Q2 2023 Yield10 Bioscience Inc Earnings Call
Participants
Charles B. Haaser; VP of Finance, CAO & Treasurer; Yield10 Bioscience, Inc.
Kristi D. Snell; VP of Research & Chief Science Officer; Yield10 Bioscience, Inc.
Lynne H. Brum; VP of Planning & Corporate Communications and Secretary; Yield10 Bioscience, Inc.
Oliver P. Peoples; Co-Founder, President, CEO & Director; Yield10 Bioscience, Inc.
Anthony V. Vendetti; Executive MD of Research & Senior Healthcare Analyst; Maxim Group LLC, Research Division
Presentation
Operator
Welcome to the second quarter 2023 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 over to your host, Yield10 Vice President of Planning and Corporate Communications, Lynne Brum.
Lynne H. Brum
Thank you, Melissa. Good afternoon, everyone. Welcome to the Yield10 Bioscience Second Quarter 2023 Conference Call. Joining me on the call today are President and CEO, Dr. Oli Peoples; Vice President of Research and Chief Science Officer, Dr. Kristi Snell; and Chief Accounting Officer, Chuck Haaser.
Earlier this afternoon, Yield10 issued our second quarter 2023 financial results. This press release as well as slides that accompany today's presentation 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. 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 turn the call over to Oli.
Oliver P. Peoples
Thanks, Lynne. Good afternoon, everyone, and thanks for joining our call. Let's turn to Slide 3. I'm pleased to report that we are making solid progress across the business as we operationalize our commercial plan to launch Camelina as a platform crop with a focus on higher fuel feedstock markets and high-value market for omega-3 oils.
Today, we'll provide an update on our business, including recent accomplishments, the market opportunity and trends driving the biofuel market; our progress developing herbicide-tolerant Camelina varieties; our plan to scale up EPA omega-3 Camelina; we'll present second quarter financials; and summarize key milestones. We will then open the call to questions.
Let's turn to Slide 4 for progress on key 2023 business goals. Our main goal in 2023 is to establish and demonstrate the value chain from Yield10 seed to commercial offtake products. I'm pleased to report that based on recent activities in the business, we are right on track executing against this goal. The value chain for Camelina in the biofuels market starts with seed genetics and quality seed production.
The next step is building relationships with growers in the target-growing regions and signing up to grow Camelina under contract. The third step is to line up grain offtake customers to buy the Camelina grain for their crushing and biofuel operations. We have now demonstrated each of the steps in this value chain.
Starting with the winter Camelina we contracted last year, we signed contracts and guided the growers through planting and harvest. One farm located in Southern Alberta redirected delivery of the harvested Camelina to our regional biofuel partner, where the first crusher of the Camelina grain has occurred, and the conversion to biofuel is imminent. The photos on the right side of the slide show the harvest of winter Camelina grown in Southern Alberta and the delivery of the Camelina grain to an offtake customer. This represents a key milestone for Yield10 demonstrating the full value chain.
On the business development side, our team continues to engage with potential supply chain partners, including ongoing discussions with Marathon Petroleum and Mitsubishi for investment in offtake agreements for Camelina production in specified growing regions. Outside of the scope of these discussions, we have continued to respond to additional inbound inquiries from energy company partner prospects with the goal of creating the option to establish a network of alliances to supply family in the feedstock aisle to the biofuel market.
Let's now turn to Slide 5. Camelina as a platform crop. Our business plan is based on leveraging Camelina as a platform crop for producing oil, meal and specialty products. We believe that by leveraging the demand created by biofuels and our advanced technology capabilities, we can transition Camelina from a niche crop into a major crop planting in more than 30 million acres a year in North America.
This won't be achieved overnight. While there are key attributes of Camelina that could drive the ramp-up in acres. For example, Camelina can be planted, harvested, stored and processed on existing equipment on farm and at the processors.
Next, another big driver of adoption is that we are bringing forward not only spring varieties but winter varieties of Camelina. Our winter varieties are proving to be extremely cold tolerant and drought resistant. With time, winter Camelina has potential for seamless integration into crop rotations with corn and soy. Here, we would plan Camelina as a winter cover crop in the fall after corn harvest and harvest late spring before planting soybean. I'll mention that in June, the USDA has stepped up and indicated they are offering crop insurance for Camelina in many states.
Let's now turn to Slide 6. The business model and markets for Camelina oil and meal. We are using a closed-loop contracted grain production model to produce Camelina oil for the biofuel market. Camelina grain is comprised of about 35% to 40% oil, and the protein meal over 55% and basically the rest of the seed. This is the core product for oil extraction.
Camelina oil has captured the attention of the renewable energy space because of its attractive composition and profile. It has a very low-carbon index, and its fatty acid profile is well suited for making renewable diesel and SAF. Camelina protein meal is approved for use in animal feed, representing an essential market and revenue stream for gas.
Now let's turn to Slide 7, the biofuel opportunity. There's tremendous opportunity in the biofuel market for vegetable oils processed into sustainable aviation fuel, SAF, and renewable diesel. New demand is being generated as new refineries are coming online. And this new environmental commitments are being made to utilize these cleaner fuels across the globe.
Biofuel players face 2 major sources of risk: volatility in pricing and availability of feedstock oils; and volatility in the regulatory environment, which, among other things, can impact the incentives for biofuel adoption. For example, we are already seeing states like Illinois place limits on the amount of soybean oil that could be used for SAF. Above which, the tax breaks no longer apply.
Camelina cultivation could address key aspects of risk for biofuel producers by expanding the overall supply of feedstock oil, especially using winter Camelina. Growing Camelina on otherwise fallow land either winter or summer can increase both feedstock oil for fuel and brings with it a new source of high protein meal.
Let's now go to Slide 8, establishing production under early varieties. Our team has developed spring and winter Camelina varieties that have enabled us to establish production in the value chain. WDH2, shown in the center of the slide, is a winter variety with robust cold tolerance. WDH3 is an early maturing winter variety, and E3902 is our genome-edited spring variety. The development of these 3 varieties enabled Yield10 to begin the commercial launch with proprietary seed genetics, while we accelerate the development of our advanced varieties with elite herbicide technology for commercial launch in the future.
Let's now turn to Slide 9, grain production and offtake. Last fall, beginning in September '22, we contracted with growers to plant WDH2 in plant plots ranging from 30 to 160 acres. This contracting was done to set in motion steps in the value chain from planting to harvest to grain delivery to an offtake customer. Photos on this slide illustrate the steps of the value chain we have up and running in Western Canada. Our team contracted spring family of acres for plant in May, and we expect harvest to be completed in the coming weeks. In third quarter, we are engaging with existing and new growers and seeing good interest in contracting winter acres in the '23-'24 growing season.
I'll now turn the call over to Kristi for an update on the development of next-generation seed genetics, particularly HT and stacked HT Camelina varieties.
Kristi D. Snell
Thanks, Oli, and good afternoon, everyone. Let's turn to Slide 10. Growers need weed control to reduce competition for nutrients and increase the productivity of their crops. Our vision is to provide farmers with high-yielding elite Camelina varieties with herbicide tolerance traits that are compatible with farmers' crop rotations. Incorporation of herbicide tolerance traits in canola transformed it from a marginal crop to a major crop grown on millions of acres, and we believe Camelina may follow a similar path.
Herbicide-tolerant lines of winter Camelina are particularly intriguing in that they could provide growers with a new crop rotation, a cover crop that increases grower revenue, protects soil health and reduces nutrient runoff, all while producing a feedstock that can be used to produce a low CI oil for biofuels.
Yield10 has also made progress in increasing the harvest value of Camelina with programs to enter near traits for increased seed yield and oil content, improved protein mill value and future higher value seed products such as omega-3 oils and PHAs. Yield10's technology development has resulted in a patent portfolio that includes 21 patent applications issued or pending.
Let's now turn to Slide 11. We have developed spring and winter lines at Camelina that have tolerance to an over-the-top spray of a broadleaf herbicide that is routinely used on major food crops. The chart on this slide shows progress towards achieving milestones to enable commercialization of our first herbicide-tolerant Camelina variety. We are making good progress on late-stage field trials and are waiting to hear back from USDA-APHIS on regulatory filings for deregulated growth of the crop and from the Environmental Protection Agency to add Camelina to the herbicide label. We have also initiated field work in 2023 to obtain seed samples for compositional analysis to support use of the seed meal for animal feed. We are also scaling up seed for commercial planning and are on track for 2025 commercial launch of spring Camelina with tolerance to the broadleaf herbicide.
Let's now turn to Slide 12. We're also making good progress with stacked herbicide tolerance, which is the combined traits of tolerance to over-the-top applications of a broadleaf herbicide for weed control, combined with tolerance to group 2 soil residues to achieve broader acreage. We recently reported encouraging data out of our ongoing spring 2023 field trial. We demonstrated robust stacked herbicide tolerance in multiple events. The photos show examples of events with stacked herbicide tolerance with little or no growth of control plants without the trait. We have initiated regulatory work with these lines and have filed a regulatory status review, or RSR, with USDA-APHIS to deregulate the growth with Camelina with the stacked trait.
Going forward, we will harvest the field trials, measure seed yield and seed oil content and choose to best lead and backup events to move forward in our pipeline. The lead event will be chosen based on robustness of the herbicide tolerance as well as seed yield, seed oil content and overall agronomics of the event.
Seed from the lines will be scaled up in the winter 2023-2024 contra season. We believe that the stacked herbicide tolerance lines will be a win-win for growers and Yield 10 since the trait will allow robust weed control for farmers, increasing yield and revenue and tolerance to previously used Group 2 herbicides, allowing broad expansion of acres available for planting Camelina.
As I wrap up, I'd like to acknowledge the tremendous efforts of the Yield10 technology team that have enabled Yield10 to develop and employ cutting-edge technology to position Camelina as a competitive crop for production of feedstock oils for biofuels. This technology package will also be used as the basis for the high-level production of omega-3 oils and elite Camelina background and the production of PHA bioplastics.
In the coming months ahead, we look forward to further field testing our best commercial quality herbicide-tolerant Camelina line as well as advancing the omega-3 oil technology platform and securing regulatory clearances for our elite Camelina products.
I'll now hand the call back to Oli.
Oliver P. Peoples
Thanks, Kristi. Now let's turn to Slide 13 for an update on omega-3. The omega-3 oils containing EPA and DHA fatty acids represent a very exciting market opportunity. Unlike the biofuel market where we will sell grain to an offtake customer, this is a place where it will be possible to market the oil directly to end users.
Our business strategy was set up to leverage the advanced Camelina varieties including HT and operating foundation established for biofuels to build their business in the omega-3 oils. We believe that Camelina will be an ideal platform crop for making these omega-3 oils.
We are conducting our work in omega-3 oils in collaboration with Rothamsted Research in the U.K. The team at Rothamsted developed the EPA8 Camelina line that produces up to 29% EPA in oil, depending on the background variety of Camelina used. The EPA level in this oil is 2 to 3x out of fish oil.
So we believe this can be developed as a preferred higher value source of purified EPA products, such as ethyl EPA from the pharmaceutical and nutraceutical markets. They have also developed and extensively tested the DHA1 Camelina line which contains 10% EPA and 10% DHA in the oil. Published aquafeed studies have shown that the DHA1 oil can serve as a drop-in replacement for fish oil.
Clinical studies also published have shown this oil to be an effective alternative to fish oil in the human diet. Next-generation Camelina lines with further improvements to the composition are also being progressed by Rothamsted with funding support from Yield10.
In July, we filed a request for regulatory status for Yield and RSR with USDA-APHIS as a key step in the regulatory path for omega-3 EPA Camelina. We're currently developing a detailed plan for the commercial launch of this business.
Let's now turn to Slide 14, the market opportunity for omega-3. Both new challenges and drivers for new sources of the omega-3 fatty acids, EPA and DHA, both essential for human health and wellness, continue to emerge. Consumption of oily fish in salmon are the main sources of EPA and DHA fatty acids in the diet. There is tremendous pressure on the harvest of fish such as anchovies because it is proving to be unsustainable as natural fish stocks are dipping currently. In fact, the anchovy harvest in Peru was canceled in 2023 due to low fish stocks. Peruvian anchovy account to around 20% of global fish oil, so we expect this to have a significant additional impact on fish oil pricing near term, and in addition, result in increased in third-party interest in alternate resources like the Camelina omega-3 platform.
We know that regulatory hurdles are also being reduced. Norway, the largest producer of farmed salmon until recently, had a moratorium on the use of GMO ingredients in aquafeed. But recently approved the use of a GMO omega-3 oil from Nuseed. They produce a DHA-containing oil in canola. Using the RSR process for regulatory approval by USDA-APHIS under the secure role, we see a clear path to production of omega-3 in the U.S.
Chuck, over to you.
Charles B. Haaser
Thanks, Oli, and good afternoon, everyone. Let's turn to Slide 15. We ended the second quarter of 2023 with $2.3 million in cash and cash equivalents. During Q2, we added $1 million to our cash position as a result of issuing a senior unsecured convertible note in Marathon Petroleum. This was in connection with the LOI we signed with them. So we raised an additional $2.7 million in net proceeds from a registered direct offering in May.
In addition, last week, we priced a $3.7 million public offering of units consisting of common shares and warrants. We expect that our cash on hand, including proceeds from these offerings, will support our operations into the fourth quarter of this year.
Our net operating cash used for operating activities was $3.2 million for the second quarter of 2023 as compared to $2.5 million for the second quarter of 2022. And for the full year 2023, we continue to expect total net cash usage in the range of $12.5 million to $13 million to fund our operations, including payments to growers for our first Camelina grain harvest. During our third and fourth quarters of 2023, we also expect to report our first Camelina product revenues from Camelina grain and sales to our biofuel offtake customers.
Let's now review the second quarter and year-to-date 2023 operating results. For the second quarter of 2023, the company reported a net loss of $3.7 million or $0.64 per share as compared to a net loss of $3.4 million or $0.70 a share for the second quarter of the previous year. As expected, due to the completion of our Department of Energy grant during our first quarter of 2023, we did not report grant revenue for the second quarter of this year. We reported $0.1 million in grant revenue in the second quarter of last year.
R&D expenses during the second quarter of 2023 and 2022 were consistent at $2 million, and G&A expenses were $1.7 million and $1.5 million, respectively. For the 6 months ended June 30, 2023, the company reported a net loss of $7.5 million or $1.39 per share compared to a net loss of $6.8 million or $1.38 per share during the 6 months of -- ended June 30, 2022.
Year-to-date, grant revenue from the completed DOE grant were $0.1 million and $0.3 million, respectively. Research and development expenses were $4.2 million and $3.8 million during the 6 months ended June 30, 2023, and June 30, 2022, respectively. And general and administrative expenses were $3.4 million and $3.2 million during each of those periods.
For more details on our financial results, please refer to our earnings release. Oli, back to you.
Oliver P. Peoples
Thanks, Chuck. Let's now turn to Slide 16 for upcoming milestones. But before getting into the upcoming milestones, I'd like to comment on the tremendous progress made by the Yield10 teams here in Massachusetts and in Canada. It's not easy for a small organization to make the transition from an R&D focused to commercial activities with the added pressure of needing to demonstrate compelling capabilities on both to prospective strategic partners. No surprise then that I'm extremely proud of the Yield10 team and what we have accomplished already this year.
Biofuel partner agreements progressing with Marathon Petroleum and Mitsubishi; additional biofuel partnership discussions ongoing with other oil majors and regional energy players; winter Camelina grain production and contracting fall of 2022 and close to fully harvested with some already delivered to our offtake partner; spring Camelina production completed with harvest coming shortly. Finally, on the regulatory approval for omega-3 Camelina line EPA8, and achieving key milestones in developing HT and very recently stacked HT Camelina in field trials.
Building on these accomplishments, we are working towards a number of key milestones in the second half of '23 and into the first half of 2024, including first grain product revenue, a big milestone for us; working with Marathon and Mitsubishi to finalize investment in offtake agreements; continue to progress partnerships with undisclosed third-party partner prospects interested in biofuel feedstocks; contracting winter Camelina production with doors for planting this fall as we continue to make progress introducing the benefits of growing Camelina as a winter crop and expand our grower network; building seed inventory of current and HT and stacked HT varieties for future growth contracts; developing and progressing the commercial launch of Camelina omega-3 oils; and continuing business development outreach to prospective partners across our seed product areas with the goal of executing strategic industry collaborations; and we'll continue to work on expanding our intellectual property portfolio.
With that, I'd like to turn the call back over to Lynne for questions.
Lynne H. Brum
Thanks, Oli. Melissa, we're ready for questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Anthony Vendetti with Maxim Group.
Anthony V. Vendetti
Yes, I just wanted to get an update first on the agreements. I know the LOI with Marathon Petroleum and then the MOUs with Mitsubishi and American Airlines. I was just wondering where those are at in terms of moving to definitive agreements. And then I have some follow-up questions.
Oliver P. Peoples
Yes, regarding -- I mean, obviously, with Marathon, I mean there's a time line associated with that LOI, which basically, I think, expires in -- from the point of view of certain provisions in basically August 25, I believe it is. And so although it doesn't mean that conversations will be over by then, that's when their exclusivity does run out.
So obviously, we've been working very closely with Marathon over the last 3 months basically to structure the agreements, basically an agreement which already defined most of the parameters. I can't disclose those as they're not public, but we basically involve 2 agreements: one would be an investment agreement; the second would be an offtake agreement.
Regarding Mitsubishi, we made progress with Mitsubishi and their partner, ENEOS, which is the refined -- major refiner, largest refinery in Japan. We are also progressing pretty much along similar lines. We, again, haven't disclosed the specifics of that, but certainly, we also anticipate 2 similar agreements, basically an investment agreement and a strategic offtake agreement for Camelina oil for the biofuel market.
And so with American Airlines, that's really more of a collaboration. American, as an airline, and obviously, when you look at the potential demand for SAF, 3 billion gallons for 2030 and 35 billion gallons in the U.S. for SAF by 2050. And then you look internationally, the 13.6 billion gallons from Europe and another 6 billion gallons demand from Japan, and certainly, the airlines who are really going to be pretty much dependent on SAF as a major source of reducing their carbon emissions, SAF is obviously very strategic to them. And so we continue to work with American Airlines as they help to support us to help develop this value chain. But Marathon -- not Marathon. Essentially, American Airlines is not going to be an offtake partner or a refiner. Essentially, we have a strategic interest in seeing this industry expanding, particularly the availability of low CI and nonfood feedstocks.
Anthony V. Vendetti
Okay. No, that's helpful, Oli. And then just to clarify on Marathon Petroleum, they have until August 25, so 11 days from now, to make a decision? Or the exclusivity with them lapses and you could strike a deal with another company if you so desire, is that correct?
Oliver P. Peoples
Well, let's be clear. I'm not going to get into that specifically. What I can say is that we are working very closely with Marathon to bring this to a positive conclusion. Within the constraints of the Marathon agreement, we are in discussions with other parties, including Mitsubishi and some others in areas that are not constrained by that agreement, but I'm not going to provide any specifics on that.
Anthony V. Vendetti
Okay. That makes sense. Okay. So you did say, though, by the end of this year, you'll be producing revenues from the Camelina grain. Can you...
Oliver P. Peoples
That's correct.
Anthony V. Vendetti
Correct? Correct. Okay. Can you talk about where you're at with the commercialization process for the herbicide-tolerant Camelina and the interest from the farmers?
Oliver P. Peoples
I think -- so I can talk to you about the interest from the farmers very specifically. And obviously, on the technology front, you've heard from Kristi's excellent presentation that stuff. And a great job on her team obviously, not only progressing the herbicide tolerance for weed control, but the very rapid development and demonstration of field trials of the stacked herbicide technology, and we can talk to the merits of both of those.
So fundamentally, what we hear from growers is we're very interested in this crop. We see tremendous potential for it. What are you going to do about weed control because we need to have weed control in order to seamlessly integrate this into our crop rotations so that we can grow this without having any negative impact on the other crops that we grow. So that's number one.
Number two is in all of these areas, particularly in the Pacific Northwest, all the way down through Kansas, down into Texas, they use a lot of these group 2 herbicides. And so the industry has this thing called a planned backdate. So if you've used the group 2 herbicide on various plots of your land or sections of your land, as they call it, basically, there are restrictions on what you could plant on that land soon thereafter. And sometimes for group 2, it's going to be a few months to as much as a year or even longer. And so that has a major -- what it does is it reduces the number of acres each grower has available potentially planting winter Camelina or even spring Camelina for that matter.
So by having the stacked HT that has tolerance to those residues, in addition to the weed control, we're just -- quite frankly, we're making this idiot proof for the grower to adopt this in a very large scale. And certainly, the conversations we have with growers indicate that they are very excited about that.
Operator
(Operator Instructions) At this time, I'm seeing no other questions. Ms. Brum, I'll turn the floor back to you for any final comments.
Lynne H. Brum
Great. Thanks, Melissa, and I'll turn the call back to Oli.
Oliver P. Peoples
So I'd like to thank you. I personally thank all of you for joining us on the call today and especially our shareholders for your continued support. I want to thank everyone at Yield10 for contributions that are keeping us on track to our commercial and product development goals. Have a nice evening, everyone.
Operator
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
