Evogene's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Evogene Ltd. (EVGN)

Evogene Ltd. (NYSE:EVGN)

Q4 2013 Results Earnings Conference Call

March 19, 2014 10:00 AM ET


Ofer Haviv - Chief Executive Officer

Sigal Fattal - Chief Financial Officer

Assaf Oron - Executive Vice President, Business Development and Strategy


Christopher Parkinson - Credit Suisse

Brett Wong - Piper Jaffray

Andrew O'Conor - Bank of Montreal


Ladies and gentlemen, thank you for standing by. Welcome to Evogene’s Fourth Quarter and Full Year 2013 Results Conference Call. All participants are at presence in listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, March 19, 2014.

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 relates to future events, risk 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 forward-looking statements in their earnings releases, which date that statements made on this earnings conference call, which are not historical fact, maybe deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All forward-looking statements made herein speak only as of the date of announcement, many of which are beyond the control of Evogene and which 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 risk factors can be found in our reports filed with U.S. Securities and Exchange Commission.

That said, I would now like to turn over the call to Ofer Haviv, Evogene CEO. Ofer, Please go ahead.

Ofer Haviv

Thank you, and good day, everyone. I would like to welcome you to Evogene first teleconference as a public traded company in the U.S. With me today are Sigal Fattal, our CFO; and Assaf Oron, our Executive Vice President, Business Development and Strategy.

Because it is our first investor call, our prepared remarks will be a little different then you can expect in the future. I will begin by providing a brief overview of Evogene unique capabilities, which provides a technological base for each of our four product-oriented area of activity. Sigal will then comment on our financial results as reported today. Followed by, Assaf who will provide additional information regarding each of our four area of activity. Then we will open up the call for any questions you may have.

It is obvious that food, seed and fuel are key requirements for life and the supply of each of those is largely dependent on agriculture crop. It is also clear that we must find new ways to produce more in a sustainable and cost efficient manner, if we are to meet the growing world-wide need, while at the same time facing ongoing decrease in many of the required inputs.

Since it’s founding in 2002, Evogene’s sole mission has been to address this challenge by harnessing the power of plant genomics. Most of our effort during the early years were targeted at establishing the required technology platform, which combined a deep understanding of plant science and proprietary competition of technologies and algorithmic tools.

One advantage that we had in doing so that you may not be aware of is that Israel is the world leader in both agricultural science and algorithmic research, already well recognized in the industry as providing world-class capabilities. Our platform currently integrating phenotypic data from over 200 plant species, it’s both flexible and scalable and it’s continuously being enhanced and extend.

This enabled us to improve different crop and differentiate through different end product such as improved seeds and noble ag chemical. Most importantly, our platform powers and broad applicability has provided us the basis for the establishment of all of Evogene’s area of activity.

During 2013 we saw important progress and achievements with respect to both further enhancements to the underlying platform and within each of the four area of activity. I will now briefly introduce each of the areas. In his prepared remarks, Assaf will provide more information and review of some of the key accomplishments during the past year for each one of them.

The first area of activity we establish is focus on improving seed traits mainly yield and abiotic stress tolerance, meaning environmental stress such as drought. Most of our revenue that are reported in our financial statement issued today consists on research payments generated under collaboration agreements in this area.

To give you some indication of the power of our platform, so to-date, we have identified and patented over 4,000 genes predicted to improve various important traits for different crops, including corn, soybean and wheat. Hundreds of those genes are undergoing target plant validation under various collaboration agreements with nearly all the leading seed companies in our industry.

A few years later we added a second area of focus, abiotic stress, which refers to plant resistance to various test and diseases. This second area of activity has initial collaboration with Syngenta, Du Pont and more recently, Monsanto.

We see this as an area of significant growth and therefore a portion of the proceed from the recent offering in the U.S. are located for self-funding certain infrastructure additions in this area. In more recent year, we have been leveraging our underlying technology to two additional exciting fields, ag-chemical and our proprietary seed activity.

With respect to ag-chemical, we are initially focusing on novel herbicides and crop enhancers. Herbicides represents a well established $20 billion market. A major challenge in this market is that no new herbicides with novel mode of action has been commercially introduced in more than 20 years.

I assumed that those of you who are not that familiar with our company may not understand why we believe we have a competitive advantage in addressing this field. Our competitive advantage arises from the potential ability of our unique platform to identify in with novel parodical mode of action that can be inhibited by herbicides.

We see this as a significant opportunity for our company and therefore have also allocated a portion of the proceeds from the recent offering in the U.S. to this area. To date, we have not yet entered into a collaboration in this area but we expect to do so in the future and we expect ag-chemical to become a significant part of our company operation and growth.

Evofuel, the four of our area of activity represents not only a different field but also a different business model for us. Rather than licensing technology for milestone and royalties, we will be selling seed directly to farmers.

For this reason, from a corporate standpoint, Evofuel unlike the other three area of activity has been established as a wholly owned subsidiary of Evogene. Evofuel’s initial effort has been focused on developing advanced castor bean seed for a number of commercialized preferences, including use at the feedstock for biopolymer and biofuel.

We have been very pleased with our progress currently focused in Brazil and Argentina. Based on encouraging results to-date, we and our partners expect initial commercialization of our proprietary castor seeds in Brazil in 2016, two years from now.

The accomplishment of our equity offering in the U.S. and listing on the New York Stock Exchange a few months ago has of course significantly enhanced our ability to move forward rapidly with respect to each of those area of activity and to further enhance our underlying technology.

We raised growth proceeds of approximately $85 million and those additional funds provide us not only with the opportunity for accelerated growth but also much greater corporate flexibility and strength. Sigal will now provide some additional insights into our financial results reported today. Sigal?

Sigal Fattal

Thank you, Ofer. In today’s call, I will not go line by line through our statement but instead would like to point out few items that I believe are key to understanding our financials.

With respect to revenue sources to date, Evogene’s revenues have been limited to research revenues for work we perform under our collaborations and to a lesser degree, initial milestones from soybean collaboration. We anticipate that in the longer term, our primary sources of revenues and profits will come from milestone payments, royalties and seed sales from our Evofuel subsidiary.

For 2013, the $17.6 million reported revenues were largely research revenues from our yield and abiotic stress collaborations which as Ofer pointed out is the most mature operating area of activity with the lesser amount from our abiotic collaborations.

In order to understand the relationship between research revenues, cost of revenues and R&D expenses, please note that our tougher R&D expenses are accounted for in two separate line items in the financial statements.

The first is cost of revenues representing those R&D activities conducted under our existing collaborations and funded by research revenues received from our collaborator and the second being R&D cost which referred to expenses incurred by Evogene for infrastructure enhancement and other self funded research activities.

Together those two lines totaled $21.2 million in 2013 compared with $15.8 million in 2012. This is an increase of 26%. The increase is primarily related to increasing in self-funded R&D activities including new computational platforms and validation technologies in support of our expanding biotic stress and new ag-chemical areas.

Moving to business development expenses. The reason for the increase in expenses for 2013 reflects our decision to create dedicated business development capabilities in each of our four areas of focus.

The increase in G&A expenses reflects both the substantial growth of the companies operation during the past few years and one-time expenses associated with the recent U.S. IPO. In addition, the $3.6 million of G&A expenses in 2013 includes $0.9 million in non-cash share-based compensation, compared to $0.2 million in 2012.

No doubt that for rapidly growing development stage company such as Evogene, one of the most important financial items to focus on related to the available cash balances and cash burns.

We entered 2013 with a strong cash position of approximately $127 million in cash and marketable securities, compared with approximately $55 million at the end of 2012, with the increase largely related to our U.S. IPO. This was completed a few months ago. After eliminating the impact of the purely financial transaction due 2013, our operating cash burn for the entire year was approximately $8 million.

I would now like to turn the call over to Assaf who will provide some additional information regarding our four areas of activities.

Assaf Oron

Thank you, Sigal. As Ofer stated, I would like to provide you with some brief additional information about each of our four market-oriented areas of activity. And since this is our annual conference call, point out a few of our key achievements made during 2013 in each of these areas. As stated by Ofer, we are extremely pleased and proud of these achievements and the other important progress that we made during the past year.

First, in the yield and abiotic stress area, meaning incremental stresses such as drought and fertilizer’s deficiency, Evogene is active in both biotechnology seeds and conventional seeds. Driving innovation for future products and working hand-in-hand with our strategic seed partners.

As Ofer mentioned, the value of our platform in this area is well recognized by the industry. One measure of this recognition is that our partners have today committed over $130 million to Evogene through research payments and equity investment under the various collaborations that we have been into the fields of yield and abiotic stress.

Looking at 2013, the key achievement to this area of yield and abiotic stress was the extension and the expansion of our collaboration with Monsanto, which was initially signed in 2008, later extended in 2011 and now extended for the third time.

The newly signed agreement extends activities under our existing programs to August 2016 and provides Evogene with growth additional research payments as well as improved milestones and royalty payments. This is the second time these excess-based payments have been improved as they were already improved under the first expansion in 2011.

And important addition to the program with this latest expansion is the utilization of our Gene2Product platforms. Gene2Product is targeted to optimizing trade efficacy and accelerating the product development process of our partner’s pipeline. One of the key platforms in Gene2Product which is utilized under the collaboration is PlaNet, which focuses on gene stacking prediction.

We believe that gene stacking or the combination of several genes, which today is at the forefront of trait discovery is essential, when considering complex traits such as yield and drought tolerance, trait that we are pursuing under this collaboration.

Although, yield enhancement in abiotic stresses are most mature area, we see numerous opportunities to further expand into new crop trait combination such as sugarcane and sugar beet, we’ve only touch the opportunities in rice with our collaboration with China-based DBN, which we also entered into in 2013.

Furthermore, we are now evaluating other market opportunities involving certain crops for consumer products meaning addressing crops that entraits that maybe less of interest as multi-national seed companies. However, are of great importance to consumer ground companies, especially with respect to agriculture feedstock been used in the flagship products. While initial, we believe this potential market provides another excellent opportunity for us.

Moving to the second area, abiotic stress, which relates to management of pests such as diseases in insects, we had a very exciting year with extensions of existing relationships and also entering into new ones. This includes first, the extension of our collaboration with Syngenta, which followed initial successful results of our nematode resistance genes in their pipeline and this extension now has more gene discovery around and the use of the Gene2Product platforms.

Second, the expansion of our multi-year research collaboration with DuPont. This collaboration aims at developing soybeans variety of displaying resistance to Asian soybean rust. Under the expansion, we are including also our Gene2Products capabilities with emphasis of use of our stacking technologies.

Third, the signing of a new program with Monsanto, this is the first collaboration with Monsanto in the field of abiotic stress. It is aimed at developing corns, displaying improved resistance to Stalk Rots, a devastating disease in corn caused by multiple Fusarium species.

We are confident that this area also has numerous future opportunities to leverage our existing technologies into new market segments. One such opportunity is definitely in the field of insect resistance. This is an area that is currently driving revenues in the industry, more than a 100 million hectares of land were planted with seeds displaying insect resistance in 2012. And we believe Evogene’s technology can bring much needed innovation to this field.

With the addition of funding raised through our recent equity offering, we are finalizing plans, targeting the same area and we expect to be able to provide further details regarding these activities during this current year.

Moving on to our Ag-chemicals operations, this field has a current annual market of close to $50 billion, of which herbicides are the largest segment comprising of over $20 billion. As Ofer mentioned, this market has not seen any commercial herbicide launch with the new mode of action or a mechanism that kill the weeds in the past 20 years. And with increasing resistance to distant solutions, there is a strong need for innovation and development of novel herbicides. This is an initial area of focus for us in the Ag-chemicals area. And during the past year, we successfully enhanced certain aspects of our infrastructure to focus specifically on this area.

An important example of this was our recently announced introduction of PoinTar, our designated platform through novel target discovery. What’s unique about PoinTar is that this powerful computational platform relies on integrating, first, our proprietary predictive knowledge of biology of plant and, second, certain aspects of chemistry. A unique approach that we believe will lead to novel herbicides displaying improved and new modes of action.

This year we expect to reach some key development milestones and look forward to this activity becoming a significant part of our company’s operations. Lastly, our wholly owned subsidiary, Evofuel, has made tremendous headway this year towards development castor as a cost competitive feedstock for biopolymers and biofuels.

On the back of three years of successful field trials in Brazil, we expect to initiate commercialization of a proprietary castor seeds in 2016. We have just completed sowing our fields in Brazil and expect to continue to work closely with SLC Agricola which is one of Brazil’s largest producers of corn, soybean and cotton in order to reach our commercialization target. Field trials in Argentina are also going well and I hope to be able to give you further insights on our pre-commercial activities there later this year.

With that, we will now be pleased to address any questions that you may have.

Question-and-Answer Session


(Operator Instructions) The first question is from Christopher Parkinson of Credit Suisse. Please go ahead.

Christopher Parkinson - Credit Suisse

Perfect. And good afternoon, everybody. A thought suddenly head on some of this, but given your current work across corn, soy and other coarse grains. What have you been learning about the strengths and weaknesses across your tech platform? And just particularly in the last few months, have there been any specific new opportunities which appear to be presenting themselves?

Assaf Oron

This is Assaf. I think this is a continuous process within our R&D as we evolve from year-to-year and see more and more results about what we’re learning of, how we should better implement our capabilities. I think one of the aspects that I hit on during my part which we find to be that industry is kind of maturing into is, and you can see that also in statements and publications of industry leaders that not only will there be product on single genes but we have seen advancement to receiving better efficacy towards stacking of genes. And we see based on that a lot of interest and more implementation under our project of our planet platforms which enables to stack certain genes for a particular trade.

So for example if you want to achieve broad higher yield across broad acres likely you may need a number of genes to receive really high efficacy and products that would be driving a lot of revenues. I think if I were to ask our R&D people that would be one of the key points that we see implemented across practically all of our programs.

Christopher Parkinson - Credit Suisse

Perfect. And just kind of a bit of a derivative of that question, but since you are in new collaboration with DBN on its rice platform, have you seen any initial differences in the proof-of-concept phase in rice versus your ongoing work in with your partners in corn, soy and wheat?

Assaf Oron

Generally, no, with respect -- I mean generally the same with respect to the type of testing naturally really rise in corn in each drop have their specific timelines and the types of tests and conditions you are doing in it, but also in rice and the trades such as yield and drought, all of the trials are being conducted in the target locations, at the target conditions with several repeats in order to make sure that you’re really seeing that efficacy across those locations and conditions. So conceptually, no.

Christopher Parkinson - Credit Suisse


Assaf Oron

Thank you very much.


The next question is from Brett Wong of Piper Jaffray. Please go ahead.

Brett Wong - Piper Jaffray

Hi, guys. Thanks for taking my questions. I am just kind of wondering if you can elaborate on any new partnerships or extensions of the existing partnerships in terms of new crops or new targets that you’re seeing at this point.

Ofer Haviv

So we think that in the -- beyond the offering that we have in the area of yield and stress, we’ve emphasized previously also that in the areas of abiotic stress, for example, activities that we're now building in insect resistance and also in the area of Ag-chemistry which includes also Ag-biological. There are several opportunities to expand into additional collaboration in areas that we've not collaborated today. We believe these opportunities go materialized. I can't really address the exact timing of this may happen but we certainly see a lot of opportunities there.

Brett Wong - Piper Jaffray

Great, thanks. And you mentioned there is consumer opportunity, can you elaborate at all on that?

Ofer Haviv

Sure. We to date, have been mostly working with seed companies that usually address broad acre seeds that it make sense to invest a rather acre crops that makes a lot of sense to invest in the type of technology that we have and then in biotechnology in general in order to produce better performance.

However, when you are talking about consumer companies such as the big multinational companies such as Nestle or Heinz or the big one that are selling these products they are actually viewing some of the crops that they are focused on although smaller market size to the big seed companies, they’re impacting the performance of these crops. Its yield performance or quality trades make a lot of difference from them and we've seen there are lot of examples of some of these companies that are going upstream and the involvement in the agricultural production and maybe even in the performance of the seeds.

So we think that's a segment that we've not focused in. And I think that it provide some opportunity as these companies would also look to invest resources in really improving performance beyond the interest that seed companies may have.

Brett Wong - Piper Jaffray

Okay. And then so in biotic stress and Ag-chem, can you provide any more color on what these self-funded infrastructure additions are?

Ofer Haviv

Sure. So in biotic stress, for us to be more active in the area of insect resistance, it would include additional components to our computational platform. It’s basically based on our existing leading computational tools but when you are going to specific areas such as insect resistance, we usually tend to adapt and add additional tools that are more tailored to this area.

So we'll be building the new and tailored computational tools. Beyond that, it would many times to be developing genomic and data that would be relevant for us to analysis. So we developed today a lot of proprietary data on our yields and stress. So we'll need to develop data there as well.

For example validation and assay infrastructure, usually after the discovery of the genes do some basic validation before we hand that of to our partners, so looking into building some of that infrastructure as well.

In the Ag-chemistry specifically in herbicides, we announced the launch a PoinTar which is the first computational platform that is based on the discovery of novel targets that when inhibiting that you can get a very powerful new mode of action for herbicides. There we're also building additional computational platforms that are complementary and also building today the validation capabilities again to see that some of the initial prediction actually show the results and plans that we are looking for.

So in all of these aspects especially after doing the equity raise last year, we have more resources, more aggressively push forward and show results that quickly from what our technology can do there.

Brett Wong - Piper Jaffray

It’s good and very helpful. Thanks a lot and just one follow up on that. Given the spend and the increase in R&D that support these initiatives. What can we expect kind of going forward as a good run rate for R&D?

Sigal Fattal

Well, we haven't -- hi this is Sigal. We haven’t published guidelines on this one but we can assume that you can expect the growth in these -- those expenses and the investments moving forward.

Brett Wong - Piper Jaffray

Okay. So just to clarify that there will be more than kind of an increase that you saw in this most recent quarter?

Sigal Fattal

Again we have not published guideline. So it’s hard for me to relate to that.

Brett Wong - Piper Jaffray

Great. Thanks a lot of guys. I will hop back in line.

Ofer Haviv



The next question is Andrew O'Conor of Bank of Montreal. Please go ahead.

Andrew O'Conor - Bank of Montreal

Good afternoon and congratulations on your progress. Are there specific research goals that Evogene plans to reach or accomplish for corn Stalk Rot disease in 2014? Thanks for your help.

Ofer Haviv

Again can you repeat that for corn, sorry?

Andrew O'Conor - Bank of Montreal

Yes, yes. So I wanted to know guys, are there specific research goals that Evogene plans to reach or accomplish this year for corn Stalk Rot disease?

Ofer Haviv

So, we've initially -- we've announced this collaboration recently at the last quarter of 2013. Since then we've set up the plan and the activities have been initiated under this work and coordinated with Monsanto. We do have specific targets in milestones that we plan to get this year with respect to the work plan and research being done in this field. I’m not sure all of them because of the confidentiality between us and Monsanto, not all of them, I don’t know if they could be announced, but we certainly have some targets for this year under that work plan.

Andrew O'Conor - Bank of Montreal

Okay. Thanks for that. And then secondly, are you able to estimate, how much would you expect Evogene revenues to grow by in 2014? And in what areas, would you expect the revenue growth to be concentrated in?

Sigal Fattal

Since we haven’t provided any guidelines, the focus about that, so it will be hard for me to relate that to the question. So I cannot comment on that, I’m sorry.

Andrew O'Conor - Bank of Montreal

Okay. And then lastly, there has been discussion that Evogene might consider opening an office, second office in the United States and wanted to know if you had any thoughts this afternoon about the timing for second office in the United States? Thanks again.

Ofer Haviv

So this is something that we seriously consider. We establish a small group here in Evogene that we start to validate different location for such an activity in the state. I think that this is a natural step for Evogene to move forward. Hopefully, we will initiate this activity during this year so we are quite serious moving forward with this activity, with the target.

Andrew O'Conor - Bank of Montreal

Thanks very much. Good luck, guys.

Ofer Haviv

Thank you.


(Operator Instructions) There are no further questions at this time. If I ask Mr. Ofer Haviv to go ahead with the closing statement, I would like to remind participant that a replay of this call is scheduled to begin two hours after the conference. In the U.S., please call (1888) 254-7270. In Israel, please call 03-925-5929. Internationally, please call (9723) 925--5929. Mr. Haviv, would you like to make your concluding statement?

Ofer Haviv

Yes. Thank you. I would like to take this opportunity to briefly emphasize again the point that in my opinion is critical in order to understand how Evogene has achieved so much to-date and to appreciate the potential that we see for the future of our company. The point is that to a long term and a very successful effort by a very talented multidiscipline team of scientist, we had established at Evogene a proprietary and broadly applicable technology platform, combining cutting-edge computational technology and deep understanding of plant science. Those ability are the key to Evogene’s competitive advantages. Our technology drives our business.

Before ending this call, I would like to extend a special thank you to our long-term shareholder for providing us with the time and capital to build unusual capabilities that we enjoy today. And of course, I want to welcome our new shareholders and thank them for providing us with this strong vote of confidence than what we have achieved to-date is only the beginning. Thank you for joining the call today. And we look forward to future call in order to discuss our anticipated continuing progress and achievement. Thank you and good bye.


Thank you. This concludes Evogene’s fourth quarter and full year 2013 results conference call. Thank you for your participation. You may go ahead and disconnect.

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