Evogene Ltd. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019; the filing is an annual report, not a standalone Q4 report. Unless otherwise stated, amounts are U.S. dollars. Financial statements use IFRS and were audited with an unqualified opinion.
Business context
Evogene is a biotechnology company using its Computational Predictive Biology platform to develop products for agriculture, human health and industrial applications. Revenue is primarily from collaboration research and development payments. Most programs remain in development; Casterra’s castor seeds are the principal product with initial commercial sales. Evogene reported no royalty revenue.
Financial results and liquidity
| Metric ($ millions, except per-share data) | 2019 | 2018 |
|---|---|---|
| Revenue | 0.753 | 1.747 |
| Cost of revenue | 0.334 | 1.452 |
| Gross profit / gross margin | 0.419 / 55.6% | 0.295 / 16.9% |
| Research and development, net | 15.791 | 14.686 |
| Total operating expenses | 21.585 | 20.284 |
| Operating loss | (21.166) | (19.989) |
| Net financing income (expenses) | 2.075 | (0.793) |
| Net loss | (19.115) | (20.812) |
| Loss per share | (0.70) | (0.81) |
| Net cash used in operating activities | (17.666) | (15.161) |
At year-end, cash and cash equivalents were $34.748 million, marketable securities $2.128 million and short-term deposits $10.000 million—about $46.9 million combined. Working capital was $43.298 million; total assets were $71.364 million and equity $60.217 million. Liabilities included $3.362 million related to government grants and $2.971 million of lease liabilities. Management stated existing cash, securities and deposits were expected to fund projected requirements for at least 12 months from year-end.
Cash increased by $28.938 million during 2019, but this did not reflect operating cash generation: operating activities used $17.666 million, while investing activities provided $37.139 million, largely from net sales of marketable securities and withdrawals of bank deposits. Financing activities provided $9.306 million, principally including Corteva’s $10 million investment in Lavie Bio.
Material changes versus 2018
- Revenue declined 56.9%, mainly because gene discovery and optimization work under the Monsanto/Bayer collaboration was completed. Agriculture revenue fell from $1.641 million to $0.651 million.
- Cost of revenue fell 77.0%, helping gross profit rise to $0.419 million and gross margin to 55.6%, from 16.9%.
- Operating loss widened by about 5.9% as R&D expense rose 7.5%, including third-party preclinical studies, Lavie Bio field trials and Canonic seed-collection costs.
- Net loss narrowed 8.2%, primarily reflecting a $2.075 million net financing gain versus $0.793 million of net financing expense in 2018; this was not an improvement in operating performance.
- Cash and cash equivalents rose from $5.810 million to $34.748 million. Marketable securities and short-term deposits declined; the combined balance of those three liquidity categories was about $46.9 million versus $54.5 million in 2018.
Outlook, commentary and risks
- No formal revenue or earnings guidance was provided. Management expected to continue developing product pipelines and pursue new collaborations in 2020. Lavie Bio expected a first spring-wheat bio-stimulant launch by 2022; this is a target, not a guarantee.
- Management said COVID-19 disruptions led it to reduce or delay some 2020 activities and expected 2020 R&D expense to decrease from 2019; business-development and general-and-administrative expenses were expected to remain at roughly current levels. The filing warned that the pandemic could delay programs, disrupt collaborators and contractors, and impair access to capital.
- Evogene has a history of losses and negative operating cash flow and expects continued losses until products generate meaningful commercial revenue, if ever. Product development, regulatory approval and commercialization are lengthy and uncertain; most programs are early-stage.
- Other notable risks include dependence on collaborators and their R&D budgets, potential dilution of subsidiary ownership, competition, intellectual-property protection, regulatory changes, currency exposure to NIS expenses, and Israeli political/security conditions. IIA-supported know-how and manufacturing may be subject to Israeli location restrictions and repayment obligations.
- Corteva’s August 2019 transaction brought Lavie Bio $10 million in cash and Taxon Biosciences assets in exchange for approximately 27.84% of Lavie Bio. Evogene retained approximately 72.16%; Corteva also received certain future commercialization rights.
- The company believed it was a PFIC for U.S. tax purposes in 2019 and disclosed significant risk of PFIC status in 2020. It does not intend to provide information needed for qualified electing fund elections.
Most important facts for investors to verify
- Whether the reported $46.9 million of cash, securities and deposits, and the stated 12-month funding expectation, remain adequate given ongoing operating cash use and subsequent developments.
- Whether collaboration revenue can be replaced or expanded after the completion of the Monsanto/Bayer work, and whether any programs reach milestones, royalties or product sales.
- Progress, funding needs and Evogene’s ownership dilution in Lavie Bio and other subsidiaries; verify the terms and commercial significance of the Corteva investment and rights.
- Whether COVID-related delays, cost reductions and program changes affected 2020 development timelines, collaborations or financing plans.
- Potential obligations and restrictions attached to government grants, including the reported $3.362 million grant liability and rules on transferring funded know-how outside Israel.
- PFIC status and related U.S. shareholder tax consequences, which depend on annual facts and market capitalization.