Evogene Ltd. (EVGN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's First Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded May 26, 2021. 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. 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 today's earnings release, which states that statements made in the earnings release 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. For example, Evogene is using forward-looking statements in this call when it discusses its expected paths to value creation, its and its subsidiaries' expected trial studies, product advancements, commercializations, launches, pipelines, milestones, potential collaborations and other plans for 2021 and 2022, the potential advantages of its technology and its anticipated entry into new fields of activity. All forward-looking statements made herein speak only as of the date of the announcement of results. Many of the factors that impact whether 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 over the call to Ofer Haviv, Evogene's CEO. Ofer, please go ahead.

Thank you, and good day, everyone. We appreciate your joining us today for our first quarter 2021 conference call. Joining me today are Mrs. Dorit Kreiner, our CFO; and Mr. Ido Dor, the CEO of our subsidiary, Lavie Bio, which focus on ag-biologicals, the fastest-growing segment in the ag industry today. Following my initial remarks, Ido will provide an update about Lavie Bio. And following Ido, Dorit will summarize Evogene's financial results for the first quarter 2021. We will then open the call for your questions. My remarks in today's call will focus on our strategy for value creation through the Evogene subsidiaries and its recognition by the capital markets. Before I reach this topic, I would like to recap the main topics I covered in the previous analyst call. First, our broadly applicable computational predictive biology platform, the CPB, and the 3 engines relying on this platform: MicroBoost AI, ChemPass AI and GeneRator AI. As stated many times, we believe this capability provides a significant competitive advantage in the discovery and development of life science-based products in multiple industries. The CPB platform and the 3 engines aim to reduce time and cost of product development and, most importantly, to improve the probability for success to reach commercial products. Second, our proven ability to create subsidiaries in multiple life science-based fields by utilizing the CPB platform and the 3 engines, with each subsidiary demonstrating its ability to rapidly discover and develop very promising product pipelines. We are pleased to see our subsidiaries receiving growing recognition for their pipelines by major companies in the field of focus. Lastly, I stated our intention to continue to initiate new activities in additional life science-based fields. In our last call, I mentioned various new fields we are currently evaluating, including using MicroBoost AI to identify microbes for the aquaculture industry and using ChemPass AI for drug optimization for human health. Moving now to what I would like to focus on today, value creation within the Evogene subsidiaries and market recognition of this value. Investing in life science-based companies, such as those within the Evogene Group, present both financial advantages and risk for their investors. The primary advantage is that, in general, if successful, life science-based products can be very profitable. In addition, and very importantly, for investors, companies with promising life science-based products in their pipeline, like Evogene's subsidiaries, can have very significant market value long before the products are actually commercialized. On the other hand, the primary risk in investing in life science-based companies is that such products typically have very high failure rates. Furthermore, those that are successful generally take a relatively long time to be commercialized. With respect to their advantage, as stated, each of our subsidiaries has a very promising product pipeline, and their activities are aiming to advance the product candidates towards commercialization. In 2021 and 2022, all our subsidiaries have a significant milestone for pipeline advancements, and some of them are even expected to reach first product launch. We believe that announcing the achievement of such milestones, as they are reached, will enable the capital market to properly appreciate the value created by the subsidiaries and will also be reflected in Evogene's value recognition. Turning to the risk. We believe that the technology utilized by our subsidiaries, which relies on Evogene unique technology, provides a substantial advantage with respect to dealing with the challenges of high failure rates and time to market. We believe that the power of the technology is demonstrated and can be recognized through the rapid progress of our subsidiary, discovery and development pipeline. Moreover, any strategic collaboration, such as between AgPlenus and Corteva, our equity investment in a subsidiary by strategic partner such as Corteva's investment in Lavie Bio, is a vote of confidence in the unique advantage of our technology. As previously disclosed, some of our subsidiaries are targeting to achieve additional strategic collaborations during 2021 and 2022. We expect that such collaboration will enable the capital market to recognize the unique technological value of our subsidiaries, those reflecting on Evogene's value as well. I'm pleased to report that both Evogene and our subsidiaries have been progressing in accordance with the plan, and I would like to highlight the following events that took place since the beginning of the year. Biomica, Evogene's subsidiary focusing on developing innovative microbiome-based therapeutics, announced additional positive preclinical results in its immuno-oncology program, demonstrating efficacy of its live biotherapeutic product consortium, BMC128, this time in melanoma. As demonstrated in our previous trial, the treatment with BMC128, in combination with immune checkpoint inhibitors immunotherapy, significantly enhanced antitumor activity. We are very excited with the results of this study demonstrating the effectiveness of BMC128 in treating additional types of solid cancer tumors. We look forward to providing incremental updates as we walk towards the first human proof-of-concept clinical trial later this year. Canonic Ltd, our subsidiary focused on the development of medical cannabis products, announced that it entered into an agreement for the production and distribution in Israel of Canonic medical cannabis products with Tikun Olam-Cannbit Pharmaceuticals Ltd. These agreements are expected to support the successful launch of Canonic's first product's in 2022. Evogene's Ag-Seed division, focusing on discovery and development of seed trait, announced a collaboration agreement with a U.S. company, Plastomics, targeting novel insect control traits for soybean. As part of the collaboration, Plastomics is utilizing its disruptive new technology, will introduce Evogene insect control gene, demonstrating new mode of action into soybean. There is a dire need for numerous action insect control traits, and we are looking forward to addressing it through our joint efforts. Lavie Bio, our subsidiary focusing on ag-biologicals through the introduction of microbiome-based products, announced the joining of Mr. Russ Putland as VP, Commercial. Russ brings significant commercial experience to the Lavie Bio team and, together with management, will prepare the company for its next phase focusing on commercializing its products starting from 2022. With this, I hand over to Ido, Lavie Bio's CEO. Thank you. Ido?

Thank you, Ofer. I would like to begin by introducing myself. My name is Ido Dor, and I serve as Lavie Bio's CEO. Joined Evogene at the end of 2011 and held various business and managerial-related roles. Since 2015, I lead the ag-biological division within Evogene, which we spun off as Lavie Bio in February 2019. My background is in engineering, and I hold MBA and started my career in management consulting for roughly 6 years, followed by additional 6 years in leading sales and channel organization for SAP in Israel. I will start with a short introduction of Lavie Bio, which is addressing the need for a more sustainable food system with stronger focus on the quality of food and nutrients of the produce. In the last few years, we have seen a trend where consumers are more aware and demand better practices to drive sustainability and food quality. In a way, the forks influences the farm. However, the fact that in agriculture, farmers use more than $200 billion every year in fertilizer and chemicals crop protection in order to secure production is quite significant conflict. And this conflict needs to be balanced and shifted, and ag-biologicals are one of the key solutions in driving this revolution of improving the way we produce our food. Lavie Bio is focusing on improving food quality, sustainability and ag productivity by harvesting the power of microbiome technologies to develop innovative ag-biological products. Ag-biologicals are externally applied products from biological sources, such as microbial, which are microorganisms, and naturally derived biochemicals designed to improve crop productivity. The microbiome is a subsegment and refers to the microbial population living close or within the plant or other organisms. These microorganisms have a unique functional composition that Lavie Bio is harnessing in order to develop novel ag-biological products. Lavie Bio's approach is focused on Biology Driven Design, or BDD, for the discovery, optimization and development of effective, stable and cost-effective microbial-based ag-biologicals. Lavie Bio's BDD platform facilitates and accelerates the development of microbiome-based products through the decoding of complex microbiome/host interaction and the utilization of key genetic elements, which are functions governing this interaction for product development. The enabling technologies for the establishment of the BDD platform are the MicroBoost AI engine, a component of Evogene's CPB platform; and the Taxonia platform, which enhances genomics informatics to develop its transformative applications to agriculture, acquired as part of the Corteva investment in Lavie Bio. Lavie Bio is focused on developing 2 main types of products: bio-pesticide, which are ag-biological for crop protection, addressing biotic stresses such as insect diseases in weed; and also bio-stimulants, which are biological -- ag-biological for crop enhancements directly impacting crop yield or abiotic stresses, tolerance, resistance. In 2020, we saw significant investment in Lavie Bio product pipeline. In December 2020, Lavie Bio announced that its stimulant candidate, 211 -- LAV211, was successfully advancing into the precommercial phase following field trials in target locations, meeting development criteria and outperforming trial control, which includes competitor benchmarks. Product launch is expected in 2022. In October 2020, we also shared results demonstrating the power of pesticide candidate, LAV312, to protect grapes from botrytis based on results obtained from multi-location trials in target geographies. We expect this product to reach the market in 2024. For further updates on the pipeline status and advancements, I would also like to guide you to our publication from December 2020, which has a broader view of all of our product programs. Since the beginning of 2021, Lavie Bio has continued to progress well with its product pipeline, and its main milestones for 2021 are: first, to conduct precommercial trial for its bio-stimulant product for spring wheat and to finalize all the stages planned in order to commercialize in 2022; and second, to continue product advancement on its bio-fungicide product for fruit rot, LAV311 and 312, towards regulation, which is planned to be filed in the first half to 2022. With respect to the first milestone, the LAV211, we are in the last season before launch, working with our early farmer adopters network, conducting commercial trials and the commercial practices in North America, specifically in North Dakota. In parallel, we are working to extend the product to new crops and territories and establishing the commercial [ test ] for 2022 initial sales. To this end, I'm very pleased with the joining of Mr. Russ Putland to our team as VP, Commercial. Russ brings significant commercial experience with the Lavie Bio management team, including more than 30 years of leadership within large, multinational ag companies. Russ will lead Lavie Bio's commercial strategy and execution focusing on establishments, the relationship and partnership with strategic and channel partners, driving revenue from ag-biological stimulants and bio-pesticide product lines. With respect to the second milestone, our first bio-fungicide target, this year includes multiple trials in Europe, U.S. and South Africa that will help us to further improve the formulation and cost of production. We target to advance formulation and production technology by the end of the year. And we will be able to file the leading candidate for regulation in the first half of 2022. In addition, we see significant progress, which we are excited about, in each of our other pipeline activities: the mildew program, corn rootworm and seedling diseases and biosimilars for crop other than wheat. I am pleased to update that our collaboration with Corteva is developing with our focus product process. In addition, I would like to update that we are actively engaged in seeking partnerships for accelerating and expanding our product pipeline and creating new business opportunities benefiting from our robust technological capabilities. These efforts will focus on one or more of the following. The first one is early commercialization of certain of our pipeline candidates through a partnership. And the second one is optimization of partners' candidate products using our BDD platform. I will keep reflecting on the progress as we move forward with this commercial effort. To summarize, the opportunity we found in the ag-biological market for our product is unique and has significant potential. The team and I believe we are on track to meet the company goals and are excited to be close to our first product launch. With that, I would like turn the call over to Dorit. Dorit?

Thank you, Ido. I will begin by reviewing our cash balance. Evogene maintained its strong financial position for its activities with approximately $70.1 million in consolidated cash, cash-related accounts, bank deposits and marketable securities as of March 31, 2021. Approximately $11.8 million of Evogene's consolidated cash is appropriated to its subsidiary, Lavie Bio. During the first quarter of 2021, our consolidated net cash usage, excluding $27.1 million net raised through our at the market offering , initiated January 2021 and concluded during February 2021, was approximately $5.2 million or $4 million, if excluding Lavie Bio. The low-range cash usage during the first quarter is mainly attributed to amounts received for reimbursement of expenses from our collaborator. In March 2021, we announced a new ATM, and we had not sold any shares under this offering as of the end of the quarter. The company does not have bank debt. Let's now turn to the statement of operations. R&D expenses, which are reported net of grants received, were approximately $4.3 million for the first quarter of 2021, including noncash expenses of $0.3 million for amortization of share-based compensation, in comparison to $4.6 million, including a noncash expenses of $0.9 million for amortization of share-based compensation in the first quarter of 2020. In the first quarter of 2021, the actual R&D expenses slightly decreased, mainly due to the decrease in share-based compensation. Business development expenses were approximately $0.6 million for the first quarter of 2021, including a noncash expenses of $0.1 million for amortization of share-based compensation in comparison to $1 million, including a noncash expenses of $0.7 million for amortization of share-based compensation in the first quarter of 2020. General and administrative expenses for the first quarter of 2021 were $1.5 million, including a noncash expenses of $0.1 million for amortization of share-based compensation in comparison to $1.3 million, including a noncash expenses of $0.3 million for amortization of share-based compensation in the first quarter of 2020. The increase is attributed to the increase of the cost of director and officer insurance, partially offset in the noncash expenses of amortization of share-based compensation. Operating loss for the first quarter of 2021 was $6.3 million in comparison to $6.9 million for the first quarter of 2020. The decrease in operating loss during the first quarter is attributed to the increase in revenues from collaboration agreements compared to the first quarter in 2020 and due to the decrease in aforementioned amortization of share-based compensation expenses. The loss for the first quarter of 2021 was $7.1 million in comparison to a loss of $7.2 million during the first quarter of 2020. The slight decrease in the loss during the first quarter is attributed to the reduction in operating loss, offset by an increase in financing expenses, mainly attributed to exchange rate differences and revaluation of pre-funded warrants. With that said, we would now like to open up the call for any question you may have. Operator?

[Operator Instructions] The first question is from Kristen Kluska of Cantor Fitzgerald.

I have some for Lavie Bio. So with the recent announced hire of Mr. Putland as VP, Commercial, how are you thinking long term across your pipeline which market and geographies and products might be most appropriate for you to bring forward versus that of a partner? And then what are some of the key priorities he shared for the company upon joining?

Okay. Thank you. This is Ido. And, well, Russ Putland is joining to take a broad leadership of all the commercial activities. As we disclosed, the first target launch is targeted for North America, focusing on spring wheat, and it's happening already in 2022. In parallel, we are working quite extensively on the second launch, which is planned for the new-generation product of bio-fungicide during 2024. Russ brings a lot of experience and know-how from retail level, from producer level and from our company levels along with more than 20 years of experience, mainly in North America and Canada and the U.S. but also in other parts of the world. Naturally, our products are targeting beyond North America, and Russ will lead also this part of the activity.

And then for LAV312, on the back of some of the data you recently reported here, could you talk about what the latest has been on the formulation technology and the fermentation protocol? And in light of what you've already seen here, wondering if you've -- is that internally established a goal of what you might hope to see with some of these changes?

Yes. Okay. So yes, we are working heavily on stabilizing the formulation, expanding the shelf life, reducing the cost of goods and also certain optimization approaches that targeting to increase the potential of the product for maybe additional crops and additional diseases. All of that is being validated in this season across multiple trials, multiple locations in Europe, in U.S. and also planned for later this year, also in the Southern Hemisphere, the experiments we conduct in South Africa. All of that should bring us to the situation where we finalize the formulation by the end of this year. So we have new leading formulations, both for LAV312 and both for LAV311. And once we finalize the leading formulations, we will choose the best of them. And these are the formulations that will be leading the dossier that we are going to file in the first half of next year for regulation.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Ofer Haviv to go ahead with his closing statement...

Operator, we actually have some write-in questions we'd like to go through, if that's okay.

Okay. Continue with the write-in questions.

Okay. So this is Kenny Green from Edison Group. I'm part of the IR team at Evogene. So we've had some write-in questions. I'd like to thank everybody who sent us questions for their continued interest. Our first question about Biomica. "When are we expecting to commence Biomica's first in-human trials? How long would that trial be? And when do we expect first indication of results?"

This is Ofer, and I will address this question. So Biomica is very advancing nicely with its ongoing activity with respect to the immuno-oncology program. The expectation is that in the second half of this year, we will initiate the first human clinical trial in this program. And we're already in quite advanced stage in discussion with a few medical institutions here in Israel. And the expectation is that this study will reach to conclusion during next year and will allow us to initiate the next phase.

Okay. Second question about Canonic. "Do we intend for Canonic to receive exclusivity for their products? And when can we expect Canonic's first sales?"

So Canonic is, again, advancing very, very nicely. Actually, we just now announced the agreement with respect to producing the product and distributing it. I think this sends a clear message on our confidence on reaching to our target. The original plan is to launch the product during 2022, hopefully, the first part of this year. And we are pretty comfortable with this expectation. Just to remind you, the first product is going to be from the MetaYield family. And the idea is to distribute this product in a different marketing channel, including pharmacy. I mean we will start to talk with some pharmacy as preparation for this event. There is no expectation that there will be an exclusivity for a specific pharmacy on marketing the product, unless they will be fully committed to market the whole quantity with the projects we are looking for. But at least in this stage, we are not expecting for exclusivity as the first step. And as I mentioned -- as we mentioned in the past, the Israeli market, this is just the first step. We are -- start to look outside of Israel as a next step for Canonic products.

Okay. Third question, Ido, it's a Lavie Bio question. "When can we expect first sales from Lavie Bio?"

Okay. So the target is during the season of 2022. First product we started to sell is LAV211. And regarding specific timing along the year, so we didn't disclose what we are planning with respect to when we are planning to recognize the revenue. We're exploring few business models in parallel. The season is between April to November. So somewhere on this time frame, I assume, we will be able to disclose more based on the model for revenue recognition that we need to apply.

Okay. And final write-in question back to Ofer, "If you are going to publicly list one of your subsidiaries overseas, will you only look at the U.S. exchanges or other countries [ relatively ]?"

So when time will come with respect to taking one of our subsidiaries public, and obviously, it won't take too long, we -- probably we will focus mainly on the American -- on the stock exchange in the States, NASDAQ probably, which is probably the right place for a high-tech type company like the one that we established here with Evogene Group. But we can also think about maybe other markets that could be relevant for a specific type of company. Canada used to be or maybe still one of the leading capital markets for cannabis industry. So this is probably something that we'll evaluate as well. But the major markets that we consider as places that we would like to register our companies is the New York market, mainly NASDAQ.

Okay. And that ends the write-in questions, and I'll hand back to the operator.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Ofer Haviv, there is -- the next question is from Brett Reiss of Janney Montgomery.

The Lavie Bio commercial product that's going to be launched in 2022, are you going to have a North American distributor for that? And if so, who is it?

We are exploring and in discussion with few optional North American distributors, and we hope we will be able to share more in the next few months.

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 03-925-5901. Internationally, please call (972) 3925-5901. 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 on our progress over the next few months. Thank you, and good day, everyone.

Thank you. This concludes Evogene's First Quarter 2021 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.