Yield10 Bioscience Inc (YTEN) 2019 Q4 法說會逐字稿

Welcome to the Fourth Quarter and Full Year 2019 Financial Results and Business Update Conference Call for Yield10 Bioscience. (Operator Instructions) As a reminder, this conference 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.

Thank you, Devin, and good afternoon, everyone, and welcome to Yield10 Bioscience Fourth Quarter and Full Year 2019 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, Yield10 released our 2019 Field Test results as well as our 2019 financial results. These releases as well as slides that accompany today's presentation are available on the Investor Relations Events 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. 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.

Let's turn the call over to Oli.

Thanks, Lynne. Good afternoon, everyone, and thanks for joining our call. Today, I will provide an overview of Yield10, our pipeline of traits and the review of recent accomplishments. Kristi will present a summary of the results in our 2019 Field Tests and an update on our recent R&D activities, after which I will review the financials and summarize our key milestones for 2020 before opening the call to questions.

Now let's turn to Slide 3, our business profile. Yield10 is an agricultural bioscience company focused on developing performance traits for major food and feed crops and building a path to specialty crop product revenue based on our Camelina oilseed platform.

Since we became Yield10 in January 2017, we have delivered a number of technology proof points, expanded our IP position, established relationships with 3 major seed players and have a number of additional milestones coming up this year. We have a strong leadership team in operations in Woburn, Massachusetts; and Saskatoon, Canada.

Now let's turn to Slide 4 and a summary of our recent key accomplishments. In 2019 and early 2020, we've made considerable progress executing against our business strategy. And I'll now highlight some of them. We expanded our agreement with Bayer for an improved version of our C3004 yield trait gene, and we signed a new research agreement with Simplot, the best traits including C3003 and C3004 in potato. We also launched a program to progress our lead yield traits in corn. We raised $12.8 million in net proceeds based on 2 fund-raising events with $2.6 million in March and $10.2 million in November. We progressed our lead traits by generating additional data in greenhouse and growth chamber studies and by executing a series of field trials in Camelina and canola.

Moving forward into 2020, we are delighted that Dr. Sherri Brown, former Monsanto Executive, joined our Board of Directors, and we look forward to generating additional proof points, forming alliances and further addressing our business plan for Camelina-based products.

I'd like to turn to Slide 5, our business strategy and path to revenue. Yield10's Trait Factory is made up of the GRAIN trait gene discovery platform, followed by genetic modifications of the trait gene targets in Camelina and Fast Field Testing to generate performance data. This enables us to establish research license agreements with major seed companies and to improve Camelina as a crop for producing specialty products.

We currently have 3 distinct revenue opportunities from the Trait Factory: R&D, fee-for-service revenue or access to our GRAIN platform for additional trait targets, crops or products, Yield10 is not directly pursuing; the second is licensing of our yield and performance traits for use in major row crops: corn, soybean, canola and other crops, creating option value for our traits in the most important global food and feed crops; and three, product sales based on our Camelina platform for producing nutritional oils in near term and PHA biomaterials in the future.

We turn now to Slide 6 where we'll review the traits and development. We currently have a strong pipeline of novel traits, including 6, which have been pressed to the field stage -- testing stage by Yield10 and 8 new early stage Yield and oil content traits identified by our GRAIN platform. Our C3003, C3004 and C3011 seed yield traits could be broadly applicable to major North American crops, including canola, soybean and corn, which account for 200 million acres harvested annually. There's another 200 million acres of potential in South America.

The C4000 series of traits are based on plant gene regulators. In our model crop, we are seeing significant increases in photosynthesis and biomass yield with these genes. We're deploying these traits in Camelina and corn. Kristi would describe our progress with traits to increase seed oil content, the primary driver of value in oil seed crops. These traits could improve the value of Camelina and be useful in canola and soybean. I'll discuss the Camelina opportunity to produce nutritional oils in PHA biomaterials later in this presentation.

In 2020, our R&D resources are focused on progressing our trait developments in Camelina and generating additional proof points across our portfolio of traits.

If you now turn to Slide 7 and our review of the trait progression in major crops and our partner activities. We're working through research license agreements with ag majors for using their resources into elite germplasm to accelerate the development of our traits and commodity crops. Bayer is working with C3003 and our latest technology for C3004 in soybean. Forage Genetics is working with several of our traits in sorghum. And late last year, we signed a research agreement with Simplot for evaluation of traits, including C3003 and C3004 in potato.

Deployment and testing traits in major crops takes more time than in Camelina, however, we are very pleased with the progress each company is making. As our partners develop field data, we expect to enter into commercial license agreements, which would be expected to include upfront fees when executing annual minimums, milestone payments and royalties from commercial sales.

In early 2019, we contracted a major ag player to deploy several of our traits in corn, and the first phase of this work is now complete. We recently signed an agreement with a third-party for the next phase of development. Using this approach, Yield10 is leveraging third-party resources to create option value for our traits in the most important global crops. I'll now hand the call over to Kristi.

Thanks, Oli, and hello, everyone. Today, I will provide an update on our recent R&D activity. Our GRAIN platform is productive, and as a result, we currently have a pipeline of approximately 15 novel traits, and most of these are applicable to multiple crops. Today, I'll focus on our progress with a few.

Let's now turn to Slide 8. In 2019 Field Test, our primary objective was to continue to generate agronomic seed yield in oil content data for our traits in Camelina and canola. At sites in the U.S., we field tested for the first time CRISPR genome edit in Camelina plants, having combinations of edits to 3 genes: C3008a, C3008b and C3009.

Yield10 previously received confirmation in 2018 that USDA-APHIS does not consider these lines to be regulated pursuant to 7 CFR Part 340. The best genome-edited Camelina plants exhibited good agronomics, including germination, stand establishment and seed formation. In our best-performing edited line, which we have designated line E3902, we observed statistically significant increases of 11.8% in oil per individual seed, an 8.7% increase in individual seed weight, and a 4.7% increase in seed oil content as a percentage of bulk seed weight. The oil composition remained unchanged. We plan to continue testing line E3902 in 2020 at sites in the U.S. to generate additional performance data and to bulk up seed in preparation for larger 2021 field trials.

In the Canadian trials, our team ran extensive Field Tests with C3003 and C3004 under very challenging weather conditions, where severe drought caused variability complicating analysis of our data. Despite these conditions, we continue to be encouraged by the activity of the traits in these Field Tests.

In 2019, in Canada, we tested for the first time the C3004 trait in Camelina, which is believed to impact carbon partitioning to seed. From prior greenhouse studies reported in 2018 as well as additional 2019 greenhouse studies, the expression of C3004 in Camelina produced increased branching and significant increases in seed yield. During the 2019 trial, field and weather conditions at our sites in Canada posed a challenge with extreme drought conditions. While there were clear indications that the C3004 plants produce more seeds and wild-type Camelina controls, substantial variability among the test plots under these severe conditions complicated the collection of statistically significant seed yield data.

Importantly, photosynthetic measurements performed in the field showed significant increases in key photosynthetic parameters, suggesting that the activity and expression of the C3004 trait can boost photosynthetic efficiency in Camelina. We continue to be encouraged by the results we are observing with C3004 and plan more extensive Field Tests for this trait in Camelina in 2020. We are increasing the emphasis on C3004 because it is Camelina gene, and we may be able to develop C3004 Camelina lines that USDA-APHIS does not consider to be regulated, pursuant to 7 CFR Part 340, accelerating commercial development.

We also tested C3003 in canola at sites in Canada. In the 2018 growing season, our field testing in canola suggested that C3003 can increase seed yield by more than 10%. In 2019 trials, we faced the same challenges with our C3003 Field Tests that I just described for C3004. In addition to our field work with C3003 canola, in 2019, we engineered approximately 15 additional commercial quality canola lines of C3003 that can be crossed into multiple elite germplasms of canola. In 2020, we plan to conduct seed bulk up for these new C3003 lines in canola to generate field grown seeds for future Field Tests and to support development of the trait for license.

Although conditions in the 2019 season were very challenging at many of our field sites, the key takeaways from the season are as follows: one, data from our 2019 Field Tests suggest that our novel genome-edited traits targeting oil biosynthesis boost seed oil content in Camelina. We will be bulking up seed from line E3902 in the field in 2020 for larger scale field trials in 2021. At this stage of development, line E3902 may be on the path to becoming Yield10's first commercial Camelina variety. And two, observations of C3004 Camelina plants in the field suggest these plants are making more seed in agreement with our prior greenhouse studies. Additional measurements in our field studies showed that the activity and expression of trait C3004 can boost photosynthetic efficiency in Camelina. We plan to develop a version of the C3004 trait in Camelina that potentially will not be considered regulated by USDA-APHIS pursuant to 7 CFR Part 340.

Let's now turn to Slide 9, which outlines our R&D progress and plans for 2020 trait development. Our R&D team is focused on continuing to innovate to bring forward novel performance traits, evaluate our traits in the greenhouse to generate proof points and to file IP on our discoveries and field testing. In 2019, we identified and began the evaluation of 8 new traits to increase seed yield and/or oil content in Camelina using our GRAIN platform. Work to investigate some of these new traits in Camelina is ongoing and supported, in part, by a DOE grant to Michigan State University with Yield10 as a subcontractor.

Permitting is currently underway for our 2020 Field Test program in the U.S. and Canada. We plan to test C3004, the C3007 CRISPR-edited line, the CRISPR triple-edited line E3902 and our PHB traits in Camelina at sites in the U.S. and Canada. We will also be bulking up seed from the CRISPR triple-edited line E3902 in the field in 2020 for larger scale field trials in 2021.

In canola, we will perform seed bulk up for the C3004 as well as for the approximately 15 new C3003 commercial quality events at sites in Canada. Overall, this will be an extensive Field Test program. The data from this program will help us generate proof points to advance our work in Camelina and to provide licensing opportunities in canola and other major crops.

Let's now turn to Slide 10. Camelina is an attractive choice to meet the growing demand for crops that diversify the crop landscape of lower environmental footprint and have the potential to produce high-value secondary products to open new opportunities for farmers. Its fast growth cycle is particularly attractive in areas in the Northwest U.S. and Canada that have a shorter growing season, and it is naturally resistant to diseases that impact canola. Camelina oil is rich in an omega-3 fatty acid ALA, which is creating demand for the oil in human nutrition and as a substitute for fish oil and aquaculture. It is readily engineered using genetic engineering tools and can be segregated from the major row crops, making it an ideal platform for producing novel crops like PHA biomaterials.

Camelina has a high-technology upside potential for improved agronomics, seed yield and seed value since very little breeding or genetic improvements have been made to the crop. Yield10 has been working with Camelina since 2010 and currently uses it as our Fast Field Testing platform. We have enhanced several proof points based on our work, which illustrates the high upside potential of the crop. This includes work with our C3003, C3004 and C3006 yield traits as well as our seed oil content traits, including Camelina line E3902. We believe it may be possible to double Camelina seed yield based on some of the trait proof points that we have achieved to date in greenhouse studies. Our goal is to develop the Camelina business to generate direct revenue from product sales in addition to revenue from licensing and R&D services. We see many more partner prospects along the value chain with the Camelina product opportunities compared to the small, handful of very large players, who control the commodity seed sector.

Yield10 has made important strides in the discovery and development of novel crop trait since we started just 3 years ago. For our traits in field testing, our team really stepped up to work through the weather challenges of the 2019 Field Test and in conducting the permitting and logistics for our 2020 Field Test program. In 2020, our team is focused on generating technology proof points for our lead traits and planning the next steps in the development of the traits. I would like to thank our R&D team for their tremendous efforts and look forward to their continued productivity.

Oli, back to you.

Thanks, Kristi, and to the entire R&D team. Their passion, dedication and ingenuity are inspiring, as that was a constant driver for me as we pursue our common goal. So I'm excited about our prospects for continuing advancement of Yield10's mission. We look forward to ongoing developments in the year ahead.

Let's now turn to Slide 11, and we'll review some of the product targets from Camelina. Harvested Camelina seed is typically cold crushed to produce oil and protein meal and yield plans -- Yield10 plans to participate directly in the sale of these end products. Oil has historically been used in food. It's currently considered GRAS in the U.S. and is approved for salmon feed in Canada. Residual protein meal is also approved for use in some feed applications in both countries. Omega-3 fatty acids from fish oil have been shown to help prevent heart disease and stroke. It will help control lupus, eczema, rheumatoid arthritis and may play protective roles in cancer and other conditions.

Camelina oil, like flaxseed oil, is rich in the omega-3 fatty acid ALA, and recent clinical studies have shown that Camelina oil improves serum lipid profiles in patients in a study published in 2018 in the journal of Molecular Nutrition & Food Research, indicative of heart health benefits. The high content of the omega-3 alpha-linolenic acid, ALA, makes it a preferred oil for use in aquaculture feed as compared to soybean oil. These attributes of Camelina makes it an exciting crop for addressing the global macro trends of health and wellness and sustainability.

In the near term, Yield10 is well positioned to become a leading player in Camelina, focused on producing nutritional oils without having to compete head-to-head for acres with commodity crops. In the longer term, our vision is to produce natural PHA biomaterials as a third product from processing engineered Camelina seed. PHA biomaterials are natural, microbial, high molecular weight polyesters, can be processed using standard plastics process equipment and have applications in a wide range of markets, including animal nutrition, wastewater treatment and the replacement of petroleum plastics.

In 2019, Yield10 filed a U.S. patent application for new technology, potentially enabling low-cost production of PHA biomaterials in the seeds of Camelina. Our longer term goal is to be able to produce PHA biomaterials from Camelina in the cost range of edible oils to enable their broad market adoption on a very large scale. As we progress with development of our PHA traits, we plan to focus on animal nutrition and water treatment applications and find partners for the plastics replacement opportunity. We believe Camelina engineered to produce PHA biomaterials will be an attractive cash cover crop for farmers, improving farm income and the sustainability of food and feed production by enabling the production of exciting new agricultural products for large markets.

Please turn to Slide 12, and let's cover a few financial highlights. Our net operating cash usage was $3.2 million for the fourth quarter, and we ended 2019 with $11.1 million in cash, cash equivalents and short-term investments. Our net operating cash usage of $8.7 million for 2019 was right in line with our guidance range of $8.5 to $9 million for 2019.

For 2020, we anticipate net operating cash usage of $9 million to $9.5 million based on our current plans. We are directing this investment towards generating proof points, including field trials, working on collaborations and advancing discovery in development of performance traits. We continue to have no debt in our balance sheet. In early 2020, we received an additional $1.6 million in capital based on warrant exercises. We expect our cash on hand, together with expected revenue from our current government grant, to support our operations through several technology proof points into the second quarter of 2021.

Let's now review the fourth quarter and full year operating results. The company reported a net operating loss from operations of $2.4 million for the fourth quarter of 2019 compared to a net operating loss of $1.9 million for the fourth quarter of 2018. The increase is due from R&D expenses related to employee compensation and benefit expense, including the company's year-end accrual for 2019 performance policies. Total research grant revenues in the fourth quarter of 2019 were $140,000 versus $135,000 in fourth quarter 2018. In the fourth quarter of 2019, research and development expenses were $1.2 million, and G&A expenses were $1.4 million. This compares to $1.1 million of research and development expenses and $0.9 million of G&A expenses in the fourth quarter of 2018.

For the full year 2019, Yield10 reported grant revenues of $806,000; R&D expenses of $4.8 million; and G&A expenses of $4.6 million, resulting in a net operating loss of $8.6 million. Our net loss includes a $13 million noncash loss resulting from the valuation of warrants issued in our November offering, partially offset by a $9.5 million noncash gain for the change in fair value of these warrants at year-end. For more details on our financial results, please refer to the earnings release.

Let's now turn to Slide 13 to discuss our upcoming milestones. In 2020, we will continue to make progress on the following: Preparing for our 2020 field testing program, including completing the permitting process and planting in Q2; further developing the business plan for Camelina platform for specialty products; generating agronomic and yield data for C3003 in Camelina and advancing the trait in canola and corn; advancing oil boosting traits using CRISPR genome editing, including C3007, and continued testing of triple-edit Camelina plants in U.S. field studies; report progress with our C4000 series traits; support Bayer, Forage Genetics and Simplot in the evaluation of our traits and crop targets; identify additional high-value yield and performance traits; continue to build our intellectual property portfolio; and communicate our scientific innovations in technical presentations and papers.

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

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

(Operator Instructions) Our first question comes from the line of Ben Klieve with National Securities.

All right. First, I apologize, I had to jump for a few minutes, so if I'm asking you anything that you covered in your prepared remarks, I'm sorry to make you repeat yourself. First question I have is on, kind of, topic of the hour. Is there any impact to your operations, either in your R&D facilities or any expected headaches that you're anticipating now on field trials regarding coronavirus?

Yes. So we're obviously -- we've been paying attention to coronavirus since early January and obviously, adjusting our strategy plans and priorities going forward with an emphasis on safety, number one, and business continuity as the key goals here. So we've been working on this now for several weeks. And we're making -- I think we've made the right plans, we're executing against those plans, and our goal is to be executing our field trials as we have stated.

Okay, got it. And then, Kristi, I'm hoping you can help me understand the canola field trials a bit better. It sounds to me like you anticipate, kind of, a big step change in these trials to come in 2021 when you introduce all those new lines. But can you help me understand really, kind of, what the step is going to be from last year to 2020 in these trials? Is there going to be a material difference in the trials compared to last year? Or you're going to basically just have to replicate last year's trials and just hope that Mother Nature cooperates this time?

Yes. We'll both be doing the -- redoing the trials that we did last year, but also importantly, we're bringing forward those 15 commercial quality events. And the reason these are so important is that they can be crossed into basically any commercial germplasm for partners.

Therefore, it's a much bigger...

It's a much bigger trial.

Okay. So I guess then -- sorry, Oli, go ahead.

Yes. As you noticed in our expenditures that you see our, sort of, $8.5 million to $9 million is $9 million to $9.5 million is our guidance. Obviously, that's reflected of increased field trials.

Okay. So I guess, maybe, I misunderstood then in the prepared comments. So that -- the -- those 15 new lines are going to be in field trials in 2020. That's not a -- they're not going to be in the lab in 2020 for a 2021 field trial. And is that correct?

They're going to be in seed bulking up phase. So basically, we make pure seed in-field trials, and then there'll be a more extensive yield trial the following year.

Okay. All right, got it. The -- let's see. Kind of regarding your partners' field trials, I know you can't comment on anything specific, but can you -- do you have any sense of if those partners were impacted to the same degree you were? Or were these trials maybe more geographically diverse or further south? And as such, they were able to get statistically significant data whereas you guys are just unable to as a function of the weather?

I'll take that one. So Ben, basically, we know that the whole industry was impacted by this across the board. In fact, most people lost most of their field trials. One group that we know, in particular, had access to some water, but they installed a 1.5 kilometer pipeline to be able to get it in Saskatchewan. So they were able to execute their trials whereas we had to actually truck in water, essentially by tanker. So this was just a really, really grim year for field trials. There is really not a lot we can say about it. But as a matter of fact, the whole sector and -- unlike -- I think unlike these other companies, we actually have essentially more exposure, I think, because we don't have yet South American sites. So we can do 2 cycles a year.

Okay. And then last one for me. When you were talking about the cash burn for this year, can you help us kind of understand the cash burn that you're looking at in terms of, kind of, the early stage initiative that you have within your Camelina pipeline that are really just ramping up versus what investment you're making in kind of the more established initiatives like in C3003? Is it -- can you help us kind of characterize really what your focus is on?

Yes. So most of the focus is on actually progressing C3003, C3004 on the oil traits -- oil content traits, the E309 line (sic) [E3902] line basically and the new C3007 lines. The work we're doing in the early stages actually is mostly supported by a Department of Energy grant to Michigan State University where we are sub-awardee. So that's on a much smaller level of activity and driving forward with the performance traits, C3003, C3004, C3007 and a triple-edited oil content.

(Operator Instructions) Our next question comes from the line of Robert LeBoyer with Ladenburg.

I'm interested in the E3902 trials. And you'd mentioned that they would be going into the field in 2021. Any idea how long that would take? Or what the progress milestones would be going forward?

Robert, yes, thanks for that question. Kristi or Oli, do you guys want to take that?

Yes. So regarding -- our expectation is to plant those on a number of sites basically in -- by Q2. We'll be harvesting them around -- weather -- weather permitting, I should call, everything by weather permitting, we will be harvesting those in the fall and then analyzing those around that time. These trials are being carried out in the U.S. because they are genome-edited and because the lines that we're using have already been classified as nonregulated by the USDA-APHIS under the MI-regulated process. So they are actually something that we're quite excited about, particularly line E3902. And they in fact become our first Camelina variety. So we're pretty excited about it.

Yes, that sounded pretty exciting to me too, the idea that this will be the first commercial variety. Any idea how long that might take from today until licensing or introduction?

Until introduction, part of what we're doing this year is actually also doing seed bulk up to make more seed for planting many acres next year. And I can't give you the exact number. But basically, the path we're on is essentially to start scaling it up and make sure that we have sufficient seeds to sort of really drive that process forward in 2021 and 2022 to the point where it's basically, if all going well, will become a commercial variety.

There seems to be no further questions at this time. And I would like to turn the call back over to Ms. Lynne Brum for any closing comments.

Thanks, Devin, and I will hold out, turn the call back to Oli for his closing remarks.

In summary, we believe the GRAIN platform can be used to address a wide range of traits and a broad array of crops, and we currently have approximately 15 traits in the pipeline. Our Trait Factory enables 3 distinct revenue opportunities: R&D fee-for-service revenues; licensing of yield and performance traits to be used in major row crops; and product sales based on our Camelina platform for producing edible oils and PHA biomaterials.

I'd like to personally thank all of you for joining us on the call today and especially our shareholders for your continued support. Like everyone else, we're dealing with the challenges around COVID-19 with an emphasis on safety and business continuity. And so I particularly want to thank our employees for their diligent efforts at this time, want to thank everyone at Yield10 for setting us up on the track to reach our goals in 2020, and I look forward to providing further updates this year. Have a nice evening, everyone.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Thanks, Devin.