Yield10 Bioscience Inc (YTEN) 2017 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Fourth Quarter and Full Year 2017 Financial Results and Business Update Conference Call for Yield10 Bioscience. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference call over to your host, Yield10 Vice President of Planning and Corporate Communications, Lynne Brum. Thank you. You may begin.

Thank you, Adam, and good morning, everyone, and welcome to the Yield10 Bioscience Fourth Quarter and Full Year 2017 Conference Call. Joining me on the call today are President and CEO, Dr. Oliver Peoples; Vice President of Research and Chief Science Officer, Dr. Kristi Snell; and Chief Accounting Officer, Chuck Haaser. Earlier this afternoon, we issued our fourth quarter and full year 2017 news release. This release as well as slides to accompany our presentation today are available on the Investor Relations 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 that 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, including the company's most recent 10-K. The company undertakes no obligation to update forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call.

I'll now turn the call over to Oli.

Thanks, Lynne. Hello, everyone, and thanks for joining our call today. Please turn to Slide 3, and let's cover a few financial highlights starting with the balance sheet. We ended 2017 with $14.5 million in cash in the balance sheet. In December, we raised $13.1 million net proceeds in an underwritten public offering, which significantly strengthened our cash position. Additional details on the offering and the underlying securities are available in our press release and SEC filings.

Net operating cash usage for the full year 2017 was $8.2 million, which is within our guidance range of $8 million or $8.5 million. We estimate that net cash usage for the full year of 2018 will be approximately $8.5 million and $9 million and including payments in the first half of the year of $500,000 for final restructuring costs.

We have budgeted an increase in R&D spend this year to support an expanded field test program as well as the evaluation of a greater number of potential yield traits. We expect to continue to identify ways to bring down certain infrastructure costs building on the progress made in 2017. Our cash on hand, together with revenue expected under current government grants, will support our operations through a number of technology proof points into mid-2019.

On our P&L, let's review the financial results that are reported as continuing operations. For the full year 2017, we reported a net loss applicable to common shareholders from continuing operations of $10.8 million or $3.29 per share. The full year net loss includes a $1.4 million adjustment related to the accounting from a deemed dividend associated with issuance of Series A preferred shares in the December offering.

For full year 2017, we reported $900,000 in grant revenue, $4.6 million in R&D expense and $5.6 million in G&A expense. For the fourth quarter of 2017, we reported a net loss applicable to common shareholders of $4 million or $0.99 per share, which includes a charge related to the deemed dividend. In fourth quarter, we reported grant revenue of $100,000, $1.2 million in R&D expense and $1.4 million in G&A expense. For more details on our financial results, please refer to the earnings release.

Now let's turn to Slide 4, recent accomplishments. Yield10 is developing gene trait technologies for food and feed crops to produce higher yields with lower inputs of land, water and fertilizer. We made solid progress throughout 2017. In December, we granted a nonexclusive research license to Monsanto for the evaluation of C3003 and C3004 soybean. This agreement has a 3.5-year term, consistent with the time needed to produce test and evaluate new traits in soybean. Monsanto is a leader in commercialization of biotech traits, has a world-class soybean development program and the resources to test constructs in advance on a scale well beyond what Yield10 can do in-house.

The goals of the Monsanto program are to test C3003 alone and in combination with C3004 and their propriety soybean lines. A highlight of the fourth quarter was the completion of our field tests for C3003 in Camelina and canola. The results were encouraging, and they're well into preparations for a 2018 field test program. Later on the call, Kristi will present a summary of the 2017 data and outline our plans for 2018.

Turning to the third accomplishment on this slide. In 2017 we assembled a series of traits to produce more oil and seed with a focus on genome editing. In September, we received the USDA-APHIS confirmation that our genome editing C3008 trait is deemed nonregulated by the agency. More recently, we completed genome editing in Camelina of a triple combination, C3008a, C3008b and C3009. In early 2017, we took an option from University of Missouri to a trait we've named C3007. We plan to complete the license and in-license related to trait C3010 this year.

Let's now turn to Slide 5. Yield10 is well positioned for 2018. We made very solid progress in 2017, which has positioned us well for 2018. Our objective is to assemble a rich pipeline of yield traits to create a compelling value proposition and market opportunity for growers and ag players alike. We are focused on deploying our R&D resources to generate proof points with our traits in key commercial crops through tests conducted in the field and in greenhouse studies. We also plan to make USDA-APHIS submissions to enable a cost effective path to field tests in the U.S. for genome editing traits. We believe generating proof points in our traits based on our activities planned for 2018 will create interest and opportunities for licenses and collaborations over time.

Let's now turn to Slide 6, pipeline of traits. Here we have a summary of our traits in development. We have seed yield traits such as C3003 that will be regulated, and our current focus is to deploy them in large acreage GMO crops. In 2018, we expect to generate additional proof points for the C3003 trait in Camelina, canola and soybean. The C3004 trait gene may complement C3003 to further increase its performance.

We have a pipeline of additional traits that we may be able to develop using genome editing, which fit into 2 categories. Our oil enhancing traits include C3007, 8a, 8b, 9 and 10. We then have the C4000 series of transcription factor genes, and a number of these are very exciting in their own right but, in addition, have been instrumental in enabling us to begin identifying combinations of transcription factors for genome editing to improve crop performance.

A key objective of this platform is to generate revenue by providing R&D services for the ag sector.

Across all these areas, we see opportunities for licensing or partnerships as we demonstrate the value proposition of our traits and technology platforms.

Let's now turn to Slide 7, value creation model. If our gene traits can produce step changes in crop yield, then there's an opportunity for significant value to accrue to the grower, the seed company and to Yield10. On this slide, we have an illustrative example of the annual revenue opportunity for Yield10's canola, soybean and corn yield gene traits based on the 2016 North American harvest.

If we look at commodity soybean in this model, there is the potential for about $300 million annual revenue potential to an innovator bringing a 20% yield increase to the crop.

Further, as we see the market demand from nutritional oils entries, such as high oleic soybean, there is the potential to deploy genome editing traits to directly increase oil content of the seed, which would further increase the economic value of the crop.

Let's now turn to Slide 8. Genome editing in ag. Genome editing completes the tool box for enhancing crop yield and value by enabling precision editing of gene combinations.

Though genome editing does not introduce foreign DNA into plants, the USDA may treat traits developed using this support as nonregulated, significantly reducing product development time lines and cost. A typical regulated GMO trait take an average of 13 years and an average cost of $130 million for full global date regulation.

Some estimates suggest the time line is as little as 3 to 6 years for development of new trait using genome editing with the development cost that could be as low as less than $10 million. This opens the market to the development of new traits by small ag innovators. Yield10 has in hand a series of novel genome editing targets as well as the powerful gene editing discovery capability.

The announcement by Dupont Pioneer and the Broad Institute that they plan to take -- make nonexclusive licenses for CRISPR/Cas9 IP readily available in the ag space is encouraging. But we'll have to wait and see how that unfolds. We anticipate that we have ways to identify smart editing targets in the form of gene combinations to improve crop performance.

As you will see in Kristi's presentation today, we are uncoupling many targets based on our discovery platform.

Let's now turn to Slide 9, the commercial strategy. Our traits in development provide us with multiple potential paths to revenue driven by our yield traits and unique capabilities. For major North American commodity crops, we think we can accelerate development through working as soon as possible with the ag majors. Our approach is to develop sufficient technical data to gain their interest and then provide a low hurdle for them to begin deploying and testing our traits in elite germplasm using their resources.

Here we anticipate license agreements with milestone payments to Yield10 and participation in downstream economics.

This is exactly the approach we have taken with Monsanto for C3003 and C3004 in soybean.

The next path is specialty and niche crops, including specialty oils. There's a lot of innovation going on in this area with ag majors, and with companies deploying genome editing traits to improve oil composition.

We see opportunities to stack traits to improve yield and/or composition. We envisage a nonregulated path to market and JV-type arrangements with a significant share of downstream economics.

Yield10's potential number and types of partners is much larger than a handful of companies in the commodity ag seed space. The third path to revenue involves our technology platforms where we can accelerate innovation based on the ongoing integration of our 2 discovery platforms to predict gene combinations for crop improvement and provide access to this capability of service to the sector.

Today, we have accessed government grants and relationships with leading plant scientists, and we plan to expand this by layering on R&D support for partner-funded programs.

We plan to provide more color on our technology platform in future investor communications.

With that, I'd like to turn the call over to Kristi for an update on our R&D progress. Kristi?

Thanks, Oli, and hello, everyone. In my presentation today, I will provide an update on our R&D pipeline. Please turn to Slide #10.

When our leading trait gene, C3003, is introduced into plants, it enables plants to be more efficient in capturing carbon 3 photosynthesis, resulting in higher seed yield. This activity involves a unique biological mechanism and has the potential to improve yield in a wide range of C3 crops. We have continued to study the mechanism of C3003 and believe it impacts photorespiration, a wasteful process that competes with photosynthesis. In 2017, Yield10 filed 4 additional patent applications on technologies related to C3003 based on new insights from our metabolic modeling work.

We'll continue to expand our understanding of C3003 at the metabolic level, including date of work that our collaborator Danny Schnell and his team are performing under their new DOE grant. The Montana research license provides a path for C3003 to be tested in their elite soybean germplasm and eventually in combination with C3004. Let's turn to Slide #11.

The 2017 field test program is the second season of field test that we have conducted for the C3003 trait, and we analyzed several generations of C3003. Please note, when we talk about different generations of C3003, what this means is we are activating the C3003 gene in the plant at different locations, times and levels to optimize performance.

The main objectives of this study were: one, to test second generation or Gen 2.0 C3003 designed for seed-specific expression of the gene in Camelina; two, to test first generation C3003 design to express the gene in all tissues of canola; and three, to bulk up pure seed for use in our 2018 field testing program.

2017 was our first field test in canola, a major commercial oilseed crop.

We conducted the field tests at 2 sites in Canada. Our 2017 field tests marked the first time we have tested generation 2.0 C3003 in Camelina in the field. The 2017 field program involves testing several events in the field and selecting the best ones for further study.

Our seed yield results were positive. Although, the yield improvements vary between the 2 sites.

The range of seed yield increase in the best lines is between 2% to 7.7% compared to control plants, depending on the site. We previously reported our 2017 field test results in a press release dated January 9, 2018.

An additional parameter we investigated in the 2017 field test was harvest index. This is measured as the ratio of harvested seed to total plant biomass and is an indicator of the efficiency of seed production.

Metric was increased in our Gen 2 C3003 plants versus controls in the majority of events tested. Another important measure in this study was individual seed weight. We observed an increase in individual seed weight in the majority of the C3003 Gen 2.0 events tested compared to control plants.

To summarize, the best events in our study of Gen 2.0 C3003 in Camelina produced improvements in seed yield, harvest index, individual seed weight and overall agronomic performance as compared to control plant.

During the course of our studies, we also used many cases where the plants are isolated from insects to produce pure field grown seeds for our 2018 field tests. These plantings produced additional insights into yield performance. Although the minicage plots are small and provide only an indication of performance, we are encouraged that the Gen 2.0 as well as some of the newer Gen 2.1 lines that have a different pattern of seed-specific expression of C3003 produced higher seed yield for most lines versus control plants. As shown in the chart in the top right-hand of the slide, 6 of 9 Gen 2 lines produced an increase in seed yield versus control plants. This early fieldwork with lines containing this new Gen 2.1 promoter for C3003 seed-specific expression, shown in orange in the figure, looks particularly promising.

In summary, our work in the 2017 field tests shows that Gen 2 C3003 is very promising in Camelina and supports our efforts to accelerate deployment of Gen 2 C3003 constructs in canola. In 2017, we tested Gen 1, C3003 in canola for the first time in the field and observed seed yield improvements of up to 13% in the best canola line versus control plants.

I will note that we observed this result at the Saskatchewan site, where low rainfall conditions persisted during the growing season.

We also observed the decrease in individual seed weights for Gen 1 C3003 canola similar to what we saw with Gen C -- Gen 1 C3003 in Camelina in our field test last year. To improve seed yield and produce typical individual weight seed, we are deploying Gen 2.0 C3003 in canola, and many studies are currently underway in our greenhouses and are expected to be planted in field test for 2018.

Looking to our path forward in 2018. For Camelina, we plan to conduct additional field test in 2018 with our best Gen 2.0 and 2.1 line using field grown seeds and to continue research on Gen 3 constructs to further boost seed yield improvement. For canola, we will retest the best Gen 1 C3003 lines using field grown seeds and scale up our Gen 2.0 line from the greenhouse with the intentions of doing some field stuff if we can collect enough seeds and complete permitting in time.

We will also develop Gen 2.1 lines of canola using the same genetic constructs that showed very promising results in the Camelina minicage work.

Let's now turn to Slide #12. Soybean is an important target crop for C3003, and we are working with an academic collaborator in Canada on developing soybean plants transformed with Gen 1 and Gen 2.0 C3003 constructs. Soybean lines from these transformations were tested in the greenhouse in 2017, and preliminary observations suggest that the effects of C3003 translate into soybean. As with Camelina, we observed lower individual seed weights with Gen 1 C3003 and typical individual seed weights with Gen 2.0 C3003 in soybean. Further, our preliminary greenhouse results show that there is an increase in branching in the plants for some of the events tested.

This is significant because more branching provides more sites on the soybean plant for seed pods to develop. It's too early to draw a conclusion without seed yield from these plants, but our early data looks promising, and seeds from our greenhouse studies may be available for conducting pilot field tests in 2018.

Additional Gen 1 and Gen 2.0 events or lines are being progressed in soybeans for further study by our collaborator. As Oli mentioned earlier, we are pursuing this work independently, but we'll fully support Monsanto in its activities with C3003 this year.

Please turn to Slide #13. We believe there is a compelling market opportunity around specialty oils, and we have devised concepts for optimizing oil biosynthesis in oilseed crops. Our objective is to identify traits accessible through genome editing to construct more efficient paths for oil biosynthesis. These traits will also have the potential to stack with other traits for changing oil composition such as high oleic and omega fatty acid-containing oils. We have identified or acquired 5 gene targets involved in oil biosynthesis and are focused on building IP around these targets.

The illustration on the top right shows the simplified schematic of oil biosynthesis in seed tissue. Target C3007, 9 and 10 may play a role in controlling fatty acid biosynthesis. The C3008 target acts downstream of oil biosynthesis, and reducing its activity may lead to a reduction in oil turnover. In 2017, we filed our first submission to the USDA-APHIS "Am I regulated?" process to determine the regulatory status for a Camelina line genome edited in the C3008a gene. Shortly thereafter, we received confirmation that the submitted C3008a line will not be regulated by the agency. We have also been working on lines edited for multiple traits. We recently completed genome editing of the Camelina line edited in C3008a, C3008b and C3009. Based on University of Missouri technology, our next step is to edit C3007, where we are working in both Camelina and canola, and C3010.

Our objective is to create edited lines and submit them to USDA-APHIS through their "Am I regulated?" process to enable nonregulated field tests of the trait.

We believe this work is promising, and we'll work to identify opportunities for licenses and collaboration.

Let's now turn to Slide #14. Last June, at the Plant Biology Conference, we reported results from our studies of expressing the global transcription factor C4001 in switchgrass, where we achieved a 75% increase in the electron transport rate of photosynthesis and a 75% to 100% increase in dry weight of aboveground biomass. C4001 is clearly very interesting for increasing biomass yield, but we are also interested in high oleic and other global transcription factors, C4002 and C4003, impact seed yield.

For this reason, the study of these genes is being progressed in rice internally and in wheat through a collaboration with the National Research Council in Canada.

We are also planning to test C4001, 2 and 3 in corn. Yield10 is uniquely positioned to identify additional gene targets based on analysis of high yielding lines, expressing our proprietary global transcription factors C4001, C4002 and C4003.

Please turn to Slide #15. Downstream transcription factors that are down-regulated in our high-yielding lines are the simplest targets for genome editing. Basically, it's technically easier to reduce the activity of the gene than to increase it with editing. We recently filed a new patent application on 24 additional transcription factors, C4004 through C4027, and their combinations for genome editing to improve crop performance. The Venn diagram on the right shows how many downstream transcription factors are down-regulated by our global transcription factors C4001, 2 and 3. Some of these targets are likely negative regulators of plant growth and, as such, may represent a non-GMO or genome edited growth to increase seed yield and biomass production.

There is only one downstream transcription factor that is down-regulated by all 3 global transcription factors, which we call C4004. We use the traditional GMO approach to increase the activity of C4004 in switchgrass and found that, as predicted, it is powerful negative regulator of plant growth that produce very small plants.

Editing of the C4004 gene to lower its activity is now ongoing in rice to determine the effect that this has on yield.

In summary, our R&D team is positioned for a very productive year in 2018. I would like to acknowledge our research teams at Metabolix Oilseeds and Yield10, who have worked hard to create the events and monitor the field tests in greenhouse studies we have described today.

And I look forward to updating you as our programs advance this year. Oli, back to you.

Thanks, Kristi.

Let's all turn to Slide 16, milestones. Yield10 has a strong pipeline of exciting crop trait technologies, which we believe will help us build significant value in the business. In 2018, we will be conducting field tests of C3003 in Camelina and canola at sites in Canada. We anticipate planting in the second quarter and reporting out results in the fourth quarter this year. Under the research license, Monsanto is currently working with C3003 in soybean. In 2018, we will also continue independent development of C3003 in soybean, where we plan to test some events in the field this year and exceed bulk up and permitting, and we'll continue to work with C3003 in rice. We made a lot of progress in the genome editing front in 2017. In 2018, we will continue to progress oil-enhancing traits using CRISPR genome editing. We'll also progress on C4000 series traits into rice and corn in the months ahead. We believe that the data we are generating across our creation platforms as well as our next-generation trait gene discovery platform will position us well to secure ag industry collaborations. We filed 5 new patent applications in 2017, and we'll continue to file patent applications in our discoveries in 2018.

We'll continue the work we've been doing in -- with our academic partners on the underlying science and expect much of the work will be published in academic journals or presented in scientific conferences. In fact, we currently have submitted papers under review and expect publication in the first half of 2018. We also plan to participate in relevant scientific and industry conferences. We're expecting to be very productive in 2018 and beyond.

So let's now turn to Slide 17 to wrap up. 2017 was our first year of operating as Yield10. Our team made good progress meeting our milestones, and building on those accomplishments, we are well positioned for 2018. We're also executing a focused program with C3003, advancing new constructs of yield trait, and we are seeing it translate from Camelina into canola and soybean, important North American oilseed crops. Our unique approach to trait discovery has led to identification of promising genome editing targets, and we will be working to further develop these targets to improve seed yield, oil content and/or biomass. Taking this all together, we have a clear vision for our business, defining the commercial opportunity in 3 areas: commodity crops, specialty oils and our R&D platform. We'll continue making steady progress towards that goal to create value for our shareholders.

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

Thanks, Oli. Adam, can you poll for questions?

(Operator Instructions) And we have a question from the line of Jay Albany from SeeThruEquity.

Congratulations on the financing and the Monsanto agreement. Seems like you guys have accomplished quite a bit this quarter. My question is on the Monsanto agreement. This clearly is a significant development for the company. Is there anything more you can share about the scope of the deal? Any upcoming milestones with Monsanto that we should be aware of?

Yes, Jay, thanks. There's not an awful lot we can share. But what I can say is, the Monsanto arrangement really provides a validation of sorts from the leader in soybean for the approach we're taking, particularly with C3003. Our team has provided technical information we have so far for C3003 to the Monsanto team so they can do the transformations in the soybean lines. Just from there, it takes some time to get to stable lines, in field test data. I don't know what Monsanto will feel comfortable saying as the program progresses. We'll have to see how that plays out. But in the meantime, we are continuing to develop C3000 soybean ourselves independently, albeit at a much smaller scale. And we plan to get -- trying to get some of these events into the field this year. If we can get enough seeds and ramp up (inaudible) that is. We'll update Monsanto on any new findings as our goal is to assist them in any way we can to make their work with C3003 as successful as possible.

I noticed the deal was described in your release as nonexclusive. Can we assume there are other deals potentially or discussions with partners potentially in the works? And is there anything you can say to update us on these?

Oli, do you want to take that?

Yes, sure. Look, I think for the last 2 plus years as we're initially formulating the thesis behind Yield10 and then launching it last year, we've been in conversations with most of the ag players (inaudible) about Yield10 and our trait discovery platform. 2 things are different going into 2018. First, I think the Monsanto arrangement helps validate our science, and second, we have a more solid concept of working with ag majors through an open innovation model. I mean, this -- we're trying to make it basically easy for them to work with our traits while preserving our rights going forward. And so we have a pretty large pipeline of traits. We have a lot of flexibility how to engage interested parties. But overriding all of that, I think one thing I'm pretty sure or certain of, that is genome editing is a game changer for agriculture. And there are certainly some low-hanging fruit opportunities out there for modifying seed compositions, whether it's for nutritional oils or reducing some compound that may not be as healthy. But we think there's a compelling need for smart systems like the integrated technology platform we are developing to identify combinations of genes to address the yield gap, and this is an area where we bring some unique skills.

Thanks, Jay. Thanks a lot. And Adam, I'll just pose a question to Oli and Kristi with respect to some of the comments we made today with respect to our guidance for 2018, in particular as we are bumping up our net cash usage guidance for the year, bringing it just a little bit over where we were for 2017. And then at the same time, restructuring costs are kind of rolling off. We've got a little bit left for this year, but as compared to last year, that will be reduced. So how are you looking at using that additional capital in the Yield10 business in 2018?

I think we made it pretty explicit right from the start of Yield10 that it's our intention to focus resources on technology proof points. So we're going to invest a bit more in R&D in 2018 than we did in 2017. Kristi, can you elaborate on a few areas where we'll see increases?

Yes, sure. We'll be making targeted incremental investments in R&D in 2018 all in support of generating proof points. We made one key hire in all of 2017. And in 2018, we'll hire a couple of positions in Canada related to our work in the greenhouses and the supervision of our field tests. Field tests themselves are pretty cost effective. But we'll spend more on field tests in 2018 because we're going to be testing more traits, and we're going to be working with 3 different crops. We'll also be adding to our bioinformatics capability in Woburn, and we'll be testing and developing more genome edited lines. And I think we'll get a lot of leverage through the small number of hires we make and the additional data that we'll generate.

Yes, thanks, Kristi. Look, I think we're pretty confident that this increased resource in R&D will serve us well in 2018, which is why we've made the decision to make the increase.

And Oli, would you just wrap up the call then?

Yes. So the Yield10 team is working hard to progress our traits to fulfill our vision to produce step change improvements to crop yield to ensure global food security. I thank our employees for a job well done in 2017 and for a very productive start of 2018. Thanks also to our shareholders for your support, and thanks to everyone for joining the call tonight.

Great, everyone, the call is now concluded. You may now disconnect. Thank you.