Yield10 Bioscience Inc (YTEN) 2020 Q2 法說會逐字稿

Greetings. Welcome to the Second Quarter 2020 Financial Results and Business Update Conference 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, ma'am. You may now begin.

Thank you, Donna, and good afternoon, everyone. Welcome to Yield10 Bioscience Second Quarter 2020 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 second quarter 2020 financial results. This press release as well as slides to 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 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. The 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 solid progress we've made against our R&D and business objectives since the start of 2020, including our research license with GDM seeds. Kristi will then review the science of our 2020 field test program and highlight some recent R&D activities. I'll then provide an update on our Camelina business plan progress, review the financials and summarize our key milestones for 2020. We will then open the call to questions from analysts.

Now let's turn to Slide 3, our business profile. As most of you know, Yield10 is an agricultural bioscience company, focused on developing innovations for sustainable food security. This includes performance traits for licensing in major food and feed crops, where we are building relationships with major ag companies, and improve varieties of [oil to] Camelina. Our Camelina activity is core to our trait gene discovery process and our platform for producing nutritional oils and PHA biomaterials. We have a strong leadership team and have operations in Woburn, Mass and Saskatoon, Canada.

Now let's turn to Slide 4, recent accomplishments. We've made considerable progress since our last call in early May, and I'll now highlight some of our accomplishments. We completed planting for our 2020 field test program, which Kristi will discuss in more detail. During second quarter, we submitted an "Am I regulated?" letter of inquiry to USDA-APHIS for our CRISPR C3007 oil content boosting trait in canola. This is our fourth submission to the agency and significantly our first in the major crop.

Earlier today, we announced we signed a research agreement with GDM for evaluation of certain of our performance traits in elite soybean varieties. GDM has offices in the Midwest as well as a large footprint in Brazil and Argentina, where they are a leading seed company with expert [seats] in soybean genetics. We and GDM also intend to explore forming a broader collaboration to leverage Yield10's screening, treating, discovery platform and GDM's rapid trait editing capabilities in elite varieties of soybean for the discovery, development and launch of novel soybean performance traits. I'll provide some more detail in GDM later in this call.

We took additional steps to develop and advance the Camelina business plan. We are developing proprietary advanced varieties of Camelina for winter and spring planting to provide us with core commercial lines for deploying and stacking performance and product traits. This will enable us to increase the acreage potential of the crop. Our Canadian team executed the field test of our winter Camelina varieties in the 2019-2020 season, and the Americas data looks very good. [To get] experience with establishing the value chain, we contracted 50 acres of Camelina production in Montana. The crop is being harvested soon and will enable us to produce oil and meal samples for potential customers. Moving forward through 2020 into 2021, we look forward to generating additional proof points, forming strategic alliances and executing our business plan.

Now let's turn to Slide 5 for an update on our COVID-19 business continuity plan. First, a big thanks goes to our employees for keeping our business on track through the ongoing pandemic. And we wore masks as we returned to work on-site in late May on a staggered schedule and [pivot] to development work in Camelina, implementing new technologies to accelerate trait and product development. The Saskatoon R&D team is focused on monitoring field tests and progressing traits through your Camelina pipeline. Due to the continuing travel restrictions, we are relying on video conferencing and local consultants to monitor some field trials.

In second quarter, we secured U.S. CARES Act PPP and Canadian IRAP grant funding, which supported certain payroll expenses. Lastly, our business development and Investor Relations activities continue in virtual format. We continue to have productive interactions on the business development side as we focus on setting up various business relationships. On the investor front, we are holding one-on-one virtual meetings, and looking forward to participating in the LD Micro Virtual Conference on September 1 and the H.C. Wainwright Global Investor Conference on September 14.

Now let's turn to Slide 6, our Trait Factory and business opportunities. Yield10's Trait Factory is made up of GRAIN, a proprietary trait gene discovery platform, genetic modification of the trait gene targets of Camelina and fast field testing to generate performance data.

Now let's turn to Slide 7, our business opportunities. Camelina field data on the performance of traits enables 3 distinct commercial opportunities. The first is licensing of our yield and performance traits for use in major row crops, corn, soybean canola and other crops to create option value for our traits and the most important large acreage [global crops], food and feed crops. Second is product sales based on our Camelina platform for producing nutritional oils in the near term and specialty oils and PHA biomaterials in the future. The strategic goal here is to develop the foundation for the Camelina products business in a capital-efficient manner and then build on to that or [pack with] higher-value products; and third, collaboration agreements for access to our GRAIN platform for trait targets.

Now let's turn to Slide 8, trait progression in major crops. The best way for Yield10 to capture value from its traits in the large acre crops like soybean, corn and canola is through licensing to leading seed companies. So Yield10 has executed a number of nonexclusive research license agreement with ag majors to progress our traits in specific crops, with the option to negotiate a commercial license. The arrows on the slide indicate the term of the research license agreements.

With the GDM seeds announcement of the new research license, we have added GDM to the group of major ag companies working with the traits in different crops. GDM is a group of multinational companies of Argentine origin dedicated to the research, development and commercialization of new varieties of soybeans and other crops to maximize productivity. GDM supplies around 25% of global soybean genetics. With [about] 750 employees, they have presence in 15 countries, including Argentina, Brazil, Paraguay, the United States and Canada. South America has around 130 million acres of soybean, located primarily in Brazil, Argentina and Paraguay, where GDM as a leader. With the R&D program planned by GDM, they should have field data in the 2022 time frame, quite consistent with our other licensees. Yield10 is currently progressing traits of corn and canola with plans to identify partners for these important North American commercial crops as we focus our internal resources on trait discovery and Camelina development.

Let's turn to Slide 9, the traits in development. Trait licensing can be a very lucrative revenue source, and the model for sharing trait value is well understood in the industry. It does, however, take some time for our partners to generate data to enable commercial licensing discussions, so we don't control those time lines. At the same time, the oilseed Camelina, a key component of our Trait Factory, has high potential as a new crop. Progressive testing of our traits for the field stage in Camelina provides us with a direct route to improve varieties, basically a product double play. Unlike the major crops, with Camelina, we do have the opportunity to participate fully in the business, and I will discuss the commercial opportunities and their likely sequence of development later in this presentation. From the chart, it's clear that we believe using Camelina to produce proprietary products, including specialty oils and PHA biomaterials, has very high revenue potential.

I'll now turn the call over to Kristi.

Thanks, Oli, and good afternoon, everyone. Let's now turn to Slide 10. The objective of our 2020 field tests is to generate multisite field data to further characterize our traits, to identify commercial quality lines and to obtain data to drive partnership discussions and our products business plan.

In the second quarter, we completed planning at our multiple field test sites in the U.S. and Canada. We've included photos from two of our field tests on the right side of the slide. These photos were taken in early July when both the Camelina and canola trials were flowering. So far, the weather and field conditions have been favorable for growth of both our Camelina and canola lines. Some of the trials will be ready for harvest soon, and our contractors will continue harvesting sites as they are ready over the next month or so.

In Camelina, our goal is to obtain the performance data for traits designed to increase oil, seed yield or to produce PHA biomaterials. We are testing our CRISPR C3007 Trait designed to boost seed oil content in Camelina for the first time this year. We are also conducting seed bulk up for our CRISPR edited oil content trait, line E3902.

We reported encouraging increases in oil content in our 2019 field test of E3902, and this year, we are producing field grown seeds for larger tests in 2021. We are also testing C3004 in Camelina, which is a very promising seed yield trait [that] produced increased vigor, branching and seed yield in greenhouse-grown plants and showed evidence of vigor and increased photosynthesis than prior field tests.

Here, we have planned to obtain yield, seed yield and oil content data. Recent measurements conducted by our researchers during this year's field trial suggest that photosynthesis has increased in multiple C3004 lines. We are also testing our PHA biomaterial traits, C3014 and C3015, in the field for the first time to evaluate the co-production of PHA and oil in the seeds. The purpose of this trial is to determine if these first generation PHA lines are suitable for larger-scale planting next year to begin PHA product prototyping.

In our field tests of canola in Canada, our goal is to generate data with our traits in this important food oil crop to drive partnership discussions. We are testing the C3004 trait in canola for the first time to determine if the increases observed in Camelina translate to canola. We are also bulking up seed for 14 new commercial quality C3003 canola lines as an extension of our prior work, where testing of early canola lines gave increases in seed yields of up to 10%. We plan to evaluate these lines and field studies in a future trial.

Our 2020 field test program is our largest and most extensive yet. The data and seed harvest from this program will help us advance our work in Camelina and may provide licensing opportunities in canola and other major crops.

Let's now turn to Slide 11, which outlines our 2020 R&D priorities. Completing our 2020 field trials remains our top R&D priority. In addition to this work, we are conducting additional activities in the field to support our Camelina business plan. As you are aware, we have been using our Camelina platform to identify and evaluate more than 15 [potential] performance traits for crops.

As we plan for the further development and eventual commercialization of products produced in Camelina, yield tenants developing core Camelina varieties needed to successfully commercialize the crop at large scale. Over the last few years, we have worked with several varieties and are building on this work with the development of doubled haploid dry varieties that will capture and sustain stable genetics and performance as a platform for our traits.

Our team has developed a double haploid spring and winter varieties. The spring varieties are included in our 2020 yield test program. The winter varieties were tested in a study that started in late summer last year and were recently harvested. We recently reported that the reemergence and survival of the winter variety after the snow melt was very good. A photo is included on the slide of the winter trial taken in May, about 6 weeks after snow melt.

We also recently announced that we established 50 acres of wild-type spring Camelina under contract with a grower in Montana. This is a business development activity intended to provide us with experience in establishing the value chain for producing Camelina at commercial scale. The crop is pictured on the right during the flowering stage. It has now reached maturity and is drying down and will be harvested in the weeks ahead. From the seed, we expect to have oil and meal available for sampling to potential customers.

Our traits are also being tested by several ag companies in their elite germplasm. GDM will be evaluating 3 of our traits in their soybean germplasm. We are impressed with the GDM team, and we'll be providing them with the information and resources needed to deploy our traits and test them in their elite germplasm. We continue to support Bayer, Forage Genetics and Simplot as they evaluate our traits in soybean, forage sorghum and potato. Our generation of field test data with some of our newer traits may enable Yield10 to expand the number of seed companies and crops, including canola and corn, in which our traits are being evaluated.

In Camelina, we are continuing to build a technology and business plan to develop advanced commercial Camelina varieties with yield and oil performance traits, complemented by traits for herbicide tolerance and disease resistance. We are also working to develop commercial events for our PHA Camelina trait.

Our team is continuing to focus on generating technology proof points for our lead traits and to further develop our Camelina technology for specialty products. I would like to thank our R&D team for their tremendous efforts so far this year.

Oli, back to you.

So I would like to thank Kristi and the entire R&D team whose dedication and persistence [were] critical as we have executed the field tests in the last few months.

Let's now turn to Slide 12, our Yield10's Camelina platform. We believe Camelina represents an opportunity to develop a large, high-growth profitable business over the longer-term as a winter cover crop to produce nutritional oils and PHA biomaterials. In the near term, we see opportunities to launch a Camelina business using a capital-light strategy based on its positive attributes for some growing areas using contract farming and toll seed crushing.

Some of the traits we have developed in Camelina, like the high oil line, E3902, our yield traits like C3004 play into this strategy. And as a result, we're beginning to execute our business development strategy for Camelina to gain experience and establish the value chain with the goal of generating near-term revenue in parallel with accelerating the deployment of advanced varieties of products.

Harvested Camelina seed is typically cold crushed to produce oil and protein meal, and Yield10 plans to participate directly in the sale of these end products. Camelina oil is rich in Omega 3 fatty acid ALA, and recent clinical studies indicate that Camelina oil has heart health benefits. The higher content of the omega-3 alpha-linoleic acid make it a preferred oil for use in aquaculture feed.

In the near term, we believe that Yield10 is well positioned to become a leading player in Camelina, focused initially on production outside of the Corn Belt to produce nutritional oils, without having to compete head-to-head for acres with commodity crops. In the longer term, our vision is to produce specialty oils to PHA biomaterials as a third product for processing engineered Camelina seeds.

PHA biomaterials are natural polymers with applications in a wide range of markets, including animal nutrition, wastewater treatment and in bioplastics. Our goal is to be able to produce PHA biomaterials from Camelina in the cost range of edible oils to enable their broad market adoption. We plan to focus our internal efforts on [animal nutrition] and water treatment applications and find partners for the bioplastics opportunity.

According to our internal engineering estimates, we would achieve a viable cost of goods for PHAs if we can produce the polymer over 10% seed weight with good seed deals. So although it's personally very exciting to see this program move from the blue sky to the greenfield, we estimate it could take another 2 years to optimize commercial varieties. Having said that, we are highly confident we now have the team, the knowledge and the tools, including the GRAIN trait platform, to develop this into a disruptive technology for the ag and plastics markets. We believe Camelina engineered to produce PHA biomaterials will be an attractive large acreage cash cover crop for farmers, opening new markets, thereby improving farm income and the sustainability of food and feed production.

Please turn to Slide 13, and let's cover a few financial highlights. We ended the second quarter with $8.5 million in cash, cash equivalents and short-term investments. In April, we received a loan in the amount of $333,000 under the PPP, Payroll Protection Program, implemented under the CARES Act response to COVID-19.

We fully utilized the farms for U.S. payroll in second quarter and intend to apply for loan forgiveness under the program. We also obtained a Canadian IRAP grant that provides us additional $67,000 in research support.

Now turning to warrant exercises. In the first half of 2020, there were approximately $1.7 million warrant exercises, which added capital to our balance sheet. We have no debt. Our net operating cash usage was $2 million for the second quarter and $4.3 million for the first half of 2020.

We expect our cash on hand, together with expected revenue from our current government grant, will support our operations into the second quarter of 2021. Given the PPP and IRAP fund as well as savings captured and anticipated for the balance of 2020, we are lowering our estimate of net operating cash usage to the range of $8.5 million to $9 million from the previous range of $9 million to $9.5 million. We are directing this investment towards executing the business plan.

Let's now review the second quarter operating results. The company reported a net loss of $1.8 million for the second quarter of 2020 compared to a net loss of $1.9 million for the second quarter of 2019. Total research grant revenues in the second quarter of 2020 were 21 -- $221,000 versus $318,000 in the second quarter of 2019. Our ability to conduct research under the DOE grant was not affected in a significant way in second quarter, and we expect to be able to conduct the researches planned in the months ahead.

In the second quarter of 2020, research and development expenses were $1.2 million and G&A expenses were also $1.2 million. This compares to $1.2 million of R&D expenses and $1 million of G&A expenses in the second quarter of 2019.

At the end of May, we completed our obligations related to our unused legacy space on Woburn, Mass. In first quarter, we subleased excess space in our Woburn facility. As a result, we will be capturing savings going forward in 2020 on our facilities cost while retaining sufficient space in our Woburn facility to grow our team as needed. For more details on our financial results, please refer to the earnings release and our second quarter 10-Q.

Let's now turn to Slide 14 to discuss our upcoming milestones. In the remainder of 2020, we will continue to focus on the following milestones: executing our 2020 field testing program to generate [agri economic] and yield data for C3004 in the Camelina and [its product] genome edited oil boosting traits, including our E3902 line and the C3007 Camelina line recently cleared by USDA-APHIS.

We'll also report our results from these studies and plans for 2021. Progressing our traits in corn and canola while seeking to secure partners, supporting GDM, Bayer, Forage Genetics and Simplot in the evaluation of our traits in their respective crops. And we'll also be progressing the Camelina Products business plan, including developing advanced commercial varieties with agronomic traits, including herbicide tolerance, disease resistance and oil and yield traits.

Establishing agreements for logistics and toll seed crushing to provide samples of Camelina oil and meal for prospective [all-state] partners. Developing relationships with growers to enable larger seed bulk-up and acreage expansion in the 2021 growing season, pending success in business development. And finally, securing strategic industry collaborations and revenue-generating commercial trait licenses.

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

Thanks, Oli. Donna, you can now pool for questions.

(Operator Instructions) Our first question is coming from Ben Klieve of National Securities.

First, a question on the GDM collaboration. Kristi, I believe you said that they'd be considering 3 traits. First, did I hear that correctly? And if so, what traits are a part of this collaboration?

Yes. You're correct that there are 3 traits, but we can't disclose what these traits are according to our agreement.

Okay. Got it. And then over to Camelina, and you guys highlighted the kind of the commercial trajectory here kind of throughout your prepared remarks. I'd like to hone in on one of the comments that was made -- the notes that was made where the launch case. On Slide 7 where you notate that the launch case is potentially a 2021 or 2022 event. Oli, there's seemingly a lot that needs to happen between now and a launch in 2021. Can you just kind of outline kind of the steps that you think could realistically be taken to make this a commercially viable product in 2021?

Yes. So we -- so there is already some Camelina production out there, and we are well aware of who's doing it and where they're at with it. So frankly, speaking, what it really requires is seed scale up. And really, that's the purpose of the 50 acres we did in Montana this year, just to make sure we have the seed available should we want to go down that path as soon as next year. And so that's the first step.

The second step is because the primary focus is on oil and meal, in the early days, we also need to have oil and meal samples available for prospective customers because Yield10 actually does not plan to start branding and marketing Camelina oil with Internet. Our goal is to find offtake partners for this and be as capital-efficient as we can in year-on-year.

So there is a lot of business development to go. The reason that we're scaling up some of our new lines like E3902 and some of the double haploid lines is to also expand the availability of those seeds next year as a means to have a larger acreage potential available in 2022. So there is a tremendous amount of business development activity going on and obviously, the team is working very hard to systematically check off the ability to create and operate core contracts, the ability to manage the sort of crushing and storage and handling of the oil and the meal and obviously, identifying potential offtake partners. We are getting interest from various regions interested in Camelina oil and meal.

Got it. And so I guess, as a follow-up to that then, I mean, if you have -- the harvest here is -- looks to be on pace for this month, which is great. And you've had conversations with offtake partners as a -- to sample the oil. Are there -- do you have agreements in hand, whereby there will be folks looking at your product once it's processed? Or is that agreement still to be determined?

Let's say to be determined. It's kind of a chicken-and-egg situation, Ben, to be honest. Basically, [without seed] we can't get into the business of establishing our crushing contract. So we now have a very good understanding of where and how and the cost of doing that. And once that's lined up, we'll obviously go to the next step. The emphasis we have is really establishing these capabilities in a capital-light way. We're not going to try to buy our way into the Camelina business. We have new products, including specialty oils and PHA biomaterials that really will represent the growth and the larger volume opportunities, but it takes time to get to those.

And so the purpose of establishing this is to make sure that we have the potential to deliver value here based on our Camelina platform in the near term, based on oils it makes today and in the future with improved oils and some specialty materials called PHAs.

Got it. Perfect. And then last one for me. And I think I know the answer to this. But Kristi, you highlighted that the canola field trials were we're progressing well, and we've seen industry reports that, that's true for the crop as a whole. But I just want to be 100% clear here. On your -- on the plots that are in the ground right now for canola, is there any -- are there any plots that you're concerned with regarding access to rain, not enough rain? Anything of that nature? I mean, are we right now looking like this is a field trial that is really well set for harvest here in coming weeks?

Yes, we've had very good weather this year, but we still haven't harvest it. So there's still a little bit of weather to be had. But had very good weather so far, and we've been very pleased with the growth so far.

Got it. Okay. Very good. Well, fingers crossed -- mothers [need] -- sorry, Oli.

Last year, as you know was -- as you know, last year was literally a disaster in the field. And so that obviously compromised our ability to report yield data in a couple of the traits. So we are very encouraged by all of the trials that are ongoing this year, including basically the C3004 Camelina yield trials, oil contract trials with E3902 and with the genome edited plant seed. So we have a lot going on. So far, it's looking good.

And even the PHA trial is looking particularly attractive given how long Kristi and I have spent on it. It's pretty exciting to see this thing actually growing in the field and look pretty good given that we've spent a large chunk of our 3 years of it. So we have a lot going on. Obviously, anything could happen between now and actually having this safely harvested and in storage, so we can do all the analysis. But it looks a heck of a lot better than last year.

Yes. That last year was brutal for everybody. So glad things are looking up this year, Mother Nature is cooperating.

(Operator Instructions) At this time, I'd like to turn the floor back over to you for closing comments.

Great. Thanks, Donna, and I'll turn it over to Oli for closing.

Thanks, Lynne. So in summary, we have the GRAIN platform can be used to address a wide range of traits and a broad array of food and feed crops and enable the development of advanced [commit] Camelina varieties for large-scale production of proprietary specialty products. We are currently pursuing 3 distinct revenue opportunities: the first being licensing of our yield and performance traits for use in major row crops; the product sales based on our Camelina platform for producing nutritional oils and PHA biomaterials; and third, the strategic industry collaborations and R&D revenues.

I'd like personally to thank all of you for joining us on the call tonight, and especially our shareholders for your continued support. Like everyone else, we are 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 continuing diligent efforts. I want to thank everybody at Yield10 for setting us on track to reach our goals in 2020, and I look forward to providing further updates this year. So have a nice evening, everyone. Thank you.

Donna, back to you.

Thank you. Ladies and gentlemen, thank you for your participation. You may disconnect your lines at this time and have a wonderful day.