Evogene Ltd. (NASDAQ:EVGN) Q3 2022 Earnings Call Transcript

Evogene Ltd. (NASDAQ:EVGN) Q3 2022 Earnings Call Transcript November 17, 2022

Evogene Ltd. beats earnings expectations. Reported EPS is $-0.16, expectations were $-0.2.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Evogene’s Third Quarter 2022 Results Conference Call. All participants are at present in listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. . As a reminder, this conference is being recorded, November 17, 2022. 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 the 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 its expected path to value creation, including potential fundraising at the subsidiary level, its and its subsidiaries expected trials and their expected results studies, product advancements, commercialization, launches, pipelines, milestones, potential collaborations, and other plans for 2022 and 2023, expected burn rate, 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.

Ofer Haviv: Thank you for joining our conference call, discussing and providing an update on our activities in the third quarter of 2022. My focus in today’s review will be on two topics. The first one, Evogene’s current financial status and our plan to strengthen it; and the second one, update on the latest achievement of our subsidiaries. Following my review, Yaron Eldad, our CFO will provide the financial summary. After that, we will open the Q&A session. As you all know, financial markets are currently very volatile and company valuation, especially in the biotech sector, have fallen very significantly over the past year and a half or so. I want to highlight that Evogene has and will continue to successfully navigate those difficult times, despite the many challenges.

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Beyond that, the activities of our subsidiaries are advancing nicely and strengthen our belief that each generates significant value for the Evogene group. To address our cash position, as of the end of the third quarter, we have a consolidated $38 million on Evogene’s balance sheet. We expect that based on our business plan, it will be enough and take us toward late 2024. The strategic step we continue to pursue made fundraising for our subsidiaries and collaborations with non-dilutive payments we believe will ultimately extend this runway out further. With respect to fundraising for the subsidiaries, we are working hard to identify and bring value adding partners and investors. This was achieved at the same time. Any investment at a subsidiary level brings a new source of capital to the subsidiary and lowers the demand on Evogene’s balance sheet, enabling us to extend our cash resources.

It brings a value adding partner to the subsidiaries, which has a strong share in the ultimate success and update of that subsidiary. And for Evogene specifically, the valuation at which the investment is made allows us to identify shareholders’ value by demonstrating its inherent financial value and Evogene’s holding in it. In parallel, we are pursuing collaborations for both Evogene and its subsidiaries the basis of which are the tech engine for Evogene and the product under development for this subsidiary. Such collaborations will include a revenue stream of non-dilutive payments as well as extend Evogene’s potential market and establish market access for the product of our subsidiaries. I would like to now continue with an update on our subsidiaries, starting with Lavie Bio, our subsidiary focusing on developing ag biological plans, utilizing Evogene’s MicroBoost AI tech engine.

A key event during the third quarter was investment into Lavie Bio by ICL, a leading $11 billion New York listed global mineral company. ICL provides Lavie Bio with a $10 million investment of new capital for its development activities. For Lavie Bio, ICL is much more than just an investor. The investment is part of the collaboration that we strongly grow then its product pipeline. I would like to repeat a statement made by ICL in the recent conference call with regard to their investment in Lavie Bio. Lavie Bio’s unique approach leverage big data and advanced artificial intelligence and our collaboration with them focus on developing novel bio-stimulant products to enrich fertilizer efficiency. Combining Lavie Bio’s ag biologicals experience and cutting-edge technology with ICL’s advanced knowledge of fertilizer use and farmers’ needs will help facilitate the development of new and innovative products for the agriculture industry.

ICL shares our vision that by combining Lavie Bio’s ag biologicals expertise, Evogene’s MicroBoost AI technology with ICL’s fertilizer experience, the goal of our collaboration is to create a new type of bio-stimulant products to enrich fertilizer efficiency, a product which will be highly synergistic with ICL’s existing product portfolio. This is the second leading global player which Lavie is now partnered with, the other being Corteva, a New York listed $46 billion major agriculture company. This partner, Corteva and now ICL, are fully aligned with us and all have a strong interest in Lavie Bio’s long-term success and growth. The ICL investment combined with the fact that Lavie is now at the commercialization stage with its first product driver enables us to reduce Evogene’s financial resources focused on Lavie Bio.

At the same time, it ensures that Lavie Bio is moving ahead at the full speed and has the resources to meet its fullest potential in line with our long-term strategy. In October, Lavie Bio submitted the registration package to the United States EPA, the Environmental Protection Agency, for LAV.311, it’s novel biofungicide product which is the final step prior to commercialization. LAV.311 is a biofungicide targeting fruit rots and powdery mildews based on novel bacteria naturally presented in nature, which was selected utilizing Evogene’s MicroBoost AI. The standard timeline registration tended to take 18 months, and we hope to soft launch for the 2024 growing season, pending the regulatory approval. All-in-all, especially in time before this uncertainty , increasing prices and macroeconomic uncertainty, Lavie Bio brings a strong solution to enhance global food quality, agriculture sustainability and increased productivity.

I believe that Lavie Bio is in the right place at the right time and can attract strong value adding investments even during this challenging time. Moving on to Biomica, our subsidiary focusing on developing drugs based on human microbiome, leveraging our MicroBoost AI tech engine. Back in July, the first patient was dosed in Biomica’s Phase 1 clinical trial for BMC128 Biomica’s microbiome based immuno-oncology drug candidate at Rambam Health Care Campus in Haifa, Israel. In recent weeks, we have now progressed to the third patient out of 12. The drug is designed primarily to evaluate the safety and tolerability of Biomica’s BMC128, a consortium of microbes selected utilizing Evogene’s MicroBoost AI tech engine, in combination with an immune checkpoint inhibitor in cancer patients.

If the trial is open label, we expect preliminary results and the data readout in spring 2023 as the first few patients concluded their treatment programs. We are targeting to complete the trial in the later part of 2023. We are greatly encouraged with the positive progress we are seeing in the broader human microbiome drug based industry, given the recent announcement made by with regard to the advancement in the regulatory process of the candidate drug by the FDA. Moving on to Canonic, our subsidiary focusing on developing medical cannabis products, leveraging GeneRator AI tech engine. In September, the company announced the launch of its second generation products with higher level of THC and unique terpene profiles. These new and improved products were developed using genetic markers, which our GeneRator AI tech engine identified.

In October, a third of these products was initiated in the Israeli market with two new brands, synergy and combo, both with 24% THC while the maximum percentage of THC allowed in Israel is 24.4%. The market feedback in Israel so far has been excellent. THC is the primary psychoactive ingredient in cannabis. Terpenes are plant compounds known to provide relief for many mental symptoms, including pain relief, anti-inflammation, anti-anxiety, anti-depression and more. They also influence the aroma and the scent of the cannabis inflorescence. In addition, in September, we announced a licensing agreement with a Portuguese cannabis cultivation company, GroVida, for the commercialization in Europe for two of our new cannabis lines. Under the agreement, GroVida will cultivate market and sell products based on those varieties and we take Canonic royalties.

GroVida has been our partner for cultivation and testing of our cannabis varieties in the EU throughout 2022. Their interest in broadening our relationship to a new stage is a testament to the quality of Canonic’s varieties and to GroVida’s belief in the commercial potential of our trends in the European market. Europe is a key target market for Canonic with total medical cannabis market sales estimated at approximately €400 million while still at an early stage in its growth cycle. Finally, last week, we announced a change in leadership at Canonic. Dr. Arnon Heyman, CEO of Canonic, will leave the CEO position at the end of the year. He will continue to serve Canonic as a member of the Board of Directors. Arnon has been with Canonic since the beginning and was instrumental in developing our incredible market leading products, and we are thankful he will continue to play a role from the Board level.

Canonic has appointed Eyal Ronen who also served as Evogene’s current Executive Vice President, Business Development as Canonic’s new CEO effective January 1, 2023 in parallel to his role in Evogene. As Canonic expands itself in Israel and globally, I believe that Eyal’s strong business development background and broad experience will enable Canonic to move on to the next stage in its growth in sales and development. To conclude my review on the subsidiaries, I would like to highlight Casterra, our castor seed technology developer and focus on the latest announcement we released just a few days ago. Castor oil and its derivatives have a wide range of uses today in our growing $1.2 billion market worldwide. Applications include oil for lubricants, industrial human health such as cosmetics, and plastic polymers, given its high durability and elasticity and as a source for biofuel.

Global demand for biofuel is increasing. As we look to replace fossil fuels with biofuels, such as those derived from castor beans, we will see an increase in the demand for castor oil. Castor beans has high oil and energy content and given extensive environmentally friendly cultivation practice, it can serve as an effective source for the biofuel industry. Casterra’s latest announcement informed it has signed a long-term exclusive production and distribution agreement with Titan Castor Farms, a Zambian cultivator and distributor of castor oil. This agreement is the first new and important step in leveraging Casterra’s technology into the African continent. Titan will provide Casterra royalties on sale of its castor oil products, which are expected throughout Zambia and surrounding South Eastern Africa region starting in 2023.

In summary, as a group, we have met several important milestones in the past few months and the inherent value of our subsidiaries continues to increase. We showed that our hard work in building, investing in and strengthening our subsidiaries, all of which are leveraging our underlying Computational Predictive Biology tech engine is the right strategy and is creating value. At the same time, our cash position is strong and we believe it’s more than adequate to weather the current capital market volatility. Our mid-term target is that each subsidiary will have its own financial resources to support these activities until its success while at Evogene, in addition to being a major shareholder, we will continue to play a major role in maintaining and building the competitive advantages through our tech engines.

In parallel, and just as importantly, we are targeting and exploring the potential to establish new partnerships and activities that can benefit from our technology. We hope to highlight more such successes in the coming quarter. That ends my summary, and now over to Yaron for the financial review. Yaron?

Yaron Eldad: Thank you, Ofer. I will now provide the financial summary. Evogene continues to maintain a solid financial position for its activities with approximately $38 million in consolidated cash, cash equivalents and marketable securities as of September 30, 2022. Approximately $12 million of Evogene’s consolidated cash is appropriated to its subsidiary, Lavie Bio. We do not have any bank debts. During the third quarter of 2022, the consolidated cash usage was approximately $7.3 million, or approximately $4.7 million, excluding Lavie Bio. To-date in the first nine months of the year, our consolidated cash burn was $25.9 million, which included $3.3 million from the impact from foreign exchange and the decrease in market value of marketable securities on Evogene’s balance sheet.

For the full year of 2022, excluding the impact from foreign exchange differences and the change in market value from marketable securities, we expect our consolidated cash burn rate to be in the range of $27 million to $28 million. We are aiming to reduce the cash burn in 2023 and are currently building our budget. We hope to provide you with more color in our next conference call in February of 2023. I would like now to highlight some specific items on the P&L. Revenues for the third quarter was $466,000, in comparison to $151,000 in the same period the previous year and were primarily due to revenues recognized per the collaboration agreement of one of our subsidiaries. R&D expenses for the quarter, which are reported net of non-refundable grants received, were $5 million, in comparison to $5.8 million in the same period the previous year.

The main contributors to R&D expenses were Lavie Bio’s activities supporting the production and commercialization of its inoculant product and Biomica’s ongoing Phase 1 trial. Business development expenses were approximately $0.9 million for the third quarter of 2022, in comparison to $0.8 million in the same period the previous year. G&A expenses were $1.6 million in the third quarter of 2022, in comparison to $2 million in the same period in the previous year. Operating loss for the third quarter of 2022 was $7.1 million, in comparison to an operating loss of $8.6 million in the same period in the previous year. The net loss for the third quarter of 2022 was $7.2 million, in comparison to a net loss of $8.3 million in the same period in the previous year.

As Ofer mentioned, our business plan is to pursue strategies to strengthen Evogene’s consolidated cash position, ensuring our subsidiaries are well capitalized. With that, both Ofer and I would now like to open the call for any questions you may have. Operator?

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Q&A Session

Operator: Thank you. Ladies and gentlemen, at this time, we will begin a question-and-answer session. . The first question is from Kristen Kluska of Cantor Fitzgerald. Please go ahead.

Kristen Kluska: Hi. Good morning. Good afternoon, everybody. Thanks for taking my question. So the first one I had is if you could please elaborate more on your business plan. What specifically are you changing or deprioritizing in order to extend your cash balance now for two years? And could you speak to which subsidiaries in particular you think there could be some near-term opportunities for non-dilutive fundraising, whether that’s through partnership or other items?

Ofer Haviv: Hi, Kristen. This is Ofer. I will start by addressing the second part of your question. So I think that in the short term, probably one of the companies better positioned for fundraising is Biomica. But I believe that next year, I’m expecting another or two companies will be on the road for additional fundraising. I think that the amount of money we’ll raise for the we raised the $10 million, but we should target for a higher amount. And I think that also Canonic or AgPlenus should start the process of fundraising as well. So for the short term, I will put more emphasis on Biomica, but mid-term I think that and at least in other two companies should initiate the process of fundraising. This is with respect to fundraising.

With respect to non-dilutive actually here, there is a company such as AgPlenus and Lavie Bio and also Canonic, they’re in a good position to move forward with it. And also Casterra as I mentioned lately, the field of castor beans became again very interesting, and here too increased demand in the area of biofuel. The first question was related — can you remind me more what was it? What activity we are planning to reduce? So I think that with respect to the activity that we are going to reduce is that, if you remember — as you probably remember, according to our business plan, we are all the time looking for a new activity, a new initiative that can benefit from our technology. So this is probably something that we will reduce significantly the level of activity, meaning the business development and maybe developing technology which would be relevant for new forms of activity.

So this is probably we are going to put on hold and we will focus mainly on our existing activity and put them further. As an example, in the past, we have an activity focusing on reducing protein in plants to replace the ag protein. This is a small activity that we conduct is Evogene. But probably now this is an example probably we’ll put it on hold until we will have additional financial resources to extend our activity. So when you’re talking about the companies such as Lavie Bio or Biomica and also AgPlenus, we are not going to increase the budget but we are not going to reduce it. Canonic, as an example, probably we are going to focus more on a commercial activity. The main reason is that what we succeeded to build until now is quite amazing in the research level, and we have some very, very promising varieties, some of them we already launched and I can update that we’re quite happy with the launch of this product and I hope that we will be able to see some of the effect on the revenue for next quarter.

So there will be a shift from focusing on R&D activity and trying to develop a variety for more to the medical aspects of the cannabis product and more focusing on what we already develop, which there is a clear current demand in the market for high THC product and we already have a nice variety, nice collection of products already available. So this is what we are going to do, focusing more on the commercial aspects and then some R&D aspects. I hope that addressed your question.