Business context and reporting period
Evogene Ltd. filed an annual Form 20-F for the fiscal year ended December 31, 2018; it is not a standalone fourth-quarter report. The Israeli biotechnology company uses its Computational Predictive Biology platform to develop agricultural products, castor seed varieties and human microbiome therapeutics. Most programs remained in development, and the company reported no royalties and no commercialized products based on its discoveries, apart from initial Evofuel castor-seed sales. Financial statements are prepared under IFRS and amounts below are U.S. dollars.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $1.747 million | $3.381 million |
| Gross profit / margin | $0.295 million / 16.9% | $0.536 million / 15.9% |
| Operating loss | $19.989 million | $21.947 million |
| Net loss | $20.812 million | $20.838 million |
| Basic and diluted loss per share | $0.81 | $0.81 |
| Net cash used in operations | $15.161 million | $15.929 million |
| Capital expenditures | $0.374 million | $0.590 million |
At year-end, cash and cash equivalents were $5.810 million, marketable securities $26.065 million and short-term bank deposits $22.592 million, totaling approximately $54.467 million. Working capital was $50.057 million; total assets were $58.694 million, total liabilities $8.388 million and equity $50.306 million. Government-grant liabilities were $3.886 million ($0.988 million current and $2.898 million long-term); the filing does not report conventional bank debt. Management said available cash, securities and deposits should fund projected needs for at least 12 months.
Material changes versus the prior comparable period
- Revenue declined 48.3%, primarily because the Bayer/Monsanto collaboration moved from gene discovery into pre-development, reducing the scope of reimbursed work. Collaboration R&D payments were $1.6 million, approximately 94% of revenue; Bayer/Monsanto accounted for about 38% of total revenue.
- Operating expenses fell to $20.284 million from $22.483 million, including a 13.5% decrease in R&D expense to $14.686 million, which management attributed in part to efficiencies from its revised corporate structure. Business-development expense rose 24% to $2.084 million.
- Net loss was essentially unchanged, as lower operating costs were offset by weaker financing results: net financing changed from income of $1.120 million to expense of $0.793 million. Financing expense increased largely in connection with U.S.-dollar-denominated marketable securities converted to NIS.
- Cash and cash equivalents increased by $2.375 million, but operating activities used $15.161 million. Investing cash inflow of $17.353 million mainly reflected sales of marketable securities and withdrawals of bank deposits—not operating cash generation. Marketable securities fell from $59.940 million to $26.065 million while short-term deposits rose.
Outlook, commentary, risks and unusual items
- Management expected 2019 revenue levels to continue reflecting the narrower collaboration scope. It expected R&D, business-development and general and administrative expenses to remain around their current levels.
- Management planned $0.6–$0.7 million of facility work to support Canonic’s cannabis activities. In April 2019, Evogene also announced a $10 million funding commitment to Lavie Bio, through equity and a convertible loan; these are post-year-end developments.
- Key risks include continued losses and cash burn; dependence on collaboration payments and a limited number of large agricultural partners; lengthy, uncertain development and regulatory timelines; inability to commercialize products or earn royalties; and possible dilution of Evogene’s subsidiary ownership if subsidiaries raise external capital.
- Other material exposures include currency and investment-price volatility, Israeli Innovation Authority restrictions on transferring funded know-how or manufacturing outside Israel, and evolving regulation and market acceptance of biotechnology. The company reported no pending or contemplated legal proceedings expected to materially affect its financial position or profitability.
- Evogene believed it was a passive foreign investment company (PFIC) for U.S. tax purposes in 2018 and disclosed substantial risk of PFIC status in 2019. It did not intend to provide information needed for U.S. shareholders to make qualified electing fund elections.
- IFRS 16 adoption from January 1, 2019 was expected to add $3.228 million each to right-of-use assets and lease liabilities, with no initial equity impact. The company estimated a $0.058 million increase in 2019 loss before tax from adoption.
Most important facts for investors to verify
- Whether collaboration revenues recover or continue declining as Bayer/Monsanto and other programs progress, and the timing of any milestone or royalty income.
- Actual cash burn, investment liquidity and runway against management’s stated 12-month funding expectation; distinguish portfolio maturities and withdrawals from recurring operating cash generation.
- Progress, financing needs and ownership dilution at AgPlenus, Lavie Bio, Biomica, Evofuel and Canonic, including the terms and funding status of Lavie Bio’s announced $10 million commitment.
- Repayment and transfer restrictions attached to government grants, including the disclosed $0.546 million BIRD repayment made in April 2019.
- PFIC classification for each tax year and the resulting U.S. shareholder reporting and tax consequences.