Yield10 Bioscience Inc (YTEN) 2020 Q3 法說會逐字稿

Welcome to the Third Quarter 2020 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, Jesse, and good afternoon, everyone. Welcome to the Yield10 Bioscience third quarter 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 Hasser. Earlier this afternoon, Yield10 issued our third quarter 2020 financial results press release.

We also issued a press release announcing our collaboration with Rothamsted Research on omega-3 oils. These press 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 now turn to Slide 2. Please note, 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 cautioned that statements 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.

Now I'll turn the call over to Oli.

Thanks, Lynne. Good afternoon, everyone, and thanks for joining our call. Today, we will provide an update on the strong progress we have made toward achieving our 2020 R&D and business objectives, including our collaboration with Rothamsted Research for technology, enabling production of DHA, EPA omega-3 oils for use in agriculture. Kristi will then highlight our recent R&D activities. I'll then review the financials and summarize our key milestones for 2020 and beyond. We will then open the call to questions from analysts. Now let's turn to Slide 3, our business profile.

Yield10 is an agricultural bioscience company focused on developing innovations for sustainable food security. We bring a new approach to trait discovery. Our platform, the trait factory, leverages 30 years of investment and innovation and advanced synthetic biology to enable efficient identification and validation of genetic changes (inaudible) to its traits to increase performance and productivity of crops.

We have 4 world leaders in major crops developing their traits and their seeds and that there are cost and risk on the research license agreements. Our Camelina oilseed program is not only core to our trait gene discovery process but a crop with high potential in its own right. We are developing commercial Camelina varieties as a platform crop for our specialty products business, focused on nutritional oils and PHA biomaterials. We also continue to increase our patent position. We have a strong leadership team and have operations in Woburn, Massachusetts and Saskatoon, Canada.

Now let's turn to Slide 4, our market opportunity. We see a compelling market opportunity for our business based on our focus on crop rates driven by 4 key global trends. These are: global food security with increasing overall demand and the rise of protein consumption; health and wellness, where consumers are seeking improved nutritional profiles; aquaculture as an increasingly important source of protein and essential omega-3 oils; and sustainable growth metrics for value chain security and climate change impact are key and which we believe can be monetized with cost competitive products. Each of these trends are addressed by Yield10 to position the company for growth and success.

Now let's turn to Slide 5, our recent accomplishments. We've made considerable progress since the call in August. We strengthened our balance sheet with a raise of $5.7 million in gross proceeds in a public offering and concurrent private placement of common stock. We completed harvest of all sites in our 2020 field testing program. We are progressing our traits in corn and canola, building a package of data as a basis to seek research license partners reach.

We also took additional steps to advance the Camelina business plan. We completed harvest of 50 acres of wild-type Camelina in Montana. We began a field test of our winter Camelina varieties in the U.S. and Canada for the 2020, 2021 winter season. And we signed a collaboration agreement with Rothamsted Research for the development of the DHA, EPA omega 3 oil technology in Camelina.

Now let's turn to Slide 6 for more detail on Rothamsted. Rothamsted is a world-leading nonprofit and is a premier longest-running agricultural research institute in the world. They are based in the U.K. and have new made numerous contributions to the modern agriculture. They're also home to our world-leading late-stage research program for producing omega-3 oils, continuing the fatty acids, DHA and EPA sustainably in Camelina sativa, research championed by Professor Jonathan Napier.

We have signed an exclusive research collaboration and a 2-year option to a commercial license of this important technology. The collaboration will support ongoing research at Rothamsted. Yield10 will continue to focus on development of elite Camelina germplasm as a foundation for future potential omega-3 oils and PHA biomaterial commercial line. We anticipate the work will include the continued improvement of omega-3 oil composition, field testing and feeding studies in salmon.

The key objective is to support Rothamsted's research as they continue to advance the DHA, EPA omega-3 trait, optimized as a drop-in replacement for Southern Hemisphere fish oil. This is a competitive space. So it's no surprise that the patent [license] in fish oil replacements from oilseeds is complex in North America. Going forward, we will provide more details on the competitive landscape even as we reach out to other parties in this space. And our communications going forward, we will provide more detail on the competitive landscape.

Rothamsted recently published a review of the growing needs and potential of this opportunity. In the near term, we will focus our business developments in South America. The DHA and EPA omega-3 technology developed at Rothamsted based on advance -- matches based on advanced metabolic engineering and synthetic biology, matches our R&D expertise and our Camelina business plan. I'm going to look forward to having a productive and successful collaboration and bringing forward land-based sustainable production of DHA, EPA omega-3 oils for use in aquaculture.

Now let's turn to Slide 7. And the market opportunity for DHA, EPA omega-3 farm selling. The Rothamsted technology could play a significant role in salmon farming as a [sustainable] source of DHA, EPA omega-3 oil.

The chart on the left shows the growth of harvesting of salmon over the last decade. In the most recent years, farmed salmon represents about 2/3 of the harvest.

Overall, salmon represents about 2% of global protein consumption, and it's a key source of DHA, EPA omega-3, an essential human nutrient.

Salmon production and consumption is poised to grow considerably in years to come. One reason for this, as you can see in the chart on the right, salmon has good feed conversion efficiency. That is pounds of feed, we need to produce a pound of meat. This will be a key driver as the need for protein sources rises with increasing global food demand. Another driver is that the industry has acknowledged that harvesting small fish in the ocean as a source of fish oil omega-3 is unsustainable and overfishing is already a problem.

Therefore, developing land-based, plant-based sources of DHA, EPA omega-3 is a critical need, and Camelina is very well suited as a platform crop for the production of this oil. One of our near-term market opportunities for Camelina oil, based on the high level of omega-3 fatty acid ALA, is it's a supplement for fish oil and aquafeed. Yield10 is developing this as a basis for establishing commercial operations, basically, Phase I for building our Camelina business and a useful interim solution with a drop-in replacement fish oil being Phase II.

Now let's turn to Slide 8. The time line of the Rothamsted omega-3 program. Over the last several years, the Rothamsted team has advanced the DHA, EPA omega-3 program to a high-technology readiness level. From 2017 to 2019, based on genetic work started in 2012, the team field-tested numerous events deployed in Camelina in good size pilot trials and demonstrated production of DHA and EPA omega-3s in the seed oil.

Although the team tested the oil in several feeding studies, including salmon, sea bass and trout to demonstrate that the metabolism of the plant-produced oil product closely mimics harvested fish oil. This (inaudible) conducted, in some case -- published with academic collaborators having links to the aquaculture industry.

In 2020, Rothamsted conducted additional field tests of DHA, EPA omega-3 Camelina oil, which have been harvested and data is currently being evaluated. The team planned to conduct feeding trials of salmon and trout this year, but the start of these studies has been postponed due to COVID.

This foundational work has positioned the program in the late stage of research and the activities planned under the collaboration with Yield10 are entitled to position it for commercial development. Here, the objective will be led to further optimize the omega-3 oil competition to achieve DHA, EPA, fatty acid levels to mimic Southern Hemisphere fish oil or future commercialization, including obtaining regulatory approval for the plant and the plant product.

Now let's turn to Slide 9 on the sequential launch of the Camelina products business. The DHA, EPA omega-3 technology fits neatly into our Camelina business plan. The developing Camelina is a platform crop developing advanced Camelina traits and elite Camelina germplasm. The general business is focused on natural Camelina oil for a range of uses, edible oil, aquaculture and animal feed. The DHA, EPA omega-3 technology opens up the market opportunity for a sustainable, highly differentiated product for growers and feed producers.

We are leveraging all of this technology as we work on technology development for producing PHA biomaterials in Camelina. Taken together, we see a progression of the technology with the market opportunities.

Now let's turn to Slide 10, trait progression in major crops. The best way for Yield10 to capture value from our traits in a large acre of commercial crops like soybean, corn and canola is through licensing to leading seed companies who dominate the space.

Yield10 has executed for nonexclusive research license to these ag majors to progressive traits and specific crops with the option to negotiate a commercial license.

The arrows on this slide indicate the term of the research license agreements. We highlighted the new license of GDM in our last -- in our August call. The work is underway to deploy our traits in germplasm, and ongoing work is progressing by Bayer, Forage Genetics and Simplot. We are currently progressing key traits in corn and canola, but we plan to identify partners for these important North American commercial crops as we focus our internal resources and trait discovery in Camelina development.

I'll now turn the call over to Kristi.

Thanks, Oli. Hello, everyone. The research team has been focused on execution of field tests and on trait discovery and development over the last several months.

In addition, we are excited about the collaboration with Professor Jonathan Napier and his team as it represents a strategic extension of our technology platform into DHA and EPA omega-3 oils. Their research program is impressive, and I am looking forward to further progress and success in the months ahead.

Let's now turn to Slide 11. Throughout 2020, we have made steady progress toward achieving milestones in our R&D programs. We completed harvesting for our 2020 field test programs at sites in the U.S. and Canada in the third quarter. These trials are evaluating several novel seed yield and oil traits in Camelina and canola. Data analysis is currently underway, and we plan to begin reporting data in the fourth quarter or early 2021. We are evaluating seed yield, seed oil content, PHA content and agronomics depending on the trait, which will provide us with important data and inform our R&D priorities for 2021.

We continue to evaluate and progress other earlier stage traits in our Camelina pipeline, and we have intensified efforts in 2020 to develop advanced commercial Camelina varieties. Those optimized for yield, oil content, herbicide tolerance and disease resistance. This work will produce Camelina platform varieties for production of nutritional oils, including the DHA and EPA omega-3 oil and PHA traits. We will also work on the development of commercial PHA Camelina events.

Throughout 2020, we have continued to advance our yield and/or oil traits in canola and corn where our plan is to identify partners for research licenses. In the major commercial crops, we are supporting partners in their ongoing evaluation of our traits. This includes GDM, who is who has begun working with our traits after signing a research license in August as well as Bayer, Simplot and Forage Genetics.

I would like to thank our team for staying focused on our objectives for 2020 and positioning us to generate a range of data and proof points in the coming months to further develop our Camelina technology for specialty products. Oli, back to you.

Thanks, Kristi. Please turn to Slide 12, and let's cover a few financial highlights. We ended the third quarter with $11.8 million in cash, cash equivalents and short-term investments. This includes net proceeds of $5.3 million we received from completed offerings of common stock in August. We have no debt in our balance sheet.

Our net operating cash usage was $2.1 million for the third quarter and $6.3 million for the first 9 months of 2020. We expect our cash on hand, together with expected revenue from our current government grant will support our operations into the end of 2021.

Based on our financial results year-to-date, we remain on track with our estimate of net operating cash usage for the full year 2020 within the range of $8.5 million to $9 million. We are directing this investment towards executing our business plan.

Let's now review the third quarter operating results. The company reported a net loss of $2.2 million for the third quarter of 2020 compared to a net loss of $2 million in the third quarter of 2019.

Total research grant revenues in the third quarter of 2020 were $204,000 versus $224,000 in the third quarter of 2019.

Our ability to conduct research under the DOE grant was not affected in a significant way in third quarter, and we expect to be able to conduct the research as planned in the months ahead.

In the third quarter of 2020, research and development expenses were $1.3 million and general and admin expenses were $1.1 million. This compares to $1.2 million of research and development expenses and $1 million of general and admin expenses in the third quarter of 2019.

For more details on our financial results, please refer to the earnings release and our third quarter 10-Q.

Let's now turn to Slide 13, upcoming milestones. In 2020, we will continue to focus on the following milestones: completing our field 2020 field testing program to generate agronomic and real data for C3004 in Camelina; advanced genome-edited oil boosting traits, including our E3902 line and our C3007 Camelina line regulated by USDA-APHIS; report results from the study starting in Q4 2020, Q1 2021; and communicating our field test plans for 2021.

Progressing the Camelina products business plan. We will be talking about: developing advanced commercial Camelina varieties with agronomic traits, including herbicide tolerance, disease resistance and oil and yield traits; developing the commercial launch plan for Camelina oils; establishing agreements from logistics and toll seed crushing to provide samples of Camelina oil and meal to prospective commercial [all-take] partners; developing relationships with growers to enable larger seed bulk up and acreage expansion in 2021 growing season, pending success in business development; securing strategic industry collaborations and revenue-generating commercial credit licenses; progressing our traits in corn and canola, we are seeking to secure partners and supporting Bayer, GDM, Forage Genetics and Simplot in the evaluation of traits in the respective crops; and underpinning all of this, expanding our intellectual property portfolio.

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

Thanks, Oli. Jesse, you can now pull our analysts for questions.

(Operator Instructions) Our first question comes from the line of Sameer Joshi with H.C. Wainwright.

The first question is about this Rothamsted relationship. What exactly would you be working on? Is it increasing the yield or oil content or any other characteristics? And then what is the endpoint? Are you measuring the oil content of the fish that is -- feeds of this? Or are there further clinical studies in humans that will be the endpoint?

Thanks, Sameer. Thanks for your question. I'll turn that over to Oli. Go ahead, Oli.

Good to talk to you, Sameer. Yes. So in reality, Rothamsted has already progressed it very extensively. They've not only demonstrated the production of omega-3 oils with good levels of EPA and DHA in Camelina, they've actually carried out field trials. They've carried out recovery processes to purify the oil, and they've done extensive fish-feeding trials at a number of locations. So what they're really going to do and focus on is really optimizing the trait. That's a program that we've been on for several years under Jonathan Napier's stewardship. And obviously, they are the world experts in omega-3 oil production in oilseeds. So we're delighted to have the collaboration.

In regard to what Yield10 is doing, in addition to supporting the Rothamsted Research program financially, we have an exclusive option to an exclusive license to the technology and [their] choice. And more importantly, we are developing advanced lines of Camelina, increasingly looking at herbicide tolerance disease resistance.

And obviously, you're well aware of the oil traits you already have. And given that the omega-3 oil business, EPA -- our DHA, EPA oils business is really about the value of the oil from the seed, obviously, increasing seed oil content is a key financial driver as is increasing overall seed yield.

So we're really continuing to do the work we were doing anyway. It's just that, as Rothamsted further enhances the DHA, EPA oil trait, we are building a platform, which we can -- we'll be able to deploy that in the future.

The second thing Yield10 is doing is really looking very extensively at near-term commercialization based on potential opportunities in South America. We still have a fair amount of diligence to do in that location, but we are well aware that Chile is about 30% of global salmon -- salmon production. So obviously, there's a market in South America for these types of products and a strong driver towards using more sustainable feed in aquaculture in general. So we're very pleased with this relationship. Very excited about it.

The synthetic biology program that Jonathan has actually carried out over the last decade is remarkable, and it's been a very successful one. So we're delighted to be involved with them and have the option to secure exclusive rights.

And so the -- is there any kind of monetary commitment for this program? Or is it going to be off of your regular R&D budget?

It's actually included in our projections. It's actually included in our projections for cost -- our cost -- our sort of estimated cash for next year, we haven't given clear guidance on that. But we don't see building the overall run rate. We're reallocating resources to this in -- judiciously.

Understood. And then moving on to partnerships. I mean, you have good partnerships with Bayer, GDM, Forage and Simplot. Are there any other license and collaborations to be expected in the remainder of this year? And are there other traits that these companies -- that you are working with the same companies?

Yes. So yes, in fact, in the GDM situation, we haven't disclosed what traits are working now. That's at their request. But in addition to the fact that we are looking for potential partners with canola and corn [flour] traits, we really have been looking pretty extensively at potential partners, downstream partners in the Camelina business.

There's obviously a growing demand for increasing vegetable oil per acre of land in North America to supply the, I would say, the emerging interest in, what we call, renewable diesel primarily for the California market. It's not something that we are pursuing ourselves. But certainly, we see opportunities in terms of the products that we intend to make for potential agreement.

When you move into the PHA biomaterials, which we didn't speak -- talk very much about today. That program is moving right ahead. Obviously, producing PHA biomaterials will enable us to address several markets, including water treatment applications, feed applications and bioplastics applications, which has enormous potential. Hopefully, later this year or early next, we'll report the data we have generated from this year's field trial to the PHA biomaterials.

But again, when you look at the potential number of partners in those areas, it's a multiple of what's possible when you talk about traits just for the major crops.

Understood. You referred to the 2020 field test data. Is there any preliminary data, high-level information that you could share at this time? Or should we just wait for you to gather and publish...

I think it's too early. Yes, it's too early to provide any kind of guidance on that, Sameer. I think obviously, we'll just wait on the data and then we can provide a very clear picture (inaudible).

Okay. One last one. On cash usage of $8.5 million to $9 million, does that include any onetime cash usage that you may have incurred, for example, for the capital raise or some other activity?

Yes. That's basically the total all in. I think that's where we are. So I think with respect to where we are, that cash usage is pretty much on the money with respect to what we expect to spend this year. It's down a little from last year, but that's actually related to some savings related to essentially a real estate situation, where we were able to take advantage of a sublease to reduce our costs and some other minor savings.

But generally speaking, we've kept the full R&D program on the -- all through the COVID situation. So we will continue to spend as we planned on the R&D programs. But we have saved some cash on real estate-related issues.

Our next question comes from the line of Robert LeBoyer with Ladenburg Thalmann.

I had a question about the Rothamsted agreement. And if I'm understanding this, it sounds as if they've been doing this work with omega-3s in Camelina, and you have licensed some of your technology that they will use going forward, and you will have the option to take a license to commercialize this. Am I right so far?

No, not quite. So let me just be quite clear about this. What we've done is we've agreed to fund to financially support the ongoing research program, which, as you pointed out, has been ongoing at GD -- at Rothamsted now for a number of years. In exchange for that financial support that we're providing to the research program that they're guiding and developing on their own, we get an exclusive option to an exclusive license to the technology. Obviously, that's why we did it. And so really, what they're doing is continuing the program that we had ongoing, that Yield10 has stepped in to support the financial. And what we get is a tremendous opportunity for our Camelina platform.

So that -- you would be using their discoveries in your Camelina?

Correct. It would ultimately be the same as, for example, we have a license, an exclusive license to the C3007 trait in the University of Missouri, which we obviously have achieved approval from USDA-APHIS for both genome-edited Camelina and genome-edited canola lines this last year. Similarly, we would have an exclusive license to be the commercial partner for Rothamsted omega-3 oil technology.

Okay. So just the same way that you had licensed traits in from universities before, you're licensing the omega-3 from Rothamsted, is that...

Yes. And I think the difference is as regards -- the technology from Rothamsted is obviously at a pretty advanced level and that they've already developed an omega-3 oil trait, and they are working on further improvements to it. Obviously, their belief is that they can ultimately get to what would be the gold standard of the industry, which is a drop-in land-based sustainable replacement for Southern Hemisphere fish oil. And the reason that's the gold standard is because the levels of EPA and DHA in Southern Hemisphere fish oil, which comes from, I guess, from sardines and [pilchards] (inaudible) in that it's -- it's the highest that you can actually obtain from nature. So that would be a tremendous position to have.

And in our view, based on the papers we've read and the other research we've done, it's pretty clear we have the best answer to this so far.

Okay. And it sounds as if the end product is going to be producing omega-3 in Camelina not...

So basically -- yes, essentially, what it will be is it will be the second of our nutritional oil product. The first nutritional oil is Camelina oil as it is today. And there, the markets are human nutrition, but also it's useful as a supplement in aquaculture feed because it contains 1 omega-3 fatty acid, called ALA, alpha-linolenic, and that can be converted by some species into small amounts of EPA and DHA.

So it's a better solution than feeding them with soybean, for example, but it's not really the solution that's required, which is the plant-based oil that's high in both EPA and DHA fatty acids at similar levels to Southern Hemisphere fish oil.

I see. So this would be feed for aquaculture, but not actually...

Exactly.

Changing the salmon themselves or the fish being raised in agriculture -- in the aquaculture. This is just -- you're taking a plant that will be either used to extract the oil for humans or fed to the fish? Am I right?

Correct. Exactly. Exactly. So this would be one -- it would be a nutritional oil product. It's just going into primarily into aquaculture feed uses. But inevitably, I believe it will end up also being used in chicken and other feed systems.

Okay. And in the previous question, you mentioned that there's -- that there are no signing fees. Is that right? And it would just be part of your normal research project?

At this stage, it's just part of our normal research. If we execute a commercial license in the future, then we'd be entering a fairly typical commercial license eventually. Is it now clear? Yes.

Okay. On the topic of commercial licenses, is there anything foreseeable in the coming year?

I think the guidance we've provided in that is sort of late '21 to '22 in the event that any of our potential partners, be it GDM, Simplot or Forage Genetics, we'll really see value in the traits of their testing.

Our next question comes from the line of Matt Bullock with Maxim Group.

This is Matt Bullock on for Anthony Vendetti. My question relates to the report data for the Camelina and canola that you're planning on reporting in the fourth quarter or early '21. What do you feel are some of the most important aspects of this data readout? And if the results are positive, what you -- what are the next steps? And what could those results mean?

Yes. So obviously, the bulk of work is primarily focused on Camelina. It's primarily focused on Camelina for oil content using genome-edited traits, C3007 and E3902. And we're also testing for the first time around or rather the second time the C3004 trait and the current version of it, which would actually be a regular trait under the GMO [trait].

So that's what we're testing. And what we're looking for is how well did the plants go in the field? Do we see things that are indicative of increased performance? But ultimately, it comes down to, with oil traits, do we see higher oil per acre? And in the field, obviously, we see higher seed operator.

It appears we have no additional questions at this time. So I'd like to pass the floor back over to Lynne for any additional closings.

Thanks, Jesse, and I'll turn the call back to Oli for closing remarks.

Okay. So we've made strong measured progress across several crucial areas this year. Most recently signing a research license of GDM for soybean, signing a collaboration for Rothamsted, advancing our pipeline of traits and strengthening our balance sheet.

In addition, over the course of 2020 the outlines of our business plan for Camelina have come together. We believe the grain platform can be used to address a wide range of traits in a broad area of food and feed crops, enables -- and the minimum development of advanced Camelina provides for large-scale production of proprietary specialty products. We are currently pursuing 3 distinct revenue opportunities: licensing of our yield and performance traits for use in major crops; product sales based on our Camelina platform for producing nutritional oils and PHA biomaterials; and strategic industry collaborations and R&D revenues.

I'd like to personally thank all of you for joining us on the call tonight, and especially our shareholders for your continued support.

And I want to thank everyone at Yield10 for setting us on track to reach our goals in 2020. Have a nice evening.

Ladies and gentlemen, you may now disconnect.