Evogene Ltd. (EVGN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's Fourth Quarter and Full Year 2019 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, March 4, 2020. Before we begin, I would like to caution that certain statements made during this earnings conference call by Evogene's management will constitute forward-looking statements that relate to future events, risks and uncertainties regarding business strategy, operations and future performance and results of Evogene. I encourage you to review Evogene's filings with the U.S. Securities and Exchange Commission and read the note regarding forward-looking statements in the earnings releases, which states that statements made in these earnings releases and in a similar way, on this earnings conference call that are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All forward-looking statements made herein speak only as of the date of the announcement of results. Many of the factors that impact the forward-looking statements will come true are beyond the control of Evogene and may cause actual results to differ materially from anticipated results. Evogene is under no obligation to update publicly or alter our forward-looking statements whether as a result of new information, future events or otherwise, except as otherwise required by law. We expressly disclaim any obligation to do so. More detailed information about the risk factors potentially adversely impacting our performance can be found in our reports filed with the U.S. Securities and Exchange Commission. That said, I would now like to turn the call over to Ofer Haviv, Evogene's CEO. Ofer, please go ahead.

Thank you, and good day, everyone. We appreciate you joining us today for our fourth quarter and full year 2019 conference call. Joining me today is Ms. Dorit Kreiner, our CFO. I will begin my comments today with a few opening words regarding Evogene's value proposition as we emerge from a pivotal year in the company's history. I will then review the activities and accomplishments of our subsidiaries in 2019 and discuss some anticipated milestones for 2020. Following my comments, Dorit will summarize Evogene's financial results for the fourth quarter and the full year 2019. We will then open the call for your questions. Let's begin. 2019 has been a turning point in the life of the company. During the year, we completed our organizational change, as was presented at the beginning of 2018. This entailed establishing 5 subsidiaries, each utilizing Evogene's unique computational biology capabilities in order to create novel products in different life science-based markets, including human health, agriculture, industrial applications. The completion of the organizational change placed us at a competitive position to translate the value of our capabilities in computational biology to novel products in the upcoming years. Our computational biology technology, the unique CPB platform, leverages the revolutions in big data and artificial intelligence while incorporating a deep understanding of biology. The CPB platform disrupts conventional life science product development methodology, currently challenged by inefficiencies, by computationally designing the core components, the heart of life science products: microbes, small molecules and genes. The uniqueness of our computational design approach stems from our ability to successfully address multiple product attributes at the beginning of the discovery process of relevant core components rather than one at a time during the development phase. This is expected to reduce both time and cost, but much more importantly, increase the probability of reaching a successful product launch. As described in previous calls, we utilize the CPB platform to develop novel product pipelines, both independently and with partners, mainly for human microbiome-based therapeutics, medical cannabis, ag-biologicals and ag-chemicals. To capitalize on the value of our diverse activities, we established a new corporate structure in which each market area is organized as a separate subsidiary with clear business targets, while, as mentioned, the CPB platform serves as their main core technological advantage. As outlined in my letter to the shareholders in early 2019 include, advancing product development in their respective pipelines; establishing go-to-market strategies, including growth via direct sales or through existing and new collaborations; and securing additional independent financial resources if and when required. With respect to the first 2 points, as I will indicate later in my comments, we are very pleased with the initial achievements reached during 2019 by our subsidiaries following the organizational change. Regarding the last point, I would like to highlight that we are actively evaluating alternatives to advance the financial needs of each subsidiary. We aim to support our subsidiaries in a manner that will not only provide the capital needed to support and accelerate their activities, but this will maintain shareholder value for all Evogene shareholders. A good example of this is the Corteva investment in Lavie Bio announced in August of 2019. With the completion of the organizational change during 2019, we already began to see the value of this new structure through the accomplishment achieved in each of our subsidiaries during the year. We expect to see the fruit of this new strategy in the coming years, as demonstrated by the following targeted milestones for 2020. I will begin with Lavie Bio, which focuses on the development of ag-biological products, microbes that, when applied in the field, improve crop productivity. The company was established at the beginning of the year. Still, in August 2019, Lavie Bio secured an external strategic equity investment from Corteva, which included $10 million in cash and the transfer of holdings in Corteva's subsidiary, Taxon Biosciences, for 28% of Lavie Bio's shares. In addition, during 2019, Lavie Bio's most advanced product program, bio-stimulants for wheat, continued its advancement as planned. During 2020, Lavie Bio plans to file for regulatory approval for a wheat bio-stimulant product and to advance to the pre-commercialization phase in preparation for its targeted 2022 commercialization. Lavie also successfully completed and received positive results from vineyard trials in Europe for its bio-fungicide program for fruits and vegetables and intends to initiate additional trials into 2020. Moving on to Biomica, which is focused on the development of human microbiome-based therapeutics. In 2019, Biomica showed significant advancement in its various programs, particularly in its immuno-oncology program where the team completed the first preclinical study. Looking to 2020, Biomica plans to extend preclinical studies in this program and initiate the scale-up process and first GMP production of drug candidates toward first in man proof-of-concept clinical trials in 2021. Let's move now to our subsidiary, Canonic, focused on the development of medical cannabis-based products. Having only been established this year, Canonic has already achieved several important milestones, including the receipt of regulatory approval for its activities, the establishment of its dedicated facilities for cannabis breeding and the successful import of a diverse genetic seed collection for its product development program. The team has now initiated the development of cannabis varieties with unique genomic profiles for medical cannabis products. In 2020, Canonic plans to demonstrate yield improvements in its unique cannabis line and conduct preclinical studies to support the development of Canonic's medical cannabis products. In 2021, Canonic plans to undertake precommercial activities towards commercialization of first product in early 2022. Let's move on to AgPlenus, which is focused on developing ag-chemicals with a high degree of safety and low environmental impact. In 2019, significant progress was achieved in the herbicide pipeline with Hit-to-Lead optimization efforts, including promising greenhouse results of compounds, confirming a new mode of action. I would like to remind that the main challenge the herbicide market is facing today is the growing resistance to existing commercial solutions, and the new mode of action herbicide is expected to address this. The main target for this program in 2020 is to reach the phase of lead chemical, which will represent an economically significant milestone and expected to enable a later-stage-type collaboration agreement. Last but not least, Casterra, focused on providing ag-solution for the lucrative castor oil industry. The company commenced semi-commercial trials and decided to focus efforts on the Brazilian market. In 2020, Casterra plans to see initial commercial castor seed sales in Brazil. In summary, Evogene made significant progress throughout 2019 and is positioned in a much better place than it was a few years ago to bring the revolution of computational biology to the design of novel life science products. While our unique technology can be applied to a wide variety of life science markets, I believe we have chosen to focus on areas that have proven to be lucrative. I look forward to providing incremental updates throughout the year as we continue to execute on the strategic initiatives laid out at the beginning of the call. With that, I would now like to turn over the call to Dorit.

Thank you, Ofer. I will begin by reviewing our cash balance. Evogene continues to maintain a strong financial position for its activities with approximately $47 million in cash, cash-related accounts and bank deposits as of December 31, 2019. Cash usage amounted to approximately $17.6 million during 2019 and $5.2 million during the fourth quarter of 2019, in range with its cash usage estimate for 2019 of $16 million to $18 million. $17.6 million of Evogene's consolidated cash is appropriated to its subsidiary, Lavie Bio, including $10 million investment received from Corteva during the third quarter of 2019. For the full year of 2020, we estimate that our cash usage, excluding Lavie Bio and without any funds raised by our subsidiaries or payments from significant collaboration, will be within the range of $14 million to $16 million. This cash use is mostly appropriated to Evogene's subsidiaries, mainly Biomica, AgPlenus, Canonic, and Evogene's expenses as a public company such as D&O insurance and others. The company does not have bank debt. Let's now turn to the statement of operations. As discussed in prior calls, Evogene's revenue to date has consisted primarily of research and development revenues. These revenues represent R&D cost reimbursement and milestones under our various collaborations agreement (sic) [ collaboration agreements ], as reflected in the cost of revenues. The majority of these agreements also provide for royalties or other forms of revenue sharing from successfully developed products. R&D expenses mainly represent product development activities of the company and its subsidiaries, which include computational work, lab and greenhouse assays, field trials and preclinical studies carried out by third parties. R&D expenses for 2019 were $15.8 million in comparison to $14.7 million in 2018. R&D expenses for the fourth quarter of 2019 were approximately $5 million in comparison to approximately $4 million in the fourth quarter of 2018. The increase in R&D expenses during the quarter is attributed to payments made to third parties for preclinical studies conducted for Biomica and field trials conducted in target locations for Lavie Bio as well as the acquisition of a genomic-unique seed collection for Canonic. Operating loss for 2019 was approximately $21 million in comparison to $20 million in 2018. Operating loss for the fourth quarter of 2019 was $6.9 million in comparison to $5.3 million in the fourth quarter of 2018. The loss in 2019 decreased to approximately $19 million in comparison to a loss of approximately $21 million in 2018. The loss for the fourth quarter of 2019 was $6.7 million in comparison to a loss of $5.8 million during the fourth quarter of 2018. With that said, we would now like to open up the call for any questions you may have. Operator?

[Operator Instructions] The first question is from David Dreman of Dreman Asset Management (sic) [ Dreman Value Management ].

With regard to Lavie Bio, beyond Corteva's 28% holdings, what additional value are they adding towards the -- are they bringing the products to -- helping to bring the products to commercialization?

This is Ofer. So Corteva hold 28% in Lavie Bio, and they -- in order to receive this equity, they invested $10 million and they also transferred all of their holding in their subsidiary in the area of ag-biologicals, Taxon. By doing so, actually they really put their focus on developing their future ag-biological products in significant ways through Lavie Bio, meaning that there is a real expectation from Corteva that their future product will come from Lavie Bio R&D pipeline. So knowing this is the -- it's a -- this is an -- in a way, an explanation why and how Corteva can assist to Lavie Bio in advancing their product pipeline to the market. As an example, in the area of corn and soybean, Corteva has preferred rights in marketing Lavie Bio products at the market. In addition, they have a Board member that participates in all of -- in Lavie Bio's strategic discussion. And of course, he contributes a lot to our understanding the market and the market needs. Another example is that in some cases, when they are entering into an opportunity through their network, they might transfer this opportunity to Lavie Bio. So the bottom line because of the -- this strategic investment of Corteva in Lavie Bio represents a strategic step of Corteva in their expectation from Lavie Bio in the future. So they are, I mean, taking a significant role in helping Lavie Bio in developing its product but much more importantly in the commercial aspects of Lavie Bio activity.

The Corteva deal actually is sort of -- sounds like an excellent demonstration of another company unlocking the inherent value of subsidiaries that you have. Are you -- is Evogene trying to mimic this sort of strategy with other subsidiaries?

So I think that in my comments for today's teleconference, I mentioned that we are in the process of evaluating financial need of our subsidiaries, which means that, yes, we are looking for additional fundraising for certain of our subsidiaries. There is -- we are evaluating 2 main directions. The first one is the same type of investments like we made with -- in Lavie Bio to obtain -- together with Corteva, meaning looking for strategic investors. But we are also looking for financial investors as well. I think that maybe the best outcome from this ongoing process is that we might enter into some financial round that will include financial investors and strategic investors in the same round, and this will send a very strong message to the capital markets on the value of our additional subsidiaries like I hope that we sent with respect to Lavie Bio.

[Operator Instructions] The next question is from [ Dan Dafir ].

I'm looking at the cash usage for 2020, and you say the cash usage will be between $14 million to $16 million without a significant collaboration. Can you give any borders to this? How many money -- how much money should we see if you sign a significant collaboration?

So when we're talking about significant, it's -- but first, thank you for the question. Just to -- I would like to emphasize 2 points. The first one is that we mentioned that it's not including a significant collaboration, but it also is not including fundraising for our subsidiaries. I mean if you're looking at the total cash that the company is looking for the end of the year, so exactly like what's happened with Corteva, we hope that, at the end of the year, at least certain of our subsidiaries will raise money to support their future activity. But I would like to return to your specific question. When I start talking about strategic collaboration, I'm talking on at least few million of dollars per year in such a collaboration. So this is the type of collaboration I'm talking about.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Ofer Haviv to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin 2 hours after the conference. In the U.S., please call 1 (888) 326-9310. In Israel, please call (03) 925-5904. Internationally, please call 972 (3) 925-5904. Mr. Haviv, would you like to make your concluding statement?

Yes, thank you. Thank you all for joining the call today. I look forward to updating you with our progress over the next few months. Thank you and good day.

Thank you. This concludes Evogene's Fourth Quarter and Full Year 2019 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.