Evogene Ltd. (EVGN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's Third Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 15, 2023. 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 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 the additional order or Casterra's cash receipt and new collaborations to generate cash flow for the group, Biomica advances in preparing for a pre-IND meeting for BMC128, expected tests of LAV321 in field trials by several multinational companies and Casterra's ability to mitigate production risks and to retain additional seed production subcontractors. 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 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. Starting the call today is the President and CEO of Evogene, Ofer Haviv; joined by Evogene's CFO, Yaron Eldad. That said, I would like to turn over the call to Ofer Haviv, President and CEO of Evogene. Mr. Haviv, please go ahead.

Thank you, and good day, everyone. Today, I will review Evogene's activities, our financial stability and recent achievements. I will also provide an update on Evogene's potential catalysts expected in the near future. I will discuss some of our subsidiaries' recent accomplishments and the positive impact on Evogene. Bear in mind that our subsidiaries leverage Evogene's technology as their main competitive advantage and the accomplishments demonstrate the power and the value of our AI-driven tech engine underlying their product development process. But first, I would like to start with a personal note in light of the war with Hamas. The recent events in Israel, starting October 7, 2023, has brought significant changes to our nation. We find ourselves at the time of profound inflection. Our hearts go out to all those directly and indirectly impacted by those evil acts. We pause to remember and honor the memory of David Schvartzman, a cherished member of the Evogene Group and his wife Orly, who tragically lost their life during this brutal attack on Israel. May his soul rest in peace. A major memory serves as a reminder of our people's enduring strength and resilience. I want to emphasize that this loss only deepens our resolve to succeed and thrive and carry our business forward. Getting back to Evogene's ongoing operation status. Amid those challenges, together with our subsidiaries, we stand strong in our commitment to innovation and progress. Our strategic focus remains strong, and our dedicated team continues to work tirelessly to achieve our objectives for 2023 and set the course for 2024. I would now like to review Evogene's positive financial status, beginning with our cash balance across Evogene and its subsidiaries and our new terms financing strategy. As of the end of the third quarter, Evogene had a cash balance of $37.2 million. This included Lavie Bio's $7.1 million, Biomica with $14.6 million, and Evogene, together with AgPlenus, Casterra and Canonic, with a $15.5 million. It's worth highlighting that Evogene's cash balance does not yet reflect the current and expected revenue from Casterra. While on the other hand, our cash balance at the end of the quarter is influenced by the significant upfront costs in producing Casterra seeds in Brazil and Africa. Additionally, it's important to mention that Lavie Bio's cash balance does not yet include an additional $2.5 million expected in January 2024 as part of the pending commercial agreement with Corteva as was announced by the company in July. Furthermore, we anticipate additional orders for Casterra's castor seeds and new collaborations to generate cash flow for the group throughout 2024 and on, further enhancing our financial stability. Our revenues for the current quarter, which totaled $3.8 million, demonstrates the successful execution of Evogene's business model, drawing cash and value from the activity of our subsidiaries. Notably, these revenues include approximately $0.9 million from Casterra's sales of castor seeds and $2.5 million generated by Lavie Bio as a licensing fee in the frame of its collaboration with Corteva. This collaboration not only added value to Lavie Bio or the benefit of its shareholders, but also funds its ongoing operations, reducing the need for additional funding from Lavie Bio's shareholders. Concerning Evogene's ongoing activity in the passing quarter, we continue improving our 3 AI tech-engines, adding new applications and upgrading existing features. We intend to make our AI tech-engines as accessible and user friendly as possible. And so based on feedback from our partners, we continuously improve the UI/UX. As an emphasize, in previous calls, Evogene's strategy for capturing value from our AI tech-engines revolves around utilizing or licensing these engines as enabler for product development. Evogene's employs 2 main business structure to execute this strategy in order to generate revenue and value. The first is collaboration with leading companies. Evogene collaborates with industry leaders to develop defined products by utilizing Evogene's AI tech-engine. Typically, our partners take the lead in later stage development and product commercialization. Using this structure, Evogene can benefit from the following revenue stream: upfront payment, R&D fees, milestone payments and most importantly, royalties from our partners sales of the end product. The second business structure is establishing independent subsidiaries, each dedicated to a specific commercial field within the life science market. The subsidiaries hold license to use Evogene's unique AI tech-engine for product development. Using this structure, Evogene can benefit from the following revenue streams: license fee for the use of our AI tech-engine, dividends to Evogene as shareholders, and most importantly, when an exit event occurs as long as Evogene remains a major shareholder, a significant one-time payment is expected. In past years, our efforts focused mainly on establishing and supporting the activities of our subsidiaries. They proudly reported their delivery of Bio's impressive results, of which most recent I will dive into shortly. As stated in previous calls, during this year, we invested in establishing collaborations directly between Evogene and industry leaders, aiming to leverage our AI tech-engine for product development. We are very excited with the initial fruits of these initiatives as demonstrated by the recently reported collaboration with Colors Farm and Ben Gurion University to pioneer crustacean gene editing technology, aiming to enhance crustacean traits. The collaboration is powered by a grant from the Israeli Innovation Authority and utilize Evogene's GeneRator AI tech engine. We hope and believe that this collaboration marks the beginning of test to additional collaborations in the near future, which will benefit from our 3 AI tech-engines and generate significant revenue and value for Evogene and its partners. Now I would like to review the main achievements of our subsidiaries in the last few months, who as part of their competitive advantage, are all using Evogene's tech engines under exclusive license for the product development. I'd like to start with the 2 subsidiaries using MicroBoost AI to accelerate and direct the product development, Lavie Bio and Biomica. Lavie Bio is at the forefront of next-generation ag-biological products. With Evogene as its majority shareholder, it's worth noting that Lavie Bio has 2 additional significant shareholders, Corteva, a multinational ag-tech leader, and ICL, a global mineral and ag-tech company. Behind their equity investment, both Corteva and ICL are actively engaged in collaborative efforts with Lavie Bio to innovate and develop novel agricultural biological solutions. In July, Lavie Bio announced that it entered another licensing agreement with Corteva. The agreement grants Corteva exclusive rights to develop further and commercialize 2 of Lavie Bio's lead bio-fungicide product candidates, LAV311 and LAV312, targeting fruit-rots. The agreement follows 3 years of independent field validation trials conducted by both companies. Under this agreement, Lavie Bio was set to receive an initial payment of approximately $5 million in 2 instalments. The first payment of $2.5 million was already received in September 2023, and the second payment is expected in the first quarter of 2024. Lavie Bio will also be eligible for additional future milestone payments and royalty from Corteva's sales of these future products. This collaboration with Corteva not only strengthens Lavie Bio's financial position, but also significantly enhance its overall perception in the ag market. Furthermore, the revenue generated from this collaboration mitigate the need for external financing, further solidifying Lavie Bio's financial stability and ability to continue advancing its cutting-edge ag-biological products. Last week, Lavie Bio announced significant progress in its bio-fungicide program with LAV321 designed to combat downy mildew and late blight disease. Field trials conducted in 2023 across Europe and the United States has yielded impressive results. I would like to share that next year, LAV321 will be tested in field trials by several multinational companies, for some of which it will be the second year of validation. Biomica, which develops microbiome-based therapeutics for human hands, is the second subsidiary using Evogene's MicroBoost AI tech-engine to discover and optimize microbes with therapeutic potential. It's worth noting that in addition to Evogene's majority holder, Biomica has another major shareholder, Shanghai Healthcare Capital, one of the largest venture capital groups focusing on health care located in China. Biomica's leading product candidate, BMC128, for the treatment of cancer patients is now in Phase I clinical trial. The trial conducted in Israel at the Rambam Health Care Campus aimed to evaluate BMC128 safety and tolerability alongside Bristol Myers Squibb's Opdivo immunotherapy for respiratory patients with NSCLC, melanoma or RCC. In August, Biomica opened a second site in Israel at The Davidoff Cancer Center to allow the recruitment of additional patients to the clinical trial. The trial is planned to include 10 to 12 patients. Currently 7 have enrolled. The company is now focused on preparing all the required materials for a pre-IND meeting for BMC128 in its immuno-oncology program expected to take place in the first quarter of 2024. I would like to continue with the 2 subsidiaries using GeneRator AI to accelerate and direct the product development of Casterra and Canonic. Casterra focus on developing an integrated solution to enable large-scale commercial cultivation of castor beans through its unique elite seed varieties. Casterra aims to address the global demand for a stable castor oil supply, mainly for the biodiesel industry. The past year was pivotal for Casterra. Our vision of becoming a significant player in the biodiesel industry progresses with seed orders from a world-leading energy and gas company, totaling $11.3 million for castor cultivation in Africa to support the growing demand for biodiesel. In the last quarter, Casterra successfully delivered its first shipment of high-yield, high-oil castor seeds from Brazil and Zambia to an African region, valued at approximately $0.9 million. Casterra is planning to supply the rest of the order seed beginning of 2024. In recent months, Casterra has made substantial steps in expanding its overseas seed production capabilities through subcontractors. Based on Casterra's observation of this move, company management learned that its complexity is high and requires additional resources and extensive physical attendance of Casterra's professionals in the overseas production site. Casterra is currently investing efforts in expanding its workforce to support the subcontractors it's engaged with, and in parallel, looks for additional seed production subcontractors to manage risk. These efforts aim to ensure a long-term, reliable and sustainable seed production infrastructure that will allow the supply of high-quality castor seeds for existing order by the second quarter of 2024 and provide a stable and scalable platform for future growth. Moving on to Canonic, which focuses on developing best-in-class medical cannabis products. Canonic's main target for the near term are to grow its cannabis sales in Israel, benefiting from its elite unique strain while significantly reducing expenses. As Canonic's go-to-market strategy includes out licensing to subcontractors, the commercial growth of the cannabis strain towards the final product, it is crucial to select subcontractors with the right skill and expertise to maximize the genetic value of Canonic's strains meeting the premium market criteria. To this end, during the last quarter, we engaged with a new Israeli cultivator, Evergreen, to grow Canonic's variety, and currently 4 elite strains are grown in Evergreen's greenhouse site. In parallel, the company continue evaluating and negotiating with various subcontractors overseas for cultivation in indoor growth facilities. The Israeli medical Canonic's market is characterized by advanced spectrum of product, both grown locally and from abroad. Capturing the patient's attention is challenging, leading to price dropping even for premium products. To address this challenge, Canonic is focusing its marketing efforts on the frequent launching of new products in limited batches. During the third quarter, Canonic launched 2 new products: Tango and 2 Aces. And this week, an additional product SouthSide was launched. Lastly, I would like to review our subsidiary, AgPlenus, which utilizes Evogene's ChemPass AI tech-engine to accelerate and direct its product development. AgPlenus aim to discover next-generation innovative crop protection products, including herbicide, insecticide and fungicide, and commercializing them through collaborations with world leading partners. Major chemical companies such as BASF, Bayer, Corteva and Syngenta dominate today's crop protection industry. Still, they look to smaller ag-tech companies like AgPlenus to discover new target proteins and small molecules that inhibit such target protein, serving as the active ingredient in the commercial crop protection products. AgPlenus is the company that addressed this need and explore for partnership with these major industry players. As I stated in the previous call, there is a growing interest in AgPlenus' product pipeline, especially in our lead target protein, APTH1, and the small molecule that bind to this protein as a candidate for a novel herbicide with a broad weed control spectrum. We believe that this interest can lead to a collaboration agreement between AgPlenus and a leading industry player. As described, all the subsidiaries are expanding their business targets. As the shareholder, Evogene is very proud of this progress. Bear in mind that the subsidiaries success is testimony to the power and value of Evogene's AI tech-engine to accelerate and direct life science best product development. Looking forward, when evaluating the need of our wholly owned subsidiaries and the commercial potential of each, we intend to invest more efforts and resources in Casterra since we see significant potential in the biodiesel market, which castor oil can support while reducing our investment in Canonic due to the challenging market conditions of the medical cannabis sector. With this, I pass the call to Yaron Eldad, Evogene's CFO, to review our financial report for the third quarter. Yaron?

Thank you, Ofer. As of September 30, 2023, Evogene had consolidated cash, cash equivalents and short-term bank deposits of approximately $37.2 million. Biomica accounted for $14.6 million of the sum, and Lavie Bio holds $7.1 million. Evogene, together with Casterra, Canonic and AgPlenus possessed an aggregate of $15.5 million in cash. The injection of funds from the last round of investment in July strengthened Evogene's financial position and provides us with the resources needed to execute our future plans effectively. As Ofer already stated, the $15.5 million reflected in the cash balance of Evogene, together with Casterra, Canonic and AgPlenus do not include any amounts due to the purchase orders received by Casterra in the last few months, which was partially supplied during the third quarter of 2023. And that the $7.1 million reflected in the cash balance of Lavie Bio does not include the $2.5 million, which represents the second half of the upfront payment from the licensing agreement with Corteva that is expected to be received at the beginning of 2024. During the third quarter, the consolidated cash usage was approximately $4.8 million or approximately $3.2 million, excluding Lavie Bio, which provided positive net cash of $1.1 million due to $2.5 million upfront payment from the licensing agreement with Corteva, Biomica, and $1.2 million of advanced payments to Casterra's subcontractors for castor seed production. I will now review the P&L main items. Revenue for the third quarter of 2023 were approximately $3.8 million compared to approximately $0.5 million in the same period the previous year. The revenue increase was primarily due to revenues recognized by Lavie Bio for the licensing agreement with Corteva and due to revenues recognized by Casterra for the supply of castor seeds during the third quarter of 2023. R&D expenses for the third quarter of 2023, which our imported net of non-refundable brands received were approximately $5.1 million and remains stable as compared to approximately $5 million in the same period in the previous year. Sales and marketing expenses were approximately $850,000 for the third quarter of 2023, and slightly decreased as compared to approximately $895,000 in the same period the previous year. The main contributor to this expense decrease was a reduction in personnel expenses at Canonic. General and administrative expenses were approximately $1.5 million in the third quarter of 2023 and remained stable compared to approximately $1.6 million in the same period in the previous year. Operating loss for the third quarter of 2023 was approximately $4.2 million compared to an operating loss of approximately $7.1 million in the same period in the previous year. The decrease in operating loss is mainly due to the increased revenues, as mentioned above. Financing income net for the third quarter of 2023 was approximately $320,000 compared to financing expenses net of approximately $61,000 in the same period in the previous year. This difference was mainly due to increase in interest income during the third quarter of 2023 as compared to the same period in the previous year. Net loss for the third quarter of 2023 was approximately $3.9 million compared to a net loss of approximately $7.2 million in the same period in the previous year. The decrease in the net loss is mainly due to the increased revenues recognized in the third quarter of 2023. With that, Ofer and I would like to open the call for any questions you may have. Operator?

Ladies and gentlemen, at this time, we will begin the question-and-answer session. Also in the Q&A part, are with us today, Eyal Ronen, CEO of Casterra; Amit Noam, CEO of Lavie Bio; Elran Haber, CEO of Biomica; and Nir Arbel, CPO of Evogene and COO of AgPlenus. [Operator Instructions] The first question is from Ryan Meyers of Lake Street Capital.

First one for me, the initial $11 million Casterra order, you obviously had initial shipments here in Q3 with the rest expected in Q4 and Q1 of next year. Is this the type of seasonality that you would expect from future Casterra orders going forward?

Can you repeat on the last sentence of your question?

Yes. Just wondering if this is the kind of seasonality that you would expect going forward.

I will address this question and maybe Eyal can add a little bit more. So based on our discussion with our existing partners, so they are expecting to see growth in their needs in the future for additional castor grain to feed their crushing factory because they are planning to increase and expand the biodiesel production. So assuming this plan will take place, so I believe that we should expect to see increase in demand in castor seeds such as Casterra is developing and providing to the market. I will recommend people who are listening to this call, maybe if you look for the nice article that was published about ENI as an example for a company in the field of energy based on veggie crop, under future plan, which I think this is an example to how the market can look in the future. It's a public information that was established by ENI. And this is just one example to what might happen in this field, and we will be more than happy to take part from this trend and to see Casterra's progress in the future.

Got it. And then can you just talk about the level of capacity that your energy partner has to take more volume of cash received from you guys?

We can't disclose much about our partners' capacity, but I think that there is still a room that we can grow and increase our revenue before we'll reach to the limitation of what they have now. Please remember that there is -- that they can always decide to build more factory that can crush castor grain to oil in order to produce biodiesel.

The next question is from Brian Wright of ROTH Capital.

Let me just start out with I guess you had a comment about the part of the purchase order being on the first quarter. And I just wondered should we think about like that whole amount, does any of that like go into the fourth quarter just given kind of some of the logistical issues you had talked about in Africa and working with traditional partners.

So I'm not sure that I hear correctly what you said, but I believe that your question was referring to timing and when we can supply the purchase order that we receive. So what we believe is that we will be able to deliver the majority, if not all of the seed that was ordered through the purchase orders that we already received, until the first half of 2024, while the majority of it, it will be more during the third or immediately after the end of the first quarter. So -- and this is mainly due to the climate change and the irrigation system that we need to put in place. The original question is, again, deliver the quantity. It's now more a timing issue. And as I mentioned in my pitch is that we are investing a lot of efforts these days in strengthen our infrastructure with respect to seed production in more than one location, in more than one continent in order to be able not just deliver grain in the quantity needed but also at a time as planned. We should all remember that this revolution on the castor seed as a crop is going through is really something that took place only in the last 9 months, and it's really something very -- it's really the beginning, and there is some struggle, but we are -- I'm so excited to see how we are addressing all of these challenges. We expanded the number of employees work for Casterra, and we are recruiting also people in the target location where we grow the seed to export the activity over there on a daily basis. But we're still in the process of building all of these infrastructures. I think that starting from the second half of 2024, we will start to see the impact of all of these things in the way that we are expecting.

Okay. So I mean it really sounds like based on what I just heard and I just want to make sure I'm interpreting this correctly, so just general weather conditions like typical issues with lack of rain probably was a major issue, and that's just part of the business. Is that a fair interpretation of what is that?

Yes. Again, I don't think that the question is not that if we will deliver, the question is really more timing and solving problems such as climate issue that you cannot control et cetera. But I think that we are now in a spot where we know what we need to do and our subcontractors are getting better and understanding what they need to do. So -- it's really -- I think almost every business in the first year or 2, you always struggle with a scale-up in the production, and we are exactly going through this process. But I'm quite confident that we will be able to deliver the quantity that we promised. So I hope that answers your question.

Great. Great. I do have just a real quick follow-up. I understand gross margin was really good in the quarter, and I think some of that has to do with Corteva payment and how that's recognized, but it still looked pretty good in the quarter. Am I reading too much into it that your probably -- your Casterra margin was probably even with everything that is happening is probably a pretty good gross margin for Casterra in the quarter as well?

I can't disclose the gross margin of our business. We prefer to keep this information internally. But I think that if you review the margins of other companies in the field of -- who sell seeds, usually the margins are pretty high, but it makes sense because don't forget the time that you need to invest in order to develop the seed. For seed companies, the R&D costs are quite heavy. The good news for Casterra is that we reached to this variety that we are offering now to our partners, we're investing in this activity in the last 10 years, and we invest around, I think, $20 million through the years. So now we are starting to see the benefit from this investment, and this is also what put us ahead to any other company that would like to move into this field. So the margin in the seed business are pretty high because they're supposed to cover the expense and the risk that companies are putting in the development of the elite variety, exactly like Evogene did, like Casterra did in the past 10 years.

The next question is from Ben Haynor of Alliance Global Partners.

First off for me, just on any progress on the APTH1 target. How quickly do you anticipate a collaboration partnership could materialize there? And what are you doing or what can you presently do to kind of enhance development of the target?

Nir, would you like to take this question or you prefer me to address it?

If you want, you can go ahead. If not, I will answer.

So I will try to address it and, Nir, if you want you can add. So I think that usually working with big corporation, it usually take a while before you engage in agreement. It includes the validation period, it include negotiation time. But I think that usually when a company feel comfortable to emphasize that there is an interest in one of its program, I think the way that Evogene is working, so it means that we have some confidence that we are not far away from the point where we might announce such collaboration. So again, you never know if it will happen, and this is why we -- this is the nature of the business. But we feel quiet -- we feel comfortable that we are in the stage that there is some probability that we'll get into such collaboration. I think that AgPlenus is an amazing example to what Evogene, the technology company can develop and offer to our partners. AgPlenus using a ChemPass AI tech-engine, and the progress this engine made in the last year, it was remarkable. We announced about TargetSelector, we announced about some other apps that we developed, and I think what attracts the attention of our potential partners is not just the results that they can see on what we achieve until now, but it also gets excited from our ability to improve the efficacy and increase the probability of success by using the tech-engine of Evogene. So what I like to speak, what I hope to see in future collaboration that AgPlenus will be engaged is not just maybe a nice upfront payment, but also an ongoing collaboration with R&D, et cetera. So there is a high expectation from what the AgPlenus can do. Yes, it's still in early stage. Yes, we still need to demonstrate more and more the power of our technology, but the company is definitely in the right direction in achieving these targets. Nir, would you like to add something?

No, I think you covered the points that I agree. I think this past 12, 18 month was very typical for a AgPlenus, and I think we have a lot of confidence in the platform in what we are doing and we are expecting that we will see this manifest late in 2024.

Okay. Very helpful. And then that kind of segue into my next question. With the advancements that you made in ChemPass AI and particularly TargetSelector, it sounds like that's attracted interest. But can you share any more on potential positive developments that have come with the new applications or new functionality like TargetSelector that occurred here recently?

So I think TargetSelector, in particular, attracts a lot of attention. I think it truly addresses the unmet need within this space. The way we operate, and I think that's why this past period has been very crucial for AgPlenus, it's not only developing these tools but having a proper validation process. And we see we think that interest the need to see how we validate, and as we progress, we see more and more interest on better validation and confirming that the tools are good and that work as we expect. And therefore, that's why our confidence is very high in the pipeline itself and what the future holds.

Okay. Sounds like -- raises the confidence in the platform. And then lastly for me on the Crustacean gene editing collaboration that you have now. Does that have the potential to lead to another subsidiary? And then is that part of what you alluded to on your last call regarding some of the food tech-oriented things you have going on? Just a little bit more on the Crustacean gene editing, it would be helpful.

So first, yes, I remember that in previous call, I was talking about potential activity of Evogene in area of food tech, but honestly, I didn't think about the crustacean project when I was talking about it. There is some other activity that hopefully will materialize into agreements, and we will share it with our investors hopefully maybe in the next quarter or so. So there is more under the hood than what we disclosed in this call. With respect to Crustacean projects, this is -- I don't see it developing into a new entity. You never know how big it could be. But in this point of time, we don't see it -- actually through this collaboration, we are covering 100% from our cost. So we are -- we see even a little bit of revenue from this activity. I think this is a part from Evogene capabilities in the field of gene editing. In the past, we were leading the biggest consortium here Israel in the field of gene editing, and I think that Evogene has some unique capabilities in this field that we can use to help other companies to improve different traits in different organisms. But at least for now, we don't see it evolving to the separate entity.

[Operator Instructions] This concludes the question-and-answer session. 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 039-255-901. Internationally, please call 9723-9255-901. Mr. Haviv, would you like to make a concluding statement?

Yes. Thank you all for joining the call today. We look forward to updating you with our progress in our next call. Thank you once again.

Thank you. This concludes Evogene Third Quarter 2023 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.