Evogene Ltd. — FY2017 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS and amounts below are in U.S. dollars unless stated otherwise.
Business context
Evogene is an Israel-based biotechnology company using computational biology to develop agricultural seed traits, ag-chemicals and ag-biologicals. Its subsidiaries include Evofuel, developing castor seeds, and Biomica, established in 2017 to pursue human microbiome therapeutics. At year-end, the company reported 23 agricultural product candidates under development, with no product based on its discoveries yet commercialized. Revenue was primarily research and development payments under collaborations.
Financial performance and liquidity
| Metric (USD millions, except per-share data) | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | 3.381 | 6.540 | Down 48.3% |
| Gross profit / margin | 0.536 / 15.9% | 0.901 / 13.8% | Gross profit down 40.5% |
| Operating expenses | 22.483 | 21.990 | Up 2.2% |
| Operating loss | (21.947) | (21.089) | Loss widened |
| Net loss | (20.838) | (19.592) | Loss widened |
| Basic and diluted loss per share | (0.81) | (0.77) | Loss per share increased |
| Net cash used in operating activities | (15.929) | (11.693) | Cash burn increased |
Research and development expense was $16.987 million, up 3.5%; business development was $1.686 million; general and administrative expense was $3.810 million. Financing income was $2.125 million and financing expense was $1.005 million. The company recorded no milestone or royalty revenue in 2017; approximately 97.6% of revenue came from R&D services. Monsanto represented approximately 66% of revenue.
At December 31, 2017, cash and cash equivalents were $3.435 million, marketable securities $59.940 million and short-term deposits $8.380 million, totaling approximately $71.8 million. Working capital was $68.127 million; total liabilities were $8.224 million, including $3.542 million of government-grant liabilities. The filing reports no conventional borrowing balance. Investing activities provided $15.245 million, mainly from marketable-security sales and bank-deposit withdrawals; the resulting $0.199 million increase in cash should not be mistaken for positive operating cash flow. Management stated available liquidity was expected to fund projected requirements for at least 12 months.
Material changes and operating developments
- Revenue fell as collaboration R&D work declined, principally following Monsanto’s move from gene discovery toward pre-development and testing. Management expected the revenue decline to continue.
- R&D spending increasingly shifted to internally funded programs: internal R&D represented 86% of total R&D investment in 2017, compared with 74% in 2016 and 64% in 2015.
- The Monsanto yield and abiotic-stress gene-discovery stage was completed in 2017; more than 1,000 discovered genes had entered Monsanto’s development pipeline, but commercialization is not assured. The CE seed-traits collaboration period ended in 2017; related CP seed-traits work was scheduled to continue through August 2019.
- Evogene entered a multi-year microbial bio-stimulant collaboration with DuPont-Pioneer and reported advances in insect-control, disease-resistance and herbicide programs. It also established Biomica and announced a revised, more product-oriented structure for 2018.
- Castor-seed sales remained immaterial. The company reported positive second-year corn bio-stimulant field-trial results in January 2018 and positive herbicide-program results in February 2018; these are post-period developments, not 2017 revenue.
Outlook, risks and unusual items
Management expected collaboration revenue to decline, while R&D, business-development and G&A expenses were expected to remain near 2017 levels. It planned to continue developing products toward commercialization, invest in technology and R&D, and selectively self-fund more development to seek a larger share of potential future economics. These are expectations, not numerical earnings guidance.
- Commercialization and funding: Development is lengthy and uncertain; estimated timelines range from 8–16 years for seed traits, 10–12 years for ag-chemicals and 6–8 years for ag-biologicals. The company expects continued losses and may need additional financing if current resources prove insufficient.
- Partner and revenue concentration: Collaboration payments are the principal revenue source; one partner accounted for 66% of 2017 revenue. Industry consolidation may reduce the pool of potential partners, and partners may delay, reduce or stop development.
- Regulatory, scientific and market risks: Product efficacy, regulatory approvals, consumer acceptance of genetically modified products, competition and successful product commercialization remain uncertain.
- Financial exposures: Marketable securities were $59.9 million and exposed to interest-rate and fair-value movements; a hypothetical 0.5 percentage-point rate increase was estimated to reduce fair value by about $0.7 million. Revenue is largely U.S.-dollar denominated while many expenses are in NIS; no currency hedge was outstanding at year-end.
- Grants and taxes: Government-grant rules may restrict transfers of funded know-how or manufacturing outside Israel and may require approvals or additional repayment. Evogene stated it believed it was a PFIC for U.S. tax purposes in 2017 and saw substantial risk of PFIC status in 2018.
- Other items: The company reported no pending claims at year-end and no legal proceedings expected to have a material adverse effect. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness because of the company’s emerging-growth-company exemption. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Latest cash, securities, deposits and operating cash burn, and whether management’s stated minimum 12-month liquidity outlook remains valid.
- Subsequent collaboration funding, partner commitments and pipeline progression—especially after the Monsanto discovery-stage completion and the change in collaboration scope.
- Evidence of repeatable field performance, regulatory progress and a credible route to commercialization, milestones or royalties; none had yet been generated from commercial products.
- Whether revenue concentration and declining collaboration reimbursements are offset by new partnerships or product-related income.
- Current grant repayment obligations and restrictions, interest-rate and currency exposure, and the company’s PFIC status and related U.S. tax implications.