Evogene Ltd. (NASDAQ:EVGN) Q4 2022 Earnings Call Transcript

Evogene Ltd. (NASDAQ:EVGN) Q4 2022 Earnings Call Transcript March 10, 2023

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Evogene's Fourth Quarter and Full Year 2022 Results Conference Call. All participants are at present in listen-only mode. As a reminder, this conference is being recorded. 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 maybe 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 fundraisings 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 2023 and beyond, 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 Evogene's fourth quarter earnings call and full year 2022 results. I would like to welcome all of you. I want to review Evogene's achievements in 2022 and provide you with an update on our activities as well as potential catalysts during the next 12 months. Following my review, Evogene's Executive Vice President of Business Development, Eyal Ronen, who also served as CEO of our subsidiary, Casterra, will give an update on Casterra's activity. Evogene's CFO, Yaron Eldad, will provide a financial summary and update. After that, we will open the Q&A session. Evogene has been using its AI-driven computational predictive biology platform to divest and accelerate the discovery and development of life science-based products ranging from microbiome therapeutics in humans to wide range of agriculture applications to medical cannabis.

Our AI-driven computational biology tech engines support further development in our five main subsidiaries. In addition, Evogene has an internal feed rate division. And recently, on December 8, we announced that we would receive a $3.5 million payment from Bayer relating to Evogene's patent portfolio under its trade collaboration with Bayer. Evogene is focusing on developing three AI-driven tech engines. MicroBoost AI, supporting microbe-based products, Kempas AI, supporting small molecules based products and Generator AI, supporting products based on modifying genetic elements. The goal of our tech-engines is to identify the most promising candidate or mix of candidates that meets specifically desired life science product criteria and to support the candidate's development process leading to a commercial product.

By doing so, we are solving an urgent biological or chemical problem, providing a solution that will address a substantial need and hopefully create significant commercial value. I would like to emphasize that whenever we are identifying a specific microbe, genes or small molecule, there is always a huge multitude of potential candidates. Our AI and big data driven computational biology platform helps find that needle in a haystack in a way and in a timeframe that our competitors or partners may not be able to accomplish. This enabled reduced development time, saving a significant cost, and most importantly, increased probability of success in developing a commercial life science-based product. Each of our three AI-driven tech-engines has helped Evogene established a business ecosystem that includes either independent subsidiaries or strategic collaborations focused on developing products for specific life science market segment or product type.

In a few moments, I will review the impressive recent accomplishment of our five subsidiaries, which demonstrate the power and the value of our AI-driven tech-engine underlying the product development process. Looking ahead, we intend to continue to invest and improve our AI tech-engines addressing more potential life science discoveries and provide better and novel solution to development challenges. It's important to me to emphasize that Evogene is actively looking to increase shareholder value by entering into various business relationship with leading multinational companies for product development using our engines, generating revenue by commercializing and selling products, meeting all its milestones, including those under various collaboration agreements, raising external funds at the subsidiary level that demonstrate their value and working hard to provide shareholders with a greater understanding of our business and subsidiaries achievements.

As we mentioned, Evogene subsidiary had reached multiple achievements this past year and had multiple upcoming milestones in the year ahead, which we believe will create value through each of the subsidiaries and for Evogene's shareholders. I would like now to review them separately and I will start with Evogene's subsidiary, Lavie Bio, leveraging Evogene's MicroBoost AI tech-engine as part of its biology-driven design platform to develop next-generation ag-biologicals product. In addition to our majority ownership, Lavie Bio is partially owned by multinational ag-tech giant Corteva listed on the new stock exchange with a $45 million market cap. On August 17, 2022, Lavie Bio announced that ICL, a leading multibillion-dollar New York listed global minerals and ag-tech company was making a $10 million investment into Lavie Bio under a state agreement.

ICL investment and collaboration agreement with Lavie Bio will strongly broaden Lavie Bio's product pipeline. Combining Lavie Bio's ag-biological experience and cutting edge technology with ICL's knowledge of fertilizer and farmers need will help facilitate the development of new and innovative products for Lavie Bio and the agriculture industry. Lavie Bio's product pipeline now includes its first commercially launched product, Thrivus, a microbiome-based bio-inoculant for Spring Wheat. Lavie Bio won regulatory approval in the USA and commercially launched the product initially in North Dakota in the second quarter of 2022 as a pretreatment to improve yield for Spring Wheat. In the second quarter of 2022, Lavie Bio fully sold out of Thrivus and its initial sales in North Dakota, USA.

Now in the second quarter of 2023, Lavie Bio is targeting the 10 million acre Spring Wheat market in the USA and expecting significantly increased sales. Our product, Thrivus, potentially contribute an additional 3 to 4 bushels per share via yield improvements compared with industry benchmarks. Looking ahead, we are aiming to broaden sales of Thrivus beyond USA and into Canada and Europe in this market. We are also working to expand our level for Thrivus to include additional crops such as small grains and oilfield with potential increased target market covering approximately 500 million acres. Lavie Bio is continuing to advance its bio-pesticide program, including bio-fungicide and bio-insecticides. In October, Lavie Bio submitted the registration package to the United States Environmental Protection Agency for LAV311, its novel bio-fungicide product, targeting fruit rots and powdery mildew, the final step prior to commercialization, which is targeted for a commercial launch in 2024, assuming all goes well.

The initial product market type for LAV311 is over $200 million in the treatment of risk and there is a potential room to expand the target market to over $800 million, once it includes targeting additional fruits and vegetables. In the coming year, we plan to expand the potential addressable market for LAV311 by broadening its applications to additional crop while optimizing the product and manufacturing costs. Lavie Bio second bio-fungicide product, LAV321, which also advanced in last year 2022, has the potential to solve what is becoming expanding challenge for growers as the traditional chemicals used in agriculture against downy mildew are increasingly being banned globally. In the coming year, we are planning additional field trials that will also include additional diseases for this product.

Lavie Bio's achievement to-date demonstrates the power of Evogene's technology and its tech-engine, Microbot AI, which is very much proof of the validity of the Evogene business model. Evogene's second subsidiary is Biomica, focusing on developing microbiome-based therapeutics targeting human health, leveraging Evogene's MicroBoost AI. Biomica also had a very successful and active year in 2022. Most recently, on December 21, Biomica announced a $20 million financing round led by a $10 million investment from Shanghai Healthcare Capital and still subject to Chinese regulatory approval anticipated later this month and $10 million from Evogene. The deal was done at a post-money valuation of $50 million. Following the expected close, Evogene will own 67% of Biomica and CHC will hold 20%.

This external and independent endorsement of Biomica validates our belief in Biomica's long-term potential. Biomica is currently focused on its three proprietary therapeutic products programs. The most advanced program is in immunooncology. Using our computational analysis and predictive capabilities, Biomica identified BMC128, rationally designed live biotherapeutic products consortia. Last June, Biomica began its Phase 1 clinical trial in Israel for BMC128 in the treatment of various types of solid tumors in humans and dosed its first patient in July. The Phase 1 trial is expected to enroll 12 patients. The Phase 1 trial is designed mainly to evaluate the safety and tolerability of Biomica's BMC128 in combination with an anti-PD-1 checkpoint inhibitor, Opdivo, in those cancer patients.

Biomica's goal is to successfully complete the Phase 1 BMC128 trial in Israel this year. In parallel, Biomica plans to file an IND with the FDA in late 2023 or early 2024, with a view to beginning a Phase 1 B2 trial for BMC128 in the U.S. in the first half of 2024. Biomica's second microbiome therapeutic program is focusing on inflammatory bowel disease, or IBD, where the lead candidate is BMC333, a rationally designed, optimized consortia of 4 live bacterial strains. In several pre-clinical animal studies, BMC333 was shown to significantly reduce inflammation and tissue damage in targeting GI-related disorders. Biomica intends to start producing the macros in a quantity that will allow for a Phase 1 clinical trial in the U.S. in 2024.Biomica's program is focusing on Irritable Bowel Syndrome or IBS, where the lead candidate, Microbiome Therapeutics Consortia is BMC426.

Biomica has completed the discovery phase of BMC426 and is now into a pre-clinical phase. The result Biomica has received from BMC426 in experimental models of IBS are encouraging, and we look forward to updating you as this program advances. I want to highlight that Biomica's strong progress is a testament to the technological capabilities of Evogene's MicroBoost AI tech-engine. Evogene's third subsidiary is AgPlenus, which is developing a net generation sustainable crop protection product by leveraging computational algorithm and a target-based approach. AgPlenus' goal is to discover and bring to commercial stage new Mode-of-Action for protection products, including herbicide, insecticide and fungicide, leveraging Evogene's Kempas AI tech-engine.

Globally in agriculture, there is a major problem with herbicide resistance flourishing. There has not been a new commercial herbicide with a novel Mode-of-Action for over 30 years. AgPlenus is addressing that need and developing new herbicides with novel Modes-of-Action which are much more environmentally friendly than existing products. The crop protection industry is dominant by a few metal activities companies, including Bayer, BASF or Teva-Syngenta. These large multinational Ag-tech players often look to a smaller active companies like AgPlenus to develop new small molecule candidates. This is precisely what is happening with our AgPlenus now. AgPlenus product pipeline included its most advanced candidate, APH1, a herbicide with a novel Mode-of-Action, which provides a broad spectrum with control at commercial dose rates.

During the past year, AgPlenus successfully worked on expanding the data package for APH1. As a result, AgPlenus is seeing a lot of interest in APH1 from major Ag-tech companies as well as other products in AgPlenus' pipeline in addition to great interest in AgPlenus' AI-driven completion tools and technological capabilities. AgPlenus already worked closely with Corteva to develop new Mode-of-Action herbicides to target resistant weed. Under this agreement, AgPlenus discovered and optimized the Herbicide candidate and Corteva conducts testing and product development. Corteva received license to this product subject to AgPlenus being paid, research fees, milestone and royalty upon commercialization. The AgPlenus-Corteva collaboration has been ongoing since March 2020.

From technological standpoint, in the past year, Evogene and AgPlenus have completed two proofs of concept for two of its major AI computational tools, pointed an active search. Portet allowed the screening of a mega database of over 30 billion small molecules to identify the most promising that bind to the new Mode-of-Action target protein. Active search is an important optimization tool to identify promising purchasable similar molecule to the lit candidate, aiming to increase probity of meeting product criteria. This Proof of Concept was completed with good results, which we believe will improve AgPlenus's workflow and ongoing pipeline going forward. In the past year, AgPlenus have further leveraged our computational platform to expand its pipeline to include fungicide candidates.

AgPlenus has now completed the first stage of computational work fungicide target selection and are now entering the Proof of Concept stage for these potential targets. We hope in the coming year to further advance the fungicide pipeline and initiate new collaborations with leading global Ag companies in this new potential field. Moving on to Evogene's fourth subsidiary, Canonic. It is focused on developing best-in-class medical cannabis products, leveraging Evogene's generator AI tech-engines. Despite 2022 being a challenging year for the medical cannabis industry in Israel and worldwide, Canonic's main achievement was the recent successful launch of six new second-generation products in Israel. These new products all contained high level of TSC above 23%, while maximum percentage of TSC legally allowed in Israel is 24.4. Since its launch, we have already seen positive traction for these second-generation products in the Israeli market.

These second-generation cannabis products were developed using genetic markers, which Evogene GeneRator AI tech-engine identified. In the meantime, Canonic's main goal for 2023, are to grow second-generation cannabis cells while reducing company expenses. At the same time, as I mentioned, the global Cannabis market has become increasingly competitive during the past year, and we don't expect that situation to change in the near-term. While we are continuing to support Canonic growth, we have made some recent structural changes to lower expenses, and we are considering various longer-term options. Evogene's 5th subsidiary, Casterra, focuses on developing complete solutions to growing castor plants used for production of castor oil on a commercial scale.

Utilizing Evogene Generator AI tech-engine to develop its unique castor varieties, in previous analyst call, we had not emphasized Casterra activity, but in recent months, we have seen an increase in interest in castor oil as a source for biodiesel in Europe. On January 19, Casterra announced sending on an agreement to sell a large quantity of castor seeds and provide technical support to a world-leading European energy company to launch its cultivation of castor plants in various countries in Africa. This follows our announcement of Casterra on November 15, signing of a production and distribution agreement with Titan Castor Farm, a Zambian cultivator and distributors of castor oil. Casterra is now gaining strong momentum and attention from others wanting to benefit from growing castor oil for biodiesel.

We believe it has the potential to serve as a major value creator for Evogene shareholders. Additional information about the Casterra will be provided by Eyal Ronen, our VP of Business Development shortly. In summary, the activities of Evogene and its subsidiaries are advancing nicely. During 2022, the external investment in Lavie Bio and Biomica provides independent validation of the significant value inherent within our subsidiaries, each one by itself and certified to the value originally created by Evogene's AI tech-engines. With respect to additional fundraising for the subsidiaries, we continue to work hard to identify and bring value-adding partners and investors. In parallel, we are pursuing collaborations for both Evogene and its subsidiaries that will inject additional funds for our activities.

Our business success in 2022 showed that our hard work in building investing in and strengthening our subsidiaries, all of which are leveraging our underlying computational predictive biology tech-engines is the right strategy and is creating value, which we expect will ultimately be reflected in Evogene's shareholders' value. Our mid-target is that each subsidiary will have its own financial resources to support its activity until its success. While it's Evogene, in addition to being a major shareholder, we will continue to play a major role in maintaining and building our tech-engine serving as the subsidiary's competitive advantage. We hope to announce many more success in the coming quarters. And now, I would like to turn over this call to Eyal Ronen, our VP, Business Development and CEO of Casterra, after which, Evogene's CFO, Yaron Eldad will provide a financial review for Evogene.

Eyal?

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Eyal Ronen: Thank you, Ofer. First, I would like to start by saying how excited I am to have joined the Evogene Group and I am very pleased to take part in this call. Prior to my review of Casterra's activity and recent achievements, I would like to emphasize Casterra's offering to our clients' future. The increased use of fossil fuels with high-carbon footprint in the rest of the world significantly contributes to long-term global warming, ultimately leading to harsher weather conditions and increasing the risk to human sustainability. Furthermore, the significant growth in emerging economies leading to increases in demand fo energy will also pose increased challenges. Biofuels and biopolymers are a part of the solution, helping to reduce the carbon footprint by reduced greenhouse gas emissions and supporting the growing needs for sustainable renewable energy and polymers.

Casterra is a subsidiary of Evogene and as mentioned by Ofer, it focuses on developing a complete solution to growing castor on commercial scale. The company was established in 2008 initially by the name Evofuel, which later changed to Casterra to reflect the focus on the promising crop of castor as a ready source for bio-based materials, whether for biofuels or biopolymers. As the world looks to replace fossil fuel with biological friendly and sustainable source, we foresee an increase in the market for castor oil. Castor beans represent the highest energy return to growth as they have high oil content, approximately 50% can go on marginal lands, meaning that they pose no competition on land which can support other edible crops and support environmentally-friendly cultivation practices.

From a regulation perspective, the crop aligns with the recent EU regulation supported replacement of palm oil to low indirect land use change or ILUC crops, such as castor. Castor oil and its derivatives are estimated at $1.36 billion market worldwide today and expected to reach $1.61 billion by 2028 based on MarketWatch report from February 2023. Casterra's competitive advantage is that it provides an end-to-end industrial solution for cultivating high yield castor oil. Casterra's solution is stable to optimize all parts of the process from seed to grains. The key source for value of Casterra, its ability to develop proprietary and vastly superior castor seed varieties using Evogene's plant genomic applicative capabilities, broad genetic library and Generator AI tech-engine.

Casterra has built its castor genetic library asset based on broad collection of over 300 castor lines from 40 different geographics and climatic regions. In addition to the above, Casterra has many years of unparalleled experience with cultivation practices given its technical support. To promise high yield with minimal losses, Casterra has developed a castor-built specific mechanical harvesting machine in collaboration with Italian specialty machine making, Santini. In addition, the company developed a proprietary high-capacity dehulling machine. You are welcomed to visit Casterra's site for additional details. In the past few months, Casterra has extended its production capabilities to meet the market demand in different geographies and to-date produces its seeds in three countries: Israel, Brazil and Zambia.

In the biopolymer space, Casterra worked closely with market leader and explores new territories to support high quality and stable supplies to the growing castor oil derived biopolymers industry. And finally, the most important development was the recent agreement for sale of large amount of castor fields and providing technical support to European oil major to launch its cultivation of Castor in Africa. As we built the close business relations with these key customers and others, I expect our business to grow and to receive additional orders for seeds and equipment. I look forward for sharing more information with you in the coming quarters. That ends my summary. And Yaron Eldad will now provide the financial update. Yaron?

Yaron Eldad: Thank you, Eyal. I will now provide the financial summary. Evogene continues to maintain a solid financial position for its activities with approximately $35 million in consolidated cash, cash equivalents and marketable securities as of December 31, 2022. This amount does not include the $10 million investment in Biomica by SHC that is expected to be closed in the coming weeks. Approximately, $9.7 million of Evogene's consolidated cash is appropriated to its subsidiary, Lavie Bio. We do not have any bank debt. During the fourth quarter of 2022, the consolidated cash usage was approximately $2.6 million or approximately $400,000, excluding Lavie Bio. For 2022, our consolidated cash burn usage was $28.5 million or approximately $20 million, excluding Lavie Bio.

For 2022, our consolidated cash burn usage was $28.5 million or approximately $20 million, excluding Lavie Bio. The consolidated cash usage for 2022, included financing expenses in the amount of $2.3 million due to the U.S. dollar net exchange rate differences and a decrease in the market value of marketable securities in the amount of $800,000. Looking ahead to 2023, excluding any impact from foreign exchange differences and the change in market value for marketable securities, we expect a consolidated cash burn rate to be in the range of $27 million to $29 million. I would like to now to highlight some specific items on the P&L. Revenues for the fourth quarter were $660,000 in comparison to $311,000 in the same period the previous year. Revenues for 2022 were $1.7 million in comparison to $900,000 in 2021.

The increase in revenues was primarily due to revenues recognized for the collaboration agreement of Evogene subsidiary out planning with Corteva as well as revenues from the sales of Canonic's medical cannabis products in Israel. R&D expenses for the fourth quarter of 2022, which are reported net of non-refundable grants received were $4.8 million in comparison to $6 million in the same period in the previous year. For the full year 2022, dev expenses were $20.8 million in comparison to $21.1 million in 2021. The main contributors to R&D expenses were Lavie Bio's activities supporting the production and commercialization of its inoculant product, Thrivus, Evogene's ongoing development of its technology engine and Biomica's microbiome-based therapeutics development efforts.

Sales and marketing expenses were approximately $1.2 million for the fourth quarter of 2022 in comparison to $700,000 in the same period the previous year. For the full year 2022, these expenses were $3.9 million in comparison to $2.7 million in 2021. The increase was mainly due to Lavie Bio's increased business development personnel and commercial trials of its inoculant product, Thrivus. Performed during 2022 and increased business development personnel in Canonic. General and administrative expenses were $1.7 million in the fourth quarter of 2022 in comparison to $2 million in the same period in the previous year. For the full year 2022, these expenses were $6.5 million in comparison to $7.3 million in 2021. The decrease was mainly attributed to the decrease of costs of directors and officers insurance and to the decrease of the share-based compensation expenses.

Other income was $3.5 million in the fourth quarter of 2022 and for the full year of 2022. This was received from Bayer under the joint seed traits collaboration agreement with Evogene, as part of our restructuring and release of the patent filing, execution and maintenance obligation under the collaboration. Operating loss for the fourth quarter of 2022 was $3.8 million in comparison to an operating loss of $8.7 million in the same period in the previous year. Operating loss for the full year 2022 of $26.9 million in comparison to $31 million in 2021. The decrease in operating loss is mainly due to the other income received from Bayer as described above. Net loss for the fourth quarter of 2022 was $3.8 million and comparing to a net loss of $8.1 million in the same period in the previous year.

Net loss for the full year 2022 was $29.8 million in comparison to a loss of $30.4 million for 2021. With that, both Ofer, Eyal and I would now like to open the call for any questions you may have. Operator?

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