. So they increased to EUR 7.6 million. That's the preparation, of course, for the market calibration of Evoca, and this is also reflecting an increase in our headcount. Our G&A expenses increase is also again in line with the pipeline in the progress we have made over the last year and also indeed also an increase in our headcount. Now this results in a loss increased to EUR 9.9 million for the first 6 months. And our cash burn is at EUR 10.6 million is higher, and that was expected, of course, than last year, and I will come back in fact to the cash burn in a second. So the cash burn for the 6 months is in the higher but is still in line with our plans and will for the second half of the year increase. And as you have read in the press release, we expect now that the cash burn for this year will be between EUR 24 million and EUR 26 million. So our cash at the end of the year -- sorry, at the end of June is EUR 45.6 million. And I do believe that this is still a comfortable position to further execute our plans. And with this, I think Patrice will take it further from here.

Thank you, Wim. Thank you very much. A few concluding slides from my side prior to opening for questions. The first one is that if you want to know more about Biotalys I'm glad to see that together with our Investor Relations colleagues, we are making a lot of engagement through the investor community and our bank partners as well. You can see on that explanation, how we are touring to continue to attract and to create the visibility around what Biotalys is doing around the key topics related, of course, to agriculture and to sustainability where we really want to be present and to demonstrate our differentiation that I have again explained to you today in the segments that we are covering. An important point also for our investors in the region is the shareholder club that is taking place in our company, where we bring people around to be able to brainstorm and discuss what's happening in the company, at least, let's say, once or twice a year. So with that and all the efforts that we are -- the engagement that is continuing, I'd like to finish with the outlook of the company. We have been very successful in the first half of the year in terms of delivering and overdelivering versus what the plan was. We continue on Evoca, of course, as the core of the validation of the platform through the product approval in the U.S., as we mentioned, to be able to position the best potential way the future pipeline of Biotalys. We are in the process of preparing the market calibration initiation with our partner, as I mentioned, in the food and vegetable segments. And this is a lot of work, of course, to become -- to move into the commercialization of such a product and working with such a partner that has been helping us to do so. The next-generation product, as you have seen through the pipeline are continuously developing. We also are using a lot of engagement from our colleagues in Belgium to continue to deploy their scientific skills to move the pipeline forward. And one of the key elements, as you have understood as well is for us to maintain the strong focus on the continued manufacturing cost reduction, both with our internal capabilities as well as key strategic partnerships. On the pipeline, we foresee the progress of the existing program and the expansion into new crop protection segment and geographies as well as partnerships with industry leaders. We believe that we have a lot to offer, and we are recognized as such with the recent -- all the recent news that we have shared since the beginning of the year that our novel protein biocontrols are solid candidates to be able to address some of the key gaps that exist today in chemical pesticides innovation, and we are in discussion to maximize and leverage this opportunity for us. Our Foundry platform, which is at the essence of this first product, Evoca, but also our pipeline is also developing further in terms of developing an adjacent market as well, but also developing the capabilities and leveraging the platform to secure R&D collaboration as well around certain topics and around certain programs. We will also continue to leverage selective partnerships in licensing of technologies to complement our capabilities, accelerate the creation of scale and increasing the value of the organization as we move forward. So I think if I -- to summarize, we have, since the beginning of the year, developed an incredible set of suite of engagement with partners, and we expect to continue to do so in order to continue to deploy our platform in the ag and food market as we engage with multiple partners. And with that, I would like to open on that last slide that represents the core of our organization. I would to finish the presentation and to open together with the team for any questions that we may have in the audience. Thank you.

[Operator Instructions] We will now take the first question. It's coming from the line of Christian Faitz from Kepler Cheuvreux.

Congrats on the continued progress of Biotalys. Just a small question actually. You mentioned some equipment delay and hence, lower cash out this year. Can you quantify this equipment delay in any way? And what kind of equipment are we talking about? I assume lab equipment such as high throughput screening, et cetera. Is that correct?

Yes. So the -- well, we expect some delay there. And as you know that, so all the companies have issues with that. So indeed, it's some equipment related to, let's say, what we do today, I would say. So it's not that this will give any delay in our programs. That's absolutely not what we expect. But purely, I would say, cash flow, working capital management wise, we expect that the payments for this equipment will fall rather in 2023 than in '22. So it's the general CapEx spending, which -- and that will not have impact on our pipeline.

No, sure. Okay. But can you quantify this delay from '22 to '23 in any reasonable rate?

Look, if you look about -- in fact, if you look at the difference, I would say something between EUR 500,000 and EUR 1 million, let's say, EUR 500,000 to EUR 1 million, so shifting from 1 year to the other year. So it's not material as such. But of course, it brings our cash run rate somewhat lower, if that helps.

Next question, comes from the line of Guy Sips from KBC Securities.

2 questions from my side. First is what can Novozyme bring to this equation? What will be there as a study and when will we see the benefits of the collaboration? And second question is on expected news flow from now until end of the year, what kind of news flow can we expect from Biotalys in the coming 5, 6 months?

Thank you, Guy. Great questions. The Novozymes is a good question. So we have announced clearly that the outcome of the first engagement that we have with them on Evoca related to leveraging their capabilities, their manufacturing differentiated capabilities to understand how we can complement the efforts and the success that we've had internally, we will communicate around that between now and the beginning of 2023. So this is an ongoing process, and that's expected part of the news flow, of course, as we move forward to answer also your second question. I think it's important to realize and to reposition Novozymes in the context of what Biotalys is doing. Biotalys is inventing new proteins in the context of biocontrol for food and ag and willing to deploy this technology in as much crops and as much regions as possible. In order to do that, we have to have the manufacturing scale that allows us to be able to be as ambitious as possible. And Novozymes is the #1 manufacturer of enzymes or proteins in the world for washing powders and a number of other industrial applications, including agriculture. So Novozymes can bring a number of capabilities relating to manufacturing that are difficult to match in our industry. They have quite an amount of knowledge, IP around the development of certain manufacturing practices with different microbes than the one we are using different ways of approaching that. And they also have an interest in the agricultural segment as well to complement their own pipeline and their own approach. So all of that makes this first step of the engagement with them very, very interesting for Biotalys to look at potential future strategic engagement with them as we have disclosed, that may or may not materialize within the next 6 months. Does that answer your question? I hope so.

Yes, very, very promising.

We will now take the next question. It comes from the line of Sebastian Bray from Berenberg.

My first one is builds on the information that has been mentioned on Novozymes previously. What is the best case outcome from Biotalys perspective when the feasibility study is published at the start of 2023?

It's a great question, Sebastian. Thank you so much for asking. There are so many variables in the first feasibility study that we are doing with Novozymes that it is difficult at this stage to say what the best outcome could be. As you know, when you produce with the different microorganisms, you have to verify, for example, that the protein that we produce is going to be at the same level of activity than what we have with Evoca today. So there are a lot of parameters to look at that. Our hope is to find together with them, let's say, an acceleration in our ability to reach cost of goods that will expand the market for Evoca in the closer term than what we had anticipated. That would be, let's say, a best -- potential best outcome of this feasibility study, plus, of course, the partnership that may come after that. I hope that helps focusing on the answer.

That's helpful. And if I may follow-up on distribution. I appreciate there is an exclusive agreement with Biovest for the U.S. market, but not the ones particularly since the BioAg alliance with Monsanto broke up 2019, I think, has added quite significant sales personnel to its sales force. At the moment, you only envisage this as Novozymes being a producer as opposed to a seller of the product. Is that fair?

For the initiation of the discussion, as we said, yes, but as it is outlined in the press release that we have done around Novozymes, there are certain provision in the contract that in case of success, Novozymes would be somewhat entitled to have negotiation and discussion together with Biotalys around certain markets, certain regions in which indeed Sebastian, you are absolutely right, they have been able to develop their own sales force.

That is helpful. And my second question is just on cash burn inflation. I believe the previous guidance that we touched was EUR 27 million to EUR 29 million cash burn for 2022, and that has now gone to '24 to '26. If roughly EUR 1 million is due to deferred equipment, is the rest of this, let's say, EUR 1 million for deferred field trials and EUR 1 million, EUR 1.5 million of just being careful with cash. Is that a fair summary of the reasons for the difference?

Yes, we do not go into these details, as you know, of course. And a lot of, let's say, of largely, let's say, the drop in the burn rate is related to timing differences also. So some of the costs, indeed, will shift to '23. In some cases, indeed, we have slightly overestimated the expenses. So it's a combination of a lot of things, to be honest. But again, I think the most important message is that it has absolutely have no impact on our pipeline progress, if that is okay for you with this.

That is helpful. And I suspect I'm pushing my luck with this question, but how are you feeling about cash flow for 2023 or more accurately cash burn relative to 2022? I presume the preliminary guidance, it is going to be higher, but can you provide any more details on that?

Well, at this point, in fact, we cannot because we have not made statements on that. And we will certainly do that in the beginning of '23, when we publish our year results, we usually then give a guidance for '23. So yes, I have to leave it to that, sorry.

We will now take the next question. And it comes from the line of Guy Sips from KBC Securities.

An additional question is on competition during the IPO. Now a lot of questions were around competition and potential competition in the biofungicide market. What are the recent developments? Are you seeing new comers in that field? Or is it the same as it was 1 year ago?

Thank you, Guy. It's evolving in the same pace as what we've seen so far. In terms of breakthrough technology, we do not see much at this stage, except for very early-stage companies on that front. What we see -- which is interesting is that the microbial sector, it's always the same microbes that are coming, which is offering -- which is coming from multiple companies. So you see a lot of companies going after the same microbes, the same types. And it's offering us an even enhanced opportunity for differentiation. And the level of innovation in chemistry, as you know, in that space and the applicability of the chemistry in the context of the regulatory change is also making that more challenging for the major organization to come with innovation there. So the window of opportunity remains the same in the biofungicide space. It remains crowded. I'm not -- that's an area that is crowded. But we believe that with the intrinsic differentiation that we can bring with our products, we have an opportunity to complement and to be a good replacer for what the growers are using today across the geographies.

Thank you. There are no further questions at this time. I would like to hand back over to Patrice Selles for final remarks.

Thank you. Well, I would like to thank my colleagues, Toon and Wim for the preparation of this session. I would like to thank you all for your participation, for your questions, and we remain at your disposal, would you have any additional questions in the next few weeks. Thank you so much and enjoy your week.

That does conclude our conference for today. Thank you for participating. You may all disconnect.