Biotalys NV (BTLS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Biotalys Half Year 2024 Financial Results and Business Highlights Conference Call and webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to speaker, Toon Musschoot, Head of IR. Please go ahead.

Thank you very much, Rezia, and welcome, ladies and gentlemen, to the Biotalys webcast following our press release detailing our results for the first half of 2024, which was issued earlier this morning. I am joined today by our CEO, Kevin Helash; CFO, Douglas Minder; and CSO, Carlo Boutton. Our agenda today includes a review of our first half operational and financial results by Kevin and Douglas, further insight into our AGROBODY 2.0 R&D platform by Carlo, as well as the outlook for our goals in 2024. At the end of our presentation, we'll be happy, of course, to take your questions. You can ask them both through the webcast too and the conference call. Let me just remind you of our disclaimer on this slide, which is a standard part of our deck and which you can also consult in the tools of the webcast. Everything we say today is covered by these legal provisions. And with this, I would like to hand over to our CEO, Kevin Helash.

Thank you, Toon, and thank you to everyone joining us on the call today. And just over a month, I will celebrate my first year as the CEO of Biotalys. This past year has been both exciting and fulfilling, and I continue to believe in our potential to transform the crop protection industry. Our AGROBODY technology platform is designed to deliver a suite of efficacious, novel fungicides and insecticides with new modes of action that will bolster the ability of our customers to protect their valuable crops with a much softer environmental footprint. Carlo will elaborate further in a few minutes, but what excites us most about the future is the enormous potential of our platform that can be developed literally for decades to come. We are pioneering the use of a technology well proven in the life science industry into the agriculture crop protection market to potentially create hundreds of different efficacious active ingredients in singular form and equally compelling to combine multiple modes of action into a staggering number of product combinations, all from a single research and discovery approach. Third-party validation continues to support our platform hypothesis. Further to this point, I'm very proud to say yesterday, it was announced that Biotalys was named a Sustainable Crop Protection Company of the Year at the AgTech Breakthrough Awards. These awards recognize the best agricultural and food technology companies, products and services around the globe and attract more than 1,000 nominations for its different categories. All the credit goes to our incredible team and their relentless work to make our technology a success. When I arrived at Biotalys, we challenged ourselves to answer 5 key questions that we believe are paramount to our success. I'm happy to state that we have made considerable progress on all of them. First and foremost, we clearly stated that our goal is to create a suite of novel crop protection products with new modes of action that will replicate the performance and equally important, the predictability of performance of traditional leading products in the market today with an improved sustainability story. For us and for our grower customers, product performance is a critical success factor, and I'm pleased to say that our first product candidate, EVOCA has proven our platform can indeed deliver upon this objective. The next 3 are related. Assuming we can deliver on our first objective, can we manufacture the product at commercial scale, and at the cost of goods that will allow us to compete head-to-head with the leading technologies in the market today. In addition, can we find a distribution partner to take the product the last mile to the farm gate. As I will speak to further in a minute, our collaboration with Novonesis positively answers all 3 questions. Finally, the last big milestone we're working upon is regulatory approval of EVOCA in United States and Europe, and I will touch upon this topic shortly. As I mentioned, we are excited and humbled to have entered into a significant collaboration agreement with Novonesis, one of the world leaders in biological crop protection and fermentation technology with more than 100 years of experience in this sector. After extensive due diligence, Novonesis has elected to partner with us to become the producer of EVOCA next generation. Equally important for us, Novonesis will become our co distributor of the product in select geographies around the world. We are also looking forward to the potential of expanding our partnership by exploring the combination of our respective platforms to create an even bigger and broader portfolio of crop protection products for the market. Turning to Slide 9. We have been working together with the [indiscernible] EVOCA, dossier for quite some time now. [Technical Difficulty]

Let me take over for Kevin for a minute. This is Douglas Minder the CFO. So the review process for new crop protection products is lengthy and intense as there should be. With that being said, we continue to believe that the efficacy, safety and sustainability of our protein-based products are well researched and remain optimistic regarding the positive regulatory outcome in both the U.S. and in Europe in the near future. Further to our registration process and as announced this morning, we are very pleased to announce we've just received approval by the Dutch regulatory authority to do a large-scale demonstration trial with EVOCA in Netherlands. This authorizes the application EVOCA against powdery mildew on 40 hectares of tomatoes, 20 hectares of cucumbers and 10 hectares of strawberries. Quite importantly, the products will be allowed to enter the food chain for human consumption. This is an exemption to the standard practices requiring crop destruction when a product is used that has not yet require regulatory approval. This decision reinforces our belief that the product is safe to use. Looking forward, given that EVOCA next generation has the same bioactive as the first generation of EVOCA, our plan is to apply for an amendment procedure in both the United States and Europe, which we can reasonably expect will require a shorter review period. We have also started work on preparing the business cases to expand our footprint into South America, South Africa, Australia and New Zealand. We want to lay the ground -- the scientific groundwork in many jurisdictions as makes sense commercially with the EVOCA next generation. We are hopeful that this will expedite the process to obtain the registration for future generations of our pipeline in key goal of ag markets. As we think about monetizing our platform, we intend to access all traditional avenues available to us is shown on Slide 10. We are in ongoing discussions with numerous potential partners related to collaborating on the development and commercialization of our technology and pipeline for their needs, while generating revenue for Biotalys. We firmly believe our ability to monetize the platform will continue to expand our portfolio of proven products entering the marketplace in the coming years. At this -- okay. Kevin, thanks.

Yes, thank you. Sorry about that, everyone. I lost connection for a minute there. Just to kind of finish up on my section here, not shortly after I joined the company, we announced 2 other key initiatives: one, the switch to our targeted approach in the frame of our second-generation R&D platform; and two, our organizational restructuring, which has allowed us to extend our financial runway while still investing strategically for our future. I'll ask Carlo to speak to updates in our research program, and Douglas will provide context on our financial results for the first half. Over to you, Carlo.

Thank you, Kevin. And thank you to everyone participating in today's call. EVOCA is indeed an important product from a platform validation point of view, for Biotalys and for the whole agricultural sector because it shows that with our antibody-based technology, we can deliver a product at the efficacy of a chemical in the field while offering the safety profile of biologicals. However, Biotalys is much more than only EVOCA. EVOCA is the first product resulting from our platform, and our AGROBODY foundry technology platform can develop many more new products in an industry where innovation and conventional chemical innovation, in particular, has slowed substantially over the last decade. Existing chemical and global R&D platforms often require intense scouting and screening in the research phases across large numbers of possible new leads to find candidates that are effective against specific insects or fungi. Our technology platform in contrast offer the advantage of generating proteins tuned directly towards the selected target insect or fungus. And this more targeted approach changes the curve of our R&D productivity. We are creating active compounds with multiple, well-defined modes of action that increase efficacy while lowering the potential for resistance to develop. And this will lower the cost of goods per hectare, allowing for a broader and more rapid market penetration of our products. And in addition to that, we are also working toward combining various modes of action into one product aiming to provide growers with the so-called super biocontrol that fight off various pathogens here by opening up major market gold factors for Biotalys. And as exciting we are about our next-generation platform, we are not the ones to rest on our success. We recently ceased an opportunity to leverage artificial intelligence or AI to turbocharge our R&D efforts. We are working in collaboration with Google DeepMind and the Devoteam to implement AlphaFold2 in our research process. And the generative AI platform predicts the precise 3-dimensional shape of proteins while the ones we discover in our AGROBODY 2.0 platform. And with these detailed characterization of target proteins, we can more rapidly validate our bioactive discovery candidates which will accelerate our research and will lead to a faster delivery of novel biocontrols. With the application of AGROBODY 2.0, we anticipate initiating at least 1 new program per year, and this would result in more than 10 novel protein-based biocontrols on the market by 2040. The first half of this year moved us along the trajectory as we continue to advance key pipeline projects. Field trials for our LEAP module of BioFun-6 project, which targets botrytis, powdery mildew and anthracnose in fruits and vegetables are underway in both Europe and the U.S. The total global market potential for these 3 fungal pathogens is well in excess of EUR 4 billion and we look forward to advancing this product candidate in the coming years. Research also continues on BioFun-4 and BioFun-7 which are both in conjunction with leading researchers at top academic institutions renowned in the plant sciences. BioFun-4 which targets in Oomycete or water mould that causes late blight or potato blight is being researched with Oomycete library -- Oomycete Laboratory of Professor Van West at University of Aberdeen. And while we studied the life cycle of oomycete in detail, we are making progress on several research tracks against this devastating pathogen. BioFun-7 our ongoing partnership with the Gates Foundation to target leafspot disease is further progressing in collaboration with University of California-Davis. And for this program, we are also extending our network in Africa in anticipation of testing some of our compounds on African isolates of leafspot on [indiscernible]. Work also continues to progress on our first bioinsecticide program in collaboration with Syngenta. And to finalize this R&D section, I find it important to give a special recognition to our R&D team, which has a vigorously advanced AGROBODY 2.0 platform while being exceptionally cost effective, [indiscernible]. It's a credit to our team that they have fully embraced the power of what we can do with our amazing technology. Not only are we creating new modes of action but we fully believe that we can combine multiple modes of actions to create a suite of products with increased potency, that combat -- that can combat the thread of resistance. And it's rewarding for all of us for every employee at Biotalys to be on the cusp of bringing the full benefit of this revolutionary technology to agriculture. And with this, I'd like to turn the call back over to Douglas for a financial review.

Thank you, Carlo, and thanks to everyone for joining us today. Let me start by providing a framework for how we're managing our financial resources as a precommercial company. In short, the task at hand is to carefully control our costs and look for efficiencies while fully supporting the advancement of the pipeline, future product launches and longer-term growth. We continue to finance the company through a combination of issuing equity at appropriate times as well as through various nondilutive measures such as collaboration agreements with our commercial partners and grants from both public and private institutions. The benefits of those agreements are reflected in the other operating income line which for the first half of the year was essentially flat as compared to the same time period in '23. These amounts can vary from period to period depending on the nature of the underlying collaboration and the actual activities performed. The other side of the equation of course is cost management. As you know, we streamlined the organization late last year to ensure we're effectively deploying our resources without hampering our ability to deliver on the future commercialization of the platform. The bulk of those savings have come through the efficiencies created by the streamline R&D organization and the benefit of our AGROBODY 2.0 platform. Additionally, the field trials for EVOCA are complete which has also allowed us to reduce cost for this year on a comparative basis, resulting in R&D expenses for the first 6 months of the year being approximately 40% less at EUR 5.1 million in the prior year. As we continue to bring new product candidates to the market, we expect our development costs to increase somewhat in the coming years. However, our focus will always remain on prudent cost management across all aspects of the business. The savings mentioned earlier, of course, contribute to a lower use of cash. Our target, as outlined earlier, is a 25% decrease in the annual cash burn over the 2-year period from 2022 where we spent EUR 22 million through this year. Our cash outflows, net of the new financing last year decreased by more than 10% or EUR 2.5 million from '22 to '23, and we're continuing this trend in the first months of '24 where we've seen the net cash used in operating activities decreased by an additional EUR 2 million or 23%, putting us well on track to achieve the target that we set for our ourselves. At the end of the first half, we had cash and cash equivalent balance of EUR 14.7 million. Given our focus on prudent cost control, we now expect a financial runway to extend further into Q2 2025, giving us more flexibility than we have previously communicated. Of course, this projection is absent any additional external financing through equity, newly awarded grants, partnerships or other sources. All such avenues remain open for future consideration. And with that, I'd like to turn the call back to Kevin for his thoughts on our outlook for the remainder of the year.

Thank you, Douglas. As you're watching us through the end of the year, here are key milestones will be focused upon. First and foremost, we will continue to work diligently with the U.S. and European regulators to seek registration for EVOCA. We believe that the approval of the first product coming from our pipeline will pave the way for future biocontrols developed in our technology platform. Second, we will continue to develop the tremendous potential of the AGROBODY platform, both internally as well as with our collaboration partners with the objective of initiating 1 new program per year. Third, we'll be working to finalize the last steps with Novonesis for the production and sale of EVOCA NG and at the same time, seek a collaboration partner for our next product from our pipeline BioFun-6. And finally, although we have sufficient cash to take us into the second quarter of 2025, we will continue to consider sources of additional funding as appropriate to support our objective of monetizing the technology and capabilities. The size of the opportunity in front of us is compelling. If we only look at the global fungicide market for fruits and vegetables, the total potential is in the EUR 8 billion range and we believe we have the capability to make a meaningful presence in this sector. Looking further out, we have the potential to expand into the broader row crop and cereals market. In addition to working upon our insecticide portfolio with partners such as the one we have with Syngenta. As I mentioned earlier, it's been a fulfilling first year for me personally with Biotalys. As we continue to exploit the benefits of the AGROBODY technology, we believe our ability to bring products to the market with increasing value for all shareholders to expand over time. We also believe we are on the brink of entering the marketplace and up commanding a leading position in the race for more sustainable crop protection solutions in agriculture. With that, let me turn the call over to Toon to start our Q&A session. Toon?

Thank you, Kevin. So Rezia, yes, we are now ready to take questions from the participants.

[Operator Instructions] We are now going to take our first question. The questions come from the line of Christian Faitz from Kepler Cheuvreux.

I have a question on the European demonstration trials. On rather large acreages for tomatoes, cucumbers and strawberries. Will these be conducted in open field or also -- or are they also partly conducted in greenhouses? I take it if they will start next -- I take it if they are in open field, they will start next year. Would this be correct? And could this mean an approval in the EU late 2025 or something?

Thank you, Christian. It's Kevin. So yes, I mean, we are -- our intention is to predominantly focus upon covered crops and greenhouses, et cetera. So with that in mind, we will start working on getting all the pieces in place to get our trials moving. We certainly don't want to wait any longer than we absolutely have to, Christian. In terms of the time line to 2025, as we've said since I've been here, it's very difficult to predict any regulatory time lines these days. Certainly, we see this as a significantly positive step in the right direction for us. And as I said, it's a big approval, a significant amount of hectares and equally important, as we mentioned, we have the authorization for the produce to be to enter into the food chain. So that's as good of news as I think we've had in a while, Christian.

We are now going to proceed with our next question. The questions come from the line of Thomas Vranken from KBC Securities.

Maybe first of all, congrats on the approval for the demo trial and the progress across the different programs. Three questions from my side, actually. The first one is also on that demo trial. I was wondering if you could maybe already give some kind of indication what could be the expected amount of revenues or income per hectare? Or how should we think about it? Do you have a view on where that lies for a traditional crop protection products? Or is revenue per hectare maybe just not the right way to think about this?

Thomas, thank you for the question. And I'm going to make an initial statement. I'm going to hand it over to Douglas in terms of how we would look at revenue coming from these trials. So let me start by saying that our intention is to price our products competitively with the leading solutions in the marketplace today. Now given that these are demo trials and our product is not registered, we'll do some negotiating with our channel partners, and that will be to be determined. As you can imagine, we just got this positive news literally hours ago. So we're looking forward to moving forward here. Douglas, I'll leave it to you to comment on how we would recognize any revenue from these trials.

Yes, thank you. First of all, we just got this yesterday. So we're still looking into it to see how we're going to approach it, and it's going to obviously depend on what kind of agreements we enter into in the future. That being said, I would say that the EVOCA product that will be used has already been expensed as part of our R&D processes in the past, so it is not currently on the balance sheet. So we would have to look to see how we would do this. But I can't give guidance right now if it would be revenue or be considered in another way. So if you have to wait for us to get further into the details of this, I'm sorry.

Okay. That's clear. Maybe to follow up. I also had a question about BioFun-6, I understand that a nice milestone has been reached there with the start of the field trials. Could you give an indication of how long you expect these field trials to last until you have gathered enough data for a regulatory submission. Is that fixed amount of growing seasons? Or how can we think about that?

Yes, Thomas, you're absolutely correct. This is our first year of going out in the field with BioFun-6. We don't have the data yet, as you can imagine, as we are still out in the field. It's really going to depend on how things move forward. But let me say that we will be working as quickly as possible to prepare all the proper documentation and dossier for getting BioFun-6 in front of the regulatories in both the U.S. and in Europe and perhaps elsewhere in the world, as I mentioned in my comments, like Southern Hemisphere countries.

All right. All right. And perhaps as a final question from my side. I was just curious with regards to the fact that there are plans to add a new biofungicide to the pipeline towards the end of the year. Could you shed some or share some insight into what are the key criteria that you use to select the program?

So Kevin, again, I'm going to hand this one over to Carlo. But I'll make one comment in that we are very fortunate, that we have -- we are having very robust conversations about what next. The nice thing about the platform is that we have multiple potentials that we can target, which is great, right, because we have lots of options, but I'll hand it over to Carlo to dive deeper into how we think about our selection process.

Yes. Thanks, Kevin, and thanks so much for the question. So first of all, we keep our promise to launch 1 new project per year. That's for sure. As Kevin -- or a bit adding to what Kevin said, we are in full operation to prepare a program and factors like market value, of course, the [indiscernible] assessments are being considered later a couple of weeks later this year, we have a strategic discussion where we want to have a deep dive and hopefully, later this year, we can come up with a proposal of a new program.

We are not going to proceed with our next question. The questions come from the line of Guy Sips from KBC Securities.

Yes. I have one follow-up question and that's on the production yield. How is that evolving? And do you see some step up after the recent collaborations that you announced -- that you announced recently. How do you see that?

This is Kevin. The process for Novonesis to gear up to produce EVOCA NG is moving ahead. They've done quite a bit of work already since we've announced the collaboration. And in fact, there was some work done even prior to the announcement as they were analyzing their capabilities and capacity. So as far as we are concerned on August 22, it's green light. Things are moving ahead. There's more work to be done. This is going to take some time to get everything, let's say, all lined out from the production standpoint. But I would say no red flags at this point in time.

And if you compare it today with, let's say, 2 or 3 years ago, where are you?

Well, Guy, that's an interesting question. I mean, we literally made several thousand pounds of EVOCA right? So we never had a design of EVOCA to be a commercial product. What I can say is that we believe the capability of Novonesis will certainly bolster our ability to create products at commercial scale and at a cost of goods that will allow us to compete and generate margins for all of our key stakeholders. So the short answer is we have made a significant step forward with the partnership with Novonesis from where we were 2 or 3 years ago.

Thank you. We appear to have no further questions on the phone lines. I'll hand back to you for any webcast questions that you may have.

Thank you, Rezia. I don't see any questions in the webcast, too. So with that, I think we can close the call. So thank you very much, everybody, and have a great afternoon or morning. Bye.

Thank you, everyone.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.