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Edited Transcript of MBLX earnings conference call or presentation 12-Aug-19 8:30pm GMT

Q2 2019 Yield10 Bioscience Inc Earnings Call

CAMBRIDGE Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Yield10 Bioscience Inc earnings conference call or presentation Monday, August 12, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kristi D. Snell

Yield10 Bioscience, Inc. - VP of Research & Chief Science Officer

* Lynne H. Brum

Yield10 Bioscience, Inc. - VP of Planning & Corporate Communications and Secretary

* Oliver P. Peoples

Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director

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Conference Call Participants

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* Benjamin David Klieve

National Securities Corporation, Research Division - Analyst

* Jon Robert Hickman

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst

* Paul Edward D'Auria

Maxim Group LLC, Research Division - Equity Research Associate

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Presentation

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Operator [1]

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Welcome to the second quarter 2019 financial results and business update conference call for Yield10 Bioscience. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference call over to your host, Yield10 Vice President of Planning and Corporate Communications, Lynne Brum.

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Lynne H. Brum, Yield10 Bioscience, Inc. - VP of Planning & Corporate Communications and Secretary [2]

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Thank you, Diego, and good afternoon, everyone. Welcome to the Yield10 Bioscience Second Quarter 2019 Conference Call. Joining me on the call today are President and CEO, Dr. Oliver Peoples; Vice President of Research and Chief Science Officer, Dr. Kristi Snell; and Chief Accounting Officer, Chuck Haaser.

Earlier this afternoon, Yield10 released our second quarter 2019 financial results. This release as well as slides to accompany our presentation today are available on the Investor Relations Events section of our website at yield10bio.com.

Let's turn to Slide 2. Please note that as part of our discussion today, management will be making forward-looking statements. These statements are not guarantees of future performance, and therefore, you should not place undue reliance on them. Investors are also cautioned that statements are not strictly historical constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause the actual results to differ materially from those anticipated. These risks include risks and uncertainties detailed in Yield10's filings with the SEC, including the company's most recent 10-K. The company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call.

I'll now turn the call over to Oli.

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [3]

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Thanks, Lynne. Good afternoon, everyone, and thanks for joining our call today. In the first part of our call, I will provide an overview of our business strategy, the niche crop products we are pursuing, recent accomplishments and our vision for growing our business. Kristi will provide an update on our field trials and provide an update on genome entity traits for boosting oil production in [Oilseed]. Then I will review the financials and summarize our key milestones for the year before opening the call to questions.

Now let's turn to Slide 3, our business strategy. Yield10, an agricultural bioscience company, created the Trait Factory to develop high-value genetic traits for the agricultural and food industries to enable sustainable global food security. The core of the Trait Factory, our trait gene discovery platform, GRAIN, Gene Ranking Artificial Intelligence Network, is unique in the industry. This advanced computational system enables our scientists to identify small numbers of key gene targets for a wide range of valuable crop traits and [putting] the crop products we are targeting for Yield10. Today, we have reported, presented a published work for several yield traits based on this [slot] farm illustrating the yield gains that may be possible using our approach. We have more than 15 traits in our pipeline.

The Trait Factory enables 3 distinct revenue opportunities, each with a different path forward. The first is R&D fee-for-service revenue or access to our unique capabilities and traits for crops or products Yield10 is not directly pursuing. The second, licensing of our yield performance traits for use in major corn crops, [corn] , soybean and other crops. And the third product sales is based on our Camelina platform for producing edible oils and PHA biomaterials.

For our R&D services, we promote our technologies and traits in press releases and scientific conferences to create interest from potential partners. A typical funded R&D program would include upfront payments, research funding and license revenues as appropriate.

Licensing of our yield and performance traits to the ag majors is the best way to maximize the acreage and future royalty revenue. The key here is to generate compelling scientific and field trial data before finalizing commercial license agreements. We are investing in our internal resources to progress our yield and performance traits in Camelina and canola.

For other commodity crops, we are accelerating development through working with the ag majors in their elite germplasm using their resources. Bayer is working with C3003 in soybean. Forage Genetics is working with several traits in sorghum and we've contracted a major ag player to develop several of our traits in corn. Dairy and field trial data with updates in canola will provide us with sufficient new information to understand the value potential and continue the development of our patent position. For other crops, once we have secured patent filings in the new traits, it's in our interest to leverage third-party resources to generate performance data as soon as possible, provided we get access to data generated and retain control of the IP.

Future agreements or changes to agreements with third parties will be on this basis. As our partners develop field data, we expect to enter into commercial license agreements which we'd be excited to include upfront fees on executed annual minimums and milestone payments during development before royalties kick in from commercial sales.

The third path to revenue is high-value crop product opportunities. Here, our focus is on using our Camelina platform to produce differentiated products protected by patented trades. To address global food security, we need to produce more food with less land but do so more sustainably. The use of Camelina as a cash cover crop has the potential to be a key part of improving the sustainability of food and feed production. Cover crops are well-known to reduce [nucleic] run off into our water system which impacts human and our biome and environmental health. Nucleic runoff is a major cause of algal blooms in the Gulf, resulting in fish kills and reduced tourism revenues. Cover crops are not widely used because they are typically an added cost to our farmers. We believe cover crops will become increasingly important. So we are focused on engineering products into Camelina which can add sufficient value. So growing them becomes a source of additional revenue for farmers while enabling the production of exciting products with large market opportunities.

This will provide us with potential direct revenue for product sales in addition to licensing our performance traits to the ag majors. There are many more partner prospects with these opportunities as compared to the small handful of very large players who control the seed sector. Yield10's unique capabilities are broadly applicable to a wide range of new food, feed, industrial and medical targets enabling 3 distinct paths to revenue. We will be increasing our business development activities and exploring partnership opportunities.

Let's now turn to Slide 4 to discuss these niche product targets. Yield10 is developing a number of novel traits to boost the flow of carbon through the metabolic building block, acetyl-CoA, to specific products. Acetyl-CoA is a key building block for edible vegetable oils, PHA biomaterials and medicinal plant parts such as CBD. Yield10 is pursuing the production of PHA biomaterials that can be used for nitrate removal and water treatment or for plastic replacements and the production of healthy edible oils, including sustainable fish oil replacements. We have no plans to enter the plastics replacement market and we'll focus on developing the Camelina technology and production of the recovered PHA biomaterials with the simplest application, water treatment.

This application has been known since the early '80s and our previous business routinely sold PHA product into this market but uptake was constrained by high costs. PHA biomaterials provide a natural readily deployable feed source for microbes in the environment which consumed the PHA nitrate back to nitrogen gas. As an example, as in a home aquarium, in our agricultural facility, the nitrate builds up and this results in algal growth. If you add PHA to the [research] leading water, then these microbes will remove the nitrate and the algae will disappear. The nitrate cannot grow. The PHA gets consumed during the process so you just have to top it up periodically to keep you and the fish happy. In effect, PHA cash cover crop business is tightly linked to sustainable food production and consumption by reducing runoff from food production that's [top] of the value chain and enabling cost-effective remediation of wastewater treatment systems at the back end. As the need for food increases, so will the need for fertilizer, and so will the value of this opportunity. We believe this will enable us to truly establish the value chain to create a profitable business and at long last to make low cost PHA biomaterials available to the packaging market.

We recognize the high interest in another molecule produced in plants from the same building block acetyl-CoA. CBD is a good example of a product target where Yield10's traits and capabilities could add considerable value for the third party with deep knowledge of the medical CBD business. Here, we are seeking [up funded] R&D program upfront payments, research funding and license revenues as appropriate. These product targets provide opportunities for Yield10's [development] business that generate product revenue and our partnerships with downstream revenue. We will keep you posted as we continue to make progress and finalize the business cases.

Let's now turn to Slide 5 to discuss the impact of genome editing and the development of commercialization of new traits in crops. The fields of biotechnology have also advanced and genome editing can be a perfect tool to accelerate the deployment of some of our novel traits in crops. We believe our Trait flagship platform may enable us to go from GRAIN modeling insight to additive trait to field testing of our product in a 3- to 5-year time period using genome editing. A vast acceleration is compared to the historic timelines in ag biotech. The sharp timeline for edited trait assumes the editing is carried out in high-quality germplasm of the crop of interest, or targets to change the composition of the seed. For example in different oil composition or increased oil content, once the trait is tested in the field and shown to work, then they can enter the commercial phase and either be licensed to third parties or commercialized directly. Genome editing is going to have a big impact in agricultural by reducing the cost and timeline to commercialization of new agricultural products. Meanwhile, USDA has taken steps to modernize its regulations and aligning with the science. And therefore, that could significantly streamline the path to market for certain products in the U.S. at least.

Our oil trait targets are on such a path especially with the progress we have made in Camelina and canola. This is a major significance to the industry on the one hand that will enable a new wave of differentiated traits, many of them for direct marketing consumers, which [should then] in turn provide new opportunity for farmers.

Now let's turn to Slide 6, a summary of our recent accomplishments. We are focused on executing against our business strategy, and I am pleased to report we have made considerable progress positioning Yield10 to achieve objectives for 2019. For instance, in 2019, we are positioned to generate proof points in our novel yield traits and key crops. In the second quarter, we completed planting for our Field Tests. Kristi will discuss the field test further in a few minutes, but we're also evaluating several additional traits in greenhouse studies.

Communicating our scientific innovations at conferences and in publications has been a very effective way to generate business development leads for both our technology platform and our traits. Our Chief Science Officer, Dr. Kristi Snell, recently presented her work with GRAIN and oil content traits at [few client] science conferences, and Kristi will highlight some deal on oil content work that was presented. As a result of these activities, we have third party interest in GRAIN and some of our oil traits. Since the start of 2019, we have filed 4 new patent applications, bringing our portfolio to 21 pending patent applications, pending and issued patents. Our U.S. patent was recently granted on C3003. And this morning, we announced receiving a Notice of Allowance from the USPTO for claims related to C4001. We have research license in place with ag majors on both of these traits. Earlier this year, Yield10 signed an exclusive global license for a third genome editing target, C3012, to increase oil content, from the University of Missouri. Yield10 also filed patent applications related to the use of our GRAIN technology platform to identify new yield gene targets, methods to boost oil content in crops and methods to produce PHA biomaterials in crops. We continue to monitor the progress of Bayer and Forage Genetics as they deploy and test the traits of soybean and [forage] sorghum, respectively, under non-exclusive research licenses. And we also actively engage in discussions with third parties interested in deploying our traits in a variety of other commercially important crops. We plan to keep you updated on the progress we're making in all of these areas in the second half 2019.

Let's now turn to Slide 7 describing our PHA crop breakthrough. In June, we announced the filing of a U.S. patent application covering new technology enabling the low cost production of PHA biomaterials in Camelina. PHA biomaterials are potential natural replacements for plastics, offering good shelf life, performance and use. And unlike the plastics they would replace, a simple clean end-of-life scenario. In many ways, they are the Holy Grail of plastics replacement, renewable, fully biodegradable, and with properties to replace a significant fraction of the global plastics market.

But simply too high cost through fermentation to gain broad market adoption. We kept the crop activity on PHA biomaterial production because it was tied directly into our core crop technology and because we have known for 30 years that this is probably the only way to enable very low cost PHA without biomaterial production. We have been working on this since Kristi joined the team 20 years ago. So kudos to Kristi and the team on the new results. As is often the case in science, sometimes, when the obvious doesn't work, it makes sense to just try a different approach. And as it turns out, like drilling an oil well or investing in real estate, location and the plant sales matters when producing new products and seeds.

In their early efforts, we could routinely engineer oil seeds to produce over 5% PHA in the seed process of Camelina. And this looks very promising until we found the resulting seeds were basically intact. Oil content and non-oil seed can go -- get up to 30% to 50% of the weight but the oil accumulates inside all of the seed cells. So our team decided to try and engineer the oil seeds to produce the PHA necessary to [seed cells] and this resulted in the production of healthy viable seeds even as we achieved PHA levels of 10% in seed. Based on our economic model 10% PHA content in seed and assuming no reduction in yield, the reduction process is estimated to be lower than polypropylene, a major plastic material used widely in food packaging. Given our 30-year history in the field, the GRAIN platform and the yield traits we now have in hand for Camelina, we believe there's still a lot of potential to increase PHA in seed to 20% or maybe 30%. As discussed earlier, the application envisaged Yield10 pursuing with the crop PHA [in] denitrification or water treatment which could provide an effective low cost solution to an enormous environmental problem. The success here will also open up the enormous plastics replacement opportunity where we will be seeking partners.

Let's now turn to Slide 8 on our timeline of path to value creation. During 2019 and 2020, what we call the growing phase, we are focused on commercial development of our traits and major crops and using Camelina as a production platform for products, including nutritional oils and PHA biomaterials. This provides us with multiple paths to developing revenue generating partnership for technologies, traits and for crop-based production technologies. Success here will lead to the harvest [or] commercial phase in 2021 and beyond.

I'll now turn the call over to Kristi for an update on our progress advancing development of our traits and key crops.

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Kristi D. Snell, Yield10 Bioscience, Inc. - VP of Research & Chief Science Officer [4]

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Thanks, Oli, and hello, everyone. In my presentation today, I will describe some of the recent advancements in our trait pipeline and our plans for 2019. Let's now turn to Slide 9. We currently have a pipeline of 15 novel traits and most of these are applicable to multiple crops. Our C3003, C3004 and C3011 traits could be broadly applicable to key commercial North American crops, including canola, soybean and corn which account for 200 million acres harvested annually.

The C4001 series traits are based on transcription factors or gene regulators in plants. In a model crop, we had seen significant increases in photosynthesis and biomass yield with these genes. We are deploying these traits in corn, wheat, Camelina and rice and Forage Genetics is evaluating some of these traits in forage sorghum.

This morning, we announce that we received the Notice of Allowance for a U.S. patent on the C4001 gene trait. We are developing a series of oil enhancing traits to increase oil content, the primary driver of value in oil seed crops. These traits could be deployed in existing commercial crops such as canola and soybean and could be used to improve the commercial viability of Camelina and other oils to cover other crops. We estimate that deploying our technology to produce PHA biomaterials and deploying our oil enhancing traits [in lines] engineered to produce nutritional oils could be planted on tens of millions of acres while generating several billion dollars of potential product revenue, all while providing growers with an opportunity to grow new crops and diversify the crops in their fields.

In 2019, our R&D resources are focused on generating proof points across our portfolio of traits and development.

Let's now turn to Slide 10. Our Field Tests are underway at sites in Canada and the U.S. The start of the season was very challenging with drought conditions on the Canadian prairies where our canola and Camelina is planted. The dry weather conditions affected the emergence of our plants and thus delayed the trials. These conditions affected most farmers and ag companies performing field trials on the Canadian prairies. Our team in Saskatoon has worked hard and has done a wonderful job monitoring and adapting our trials during these extreme weather conditions. Our team will continue to work closely with our field trial contractors to closely monitor the trials and record the data.

In the field this year, we are testing C3003 in canola as part of our program to generate multisite, multiyear field data on agronomics and seed yields for this trait. The photo at the top of this slide shows a picture from this trial with the plants in full bloom in the middle of July. We are also testing C3004 for the first time in field testing Camelina. This study was most affected by the challenging conditions but we'll collect as much data as we can on the agronomics in the yield of the plants and will generate pure field-grown seed for further field testing in 2020. We are also testing a series of CRISPR genome-editing traits in Camelina at sites in the U.S. We are testing these traits alone and in various combinations to optimize oil content and seed yield. The photo on the bottom of this page shows a picture of one of the field sites from the CRISPR genome edited trial taken at the beginning of August. The plans are currently at the seed filling stage. I presented data generated in greenhouse studies on these traits at the recent American Society of Plant Biologists' Annual Meeting, Plant Biology 2019, and we'll discuss those findings in a few moments.

The 2019 field test program also includes some additional traits we are testing for research purposes. We anticipate completing harvest in Q4 of 2019. The data generated by the trials is expensive and includes measurements of seed oil content and we expect to have results from the studies completed in Q4 2019 or Q1 2020.

Let's now turn to Slide 11. The economics of producing specialty oils is driven by how much oil can be produced per acre. This is driven by the seed yield per acre and the oil content of the seed. We have a portfolio of several traits accessible with CRISPR that have the potential to boost oil content in crops. On the left side of the slide is a simplistic illustration showing the path of oil production in seed and [what] are the various traits that we are examining [at] in the pathway to oil production whether during lipid biosynthesis or during lipid turnover.

At the Plant Biology 2019 conference, I had the opportunity to chair and speak at a session focused on genome editing. At the session, I presented data on some of our efforts to increase oil content at CRISPR editing, including our line that has edits to knock out the activities of C3008a, C3008b and C3009. As you can see on the chart, several types of lines with this triple edit were isolated. Line type 3 contains a full knockout of all 9 copies of the genes at Camelina whereas line types 1 and 2 have knockouts of 8 of 9 copies. The preliminary data generated in our greenhouse studies for these lines is quite interesting. In each of the constructs, we saw a percent increase in the oil produced per individual seed, increases that range from 12% to 38%. We also saw increases in individual seed weight. However, we observed the concomitant decrease in the number of seeds per plant that vary depending on how much oil content was produced in the seed. This data is very valuable because it indicates that we can increase oil content significantly in seed but there is a trade-off between increased oil content and the number of seeds produced by the plant. This suggests there isn't enough carbon in the plant to produce more oil and maintain the number of seeds [and is] an opportunity for optimization.

Oil content per plant may be the best way at this stage to estimate the potential impact on oil per acre. For example, in line type 1, we were able to optimize the combination of genome edits to increase oil production per plant by up to 5%. These lines are included in our 2019 field trial. New license C3007 and 2 other exciting oil content traits with unique biological mechanism were discovered by Professor Thelen at the University of Missouri. We have edited C3007 in Camelina and canola and are currently conducting greenhouse studies to evaluate oil content in seed yield. Our oil content traits are potentially very valuable. We estimate that if we can boost oil content in canola by 10% across the North American acreage, the trait could generate an additional $800 million in value per year. Because we are deploying them through genome-editing, they may have a more favorable regulatory path. We also expect these traits could have additional value if deployed to improve the yield of our specialty oil products.

It's an exciting time for us at Yield10. Our team is focused on our technology proof points for our lean traits and several of the traits in our pipeline look very promising. I would like to thank our R&D team for the tremendous effort they have made so far this year and look forward to their continued productivity.

Oli, back to you.

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [5]

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Thanks, Kristi, and the entire R&D team. The creativity and drive are certainly making them a pleasure to work for and my job easier. I'm very confident we will continue to make excellent progress throughout 2019.

Let's now turn to Slide 12 to talk about our affiliations to expand the testing of traits in key crops. Given our size and resources, we are managing to get a lot done in a number of crops by leveraging the expertise and resources of ag industry leaders, to deploy our traits in commercial germplasm and provide the path to commercial licenses. Bayer is making good progress with the evaluation of our C3003 trait in soybeans based on the research license signed in late 2017. They have provided us with updates on their activities and we are very pleased with the considerable progress they have made.

The work with Forage Genetics is also progressing under the research license we signed in 2018, enabling them to identify traits in forage sorghum. They have also recently provided us with updates and again we are very pleased with the considerable progress that they have made.

These companies generate data at their cost in their target crops, we expect they will come to us to negotiate the commercial licenses.

For corn and soybean, the major crops in North America and probably over 75% of seed sector revenues, our preference is to demonstrate the value of our traits before engaging in definitive collaborative or licensing discussions. With respect to corn, we have engaged a major ag company to deploy our traits into corn and now work is underway. We are working with researchers at NRC in Canada to develop genome edit lines for evaluation based on our C4000 series traits. As our visibility, including presentations at scientific meetings, has increased over the last several months, there's been an [increase about] our GRAIN platforms and traits in a range of crops and we are currently in discussions with several parties. In 2019, as we continue to generate more data on our traits, including field data, our activities will be focused on setting the stage for collaborations and partnerships.

Please turn to Slide 13, and let's cover a few financial highlights starting with the balance sheet. Our net operating cash usage was $1.8 million for the second quarter of 2019. We ended the second quarter of 2019 with $4.3 million in cash and cash equivalents. This cash balance includes the proceeds of a registered direct offering completed in the first quarter that enabled us to raise $2.6 million net of offering costs. We price this offering at market at no warrants. At the end of the second quarter, we have approximately [2.5] million shares outstanding. For 2019, we continue to expect net operating cash usage in the range of approximately $9 million to $9.5 million consistent with last year. We are directing this investment towards generating proof points, working in collaborations and advancing development of our yield traits. We continue to have no debt on our balance sheet and expect our cash on hand together with expected revenue from our corn covered grant to support our operation through several technology proof points into the fourth quarter of 2019.

Let's now review the second quarter and 6-month operating results. The company reported a net operating loss of $1.9 million or $0.15 per share for the second quarter of 2019 compared to a net operating loss of $2.4 million or $0.24 per share for the second quarter of 2018. Total research grant revenues in the second quarter of 2019 were $318,000 versus $285,000 in the second quarter of 2018. In the second quarter of 2019, research and development expenses were $1.2 million and G&A expenses were $1 million. This compares to $1.3 million of research and development expenses or $1.5 million of G&A expenses in the second quarter of 2018.

For the 6 months ended June 30, 2019, Yield10 reported grant revenues of $442,000, R&D expenses of $2.4 million and G&A expenses of $2.2 million, resulting in a net loss of $4.2 million or $0.36 per share. For more details on our financial results, please refer to the earnings release.

Let's now turn to Slide 14 to discuss our upcoming milestones. In 2019, we will continue to make progress in the following: advanced development of C3003 in canola, including generating data in our 2019 field testing program that support Bayer in their development of C3003 and C3004 traits in soybean; generate agronomic and yield data for C3004 in Camelina and deploy the trait in canola and corn; advance oil-boosting traits using CRISPR genome editing, including C3007 in canola; and continue testing our C3008 triple edit Camelina plants in U.S. field studies; report progress in our C4001 series traits; support Forage Genetics in the evaluation of traits in forage sorghum; continue to build our intellectual property portfolio; communicate our scientific innovations at technical presentation papers; and secure funded agricultural collaborations.

With that, I'd like to turn the call back to Lynne for questions.

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Lynne H. Brum, Yield10 Bioscience, Inc. - VP of Planning & Corporate Communications and Secretary [6]

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Thanks, Oli. Diego, can you now poll for questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jon Hickman of Ladenburg Thalmann.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [2]

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Oli, Lynne, I'm -- could you elaborate a little bit on how you plan to commercialize these products for the PHA? Are you going to actually sell seed to farmers or...

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [3]

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Yes. Go on, Jon, please.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [4]

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No, that's it. That's my -- are you going to license it to somebody to produce the seed for you and sell it to farmers?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [5]

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No. I think that's a good question and I think something that I want to just give you a bit more color on. First of all, a product like traits, like the PHA biomaterial in crops is really very similar to one of the edited traits that's being pursued by other companies where you need to set up what we call an identity preserved value chain. So our path forward is really to fully develop the technology so that it's ready for commercialization, deal with the regulatory approval process. It is an interesting opportunity in that at scale, it could command somewhere between 20 million and 30 million acres which makes it a very exciting seed acreage opportunity for someone else. So there's a potential for a partnership there.

But ultimately, our goal is to actually have a contract farm, have the crop seed harvested, brought to a processing facility and extract the PHA preferably through an environmentally responsible process, not using solvents, and to essentially sell the PHA pellets into the water treatment market. The remaining materials from the seeds are going to be basically vegetable oil and essentially protein yield which could be fed into the feed sector. So we see this as an opportunity that we have the ability to participate [and fully] downstream. How far we go will depend on the discussions we have ongoing with various third parties. I will be clear about one thing and that is we do not plan to get back into the plastics business. We feel that there's enough players in that space desperately seeking real solutions in plastic pollution in the environment. Having low cost PHA available and having a business that we can grow in the water treatment will really enable us to support and supply over time.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [6]

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So -- and then what trait -- can you tell us what trait you're using in the Camelina to do that PHA?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [7]

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Yes, the PHA trait is -- we've worked on -- Kristi and I have grown old together working on this. And frankly, what we've done is we've introduced 3 microbial -- 3 genes for microorganisms. We haven't given a trait designation yet because this is relatively recent. It probably will be C3014. But really what it is, it's a path that exists in microorganisms in nature. Interestingly enough, it also exists in [rhizobia] which are, of course, involved in nitrogen fixation in soybeans. So it's widely prevalent in the environment both in soil and in water and including strange places like deep-sea vents. So this is a natural product, has enormous potential.

And so what we've done is introduced the 3 genes in a very different and very unique way. The result is that the metabolism and the carbon flow in the seeds has been directed to produce these new products in a location that doesn't impair the seed germination. And so really, now, we can begin to work on further improving that. Although quite frankly, if we can sustain 10% or more PHA in seed, it's already the basis of a pretty interesting business.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [8]

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So because it's microbes -- these genes come from microbes and you're putting them in Camelina, that's a different regulatory process?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [9]

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Yes, you are absolutely right. And I'm glad you brought that up because we've been paying particular attention to the revisions of the USDA for this 7 -- [R340]. I think I got that right. And under those proposed changes, really, what they're seeking to do is to bring the regulatory process into line with all the knowledge and information gained over 30 years of safe use of GMO crops. And we see this as a very interesting opening for new crop products like PHA Camelina or essentially, specialty oil Camelina. And the reason for that is that they're not necessarily ever going to need to go into the ag export markets. And so we don't really need to be concerned about the challenges of getting regulatory approval in Europe which is just mainly political or China, which is also basically political.

So we can really focus on developing a crop that will be grown in the U.S., processed in the U.S. and the products sold in the U.S. And if the Europeans want to live in polluted water, well, good luck to them. So we feel very strongly that there's a real basis here to persuade the USDA and other regulatory authorities that this type of product, which is really about environmental sustainability, and the health of people and the environment and has a track record of approval, not only for use as a plastic and food [contact] approval, it also has use that's been approved for essentially use in the body for medical applications and has been studied extensively in feed applications. So we're very -- I would say, we're very fortunate or perhaps clever in our choice of crop Camelina with this type of acreage potential and the product is something that's very well understood by the regulatory authorities across the board, has multiple end-use applications, doesn't need to be exported. So hopefully, we can find a way to get a much more expeditious and timely regulatory approval for this.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [10]

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Okay. Could I get you to name and -- like say you're talking with numerous third parties. Can I get you to give us a number? Or is it a dozen? More than a dozen?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [11]

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No, I can't do that. You know I can't do that.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [12]

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Okay, can't do that.

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [13]

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All I can say is we've been very pleased with the growing interest in what Yield10 is doing. It's a real credit to the science team. But more importantly to the proof points that we've generated over the last few years. So our credibility has become very high. So now we are being sought out as a prospective partner and that's a credit to Kristi and her team.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [14]

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So there's more now than there were earlier in the year, can I say that?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [15]

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The global population is growing.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [16]

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Yes, okay. One more question. Kristi didn't mention much about C3012, the one with new license. Are you -- is that in greenhouse studies right now?

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Kristi D. Snell, Yield10 Bioscience, Inc. - VP of Research & Chief Science Officer [17]

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Can I answer it?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [18]

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Yes.

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Kristi D. Snell, Yield10 Bioscience, Inc. - VP of Research & Chief Science Officer [19]

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Yes, that's in greenhouse studies right now in Camelina and canola. So we're waiting to get data on that once we get to the point where we can get homozygous genes.

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Operator [20]

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Our next question comes from Ben Klieve with National Securities.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [21]

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A handful of questions here. First, to piggyback off of Jon's question regarding the approval of -- the regulatory approval for your PHA product. I want to make sure I understand this right. So the -- I know there's a lot that still needs to be determined. But at this point, your anticipation is that because you are integrating genetics from a microbe that this is going to be considered potentially a GMO trait. But you believe that the regulatory process will be significantly shorter and cheaper than the existing structure. Did I catch that -- did I get that right?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [22]

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I think it's a -- and so with the caveat, it's a very important caveat. We spent some time going over -- there's a request for feedback on the proposal from USDA. We did actually send in some, I would say, constructive comments to what's partly pending. But you read the actual proposal that came [out of the] USDA for this, we have not clearly established that just because it contains a [translate] means what we define as GMO. That depends not only on the USDA but also FDA and in fact, for what would be called plant-made industrial product, we have in fact in that document indicated there is a chance that they could also be nonregulated with the provision that they do not cause a plant pest. And so it's a little unclear but I would say that language is very encouraging. But even setting that aside, if it is regulated, they have also indicated a willingness to review these without years of field data based on the scientific underpinnings of the trait itself. But then we can't accelerate it.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [23]

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Perfect. Perfect. That's helpful. Another question on -- with regards to commercialization of this. The $4 million to $6 million that you talked about investing in this initiative, 2 questions. One, is that going to be investment kind of above and beyond your current run rate? Or do you anticipate expenses that you've had in the last few quarters kind of dropping off and getting replaced by this investment? And then second, how does this compare really to investments that you've made in other products in the past? Is it going to be fundamentally different in terms of what your -- what the cash is deployed for? Fundamentally different in timing or size? Anything -- any comment there will be helpful.

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [24]

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Yes. So I would say, really, what we're doing, and I think it probably, if you re-read the script, you'll get some indication on this. We realized that fundamentally, we are in a position where we are finding it useful, interesting, not only for Yield10 but also for the ag majors for them to essentially develop engineered lines with our traits and their particular germplasm and they seem to be pretty open to the [non proprietary] research license agreements. The key for us is we must be able to get access to the data generated in those studies. So that becomes a principal going forward. So going forward, we would say we are essentially going to focus our activities around essentially Camelina and canola. Canola really to validate and further develop additional traits for yield and performance. And Camelina really for the specialty products. So we have had activities in the past in rice and wheat which we will probably deemphasize unless we are able to secure third-party funding for those. So it's more reallocation of resources and what we are really focused on for the PHA is essentially getting ourselves off to get that first set of field data sometime in the next 2 years.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [25]

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Got it. Okay, perfect. A question regarding the commercial relationships that you are in discussion for. And I guess I have 2 questions. The first one is going to be the conversation around this seems to be very similar to what it's been the last quarter especially and to a degree, for the last couple of quarters. What, if anything, do you guys see as potentially holding these back from materializing to the point where you can put out a press release? Is there a hold up on the economics? Is there a holdup on the collaborators wanting exclusive rights to anything? Or do you think it's -- do you think that really these conversations are progressing towards that, and it's just simply a matter of, it just takes time?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [26]

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Yes, I think it's pretty much the last case, I would say. Some of the conversations, frankly, Ben, have actually come in fairly recently as we've begun to discuss, for example, the potential use of our technology in CBD, the potential use of our technology to produce these PHA biomaterials and the PHA biomaterial value chain. So some of these conversations are with people we've been talking to for a while. And some of them are with very new entrants who have come to us. I think it's just a matter of time and unfortunately, August is not the best time to get anything done. So right now, I would say, probably it's a little slower but it's still an ongoing thing even in August.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [27]

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Yes, okay. And can you help us kind of understand the -- kind of how long this process takes? I mean, for example, with the Monsanto relationship and the FDA relationship, how long did it take from the first phone call to the press release?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [28]

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I think it's pretty close to 2 years, right? 18 months to 2 years.

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Kristi D. Snell, Yield10 Bioscience, Inc. - VP of Research & Chief Science Officer [29]

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Yes.

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [30]

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Yes. So I think it was roughly sometime mid-2015. We started reaching out to Monsanto at the time, it's Monsanto. And the picture is very simple. We are a failed bioplastics company who is going to solve crop yields and we have some very exciting data points. So as you can imagine, there was a high degree of skepticism within Monsanto. After all, we've spent close to a $2 billion, both internally and externally trying to do just that. So there is an education process that had to go on there. And that really was partly why that happened and [lands upon]. There was also the fact that they had been acquired in the middle of that which also didn't accelerate things. So right now, when you look at the ag majors, they're literally only beginning to sort of emerge from the cocoon of essentially all the activities and rightsizing, downsizing, in other words, laying people off. That goes on when you merge large operations and activities like that. So Monsanto is -- I think Proactiva is pretty much through it. Syngenta, we don't have too much in the way of interactions with, but they have their challenges there as well. And we know that Monsanto has made great progress or Monsanto Bayer has made great progress on that. But these mergers just actually have a big impact [by months in the] organizations. Unfortunately, for major crop traits, those are the primary targets.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [31]

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Yes. No, I certainly understand that's not -- that's certainly [not] going to accelerate your initiatives with them. Okay, that's helpful. One last one for me and then I'll get back in line here. I'm sure that the process of negotiating this commercial relationship with Monsanto is very different than with somebody that you're working with on the CBD front. Can you talk a bit about kind of how the process [before] trying to secure commercial relationships that has been proven to be different with the CBD market? And then also, do you have any sense that maybe that's a market that's going to be able to move a lot faster than your traditional efforts have?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [32]

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Well, A couple of key points I would make. I would say, we just like to -- talking to the seed companies, you know who they are, you know what their business is, you know what their market share is and often times, you know the people. When you get into the CBD market, it's kind of the Wild West, right? And so what you run into is all kinds of companies at different stages of development and equally, wide-ranging stages of knowledge in the space. And so it's a little bit of a Wild West. So what we've tried to do is to identify players that we understand have been real success stories in this space and that really then gets into how you define success. Success can be raising money, which is a great thing. But also folks here really understand the space. Are we in it for the long term and really understand the plant, cannabis sativa, which quite frankly, we learned an enormous amount about in the last 6 to 9 months. And I can assure you the idea that you just go out and plant [happens] [in our business is rather naïve. So it's a very challenging plant to develop where it is today. And that's where we think we can really contribute.

But the way we contribute really depends on working with somebody who really understands the plant, knows the market, understands that the value and use for these products is not about CBD. It's actually about CBD combinations with DHC and several other molecules which have synergistic effects on the cascades of receptors in the human body to generate these tremendous medical benefits.

Having said that, I can assure, the product does work. I tested it myself on a gimped elbow and a gimped knee and it absolutely works. So it's going to take a lot more time in that space for the real winners to really shake out, and we are talking to some in particular who think they're going to be there at the end of this business. The projections, they're crazy. I mean we were talking about a potential 2 billion patient population. In some cases, looking at 300,000 or 400,000 tons -- sorry, 300,000 to 400,000 kilograms of very valuable product. So really is a niche opportunity but it requires a business skill set and knowledge of the plant systems that the Yield10 doesn't -- does not possess internally. So we plan to leverage our capabilities to participate there.

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Lynne H. Brum, Yield10 Bioscience, Inc. - VP of Planning & Corporate Communications and Secretary [33]

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Diego, can we have one last question?

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Operator [34]

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Yes we do. That question comes from Paul D'Auria with Maxim Group.

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Paul Edward D'Auria, Maxim Group LLC, Research Division - Equity Research Associate [35]

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This is Paul D'Auria actually calling for Anthony Vendetti over at Maxim Group. Got a lot covered there with the CBD. I was just wondering if you guys could just kind of maybe just jump into that just a little bit more. Just in terms of I know CBD is kind of like the hot word or like the hot thing with -- going on with cannabis. Is there like other niche products or like other cannabinoids that the product could potentially do the same thing that it will do with CBD?

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [36]

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Yes, the way to think about this is basically, for whatever reason through evolution, cannabis sativa sort of split into 2 varieties. One makes the series of cannabinoid compounds. There are several of them, it's not 1 or 2 molecules, it's several, all basically branched off the same pathway. All dependent on the synthesis of the first 2 precursors, which are polyprotic acids and I think is general pyrophosphate. And those 2 really come from acetyl-CoA and malonyl-CoA that are fairly well understood at this stage, biological synthesis [starts]. So that's what's known about it.

The other thing that's known is the farm bill basically deregulated hemp which is the former cannabis sativa that produces essentially the low THC variety and I think the regulations basically state if you can demonstrate that the crop doesn't contain more than 3% THC, then you can actually harvest it and process it. And that's one of the complexities in that, you need some THC in your product to have a product but at the same time, if the THC levels are above 3%, then you basically have to destroy the crop. So it's a very complicated value chain. We're well aware of the synthetic biology companies working on this in yeasts and in E. coli and everything else. And so what we've seen is that the delicate products made in crops is just very difficult to compete on a cost basis. And so cannabis sativa pretty much makes, depending on the version, makes pretty much what you want. It's a question then of optimizing it. And from our point of view, probably always have the best economics.

So using our pathway engineering skills to shift the balance of all the different enzymes involved to achieve different formulations is something that I think we can contribute to. But our plan would be to really be a service provider.

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Operator [37]

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There are no further questions at this time. I'll turn it back to Lynne Brum for closing remarks.

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Lynne H. Brum, Yield10 Bioscience, Inc. - VP of Planning & Corporate Communications and Secretary [38]

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All right. Thanks, Diego. I'll now turn the call over to Oli.

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Oliver P. Peoples, Yield10 Bioscience, Inc. - Co-Founder, President, CEO & Director [39]

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In summary, we believe the GRAIN platform can be used to address a wide range of traits in a broad array of crops that currently have more than 15 traits in our pipeline. A trait pipe enables 3 distinct revenue opportunities. The first is R&D service, fee-for-service revenues. The second, licensing our yield performance traits, reducing the major growth crops. And the third is product sales based on our Camelina platform for producing edible oils and PHA biomaterials.

I'd like to personally thank all of you for joining us on the call today and especially our shareholders for your continued support. This is an exciting time for our industry and for Yield10. Our team is laser focused on progressing our traits to fulfill our mission to produce step change improvements to crop yields to ensure sustainable global food security. I want to thank everybody at Yield10 for setting us on track to reach our goals in 2019, and I'd look forward to achieving our milestones this year. Have a nice evening.

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Operator [40]

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Thank you. This concludes today's conference. All parties may disconnect. Have a great day.