Yield10 Bioscience Inc (YTEN) 2017 Q1 法說會逐字稿

Greetings. Welcome to the First Quarter Financial Results and Business Update Conference Call for Yield10 Bioscience. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to turn the conference over to your host, Yield10 Vice President of Planning and Corporate Communications, Miss Lynne Brum.

Thank you, Tim, and good afternoon, everyone. Welcome to the Yield10 Bioscience First Quarter 2017 Conference Call. Joining me on the call today are President and CEO, Dr. Olly Peoples; Vice President of Research and Chief Science Officer, Dr. Kristi Snell; and Chief Accounting Officer, Chuck Haaser.

Earlier this afternoon, we issued our first quarter 2017 news release. This release as well as slides to accompany this presentation are available in the Investor Relations section of our website at yield10bio.com.

Let's now turn to Slide 2. Please note, 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 that are not strictly historical constitutes forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause the actual results to differ materially from those anticipated. These risks include risks and uncertainties detailed in Yield10's filings with the SEC, including the company's most recent 10-K. The company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call.

I'll now call -- turn the call over to Oli.

Thanks, Lynne, and hello, everyone, and thanks for joining our call today. Please turn to Slide 3, and we'll cover a few financial highlights.

Starting with the balance sheet. We ended first quarter 2017 with $4.9 million in cash. We expect the cash on hand, together with revenue expected under current government grants, will support our operations into fourth quarter 2017. We estimate cash usage for the full year 2017 will be approximately $7.5 million to $8 million, including anticipated payments for restructuring costs due this year. We will continue to identify ways to access capital through the financial markets, generate revenue through grants and collaborations and manage our expenses.

On our P&L, let's review the financial results that are reported as continuing operations where the operating results capture our crop science-related activities as well as administrative and infrastructure support for the Yield10 business. We reported a net loss for continuing operations of $2.1 million for the first quarter of 2017 or $0.07 per share. We reported $1.1 million in R&D expenses and $1.3 million in G&A in the first quarter. We also reported $300,000 in grant revenue. We believe that with this profile, we can achieve our 2017 milestones while managing with a lean organizational footprint. For more details on our financial results, please refer to the earnings release.

Now let's turn to Slide 4. In January, we renamed and rebranded the company as Yield10 Bioscience and changed our ticker symbol to YTEN. Yield10 is developing breakthrough technologies to enable step changes in crop yield. And by that, we mean increases in the order 10% to 20%. Crop yield is the fundamental revenue driver for farmers on their key seed buying decision, which impacts revenues and market share for the major seed companies.

When we made this transition to Yield10, we said we would be open and transparent about our activities. Yield10's accomplishments to date have been announced through a series of press releases, calls and presentations to educate both existing investors and new investor prospects about the Yield10 technologies, strategy and potential value creation.

In the first quarter, we reported encouraging data on our lead yield trait gene, C3003, a 23% increase in seed yield in our best Camelina line. We also reported promising greenhouse results for our second-generation C3003 yield trait gene in Camelina and up to 24% increase in seed yield. Based on these promising results for C3003, we do expect maybe to set up another round of field tests of our C3003 trait in Camelina and canola. We expect planting will take place in the second quarter.

We executed an exclusive option with University of Missouri to evaluate a promising genome-editing target for oilseed crops. We expanded our scientific team with 2 key senior hires and appointed Dr. Richard Hamilton to our Board of Directors. Richard brings 20 years of ag biotech experience to our board.

Now we turn to Slide 5. Our crop science program operated in stealth mode for about 5 years and delivered a number of very exciting proprietary yield trait genes for crops, covered by a number of recent patent applications. All of these traits are based on genetic engineering tools. However, the method by which they are deployed in target crops has major implications for the regulatory status and time lines to commercial use. Some traits require introducing non-plant genes and will be regulated. Others produced through genome editing may be unregulated.

Keep in mind, the corn ag biotech sector of over 400 million acres is based on using non-plant genes to enable new functionality: herbicide tolerance, insect resistance and drought tolerance in crops. Based on our Smart Carbon Grid for Crops technology platform, we are developing C3003, C3004 and C3007. The value driver for C3003 is improving seed yield and potentially water use. C3003 is based on a gene from algae, which imparts new function into the plant, so it's going to be regulated by definition. In this case, with the potential for seed yield increases in the range of 20%, the potential for value creation supports the investment of time and costs associated with obtaining regulatory approval for C3003. We will describe C3004 and C3007, both genome-editing targets, in more detail later.

In addition, our T3 Platform has produced a pipeline of trait genes, the C4000 series, including a number that can be deployed through genome editing with the potential to be unregulated. We believe a number of these represent opportunities for licensing under partnerships to deploy these traits to improve yield or drought tolerance in crops, including corn and soy crops.

Let's now turn to Slide 6. Our yield trait gene C3003, in simple terms, enables plants to be more efficient at capturing carbon through photosynthesis, resulting in higher seed yield. In a field test we conducted in 2016, reported in early 2017, first-generation C3003 produced a 23% increase in seed yield in our best-performing Camelina lines. We also observed slightly smaller seeds from these plants.

In 2016, we also conducted greenhouse studies of a second-generation version of C3003 in Camelina. In this case, C3003 is expressed only in seed tissue. And in this study, reported out a couple of months ago, we saw up to 24% increase in seed yield, and the seeds were of typical weight. Although we have primarily used Camelina as a system to develop traits, it has the potential to become a commercial crop in its own right. For instance, Camelina has significant potential as a new crop for the production of fish oil substitutes and feed ingredients. And we keep track of other developments in Camelina, including our recent feed approval in Canada. We believe a number of our oilseed improvements will play a major role in the commercial success of Camelina, so we continue to monitor developments for this crop.

We have been planning for our 2017 field test for some time now and recently completed contracting and permitting activities. The study is scheduled to begin in second quarter as soon as weather allows. The main objectives of this study will be to test second-generation C3003 in Camelina and to test first-generation C3003 in canola, our first major commercial oilseed crop. We expect to report results of the field test in the fourth quarter of this year.

In the meantime, work is ongoing to develop soybean with both first- and second-generation versions of C3003. We expect to report some initial greenhouse results in Q4 2017 or early 2018. Rice is also a target crop for C3003, and we expect initial results from this work in 2018. C3003 is a promising trait, and over the next few months, we will generate data across 4 different crops having a C3 photosynthesis system.

Let's now turn to Slide #7. In terms of the development time lines, each of these crops has a different time line related to the gene modification technology used for each crop. We started working with C3003 in all of these crops almost in parallel with Camelina, which is furthest ahead, followed by canola and soybean. As I mentioned, we expect to field test the second-generation version of C3000 gene trait in Camelina this spring. We've also begun working on third-generation C3003. So we view this process a bit like software engineering where we are essentially upgrading, in this case, the C3003 genetic software. In terms of canola, we should have field test data for first-generation C3003 in Q4 of this year and are busy working to get the second- and third-generation versions the C3003 into canola as well.

We have progressed in parallel both first- and second-generation versions of C3003 in soybean. In the U.S. alone, soybean is a $40 billion crop, so yield improvements here will be very valuable. We have outsourced the soybean work to a third party so we're dependent on the partner to meet time lines. We estimate having initial greenhouse data on soybean in Q4 2017 or Q1 2018.

So in a few months, we will have data from C3003 in 3 oilseed crops: Camelina, canola and soybean. And this data will help us plan and prioritize our development program for C3003 in 2018 and beyond. The potential of C3003 in rice is pretty large, and we've been fortunate we have an in-house capability to engineer rice. So that is moving forward as well.

Let's now turn to Slide 8. Earlier this week, the Wall Street Journal ran an article titled Next Phase of High-Tech Crops: Editing Their Genes, underscoring the potential for genome editing and the opportunity for large ag players and a new wave of innovation companies alike. Based on the first wave of biotech products that were developed and launched over 20 years ago, we know that achieving deregulated status for traditional biotech traits is time-consuming and expensive. Genome editing technique such as CRISPR/Cas9 allow us to reduce the activity or inactivate gene targets in a plant without adding new DNA sequences, for the most part, removing function of existing plant genes.

This system (inaudible) has been done for hundreds of years in classical breeding programs using, for example, mutagenesis. CRISPR/Cas9 technology is, for all intents and purposes, simply a more specific and sophisticated version of this traditional approach, which can be done efficiently in a very targeted way.

USDA-APHIS, the key regulatory body in the U.S., has indicated that genome-edited plants may be classified as unregulated as long as they don't contain any foreign DNA sequences. Therefore, we believe it is possible to: number one, achieve unregulated status for field research and field tests; and number two, to achieve unregulated status for commercial launch based on data from field tests. The key to success in genome editing is having editing targets that can add real value, and we have mentioned our efforts in this in a number of our investor calls and presentations.

Yield10 has a strong pipeline of genome-editing targets for key crops and has been working in genome editing for over a year. Examples of commercially useful genome-editing targets include key steps in the metabolic pathway to produce a product such as oil. I believe it's fair to say that to date, this has been what most crop editing is successfully targeting: modifying the plant composition.

Another is negative regulators or transcription factors of plant growth and stress tolerance where there are fewer reports to date. If categorized as unregulated, then utilizing genome editing to improve plants will significantly reduce product development time lines and regulatory costs.

In addition, there is the potential to expand traits developed using genetic engineering tools into a wider range of crop species, including several that have not typically been improved through genetic engineering.

So Yield10 is fortunate to be well positioned in the ag biotech space as a pure play in crop genome editing at a time when we are seeing a significant increase in investor interest, catalyzed by the CRISPR/Cas9 technology. Later this year, we will be talking about the progress we have made with our genome-edited Camelina lines as we complete the data analysis.

With that, I'll turn the call over the Kristi to discuss some examples of genome-editing targets we have in development. Kristi?

Thanks, Oli, and hello, everyone. Let's now turn to Slide #9. As Olly mentioned, we have a pipeline of genome editing targets in hand today, but I will only discuss 2 we are working on in oilseed crops, C3004 and C3007.

C3004 is a negative controller in the flow of fixed carbon from leaves to seed, providing an editing target that may increase seed yield and/or seed size in crops with the C3 photosynthetic system and, in particular, oilseed crops. C3007 is a negative controller and a key limiting step in seed oil production. We have an option from the University of Missouri to license this technology. C3004 and C3007 could be used separately to improve the yield of oilseed crops or could be stacked with a C3003 line to produce high-yield, high-oil content in Camelina, canola and soybean lines.

Going back to what Olly said about having new unregulated traits, the genome edits of C3004 and/or C3007 in Camelina, canola and soybean would not contain any foreign DNA and thus should not be regulated.

Further, we also see the potential to stack either or both of these traits with existing off-patent deregulated traits. For example, the Roundup Ready trait. So from a product development standpoint, there are a lot of options and opportunities with these traits.

Work is underway to edit C3004 in Camelina and to edit C3007 in Camelina and canola. But of course, both of these traits may be used in soybean, and once we have collected some data on these traits in Camelina and canola, we will assess their suitability for soybean, which has longer development time lines.

We have also been working on genome editing of other traits in Camelina. One trait which we call C3008 fits well with the C3004 and C3007 traits in that it may further elevate oil content in seeds when combined with these traits. We have already developed genome-edited lines for the C3008 trait and are preparing a letter for the USDA-APHIS/MI regulated process to determine if they agree that the trait will not be regulated since it contains no foreign DNA.

Let's now turn to Slide #10. From the standpoint of designing higher-yielding oilseed crops, C3007 is potentially very exciting. In the biochemical pathway driving oil production, acetyl-CoA carboxylase, called ACCase, is a key enzyme in oil biosynthesis. And it has a complex enzyme structure, shown in Slide 10 in blue and green. C3007 is a recently discovered key negative regulator of ACCase, shown in the red squares, that competes with the binding of an essential subunit, in green squares, of ACCase. If C3007 binds, it reduces ACCase activity. We are using genome editing to reduce and/or eliminate the availability of C3007 to increase the activity of the key ACCase enzyme to drive increased seed oil biosynthesis in oilseed crops. We are currently working in Camelina and canola as we assess this trait, but our goal would be to expand this work into soybean once we have exercised our license option.

Let's now turn to Slide #11. Just as C3007 is a negative regulator of oil biosynthesis, a number of our C4000 series traits, such as C4004, are also negative regulators. But in this case, they are negative regulators of plant growth. We have identified 16 of these negative regulators or transcription factors from detailed analysis of high-yielding switchgrass lines engineered with a global transcription factor that significantly increases photosynthesis and biomass yields. The hypothesis is that the downstream regulator genes whose expression is turned down in high-yielding plants are potentially negative controllers of plant growth, more or less the braking system. Down-regulated genes are ideal genome editing targets because genome editing is currently best used for removing or reducing the activity of genes in plants.

To test the impact of modifying one of these potential negative controllers, the C3 -- C4004 target, it was easier to do the opposite experiment first, to use genetic engineering to increase the expression of C4004 in our switchgrass system. Increasing the expression of C4004 resulted in significantly smaller plants, as shown in the picture on the top right of the slide, confirming that it is, as predicted, a negative controller of plant growth and a good editing target.

We have also begun similar experiments in rice by expressing C4003, the global regulator whose expression significantly increased photosynthesis and biomass production in switchgrass. Although these experiments are still in an early stage, you can see that the engineered C4003 rice in the lower left-hand photo is behaving similar to what we observed in switchgrass with a large increase in biomass. Once we have fully developed these rice plants, we will be carrying out the same type of genomic analysis to identify additional rice-specific genome editing targets.

The Yield10 team is working on some exciting targets for genome editing, and I look forward to discussing further developments in this area in 2017.

I'll now turn the call back over to Oli. Oli?

Thanks, Kristi. Let's now turn to Slide 12. In terms of value creation, there are different ways of looking at this. And obviously, it's a lot more complicated than the summary in this particular slide, but the bottom line is we know C3003 impacts the fundamental biological process. If we can translate the 23% yield increase we have seen with C3003 in Camelina into canola, soybean and corn, then the value potential is very large.

To keep the math simple, we used a 20% increase for canola and soybean and a 10% increase for corn, which is already much higher-yielding, and the 2016 harvest values for these crops in North America for the calculations. This would generate $15 billion per year in added value in North America alone. So we are essentially in the business of derisking the C3003 yield trait asset through a series of proof points in each of these crops.

The way we think about this is, as we gain a better understanding of the biological mechanism and develop data showing that the trait works in Camelina in the field, we are developing improved versions, like our second-generation C3003. Then as we see initial greenhouse data from canola, we can be more confident that it will have a positive impact in canola seed yield in the field with the first- and/or second-generation versions of C3003. This will further increase our confidence of success in soybean in the field. But corn is little different as it is not a C3 photosynthesis plant. So we need to generate some data from corn before we can develop a view on C3003's potential in corn.

At these levels of yield improvement, there's a lot of value that can be shared by innovators, seed companies and growers. I hope this example with just the C3003 trait illustrates that we can build significant value for our business, testing of traits in the model systems and then translating the most promising traits into agriculturally significant crops.

Let's now turn to Slide 13. We are focused on achieving our milestones for 2017, which will help us build significant value in the business. Yield10 has a strong pipeline of crop yield trait genes derived from our 2 discovery platforms: the Smart Carbon Grid for Crops and the T3 Platform. These platforms were developed over the last 5 years as part of our efforts to increase carbon fixation in plants. As expected, we will be taking our C3003 yield trait gene forward in studies with Camelina, canola, soybean, corn and rice. Genome editing in crops has the potential to significantly reduce development costs and regulatory time lines for crop trait development. We have made substantial progress in deploying the CRISPR/Cas9 technology against the first of our genome-editing targets in Camelina. We expect to increase our level of effort in this area in other crops, particularly canola, over the course of this year and begin to communicate progress.

Securing ag industry collaborations is something we will continue to work on. We will continue the work we have been doing with our academic partners and expect much of the work will be published in academic journals. Intellectual property and patents are very important to the success of Yield10, so we will continue to build multiple moats or barriers around our key trait yield technologies.

So overall, you can see that we are expecting a very productive 2017. Now we've covered quite a bit of ground tonight, but let's turn to Slide 14 to wrap up our prepared remarks. I believe we are off to a good start in 2017. The Yield10 organization is aligned and sized to achieve our upcoming milestones. Our work with the C3003 yield trait gene produced encouraging results and has positioned us to conduct additional field tests in Camelina and canola in 2017, but at the same time, we are working to successfully deploy the trait in soybean, corn and rice.

Both of our discovery platforms have led to the identification of promising genome-editing targets, and we'll be working to further develop these targets to improve seed yield, oil content and/or biomass according to the trait or crop we are studying. Taking this all together, we have a clear vision for our business, which is to solve the crop yield problem and make a positive contribution to enabling global food security.

So with that, I'd like to turn the call over to Lynne for questions.

Thanks, Oli. We'll now cover 3 questions. The first one goes to Kristi. What's involved with running the field test of C3003?

Months ago, we chose to trait some plants, both Camelina and canola lines, that will be tested in the field this spring. We have a service provider under contract to conduct this study, and we have obtained the regulatory approvals necessary to proceed with planting the seed. We will provide the service provider with seed, and they will carry out the field test to our specifications. Members of our oilseed team in Saskatchewan will oversee the study, which will be conducted at sites in Canada. Soon, the weather should be suitable to plant the fields, and after that, the service provider will collect agronomic data on the plants as the season progresses. Once the plants and seeds reach maturity, they will collect the material from the field, and it will be sent to our labs for analysis. We have -- we expect to have data on seed yield through our Camelina and canola plant lines in the fourth quarter of this year.

Great. Thanks, Kristi. The second question goes to Oli. You said today that USDA-APHIS has reviewed several cases for new plants created using CRISPR/Cas9 technology and deemed the plants unregulated. What types of plants have they reviewed? And what insights can you apply to the genome editing targets Yield10 is currently working on?

The USDA-APHIS website contains a wealth of information on this topic. And in fact, there's a running list of company letters requesting confirmation regarding the regulatory status of genome-edited plants and the corresponding agency response available on the site. In addition to DuPont Pioneer obtaining confirmation for a genome-edited corn, a number of food crops have been developed using this genetic engineering approach, including apples, potatoes, mushrooms and spinach. It's interesting to note that the latter are all foods consumed directly by humans, unlike the corn ag biotech crops, canola, soybean, corn, et cetera, which are processed, used as animal feed or both. The key takeaway I have is that the traits that are being deemed unregulated are changing and improving the composition of the crop. The deletions are being inserted into plant enzymes to produce the desired effect. So to stress this [book] about C3007 today, we are seeing many similarities in the products and the approach. The genome-editing target for C3007 is an enzyme involved in the biosynthesis of oil. So as we advance our work to create oilseed plants containing the edited C3007, we'll also be very interested in taking the steps needed with USDA-APHIS to confirm unregulated status.

Thanks, Oli. And the last question also goes back to you. What partnership or licensing opportunities do you see for Yield10 with big ag and other seed companies?

So we see our role as an innovator in the space, and we already have quite a portfolio of traits to work on. Having said that, we don't see Yield10 duplicating existing industry infrastructure and commercializing them ourselves. As we've mentioned, the ag majors have been involved in a round of M&A activity over the past couple of years, and in the months and perhaps years ahead, those deals will be completed. We are optimistic that a new generation of biotech tools that enable us to modify plants for higher yield and create new traits for genome editing will open up a whole new model for collaborations. This is something the ag sector really needs, and has not done very successfully in the past. Big pharma and biotechs have created structures to bring forward innovations while rewarding biotech companies and their shareholders. And this has created an entire ecosystem of innovation companies to feed their development pipelines. Key for us will be to work with partners that are supportive of our fundraising, validate our technologies and allow us to retain financial independence to focus on executing our old milestones. We think there is the potential to help create this in the ag sector. In the meantime, we will continue our focus on generating proof points in our traits. This is what will ultimately create value. As we read out our data from upcoming studies, we'll have a better sense of the value creation potential for C3003. And the time will come where we think we can have productive discussions with industry players. For our genome editing targets, we recognize that we can't progress all of these or in all of the crops of interest, and they generate no value sitting in a freezer at our labs. So we will form partnerships or structured licensing arrangements simply to leverage third-party capabilities and financial resources to progress some of these other opportunities. This would allow us to cost-effectively have more shots and go for Yield10, recognizing we'll see our return based on the other party's success.

Thanks, Oli. I'll turn the call back to you for concluding remarks.

So thanks for joining us on the call tonight. Thank you to our colleagues who have worked so hard to get us off to a good start in 2017. And thanks as well to our shareholders. We will work hard to continue earning your support, and we look forward to talking with you again on our next call. Good night.

Thank you, everyone. You may now disconnect.