Yield10 Bioscience Inc (YTEN) 2018 Q2 法說會逐字稿

Greetings, and welcome to the Second Quarter 2018 Financial Results and Business Update Conference Call for Yield10 Bioscience. (Operator Instructions) As a reminder, this conference call is been recorded.

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

Thank you, Tim, and good afternoon, everyone. Welcome to the Yield10 Bioscience Second Quarter 2018 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 soon to be joining us, Chief Accounting Officer, Chuck Haaser. Earlier this afternoon, we issued our second 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 forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call.

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

Thanks, Lynne. Good afternoon, 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 second quarter 2018 with $9.7 million in cash, cash equivalents and short-term securities. Net operating cash usage for the second quarter was $1.9 million, reflecting the impact of somewhat lower grant revenue as well as the completion of restructuring expenses. This is level with the $1.9 million in net cash usage we reported in the second quarter of last year. We continue to have no debt on our balance sheet.

We estimate net cash usage for the full year 2018 will be approximately $9 million to $9.5 million, and this range includes payments totaling $500,000 we completed in the first half of 2018 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 second quarter of $2.4 million or $0.24 per share. We reported $0.3 million in grant revenue, $1.3 million in R&D spend and $1.5 million in G&A spend. Last fall, we announced our participation on a new DOE grant to increase oil in Camelina. Due to the timing of the contract, in the second quarter, we recognized cumulative revenue of $236,000, including $108,000 for our work performed through March 31, 2018. For more details on our financial results, please refer to the earnings release.

Now let's turn to Slide 4 to go over 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. I'm often asked by investors about the name Yield10. The name was based on our mission: step-change increases in the yield of major crops and a rough estimate of the value of increasing yield of canola and soybean in North America. A 10 bushel per acre increase in yield for both crops would generate around $10 billion per year, hence the name Yield10. A simple [cans] concept but not easy to achieve.

Having said that, we have continued making solid progress so far in 2018. Our accomplishments this quarter relate primarily to advances we've made in R&D. Kristi will elaborate on these, but here's the high-level view. Our field tests were successfully planted in the second quarter. These include testing a version of C3003 in Camelina and canola to evaluate events for increasing seed yield, and small plots of soybean to perform seed bulk-up for soybean field studies planned in 2019.

In addition, we are field testing our first genome-edited plant in the U.S. The goal of our field testing program is to provide us with data and proof points that will enable us to optimize genetic constructs and choose the best constructs, [less] events for commercial development. We signed a global exclusive license with the University of Missouri for oilseed technology and traits we have named C3007 and C3010. We also named the inventor of the technology, Dr. Jay Thelen, to our scientific board.

Yesterday, we announced we have secured a research license to CRISPR-Cas9 technology from the Broad Institute and Pioneer, which is part of Corteva Agriscience, the agricultural division of Dupont.

In the first quarter, we completed a key genome-editing milestone with the combined edit of 3 oil traits in Camelina. In the second quarter, we submitted a letter to USDA seeking nonregulated status for the plants. If we receive the designation from USDA-APHIS, we plan to conduct our first field test with this trait combination in the U.S. in 2019.

Our team published a research paper in the peer-reviewed journal Plant Cell Reports, detailing work with our Camelina platform and highlighting some early work we conducted with a complex, multi-gene trait that produces significant increases in seed yield. This work was also highlighted in the presentation by Dr. Frank Skraly, outlining our approach using metabolic modeling to project yield impacts of new traits. This work, together with research published earlier this year, illustrates the unique approach we are taking to discover yield traits for commercial crops.

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, our technology platform. Increasing crop yield is an extremely complex R&D problem. The majority of traits deployed in commercial row crops provide protection against insect and weed pests, providing a means to protect yield, but not to address making the plant higher yielding. After the first wave of biotech discoveries, followed by the beginning of the DNA sequencing in genomics era, the industry focused on identifying and screening thousands of individual plant genes. Unfortunately, this endeavor has not yet delivered new commercial traits.

Having said that, over the last 20 years, the industry and academia has generated billions of data points from crop genomics, large transformation pipelines, metabolomics and advanced molecular breeding technologies. We now have to develop computational tools to convert that type of big data into actionable gene targets.

At Yield10, our approach is based on our unique background and experience. Here, we are leveraging our expertise in metabolic engineering, flux modeling and gene-regulatory modeling, combined with our Camelina Fast Field Testing program. Our goal is to -- in developing the GRAIN platform is to be able to convert big data into actionable gene modifications. As you all know this, with any modeling capabilities, you need to put data or levers to challenge those models. Here, we are fortunate to have a pipeline of exciting novel traits, which provides just such data.

Let's now turn to Slide 6 to review genome editing in agriculture. Genome editing is a potential game changer in the agricultural space and has been in the news in 2018, as policies in the U.S. and the EU have been substantially clarified. In March, 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.

In contrast, in July, the EU Court ruled the opposite direction, indicating that they view genome-edited plants as genetically modified. While the EU ruling was disappointing and at odds with the science, it wasn't entirely unexpected, given the stance that the EU has historically taken on GM crops. I'll remind you that Yield10 is focused on large acreage crops grown in North America and in geographies outside of the EU. These are currently all GM.

As a sidebar, despite the EU stance on GM crops, the EU is the largest importer of GM soybean meal used for animal feed, as the EU is short in protein production.

We've pursued the CRISPR license for quite some time and were pleased to see that Broad and Pioneer began offering licenses on their combined IP portfolios late last year. Yesterday, we announced the signing of the license with Broad Institute and Pioneer. Pioneer is part of Corteva, the agricultural division of DowDuPont. Given their expanding work in genome editing, we made the decision to secure this research license with the option to convert to a commercial license.

We view CRISPR as an important tool for accessing new traits and one that can significantly reduce the time line and costs for new trait development and commercial deployment. For example, consider the case where CRISPR is used to create a deletion of the gene that causes inactivation of that gene, resulting in more oil and oilseed, something we're working on. This plan can be developed in the lab, progressed through the nonregulated process, then tested in the field. If the performance is acceptable, the plan could then go into the commercialization pipeline. So it's pretty straightforward, meaning the sector can now go after more incremental traits.

GMO traits are more complicated to test, mainly because of the nature of the event's [list] process followed by a more complex regulatory process, though GMO traits have to have high value. Yield10 has embraced CRISPR as a genome-editing tool. But the real value in our platform is in the discovery of new traits to develop, and that's where our GRAIN technology platform comes in. With our technology platform, we have discovered a pipeline of potential new traits to increase seed oil -- seed yield, oil content and biomass.

Let’s now turn to Slide 7, and I'll go over our pipeline of traits. The table in this slide shows our traits in development. We have seed yield traits such as C3003, which based on an algal gene we have used -- we are focused on today may be regulated. And our focus is on large acreage GM crops. Later this year, we expect to generate additional proof points for the C3003 trait in Camelina, canola and soybean. We are currently testing potential plant alternatives to this algal gene.

Another trait I want to mention today, discovered from our work in C3003, is C3004. Although it hasn't been mentioned much in our recent presentations, we've been quietly working on C3004. Based on recent growth chambers also for C3004 and Camelina, we now plan to evaluate plants for both studies in our 2019 field test program and accelerate its introduction into canola and soybean. Work is underway to file an additional patent application before we provide an update to Bayer/Monsanto under the research license we signed last year.

We're excited to say more about this trait, including an overview of the results and next steps in the weeks ahead.

In addition, we have 2 categories of genome-editing traits in our pipeline: our oil-enhancing traits and the C4000 series of transcription factor genes. A number of the C4000 series are very exciting in their own right and have enabled us to identify combinations of other transcription factors, which can be modified by genome editing to improve crop performance.

A key objective of these activities and the development of the GRAIN platform is to generate revenue by providing R&D services to the ag sector. Across all those 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 process. 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 #8. 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 transporter mechanism that we believe has the potential to improve yield in a wide range of C3 crops, which include crops such as soybeans, rice and canola. The 2018 field test program is the third season of field tests for the C3003 and our most extensive. We are evaluating several generations of C3003. 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 [routine] 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 soybean seeds from Gen 1 and Gen 2.0 C3003 plants for use in our 2019 field testing program.

We completed planting at our test sites, as announced in the second quarter. Initially, we had some challenges with the weather, where some field test sites experienced an early heatwave during emergence of the plants. The team responded quickly, made some adjustments, and the studies are on track. At this point, plants are back to flowering stage and are setting seed. I anticipate that we will harvest the trials by the end of September and will begin seeing data from the studies in the fourth quarter.

We are also conducting our first field test for the genome-edited plants, Camelina with editing of the C3008a trait. This trait acts downstream of oil biosynthesis, and reducing its activity may lead to reduction in oil turnover. This trait is part of a triple combination trait stack we have designed to boost oil content in oilseed crops. In the field, we will monitor the performance of the C3008a plants and collect data on oil content and oil composition. This field test is being conducted at a site in the U.S.

Let's now turn to Slide #9. Soybean is an important target for C3003, and we have been working with an academic collaborator in Canada to develop soybean plants transformed with Gen 1 and Gen 2.0 C3003 constructs. Additional Gen 1 and Gen 2.0 in soybean lines are being progressed for further study by our academic collaborator. We are pursuing this work independently from Bayer/Monsanto, but have fully supported their activities with C3003 this year.

Earlier in the call, Oli mentioned our work with C3004. This trait is also included in the Bayer/Monsanto agreement, but Yield10 still has some work to do to complete our understanding of its possible role and how best to use it in combination with C3003.

Our work with this trait in Camelina has now provided the first sets of data, which will be used to complete a new patent application prior to updating Bayer/Monsanto. We are now bulking up some of the Camelina line from these studies to conduct our first field test with C3004 in 2019. We expect to provide additional information on this work sometime in the weeks ahead.

I'd like to now provide an overview of our traits in development to boost oil content in oilseed crops. Please turn to Slide 10. We believe there are compelling market opportunities around specialty oils, and we are advancing approaches using genome editing for optimizing oil content in oilseed crops. 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 building IP around these targets. The position of each of the targets in the oil biosynthesis is shown on the illustration on the right of the slide.

We are currently evaluating the edited C3008a trait in field tests this year. Earlier this year, we completed genome editing of the Camelina line edited for C3008a, C3008b and C3009 to boost oil synthesis.

Today, we announced that we have filed an "Am I Regulated?" letter with USDA-APHIS to obtain nonregulated status for this trait with the agency. Pending clearance of this trait, we are planning to test this combination in field tests in the U.S. next year.

We are also working with technology from the University of Missouri for which we signed an exclusive license and are editing C3007 in both Camelina and canola. We hope to start editing the C3010 trait soon. Our objective is to create edited lines and submit them to USDA-APHIS through their "Am I Regulated?" process to enable nonregulated status for the traits to simplify the process of field testing these traits. We believe this work's focus on boosting oil content is promising and believe it represents an important opportunity for licenses and collaborations.

Let's now turn to Slide 11. At the end of 2017 and the beginning of 2018, we submitted 3 research papers related to our technology to peer-reviewed journals. In the second quarter, we published a third research paper. It describes our development and use of Camelina as a model crop for developing novel yield traits. This paper is published in the journal Plant Cell Reports, and I will go over some of the data in the next slide.

Taken together, these publications illustrate the insights we have around tackling crop yield. In proof-of-concept experiments in Camelina using complex genetic constructs, we have shown scientifically that yield -- seed yield can be doubled. We are working to translate insights from these plants and studies into simpler strategies that can be deployed into canola, soybean and corn.

Let's now turn to Slide 12. Shown on Slide 12 are the key datasets contained in 2 of our recent papers. The data on the left shows yield data generated in Camelina when we introduced the complex multi-gene route for increased carbon capture into the plant. At a recent American Society of Plant Biologists meeting, we reported that our modeling predicts a theoretical yield increase of 112% when plants are engineered with this novel pathway. We reported in the article published in Plant Cell Reports that our experimental data generated in Camelina ranged from a 73% increase to 128% increase of seed yield over controlled plants, consistent with the yield increase predicted by our modeling. While it would not be feasible to develop and commercialize this complex system, it does tell us that there is room for substantial improvements in yield beyond the single or low double-digit increases typically observed.

This study doesn't appear to be a one-off scenario. On the right side of the slide, the work we've published with transcription factors in the journal Plant Science is shown where increases in biomass yields of up to 160% over wild-type controlled plants were observed.

Coming back to Yield10's mission of developing new traits that produce step-change in yields, we are targeting 20% increases in canola and soybeans and 10% in corn. Our proof-of-concept work in Camelina and switchgrass show that novel yield traits can potentially deliver larger increases. To summarize, our R&D team is positioned for a very productive year in 2018 and is focused on generating proof points to guide the development of our novel traits. I'll look forward to updating you as the year progresses.

Oli, back to you.

Thanks, Kristi and the entire R&D team. I'm confident the team will continue to make excellent progress this year, and there is much more to come as we progress through the rest of the year.

Let's now turn to Slide 13 to review our commercial strategy. Our traits in development provide us with multiple potential paths to revenue, driven by the value proposition. For major North American commodity crops, we think we can accelerate development through working as soon as possible with the ag majors and their elite germplasm using their resources, like the approach we have taken with Bayer/Monsanto for C3003 and C3004 in soybean, where we anticipate commercializing through license agreements with milestone payments to Yield10 and participation in downstream economics.

The next path is specialty and niche crops. There's a lot of innovation going on in this area. Here, the potential number and types of partners and types of commercial partnerships is much larger than the handful of companies in the commodity ag seed space.

The third path to commercial revenue involves our technology platforms, where we can accelerate innovation based on the GRAIN platform to predict gene combinations for crop improvement and provide access to those capabilities as a service to the sector. To date, we have access to government grants and relationships with leading plant scientists. We plan to continue providing updates on our technology platform in future investor communications.

Let's now turn to Slide 14 to discuss our upcoming milestones. Yield10 has a strong pipeline of exciting crop trait technologies which we believe will help us build significant value in the business. We will talk more about our work with C3004 in the next few weeks.

In 2018, we anticipate reporting on field test results in the fourth quarter. Under a research license, Bayer/Monsanto is working with C3003 in soybean, and we will update them on C3004 this year. We will also continue independent development of C3003 in soybean and rice. We will continue to progress oil-enhancing traits using CRISPR genome editing and progress our C4000 series traits into rice and corn in the months ahead.

Our results to date and scientific publications have helped us engage in useful discussions and are expected to position us to negotiate and secure ag industry collaborations, a key area of focus for us. We will continue the work we have been doing with our academic partners on the underlying science, file new patent applications on our discoveries, and expect much of what we will publish in academic journals will be presented at scientific conferences. We are expected to be very productive in 2018 and beyond.

Let's now turn to Slide 15 and we will wrap up. Our team is making good progress towards meeting our milestones for 2018. We are executing a focused program on C3003, advancing new constructs for the yield traits, and we're seeing it translate from Camelina to canola and soybean, important North American oilseed crops. We believe that C3004 may add to this.

Our unique approach to trait discovery has led to the identification of promising genome-editing targets, and we will be working to further develop these targets to improve seed yield, oil content and oil bios.

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 GRAIN 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.

Thanks, Oli. Tim, can you now poll for questions?

(Operator Instructions) Our first question comes from the line of James Jang of Maxim Group.

So it looks like everything's pretty much on track. Do you see anything upcoming for the second half of the year which might affect, I guess, some of the testing that's going on?

Well, we can't predict the weather in the future and we can't think of what will happen in the future. But right now, the fields look pretty good. We had some issues at the start of the year. But until we actually harvest these fields and plots and essentially develop the data, that's when we'll know, right? Kristi?

Yes. I mean, I know that parts of the Northern Hemisphere were hit with some unseasonally hot weather. So I was wondering if any of that affected any of your test fields up in Canada.

Yes. We did experience the heatwave, which also sort of reduced the moisture in the plots, but our team responded pretty quickly. And we believe that we're -- that they're going well.

So none of that really -- none that will cause noise in, I guess, the data, right?

Well, what we do is we always plant quite a few replicas more than we need. And so we may lose a couple of plots here and there, but it's not going to affect the statistic relevance of the results because we have a lot of replicas going.

Okay, great. And just a follow-up update, everything with the former Monsanto folks now that they're Bayer, everything is still on track, right? Nothing's changed there?

Yes. No, we've been in touch with Monsanto regarding follow-ups and some of the things we've been talking about. And obviously, they're pretty busy at the moment because that deal just went through in June. And being bought for $60 billion will probably have an impact on your availability and time. So those folks are pretty busy, but we expect to hear from them in September based on the last call I had.

Okay, great. And in terms of, I guess, additional capital, do you think you'll be coming to the markets in the second half of the year? Or do you think -- or are you kind of okay with your current cash flow situation?

Yes. No, our plan actually is to just focus -- we've got a lot of technology proof points ahead of us. Obviously, we've got a lot of things going on. So I think our mission this year is to really deliver on all of our milestones. And hopefully, we'll beat those milestones and add value for the shareholders. And that's the plan.

Okay. And last one, what are some key events that investors should keep an eye on for the back half of the year, aside from, I guess, the updates on the progress? But is there something else that we should be keeping an eye on?

Yes. There's nothing that I can provide color on at this point.

(Operator Instructions) If there are no further questions, I would like to turn the conference back over to management for closing remarks.

Thanks, Tim, and I'll turn it over to Oli for concluding remarks.

The Yield10 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. We are focused on executing on a series of technology proof points we've outlined as our milestones. Thanks to our employees for a job well done so far in 2018. Thanks also to our shareholders for your support, and thanks to everyone for joining the call tonight. Thank you.

Thanks, Tim.

This concludes today's conference. Thank you for participation. You may disconnect your lines at this time.