Earnings Call Transcript - EVGN Q1 2024

Operator, Operator

Welcome to Evogene's First Quarter Results Conference Call. As a reminder, this conference is being recorded on May 23, 2024. Before we start, I want to point out that some statements made during this call by Evogene's management will be forward-looking statements related to future events. This presentation includes forward-looking statements regarding our future financial or operational results and other matters affecting us. Such statements may include words like believe, expect, anticipate, should, plan, estimated, intend, and potential or similar expressions. We will use these forward-looking statements when discussing our value drivers, commercialization efforts, product development, market size, and technological capabilities. These statements are based on current expectations and involve certain risks and uncertainties that are hard to predict and do not guarantee future performance. It's important to understand that various factors may impact the company's actual results and cause them to differ significantly from any forward-looking statements made today. Actual future results and trends may diverge from what is expressed or implied due to factors that are largely beyond our control, including the ongoing conflict involving Israel, Hamas, and Hezbollah, and potential escalations in the region. More details on these risks can be found in Evogene's annual report and other filings with the Israel Securities Authority and the U.S. Securities and Exchange Commission. Unless required by securities laws, we do not commit to updating any information presented today. The information here does not make up a prospectus or an offer to sell or solicit securities from Evogene. Trademarks mentioned are the sole property of their respective owners and are used purely for reference. On today's call, we have Yaron Eldad, CFO of Evogene, and Yoash Zohar, CEO of Casterra, along with representatives from each subsidiary during the Q&A session. I will now hand over the call to Ofer Haviv, President and CEO of Evogene. Mr. Haviv, the floor is yours.

Ofer Haviv, President and CEO

Hello, and good day, everyone. In today's conference call, I would like to start with Evogene Group's financial and business highlights from the beginning of the year, continue with an overview of Evogene's activity and achievements since the beginning of 2024 and conclude with the achievement of our subsidiaries during that period. Following my part, Evogene's CFO, Yaron Eldad will provide financial update of Q1 2024 activities. After that, we will open the Q&A session. Let's start with Evogene's Group financial and business highlights that took place from the beginning of this year. In Q1 2024, our total revenue reached approximately $4.2 million compared to $0.6 million in Q1 2023. Looking ahead to the full year, 2024, we anticipate continued revenue growth compared to the previous year. In Q1 2024, our loss was approximately $3.8 million compared to $7 million in Q1 2023, a decline of approximately 46%. Additionally, our projected cash use for 2024 excluding Biomica and Lavie Bio is approximately $8 million compared to $12.5 million in 2023, demonstrating a notable 36% decrease year-over-year. In Q1 2024, Evogene closed down Canonic's operation, resulting in an annualized saving of $1.5 million. On February 6, Evogene and Verb Biotics entered a collaboration agreement to advance probiotic innovation, aiming to produce sustainable microbial metabolites, known to improve human health and vitality. On April 2, Evogene and The Kitchen FoodTech Hub by the Strauss Group established Finally Foods, an AI-driven company aiming for established sustainable and efficient protein production in plants for the food sector. Evogene holds approximately a 40% stake in Finally Foods. The new company is funded by The Kitchen Hub and the Israeli Innovation Authorities. These two new collaborations demonstrate the implementation of Evogene's business model in which we leverage our technology in new life-science sector, not covered by our subsidiaries, benefiting from our partners' expertise in this new field. Now I would like to highlight the main achievements made by Evogene subsidiaries from the beginning of this year. Casterra has recently announced agreement with African and Brazilian seed growers, securing an addition of approximately 900 tons of seeds are expected to fulfill all standing orders by the end of 2024. Biomica announced it will be presenting preliminary Phase I clinical trial results for BMC128 microbiome therapeutics in oncology in a poster presentation at the 2024 ASCO Conference on June 3. Lavie Bio received $2.5 million, the second half of an upfront payment from Corteva and announced a new collaboration agreement with Syngenta. Additionally, Lavie Bio announced an extension to its joint validation trials with Bayer for its bio-fungicide, following successful laboratory and greenhouse testing. Marketing and sales efforts for Yalos, Lavie Bio's first commercial microbiome-based bio-inoculant product are expanding in U.S. and Canada with additional crops being added for treatment. Lavie Bio anticipates 2024 revenues for Yalos to increase compared to the previous year. AgPlenus announced a new collaboration agreement with Bayer. AgPlenus will be entitled to receive an upfront payment, ongoing research funding, milestone payments and royalties based on future product sales. AgPlenus also achieved a milestone with Corteva under its existing collaboration agreement. I will provide more details on the achievement of each subsidiary later in the presentation. Let us now move to the Evogene overview, and I will start by briefly reviewing our strategy and business model. The biggest challenge in developing life science-based products is at the beginning of the process in the discovery and optimization phases, finding the candidate that meets a long list of their required criteria from a huge quantity of potential candidates in order to reach a successful commercial product. It takes much time and resources and the probability of success may be slim, like finding a needle in a haystack. Evogene, a pioneer company in the field of life science-based products, is aiming to revolutionize the industry. Our mission is to leverage dedicated big data sets with cutting-edge computational technologies and deep life science understanding, addressing the discovery and optimization challenges to drive product innovation, securing our position as a leader in developing solutions that advance humanity's future. So how do we make it happen? With investment of tens of millions of dollars and over a decade of intense work, Evogene has created a groundbreaking platform called Computational Predictive Biology, the CPB platform, which integrates profound scientific knowledge with public and proprietary big data and AI technologies. Based on this platform during past year, Evogene developed 3 innovative AI tech-engine, addressing the main development challenges of 3 product categories. MicroBoost AI directs and accelerates the development of micro-based products, ChemPass AI for small molecule-based product and GeneRator AI for products based on genetic elements. The value proposition of our AI-driven tech engines stems from the efficient finding and optimization of the most promising candidates, therefore, increasing the probability of success reaching a breakthrough product within a competitive time frame and in a cost-efficient manner. Our 3 AI tech engines were structured to be compatible with the tremendous potential of all its market segment not limited to only one specific segment. This slide demonstrates the best varieties of market segments that can benefit from our technology. Each tech engine is at the center of potential development of many product types, addressing the needs of different life science industries. In order to capture the value of our AI tech-engine, our business strategy is to establish the diverse collaborative partnerships for life science product development. The partners we collaborate with are expert in specific fields that complements our technology. We adopted this approach to maximize the potential of our tech-engine while reducing financial and development risks. Therefore, we formed partnerships through licensing or collaboration with companies positioning domain-specific knowledge such as pharmaceutical or agritech, together, we will develop novel products, aiming to full or partial of ownership upon project completion. We believe this strategy holds the potential for groundbreaking innovations and significant financial gains for Evogene. This is a current snapshot of the status of our business model with Evogene owning 4 subsidiaries companies and in additional market segments not covered by our subsidiary, we have collaborations with leading companies all working on developing innovative life science products. More specifically, we have 2 license agreements utilizing MicroBoost AI, one with our subsidiary Lavie Bio to develop ag-biological and the second was our subsidiary, Biomica, to develop drugs based on the human microbiome. In addition, we established a collaboration with Verb Biotics to develop probiotic product on which we announced this quarter, and I will elaborate on shortly. With respect to ChemPass AI, we had a license agreement with our subsidiary AgPlenus to develop ag-chemicals and the collaboration agreement with our subsidiary Biomica, to develop drugs based on small molecules. Last but not least, with respect to GeneRator AI, we have a license agreement with our subsidiary, Casterra, for the development of elite castor seed varieties, a license agreement with Finally Foods for protein production in plant, on which we announced this quarter, and I will elaborate on shortly. I would now like to provide additional details on the decisions concerning our subsidiary Canonic and the new engagement with Verb Biotics and Finally Foods. In Q1 2024, Evogene decided to cease operations of Canonic, which specialized in developing medical cannabis products due to the challenging market condition in the medical cannabis sector. This decision results in annualized savings of approximately $1.5 million. Resources, we intend to allocate to area with greater growth potential such as funding Casterra's needs for ongoing capital. This decision highlights Evogene commitment to prudent resources management and strategic focus in response to evolving market conditions. At the beginning of February, Evogene and Verb Biotics entered a collaboration agreement to advance probiotic innovations. The parties will identify and design probiotic bacteria that produce high sustainable quantities of microbial metabolites known to improve human health and vitality. The collaboration generates excellent synergy by combining Evogene's knowledge in bacteria-based product development, utilizing its tech-engine MicroBoost AI, with Verb Biotics access to the genomes of virus microbial strains that support the production of microbial metabolites with vitality and human health. This is a great example of the implementation of Evogene business model in which we leverage our technology in the new life sectors not covered by the activity of our subsidiaries. We expect the collaboration to demonstrate the contributions of our unique technology to the fast-growing field of human probiotics, as the sector is estimated at $55 billion in 2022 and expected to reach $114 billion in 2031. We consider this collaboration as our first step in this lucrative market segment. At the beginning of April, Evogene and The Kitchen FoodTech Hub by the Strauss Group teamed up to establish Finally Foods, an AI-driven company focused on sustainable protein production in plants for the food sector. Finally Foods will leverage Evogene GeneRator AI tech-engine to modify plants for efficient protein production. This is another example of the implementation of Evogene business model of entering into a new life sector, our subsidiaries do not cover. Finally Foods has secured pre-seed funding from The Kitchen Hub and the Israel Innovation Authority. Evogene holds approximately 40% stake in the company. This agreement will not require any financial contribution from Evogene, rather, we expect that the agreement will generate future revenues for Evogene. We believe the collaboration will demonstrate the potential of our technology to support the alternative protein market, estimated at $17.6 billion in 2022 and expected to reach $55 billion in 2032. We wish Finally Foods the best of success. I will conclude my update with a review on the main achievement made by our subsidiaries from the beginning of 2024. I would like to start with Casterra, Evogene fully-owned subsidiary, with focus on developing an integrated solution to enable large-scale commercial cultivation of castor. Casterra solution aim to address the global demand for stable castor oil supply, mainly for the biodiesel industry. As I mentioned, the company is utilizing GeneRator AI tech-engine to direct and accelerate the development of its unique elite caster seed varieties. In early 2023, Casterra entered into a frame supply agreement with ENI, a leading oil and gas company. Under the agreement, ENI has given Casterra purchase order last year, totaling $11.2 million. To date, Casterra has supplied only a small portion of the orders, mainly due to initial production challenges. Under the supervision of Casterra's new CEO, the company's recent engagement with seed growers in Africa and Brazil are expected to provide approximately 900 tons in 2024, which is expected to fulfill all existing purchase order and provide additional inventory later this year. It is anticipated that the balance of the existing purchase order will be delivered in the second half of 2024. I am happy to share with you that Casterra is now building its backlog orders for 2025. Casterra remains at the forefront of developing superior castor seed varieties with high yield, even under difficult growth conditions and with traits suitable for mechanized farming operations. Now I would like to review our subsidiary AgPlenus, aiming to discover next-generation innovative crop protection products, including herbicides, insecticides and fungicides and commercialize them through collaboration with world-leading partners. AgPlenus utilized Evogene's ChemPass AI tech-engine to direct and accelerate its product development. Major agro-chemical companies dominant today's crop protection industry. Still, they look to ag-tech companies to discover new target proteins and small molecules that inhibit such target proteins, serving as the active ingredient in commercial crop protection products. AgPlenus is the company that addressed this need as shown by the 2 announcements made this past quarter. On February 21, 2024, AgPlenus announced entering into a licensing and collaboration agreement with Bayer, to develop a novel mode of action broad-spectrum herbicide for farmers targeting the APTH1 protein, discovered by AgPlenus. Under the agreement, AgPlenus will be entitled to receive an upfront payment, ongoing research funding, milestone payments and royalties, based on future product sales. Bayer will have the exclusive license for the development and commercialization of products under that collaboration. On March 6, 2024, AgPlenus announced it has reached a milestone under its existing collaboration agreement with Corteva, to develop new herbicides through a novel mode of action, APCO12, which was discovered by AgPlenus as well. In the next phase, the collaboration will focus on optimizing the herbicide candidates toward a commercial-level product. These 2 collaboration agreements strengthen AgPlenus' financial stability and overall positioning in the agriculture market. I would like now to continue with the 2 subsidiaries using MicroBoost AI to accelerate and direct their product development, Lavie Bio and Biomica. Lavie Bio leveraged Evogene MicroBoost AI tech-engine to develop next-generation ag-biological products. On February 20, 2024, Lavie Bio signed an agreement with Syngenta for the discovery and development of new biological insecticidal solutions. The collaboration will leverage Lavie Bio's unique technology platform to rapidly identify and optimize bio-insecticide candidates. On February 28, 2024, Lavie Bio also announced meeting Corteva's licensing agreement requirements, enabling the successful receipt of the second half advanced payment of $2.5 million from Corteva, totaling $5 million. Additionally, Lavie Bio extended its joint validation trial with Bayer for its bio-fungicides, following successful laboratory and greenhouse testing. The collaboration aims to address diseases affecting fruit and vegetable worldwide. With positive results from the first year, Bayer proceeded to field experiments for further validation. Also announced this quarter on March 13, Lavie Bio partnered with Ceres Global Ag Crop., to integrate its bio-inoculant, Yalos into regenerative agriculture programs across North America. These collaborations aim to enhance growing practices and offer tailored solutions to support productivity and sustainability goals in the agriculture industry, particularly in segments like spring wheat, durum and oats. This announcement and other marketing and sales efforts for Yalos, Lavie Bio's first commercial microbiome-based product, support the penetration of Yalos in United States and Canada markets with additional crops being added for treatment. Based on initial orders and sales projections, we anticipated 2024 revenues for Yalos to increase compared to the previous year. Now to Evogene subsidiary, Biomica, which specializes in developing microbiome-based therapeutics for human health. On January 17, 2024, Biomica reached a significant milestone by completing Phase I trial enrollment for its microbiome-based immuno-oncology drug BMC128, a rationally designed consortium of 4 bacteria. Biomica recently announced that it will be presenting preliminary Phase I study data of BMC128 in a poster presenting at the ASCO 2024 Annual Conference, on June 3. Biomica is now preparing for advancing to Phase II of the clinical trial for BMC128 and already conducted a pre-IND meeting with the FDA aiming to initiate Phase II in 2025. In addition, results from Biomica's pre-clinical study in the IBS program, conducted in collaboration with New York University's medical school, were presented at the Digestive Disease Week 2024 Annual Conference in May 2024. To summarize my part in this call, I would like to emphasize how proud I am of the achievements of Evogene and each subsidiary to date, reflected by the growing list of commercial and financial partners, the Evogene Group is engaged with. During the last quarter, Lavie Bio announced partnering with 2 additional world-leading Ag companies, Syngenta and Bayer. Casterra disclosed its engagement with ENI, a world-leading oil and gas company. AgPlenus announced partnering with Bayer. And Evogene itself announced a new collaboration with Verb Biotics to advance human probiotic innovations and also established together with The Kitchen Hub by Strauss Group, Finally Foods, a new company focused on protein production in plants. No doubt, these are great achievements to start the year with.

Yaron Eldad, CFO

As of March 31, 2024, Evogene had consolidated cash, cash equivalents and short-term bank deposits of approximately $26.6 million compared to approximately $31.1 million from December 31, 2023. During the first quarter, the consolidated cash usage was approximately $4.5 million. Excluding our 2 self-funding subsidiaries, Lavie Bio with a positive cash flow of approximately $0.3 million and Biomica with a cash usage of approximately $1.4 million, the cash usage of Evogene and the other subsidiaries was approximately $3.4 million. As Ofer already stated, our projected cash usage for 2024, excluding Biomica and Lavie Bio, is approximately $8 million compared to $12.5 million in 2023, demonstrating a notable 36% decrease year-over-year. Revenues for the first quarter of 2024 were approximately $4.2 million compared to approximately $0.6 million in the same period the previous year. The revenue increase was primarily due to revenues recognized by Lavie Bio with a license agreement with Corteva and due to revenues recognized by AgPlenus, with a new collaboration with Bayer during the first quarter of 2024. As Ofer stated, we anticipate continued revenue growth in 2024 compared to the previous year, mainly in the second half of 2024 based on Casterra's forecast for seed-order supply. R&D expenses for the first quarter of 2024, which are reported net of non-refundable grants received, were approximately $4.8 million and remained stable as compared to approximately $4.8 million in the same period in the previous year. Sales and marketing expenses were approximately $992,000 for the first quarter of 2024 compared to approximately $800,000 in the same period the previous year. The increase is mainly due to increased sales and marketing activities in Casterra promoting its elite seed varieties and Lavie Bio promoting the sales of its first commercial product, Yalos. General and administrative expenses were approximately $1.7 million in the first quarter of 2024, compared to approximately $1.5 million in the same period in the previous year, mainly due to non-cash compensation to the subsidiary CEOs. Following the decision to cease Canonic operations, we have recorded in other expenses approximately $0.5 million in the first quarter of 2024, mainly due to impairment of fixed assets. Operating loss for the first quarter of 2024 was approximately $4.1 million compared to approximately $6.8 million in the same period in the previous year. The decrease in operating loss is mainly due to the increased revenues. Financing income net for the first quarter of 2024 was approximately $241,000 compared to financing expenses net of approximately $230,000 in the same period in the previous year. This difference was mainly due to an increase in interest income and revaluation of convertible SAFE during the first quarter of 2024 as compared to the same period in the previous year. Net loss for the first quarter of 2024 was approximately $3.8 million compared to approximately $7 million in the same period in the previous year. The $3.2 million decrease in the net loss is mainly due to the increased revenues in the first quarter of 2024 and financial income, as mentioned above, which was partially offset by the one-time $519,000 of other expenses created by ceasing Canonic's operation. I would now like to hand over the call to the operator for the Q&A session.

Operator, Operator

The first question is, are there any updates on Evogene CRISPR capabilities?

Ofer Haviv, President and CEO

This is Ofer speaking. As you know, we participate in a very important consortium that was focusing on developing CRISPR technology, and we took a major role in this consortium. The technology that we established in this consortium was the base for our collaboration announced late last year with Color in developing genome editing technology for crustacean traits. We also have internal activity here in Evogene with respect to the CRISPR technology for plants. So yes, we are active in this area. Yes, we are also looking for opportunities to leverage the technology that we develop there. And when there will be specific news, we will be more than happy to disclose it to our investors.

Operator, Operator

The next question, how are your Casterra seed suppliers preparing today for harvest, which can support follow-on orders to ENI in 2025?

Yoash Zohar, CEO of Casterra

Yes. So in Brazil, our seed suppliers are doing this for the second year. They all have the right equipment and everything is streamlined. We are visiting there periodically. One of our agronomists just came back last week. Another one is going next week. I visited there personally about 1.5 months ago to make sure that everything is ready for harvest. In Kenya, which is turning to be our major seed supplying operation, we purchased castor header from Nardi in Italy. It is being shipped next week out of Italy and will arrive in time for harvest in Kenya. We're also shipping dehulling and seed processing equipment from India and China to set up our own logistical center. And where we will dehull, clean, sort and pack the seeds all under Casterra. We're in the process of registering a local entity in Kenya, which will operate as above mentioned. Again, we are there. I personally visited each and any of our growers and the location for the seed processing. And at this point in time, we see envision no problems in the seed processing and harvest procedures.

Operator, Operator

What considerations do you believe remain outstanding before ENI can place a follow-on order for castor seed to be delivered in 2025?

Yoash Zohar, CEO of Casterra

Sure. So we cannot comment at this point in time about 2025 orders. I will only say that we are deep into negotiations with clients for most ENI, of course, on the different territories, which means Kenya and other African territories, some of the orders going directly to ENI in specific location, others are going through their main headquarters in Italy. We are negotiating with both. And as soon as we have clear orders, we will, of course, notify everybody.

Operator, Operator

Were 100% of the upfront payment from Bayer to AgPlenus realized in the first quarter? And do you expect the ongoing R&D funding milestone payments and royalties to allow AgPlenus to be profitable on a go-forward basis?

Dan Jacob Gelvan, CEO of AgPlenus

So thank you very much. As Yaron said, the full amount of the upfront payments were recognized by Evogene in this quarter. And to the second part of the question, the payments that we are receiving are a significant contribution to our revenues, and they are in addition to other revenue streams that we have from other collaborations. We are not yet cash positive from these. Evidently as we go along and we start to receive from these multiple collaborations, both the milestone payments and royalties in the future, we will be cash positive. We continue to expand our collaborations in order to be self-sustainable in the short term, even before we start to receive significant revenue payments.

Operator, Operator

The next question, what is your confidence level in filling the $10 million castor-seed order by year-end? And what will be the cadence of the filling of this order?

Yoash Zohar, CEO of Casterra

Yes. We expect to produce at least 900 tons of seeds in 2024, which will allow us to fulfill all the open orders for both 2023 and 2024. The main supply will commence in August and continue through December, likely peaking around October.

Operator, Operator

The next question, a cash question. What amount of cash have you front-end invested to line up capacity for the 900 tons for castor. What amount of future investment will be needed?

Ofer Haviv, President and CEO

I will address this question. While Casterra is responsible for this, I can provide an answer. There is indeed a need to build an inventory for ongoing capital, and as I mentioned earlier, Evogene is investing in areas where we see a high likelihood of success. One of our plans is to use some of the savings from closing Canonic to support the ongoing capital needs of Casterra. This has already been accounted for, and we've structured our finances to meet the inventory requirements. Once we start generating revenue from our partners, we will reinvest it to build inventory for the following year. We expect to see a significant influx of funds during the third quarter of this year, allowing us to start building inventory for 2025 as early as 2024. Our approach to funding ongoing capital needs in the first half of 2024 will rely on resources from Evogene, including some from closing Canonic. In the second half, funding will also come from revenue generated by our existing partners. Our goal is to enter 2024 with a sufficient inventory level to meet the anticipated demand for 2025.

Operator, Operator

The next question. Are the 900 tons of castor seed supply in addition to the 400 ton expansion you reported on your Q1 earnings call. Or is the total supply now 900 tons?

Ofer Haviv, President and CEO

So the total supply is 900 tons.

Operator, Operator

The next question how much, if any, of the $4.2 million in revenues were from sales, seed sales?

Ofer Haviv, President and CEO

As I mentioned in my part, only a small portion from the orders we received in 2023 were delivered. So from this, you can understand that only a small portion from the revenue from this quarter is attributed from Casterra activity. There are some revenue coming from Casterra activity, but it's very modest compared to what we are expecting to see in the second half of 2025 as we already disclosed.

Operator, Operator

Next question, please address competition faced by your CPB platform?

Ofer Haviv, President and CEO

I would like to discuss why we believe our technology is unique. At Evogene, we are not solely focused on developing computational technology; our work is guided by collaboration with biologists and chemists who bring forward the challenges they face in the industry. We aim to tackle these specific problems using our technology. Additionally, working with our partners and subsidiaries provides further validation and continuously enhances our technology. Our company is positioned uniquely because we have three tech engines—genomics, microbials, and chemistry—managed together under one umbrella. This integrated approach is important as all aspects of biology and life sciences are interconnected; focusing on just one segment misses the bigger picture. Our growing number of partners, including major companies like Corteva, Bayer, and Syngenta, illustrates our unique offerings. I believe this is only the beginning, and we are likely to engage with more partners in the future. We are truly providing something distinct from what is currently available in the market.

Operator, Operator

There are no further questions at this time. Mr. Haviv, would you like to make your concluding statement?

Ofer Haviv, President and CEO

Yes. I would like to say thank you for everybody for participating in this analyst call. I think that we had a great first quarter in this year. We are looking forward to continue and to update you on the next achievement of our company and subsidiaries at the next analyst call. Thank you very much, and have a great day.

Operator, Operator

This concludes Evogene's First Quarter 2024 Results Investor Webinar. Thank you for your participation. You may go ahead and disconnect.