Yield10 Bioscience Inc (YTEN) 2021 Q1 法說會逐字稿

Welcome to the First Quarter 2021 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, Paul, and good afternoon. everyone. Welcome to Yield10 Bioscience first quarter 2021 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, Yield10 issued our first quarter 2021 financial results. This press release as well as slides 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.

Now I'll turn the call over to Oli.

Thanks, Lynne. Good afternoon, everyone, and thanks for joining our call. Since the start of 2021, we have made strong progress advancing Yield10's business. Today I will provide an update on how our business plans are progressing, Kristi will highlight our recent R&D accomplishments, after which I'll review the first quarter financials and summarize our key milestones for 2021 and beyond. Then we will open the call for questions.

Let's turn to Slide 3. I will focus here on several key accomplishments that set us on the path to crystallize our strategic vision for Yield10. We are utilizing Camelina as a platform crop to produce fuel, food and PHA bioplastic. Earlier this year, we reported achieving a key proof-of-concept milestone for producing PHA bioplastic in field grown Camelina. We are scaling up the 2 best PHA Camelina lines up to 6% DHA seed weight in our 2021 field test program. We plan to use seed from this for larger scale planting in 2022 and the initial DHA product prototyping.

We engaged the leading U.S. seed company to perform seed scale-up of a CRISPR edited E3902 oil content line, spring double haploid lines, and a disease resistance elite Camelina line. The cycle of seed scale-up was enabled by plantings we conducted in California over this past winter. With permitting substantially complete, we've begun planting for spring 2021 field type program in the U.S. and Canada.

In January, the first U.S. patent was granted to Rothamsted Research for co-producing DHA+EPA omega-3 oil in Camelina. In April, USDA-APHIS confirmed that our new CRISPR edited C3007 Camelina lines are exempt from regulation under 7 CFR part 340 under the SECURE Rule, a new crop regulatory framework in the U.S. In the first quarter, a U.S. patent was granted to the University of Missouri covering modifications to C3007 genes to increase oil content in oilseed crops. We have an exclusive license to this technology.

We also strengthened the balance sheet now in 2021, which we anticipate will support the achievement of value-building milestones into 2023. Let's turn to Slide 4. This slide illustrates how we are translating science innovation to revenue growth. Using our technology platform, the Trait Factory, we've discovered and evaluated multiple genes for increasing crop seed yield, seed oil content and for making the oils -- oilseed products. As a result, we now have 21 patent families in prosecution and 2 new recently issued U.S. patents. Our technology success enables 2 distinct revenue opportunities. Improved Camelina varieties for our Camelina products business and trait licensing to major seed companies for use in other crops.

Let's turn to Slide 5. Let me share with you why we're excited about the oil set Camelina and our product targets. Camelina seeds has a good oil and protein composition and it's been used for human food production for over 100 years. This crop can be used as a rotation crop in North Western Canada and it has a 90 to 100 day growth cycle makes it attractive as a really cover crop in the Midwest for double cropping with corn and soybeans, another way to increase farm revenues vegetable oil and food production. With our ability to accelerate its development by genetically reprogramming the seed to improve its field performance and produce higher-value products, we believe there is tremendous upside for Camelina as a major crop.

Let's turn to Slide 6. We plan the sequential launch of products from our Camelina platform each enabling increased farm and product revenue per acre, which we expect to drive farmer adoptions. We estimate that our 2 differentiated proprietary products, omega-3 oils and PHA bioplastics have the potential to drive 2030 annual revenue product potential of up to $4.2 billion. However, in order to get there we plan to establish the operating foundation of the business starting with the lead Camelina followed by the higher value omega-3 Camelina to drive revenue margins and cash flow. Today, we will focus on these 2 activities. In parallel, we will continue the development market of commercial PHA Camelina lines. Our internal projections indicate that we should then be able to commercialize the PHA Camelina based on cash flow from the business.

Our elite Camelina used to produce oil and meal, we see the potential of a $300 to $500 in product revenue per acre as yields and oil content are approved and a market in hundreds of millions by 2030. We expect the markets for oil and meal will be supplied in the future using coal products for PHA Camelina based on its higher overall value.

For omega-3 Camelina based on the higher value for agriculture nutraceutical markets, we see a potential for doubling the product value per acre to about $600 to $900. This is a high value opportunity requiring a limited acreage. We estimate 300,000 to 700,000 acres of omega-3 Camelina production would enable revenue in the range of $180 million to $630 million, a strong foundation for yield and growth.

For PHA bioplastic, we would aim to produce a higher value product mix of PHA bioplastics, oil and meal. Given the magnitude of the plastics replacement opportunity, success with this product is expected to drive tens of millions of acres of adoption, and we project that by 2030 we could have 3 million to 4 million acres with revenue potential up to $3.6 billion.

Let's start to Slide 7. Here are strategic goal is to establish the Camelina products business operations and develop elite varieties for the future deployment of the omega-3 and PHA traits. This effort will require us to make new hires in the areas of seed operations, regulatory affairs and business development. We are executing multi-acre seed scale-up of the E3902, DH12 and disease-resistant lines as well as engaging contractors with seed scale-up planned for the fall-winter 2021 season for planting in 2022.

For guidance purposes, each acre of seed produced for planting can enable the planting of 100 to 250 acres of Camelina for production. In Business Development, we are reaching out to growers, crushers and oil meal end users -- oil and meal end users, sorry. These include renewable diesel companies as well as salmon feed and farming players in North and South America. Renewable diesel may provide some tailwinds for the security.

Let's turn to Slide 8. Low carbon fuel standards are driving an emerging opportunity for the use of oil from elite Camelina in the renewable fuel space. Let me be clear, we will not be buying or subsidizing acres on behalf of energy companies, and we'll look to secure offtake agreements prior to moving to larger acreage production.

According to a recent report in Biodiesel Magazine, that may be as much as 5.5 billion gallons of new or potential capacity in the U.S., which would translate to approximately 45 billion pounds of vegetable oil feedstock demand. It's worth noting the oil company names in a list of participants in this activity. These maybe potential partners for Yield10. This new demand will face headwinds from the food v. fuel debate as a disconnect between U.S. vegetable oil supply and demand grows, and this is where we may be able to take advantage of the short growth cycle of Camelina and its potential for double cropping with soybean. The oil from soybean plus the oil from Camelina in the same 12 month period could bring oil production per acre above 1,100 pounds per acre more than double the oil from soybean alone. Oil products from soybean and Camelina seed crushing are protein meal for feed and food. It's early days for Yield10 in this space and we plan to provide updates as we make progress.

Let's turn to Slide 9. The omega-3 Camelina opportunity is the first that produce long overdue high-value sustainable products. Omega-3 fatty acids EPA and DHA are essential in human diets for development health and wellness, and come primarily from fish. Farmed salmon, an excellent source of omega-3s is currently growing at 7% per year on accounts for over 75% of salmon consumed. Aquaculture feed currently realized on a dwindling supply of omega-3 fish oil produced from ocean-harvested fish. New nutraceuticals markets for omega-3s are adding pressure for this scarce resource creating a fish oil supply-demand disconnect.

We believe we can serve this market based on the agreement with the Rothamsted Institute of EPA+DHA omega-3 Camelina oil technology signed late last year. Our longer-term vision is to establish Camelina as a gold standard sustainable vegan aquafeed source for farmed salmon production including essential EPA DHA omega-3 oils, high-quality proteins, and other feed ingredients.

Let's turn to Slide 10. We are positioning this technology to enable revenue and margin growth between the launch of our elite PHA Camelina lines. This technology is at a high readiness level and provides a significant market opportunity to bring a land-based drop-in replacement for fish oil to the aquaculture market with additional potential in nutraceuticals. The technology developed by Rothamsted with 20% EPA+DHA fatty acid in oil already exceeds the profile of Northern Hemisphere fish oil. Professor Napier and his collaborators have conducted multiple use of field trials and fish feeding studies. Furthermore, clinical studies with the Camelina EPA, DHA oil are shown it's equivalent to fish oil in the human diet, and oddly enough without the fishy taste, which opens up additional opportunities in nutraceuticals with a very low-cost basis.

Let's turn to Slide 11. We've been focused on developing the commercialization strategy for omega-3 oil in South America for the salmon feed market in Chile. Outreach to prospective value chain partners and end-users is underway in both Argentina and Chile, and we are charting a regulatory path forward to enable to commercialization of oil and meal. Rothamsted team also continues to make progress. A U.S. patent was granted to Rothamsted earlier this year covering the co-production of DHA and EPA and Camelina. The Rothamsted team plans further seed scale-up of the lead omega-3 Camelina line in 2021.

And later this week Professor Napier is presenting a paper at American Oil Chemists' Annual Meeting providing an overview of the development of omega-3 technology. In addition, one of his collaborators is presenting a poster on the human studies. We look forward to keeping you posted as we progress along the path toward commercialization of this exciting technology.

Let's turn to Slide 12. We currently have 4 non-exclusive research license agreements in place with Ag majors each evaluating our traits in our target crop with the option to negotiate a commercial license. The arrows in the slide indicate the term of the research license agreements. In reviewing our priorities for 2021, we decided to defer further internal trait development work in canola and corn and plan to seek partners for development of performance traits in these crops.

Related to the GRAIN platform, we are seeing higher interest from the Ag sector in new crop traits. This may be driven in part by higher commodity prices and their unique technology approach. We also believe there is a growing recognition for our CRISPR genome editing and the improved regulatory environment are very positive drivers for Ag Biotech. The major challenge remains the efficient identification of high-value gene traits.

I will now turn the call over to Kristi.

Thanks, Oli. Hello, everyone. 2021 is off to a good start. Our research team has made good progress with activities supporting regulatory permitting, field trial contracting, and the start-up planning of our 2021 field testing program. We have also made progress on seed scale-up for our elite Camelina lines. With the spring program moving ahead. we are also taking the steps needed to secure additional field testing and seed scale-up in contrast season locations for fall 2021.

Now let's turn to Slide 13. As the Camelina products business opportunity became clearer, we began working to deploy herbicide tolerance and disease resistance traits to create elite varieties as we develop the crop for commercialization. These are now a high priority as they are important for large-scale adoption and provide value add for the farmer in terms of cost, convenience, yield protection, and farm revenue. Based on discussions with regulatory authorities and experts, we believe that we can take advantage of the new, more favorable regulatory environment in North America. Here, we are working to rapidly deploy well-known herbicide tolerance gene traits previously approved in other crops with a long history of safe use and approval.

As you know, we are also progressing a number of performance traits aimed at increasing seed yield and oil content. These will provide benefits for farm revenue, oil and meal cost of goods sold, and will lower the carbon intensity score of the oil for renewable diesel. Given the potential for a disconnect in vegetable oil supply and demand, our oil content traits may become of increasing interest to third parties. These traits include the E3902 line currently being scaled as well as C3007 and the C3020 new oil trait from the GRAIN platform. As we fully develop our elite Camelina varieties, they will provide a high-performance seed chassis for the commercial omega-3 and PHA bioplastic traits. Collectively, the combination of traits in elite Camelina varieties with value-added products will enable crop diversification, increase fam revenue and provide low-cost sustainable solutions to businesses and consumers.

Now let's turn to Slide 14. As Oli mentioned, we have engaged the leading seed company to perform seed scale-up of 3 Camelina lines. E3902, a CRISPR edited high oil line, DH12 a doubled haploid elite line, and a third line, which is a disease resistance elite line. Each scale-up of these lines in the spring 2021 season is expected to enable future planning of 100 to 1,000 acre scale or subsequent larger-scale planting as well as for producing oil and meal for customer sampling.

There is lead-time involved for planning contrast season seed scale-up, therefore we are working to engage contractors for additional seed scale-up activities in fall-winter 2021. In the first quarter, we focused on contracting and permitting for our 2021 field trials for sites in the U.S. and Canada. This activity is substantially complete and planting has already begun at some of the sites. In our field program this year, we will be planting elite Camelina germplasm varieties and Camelina with novel yield and oil traits. In addition, we will scale up our 2 best PHA Camelina prototype lines.

Our team is also focused on developing elite commercial Camelina varieties with herbicide tolerance, disease resistance, and improved seed yield and oil content. These lines will serve as platform Camelina varieties for nutritional oils and PHA traits. Our current scale-up work with PHA Camelina lines will allow us to expand acreage for growth going forward and to make pilot material for testing and product applications. We are also working on developing commercial events for the PHA Camelina trait to enable large acreage deployment.

We continue to support our partners evaluating traits in our other commercial crops and are also seeing increased interest from current and successful partners for new traits from our GRAIN platform to evaluating their crops of interest. In-house we continue to leverage GRAIN in support of our Camelina activities with the new oil content trait C3020 going into field trials this year.

I would like to thank our team for their hard work in 2021 and for staying focused on our priorities. This has positioned us to meet proof points for elite Camelina line development, to progress our PHA trait, and to further develop our Camelina technology for specialty products.

Oli, back to you.

Thanks, Kristi. Please turn to Slide 15 and let's cover a few financial highlights. We ended first quarter 2021 with $22.7 million in cash, cash equivalents and investments. During first quarter 2021, we raised net proceeds of $12 million from a public offering of common stock as well as $3.9 million from the exercise of warrants better aligning our balance sheet with our business strategy. We have no debt.

Our net operating cash usage was $2.6 million for the first quarter 2021. We expect our cash on hand together with expected revenue from our current government grant to support our operations into early 2023. We estimate that our net operating cash usage for the full year 2021 will be within the range of $10 million to $11 million. This includes estimates for our contracted and planned seed scale-up activities as well as on hires and other support in business development, regulatory affairs and seed operations as we do right this investment towards executing our business plan.

Let's now review the first quarter of 2021 operating results. The company reported a net loss of $2.6 million for the first quarter of 2021 compared to a net loss of $3.6 million for the first quarter of 2020. Total research grant revenues in the first quarter of 2021 were $196,000 versus $179,000 in the first quarter 2020. In the first quarter of 2021, research and development expenses were $1.3 million compared to $1.5 million in the first quarter of 2020. General and admin expenses were $1.4 million in the first quarter of 2021 level with G&A expenses in the first quarter of 2020. For more details on our financial results, please refer to the earnings release.

Now let's turn to Slide 16. The upcoming milestones. In 2021 we will continue to focus on the following milestones: executing our 2021 field testing and seed scale-up program. Permitting is substantially complete and with planting underway, we are on track. Continue to expand their elite Camelina germplasm collection. Progressing the business plan for Camelina products, which will include working to access year-round or contrast season seed scale-up capabilities and obtaining the regulatory permits to transfer certain Camelina lines to South America. Advancing the commercial launch plan for Camelina omega-3 oils in South America where we have recently engaged a seed service provider and business development support.

Broadening our capabilities particularly in regulatory affairs, seed operations and business development either through hiring or other arrangements; securing strategic industry collaborations to address market opportunities across the value chains enabled by our traits and products; and securing revenue based on generating commercial trait licenses as we continue to expand our intellectual property portfolio, which is crucial for a small company and our 3 recent patent grants are integral to this effort.

Now, I'd like to turn the call back over to Lynne for questions.

Thanks, Oli. Paul, we're now ready for questions.

(Operator Instructions) Our first question comes from Anthony Vendetti with Maxim Group.

Oli, I was wondering if you could talk a little bit more about these Camelina lines, the CRISPR edited ones, and just talk about where you're at with that opportunity you have exclusive license to the technology, what's the time line, next steps, what could we look at in the next?

Yes. So basically there is a number of oil content traits that we're working on. One is E3902, the one we're scaling up. That actually was all developed in-house by Kristi and her team and it's actually already received approval from the USDA-APHIS non-regulated are exempt from regulation depending on the particular words used by the regulatory authorities on any given day of the week. So the good thing is essentially it doesn't require to be treated as a regulatory product. So we have successfully scaled -- done field trials with that for 2 years with the 5% oil increase. I mean you begin to look at these markets, the growing demand for vegetable oil obviously traits with increased oil content and seed without impairing yield actually considerable value. So that's one. The C3007 is in license from the University of Minnesota -- Missouri. It's a little complex because of multiple copies of it. And what we're really doing is trying to optimize the combination of edits that are required to actually define that outcome. And then the third one is progressing out of our GRAIN platform is an entirely new discovery. But again, Kristi and her team have actually engineered Camelina to over produce this particular gene product and discovered that it actually increases oil by 10%. And the good way to think about Camelina, 10% increase in oil given the higher volume of oil is about the same value that is up 10% increase in seed yield. And obviously, these are things that we think can be important not only in Camelina but potentially in other oilseed crops as well.

Just as a follow-up, so how will Yield 10 monetize this within the next 12 to 24 months, how do you see the progression and the opportunities for Yield 10?

Yes. So right now I mean I think we -- for the first time you'll see in our presentation we talk and dedicate a whole slide to this whole renewable diesel driver. Now that's been coming for a while, but I think it's becoming much clear. It's actually creating a significant supply-demand disconnect. So obviously to meet that demand, the petroleum-based diesel companies are literally going to have to source low carbon intensity renewable feedstocks now primarily from vegetable oil. I think the story around using waste and everything is going to -- kind of going to be used up. So this is all going to have to come from additional supply of vegetable oil, which opens the door to Camelina as a potential source of oil feedstock for that application. Now keep in mind, the fuel space is very cost sensitive and so although we are looking at this, the reason we're scaling up these seeds this year and plan to scale them up further over the winter is to be able to plant much larger acreages as we move ahead pending the execution of agreements for offtake with some of the companies in that space. And so we are positioning ourselves to go forward and scale this up to generate revenue. But of course, we are not going to do this at risk on behalf of oil companies. That just doesn't make any sense to us.

Sure. So in the interim -- last question before I return to the queue is, are there any additional grants that you see here on the horizon in the next 3 to 6 months or anything new that you're working on?

So I think the -- we are always working on grant -- new grant applications and one thing that's really, I think, interesting with the new administration is certainly you're seeing a much greater emphasis on carbon management, climate change, low carbon technologies, carbon sequestration and ultimately, the importance of agriculture in that area is potentially very, very large. So we are well aware of what's going on and we do routinely look for additional funding opportunities. We don't typically disclose what we've applied for until such times as we get feedback from the agencies. So we know that there's opportunities out there and as we've done in the past, we plan to seek non-dilutive financing where we can get it.

Our next question comes from Amit Dayal with H.C. Wainwright.

With respect to the field trials for 2021, what are the targets or results we are aiming for? Any color on the kind of improvements we might be looking for?

So there's -- obviously, there's a number of things going on in these field trials this year. Obviously, first and foremost, we're scaling up some of these new lines E3902, DH12 and the disease-resistant Camelina line. The goal there is to secure large amounts of essentially high quality seeds for subsequent further scale-up and planting, that's going to be one outcome. The second outcome as we continue to look at the performance of our oil content traits and the C3004 trait in particular, given its impact on photosynthesis and plant vigor and potentially yield. And then of course, we are progressing scale-up of the 2 best PHA Camelina lines. Now I think we've been very clear with the investor community that we see the PHA Camelina obviously as having enormous potential value. But we've also been pretty clear that it will be the third product launch after the omega-3 oils. And so we know we've got work to do to develop commercial quality lines, but in the meantime, we're scaling it up for a couple of reasons. One is to enable even larger planting in 2022 and that's really to support product development work. We do plan to do some basic analysis and extraction of PHA from the lines at the end of this year assuming successful scale-up. But the goal is to really begin to develop the system to enable this to be commercialized at a very large scale. And the sooner we can begin to generate data on the PHA Camelina -- processing of PHA Camelina but also to begin of the regulatory analysis associated with getting it approved for very large-scale planting obviously, the sooner we get that started, the better

Okay. Understood. With respect to your efforts in South America, is there a specific reason why you chose Argentina and Chile for the initial commercial...

Yes. I'll give you, yes. So omega-3 oil is a really exciting product and obviously, Europe has a kind of an odd moratorium on the use of GM feed ingredients in farmed salmon. The Norwegians for some dubious reason prefer to harvest loaded fish from the ocean and extract the oil and meal from that and then feed it to salmon. And that's completely not sustainable and it's actually devastating native catching around Africa from South America, so that's really something that's going to have to stop. But in South America and Chile in particular, they have a mandate to begin to move away from harvested fish and that drive is making the industry down there very interested in drop-in replacement alternatives to the -- harvest these fish. And so we really see as a sort of way to launch this outside of the North America where there is still an intellectual property challenge but also to address the second-largest market in the world with the same feed companies that actually are the main suppliers in Norway, which is if you like, the large production area with about 60% market share. Chile has around 30%. The other area we believe will be addressing in 2025 is really North America because of the growth of inland aquaculture where you're seeing people farming salmon in Florida, California, Maine, Indiana, New York State something I never thought I'd ever see but actually -- it's actually growing considerably with very large investments going in to create what you call a closed loop aquaculture systems for salmon production.

All right. Understood. That's interesting. Just last one from me. With respect to the feedstock opportunity with the renewable diesel side of things, have you started any discussions with any of these companies that you highlighted in the slides or are those just names of some players that are looking into the R&D business? I just wanted to get a sense of where you are with those discussions.

Yes. It's obvious -- I would say there has been outreach to Yield10 and we are responding to it. That's really how this has sort of begun to manifest itself, I mean. So we will provide additional color as we go forward here but what we do see as we see these investments going in the law in California and now Oregon, Washington State, Canada and Europe is required -- is requiring them to do this. And so a certain amount of their diesel fuel sale has to be based on low carbon intensity feedstocks. And so this is something they more or less have to do, which is why the capital investments are going in. But when you look at these oil companies and you look at the scale of this globally and obviously, securing supplies of feedstock for those opportunities are going to become really, really important to these companies.

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

Yes. Thanks, Paul, and I'll now turn the call to Oli for his closing remarks.

I'd like to personally thank all of you for joining us on the call tonight, and especially our shareholders for your continued support. 2021 is off to a good start with the field trial and seed scale-up activities are well underway. We are focusing on promising market opportunities for oil and meal from our elite Camelina as well as the Rothamsted omega-3 technology as a sustainable drop-in replacement for fish oil. I want to thank everyone at Yield10 for setting us on track to reach our goals in 2021. Have a nice evening.

Thank you, everybody.

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