Evogene Ltd. (EVGN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's First Quarter 2020 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, May 26, 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 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 first quarter 2020 conference call. Joining me today is Ms. Dorit Kreiner, our CFO; and Mr. Gadi Ben Nissim, our newly appointed Executive Vice President for Corporate Development. I would like to take this opportunity to welcome Gadi to the team. Gadi brings more than 20 years of versatile international, commercial and strategic experience in the pharma industry working with Teva Pharmaceuticals, where he's held various senior leadership positions. I'm confident he would be a very large asset to our team.

Thank you, Ofer. I'm happy to join this exciting company and look forward to working together.

Likewise, Gadi. I will begin my comments today by addressing the impact of the coronavirus outbreak on Evogene. I will then briefly give some insights into our rebranding, which we unveiled last week, and provide an update on some recent developments. Following my comments, Dorit will summarize Evogene's financial results for the first quarter of 2020. We will then open the call for your questions. As mentioned, I would like to address the impact of the COVID-19 pandemic on the company's activities. I want to assure our shareholders that the company and its employees are working in compliance with the health restrictions and guidelines provided by the Israeli health authorities in order to ensure the health of our employees. I'm pleased to share that Evogene's operations have not been severely impacted and that we have almost resumed full activity, in line with the official guidelines. As of today, we have not found it necessary to change any of our main targets for -- and goals for 2020, and we'll update if this changes. I would also like to take this opportunity to thank our employees for the great efforts and commitment during this challenging time. At the beginning of the outbreak, in order to strengthen the company's ability to withstand the impact of COVID-19, the company initiated a temporary wage reduction across the board. In addition, we decided to cut back on secondary activities that are not directly connected to our near-term milestones. These adjustments in expenditure and an expected increase in revenues attributed to the collaboration AgPlenus signed with Corteva have allowed us to not only maintain our expected cash burn rate of $14 million to $16 million for 2020, as initially estimated, but potentially reduce it even further to $13 million to $15 million. This guideline excluded our subsidiary, Lavie Bio. I would now like to discuss Evogene's rebranding announced last week. The new branding reflects the company's expanded vision and new business model and will facilitate clear communications with potential partners and investors. This is a significant step in our evolution, and we are happy to share a new investor presentation and additional materials available in our filings and on our website. I would like to give some insights on why we believe the company needed this rebranding to better reflect its current offering. Established as spin-off from Compugen in 2002, Evogene was initially focused on applying its capabilities in computational biology in agriculture and, more specifically, on improving seed traits via genomic modification. Evogene's previous logo was based on a leaf and a DNA helix and was a good reflection of the company's activity during this period. This focus on improving seed traits based on genomic modification shifted following changes in this market and in consumer taste that led Evogene to broaden its vision and focus on several new target markets. In the years that followed, the company's management took a series of steps that paved the path to its new value proposition. Two key decisions underlie this development: the first was expanding Evogene's technological capabilities in computational biology to include development of products based on microbes and small molecules, in addition to genomics; and the second was to expand Evogene's focus beyond agriculture to human health. These decisions led to the creation of the 2 main pillars of our new offering: our computational biology technology, better known as the CPB platform; and our rapidly growing subsidiaries. I would like to elaborate more on these 2 pillars. Let's start with the first pillar, the CPB platform. After 2 decades of hard work, tens of millions of dollars invested and validations in the form of collaboration with strategic partners, Evogene now holds what can be considered one of the leading computational biology platform, which aim to revolutionize product development in life science industries, the CPB platform. Using our CPB-based solutions in the discovery and development of life science-based products is expected to substantially increase the probability of successful product launch while reducing the time and cost of development. A deeper understanding of biology, combined with disruptive computational technologies, including artificial intelligence and big data, have led to the birth of this powerful platform. The platform provides tailor-made solutions for the discovery and development of products based on microbe, small molecules and genetic elements for life science-based industries, including human health, agriculture, industrial applications. The new logo aims to reflect this expansion in our capabilities and the vision. Now with this technology in our hands and new branding, we are ready to engage with world-leading companies across diverse market segments, focusing on different [ prototypes ]. In respect to the second pillar, our subsidiaries, with the establishment of our powerful technology, we decided that in certain market segments, we will utilize the CPB platform internally to build a product pipeline in such segments. The subsidiaries we established over the past few years were built on these internal product pipelines. Each subsidiary was established to advance existing and future candidate products towards commercialization in a defined market segment using, of course, the CPB platform through an exclusive license for its field. The subsidiary may decide then to develop and commercialize its products independently or through strategic collaborations. Today, Evogene has 5 such subsidiaries: Biomica and Canonic in the area of human health; AgPlenus and Lavie Bio in the area of agriculture; and Casterra in the area of industrial applications. I am proud of our subsidiaries and what they have accomplished in such a short period of time. The level of maturity those subsidiaries have reached and the rapid advancement achieved in product development is a direct result of the use of the CPB platform. It is important for me to note that each subsidiary has several upcoming milestones, which mark their development road map, and these can be viewed in our presentation filed last week. I'm happy to share that during the first quarter, AgPlenus reached one of these milestones with the announcement of their collaboration with Corteva for the co-development of new Mode-of-Action herbicides, based on herbicidal candidates discovered by AgPlenus. We see this collaboration to hold great promise. Other achievements announced by our subsidiaries during the first quarter of 2020 included Biomica entering an agreement with Biose Industrie for scale-up and GMP production of drug candidates BMC121 and BMC127 for its immuno-oncology program, which is intended to support the preparation towards anticipated first-in-man proof-of-concept clinical trials. Lastly, Canonic announced an agreement with Hadassah Medical Center for preclinical studies to support the development of Canonic's medical cannabis products, focusing on inflammatory indications at Professor Reuven Or's laboratory. I'm very pleased with the progress we have made so far as a company, and I'm certain that we have a solid strategy that will prove fruitful over the next few years. We will continue to develop the CPB platform, harnessing our technology to forge new strategic partnership while, in parallel, holding its subsidiary accountable to their milestones and supporting them in any way possible. We are ready to benefit as a shareholder from our subsidiaries as the value is unlocked and becomes apparent. With that, I would now like to turn over the call to Dorit.

Thank you, Ofer. I will begin by reviewing our cash balance. As Ofer described earlier, the company has taken certain measures to mitigate the impact of the COVID-19 pandemic over the company, including a temporary reduction in salary-based expenditures and a cutback in secondary activities. In addition, the company expects an increase in revenue for the remainder of 2020, following the collaboration agreement AgPlenus signed with Corteva during the first quarter of the year. This adjustment in expenditure and an expected increase in revenues have allowed us not only to maintain our expected cash burn rate for 2020 but to potentially reduce it to $13 million to $15 million. These guidelines exclude cash usage of our subsidiary, Lavie Bio. Evogene continues to maintain a strong financial position for its activities, with approximately $40.6 million in consolidated cash, cash-related accounts and bank deposits as of March 31, 2020. Approximately $16 million of Evogene's consolidated cash is appropriated to its subsidiary, Lavie Bio. Consolidated cash usage amounted to approximately $6.3 million during the first quarter of 2020, or $4.6 million is excluding Lavie Bio. The cash usage during the first quarter includes prepaid expenses and nonrecurring payments of approximately $0.8 million. 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 in milestones under our various collaboration agreements, as reflected in the cost of revenue. The majority of these agreements also provide for royalties or other forms of revenue sharing from successfully developed products. R&D expenses for the first quarter of 2020 were $4.6 million, including a noncash expense of $0.9 million for amortization of share-based compensation, in comparison to $3.5 million, including a noncash expense of $0.1 million for amortization of share-based compensation in the first quarter of 2019. R&D expenses in this quarter were attributed to product development activities of the company and its subsidiaries, including fermentation, lab work and preclinical studies carried out by third parties as well as expenses related to computational work. Business development expenses for the first quarter of 2020 were $1 million, including a noncash expense of $0.7 million for amortization of share-based compensation, in comparison to $0.5 million, including a noncash expense of $0.1 million for amortization of share-based compensation in the first quarter of 2019. General and administrative expenses for the first quarter of 2020 were $1.3 million, including a noncash expense of $0.3 million for amortization of share-based compensation, in comparison to $0.9 million, including a noncash expense of $31,000 for amortization of share-based compensation in the first quarter of 2019. Operating loss for the first quarter of 2020 was $6.9 million, including a noncash expense of $1.9 million for amortization of share-based compensation mainly attributed to option granted to Lavie Bio employees, in comparison to $4.7 million, including a noncash expense of $0.2 million for amortization of share-based compensation in the first quarter of 2019. Net financing expenses for the first quarter of 2020 was $0.4 million in comparison to net financing income of $0.9 million in the first quarter of 2019. The increase in the net financing expenses during the quarter is due to the translation of the Israeli shekel-denominated cash and marketable securities to U.S. dollars. The loss for the first quarter of 2020 was $7.2 million in comparison to loss of $3.8 million during the first quarter of 2019. This increase is attributed to an increase of $1.7 million in noncash expenses mainly related to amortization of share-based compensation in Lavie Bio and to net financing expenses in comparison to net financing income into the ending quarter of 2019. With that said, we would now like to open up the call for any questions you may have. Operator?

[Operator Instructions] There are no 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. So 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, everyone.

This concludes Evogene's First Quarter 2020 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.