Yield10 Bioscience Inc (YTEN) 2018 Q1 法說會逐字稿

Welcome to the First Quarter and 2018 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 over to your host, Yield10 Vice President of Planning and Corporate Communications, Lynne Brum.

Great, thank you, Tim, and good afternoon, everyone. Welcome to the Yield10 Bioscience First Quarter 2018 Conference Call. Joining me on the call today are President and CEO, Dr. Oli Peoples; Vice President of Research and Chief Science Officer, Dr. Kristi Snell; and Chief Accounting Officer, Chuck Haaser. Earlier this afternoon, we issued our first quarter 2018 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 now 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 any 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 first quarter of 2018 with $11.6 million in cash, cash equivalents and short-term securities on the balance sheet. Net operating cash usage for the first quarter was $3 million and reflects lower grant revenues as well as the expenditure on employee bonuses as compared to $2.4 million in net cash usage in first quarter of last year. We have no debt on our balance sheet.

We had approximately 10 million common shares outstanding at the end of the first quarter. All preferred shares issued in our December 2017 offering have been converted to common shares as of the end of the first quarter. We estimate net cash usage for the full year 2018 will be approximately $9 million to $9.5 million, and this range includes payments of $500,000 we completed in early May for our final restructuring costs. We expect our cash on hand, together with revenue expected under current government grants, to support our operations through a number of technology proof points into mid-2019.

Let's now review the quarterly operating results. We reported a net loss for the first quarter of $2.3 million or $0.24 per share. We reported $0.1 million in grant revenue, $1.1 million in R&D spend and $1.3 million in G&A spend.

Last call, we announced that Yield10 was named a sub-awardee on a new DOE grant to boost -- to study boosting oil in Camelina. We began work under the grant last fall, and this work continued through the first quarter. Due to the timing of the contract, we expect grant revenue of approximately $114,000 for our work through the first quarter plus payments for new activities conducted in the second quarter to be reflected in our second quarter revenue. For more details on our financial results, please refer to the earnings release.

Before I move on, I'll mention that we will hold our annual shareholder meeting on May 23. I would like to urge shareholders to review our proxy statement and return your proxy cards so your votes can be tabulated.

Now let's turn to Slide 4, our 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 are making solid progress so far in 2018, and our accomplishments this quarter relate primarily to advances we've made in R&D. Kristi will elaborate on these, but here's a high-level view. We have completed planning and permitting related to our upcoming 2018 field tests. We plan to field test versions of C3003 in Camelina and canola to evaluate events for increasing seed yield. We will also plant small plots of soybean to perform seed bulk up to provide us with field grown seed for studies planned in 2019. And we will field test our first genome-edited plant and test our C3008a trait in Camelina at sites in the U.S. The goal for -- of our field testing program is to provide us with data and proof points that will enable us to choose the best events for future studies.

In the first quarter, we completed a key genome-editing milestone with the combined edit of 3 traits: C3008a, C3008b and C3009 in Camelina. We plan to seek nonregulated status from USDA-APHIS to enable future field testing of this trait combination in the U.S. Our team published 2 recent research papers in the peer reviewed journal, Plant Science. The first one describes our technology approach using metabolic engineering to increase crop yield. The second paper reports for the first time data showing that C4003 dramatically boosts biomass yield in switchgrass. We also recently filed a new patent application related to using global transcription factors, or GTFs, as an approach to boost seed yield in corn. As our recent accomplishments suggest, we are on track on the R&D front and will continue to focus on achieving the key corporate milestones we've laid out for 2018.

Let's now turn to Slide 5. Yield10 is well positioned 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 the potential for a cost-effective path to field tests in the U.S. with genome-edited traits. We believe that generating proof points in our traits based on our activities planned for 2018 will create interest and opportunities for licensees and collaborations over time.

Let's now turn to Slide 6, our pipeline of traits. We have seed yields 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. Our metabolic model suggests there may be traits like C3004 that could complement C3003 to further increase its yield boosting performance, and we continue to study these traits.

We have 2 categories of genome-editing traits in our pipeline. Our oil enhancing traits include C3007, C3008a, C3008b, C3009 and C3010. We also 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.

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 describe some of the recent advancements in our R&D pipeline.

Please turn to Slide 7. When our lead trait gene, C3003, is introduced into plants, it enables plants to be more efficient at capturing carbon through photosynthesis, resulting in higher seed yield. This activity involves a unique biological mechanism, and we believe it 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 through the work that our collaborator, Professor Danny Schnell and his team, are performing under their new DOE grant. The Monsanto research license we signed in late 2017 provides a path for C3003 to be tested in elite soybean germplasm and eventually in combination with C3004. C3003 is a key trait in our pipeline, and we will continue to build our knowledge about the trait in our field testing program.

Let's turn to Slide 8. On this slide, we have a 3-year snapshot of our field work with C3003. The 2017 column summarizes the data we obtained in our field test last year, with the key results being the data on second-generation C3003 in Camelina and the data on first-generation C3003 in canola. We obtained encouraging results in those field tests and have discussed this data in detail on prior occasions.

Let's turn to Slide 9. The 2018 field test program will be the third season of field tests for the C3003 trait and our most extensive. We plan to evaluate several generations of C3003. Please note, when we talk about different generations of the C3003 trait, 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 are: one, to test second-generation C3003, which includes Gen 2.0 and Gen 2.1, designed for seed specific expression of the gene in Camelina; two, to repeat testing of first-generation C3003 in canola, designed for expression throughout the plant and to test for the first time Gen 2.0 in canola; and three, to bulk up pure seeds in soybean for use in our 2019 field testing programs. We will certainly collect agronomic parameters and observations of soybean in the field; however, these will be small pilot scale trials and the main objective is pure seed production. All of these field tests will be conducted at various sites in Canada.

We will also conduct our first field test of a genome-edited plant, genome-edited C3008a Camelina, this year. This trait is part of a triple combination trait stack we have designed to boost oil content in oilseed crops. In the field, we plan to see how the C3008a plants perform and we'll collect data on oil content and composition. This field test will be conducted at 2 sites in the U.S. We conduct our field tests using contractors and as weather and soil conditions allow, I expect planning will take place over the next several weeks. It is our expectation that we will collect a significant amount of data on C3003 this year. We'll also begin to get our first data on C3008a in the field that will help guide our future work with the triple combination trait stack.

Let's now turn to Slide #10. 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 may translate into soybeans. As with Camelina, we observed lower individual seed weights with Gen 1 C3003 and typical individual seed weight with Gen 2.0 C3003 in soybean.

Further, our preliminary greenhouse results suggest an increase in branching in plants for some of the events tested. This could be significant because more branching provides more sites on the soybean plant for seed pods to develop. Seed from our greenhouse studies in 2017 is being used for our small-scale field work in 2018. Additional Gen 1 and Gen 2.0 events, or lines, are being progressed in soybean for further study by our collaborator. We are pursuing this work independently, but will fully support Monsanto and its activities with C3003 this year.

Please turn to Slide #11. 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. We believe that 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 are currently working on 5 gene targets involved in oil biosynthesis and are focused on building IP around these targets. The illustration on the top right shows a simplified schematic of oil biosynthesis in seed tissue. Targets C3007, C3009 and C3010 may play a role in controlling fatty acid biosynthesis. The C3008a and C3008b targets act downstream of oil biosynthesis, and reducing their activity may lead to a reduction in oil turnover. We plan to test the C3008a version of this trait in field tests this year.

We have also been working on lines edited for multiple traits. We recently completed genome editing of the Camelina line edited for C3008a, C3008b and C3009. Our plan is to file for nonregulated status with USDA-APHIS and conduct field tests.

We are also working with technology from the University of Missouri, for which we have an option to obtain an exclusive license, and are editing C3007 in both Camelina and canola, and we hope to start editing C3010 soon. 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 traits. We believe this work is promising, and will work to identify opportunities for licenses and collaborations.

Let's now turn to Slide #12. At the end of 2017, we submitted 3 research papers related to our technology to peer-reviewed journals. As of our call today, 2 of the manuscripts have been published online, and I think they provide some insight into how we have organized our research efforts a bit differently than others in the field.

Our metabolic engineering paper describes how we use predictive models and apply metabolic engineering strategies to tackle the problem of crop yield. These strategies allow us to define the minimum number of gene changes needed to produce the maximum yield outcome.

Our second paper outlines the foundational work done by Yield10 researchers to identify 2 novel transcription factors, C4001 and C4003. Transcription factors are essentially gene switches that turn on and off sets of genes, and our paper describes 2 unique global transcription factors that significantly increase photosynthesis and biomass yield. As a science-driven company, it is our intent with these papers to illustrate to both investors and potential collaborators the unique approaches we are employing at Yield10 to increase crop yield.

Let's now turn to Slide 13. The core of the Plant Science paper on transcription factors, or global regulatory genes, describes the production of transgenic switchgrass plants expressing C4001 or C4003. In plants expressing C4001, we achieved a 75% to 100% increase in the dry weight of above-ground biomass. For C4003, we achieved 100% to 160% increase in dry weight of above-ground biomass. As you may be able to see in the photos, there was also an increase in root biomass.

Another key finding in our paper is that genes that are very similar to C4001 and C4003 are widespread in land plants. Thus, this work has potential applications for increasing yield in biomass crops such as sorghum, silage corn and alfalfa, crops that are generally fed to dairy cows. It also may have potential applications in crops where seed is the primary product, since our analyses have shown that similar genes in corn are highly expressed in the seed, suggesting they may be potential targets for boosting seed yield. We are intrigued by this and are doing the ground work to set up the study of these traits in corn, and we've recently filed a patent related to this work. The results in this transcription factor study provide an example of how our different approach to identifying gene targets has succeeded in the identification of genes that have successfully increased crop yield.

Let's now turn to Slide 14. We are currently working with both the C4001 and C4003 traits in rice and wheat. Given our findings to date, we plan to initiate corn transformation soon. We are also working to edit another transcription factor, C4004, to decrease or eliminate its expression. Previous work by Yield10 researchers has shown that C4004 is a negative regulator of plant growth; thus, reducing or eliminating its expression may increase yield. We are using the foundational technology used to develop the C4000 series of traits as well as high-yielding plants that have been generated to date, to identify additional targets that will be accessible by genome editing. We are also working to identify unique combinations of edits to increase crop yield.

In summary, our R&D team is positioned for a very productive year in 2018, and I'll look forward to updating you as the year progresses.

Oli, back to you.

Thanks, Kristi. I'm sure you will all recognize the terrific progress our technology team has made under Kristi's leadership since we became Yield10 in January 2017, and I'm confident there is much more to come as we progress throughout the rest of this year.

Let's now turn to Slide 15. Genome editing completes the toolbox for enhancing crop yield and value by enabling precision editing of gene combinations. On March 28, the USDA released a statement saying that genome editing is equivalent to techniques traditionally used by plant breeders to generate beneficial traits, and as such, does not carry additional risks requiring USDA oversight. Given the work we are doing, we found this statement very encouraging. Traits produced using genome editing may have a lower cost of development and a shorter time to commercial introduction, opening the market to the develop of new traits by small ag innovators. Yield10 has in hand a series of novel genome-editing targets as well as a powerful gene-editing target discovery capability. We anticipate that we are race to identify smart editing targets in the form of gene combinations to improve crop performance.

Let's now turn to Slide 16. Our traits in development provide us with multiple potential paths to revenue driven by real 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 their 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 in these crops, including specialty oils. There's a lot of innovation going on in this area with ag majors and with companies deploying genome-edited 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 agreements with a significant share of downstream economics. Here, the potential number and types of partners is much larger than the 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 as a service to the sector. To date, 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. Further, as we see the market demand for nutritional oils increase, such as high-oleic soybean, there is the potential to deploy genome-edited traits to directly increase the oil content of the seed, which would further increase the economic value of the crop.

Let's now turn to Slide 17, 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 second quarter and reporting out results in fourth quarter this year.

Under a research license, Monsanto is currently working with C3003 in soybean. In 2018, we will also continue independent development of C3003 in soybean, where we have confirmed that we have sufficient seed from a few [ags], and we will plan to test those in the field this year, and will continue to work with C3003 in rice. We'll continue to progress oil-enhancing targets using CRISPR genome editing, and we'll also progress our C4000 series of traits in rice and corn in the months ahead.

We believe that the data we are generating across our traits and platforms as well as our next-generation trait gene discovery platform, will position us well to secure ag industry collaborations. We will file new patent applications on our discoveries in 2018 and we will continue the work we have been doing with our academic partners on the underlying science. We expect much of our work will be published in academic journals or presented at scientific conferences. We're expecting it to be very productive in 2018 and beyond.

So let's now turn to Slide 18 to wrap up. Our team is making good progress towards meeting our milestones for 2018. We're executing a focused program with C3003, advancing new constructs of the 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 the identification of promising genome-edited 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 plan on making steady progress towards our goal to create value for our shareholders.

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

Great, thank you, Oli. And now Tim, can you please poll for questions?

(Operator Instructions) Our first question comes from the line of Jay Albany of SeeThru Energy.

This is Jay from SeeThruEquity. My first question has to do with Monsanto. Is there any additional color or maybe something you can point to with respect to how this partnership is progressing? I know it's pretty recent, but anything at all additional that you can say about it would be great.

Well, Jay, this is Oli. Thanks for joining the call. So I'll start by saying that the Monsanto agreement was a major milestone for Yield10 at the end of last year, and we are delighted to have Monsanto working on C3003 in soybean. At the start of this year, the Yield10 team provided Monsanto with what they needed so they could begin the soybean transformation process, the C3003. It simply takes a lot longer to develop soybean lines under the plant like Camelina or canola for that matter. Monsanto is the world leader in developing biotech traits in soybeans, so it's great to have them working in C3003 with their unique capabilities and capacity. Our new business model for working with ag majors has also attracted the interest of other parties for both additional gene traits as well as other crops. We have some discussions ongoing and our goal is to work with additional ag companies to bring forward new yield traits. Any other questions, Jay?

Sorry, just looking at the year, you're going to be testing C3003 for soy, canola and Camelina. You've reported pretty consistent results. Can you just refresh -- in prior trials, can you just refresh our memory as to sort of what would be a success with maybe some benchmarks we can look for when you report results in the future?

Yes. So increasing crop yield other than through the use of herbicide or insect traits through (inaudible) has largely been an [attractable] challenge in the ag-bio space. So I think it's important for us to recognize that, in terms of the big picture, we've seen a lot of potential with C3000 for a large impact, but we're still learning more about the trait and how best to deploy it in major crops. With respect to expectations, there's just not a lot of guidance I can provide given the uncertainty around every growing season. And as you know, every growing season is different with different weather conditions. We do expect to execute a trial and generate a lot of useful data and insights into the performance of C3003 in 3 different crops for the first time. Hopefully, at a minimum, we can show that results achieved in Camelina can be repeated in canola and soybean, 2 large North American crops. This should also help to validate our Camelina fast field testing system as a robust platform technology for developing crop traits. Does that answer your question?

I just have one more. So we've been tracking progress on -- I know you have a growing portfolio, but we've been tracking progress on C3003 for some time now with consistent reporting of encouraging results. Could you maybe expand a little bit, bigger picture, sort of how you think about the tradeoff of near-term partnerships versus waiting out for a potentially larger way to create value as you test more crops?

That's always the issue in this space. There's always a tradeoff between near term, rent money, if you like, and long-term value capture with innovations. That's particularly the case where the best path to maximize market penetration lies in licensing or partnering, which is the case with C3003. The C3003 gene comes from algae, so we know it's going to be a regulated trait. We also know it has potential in canola, soybean and possibly corn, all of which are currently GMO. The seed sector in North America for these crops is dominated by 3 ag majors formed from the recent industry consolidation, and perhaps BASF, with its acquisition of the Bayer canola acquisition. So early on, we -- as we developed the strategy for Yield10, this was a key topic of discussion. But our decision was to focus on capturing long-term value for our shareholders. This means we need to derisk the technology and avoid getting locked up prematurely in exclusive arrangement for the major crops. No doubt this makes management's task a little harder, but we think it's the best approach for Yield10, and it's just -- and this also reflects the approach of success stories in the ag-bio space. With regard to timing of potential revenue in the Monsanto agreement, they have around 3 years to do their evaluation, during or shortly after which they have the right to negotiate an exclusive license for soybean. So if all goes well, the first revenue from this relationship would be from the typical payments associated with executing a license. Anything else, Jay?

Okay, no, I think that covers my questions. I'll open it up.

There are no further questions. Pardon me, you may continue, Ms. Brum.

Yes, thank you. So yes, thanks, Jay, and thanks for your questions tonight. We'll now turn to a question submitted by a shareholder, which is this: Can you detail your current and future expected use of CRISPR/Cas9 platform? And Kristi, will you take that question?

Yes, sure, Lynne. There's no question the CRISPR system is a very cool technology, possibly a game changer for ag innovation companies, as it really levels the playing field for small companies. And as you know, we're very actively using it at our facility in Canada. This year, we'll be testing and we'll field test our first edited USDA-APHIS nonregulated Camelina line in the field mainly as a case study to establish this capability at Yield10. And we've also talked about a triple gene-edited line where we'll be providing more guidance as the year unfolds. But given the experience of the industry over the last 20 years, using both GMO and advanced breeding tools, it's hard to imagine changing just a single plant gene and achieving step-change improvements in performance. So we believe this will require either introducing new genes like C3003, not present in plants, to bring new metabolic functionality, or perhaps changing the activity of combinations of plant genes which is now achievable through the CRISPR system. The key here is knowing what combinations of genes to change, which is why we're investing in our grain gene trait discovery platform. And this platform is described in detail in our 10-K.

Great. Thank you, Kristi. I'll now turn the call back to Oli to wrap up.

Thanks, Lynne. The Yield10 is working -- team is working hard to progress our traits to fulfill our mission to produce step-change improvements to crop yield to ensure global food security. Thanks to our employees for a job well done in the first quarter of 2018. Thanks also to our shareholders for your support, and thanks to everyone for joining the call tonight. Thank you.

Great, thank you, everyone. You may now disconnect.

This concludes today's call. You may disconnect your lines at this time, and have a wonderful rest of your day.