TABLE OF CONTENTS
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56
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F-1 |
CERTAIN TERMS AND CONVENTIONS
In this annual report, unless the context otherwise requires:
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references to “Evogene,” “we,” “us,” “our,” “our company” and “the company” refer to Evogene Ltd. and its consolidated subsidiaries, consisting of AgPlenus Ltd., Biomica Ltd., Canonic Ltd., Casterra Ag Ltd. (formerly known as Evofuel
Ltd.), Evogene Inc., Lavie Bio Ltd., and their consolidated subsidiaries;
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references to “U.S. dollars,”, “USD”, “$” or “dollars” are to United States dollars;
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references to “NIS” or “shekels” are to New Israeli Shekels;
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References to “U.S.” are to the United States;
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references to “ordinary shares”, “our shares” and similar expressions refer to our Ordinary Shares, par value NIS 0.02 per share;
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references to the “articles of association” are to our Amended and Restated Articles of Association, which became effective upon the closing of the U.S. initial public offering, as subsequently amended;
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references to the “Companies Law” are to the Israeli Companies Law, 5759-1999, as amended;
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references to the “Securities Act” are to the Securities Act of 1933, as amended;
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references to the “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
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references to the “NYSE” are to the New York Stock Exchange;
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references to the “Nasdaq” are to the Nasdaq Stock Market LLC;
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references to the “TASE” are to the Tel Aviv Stock Exchange; and
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references to the “SEC” are to the United States Securities and Exchange Commission.
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Unless derived from our financial statements or otherwise noted, amounts presented in this annual report are translated at the rate of NIS 3.456 = USD 1.00, the exchange rate
between the NIS and the U.S. dollar reported by the Bank of Israel as of December 31, 2019.
This annual report includes other statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications
and reports that we believe to be reliable sources. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. These publicly available industry publications and reports
generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information. Although we believe that these sources are reliable and are not aware of any
misstatements regarding the industry data presented in this annual report, we have not independently verified the information contained in such publications. Certain estimates and forecasts involve uncertainties and risks and are subject to change
based on various factors, including those discussed under the headings “—Special Note Regarding Forward-Looking Statements” and “Item 3. Risk Factors—D. Risk Factors” in this annual report.
Throughout this annual report, we refer to various trademarks, service marks and trade names that we use in our business. The “Evogene” design logo, “Evogene” and other trademarks
or service marks of Evogene Ltd. appearing in this annual report are the property of Evogene Ltd. We have several other registered trademarks, service marks and pending applications relating to our computational technologies. Other trademarks and
service marks appearing in this annual report are the property of their respective holders. Solely for convenience, the trademarks and trade names in this annual report are referred to without the ® and ™ symbols, but such references should not be
construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship
with, or endorsement or sponsorship of us by, any other companies.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical facts, this annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act,
and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. Forward-looking statements include
information concerning our possible or assumed future results of our business, financial condition, results of operations, liquidity, anticipated growth strategies, anticipated trends in our industry, market size, our potential growth opportunities,
plans and objectives. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “projects,” “should,” “will,” “would” or similar expressions that convey uncertainty of future events or outcomes and the negatives of those terms.
Our actual future results, performance or achievements may differ materially from what is expressed or implied by those forward-looking statements due to a variety of factors,
some of which are beyond our control, including the following factors:
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the extent of our continuing to maintain our holdings in our subsidiary companies;
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the extent to which our discoveries and product candidates will have the desired effect so as to reach the stage of commercialization;
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whether we and our collaborators are able to allocate the resources needed to develop commercial products from our discoveries and product candidates;
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the length and degree of complexity of the process of our developing commercial products based on our discoveries and product candidates and the probability of our success, and the success of our collaborators, in developing such
products;
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the degree of success of third parties upon whom we rely to conduct certain activities, such as field-trials and pre-clinical studies;
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whether we are able to comply with regulatory requirements;
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whether we and our subsidiaries are able to meet expected timelines in the performance of our activities (or are delayed, including as a result of the effect of the Coronavirus);
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the extent of the future growth of the agriculture, human health and industrial application industries in which we operate;
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whether we can maintain our current business models;
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the actual commercial value of our key product candidates;
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whether we or our collaborators receive regulatory approvals for the product candidates developed by us or our collaborators;
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whether products and product candidates containing or based on our discoveries are commercialized and earn us revenues or royalties;
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whether we are able to maintain and recruit knowledgeable or specialized personnel to perform our research and development work;
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the degree of our success at adapting to the continuous technological changes in our industries;
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whether we can maintain our collaboration agreements with our current collaborators or enter into new collaboration agreements and expand our research and development to new fields;
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whether we can improve our existing, or develop and launch new, computational technologies and screening and validation systems;
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whether we can patent our discoveries and protect our trade secrets and proprietary know-how; and
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the effect of the spread and resulting government actions implemented to limit coronavirus.
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A number of additional important factors could cause our actual results to differ materially from those indicated by our forward-looking statements, including, but not limited to,
those factors described in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.”
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are
reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. All of the forward-looking statements that we have included
in this annual report are based on information available to us on the date of this annual report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new
information, future events, changes in our expectations or otherwise.
ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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Not applicable.
ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE
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Not applicable.
A. Selected Financial Data
The following tables set forth our selected consolidated financial data. You should read the following selected consolidated financial data in conjunction with “Item 5. Operating
and Financial Review and Prospects” and our consolidated financial statements and related notes included in this annual report. Historical results are not necessarily indicative of the results that may be expected in the future. Our financial
statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.
The selected consolidated statements of profit or loss and other comprehensive income (loss) data for each of the years in the three-year period ended December 31, 2019 and the
consolidated statements of financial position data as of December 31, 2018 and December 31, 2019 are derived from our audited consolidated financial statements appearing in this annual report. The consolidated statements of profit or loss and other
comprehensive income (loss) data for each of the years ended December 31, 2015 and December 31, 2016 and the consolidated statements of financial position data as of December 31, 2015, 2016 and 2017 are derived from our audited consolidated financial
statements that are not included in this annual report.
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Consolidated Statements of Profit or Loss and Other Comprehensive Income (Loss):
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Revenues:
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Research and development payments, including up-front payments
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$
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10,956
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$
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6,500
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$
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3,369
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$
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1,747
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$
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753
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Share purchase related revenues
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Total Revenues
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11,129
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6,540
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3,381
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1,747
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753
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Cost of revenues
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Gross profit
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Operating expenses:
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Research and development, net
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14,449
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16,405
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16,987
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14,686
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15,791
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Business development
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1,964
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1,696
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1,686
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2,084
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2,029
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General and administrative
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Total operating expenses
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Operating loss
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(17,921
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)
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(21,089
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)
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(21,947
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)
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(19,989
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)
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(21,166
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)
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Financing income
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2,571
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2,424
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2,125
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1,413
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2,630
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Financing expenses
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Loss before taxes on income
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(17,213
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)
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(19,556
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)
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(20,827
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)
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(20,782
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)
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(19,091
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)
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Taxes on income
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Loss
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Other comprehensive income (loss):
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Loss from cash flow hedges
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(45
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)
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-
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-
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-
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-
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Amounts transferred to the statement of profit or loss for cash flow hedges
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Total comprehensive loss
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Attributable to:
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Equity holders of the Company
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-
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-
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-
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(20,758
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)
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(18,112
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)
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Non-controlling interests
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Basic and diluted loss per share, attributable to equity holders of the Company
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Weighted average number of ordinary shares used in computing basic and diluted loss per share (1)
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Selected Consolidated Statements of Financial Position Data:
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Cash and cash equivalents
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$
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10,221
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$
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3,236
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$
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3,435
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$
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5,810
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$
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34,748
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Marketable securities
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71,807
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71,738
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59,940
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26,065
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2,128
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Short-term bank deposits
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18,603
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13,137
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8,380
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22,592
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10,000
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Trade receivables
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2,675
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|
169
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|
|
132
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|
|
160
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|
72
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Total current assets
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104,376
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89,490
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72,791
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55,488
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49,027
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Total assets
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112,595
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95,986
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77,602
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58,694
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71,364
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Net assets
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103,752
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87,289
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69,378
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50,306
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60,217
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Deferred revenues and other advances
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|
858
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1,105
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|
605
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|
440
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|
395
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Total liabilities
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8,843
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8,697
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8,224
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8,388
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11,147
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Working capital (2)
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98,737
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84,265
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68,127
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50,057
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|
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43,298
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Shareholders’ equity
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103,752
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87,289
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69,378
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50,306
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60,217
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The issued and outstanding share capital of the company is composed of 25,754,297 ordinary shares as of December 31, 2019.
_____________________
(1) |
Basic and diluted loss per share is computed based on the weighted average number of ordinary shares outstanding during each period, in accordance with International Accounting Standard 33, “Earnings per Share.”
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(2) Working capital is defined as total current assets less total current liabilities.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the
SEC, including the following risk factors which we face and which are faced by the industries in which we operate. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This report
also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in those forward-looking statements, as a result of certain factors, including the risks described below and
elsewhere in this report and our other SEC filings. See “Special Note Regarding Forward-Looking Statements” on page 4.
Risks Related to Our Business and Industry
If our equity holdings in our subsidiary companies are diluted, the benefit recognized by our shareholders from value that may be created in such subsidiary
companies may be substantially reduced.
We initiated a new corporate strategy and structure at the beginning of 2018, with the intent to make product development more efficient and to better reflect the individual value
of each of our market focused business units. Under the new corporate structure, the Evogene group operates with Evogene as a technology hub and a growing group of divisions and subsidiaries that benefit from the unique capabilities of Evogene’s CPB
platform. Each such subsidiary is responsible for advancing its product development and pipeline, establishing its “go-to-market” strategy via direct sales or through existing and new collaborations, and securing additional financial resources, if
and when required. Due to our limited financial resources and other investment considerations, our subsidiaries may obtain financing from external sources. External financing may result in a decrease of our percentage shareholdings in our
subsidiaries, which, in turn, may reduce the benefit we (and, indirectly, our shareholders) recognize from value established in such subsidiaries, and potentially negatively affect our results of operations, financial condition, our long-term growth
strategy and the value of our shares.
Our discoveries and product candidates may not achieve the desired effect required in order to create commercially-viable products.
Our success depends on our ability to develop products that have the desired effect: in our agriculture activity, on plants, in our human health activity, on humans, and in our
industrial applications activity, on the relevant industrial inputs. Research and development in these industries entails considerable uncertainty. We may spend many years developing product candidates that will never be commercialized. The science
underlying the development of our product candidates is highly complex and, although we use innovative approaches, there is no certainty that our discoveries will result in product candidates that satisfy market requirements. Except in our castor oil
activity, none of our discoveries has completed the development process and become commercially available so far, and may never reach commercialization. If our discoveries and product candidates will not have the desired effect, we and our
collaborators may not develop commercial products that are based on them, which could materially and adversely affect our results of operations and our long-term growth strategy.
Various factors may delay or prevent commercialization of our product candidates.
Our success depends in part on our ability to identify discoveries that will improve crop performance, in our agriculture activity, obtain clinical benefits, in our human health
activity, or improve industrial inputs, in our industrial applications activity. To develop these discoveries and product candidates into commercial products, we either license them to collaborators or develop them independently. Pursuant to our
collaboration agreements in our agriculture activity, we are usually entitled, subject to certain conditions, to receive royalties on products that are based on, or integrate, these discoveries. In addition, certain of our agreements in our
agriculture activity entitle us to upfront fees, research and development payments and milestone payments in the event that specified milestones are met. Except for Casterra’s castor varieties, none of our product candidates has completed the
development process and become commercially available, and there can be no guarantee that any of our current or future product candidates will ever reach commercialization. Therefore, we currently do not earn royalties, nor do we have significant
sales revenues from the sale of products based on our discoveries and product candidates. Nevertheless, our long-term growth strategy is based in large part on the expectation that such royalties and revenues from product sales will comprise a
significant portion of our revenues in the future. If we or our collaborators never commercialize products based on our discoveries, we will not realize revenues from royalties and may not earn a profit on our discoveries, which could materially and
adversely affect our results of operations, financial condition and our long-term growth strategy and could cause us to cease operations.
The manner in which we and our collaborators develop our product candidates in our various fields of activity affects the period that will pass until such products are
commercialized, if ever. Product candidates based on our discoveries may never become commercialized for any of the following reasons:
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our discoveries may not be successfully validated or may not have the desired effect required in order to become, or to be incorporated into, commercial products;
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◾ |
the process of developing product candidates based on our discoveries is lengthy and expensive, and we or our collaborators may not be able to allocate the resources needed to complete such development within the desired timeline;
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|
◾ |
we or our collaborators may decide to discontinue, pause, reduce, or alter the scope of the development efforts for our product candidates;
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we may fail to satisfy, in a timely manner or at all, relevant milestones under our agreements with our collaborators;
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regulatory conditions related to our product candidates may change in different territories, thus negatively affecting the relevant development processes and extending their length or limiting the commercialization of such product
candidates;
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we or our collaborators may be unable to obtain the requisite regulatory approvals for product candidates based on our discoveries;
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our competitors may launch competing or more effective products;
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we or our collaborators may be unable to fully develop and commercialize product candidates containing our discoveries or may decide, for whatever reason, not to commercialize, or to delay the commercialization of, such product
candidates;
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a market may not exist for products containing our discoveries or such products may not be commercially successful or relevant; and
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we may be unable to protect the intellectual property underlying our discoveries in the necessary jurisdictions.
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Our product development cycle is lengthy and uncertain, and we may never sell or earn royalties on the sale of commercial products based on our discoveries.
Research and development in our fields of activity is expensive and prolonged and entails considerable uncertainty. We may spend many years and dedicate significant financial and
other resources developing product candidates that will never be commercialized. The process of discovering, developing and commercializing seed traits, ag-chemicals, ag-biologicals, castor varieties, human microbiome-based therapeutics or medical
cannabis products involves several phases and a long development period. The timelines for development of product candidates by ourselves or by our collaborators may extend beyond our expectations for many reasons, such as:
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we or our collaborators may not be able to allocate the resources needed to develop product candidates based on our discoveries;
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◾ |
we or our collaborators may revise the process of product development or make other decisions regarding their product development pipelines that may extend the development period;
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◾ |
we or our collaborators may prioritize other development activities ahead of development activities with respect to the product candidates on which we collaborate;
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◾ |
our discoveries may not be successfully validated or may not have the desired effect sought by us or by our collaborators; and
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we or our collaborators may be unable to obtain the requisite regulatory approvals for the product candidates based on our discoveries within expected timelines or at all.
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Most of the product candidates we or our collaborators are developing are in early development stages. We have little to no certainty as to which and when, if any, any of these
product candidates will eventually reach commercialization. Because of the long product development cycle and the complexities and uncertainties associated with research in our fields of activity, there is significant uncertainty as to whether we
will ever generate significant revenues or royalties, if any, from the product candidates that we or our collaborators are developing. For more information on the product development cycle of the product candidates we develop and a description of the
phases of development, see the ‘Product Development Cycle’ paragraph under the description of each of our activity divisions and subsidiaries in “Item 4. Information on the Company—B. Business Overview”.
Due to mergers and consolidations, there is a reduced number of companies in the agriculture industry with which we might establish strategic partnerships, and
we rely on a limited number of collaborators to develop and commercialize product candidates containing our seed trait, ag-chemical and ag-biological product candidates.
The agriculture markets are highly consolidated and dominated by a relatively small number of large companies. In our agriculture operations, we are currently undertaking
collaborations with several of these companies to develop improved seed traits, ag-chemical and ag-biological product candidates. Due to the small number of major companies in this industry, there are limited opportunities for us to grow our business
with new collaborators. In addition, if we fail to develop or maintain our relationships with any of our current collaborators, we could not only lose our opportunity to work with that collaborator, but we could also suffer a reputational risk that
could impact our relationships with other collaborators in what is a relatively small industry community.
In our agriculture operations, we are currently working either with collaborators or on independent projects to research and develop our different seed trait, ag-chemical and
ag-biological product candidates. While we seek to expand our portfolio of product candidates in the future, the research and development required to discover and develop new product candidates is costly, time-intensive and requires significant
infrastructure resources. If we are unable to enter into new collaborations, or if we do not have the resources to develop the capabilities or resources necessary to discover and develop such product candidates independently, we may not be able to
expand our portfolio of these product candidates, which could have a material adverse effect on our business prospects.
A decrease in research expenditures by the major companies in our target markets may jeopardize the continuation, or scope, of our collaborations
with such companies and adversely impact our ability to continue or extend existing collaborations or enter into new collaborations on favorable financial terms.
The research and development expenditures of our existing and potential collaborators in the agriculture, human health, and industrial applications markets we operate in may be
reduced for reasons beyond our control. For example, a global crisis or economic recession, a decrease in the prices of agricultural commodities, or the consolidation trend in the seeds and ag-chemicals industries may result in decreased research and
development expenditures in the markets relevant for our seed trait, ag-biological and ag-chemical product candidates. Such developments may, in turn, adversely impact our ability to maintain or extend our existing collaborations or enter into new
collaborations on favorable financial terms. For example, we may not be able to enter into new collaborations under which our collaborators cover our expenses through research and development payments.
We or our collaborators may fail to perform obligations under the collaboration agreements.
We are obligated under our collaboration agreements to perform research activities over a particular period of time. If we fail to perform our obligations under these agreements,
in some cases our collaborators may terminate our agreements with them and in other cases our collaborators’ obligations may be reduced and, as a result, our anticipated revenues may decrease. In addition, any of our collaborators may fail to perform
their obligations, which may hinder development and commercialization of products containing the product candidates we develop and materially and adversely affect our future results of operations. Furthermore, the various payments we receive from our
collaborators are currently our primary source of revenues. If our collaborators do not make these payments, either due to financial hardship, disagreement under the relevant collaboration agreement or for any other reason, our results of operations
and business could be materially and adversely affected. If disagreements with a collaborator arise, any dispute with such collaborator may negatively affect our relationship with one or more of our other collaborators and may hinder our ability to
enter into future collaboration agreements, each of which could negatively impact our business and results of operations.
We are operating in multiple industries, each of which consist of multiple companies with much greater resources than us. Competition in our industries is
intense and requires continuous technological development. If we are unable to compete effectively, our financial resources will be diluted and our financial results will suffer.
We currently face significant competition in the markets in which we operate. The agriculture, human health and industrial applications markets in which we operate are intensely
competitive and rapidly changing. Many companies engage in research and development of products in such markets, and speed in getting a new product candidate to market can be a significant competitive advantage. In most segments of our operations,
the number of products available to the consumer is steadily increasing as new products are introduced. At the same time, an increasing number of products are coming off patent and are thus available to generic manufacturers for production. We may be
unable to compete successfully against our current and future competitors, which may result in lower prices and margins and the inability to achieve market acceptance for products containing our discoveries. In addition, many of our competitors have
substantially greater financial, marketing, sales, distribution and technical resources than us and some of our collaborators are significantly larger than us and have more experience in research and development, regulatory matters, manufacturing and
marketing. We anticipate increased competition in the future as new companies enter these markets and new technologies become available. Our technologies may be rendered obsolete or uneconomical by technological advances or entirely different
approaches developed by one or more of our competitors or collaborators, which will prevent or limit our ability to receive any associated research and development payments or generate revenues from the commercialization of our product candidates.
We are working to develop and commercialize novel ag-biological products, and our efforts may be unsuccessful.
Our majority-owned subsidiary, Lavie Bio, is developing ag-biological product candidates, currently focused mainly on microbial-based bio-stimulants and bio-pesticides, through a
novel approach, focused on plant-microbiome relationship. In certain of our ag-biological product programs, Lavie Bio funds its early stages of research and development efforts in order to potentially capture more value, while in others it funds the
entire development program towards launch of a commercial product. Lavie Bio’s efforts to develop novel ag-biological product candidates may fail for a variety of reasons, including:
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failure to establish the requisite infrastructure to enable the discovery and development of microbial bio-stimulants;
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failure to identify and develop microbial candidates that enhance plant performance at the desired efficacy and stability;
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failure to successfully complete development of microorganisms to achieve cost-effective and commercially viable products;
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failure to meet regulation requirements in case significant changes occur in the future; and
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failure to establish cost-effective go-to-market models for selling our products.
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If Lavie Bio’s efforts to develop ag-biological product candidates are unsuccessful, our results of operations could be negatively impacted.
We are working to develop and commercialize novel ag-chemical products, and our efforts may be unsuccessful.
Our subsidiary, AgPlenus, is currently developing solutions for crop protection through chemistry, or ag-chemistry. AgPlenus is developing these product candidates through a novel
approach, focused on biologically significant proteins called “targets”. AgPlenus’ efforts to develop novel ag-chemical product candidates may fail for a variety of reasons, including:
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failure of its relatively novel target-based approach to lead to an effective product candidate or failure to identify chemical compounds that will display required level of performance;
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inability to obtain sufficient funding to fully execute its ag-chemical business plan; and
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failure to meet regulation requirements.
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If AgPlenus’ efforts to develop ag-chemical product candidates are unsuccessful, our results of operations could be negatively impacted.
We are working to develop and commercialize seed-trait products, and our efforts may be unsuccessful.
We are developing seed trait and insect control product candidates in our internal Ag-Seeds division. Our efforts to develop novel product candidates may fail for a variety of
reasons, including:
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failure to identify and develop candidate genomic elements having the desired effect on the target trait in the plant of interest;
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failure to identify and develop toxin candidates having the desired effect on the target insects when inserted into the plants of interest;
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failure to successfully complete development of our seed trait product candidates; and
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our failure to meet regulation requirements for seed trait and insect control product candidates.
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Furthermore, even if we are able to discover and begin to develop effective product candidates, we may not be successful if we are unable to find collaborators for further
development and commercialization of the product candidates. If our efforts to develop seed trait product candidates are unsuccessful, our results of operations could be negatively impacted.
We are working to develop human microbiome-based therapeutic product candidates, and our efforts may be unsuccessful.
Our subsidiary, Biomica, is developing microbiome-based therapeutic product candidates. Biomica’s efforts to develop its product candidates and develop marketable products may be
unsuccessful for a variety of reasons, including the following:
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failure to complete pre-clinical studies and clinical trials with positive results;
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failure to finance the development and commercialization of its product candidates;
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failure to receive marketing approvals from applicable regulatory authorities;
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failure to obtain and maintain patent and trade secret protection and regulatory exclusivity for its product candidates;
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failure to making arrangements with third-party manufacturers for, or establishing its own, commercial manufacturing capabilities;
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failure to launch commercial sales of its products, if and when approved, whether alone or in collaboration with others;
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failure to enter into new collaborations throughout the development process as appropriate, from pre-clinical studies through to commercialization;
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failure to achieve acceptance of its products, if and when approved, by patients, the medical community and third-party payors;
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failure of its products, if approved, to compete effectively with other therapies;
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failure to obtain and maintain coverage and adequate reimbursement by third-party payors, including government payors, for its products, if approved;
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failure to protect its rights in its intellectual property portfolio;
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failure to operate without infringing or violating the valid and enforceable patents or other intellectual property rights of third parties;
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failure to maintain a continued acceptable safety profile of the products following approval; and
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failure to maintain and develop an organization of scientists and business people who can develop and commercialize its products and technology.
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If Biomica’s efforts to develop microbime-based human therapeutics are unsuccessful, our results of operations could be negatively impacted.
We are working to develop and commercialize medical cannabis products, and our efforts may be unsuccessful.
Canonic, our subsidiary, is developing medical cannabis product. Canonic’s efforts to develop and commercialize medical cannabis products may fail for a variety of reasons, including:
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failure to develop cannabis varieties having desired efficacy and stability;
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failure to establish the agro-technical knowledge and expertise for cultivating cannabis;
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failure to meet regulation requirements;
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failure to engage with, and successfully operate, contractors, in Israel and abroad, for performing cultivation and production services;
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failure to establish successful distribution channels, in Israel and abroad, for our medical cannabis products;
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failure to secure our cannabis cultivation facilities; and
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the market for medical cannabis products is relatively new and suffers from high uncertainty in many aspects, including demand, supply, pricing, regulation, customer preferences, etc.
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If Canonic’s efforts to develop and commercialize medical cannabis products are unsuccessful, our results of operations could be negatively impacted.
We are working to develop and commercialize castor seeds for industrial applications, and our efforts may be unsuccessful in achieving a commercial presence in
this market.
Our subsidiary, Casterra, is currently developing improved, high-yield castor bean seeds for use as a source of non-edible feedstock for the existing industrial uses of castor oil.
The supply chain in the market of castor oil for industrial uses is not well established and is evolving. In order for Casterra’s castor bean seeds to be an attractive feedstock for oil for industrial uses, we will need to demonstrate on a commercial
scale that our castor beans can reliably be used as a cost-efficient feedstock for castor oil production. Casterra’s efforts to develop castor been seeds for industrial uses may fail for a variety of reasons, including:
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failure to reach desired yields of its castor seed varieties on a commercial scale to secure economic viability as bio-based oil feedstock;
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failure to establish an efficient mechanical harvest solution;
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failure to establish a cost-effective production of castor bean grains, allowing grower profitability;
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failure to reach large scale adoption of castor by growers, including the successful management of diseases, and pests;
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failure to address the health and environmental risks posed by castor bean seeds, which contain a naturally occurring poison called ricin;
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failure to comply with any regulatory requirement related to sales of castor beans, and in particular those related to the import of such beans and the potential effects of ricin; and
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failure to establish sustainable production of castor seeds.
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We are operating in a new industry, with limited understanding of the dynamics involved in producing and selling castor seeds. We have made initial commercial sales of castor
seeds; however, we are unable to foresee as to when significant sales will commence. If we are unable to adequately address any of these issues, we may not find a market for our castor bean seeds and our results of operations could be materially and
adversely affected.
If Lavie Bio is unable to establish successful distribution and retail channels for the commercialization of its
products, it will not be able to meet its commercialization plans.
Our majority-owned subsidiary, Lavie Bio, intends to commercialize part of its future ag-biological products through distribution and retail channels. We have little experience in establishing such
channels and may be unsuccessful in doing so. In addition, we will be dependent on our distributers in introducing our products to the market. If we or our distributors are unsuccessful in our efforts to penetrate the market, our revenues and
financial results will be adversely affected.
Even if we are entitled to royalties from our collaborators, we may not actually receive these royalties, or we may experience difficulties in collecting the
royalties that we believe we are entitled to.
If and when our collaborators launch commercial products containing our licensed discoveries, we will rely on our collaborators to report to us the sales they earn from these
products and to accurately calculate the royalties we are entitled to, a process that will involve complicated calculations. Although we seek to address these concerns in our collaboration agreements, such provisions may not be effective.
Additionally, we may not be able to achieve our long-term goal of generating revenues from royalties, and in the coming years our revenues will be entirely dependent on fees we earn for our research and development services and milestone payments
from our collaborators.
Each of us and our subsidiaries depends on
our key personnel and, if we are not able to attract and retain qualified scientific and business personnel, we may not be able to grow our business or develop and commercialize our product candidates.
The vast majority of our workforce is involved in research and development. Our business is therefore dependent on our ability to recruit and maintain a highly skilled and educated
workforce with expertise in a range of disciplines, including biology, chemistry, plant genetics, agronomics, entomology, mathematics, computer science and other subjects relevant to our operations. For example, of our staff, 38 employees hold a
Ph.D. The number of qualified and highly educated personnel in the fields upon which our business focuses in Israel, where most of our operations are located, is limited and competition for the services of such persons is intense. Although we have
employment agreements with all of our employees, most of these agreements may be terminated upon short notice. The failure to hire and retain skilled and highly educated personnel could limit our growth and hinder our research and development
efforts.
We develop certain discoveries independent of our collaborators, and we may need to finance the cost of the development of such technologies ourselves.
In recent years we have begun to develop certain discoveries and product candidates independent of our collaborators, with a goal of making such discoveries available to
collaborators in later phases, including the final product development stage in certain cases. While we believe this will allow us to negotiate more favorable license or commercialization terms with respect to such discoveries and product candidates,
the up-front cost to us of developing programs without a collaborator (and therefore without external funding for the research and development expenditures we incur) in these early phases involves higher risks, since we need to fund the research and
development of such programs ourselves. If we are unsuccessful in discovering promising product candidates after having invested significant funds, or if we are unable to find collaborators who are interested in such results and willing to fund
subsequent phases of development and commercialization, such failures could have a material and adverse effect on our business, financial condition and results of operations. Traditional financing sources such as bank financing or public debt or
equity financing, if available to us, could carry with them certain drawbacks, such as imposition of covenants restricting our ability to operate, or substantial dilution to our existing shareholders.
Our business is subject to various government regulations and, if we or our collaborators are unable to obtain the necessary regulatory approvals, we may not be
able to continue our operations.
Our business is generally subject to two types of regulations: regulations that apply to how we operate and regulations that apply to products containing our discoveries and
product candidates. Typically, we apply for and maintain the regulatory approvals necessary for our operations, while our collaborators apply for and maintain regulatory approvals necessary for the commercialization of products containing our
discoveries. We may fail to comply with all currently applicable regulations, and we may become subject to new or revised regulations or approvals in the future. Furthermore, any violation of these regulations could expose us to civil and criminal
penalties.
The relevant regulatory regimes may be particularly onerous; for example, the U.S. federal government’s regulation of biotechnology is divided among the United States Environmental
Protection Agency, which regulates activity related to the invention of plant pesticides and herbicides, the United States Department of Agriculture, which regulates the import, field testing and interstate movement of specific technologies that may
be used in the creation of transgenic plants, and the United States Food and Drug Administration, or the FDA, which regulates foods derived from new plant varieties. If we or our collaborators are unable to obtain the requisite regulatory approvals
or there is a delay in obtaining such approvals as a result of negative market perception or heightened regulatory standards, such product candidates will not be commercialized, which would negatively impact our business and results of operations.
Our medical cannabis activity exposes us to legal and reputational risks associated with the cannabis industry.
Although Canonic, our subsidiary that develops medical cannabis products currently has limited operations, our current and potential involvement in cannabis-related activity may expose us
to legal and reputational risks. Such risks include:
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activities in the field of cannabis are subject to enhanced regulation in Israel and worldwide. For example, Israeli regulation requires that we obtain a specific permit for each of the following
activities: research, propagation, cultivation, production, marketing and distribution, use, etc.;
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changes in laws, regulations and guidelines related to cannabis may result in significant additional compliance costs for us or limit our ability to operate in certain jurisdictions;
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certain banks will not accept deposits from or provide other bank services to businesses involved with cannabis; and
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third parties with whom we do business may perceive that they are exposed to reputational risk as a result of our cannabis-related business activities and may ultimately elect not to do business with us.
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Any of the foregoing factors could adversely affect our business and results of operations
The cost we incur in procuring a directors and officers, or D&O, liability insurance has substantially increased during the last years. If this trend continues, it will have
an adverse effect on our results of operations.
D&O liability insurance is intended to cover the liability of the individuals serving as our directors and management, from losses incurred as a result of such service, our liability to indemnify
such individuals for such losses and to protect us from certain securities claims. During the last years, there has been a significant increase in the cost of D&O insurance for smaller, dual-listed public companies such as our Company. The
increases have been tied to perceived heightened levels of risk for D&O insurers. For example, the year 2018 set a 20-year record high for securities class actions filed against issuers of common or preferred stock listed in the United States.
In parallel, there has been an increase in the amounts of the deductibles payable by public companies in situations in which an insurable event occurs. If this trend continues, it will increase our operational expenses and have a negative effect on
our financial results.
Disruption to our information technology, or IT, system could adversely affect our reputation and have a material adverse effect on our business and results of
operations.
Our computational technologies rely on our IT system to collect and analyze the biological and chemical data we collect and discover. We store significant amounts of data, and to
date, have compiled several petabytes of data. There can be no assurance that our back-up storage arrangements will be effective if it becomes necessary to rely on them. Furthermore, we can provide no assurance that our current IT system is fully
protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. Disruption or failure of our IT system due to technical reasons, cyberattacks, natural disasters or other unanticipated
catastrophic events, including power interruptions, storms, fires, floods, earthquakes, terrorist attacks and wars could significantly impair our internal development efforts and materially and adversely affect our collaborations, our business and
our results of operations.
As we continue to develop our computational technologies and expand our datasets, we may need to update our IT system and storage capabilities. However, if our existing or future
IT system does not function properly, or if the IT system proves incompatible with our new technologies, we could experience interruptions in data transmissions and slow response times, preventing us from completing routine research and business
activities, which could adversely affect our business and results of operations.
Development of our product candidates, particularly during our validation and testing activities, may be adversely affected by circumstances caused by us or
those beyond our control.
The industries we are engaged in are subject to various factors that make our operations relatively unpredictable from period to period. For example, the testing of our product
candidates may be adversely affected by circumstances both caused by us and those that are beyond our control. Factors caused by us include any failure by us or our collaborators to follow proper agronomic practice or suggested protocols for
conducting our experiments, and failure to successfully complete such experiments. Factors beyond our control include weather and climatic variations, such as droughts or heat stress, or other factors we are unable to identify. For example, if there
was prolonged or permanent disruption to the electricity, climate control or water supply operating systems in our greenhouses or laboratories, the plants and pests on which we test our discoveries and product candidates and the samples we store in
freezers, both of which are essential to our research and development activities, would be severely damaged or destroyed, adversely affecting our research and development activities and thereby our business and results of operations. We have
experienced these kind of failures in the past for unknown reasons, causing delays in our achievement of milestones and delivery of results, and necessitating that we re-start the trials. Any test failure we may experience is not covered by our
insurance policy, and therefore could result in increased cost of the trials and development of our product candidates, which may negatively impact our business and results of operations.
The COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease in the United States, Israel or elsewhere, may hurt
our business in many ways, and, if prolonged, could adversely impact our operating results and financial condition in a significant manner.
The COVID-19 pandemic, and any other pandemic, epidemic or outbreak of an infectious disease that occurs in the United States, Israel or elsewhere, may adversely affect our
business and, if prolonged, could adversely impact our operating results and financial condition in a significant manner. In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread
globally and, as of April 2020, has spread to over 100 countries, including the United States, Israel and Latin America. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of
COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. Since March 2020, the
Government of Israel imposed multiple precautionary measures, such as quarantine restrictions for foreign travelers arriving from any country, avoiding gatherings, and restrictions on work places. Employers (including us) are also required to prepare
and increase as much as possible the capacity and arrangement for employees to work remotely. In addition, since March, 2020, the President of the United States issued a proclamation to restrict travel to the United States from certain foreign
nationals and governors of many U.S. states have enacted temporary measures seeking to limit the spread of COVID-19, including in the State of Missouri, where our U.S. research and development site is located. We are still assessing and will
continue to assess the effect on our business, from the spread of COVID-19 and the actions implemented by the governments of the State of Israel, the United States and elsewhere across the globe.
These actions have disrupted the ordinary course of operations for us, our collaborators and contractors, causing operational delays, labor shortages, travel disruption and shutdowns, thus restricting
our, our collaborators’ and contractors’ ability to ensure the continuous development of our product candidates, which could have an adverse effect on our development programs.
In addition, regulatory bodies may reduce or postpone meetings with us or internally if resources are pushed away from our industries in response to the spread of an infectious disease. Such events may
result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.
The COVID-19 outbreak and mitigation measures also have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial
condition, including impairing our ability to raise capital if and when needed. The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which
may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
Consumer and government resistance to genetically modified organisms may negatively affect our public image and reduce sales of plants containing our traits.
A certain part of our seed traits activity includes research and development of genetically modified, or GM, seeds. Foods made from such seeds are not accepted by many consumers and in certain
countries production of certain GM crops is effectively prohibited, including throughout the European Union, due to concerns over such products’ effects on food safety and the environment. The high public profile of biotechnology agriculture,
especially in food production, and lack of consumer acceptance of products to which we have devoted substantial resources could negatively affect our public image and results of operations. For example, the prohibition on the production of certain
GM crops in select countries and the current resistance from consumer groups, particularly in Europe, to GM crops not only limits our access to such markets but also has the potential to spread to and influence the acceptance of products developed
through biotechnology in other regions of the world and may also influence regulators in other countries to limit or ban production of GM crops, which could limit the commercial opportunities to exploit biotechnology.
GM crops are grown principally in the United States, Brazil and Argentina where there are fewer restrictions on the production of GM crops. If these or other countries where GM
crops are grown enact laws or regulations that ban the production of such crops or make regulations more stringent, we could experience a longer product development cycle for our product candidates and may even have to abandon projects related to
certain crops or geographies, both of which would negatively affect our business and results of operations and could cause us to have to cease operations. Furthermore, any changes in such laws and regulations or consumer acceptance of GM crops could
negatively impact our collaborators, who in turn might terminate or reduce the scope of their collaborations with us or seek to alter the financial terms of our agreements with them.
We have a history of operating losses and negative cash flow, and we may never achieve or maintain profitability.
We have a history of losses, and incurred operating losses of $21.1 million, $20.0 million and $21.9 million for the years ended December 31, 2019, 2018, and 2017, respectively.
There is no assurance that our efforts in developing our product candidates will result in commercially successful products. We expect to continue to incur losses in future periods, until we begin earning revenues or royalties on the product
candidates we are currently developing and any new product candidates we develop in the future, if at all. Because we will incur significant costs and expenses for these efforts before we obtain any incremental revenues from them, our losses in
future periods could be significant. In addition, we may find that these efforts are more expensive than we anticipate or that they do not result in profitability in the time period we anticipate, which would further increase our losses. For example,
if governments across the globe continue to implement actions that limit movement and activity, as a result of the COVID-19 pandemic or otherwise, we could face increased costs in order to meet our product development timeline. If we are unable to
adequately control the costs associated with operating our business, including our costs of development and sales, we may deplete our cash resources and may be unable to continue to finance our business from our existing cash resources, and, our
business, financial condition, operating results and prospects will suffer. For more information concerning our cash resources, please see “Liquidity and Capital Resources” in Item 5.B below.
The licenses we grant to our collaborators to use our discoveries are in most cases exclusive with respect to a specified discovery, product type or market
area. This may limit our opportunities to enter into additional licensing or other arrangements with respect to such discoveries, product types or market areas.
Most of the licenses we grant our collaborators to our product candidates or to use specific discoveries we have made are exclusive in the area of the license. That means that once
these discoveries are licensed to a collaborator, we are generally prohibited from licensing those discoveries to any third party for use in such area. The limitations imposed by these exclusive licenses could prevent us from expanding our business
and increasing our exposure to new licensees, both of which could adversely affect our business and results of operations.
We may be required to pay substantial damages as a result of uninsured product
liability claims.
Once products integrating our discoveries and product candidates reach commercialization, if ever, product liability claims will be a commercial risk for our business, particularly as some of the
products that we develop can be harmful to humans or the environment. Courts have levied substantial damages in the United States and elsewhere against a number of companies in the agriculture and human health industries in past years based upon
claims for injuries allegedly caused by the use of their products. Product liability claims against us or our collaborators selling products that contain our product candidates or allegations of product liability relating to products containing our
discoveries could damage our reputation, harm our relationships with our collaborators, and materially and adversely affect our business, results of operations, financial condition and prospects. We currently do not have product liability insurance
coverage. Any such insurance we may obtain in the future may be expensive and may not cover our potential liability in full. Furthermore, while our collaboration agreements typically require that our collaborators indemnify us for the cost of
product liability claims brought against us, such indemnification provisions may not always be enforced, and we may receive no indemnification if our own misconduct led to the claims.
Our facilities, in Israel and in the U.S., are located on leased properties. Termination of any of the leases, changes in lease terms, and long-term leases that
may not be terminated at will may jeopardize our activity and materially affect our financial condition or results of operations.
Our office spaces, labs, facilities, and farm are all situated on properties that we lease pursuant to lease agreements, in Israel and in the U.S. Once a lease agreement ends, we
may not be able to renew it on favorable terms, or not at all, which may require us to increase our lease payments or take a new lease in another property, adversely affecting our business and results of operations. In addition, a long-term lease may
mean no or limited possibility to terminate the lease at will before the completion of the lease period, which may lead to continued holding of an un-needed space or entry into a sub-lease, which may adversely affect our results of operations. For
more information regarding our facilities, please see “Item 4. Information on the Company—D. Property, Plants and Equipment.”
Lavie Bio’s research and development facility in the U.S., our contracts with foreign businesses and any other current or future operations outside of Israel expose us to
additional market and operational risks, and failure to manage these risks may adversely affect our business and operating results.
Lavie Bio’s research and development facility in St. Louis, Missouri may expose us to some of such operational risks, including:
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fluctuations in foreign currency exchange rates;
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potentially adverse tax consequences;
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difficulties in staffing and managing foreign operations;
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hiring and retention of employees and/or consultants under foreign employment laws which are not familiar to us;
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laws and business practices that sometimes favor local business;
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compliance with foreign legislation, being subject to laws, regulations and the court systems of multiple jurisdictions; and
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tariffs, trade barriers and other regulatory or contractual limitations on our ability to develop (and, when applicable in the future, sell) our solutions in certain foreign markets.
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Failure to manage the market and operational risks associated with international operations effectively could limit the future growth of our business and adversely affect our
operating results.
Our operations are subject to various health and environmental risks associated with our use, handling
and disposal of potentially toxic materials.
Our operations involve various health and environmental risks. As part of our seed traits operations, we assist in the development of GM crops by inserting new genes into the
genomes of certain plants. Though we introduce these genes in order to improve plant traits, we cannot always predict the effect that these genes may have on the plant. In some cases, the genes may render the plant poisonous or toxic, or they may
cause the plant to develop other dangerous characteristics that could harm the plant’s surrounding environment. Furthermore, while we comply with relevant environmental laws and regulations, there is a risk that, when testing genetically modified
plants, the seeds of these plants may escape the greenhouse or field in which they are being tested and contaminate nearby fields. Poisonous or toxic plants may therefore be inadvertently introduced into the wild, or possibly enter the food
production system, harming the people and animals who come in contact with them.
As part of Lavie Bio’s operations, it develops novel product candidates based on microbes in order to improve plants traits. Although microbes exist naturally in the environment,
we cannot always predict the effect that microbes have on the plant and its environment. There may be cases where the microbes render the plant poisonous or toxic, or they may cause the plant to develop other dangerous characteristics that could harm
the plant’s surrounding environment.
Changes in laws and regulations to which we are subject, or to which we may become subject in the future, may materially increase our costs of operation,
decrease our operating revenues and disrupt our business.
Laws and regulatory standards and procedures that impact our business are continuously changing. Responding to these changes and meeting existing and new requirements may be costly
and burdensome. Changes in laws and regulations may occur that could:
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impair or eliminate our ability to research and develop our product candidates, including validating our product candidates through field or clinical trials;
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increase our compliance and other costs of doing business through increases in the cost to patent or otherwise protect our intellectual property or increases in the cost to our collaborators to obtain the necessary regulatory approvals
to commercialize and market the product candidates we develop with them;
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require significant product redesign or systems redevelopment;
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render our product candidates less profitable, obsolete or less attractive compared to competing products;
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affect our collaborators’ willingness to do business with us;
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reduce the amount of revenues we receive from our collaborators through milestone payments or royalties; and
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discourage our collaborators from offering, and consumers from purchasing, products that incorporate our discoveries.
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Any of these events could have a material adverse effect on our business, results of operations and financial condition. For example, legislators and regulators have increased
their focus on plant biotechnology in recent years, with particular attention paid to GM crops as well as on ag-chemicals.
While none of our product candidates are currently available for sale, other than Casterra’s castor seeds, our future growth relies on our ability and the ability of our
collaborators to commercialize and market our product candidates, and any restrictions on such activities could materially and adversely impact our business and results of operations. Any changes in regulations in countries where our product
candidates are used could result in our collaborators being unable or unwilling to develop, commercialize or sell products that incorporate our discoveries. In addition, we rely on patents and other forms of intellectual property
protection. Legislation and jurisprudence on patent protection in the key target markets where we seek patent protection, such as the United States and the European Union, is evolving and changes in laws could affect our ability to obtain or maintain
patent protection for our product candidates. Any changes to these existing laws and regulations may materially increase our costs of operation, decrease our operating revenues and disrupt our business. For more information please see ‘Government
Regulation of our Operations’ and ‘Government Regulation of Product Candidates’ paragraphs under the description of each of our activity divisions and subsidiaries under “Item 4. Information on the Company—B. Business Overview.”
Risks Related to Our Intellectual Property Rights
Our success depends on our ability to protect our intellectual property and our proprietary technologies.
Our commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our proprietary computational technologies, our
discoveries and their uses, as well as our ability to operate without infringing upon the proprietary rights of others. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any
competitive advantage we may have, which could harm our business and ability to achieve profitability.
While we expect our patent applications to receive approval, we cannot be certain that we will obtain such results. Despite our efforts to protect our proprietary rights,
unauthorized third parties may attempt to use, copy or otherwise obtain and market or distribute our intellectual property rights or technology or otherwise develop products or solutions with the same functionality as our solutions. In addition, the
laws of some foreign countries provide less protection for proprietary rights than U.S. law. We face the occasional risk, moreover, that third parties may assert copyright, trademark and other intellectual property rights against us. Such claims may
result in direct or indirect liability as we have contractually agreed to indemnify certain parties for any damages suffered as a result of infringement by us of any third-party intellectual property rights.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would
be harmed.
We treat our proprietary computational technologies, including unpatented know-how and other proprietary information, as trade secrets. We seek to protect these trade secrets, in
part, by entering into non-disclosure and confidentiality agreements with any third parties who have access to them, such as our consultants, independent contractors, advisors, corporate collaborators and outside scientific collaborators. We also
enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our
trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In
addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom it communicates that technology or information, from using that
technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, or if we otherwise lose protection for our trade secrets or proprietary know-how, the value of this
information may be greatly reduced and our business and competitive position could be harmed.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, maintaining and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property
rights in some countries outside the United States are less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the
United States. Consequently, we are unable to prevent third parties from using our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the jurisdictions in which we do not
have patent protection. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and we may be unable to prevent such competitors from importing those infringing products into
territories where we have patent protection but enforcement is not as strong as in the United States. These products may compete with our product candidates and our patents and other intellectual property rights may not be effective or sufficient to
prevent them from competing in those jurisdictions. Moreover, farmers or others in the chain of commerce may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through
means that may be difficult to prevent or detect. For example, the practice by some farmers of saving seeds from non-hybrid crops (such as soybeans, canola and cotton) containing biotechnological traits may prevent us from realizing the full value of
our intellectual property in countries outside of the United States.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions, including China, where we have filed patent
applications. The legal systems of certain countries, including China, have not historically favored the enforcement of patents or other intellectual property rights, which could hinder us from preventing the infringement of our patents or other
intellectual property rights and result in substantial risks to us. Proceedings to enforce our patent rights in the United States or foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of
our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert patent infringement or other claims against us. We may not prevail
in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop or license from third parties.
If we or one of our collaborators are sued for infringing the intellectual property rights of a third party, such litigation could be costly and time consuming
and could prevent us or our collaborators from developing or commercializing our product candidates.
Our ability to generate significant revenues from our product candidates depends on our and our collaborators’ ability to develop, market and sell our product candidates and
utilize our proprietary technology without infringing the intellectual property and other rights of any third parties. In the United States and abroad there are numerous third party patents and patent applications that may be applied toward our
proprietary technology, business processes or product candidates, some of which may be construed as containing claims that cover the subject matter of our product candidates or intellectual property. Because of the rapid pace of technological change,
the confidentiality of patent applications in some jurisdictions, and the fact that patent applications can take many years to issue, there may be currently pending applications that are unknown to us that may later result in issued patents upon
which our product candidates or proprietary technologies infringe. Similarly, there may be issued patents relevant to our product candidates of which we are not aware. These patents could reduce the value of the product candidates we develop or, to
the extent they cover key technologies on which we have unknowingly relied, require that we seek to obtain licenses or cease using the technology, no matter how valuable to our business. We may not be able to obtain such a license on commercially
reasonable terms. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology industry generally. If any third party patent or patent application covers our intellectual property or
proprietary rights and we are not able to obtain a license to it, we and our collaborators may be prevented from commercializing products containing our discoveries.
As the biotechnology industry continues to develop, we may become party to, or threatened with, litigation or other adverse proceedings regarding intellectual property or
proprietary rights in our technology, processes or product candidates. Third parties may assert claims based on existing or future intellectual property rights and the outcome of any proceedings is subject to uncertainties that cannot be adequately
quantified in advance. Any litigation proceedings could be costly and time consuming and negative outcomes could result in liability for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a
patent. There is also no guarantee that we would be able to obtain a license under such infringed intellectual property on commercially reasonable terms or at all. A finding of infringement could prevent us or our collaborators from developing,
marketing or selling a product candidate or force us to cease some or all of our business operations. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel
may be diverted as a result of these proceedings, which could have a material adverse effect on us. Claims that we have misappropriated the confidential information or trade secrets of third parties could similarly have a negative impact on our
business.
We may be required to pay royalties to employees who develop inventions that have been or will be commercialized by us, even if the rights to such inventions
have been assigned to us and the employees have waived their rights to royalties or other additional compensation.
A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the
Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee
and employer giving the employee proprietary rights. The Patent Law also provides under Section 134 that if there is no agreement between an employer and an employee as to whether the employee is entitled to consideration for service inventions, and
to what extent and under which conditions, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine these issues. Section 135 of the Patent law provides criteria for assisting the
Committee in making its decisions. According to decisions of the Committee, an employee’s right to receive consideration for service inventions is a personal right and is entirely separate from the proprietary rights in such invention. Therefore,
this right must be explicitly waived by the employee. A decision handed down in May 2014 by the Committee clarifies that the right to receive consideration under Section 134 can be waived and that such waiver can be made orally, in writing or by
behavior like any other contract. The Committee will examine, on a case by case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet
determined one specific formula for calculating this remuneration, nor the criteria or circumstances under which an employee’s waiver of his right to remuneration will be disregarded. Similarly, it remains unclear whether waivers by employees in
their employment agreements of the alleged right to receive consideration for service inventions should be declared as void being a depriving provision in a standard contract. All of our employees execute invention assignment agreements upon
commencement of employment, in which they assign their rights to potential inventions and acknowledge that they will not be entitled to additional compensation or royalties from commercialization of inventions. Although our employees have agreed to
assign to us service invention rights and have specifically waived their right to receive any special remuneration for such service inventions beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for
assigned inventions.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing biotechnology patents
involves technological and legal complexity, and is costly, time consuming, and inherently uncertain. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in
certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to
the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that may weaken or undermine
our ability to obtain new patents or to enforce our existing patents and patents we might obtain in the future.
We and our collaborators may disagree over our right to receive payments under our collaboration agreements, potentially resulting in costly litigation and loss of reputation.
Our ability to generate royalty payments from our collaboration agreements depends on our ability to clearly delineate our intellectual property rights under those agreements. We
often license patented genes or other intellectual property to our collaborators, who use or will use such intellectual property to develop and commercialize products with our discoveries. However, a collaborator may use our intellectual property
without our permission, dispute our ownership of certain intellectual property rights or argue that our intellectual property does not cover their marketed product. If a dispute arises, it may result in costly litigation, and our collaborator may
refuse to pay us royalty payments while the dispute is ongoing. Furthermore, regardless of any resort to legal action, a dispute with a collaborator over intellectual property rights may damage our relationship with that collaborator, and may also
harm our reputation in the industry.
Our employment agreements with our employees and other agreements with our collaborators and third parties may not adequately prevent disclosure of trade
secrets, know-how and other proprietary information.
A substantial portion of our technologies and intellectual property is protected by trade secret laws. We rely on a combination of patent and other intellectual property laws as
well as our employment agreements with our employees and other agreements with our collaborators and third parties to protect and otherwise seek to control access to, and distribution of, our proprietary information. These measures may not prevent
disclosure, infringement or misappropriation of our confidential information. Our confidentiality, nondisclosure and assignment agreements or covenants may be breached, and we may not have adequate remedies for such a breach that would effectively
prevent the further dissemination of our confidential information. We have limited control over the protection of trade secrets used by our collaborators and could lose future trade secret protection if any unauthorized disclosure of such information
occurs. In addition, others may independently discover our trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Laws regarding trade secret rights in certain markets where we
operate may afford little or no protection of our trade secrets. Failure to obtain or maintain trade secret protection could adversely affect our business, sales and competitive position.
We may not be able to fully enforce covenants not to compete with our key employees, and therefore we may be unable to prevent our competitors from benefiting
from the expertise of such employees.
Our employment agreements with key employees, which include executive officers, contain non-compete provisions. These provisions prohibit our key employees, if they cease working for us, from
competing directly with us or working for our competitors for one year. Under applicable U.S. and Israeli laws, we may be unable to enforce these provisions. If we cannot enforce the non-compete provisions with our key employees, we may be unable
to prevent our competitors from benefiting from the expertise of such employees. Even if these provisions are enforceable, they may not adequately protect our interests. The defection of one or more of our employees to a competitor could materially
adversely affect our business, results of operations and ability to capitalize on our proprietary information.
Risks Relating to Our Incorporation and Location in Israel
Conditions in Israel could adversely affect our business.
We are incorporated under Israeli law and our principal offices and research and development facilities are located in Israel. Accordingly, political, economic and military
conditions in Israel directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. In recent years there has been an increase in unrest and terrorist
activity, and several times since 2005 (when Israel withdrew from the Gaza Strip) conflicts arose due to Hamas’ rocket attacks against Israeli civilian targets, during which Israel responded to rocket attacks by engaging in an armed conflict with
Hamas in the Gaza Strip. Our principal place of business is located in Rehovot, Israel, which is approximately 30 miles from the nearest point of the border with the Gaza Strip. There can be no assurance that attacks launched from the Gaza Strip will
not reach our facilities, or that hostilities will not otherwise cause a significant disruption to our operations, such as preventing our employees from reaching our facilities and limiting our ability to monitor and otherwise conduct the crop and
other experiments we conduct at the facilities.
Several countries, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli
companies if hostilities in Israel or political instability in the region continues or increases. These restrictions may limit materially our ability to sell our product candidates to companies in these countries. Any hostilities involving Israel or
the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could adversely affect our operations and research and development, cause our revenues
to decrease and adversely affect the share price of publicly traded companies having operations in Israel, such as ours. Further, the political and security situation in Israel may result in parties with whom we have agreements involving performance
in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. In addition, there have been increased efforts by activists to cause companies and consumers
to boycott Israeli goods for political reasons. Such actions, particularly if they become more widespread, may adversely impact our ability to conduct business.
Furthermore, our business insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli
government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure that this government coverage will be maintained. Any losses or damages incurred by us could have a material
adverse effect on our business and financial condition.
On Israel’s domestic front there is currently a level of unprecedented political instability. The Israeli government has been in a transitionary phase since December of 2018, when the Israeli
Parliament, or the Knesset, first resolved to dissolve itself and call for new general elections. In 2019, Israel held general elections twice – in April and September – and a third general election was held in March of 2020. The Knesset, for
reasons related to this extended political transition, has failed to pass a budget for the year 2020, and certain government ministries, which may be critical to the operation of our business, are without necessary resources and may not receive
sufficient funding moving forward. Given the uncertainty with respect to when the current political stalemate will be resolved, our ability to conduct our business effectively may be adversely affected.
Our operations may be disrupted by the obligations of personnel to perform military service.
Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for
reservists who are military officers or who hold certain military positions) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of
military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of our key employees and members of our management. Such disruption
could materially adversely affect our business, financial condition and results of operations.
Exchange rate fluctuations between the U.S. dollar and the NIS may negatively affect our financial results.
The Company’s reporting currency is U.S. dollars. In view that a substantial part of our expenses is in NIS, any appreciation of the NIS relative to the U.S. dollar would adversely impact our
financial results. If we enter into hedging contracts in the future, we may be unsuccessful in protecting against currency exchange rate fluctuations. See “Item 11. Quantitative and Qualitative Disclosure About Market Risk—Foreign Currency Risk.”
Interest rate fluctuations may devalue our investments and could have an adverse impact on our financial condition.
Included on our balance sheet are corporate bonds and government treasury notes denominated in New Israeli Shekels and in U.S. dollars having an aggregate value of approximately $2.1 million as of
December 31, 2019. These investments expose us to the risk of interest rate fluctuations. An increase in Israeli or in U.S. interest rates could cause the fair value of these investments to decrease. As of December 31, 2019, we did not have any
hedge arrangements in place to protect our exposure to interest rate fluctuations. See “Item 11. Quantitative and Qualitative Disclosure About Market Risk—Foreign Currency Risk.”
We have received Israeli government grants for certain of our research and development activities. The terms of these grants may require us to satisfy specified
conditions in order to manufacture products and transfer technologies supported by such grants outside of Israel. In addition, in some circumstances, we may be required to pay penalties in addition to repaying the grants.
Our research and development operations have been partly financed through certain governmental grants, which impose certain restrictions
on the transfer outside of Israel of the underlying know-how and the manufacturing or manufacturing rights of the underlying products and technologies. As of December 31, 2019, we had received from Israeli National Authority for Technological
Innovation, or the IIA, approximately $7.4 million (including accrued interest). We may not receive the required approvals should we wish to transfer the know-how, technology or manufacturing rights related to such government grants outside of Israel
in the future or, if we receive such required approvals, they may be subject to certain conditions and payment obligations. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Government Grants.”
It may be difficult to enforce a U.S. judgment against us, our officers and directors and the Israeli experts named in this annual report in Israel or the
United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors and these experts.
We are incorporated in Israel. The majority of our directors and executive officers reside outside the United States and the majority of our assets are located outside the United
States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or
Israeli court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted in Israel.
Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that
Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be
governed by Israeli law. There is little binding case law in Israel addressing the matters described above.
Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of
shareholders of U.S. corporations.
Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by Israeli law and by our articles of association. These rights and
responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its
rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an
amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to
refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of an
office holder in the company has a duty to act in fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Shareholder
Duties.” Since Israeli corporate law underwent extensive revisions approximately 18 years ago, the parameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to
impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.
Certain provisions of Israeli law and our articles of association could have the effect of delaying or preventing a change in control and may make it more difficult for a third
party to acquire us or for our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our
ordinary shares. For example, Israeli corporate law regulates mergers and requires that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject to certain conditions). Further,
Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. With respect to
mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which certain sales
and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual
disposition of the shares has occurred. See Exhibit 2.1 to this annual report.
Furthermore, under the Encouragement of Research, Development and Technological Innovation in the Industry Law, 5744-1984 (formerly known as the Law for the Encouragement of
Research and Development in Industry 5744-1984), and the regulations, guidelines, rules, procedures and benefit tracks thereunder, collectively, the Innovation Law, to which we are subject due to our receipt of grants from the IIA, a recipient of IIA
grants such as our company must report to the IIA regarding any change in the holding of any means of control of our company which transforms any non-Israeli citizen or resident into an “interested party”, as defined in the Israeli Securities Law
5728-1968, and that such non-Israeli citizen or resident shall execute an undertaking in favor of IIA, in a form prescribed by IIA.
Risks Related to Our Ordinary Shares and the Ownership and Trading of Our Ordinary Shares
The price of our ordinary shares may fluctuate significantly.
Our ordinary shares were first offered publicly in the United States after our public offering in the United States in November 2013, at a price of $14.75 per share, and our
ordinary shares have subsequently traded on the NYSE (until December 2016) and on the Nasdaq (since December 2016) as high as $19.80 per share and as low as $0.91 and as of April 23, 2020 were trading at $1.11 per share.
The market price of our ordinary shares could be highly volatile and may fluctuate substantially as a result of many factors, including:
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our inability to obtain additional funding
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any delay in filing a regulatory submission for any of our product or product candidates and any adverse development or perceived adverse development with respect to the review of that regulatory submission by the applicable regulatory
body
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actual or anticipated fluctuations in our results of operations;
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variance in our financial performance from the expectations of market analysts;
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announcements by us or our competitors of significant business developments, changes in relationships with our collaborators, acquisitions or expansion plans;
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our involvement in litigation;
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our sale, or the sale by our significant shareholders, of ordinary shares or other securities in the future;
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failure to publish research or the publishing of inaccurate or unfavorable research;
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market conditions in our industry and changes in estimates of the future size and growth rate of our markets;
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changes in key personnel;
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the trading volume of our ordinary shares; and
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general economic and market conditions, including as a result of the scope and duration of the COVID-19 pandemic.
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Although our ordinary shares are listed on Nasdaq, an active trading market on Nasdaq for our ordinary shares may not be sustained. If an active market for our ordinary shares is
not sustained, it may be difficult to sell ordinary shares in the U.S.
In addition, the stock markets have recently experienced extreme price and volume fluctuations, including as a result of the COVID-19 pandemic. Broad market and industry factors
may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been
instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted.
Any inability to meet the Nasdaq listing requirements may have an adverse effect on our share price and lead to our delisting from Nasdaq.
We are required to meet the continued listing requirements of Nasdaq, including those regarding minimum share price. In particular, we are required to maintain a minimum bid price
for our listed ordinary shares of $1.00 per share. If we do not meet Nasdaq’s continued listing requirements, Nasdaq could initiate delisting proceedings and our ordinary shares could be delisted.
If Nasdaq initiates delisting proceedings or delists our ordinary shares from trading on its exchange, we could face significant material adverse consequences including: reduced
liquidity with respect to our ordinary shares; limited amount of news and analyst coverage for our company; reputational damage; diminished investor, supplier and employee confidence; and decreased ability to issue additional securities or obtain
additional financing in the future.
Our ordinary shares are traded on more than one market and this may result in price variations.
Our ordinary shares have been traded on the TASE since 2007, and are currently listed on Nasdaq. Trading in our ordinary shares on these markets will take place in different
currencies (U.S. dollars on Nasdaq and NIS on the TASE), and at different times (resulting from different time zones, trading days and public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets
may differ due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could cause a decrease in the trading price of our ordinary shares on Nasdaq or vice versa.
We could become subject to parallel reporting obligations in Israel and the United States, which could increase compliance costs and divert management
attention.
On July 28, 2013, our shareholders approved our plan to transition solely to U.S. reporting standards under the rules and regulations of the SEC. However, should this change in the
future, we may become subject to parallel reporting obligations in Israel and the United States. While similar in many respects, certain differences between Israeli and U.S. reporting schemes may impose on us disclosure obligations that are more
stringent than those generally applied to foreign private issuers whose securities are listed only in the United States. In addition, a requirement to comply with the separate reporting obligations under U.S. and Israeli securities laws would require
additional management attention and could burden us with additional costs.
The requirements of being a public company in the United States and Israel may strain our resources and distract our management, which could make it difficult
to manage our business.
Changing laws, regulations and standards, in the United States or Israel, relating to corporate governance and public disclosure and other matters, may be implemented in the
future, which may increase our legal and financial compliance costs, make some activities more time consuming and divert management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new
laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Being a
publicly traded company in the United States and Israel and being subject to U.S. and Israeli rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or
incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive
officers.
As a public company whose ordinary shares are listed in the United States, we will continue to incur significant accounting, legal and other expenses, including costs associated
with our reporting requirements under the Exchange Act. We also incur additional costs associated with corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, rules implemented by the SEC and the Nasdaq, and provisions of Israeli corporate and securities laws applicable to public companies. The Exchange Act requires that we file annual and certain other reports with respect to our
business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. These rules and regulations could continue to increase
our legal and financial compliance costs, such as the cost of hiring consultants or testing compliance processes, and make some activities more time-consuming and costly. These activities may divert management’s attention from other business
concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If we fail to maintain effective internal control over financial reporting, the price of our ordinary shares may be adversely affected.
Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on
the price of our ordinary shares. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our
public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in
our internal control over financial reporting or other matters that may raise concerns for investors. In addition, as a “non-accelerated filer,” we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent
registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting. Decreased disclosures in our SEC filings due to our status as a “non-accelerated filer” may make it harder for
investors to analyze our results of operations and financial prospects and may make our ordinary shares a less attractive investment. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial
reporting or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our ordinary shares.
As a foreign private issuer we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports.
As a foreign private issuer, we are exempt from compliance with the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our
officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual and certain
other reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, we are permitted to disclose limited compensation information for our executive
officers on an individual basis and we are generally exempt from filing quarterly reports with the SEC under the Exchange Act. Moreover, we are not required to comply with Regulation FD, which restricts the selective disclosure of material nonpublic
information to, among others, broker-dealers and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information. These exemptions and
leniencies will reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relation to a U.S. domestic issuer.
As a foreign private issuer, we have elected to follow home country corporate governance practices instead of certain Nasdaq corporate governance requirements,
which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.
As a foreign private issuer whose shares are listed on the Nasdaq Global Market, we are permitted to follow certain home country corporate governance practices instead of those
otherwise required under the corporate governance standards for U.S. domestic issuers listed on Nasdaq. We currently follow Israeli home country practices, rather than the requirements under the Nasdaq corporate governance rules, with regard to the
(i) quorum requirement for shareholder meetings, (ii) executive sessions for independent directors and non-management directors and (iii) the requirements to obtain shareholder approval for certain dilutive events (such as for the establishment or
amendment of certain equity-based compensation plans, issuances that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain
acquisitions of the stock or assets of another company). See “Item 16G. Corporate Governance.” Furthermore, we may in the future elect to follow Israeli home country practices with regard to other matters such as the requirement to have a majority
independent board of directors, have a compensation committee and have a nominating committee. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq corporate governance rules. Following our home country
governance practices as opposed to the requirements that would otherwise apply to a United States company listed on Nasdaq may provide less protection than is accorded to investors of domestic issuers. For further discussion, see “Item 16G. Corporate
Governance.”
We may lose our status as a foreign private issuer, which would increase our compliance costs and could thereby negatively impact our results of operations.
We would lose our foreign private issuer status if (a) a majority of our outstanding voting securities were either directly or indirectly owned of record by residents of the United
States and (b)(i) a majority of our executive officers or directors were United States citizens or residents, (ii) more than 50 percent of our assets were located in the United States, or (iii) our business were administered principally outside the
United States. Our loss of foreign private issuer status would make U.S. regulatory provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a
foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We would also be
required to follow U.S. proxy disclosure requirements, including the requirement to disclose, under U.S. law, more detailed information about the compensation of our senior executive officers on an individual basis. We may also be required to modify
certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we would lose our ability to rely upon exemptions from certain
corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers, as described in the previous risk factor above.
If a United States person is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated
as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). If our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign
corporations (regardless of whether we are or are not treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro rata
share of “Subpart F income”, “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, whether or not we make any distributions. An individual that is a United States shareholder with respect to a
controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. A failure to comply with these reporting obligations may
subject you to significant monetary penalties and may prevent the statute of limitations with respect to your U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist
investors in determining whether any of our non-U.S. subsidiaries are treated as a controlled foreign corporation or whether such investor is treated as a United States shareholder with respect to any of such controlled foreign corporations or
furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult their own advisors regarding the potential application of
these rules to its investment in the ordinary shares.
We believe we were a passive foreign investment company, PFIC, for U.S. federal income tax purposes in
2019, and there is significant risk we will be a PFIC in 2020 as well. U.S. shareholders who held our ordinary shares at any time during a taxable year in which we are a PFIC may suffer adverse tax consequences.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be determined in part
by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for United States federal income tax
purposes. According to these rules, a publicly traded non-U.S. corporation may treat the aggregate fair market value of its assets as being equal to the sum of the aggregate value of its outstanding shares, or Market Capitalization, and the total
amount of its liabilities. We intend to take the position that the excess of our Market Capitalization plus liabilities over the book value of all of our assets may generally be treated as attributable to non-passive assets. Based on the book value
of our assets and liabilities and our Market Capitalization in 2019, we believe that we met the PFIC asset test described above for 2019 and, as a result, we were classified as a PFIC in 2019. Furthermore, because we currently hold, and expect to
continue to hold, a substantial amount of cash and cash equivalents and other passive assets used in our business, and because our Market Capitalization is currently below the level necessary to avoid PFIC status for 2020, there is substantial risk
we will be classified as a PFIC for the 2020 taxable year as well. However, because PFIC status is determined after the close of each taxable year, we will not be able to determine whether we will be a PFIC for the 2020 taxable year or for any future
taxable year until after the close of such year.
U.S. shareholders who held our ordinary shares at any time in 2019 or during any other taxable year in which we are a PFIC may suffer adverse tax consequences, including having
gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders (as defined in “Item
10. Additional Information—E. Taxation—United States Federal Income Taxation”), and having interest charges apply to distributions by us and the proceeds of share sales. Certain elections may be available that would alleviate some of the adverse
consequences of PFIC status and result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares; however, we do not intend to provide the information necessary for U.S. holders to make qualified electing fund elections.
See “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Considerations.”
ITEM 4. |
INFORMATION ON THE COMPANY
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A. History and Development of the Company
Our History
We are a leading biotechnology company aiming to revolutionize the development of novel products for life-science based industries, including human health, agriculture, and
industrial applications, by utilizing cutting edge computational biology technologies.
Our company was founded on October 10, 1999 as Agro Leads Ltd., a division of Compugen Ltd. In 2002, our company was spun-off as an independent corporation under the laws of the
State of Israel, and changed its name to Evogene Ltd. In 2018 and early 2019, we reorganized certain of our divisions into wholly-owned subsidiaries of the Company, as described elsewhere in this annual report. In addition, in April 2019 we
established a new subsidiary, Canonic Ltd., or Canonic, for developing next generation medical cannabis products.
Our shares have been listed for trading on the TASE since 2007, and were listed for trading on the NYSE commencing with our U.S. initial public offering in November 2013, until
December 2016, when we transferred the listing to Nasdaq.
We are registered with the Israeli Registrar of Companies in Jerusalem. Our registration number is 51-283872-3. Our purpose as set forth in our articles of association is to engage
in any lawful business. Our principal executive offices are located at 13 Gad Feinstein Street, Park Rehovot, Rehovot P.O.B 4173 Ness Ziona, 7414002, Israel, and our telephone number is +972-8-931-1900.
Our authorized representative in the United States and agent for service of process in the United States, Puglisi & Associates, is located at 850 Library Avenue, Suite 204,
Newark, Delaware 19711. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report and is not incorporated by reference herein.
The SEC maintains an internet site, http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC. Our internet address is www.evogene.com. Neither such internet addresses is a part of this annual report.
Principal Capital Expenditures
Our capital expenditures for fiscal years 2019, 2018 and 2017 amounted to $0.9 million, $0.4 million and $0.6 million, respectively. Our capital expenditures during those years
consisted of investments in property, plant and equipment. We anticipate our capital expenditures in fiscal year 2020 to include payments for maintenance and improvements of our facilities in Israel in order to support our activities, which we
anticipate we will finance with our currently available cash.
B. Business Overview
Overview
We are a leading biotechnology company aiming to revolutionize the development of novel products for life-science based industries, including human health, agriculture, and
industrial applications, by utilizing cutting edge computational biology technologies. To achieve this mission, we established our unique Computational Predictive Biology, or CPB, platform, leveraging the revolutions in big data and artificial
intelligence and incorporating a deep understanding of biology. Our CPB platform aims to disrupt conventional life-science product development methodology, currently challenged by inefficiencies, by computationally designing the most relevant core
components for life-science products such as microbes, small molecules and genes.
Business Model
To capture the value of the diverse applicability of our computational platform, our business model consists of two main pathways, both based primarily on the utilization of the
CPB Platform: (i) The establishment of market-focused subsidiaries to develop and commercialize product pipelines, meeting unmet needs in selected industries, and (ii) in certain other cases, engaging directly with strategic partners for the
development of specific products.
Each of the subsidiaries we established under the first pathway is an independently managed company, fully supported by the capabilities and corporate management of Evogene Ltd.
Evogene provides each of the subsidiaries with initial funding as well as a long-term exclusive right to use the CPB platform in order to develop products in a defined field of activity, and, at least initially certain corporate functions. Under this
pathway, Evogene expects its income to include: (i) ongoing license and research fees from its subsidiaries and (ii) income based on our equity holdings in its subsidiaries, namely dividends and revenues from sales of equity.
In addition, pursuant to the second pathway of the business model, Evogene intends to collaborate directly with strategic partners for the development of products, as we have done
over the past years in our ag-seeds activity. Under this pathway, Evogene expects its income to include: (i) on-going license and research fees from its partners and (ii) success-based payments, including milestone payments and revenue sharing.
Currently, we apply our technology and approach for the development of products based on microbes, small molecules and genes in three general industries:
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(i) |
Agriculture, focusing on the following target markets:
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Agriculture biologicals, via our subsidiary Lavie Bio Ltd. or Lavie Bio,
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b. |
Agro chemicals, via our subsidiary AgPlenus Ltd., or AgPlenus, and
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c. |
Seed traits, via our Ag-Seeds division;
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(ii) |
Human health, focusing on the following target markets:
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a. |
Human microbiome-based therapeutics, via our subsidiary Biomica Ltd., or Biomica, and
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b. |
Medical cannabis products, via our subsidiary Canonic Ltd., or Canonic; and
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(iii) |
Life-science based industrial applications, currently focusing on castor seed varieties and agro-technical capabilities, through our subsidiary Casterra Ag Ltd. (formerly Evofuel Ltd.), or Casterra.
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Each subsidiary pursues its individual mission, focusing on the following objectives: (i) advancing its product development and pipeline, (ii) establishing its “go-to-market”, and
(iii) securing additional financial resources, if and when required.
We continuously evaluate new substantial industries with well-recognized development road-blocks for which we can leverage our capabilities and assets for the development of
next-generation products. We select the most suitable markets to focus on, based on a number of criteria, including: (i) market size; (ii) a well-recognized, unmet need for next-generation products; (iii) an understanding of the scientific or
technical road-blocks that prevent others from developing next-generation products; and, most importantly; and (iv) the expectation that our CPB platform and unique approach provide a significant competitive advantage in addressing these roadblocks.
Except for initial seed sales under our Casterra activity, our activities are still in the development stages and no products have been commercialized based on our discoveries. Our
revenues consist primarily of research and development payments under our strategic collaborations in the field of seed traits and ag-chemical products. A breakdown of our revenues by business activity and geographic markets for each of the last
three financial years is provided in “Item 5. Operating and Financial Review and Prospects—Key Measures of Our Performance—Revenues.” In the future, we expect that we and our subsidiaries will receive, milestone payments and royalty revenues under
such collaborations, as well as revenues from the sale of end-products or commercialization of product candidates.
In 2020, through our subsidiaries, we expect to continue to develop our product pipelines and initiate new collaborations with an increased focus on strategic relationships for
joint product development. We also expect to continue to evolve our organization, and to continue to examine new areas in which additional value can be created in a relatively short time.
The precautionary measures undertaken by many governmental authorities worldwide, including in Israel and the U.S., in order to limit the spread of the ongoing Coronavirus
outbreak, and its negative impact on economies and financial markets worldwide, may affect the implementation of our business plan and objectives by: (i) disruption of ordinary course of operations for us, our collaborators and contractors, causing
operational delays, labor shortages, travel disruption and shutdowns, which could have an adverse effect on our development programs, (ii) adversely impacting our ability to maintain or extend our existing collaborations or enter into new
collaborations on favorable financial terms, (iii) negatively impacting on our ability to raise additional funds for our operations, if and when needed.
The following are major occurrences and developments in the Company during 2019 and until the date of this annual report, reflecting advancement in all areas of activity:
Evogene
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In February 2019 – we announced that Evogene’s Ag-Biologicals activities are being transferred to a new subsidiary – Lavie Bio Ltd., or Lavie Bio.
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In April 2019 – we announced that we will develop next generation medical cannabis products through a new subsidiary, Canonic Ltd.
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In August 2019 – Corteva AgriScience, or Corteva, invested in Lavie Bio. The investment included $10 million in equity funding and the contribution by Corteva to Lavie Bio of its shares in Taxon Biosciences, Inc., or Taxon Biosciences,
in exchange for shares in Lavie Bio. Taxon Biosciences is a company focused on microbiome discovery to develop biological crop products.
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Lavie Bio
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In July 2019 – Lavie Bio announced positive 2nd-year field results in its bio-stimulant program for wheat.
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In November 2019 – Lavie Bio announced advancement in the product development pipeline for wheat bio-stimulants.
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AgPlenus
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In March 2020 – AgPlenus announced entering a collaboration with Corteva for the development of novel herbicides.
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Ag-Seeds division
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In July 2019 – we amended our corn disease resistance research collaboration agreement with Bayer (previously with Monsanto) to include genome editing targets.
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Biomica
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In April 2019 – Biomica announced initiation of pre-clinical studies in its Immuno-Oncology Program.
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In October 2019 – Biomica announced advancement to pre-clinical studies in its Inflammatory Bowel Disease program.
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In October 2019 – Biomica announced a collaboration with the Weizmann Institute of Science to develop a selective treatment against antibiotic-resistant bacteria.
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In November 2019 – Biomica reported positive preliminary results in animal studies in its Immuno-Oncology program.
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In January 2020 – Biomica announced entering a new agreement with Biose Industrie for scale-up and GMP production of drug candidates BMC121 & BMC127 for its immuno-oncology program to support the preparation towards the anticipated
first in man proof of concept clinical trials.
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Canonic
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In November 2019 - Canonic announced initiation of cultivation and breeding of cannabis varieties with unique genomic profiles for the development of medical cannabis products.
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In January 2020 - Canonic announced an agreement with Hadassah Medical Center for pre-clinical studies to support the development of Canonic’s medical cannabis products.
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Casterra (formerly Evofuel)
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In May 2019 – our subsidiary Evofuel Ltd. was rebranded as Casterra Ltd. to better reflect its change in business focus from the alternative fuel industry to the market of castor oil for industrial uses.
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Approach, Science & Technology
Approach
The mission of the CPB platform is to revolutionize the product development approach in life science industries by decoding the biological world. This platform is a result of a
decade long, multidisciplinary effort to integrate scientific concepts with semi-structured big data and the most advanced computational analytics in order to develop predictions of potential products that later undergo experimental validation.
The CPB platform aims to disrupt conventional life-science product development methodology, currently challenged by inefficiencies, by computationally designing the most relevant
core components for life-science products such as microbes, small molecules and genes. The uniqueness of our computational design approach stems from our ability to successfully address multiple product attributes at the beginning of the discovery
process, rather than one at a time during the development phase. This is expected to reduce both time and cost, but more importantly, increase the probability of reaching a successful product launch.
These efforts have been enabled by two parallel revolutions: (i) the data revolution – allowing the creation of enormous amounts of biological and chemical data in a cost-effective
manner, and (ii) the computational processing revolution – allowing the integration and analysis of data with advanced algorithms such as machine learning and other artificial intelligence.
The CPB platform represents a revolutionary approach for the design and prediction of novel products, based on four pillars: first, computationally modeling the specific biological
challenges in the discovery and development of each product into pre-defined criteria, based on profound scientific understanding and know-how; second, designing genomic, chemical and microbial databases holding diverse types of curated data
specifically aimed at addressing the biological challenges identified; third, developing state of the art computational tailored analytics, including artificial intelligence algorithms, designed to provide more accurate predictions to those
challenges; and fourth, screening and validation systems comprised of multiple tailored bioassays.
This approach enables the CPB platform to first predict the most relevant candidates from our comprehensive databases to begin the candidate selection, validation and product
development process, and thereafter to guide the process. The ability to make and evaluate candidate selection and prioritization according to these pre-defined criteria upon the initiation of a program significantly increases the probability of
successful product development while decreasing time and cost.
This approach is broadly applicable to various life science industries. We continuously evaluate new substantial markets with well-recognized development roadblocks where we can
leverage our capabilities and assets for the development of next generation products.
Science and Know-how
The underlying driver of the CPB platform’s unique approach is deep scientific understanding of the life sciences combined with computer sciences and tailored experimental tools.
Our multidisciplinary scientific teams play a pivotal role in our unique product development approach.
As of December 31, 2019, our research and development activities involve 86 employees amounting to approximately 67% of our total full-time workforce, of which 49 are employed at
Evogene and 37 are employed via our subsidiaries. Our staff possesses multidisciplinary and wide-ranging expertise, with employees specializing in biology, chemistry, plant genetics, agronomics, mathematics, computer science and other related fields.
38 of our employees hold a Ph.D.
Furthermore, we have a Scientific Advisory Board composed of representatives from the Faculty of Agriculture of The Hebrew University in Jerusalem, the Weizmann Institute of
Science in Rehovot and other global academic institutions, as well as experienced scientists from the industry.
Computational Technologies
Our computational technologies, utilized for data integration and analysis, are comprised of two main proprietary components: (i) our databases generated via data integration
capabilities; and (ii) our computational analysis platforms, utilized to mine these databases within our ongoing activities.
Proprietary Databases
To date, Evogene’s databases leverage multiple sources and types of tailored “big data” in order to support the different research and development activities across the company.
Specifically, we focus on four different entities: microbial organisms, microbial genes, small molecules and plant genes. Our information databases on these different entities are rich and highly interconnected, enabling our analysis platforms to
maximize their predictive power.
Our databases draw in part from the public domain (primarily from academic institutions and research publications), and in part compile increasing amounts of proprietary data,
generated either in-house or received from our collaborators.
Our current database framework consists of the following:
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Plant and microbial gene databases – These databases are focused on the gene entity, linking available data relevant to a gene in a single assembled database.
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Our plant gene databases cover over 16 million genes from more than 200 plant species, and account for various data types, including phenotypic data (i.e., data related to a plant’s observable
characteristics, morphology, development and physiological properties) and genotypic data (i.e., data from the molecular level, derived from DNA, RNA or other sources).
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Our microbial gene database incorporates more than 250 million microbial genes. In our pursuit to expand our databases to include novel genetic material, we established a pipeline for assembling gene models from samples containing
bacterial populations, or metagenomics. Utilizing this approach, we have unveiled millions of genes, some of which have never been observed before, as well as a multitude of bacteria never previously cultured.
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Microbial strain database (microbial organisms) – This database comprises data on microbial strains isolated from plant and human sources. It includes several tens of thousands of microbial
strains that are key to plant and human life cycles.
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Chemical database (small molecules) – This database is structured as molecule-centric, covering broad chemical collections and derived from publicly available sources of synthetic and natural
chemistry. This database currently comprises over 400 million chemicals, integrating multiple layers of data describing the chemicals' properties.
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Computational Analysis Platforms
We have developed advanced proprietary computational analysis platforms, comprised of novel algorithms and methodologies designed to handle immense amounts of data. Our
computational analysis platforms are designed to deliver innovative solutions to key bottlenecks in the product development process. In recent years, we have increasingly focused on artificial intelligence, machine learning driven approaches to
provide effective predictions for key questions. As our predictions undergo validation via dedicated validation systems, this allows us to continuously improve our predictions by feeding back these results into our systems.
Currently, we operate and develop the following computational analysis platforms, for the prediction of genetic elements (ATHLETE, GEDAI, BiomeMiner and PointTar), small molecules
(PointHit and PointLead) and microbes (MicrobeMiner and PRISM):
Genetic elements:
ATHLETE
The ATHLETE computational analysis platform that is our central computational analysis platform for plant gene identification is comprised of unique algorithmic tools and novel
data-mining concepts that allow generation of rapid and reliable lists of genes relevant to a target trait.
GEDAI
GEDAI is our central computational analysis platform for plant gene editing. It is comprised of deep learning-based analysis (artificial intelligence) and a novel approach that
allows predicting the desired editing in regulatory elements to be implemented in order to achieve a desired pattern of expression.
BiomeMiner
BiomeMiner is a computational analysis platform for identifying microbial insecticidal toxins, i.e. microbial genes that can be
specifically toxic to insects that lead to substantial crop damage. This unique computational technology platform consists of a newly developed vast proprietary microbial-based gene centric database, the underlying data assembly pipelines, as well as
a dedicated analysis platform, BiomeMiner. The BiomeMiner platform utilizes advanced machine learning methods in order to identify toxins with novel modes of action in order to overcome the rising resistance to current products’ modes of action.
PoinTar
PoinTar specializes in the identification of plant targets (proteins) for development of ag-chemicals such as herbicides, and examines data aimed to indicate the potential impact
that a target, when inhibited, would have on a weed. Both our gene-centric database and its integrated chemical-centric database are mined by PoinTar to achieve this goal. PoinTar addresses the structural characteristics of a target in order to
predict the target’s likelihood of binding to a small chemical molecule for use as a herbicide.
Small molecules:
PointHit
PointHit, is a computational analysis platform for identifying chemical molecules that are predicted to be potential inhibiting chemicals. This analysis platform leverages
biological rationale, discovering chemical molecules by optimizing among three key considerations: (i) predicted binding to molecular targets, (ii) compliance with product desired attributes such as low cost of production, low toxicity and others,
and (iii) mainly for ag-applications – potential for activity, namely probability to be absorbed by the plant and transported within the plant to reach a specific molecular target within it. Overall, relying on “big data” computational approaches,
the PointHit platform is capable of prioritizing tens of millions of chemicals to a selected library of candidate hits.
PointLead
PointLead is a computational platform that supports the Hit-to-Lead phase in the development of ag-chemical products, as described under “—Fields of
Activity—Agriculture—AgPlenus—Product—Development Programs—Product Development Cycle.” The platform includes computational tools addressing various challenges common to the drug and herbicide development processes, such as toxicity, efficacy,
metabolic stability, resistance and others. In addition, PointLead includes a computational molecule generator that suggests compounds for synthesis based on an initial hit, thus assisting the chemist to think “outside the box”. This tool is combined
with machine-learning models for focusing on the most relevant molecules as well as a proprietary tool for innovative analog search within Evogene’s database of synthetically feasible small molecules.
Microbes:
MicrobeMiner
MicrobeMiner is a computational platform addressing key challenges in the discovery and development of microbial products. The core of the analysis platform relies on the ability
to identify the genetic functions within the microbe responsible for important aspects of product development including, efficacy, stability of effect across conditions and shelf life. This platform leverages the vast digital catalog of microbial
functions within our microbial gene database along with our proprietary plant-microbe phenotypic data in our microbial strain database.
PRISM
PRISM (Predictive high-Resolution Integrative Selection of Microbes) is a computational analysis platform that combines a high-resolution profiling of the microbiome, based on
accurate strain-level taxonomy and comprehensive functional analyses, and the efficient correlation of the microbiome to host physiological and genomic profiles.
Screening and validation systems
Our screening and validation systems support two key aspects of our unique research and development approach: (i) generating data sets to enable development of tailored
computational modules and their prediction performance evaluation; and (ii) screening, validating and characterizing selected product candidates by the division’s/subsidiary’s scientific teams.
Our experimental technologies include bioassays as well as screening and validation pipelines (set of bioassays organized in a cascade of tests). They relate to diverse scientific
fields including plant tissue culture, plant pathology greenhouse and field activities, molecular biology, microbiology, organic chemistry and insect biology.
Market Segments
Agriculture
Ag-Business Market
Background
The global population is projected to reach 10 billion inhabitants by 2050, which is expected to lead to a necessary 50% expansion in food, feed and biofuel production1.
Moreover, changing diets in BRIC countries (Brazil, Russia, India and China) to more protein and dairy heavy diets, are leading to a rising need for grain for animal feed. On the supply side, 17% of harvest is lost to climate change, while 12 million
hectares of agricultural land is lost, annually. This results in the need to increase in food production by increasing yields and cropping intensity as there is limited arable land left to expand planting.2
In light of historical and current needs to improve crop productivity, technological inventions have been incorporated into agriculture since the dawn of humanity. The most
advanced and recent technological tool available is biotechnology, which aims to enhance crop performance and productivity. During the last decade, the biological world has witnessed a dramatic increase in the availability of data, which is used to
drive agricultural product innovation. This increase in the availability of biological and chemical data has primarily been a result of the introduction of new technologies that facilitate the rapid generation of quality data at a significantly lower
cost. As a result, the key opportunity, and challenge, for enhancing crop productivity has shifted from the generation of quality data to data integration and the analysis of large volumes of data.
Lavie Bio Ltd.
Overview
In 2015, we initiated our activity for developing ag-biological products as a division within Evogene and early in 2019 it was organized under Lavie-Bio Ltd., a separate company
that is wholly owned by Evogene. Lavie Bio aims to improve food quality, sustainability and agricultural productivity through the introduction of microbiome-based ag-biologicals. Ag-biologicals are externally-applied products from biological sources,
such as microbial (micro-organisms) and naturally derived biochemistries, designed to improve crop productivity. A sub-segment within the microbial biologicals is the “microbiome”, the microbial population living close or within the plant or other
organisms, such as pests, which is a promising source for novel ag-biologicals.
Lavie Bio is focused on developing two main types of products: (i) bio-stimulants, which are ag-biologicals for crop enhancement, directly impacting crop yield or abiotic stress
tolerance and (ii) bio-pesticides, which are ag-biologicals for crop protection, addressing biotic stresses such as insects, diseases and weeds.
Investment by Corteva
In August 2019, we announced that Corteva Agriscience had invested in Lavie Bio. The transaction included the exchange of all shares of Corteva’s wholly owned subsidiary Taxon
Biosciences along with a US$10 million equity investment by Corteva in Lavie Bio in consideration of approximately 28% of Lavie Bio’s equity. The assets of Taxon Biosciences include, among others, a large microbial collection and product candidate
pipeline, which are integrated into Lavie Bio’s pipeline.
Corteva and Lavie prioritized certain product programs to be executed by Lavie Bio, and Lavie Bio committed to allocate a certain part of its research and development budget to
these programs. In addition, Corteva’s investment in Lavie Bio was accompanied by the provision to Corteva of certain rights to obtain in the future commercial licenses to Lavie Bio’s candidate products, mainly in corn and soy.
1 Source: FAO 2017, The Future of Food and Agriculture
2 Source: Piper Jaffray, Industry Note August 27, 2013, Agriculture
Market
The market for ag-biological products was estimated at $7.0 billion in 20193 and is a growing segment in the approximately $250 billion agricultural input market which
includes the seed, crop protection and fertilizers segments. The sales of ag-biological products significantly grew in past years, expanding from a market size of $3.2 billion in 2015 to its current size following a shift in growers and consumer
preferences to more sustainable and healthier practices, while driving agriculture productivity. According to market estimates, this market is forecasted to reach sales of $13.4 billion in 20243, anticipated to be driven by improvement of
the product attributes of ag-biologicals, such as efficacy, stability and commercial viability.
Companies in this market can be generally divided into three groups: (i) major seed and ag-chemical companies, such as BASF, Bayer, ChemChina and Corteva others, with internal
research and development units dedicated to development of ag-biological products, (ii) small to mid-size biotech companies specializing in ag-biologicals with their own product development programs, and (iii) academic and agricultural research
institutions that pursue research activities in the field, typically focusing on early stage activities.
Business Model
Lavie Bio has defined two main models for market access, upon commercialization:
|
(i) |
Direct market access – in fragmented markets we expect to complete product development independently and then establish a tailored market access strategy per specific product and territory (such as certain fruits and vegetables), and
|
|
(ii) |
Indirect market access – in markets in which Lavie Bio identifies strategic partners that can drive its go-to-market, it will aim to gain market access through collaborations with such partners, either through co-development or through
royalty-bearing commercialization agreements.
|
To date, Lavie Bio has not commenced commercialization and has not yet generated any revenues. In the longer term, as its product candidates advance through development and to the
extent that they are commercialized, Lavie Bio expects revenues from direct sales as well as milestone payments and royalty payments from products developed and commercialized indirectly through partners. Lavie Bio expects its first product launch,
of a spring wheat bio-stimulant product, by 2022.
Product Development Programs
Scientific Approach
Lavie Bio's approach is focused on 'Biology Driven Design' for the discovery, optimization and development of effective, stable and
cost-effective microbial-based ag-biologicals. Lavie Bio’s approach is based on converging the plant, microbial and environmental factors to decode their complex interactions in order to enable the amplification of the positive, elimination of the
negative and retrieval of lost interactions within the biological system.
Lavie Bio’s technological platform includes end-to-end capabilities for product discovery, optimization and development. This approach harnesses the power of genomics, employing a
combination of computational and biological assets including a broadly diverse microbial collection, a proprietary validation platform and formulation and fermentation technologies. The computational aspects of Lavie Bio’s platform are empowered by
Evogene’s CPB platform and by the Taxon Biosciences technology platform, acquired in August 2019, as part of the Corteva investment in Lavie Bio.
Product Development Cycle
We estimate that developing an ag-biological product based on microbial sources takes, on average, between six to eight years. The length of the process may vary depending on
several factors, such as product type, target market and applicable regulatory or registration regime, type of application, type of natural source serving as active ingredient, as well as number of active ingredients within the final products, which
impacts the development activities required to reach a commercially viable product.
3 According to industry publications.
The development process for microbial-based ag-biologicals is divided into four steps, or phases, which generally include discovery, pre-development, development, pre-commercialization, and ending with registration approval and commercial launch. As this is a
relatively young industry, the process is not yet well established and standardized and the below outline was structured based on our experience and estimations.
|
◾ |
Discovery: The identification of a candidate microbial strain, or microbial strain teams, having the potential to improve the target trait. A collection of selected microbial
candidates is typically tested on the crop(s) of choice in greenhouse screens or limited field experiments for various efficacy, stability and commercial viability criteria. Candidates that meet the testing criteria are referred to as
“Hits”. Discovery phase typically lasts approximately 12-18 months.
|
|
◾ |
Pre-development: Promising Hits are advanced to pre-development phase, in order to further assess and optimize performance criteria such as shelf life, efficacy and stability.
Successfully performing microbial candidates are referred to as “Advanced Hits”. This stage typically lasts approximately 12-18 months.
|
|
◾ |
Development: This phase is usually divided into Development Stage 1, resulting with a “Lead”, and Development Stage 2, resulting with a “Pre-Product”. In this phase, the
fermentation and formulation procedures are further optimized to allow for further testing and validation of efficacy and stability in the field as well as for commercial scale production, addressing cost of good targets and compatibility
with other agricultural inputs. Based on industry benchmarks and our estimates, this stage typically lasts approximately 24 months.
|
|
◾ |
Pre-commercialization: In this phase, extensive field tests are undertaken to demonstrate the effectiveness of product candidates in enhancing the target trait, including
production of data to support product positioning. Additional activities towards launch are performed, including packaging development, upscale manufacturing protocol, registration and regulation. Based on industry benchmarks and our
estimates, in the U.S. we expect this stage to last approximately 24 months for bio-stimulants and 36-48 months for bio-pesticides due to longer regulation processes.
|
Product Development Pipeline
The following table sets forth Lavie Bio’s main product development programs:
Program
|
|
Ag-biological product
|
|
Crop/Target
|
|
Development phase (1)
|
1
|
|
Bio-stimulants – Yield & abiotic stress tolerance (2)
|
|
Corn
|
|
Pre-Development
|
2
|
|
Bio-stimulants – Yield & abiotic stress tolerance
|
|
Wheat
|
|
Development stage 2
|
3
|
|
Bio-pesticides – Seedling disease resistance
|
|
Row crops, seed treatment
|
|
Pre-development
|
4
|
|
Bio-pesticides – Mildew and fruit rots resistance
|
|
Row and specialty Crop, foliar application
|
|
Development stage 1
|
5
|
|
Bio insecticides – Western corn rootworm
|
|
Corn, soil and foliar
|
|
Pre-development
|
(1) Please see “—Product Development Cycle” for a description of the product development cycle of ag-biological products.
(2) Part of our bio-stimulants program for yield and abiotic stress tolerance in Corn is conducted in collaboration with Corteva (originally with ‘DuPont-Pioneer’), pursuant to a multiyear
collaboration initiated in 2017. For more information on such collaboration, see “—Key Collaborations—Corteva.”
In respect to its Bio-stimulants for Wheat program, in November 2019, Lavie Bio announced that it had advanced its leading product candidate LAV211 into development stage 2, having
exhibited consistent positive results across commercial varieties in target locations, with advanced product formulation for extended shelf life. Overall, the fields treated with LAV211 showed significant yield improvement compared with controls and
industry benchmarks with a ‘win rate’ in over 75% of the locations.
Key Collaboration
Corteva (originally with DuPont-Pioneer)
In July 2017, Evogene entered into a multiyear collaboration with DuPont Pioneer (now Corteva, following the merger of Dow Chemicals and DuPont in September 2017 and the
establishment of Corteva as the agriculture division of the merged DowDuPont entity), for the research and development of novel microbial bio-stimulant seed treatments for the improvement of corn productivity globally. Under the agreement, Lavie Bio
is entitled to milestone payments for advancement of candidate strains, and royalties from products sales. This collaboration helped in establishing the relationship with Corteva, which matured into Corteva’s investment in Lavie Bio.
Intellectual Property
Lavie Bio files for patents to cover the use of microbial strains, or strain teams, that are the core active ingredients of the products we develop. Other innovative and
proprietary technologies that we develop (such as computational predictive and design technologies), are typically protected as ‘trade secrets’.
Raw Materials
We do not significantly rely upon any sources of raw materials for our operations.
Seasonality
As field trials are highly dependent on crop seasonality and the time windows for conducting such trials are rigid, Lavie Bio's research and development activities are dependent
on crop seasonality. Although Lavie Bio currently does not have any commercialized products, our expectation is that in the future, sales cycles of the products Lavie Bio develops will be dependent on crop seasonality.
Government Regulation of our Operations and of Product Candidates
In general, the regulatory landscape in the evolving field of ag-biological products is still developing. As a result, it may face additional changes in the next few years.
Complexity of regulatory processes varies between bio-stimulants and bio-pesticides and between regulatory organizations.
In the U.S., the key focus market for the ag-biological products Lavie Bio is currently developing, the Animal and Plant Health Inspection Service within the Department of
Agriculture, or USDA APHIS, is responsible for importation and field release permits for ag-biological products, and the U.S. Environmental Protection Agency, or EPA, is in charge of the registration of plant protection products. Most U.S. states
also require certain registration processes for such products, which vary among states. Both U.S. and European regulators are in the process of establishing a more defined regulation process for bio-stimulants. Under current EPA guidance,
bio-stimulants are regarded as plant inoculants, which currently does not require any regulatory action at the federal level, but requires registration at the state level. Bio-pesticides require registration at both federal and the state level.
In the European Union, bio-stimulants are currently regulated as fertilizers, and bio-pesticides are regulated and registered as plant protection products.
AgPlenus Ltd.
Overview
In 2015, we initiated our activity for developing ag-chemical products as a division within Evogene and in 2018, we announced that it had been organized under AgPlenus Ltd., a
separate company, wholly owned by Evogene. AgPlenus aims to design effective and sustainable crop protection products (crop protection refers to the science and practice of managing risks of weed, plant diseases, and insects that damage agricultural
crops and forestry) by leveraging predictive biology. AgPlenus’ activities focus on herbicides, with a strong focus on novel modes-of-action, or MoAs, and on insecticides, focusing on new sites-of-action, or SoAs. AgPlenus is also active in
fungicides and crop enhancers.
Market
According to industry publications, the ag-chemicals market was estimated at approximately $57.5 billion in 2018, out of which approximately 42%, 28% and 27% were attributable to
herbicides, insecticides and fungicides, respectively, and is expected to grow to over $70 billion by 2022. Lack of available solutions for pest control and increasing resistance to existing crop protection solutions lead to a pressing need for novel
crop protection products. However, due to current technological limitations and increasing regulatory requirements, the development of crop protection products is lengthy, complicated and expensive.
Competition
The ag-chemical market, as described above, can be classified into four key groups of companies: (i) leading innovative players – multi-billion dollar companies (such as Bayer,
Syngenta and Corteva) that invest substantial resources in the discovery and development of novel molecules for crop protection, (ii) small innovative players – companies with revenues in the range of tens to hundreds of millions of dollars,
developing innovative molecules. These are mainly Japanese companies which are mostly focused on the Japanese market. Such players are investing resources in the development of novel crop protection molecules, (iii) small to mid-size biotech
companies – companies that undertake new approaches to research and development of novel molecules for crop protection, and (iv) Academic and agricultural research institutions that grant licenses to third parties to use their ag-chemical
discoveries.
Business Model
AgPlenus’ business model is based on three commercialization avenues: (i) reach high-value, revenue-sharing deals based on its internal product development pipeline, (ii) sales of
product candidates that have reached the 'Pre-Development' stage (described below under —Product Development Cycle); and (iii) in parallel, early stage collaborations providing a tailored product offering
per partner and market.
High value revenue sharing deals – based on AgPlenus’ internal pipeline of novel MoA herbicides and new SoA insecticides.
Sale of Product candidates that have reached the ‘Pre-Development’ stage – when product candidates advance to what is referred to in the
industry as a ‘Lead’ or ‘Optimized Lead’, these product candidates gain significant commercialization value.
Early collaborations – AgPlenus aims to enter such collaborations in order to build long-term relationships in the industry and to mitigate
the risk associated with building an independent pipeline.
Currently, AgPlenus’ revenues are derived from research and development payments under early collaborations. In the longer term we expect that: (i) as AgPlenus’ product candidates
advance through development in our partner’s pipelines, and to the extent that they are commercialized by its collaboration partners, revenues will include milestone payments and royalty payments, or to the extent that they are sold, revenues may
include significant one-time payments; and (ii) as its internal pipeline product candidates further advance, AgPlenus will be able to reach higher value revenue-sharing deals.
Product Development Programs
Scientific Approach
AgPlenus' approach is based on the disruption of the traditional methods of ag-chemical discovery and optimization by implementing a target-based approach for identifying and
developing novel herbicides and insecticides with new MoAs or SoAs to address the growing resistance of weeds and insects to existing products. AgPlenus utilizes Evogene’s CPB platform’s capabilities, namely the expertise in plant and insect
genomics, as well as advanced technologies and know-how, to drive chemical discovery with the target of ultimately developing new herbicides and insecticides that display new MoAs or SoAs.
AgPlenus' approach begins with the computational identification of protein ‘targets’, which are proteins that are essential to the function of performance of the relevant weed or
insect. Following the identification and validation of such targets, we identify candidate Hits, which are chemical compounds that potentially inhibit these targets. We screen candidate hits to identify those displaying effect on weeds or insects of
focus. Hits displaying confirmed activity in the initial validation screens enter the Hit-to-Lead process, which includes computational optimization and additional, more advanced, validation experiments. In addition, these capabilities are also used
independently of each other to discover new Hits for known targets, optimize an existing Hit-to-Lead and optimize a commercial molecule.
Product Development Cycle
The product development cycle for the development of ag-chemical products is generally comprised of several stages, described as follows:
Discovery stage
|
◾ |
Identification of Targets – Identification and validation of vital targets or proteins that when inhibited (for instance by a chemical), lead to plant or insect death.
|
|
◾ |
Identification of Hits – Screening of chemical compounds for the identification of candidate Hits that potentially inhibit identified vital targets and are capable of achieving the desired impact on the plants or insects of interest.
The development process includes in-silico as well as biological screening and validation activities.
|
|
◾ |
Hit-to-Lead process – Hits displaying confirmed activity in the initial validation screens will enter the Hit-to-Lead process, including several optimization cycles, each constructed of compound design (in our case focusing on
computational optimization), synthesis of compounds and validation experiments. This stage ends with a Lead compound.
|
|
◾ |
Lead – A lead is a validated hit that has confirmed activity in advanced validation screens proving commercial level efficacy.
|
Pre-development stage
|
◾ |
In this stage different types of regulatory experiments are conducted, and the chemistry may be further modified to address specific challenges. This stage ends with an Optimized Lead compound.
|
Development, Regulation & Registration
|
◾ |
In the final development phases, new chemical products are registered with the proper regulatory authorities and then launched for commercialization. According to publications of key industry players, such development processes are
likely to last 5-8 years. We expect that these last stages of development will be conducted by our current and future collaboration partners or by our customers.
|
Product Development Pipeline
|
(i) |
internal product development pipeline
|
Program
|
|
Product
|
|
Target Organism / Crop
|
|
Stage
|
1
|
|
Non-selective & selective herbicides (novel MoAs)
|
|
Key crops
|
|
Discovery – Hit-to-Lead process
|
2
|
|
Broad spectrum insecticides (novel SoAs/MoAs)
|
|
Lepidoptera, Coleoptera and Hemiptera
|
|
Discovery– Identification of Hits
|
|
(ii) |
Product development under collaborations:
|
Program
|
|
Product
|
|
Target Organism / Crop
|
|
Collaborator
|
|
Stage
|
1
|
|
Non-selective & selective herbicides
|
|
Key crops
|
|
BASF
|
|
Undisclosed
|
2
|
|
Non-selective & selective herbicides
|
|
Key crops
|
|
Corteva
|
|
Undisclosed
|
3
|
|
Broad spectrum insecticides
|
|
Lepidoptera, Coleoptera and Hemiptera
|
|
BASF
|
|
Undisclosed
|
4
|
|
Crop enhancers
|
|
Key crops
|
|
ICL
|
|
Undisclosed
|
Key Collaborations
BASF SE (BASF) – Herbicides
Overview
In December 2015, Evogene entered into a multi-year collaboration with BASF for the discovery and development of novel herbicides. Under the terms of the collaboration agreement,
we utilize our biology-driven computational discovery approach to identify potential candidate chemicals for novel herbicides while BASF uses its proprietary advanced plant platform to screen the candidate chemicals in order to experimentally
validate their biological effects on weeds. Successful candidates from this collaboration will be further developed by BASF. Following the establishment of AgPlenus, the collaboration was assigned from Evogene to AgPlenus.
License & Consideration
Pursuant to the agreement, BASF obtains a worldwide, royalty-bearing, exclusive license to use and modify chemical compounds that we identify under the collaboration to develop and
commercialize weed control products containing such compounds. Under the terms of the agreement, AgPlenus is entitled to milestone payments upon achievement of certain development milestones as well as royalty payments from sales of products
developed under the collaboration.
BASF SE (BASF) – Insecticides
Overview
In May 2018, Evogene announced that we entered into a two-year collaboration with BASF for the development of novel insecticides based on new binding areas (SoAs). Following the
establishment of AgPlenus, the collaboration was assigned from Evogene to AgPlenus. Under the terms of the agreement, in the initial phase of the collaboration, we utilized our biology-driven computational methods to identify potential novel
compounds that act on new proteins binding sites. Compounds we discover enter BASF’s proprietary insecticides discovery platform for efficacy screening and testing and to validate the chemistry’s ability to modulate the respective target proteins.
License & Consideration
Pursuant to the agreement, BASF obtains a worldwide, royalty-bearing, exclusive license to use and modify chemical compounds that we identify under the collaboration to develop and
commercialize weed control products containing such compounds. Under the terms of the agreement, we are entitled to milestone payments upon achievement of certain development milestones. Commercial arrangements concerning further development and
commercialization are subject to further agreement between the parties.
Corteva – Herbicides
Overview
In March 2020, AgPlenus entered into a multi-year collaboration with Corteva for the discovery and development of novel herbicides. Under the terms of the collaboration agreement,
AgPlenus and Corteva will work together to optimize herbicide product candidates originating from AgPlenus’ pipeline. Successful candidates from this collaboration are expected to be further developed by Corteva.
License & Consideration
Pursuant to the agreement, Corteva obtained a worldwide, royalty-bearing, exclusive license to use and modify chemical compounds identified under the collaboration to develop and
commercialize weed control products containing such compounds. Under the terms of the agreement, AgPlenus is entitled to research and development payments, milestone payments upon achievement of certain development milestones as well as royalty
payments from sales of products developed under the collaboration.
Intellectual Property
AgPlenus expects to file patent applications with respect to its discoveries, either alone or together with its collaborators, in later stages of maturity of its product
candidates. AgPlenus’ ongoing operations take into consideration various aspects of such future filings, and our filing policy follows industry standards with respect to the preferred timing for filing.
Government Regulation of our Operations
AgPlenus' activities are performed at labs in Israel and are regulated by the provisions of several Israeli governmental agencies. Violation of these regulations may expose us to
criminal or civil actions and may impose liability on us.
Government Regulation of Product Candidates
Regulatory approvals are required prior to the commercialization and importation of ag-chemical products in most countries. Most of the key target markets where AgPlenus
anticipates its collaborators to sell products containing its compounds, including the U.S., the European Union, Brazil and Argentina, will require such regulatory approvals prior to the commercialization of such products. Pursuant to AgPlenus’
collaboration agreements, its collaborators are responsible for product regulation.
Among other regulatory requirements, our collaborators may need to test new active ingredients for assessment of potential effects on mammals. These include tests on acute
toxicity, carcinogenicity, mutagenicity and reproduction. The results of these tests may impact the chemistry and formulation development stages.
In order to sell a crop protection ag-chemical product in most countries, both the product and its active ingredient first need to be registered. This process may require the
submission of over 100 toxicology and ecotoxicology studies, as well as detailed information on the chemistry of the active ingredient and the product. In the United States, collaborators may need to seek regulatory approval from the EPA, which
regulates the marketing and use of new plant pesticides and herbicides. In addition, in Brazil, the commercialization of ag-chemical products is regulated by Anvisa, the federal agency in charge of evaluating pesticide health risks. The approval
process involves data collection and analysis, environmental impact assessments and public hearings on certain products, and is similarly costly and time-intensive.
Raw Materials
AgPlenus does not significantly rely upon any sources of raw materials for its operations.
Seasonality
At this stage of development, AgPlenus’ business in general, and revenues in particular, are not subject to variations based on seasonality. In more advanced stages of product
development its activities are expected to include field trials, which are highly dependent on crop seasonality. Although AgPlenus currently does not have any commercialized products, its expectation is that, in the future, sales cycle of the
products it develops will be dependent on crop seasonality.
Ag-Seeds Division
Overview
Initiated in 2004, our seed traits activity is focused on the development of products improving seed traits that have a direct impact on crop productivity through the use of GM
(genetically modified) and non-GM approaches. We mainly target key commercial crops such as corn, soy, wheat, rice and cotton.
The activities of this division are divided into three categories: (i) yield & abiotic stress tolerance – increase crop performance and productivity by enhancing yield,
tolerance to abiotic stresses such as drought, heat and salinity and fertilizer use efficiency; (ii) disease resistance – increase crop resistance to diseases such as fungi and nematodes; and (iii) insect control – increase crop tolerance to pests.
In general, we utilize several biotechnology approaches with the goal of improving seed traits, including: (i) genetic modification of plants, which involves the direct
manipulation of a plant’s genome by inserting a gene into the plant’s DNA, (ii) genome editing technologies, enabling deletion or modification of specific genomic regions in the crop's genome without inserting foreign DNA to the plant, and (iii)
advanced breeding methods, whereby plants with favorable characteristics are selectively crossed through genomic-guided breeding schemes.
Market
According to industry publications, in 2015 the seeds market size was estimated at approximately $37 billion, out of which approximately 53% was attributed to GM seeds4.
The market potential for traits addressing plant insects and diseases was estimated to be between $7.5 billion to $8.5 billion, out of which the commercial value of insect control products was approximately $4.5 billion.5 We estimate that the potential value of improving non-existent commercial seed traits such as yield, drought or fertilizer utilization in the major crops of corn and soybean alone could be significant.
Business Model
In the Ag Seeds activity, we collaborate with seed companies in the development of improved seed traits. Our partners include world-leading seed companies, including Bayer and
Corteva, as well as regional seed companies such as Tropical Melhoramento & Genética S/A, or TMG, and Instituto Mato-grossense do Algodão, or IMAmt. Typically, under these collaborations we perform the discovery phase, during which we discover
and validate candidate trait-improving genetic elements, and subsequently our collaborators, under license from us, test and further develop these discoveries in their product development pipelines, starting Phase I, with the goal of introducing them
into commercial crop seeds. For more information on the product development pipeline, please see “—Product Development Pipeline.”
In most cases, we expect to generate revenue from our collaboration agreements at two different points: first, we expect to receive milestone payments when certain specified
results are achieved, such as when a product candidate containing our traits is submitted for regulatory approval; second, we expect to receive royalty payments once a commercial product containing our traits is launched into the market. Under
several collaboration agreements, we also receive research and development service payments to cover the costs of our research.
In the Ag-Seeds division, we currently generate revenues from research and development payments for our activities. All of our product development programs under our Ag-Seeds
activity are currently either in the Discovery or in Phase I stages. For more information on our product development programs in this field, see “—Product Development Programs.”
Product Development Programs
Scientific Approach
The division uses our expertise in plant science and genomics to improve commercial seed traits. Evogene’s proprietary CPB platform, validation techniques and other capabilities
enable us to identify and optimize promising genetic elements that have the potential to improve our traits of interest in target crops.
We have accumulated substantial scientific knowledge on plant, diseases and insect mechanisms associated with yield, abiotic stress, fertilizer use efficiency, disease resistance
traits and insect control traits. We maintain a large proprietary genomic data from over 200 different plant species as well as large microbial data tailored for insect and disease control. We have also established proprietary plant, disease and
insect validation systems.
4 According to Industry publications.
5 According to Industry publications.
Product Development Cycle
Developing and integrating seed traits into commercial seeds may take, based on estimations, between eight and sixteen years. The length of the process may vary depending on the
technology being applied, the complexity of the trait and the type of crop involved. The development process for seed traits is divided into five discrete steps, or phases, as follows:
|
◾ |
Discovery: The identification of candidate genetic elements for enhancing specified plant traits. We usually test these elements in model systems to determine whether they
will enhance the specified trait. In our experience, the Discovery phase typically lasts approximately 18-24 months. In our collaborations, we typically undertake this phase.
|
|
◾ |
Phase I, or “Proof of Concept”: Validated candidate genetic elements are advanced to Phase I. In this phase, they are tested in target plants through greenhouse trials, field
trials, or both, for their efficacy in improving plant performance. During this phase, the genetic elements are also optimized to improve their efficacy. Phase I may be conducted by us or by our collaborators, and in our experience, may
last up to six years.
|
|
◾ |
Phase II, or “Early Development”: In this phase, the field tests are expanded, and our collaborators evaluate the genetic elements on multiple geographical locations and
varieties, to reach commercially viable success rates. By the end of this phase, a specific product candidate is being selected to advance to Phase III. We estimate Phase II to last between two to four years.
|
|
◾ |
Phase III, or “Advanced Development and Regulation”: Extensive field trials are performed to test the effectiveness of the selected product candidate across locations, and
regulatory approvals are obtained, including potential environmental impact assessments, toxicity and allergenicity. We estimate Phase III to last between one to two years.
|
|
◾ |
Phase IV, or “Pre-Launch”: Involves preparation for commercial launch. The range of activities here includes preparing the seeds for commercial sales, formulation of a
marketing strategy and preparation of marketing materials. We estimate Phase IV to last between one to two years.
|
As indicated, the estimated timeframes of phase duration and probability of success are mainly based on our experience and estimates according to available information. The total
development time for a particular product may be longer or shorter than the duration presented above depending on a range of factors.
Product Development Pipeline
The following table sets forth our key product development programs in the segment of yield & abiotic stress tolerance seed traits under development with our collaborators:
Program
|
|
|
Crop
|
|
Technology
|
|
Collaborator
|
|
Development Phase
|
1
|
|
|
Corn
|
|
GM
|
|
Bayer
|
|
Phase I
|
2
|
|
|
(1)
|
|
Advanced breeding
|
|
A consumer goods company (1)
|
|
Development with Collaborator
|
__________
|
(1) |
Crop and collaborator name not disclosed.
|
The following table sets forth our key product development programs in the segment of disease resistance traits, under development with our collaborators:
Program
|
|
Crop
|
|
Trait
|
|
Technology
|
|
Collaborator
|
|
Development Phase
|
1
|
|
Corn
|
|
Fusarium
|
|
GM & genome editing
|
|
Bayer
|
|
Undisclosed
|
2
|
|
Soybean
|
|
Asian Soybean Rust
|
|
GM
|
|
Corteva
|
|
Undisclosed
|
3
|
|
Soybean
|
|
Nematodes
|
|
Genome editing
|
|
TMG
|
|
Discovery
|
4
|
|
Banana
|
|
Black Sigatoka
|
|
GM
|
|
Rahan Meristem
|
|
Phase I
|
The following table sets forth our key product development programs in the segment of insect control traits, under development with our collaborators or as internal product
development programs:
Program
|
|
Trait
|
|
Crop
|
|
Technology
|
|
Collaborator and Collaboration Phase
|
|
Phase
|
1
|
|
Coleoptera / Lepidoptera
|
|
Cotton
|
|
GM
|
|
IMAmt
|
|
Undisclosed
|
2
|
|
Lepidoptera
|
|
Corn, Soybean, Cotton
|
|
GM
|
|
Internal program
|
|
Phase I
|
3
|
|
Coleoptera
|
|
Corn, Cotton
|
|
GM
|
|
Internal program
|
|
Phase I
|
4
|
|
Hemiptera
|
|
Soybean
|
|
GM
|
|
Internal program
|
|
Phase I
|
Key Collaborations
Bayer (originally with Monsanto)
Background
In August 2008, we entered into a Collaboration and License Agreement with Monsanto (now Bayer, following the completion of the acquisition of Monsanto by Bayer in June 2018),
which we refer to as the Monsanto Collaboration Agreement. This agreement was amended in November 2011 and again in October 2013, in both cases extending and expanding the original agreement. As part of the October 2013 amendment and restatement, we
further apply our computational technologies in the field of biotic stress in corn.
Yield and abiotic stress tolerance program
Pursuant to the Monsanto Collaboration Agreement, Monsanto funded a research program under which we identified and optimized genes with the potential to improve yield and abiotic
stress tolerance in corn, soybean, cotton and canola, and candidate genes have entered Phase I in Monsanto's product development pipeline. In July 2017, we announced completion of candidate gene discovery stage in this collaboration.
Biotic stress program - Fusarium
As part of the October 2013 amendment of the Monsanto Collaboration Agreement, we applied our computational technologies in the field of biotic stress to identify genes providing
resistance to Fusarium, a type of fungi that is a main pathogen responsible for Stalk Rot disease in corn (a widespread, yield-reducing disease). In July 2017, we announced that we have reached an important
milestone in the collaboration with the demonstration of positive Fusarium resistance results with Evogene-discovered genes. In July 2019, we announced that the collaboration is being refocused on the identification of genome editing targets for
evaluation against a broad range of corn diseases.
License & Consideration
We have granted Monsanto an exclusive, royalty-bearing, worldwide license under our patents and know-how to commercially exploit and conduct research on the genes we discovered
under the collaboration, in the specified crops.
Monsanto provided us with research and development payments, and undertook to provide us with development milestone payments, if and when our product candidates reach significant
milestones in its product development pipeline, as well as royalty payments on any sales or other transfers of products it develops containing our licensed genes.
A Multinational Consumer Goods Company
Background
In October 2014, we entered a Collaboration Agreement with a multinational consumer goods company, focusing on improving yield in a certain field crop through non-GM methods. The
agreement significantly limits the parties' freedom to disclose information on the nature of, and the parties to, the agreement. In the framework of the collaboration, we identified genes with the potential to improve the desired trait in the target
crop when the expression of such genes in the plant is modified. We generated new varieties of the target crop using molecular methods, and further tested the performance of these new varieties. These activities were performed over a period of
approximately four years before we delivered these varieties to our partner for further development as part of their product development pipeline.
License & Consideration
We granted the partner an exclusive worldwide license to the genes we identified and the varieties we delivered under the collaboration. The agreement provided for research and
development payments, as well as milestone payments by the partner upon achievement of certain development milestones. The agreement does not provide for payment of royalties to us.
Corteva (originally with DuPont-Pioneer)
Background
In 2011, we entered a multi-year research and development collaboration with DuPont-Pionner (now Corteva, following the merger of Dow Chemicals and DuPont in September 2017), to
improve resistance to Asian Soybean Rust, or ASR, a devastating fungal disease in soybean. We amended and expanded the agreement in October 2013. Pursuant to this collaboration, we identified relevant genes having the potential to improve in-plant
resistance to ASR.
License & Consideration
DuPont holds a worldwide, royalty-bearing, exclusive license to develop and commercialize soybean products containing our licensed genes. Our compensation under the 2011 agreement
with DuPont is in the form of milestone payments and royalty payments based on the sales of resulting products. According to the agreement, each party funds its expenses in performing its activities using its own resources and a grant from the
Israel-U.S. Binational Industrial Research and Development Foundation, or BIRD. We hold a contractual option to co-invest in the development costs for greater royalty percentages downstream if a product is successfully commercialized.
Rahan Meristem
Background
In 2007, we entered into a multi-year collaboration with Rahan Meristem, or Rahan, with the target of developing banana varieties expressing tolerance to Black Sigatoka, the most
damaging disease threatening commercial banana plantations. The agreement focuses on identifying and developing genes targeting this trait in bananas. Together with Rahan, we have identified candidate genes, while transformation to banana plants and
further validation in infected areas is conducted by Rahan.
In 2013, we announced that, in field trials conducted by Rahan, banana crops consisting of Evogene-discovered genes demonstrated a lower infection rate than banana crops which did
not contain the selected genes. In September 2017, we announced positive results in 2nd year field trials.
License and Consideration
Pursuant to the agreement, Rahan holds an exclusive license to develop and commercialize banana products containing genes identified under the collaboration. Each of Rahan and us
bears its costs in performing its activities under the program, using its own resources. Under the terms of the agreement, we are entitled to royalty payments from sales by Rahan of commercial products containing genes identified under the
collaboration.
TMG
Background
In December 2018, we entered into a multi-year collaboration and license agreement with TMG, a major Brazilian developer and marketer of soybean varieties, for the development of
nematode-resistant soybean varieties using genome editing technologies. Under the agreement, we identify genomic elements for editing to attribute nematode resistance in soybean and perform such edits on TMG’s commercial soybean germplasm. In turn,
TMG validates the efficacy of the edited soybean varieties in greenhouse assays and field trials in Brazil and for incorporation in its breeding pipeline.
License and Consideration
Under the collaboration and license agreement, TMG obtained a worldwide, royalty-bearing license to incorporate genome edits originating from the collaboration in its soybean
varieties. Evogene, on the other hand, obtains a non-exclusive, royalty-bearing license to commercialize such genome edits and soybean lines, subject to certain exclusivity restrictions. According to the agreement, each party is entitled to receive
royalty payments from the other party when the products of the collaboration are commercialized. In addition, Evogene received from TMG an up-front payment in consideration for its R&D costs and is entitled to success-based payments upon
achievement of pre-defined development milestones.
IMAmt
Background
In July 2018, we entered into a research and testing agreement with IMAmt, a crop research company, owned by Mato Grosso Cotton Grower Association, a leading developer and marketer
of cotton seeds, with the objective of discovering and testing toxins against major cotton pests, such as the Boll Weevil and the Fall Armyworm, which threaten the viability of the cotton industry in Brazil. According to the agreement, we selected
insecticidal genes predicted to have desired insecticidal activity against Boll Weevil and Fall Armyworm, and IMAmt will validate their activity in lab assays against the target pests.
Consideration
Under the terms of the agreement, we are entitled to R&D funding from IMAmt for the initial discovery phase. Commercial arrangements for development and commercialization of
the genes are subject to further agreement between the parties.
Intellectual Property
Our intellectual property rights are important to our business. In certain cases they determine our eligibility to receive royalties for seed traits under the licenses we grant our
collaborators. We actively seek to protect the intellectual property and proprietary technology that we believe is important to the development of our business. To date, we have sought and obtained patent protection for hundreds of plant and
bacterial genes linked to desired traits.
Government Regulation of Product Candidates
Regulatory approvals are required prior to the commercialization and importation of biotechnologically enhanced seeds in most countries. Most of the key target markets where we
anticipate our collaborators will sell seeds containing our traits, including the United States, the European Union, Brazil and Argentina, will require such regulatory approvals prior to the commercialization of such products. Additional regulatory
approvals will be required for countries importing grain produced from seeds containing our traits, such as China, India and certain countries in the European Union. Pursuant to our collaboration agreements in the field of seed traits, our
collaborators will apply for all requisite regulatory approvals prior to commercialization of the product candidates we are developing with them.
The regulatory status of products developed via genome editing technologies is currently unclear. In the United States, approvals are required by the USDA prior to field testing of
genomic edited seeds. A ‘non-regulated organism’ approval has been issued by the USDA for some products currently under development; however, the regulatory status of all changes this technology allows has yet to be determined.
Government Regulation of our Operations
Our business is subject to regulation related to agriculture, health and the environment. To operate, we must obtain various permits and licenses from government authorities and
municipalities in our active jurisdictions, and we must maintain our compliance with the terms of those permits, licenses and other government standards as necessary. These laws and regulations, particularly in relation to biotechnology, are not
fully settled, but continue to evolve in order to keep pace with technological advances.
As an Israeli company, our activities in the fields of biotechnology and plant genomics are regulated by the Israel Ministry of Agriculture and Rural Development, or ISARD, and
more specifically by the ISARD’s Plants Protection and Inspection Services. Our activities are subject to various laws, regulations, orders and procedures, which require us, among other things, to obtain permits for conducting experiments on
genetically enhanced plants and to satisfy special conditions determined by the ISARD regarding the growing procedures of such seeds and plants. Violation of these regulations may expose the company to criminal penalties. Pursuant to these
regulations, we are also obligated to obtain separate permits to own and operate our greenhouses and testing fields in Israel and we are routinely inspected by ISARD.
Raw Materials
We do not significantly rely upon any sources of raw materials for our operations.
Seasonality
Our seed traits business in general, and our revenues in particular, are not subject to variations based on crop seasonality. Our revenues from our seed traits business are
generated from our strategic collaborations, based on research and development and milestone payments as the seed traits we discover advance in the product development pipeline of our collaborators, and are therefore not season-dependent.
Human Health
Background
In 2017, we decided to leverage our capabilities in computational biology towards the area of human health with the establishment of Biomica. In 2019, we expanded our activity in
this area with the establishment of Canonic.
Biomica Ltd.
Overview
In 2017, we established Biomica, a subsidiary focused on the discovery and development of innovative human microbiome-based therapeutics. The human microbiome is an array of more
than 100 trillion microorganisms that live on and in our bodies, creating a community of symbiotic, commensal and pathogenic bacteria, all of which call the human body home. These microbes have numerous beneficial functions relevant to supporting
life, such as digesting food, preventing disease-causing pathogens from invading the body, and synthesizing essential nutrients and vitamins. Numerous studies have shown the connection between the human microbiome and various medical disorders, and
the search for microbiome therapies and treatments is a rapidly growing focus for biotherapeutics research and development.
Biomica focuses on the development of human-microbiome based therapies utilizing either rationally-designed microbial consortia or small molecule approaches for (i) immuno-oncology
and (ii) GI related disorders (iii) MDRO (Multi Drug resistant organisms) - antibiotic resistant bacteria.
Market
Biomica’s product development is currently focused in three main markets:
Immune-Oncology – In oncology, checkpoint inhibitor antibodies, including those targeting the programmed cell death protein/ligand 1, or
PD-1/PD-L1 pathways, block the tumor’s ability to suppress the immune response. They have significantly improved the treatment of many cancers. The cancer immunotherapy market size was estimated at $84 billion in 2018 and is expected to reach a
market size of $243 billion by 20266
6 https://www.globenewswire.com/news-release/2019/07/17/1884118/0/en/Cancer-Immunotherapy-Market-To-Reach-USD-242-86-Billion-By-2026-Reports-And-Data.html
Even in cancers, where checkpoint inhibition is considered the frontline standard of care, a significant percentage of the patients do not respond to PD-1 + CTLA-4 inhibitor
combination and part of responders relapse within a few years. In all approved cancer indications, agents with differentiated immune mechanisms of action may be complementary to checkpoint inhibitors by both augmenting existing effects and testing
alternative pathways of immunotherapy in checkpoint inhibitor non-responsive tumor types and patients.
Given a growing body of literature, it is becoming increasingly clear that modulation of the gut microbiota may represent a novel and important adjunct to current anti-cancer
therapeutic modalities.
GI related disorders –
- Irritable Bowel Syndrome (IBS) is a common disorder that affects the large intestine. Signs and symptoms include cramping,
abdominal pain, bloating, gas, and diarrhea or constipation, or both. It is estimated that the total market for IBS reached $1.5 billion in 2018, with 45 million patients in the U.S. alone and is expected to reach $3.3 billion in 20267.
Existing drugs for IBS mainly treat the symptoms of the condition, leaving patients exposed to cycles of remission and relapse that characterize this chronic condition.
- Inflammatory Bowel Disease (IBD) is a group of gastrointestinal inflammatory
diseases, mainly comprised of Ulcerative colitis and Crohn’s disease. IBDs cause long term chronic as well as severe inflammation in the gastrointestinal tract without any known cause. According to the Centers for Disease Control and Prevention, or
CDC, in 2015 an estimated 3.1 million people (1.3% of the entire population) in the United States were diagnosed either with Crohn’s disease or with Ulcerative Colitis. The global IBD drug market is estimated to grow from $15.9 billion in 2018 to
$22.4 billion in 2026.8
MDRO (Multi Drug resistant organisms) -
- Clostridium Difficile Infection (CDI) – The CDC has identified CDI as one of the top three most urgent antibiotic-resistant
bacterial threats in the United States. CDI is most often caused by the use of broad spectrum antibiotics which induce dysbiosis of the microbiome causing susceptibility to infection by C. difficile, a spore forming bacterium. It is the most common
cause of hospital acquired infection in the United States.
CDI is responsible for the deaths of approximately 29,000 Americans each year. Based on an epidemiological study conducted by the CDC, the incidence of CDI in the U.S. was
estimated to be over 600,000. CDI space across the seven major markets of the U.S., France, Germany, Italy, Spain, the UK and Japan is set to grow from just under $630 million in 2016 to almost $1.7 billion by 2026, representing a compound annual
growth rate of 10.2%. The global CDI market is expected to approach $1.7 billion by 2026.9
- Methicillin-resistant Staphylococcus aureus (MRSA) - One of the most common Staphylococcus aureus infections is caused by
MRSA, which is a multi-drug resistant bacterium, responsible for several difficult-to-treat infections in humans, leading to tens of thousands of annual cases of mortality in the U.S. MRSA is the leading causative agent for hospital acquired
infections and has recently been documented as community-acquired as well as livestock-acquired. Current medical treatments include broad spectrum antibiotics that are becoming increasingly ineffective. The current MRSA market was valued at
approximately $922 million in 2018 and is projected to reach over $1.3 billion by 202610.
7 https://www.grandviewresearch.com/industry-analysis/irritable-bowel-syndrome-ibs-treatment-market
8 https://www.prnewswire.com/news-releases/the-global-inflammatory-bowel-diseases-ibd-drug-market-is-estimated-at-6-7bn-in-2017-and-7-6bn-in-2023--300688523.html
9 https://www.globaldata.com/global-clostridium-difficile-infections-market-approach-1-7-billion-2026/
10
https://www.prnewswire.com/news-releases/global-methicillin-resistant-staphylococcus-aureus-mrsa-drugs-market-to-reach-over-us-39-billion-by-2025-upsurge-in-the-consumption-of-antibiotics-across-the-globe-to-fuel-market-growth-observes-transparency-market-research-676949593.html
Competition
The biotechnology and pharmaceutical industries are characterized by rapid growth and a dynamic landscape of proprietary therapeutic candidates. The development and
commercialization of new drug and biologic products is highly competitive and is characterized by rapid and substantial technological development and product innovations. While we believe that our computational platform and microbial drug candidates,
coupled with our resources and industry expertise, give us a competitive advantage in the field, we face competition from a variety of institutions, including larger pharmaceutical companies with more resources. Specialty biotechnology companies,
academic research institutions, governmental agencies, as well as public and private institutions are also potential sources of competitive products and technologies.
In both inflammatory diseases and oncology, we anticipate intensifying competition as new therapies are approved and advanced technologies become available. Many of our
competitors, either alone or with strategic partners, have considerably greater financial, technical, and human resources than we do.
Significant competition exists in the immuno-oncology and inflammatory diseases field, where we are developing our first product candidates in oncology and IBD. Although our
rationally-designed microbial consortium approach is unique relative to most other existing or investigational therapies in immuno-oncology, we will need to compete with all currently or imminently available therapies within the indications where our
development is focused. Although there is a wide range of potentially competitive mechanisms, possible synergies between these and rationally-designed microbial consortia will also be evaluated.
Business Model
Our goal (through Biomica) is to become a leading biopharmaceutical company developing and commercializing microbiome therapeutics to address significant unmet medical needs,
through strategic collaborations with world-leading pharmaceutical companies.
Product Development Programs
Scientific Approach
Biomica aims to identify unique microbiome-based therapeutic entities through multilayered analysis and integration of high resolution big-data originating from the human gut
microbiome. Employing a holistic approach, we combine a profound understanding of the microbiome and its functions and their intricate relations with the human host.
Biomica’s approach relies on a multi-layered analysis of omic and clinical / phenotypic data using an extensive nexus of modules in four key areas: (i) creation of microbial
classifications – enabling high-resolution taxonomy analysis of the microbial community down to the strain level, (ii) identification of microbial functions – functional-level microbial community analysis profiling microbial genes, pathways and
metabolites, (iii) identification of host genomics – profiling of patients' genomic information (genetics and expression patterns), and (iv) clinical data – integrate relevant phenotypic and physiological information manifested in patient.
Biomica’s discovery and development efforts are powered by the PRISM platform, a facet of Evogene’s CPB platform. PRISM is a proprietary metagenomics analysis platform for functional genomics profiling, utilizing internal comprehensive databases. These databases have been specifically developed to allow the
processing of large amounts of sequencing data, obtain high-resolution profiling of microbial communities both at the taxonomic and the functional levels, and correlate them with specific clinically relevant host expression and phenotypic profiles,
enabling us to achieve the following:
|
◾ |
At the taxonomic level our analysis allows strain-level resolution and relies on an extensive proprietary strain database.
|
|
◾ |
At the functional level, our proprietary resources rely on a comprehensive catalog of microbial genes enabling mapping of an average of 90% of the functions of the human gut microbiome obtained through metagenomics sequencing.
|
In addition to its comprehensive computational solutions to profile the microbiome, Biomica utilizes Evogene's PointHit platform for
virtual screening of small molecular inhibitors to specifically target bacterial proteins of interest. This platform combines the physiochemical requirements for binding a specific protein target and utilizes a comprehensive proprietary database of
roughly 200 million small-molecules for the discovery of potential therapeutics.
Product Development Pipeline
Biomica expects to continue to promote its discovery stage programs to pre-clinical and Proof-of-Concept studies in 2020.
Immune-Oncology – rationally-designed microbial consortia, BMC121 and BMC127, with potential to enhance immunologic
therapeutic responses and facilitate anti-tumor immune activity, were identified using our computational analysis and predictive capabilities. During 2019, Biomica initiated pre-clinical studies wherein anti-tumor activity was tested in mice
following treatment with Biomica’s rationally designed bacterial consortia BMC121 & BMC127 and achieved positive preliminary results from animal studies.
GI disorders –
For IBD - using our computational predictive biology capabilities Biomica identified BMC321 & BMC322, two rationally-designed microbial consortium with potential
anti-inflammatory activity in IBD. During 2019, pre-clinical studies were initiated for the development of a novel microbiome-based drug for IBD that triggers multiple mechanisms for the reduction of intestinal inflammation.
For IBS, we utilize proprietary data from several clinical trials conducted in the U.S. to develop a novel microbiome based drug. Biomica aims to push the barriers posed by
existing therapies and address the underlying cause of the disorder, rather than the symptoms, using bacteria/bacterial-associated factors affecting symptoms and underlying pathophysiology.
MDRO (Multi Drug Resistant Organisms) -
CDI – Using our microbiome therapeutics platform, we are developing a small-molecule drug candidate (BMC201), designed
to target the main toxin secreted by the bacterium and hence repair dysbiosis in the colonic microbiome in the setting of primary or recurrent CDI. BMC201 is being developed as an orally available drug.
MRSA – Biomica initiated a collaboration with the Weizmann Institute of Science to develop a selective treatment
against antibiotic resistant strains of Staphylococcus aureus infection, in a microbiome focused approach. The company has in-licensed Prof. Ada Yonath’s, Nobel Prize laureate, work and discoveries in high-resolution crystal structure of the large
ribosomal subunit of the pathogenic Staphylococcus aureus for the design and development of new types of selective, narrow spectrum antibiotics agents.
Intellectual Property
We aim to protect the proprietary intellectual property that we believe is important to our Biomica business, including seeking international patent protection for our product
candidates and promptly file patent applications for new commercially valuable inventions of our Biomica business. We also rely on trade secrets to protect aspects of our Biomica business that we do not consider appropriate for patent protection. Our
success with Biomica will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, as well as defend and enforce any patents that we
may obtain.
Raw Materials
Biomica does not significantly rely upon any sources of raw materials for its operations.
Seasonality
Biomica’s business in general is not subject to variations based on seasonality.
Government Regulation of our Operations
The FDA and other regulatory authorities at federal, state and local levels, as well as in other countries, extensively regulate, among other things, the research, development,
testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs and
biologics such as those Biomica is developing. We, along with our contract manufacturers, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in
which we wish to conduct studies or seek approval for our product candidates. The process of obtaining regulatory approvals and ensuring subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the
expenditure of substantial time and financial resources.
Government Regulation of Product Candidates
The development of therapeutic products targeting the underlying biology of the human microbiome is an emerging field, and it is possible that the FDA and other regulatory
authorities could issue regulations or new policies in the future affecting our microbiome therapeutics that could adversely affect our product candidates. All of our product candidates are based on microbiome therapy, a therapeutic approach that is
designed to treat disease by restoring the function of a dysbiotic microbiome. We have not, nor to our knowledge has any other company, received regulatory approval for a therapeutic based on this approach.
Canonic Ltd.
Overview
In April 2019, we announced the establishment of a new subsidiary, Canonic Ltd., focusing on the development of precise and stable medical cannabis products for better therapeutic
performance.
Market
The global legal cannabis market is forecasted to reach $103.9 billion in 202411. In North America alone, the size of this market increased to greater than $11 billion
in 2018 and is estimated to reach $30 billion in 202412. This overall market is rapidly growing due to changes in regulatory acceptance and can be divided into recreational and medical products. For more information on the regulatory
environment of cannabis activities and products, please see “⸺Government Regulation of our Operations and Product Candidates” below. The market segment attributed to medical cannabis products is projected to reach $62 billion in 202412.
Canonic has identified three main challenges in this market:
|
- |
Cannabinoid specificity – the lack of clinical data demonstrating the correlation between medical indications and the genomic and cannabinoid profile of the cannabis plant.
|
|
- |
Cannabinoid yields – with the increasing legalization of cannabis in more and more countries, the price per gram of cannabis is decreasing. The decreasing selling price of cannabis has made this
product increasingly sensitive to the cost of production, making yield of cannabinoid per square foot a significant factor.
|
|
- |
Genetic stability – there is high genetic variability in currently available cannabis lines, which directly reflects on product consistency, or lack thereof.
|
Competition
In view of Canonic’s current stage of operations, companies that are in direct competition to Canonic are plant genomics companies aiming to improve the properties of medical
cannabis varieties, such as Arcadia Biosciences, Benson Hill and KeyGene. When Canonic reaches commercialization of its products, its competitors will include companies developing and marketing medical
cannabis products.
Business Model
Canonic intends to develop its products by conducting in-house the core elements relating to cannabis genetics, such as advanced breeding and seed and seedling production, while
outsourcing other production activities, such as cannabis cultivation, extraction, and formulation. With respect to commercialization, Canonic intends to access the markets through distributors.
11 The global cannabis report, Nov. 2019, Prohibition Partners
Scientific Approach
Canonic is focused on the development of precise and stable medical cannabis products based on proprietary cannabis varieties with unique genomic profiles. Leveraging Evogene's CPB
platform, Canonic utilizes advanced breeding technologies in order to improve the properties of cannabis varieties. Canonic is currently establishing a unique cannabis data base, which is based on its diverse genetic collection, and is identifying
specific genomic elements in order to enhance either specific active compounds in the plant or the plant’s total active compounds.
In addition, Canonic integrates pre-clinical data collected from trials performed with its genetic collection. These trials are conducted in parallel to the breeding program and
support the company product development to achieve unique genomic profile for better therapeutic effects.
Product Development
Canonic's product development efforts include the following main activities:
|
- |
Development of varieties – This stage includes pre-breeding and breeding activities of tailored cannabis varieties (i.e., selective crossing of cannabis lines) to achieve desired properties. In
addition, during this stage Canonic also performs pre-clinical trials in order to support and direct its medical product development pipeline.
|
|
- |
Pre-production and pre-commercialization – During this stage, Canonic performs several activities that are intended to support future production and commercialization of its product. These
activities include the establishment of business agreements with manufacturers and distributers, introduction of cannabis varieties to cultivators and provision of agro-technical support, as well as upscale through seed and seedling
multiplication.
|
|
- |
Production and Commercialization – This stage will include the production of Canonic’s products as well as their commercialization through local distributors.
|
Product Development Pipeline
Canonic has two product lines under development, which are both at the stage of development of varieties:
|
- |
MetaYield, for enhancement of total active compounds in the plant, and
|
|
- |
Precise, for the enhancement of specific active compounds in the plant, targeting anti-inflammatory and pain management properties.
|
Intellectual Property
We expect Canonic's intellectual property to be composed of three layers: (i) Evogene's existing patent portfolio regarding the use of plant genes for the improvement of plant
traits and the development of genetic markers, which is licensed exclusively to Canonic for cannabis; (ii) plant variety protection rights for cannabis varieties that will be developed by Canonic; and (iii) intellectual property relating to the
therapeutic attributes of active compounds within the cannabis plant, resulting from pre-clinical and clinical trials to be conducted by Canonic.
Raw Materials
Canonic does not significantly rely upon any sources of raw materials for its operations.
Seasonality
While outdoor cultivation of cannabis varieties is impacted by seasonality, cultivation under controlled environments is not. Currently, all of Canonic’s cultivation activities are
performed under controlled environments.
Government Regulation of our Operations and Product Candidates
All cannabis related activities in Israel (including R&D, cultivation, manufacturing and distribution) are regulated by the Israeli Medical Cannabis Agency, or IMCA. Every
company with cannabis-related activity in Israel is subject to the IMCA’s regulation and is required to obtain the relevant annually IMCA certifications for such activities. Relevant certifications may include one or more of the following: (i) Good
Security Practice, or GSP, (ii) Good Agriculture Practice, or GAP, (iii) Good Manufacturing Practice, or GMP, (iv) Good Distribution Practice, or GDP, (v) Good Consumption Practice, or GCP, and (vi) Good Waste Disposal Practice, or GWDP12,
depending on the specific activity undertaken by Canonic. In order to be eligible for a certain certification, a company may be required to obtain certain preliminary approvals or licenses. Canonic operates under the IMCA’s guidelines and has
received a GSP certification, a possession license, approval for its R&D work plan and an import permit for cannabis seeds.
Under the guidelines of the IMCA, medical cannabis can be manufactured and marketed in Israel for local use. Export has been approved by the government but regulation for cannabis
export has yet to be set. Potential end markets include Europe and North America. In Europe, regulation is on a country by country basis. In North America, Canada has legalized cannabis for both medical and recreational use and in the United States,
regulation is carried out on a state by state basis, while under federal law, cannabis is illegal.
Industrial Applications
Casterra Ag Ltd.
Overview
In 2007, we initiated our activities related to castor beans, which were in 2012 organized under Evofuel, a wholly owned subsidiary, which changed its name to Casterra Ag, or
Casterra, in 2019. Casterra focuses on the development of an integrated solution – agricultural-technical growth protocols for castor cultivation for the production of castor oil to be used for industrial uses, such as bio-polymers and lubricants.
Casterra’s integrated agricultural solution includes breeding of advanced high-yielding castor bean varieties that are non-GM and agricultural growth protocols compatible with a mechanical harvesting solution exclusively available to Casterra’s
customers. Our target market is Brazil, where large scale castor agriculture and industry are well established.
Market
Castor beans are grown today for their high-quality oil, which is used for the production of bio-polymers and lubricants for various industries such as the cosmetics, electronics,
automotive and aerospace industries, to name a few. Currently treated as a “low-tech” crop in its key production areas around the world (for example, in India the castor bean is grown using traditional techniques such as hand picking), according to
industry estimations, the castor oil extracted from the castor bean plant may hold great promise as an input for industrial markets. The market for castor oil and its derivatives is rapidly growing and according to market publications, is expected to
reach $2.3 billion by 202413. The growth in this market is expected to be further supported by the conversion of the castor bean plant to a modernized commercial crop.
Competition
Casterra’s competition includes a few other relatively small companies that supply castor seeds to growers worldwide. Casterra differentiates itself by providing rain-fed varieties
(while its competitors offer irrigation-based varieties) and by providing a unique, mechanical harvesting solution for modernized commercial crop.
Business Model & Products
Business Model
Casterra’s business model is to sell proprietary improved castor seed varieties, together with targeted agro-technical growth protocols, to castor growers. These seed varieties and
growth protocols are adapted and targeted to localized characteristics. Casterra’s offering includes: (i) high yielding varieties with plant structure suitable for mechanized harvest; (ii) best practices and recommendations to growers for growing
castor efficiently in large scale; and (iii) advanced compatible mechanical harvest solution.
12 For more info see https://www.health.gov.il/UnitsOffice/HD/cannabis/Pages/default.aspx
13 Grand View Research, August 2016, http://www.grandviewresearch.com/industry-analysis/castor-oil-derivatives-industry.
Product development
Casterra develops proprietary castor seed varieties and growth protocols adapted to specific target markets. During 2018, Casterra completed semi-commercial field trials of certain
castor varieties with partners in multiple target locations. In 2019, Casterra completed semi commercial field trials in multiple locations in South America and decided to focus its commercialization efforts to Brazil.
The castor seeds product development process includes three main steps: (i) research and pre-breeding, which we typically undertake in Israel and which takes between one to two
years, resulting in experimental varieties for market location trials; (ii) yield field trials in the target markets, which take between two to three years and yield varieties for pre-commercial field trials; and (iii) semi-commercial field trials,
which take approximately two years in the target markets.
Key Collaborations
Fantini s.r.l.
In October 2018, Casterra announced a breakthrough achieved in the mechanical harvesting of castor beans with Fantini s.r.l., a leading manufacturer and distributor of agricultural
equipment. The lack of an available solution for mechanical harvesting has been a major challenge in the conversion of castor to a fully modernized commercial crop, and the combination of the Fantini s.r.l Harvester with Casterra’s proprietary
varieties demonstrated significant improvement in yield loss in field trials.
The harvester is commercialized by Fantini s.r.l to Casterra’s global partners.
Intellectual Property
Our policy is to register relevant castor varieties in the destination territories. To date we have registered several of our varieties in several Latin America countries including
Brazil.
Government Regulation of our Operations
Casterra’s activities in Israel in the field of seeds are regulated by the Israeli Ministry of Environmental Protection. Pursuant to these regulations, we are required, among other
things, to (i) obtain toxins permits, which allow us to conduct experiments using “hazardous materials,” as such term is defined in the applicable regulations, and (ii) follow specific rules regarding waste disposal. Violation of these regulations
may expose the company to criminal penalties, administrative sanctions and responsibility to compensate those injured for any environmental damages.
Government Regulation of Product Candidates
All seed production designated for export to our partners is subject to field and warehouse inspection by the regulator in the country of destination for compliance with the local
regulations, including sampling and inspection for pests and diseases.
Raw Materials
We do not significantly rely upon any sources of raw materials for our operations.
Seasonality
Casterra’s castor seed business in general, and our revenues in particular, generated from our collaborations with castor growers, are subject to variations based on crop
seasonality. The timing of our seed production field trials, as well as the delivery of castor seeds to our partners and revenue recognition with respect to such seed sales, derive substantially from the seasonality of castor growing in the locations
where we produce seeds and in our target markets.
C. Organizational Structure
As of the date of this report, we held directly and indirectly the percentage indicated of the outstanding capital stock of the following significant subsidiaries:
Name of Subsidiary
|
|
Jurisdiction
|
|
Ownership Interest
|
AgPlenus Ltd.
|
|
Israel
|
|
100%
|
Biomica Ltd.
|
|
Israel
|
|
90.9% (1)
|
Canonic Ltd.
|
|
Israel
|
|
100%
|
Casterra Ag Ltd. (formerly known as Evofuel Ltd.).
|
|
Israel
|
|
100%
|
Lavie Bio Ltd.
|
|
Israel
|
|
72.2% (2)
|
|
(1) |
Remaining 9.1% of Biomica Ltd.’s outstanding share capital is held by Biomica's Chief Technology Officer.
|
|
(2) |
Remaining 27.8% of Lavie Bio Ltd.’s outstanding share capital is held by Pioneer Hi-Bred International, Inc. (also known by the name Corteva).
|
D. Property, Plants and Equipment
Our principal facility is located in Rehovot, Israel and consists of 3,209 square meters (approximately 34,500 square feet) of leased office space accommodating our corporate
offices and our molecular, microbial and crop protection labs. The lease for these offices will expire on December 31, 2021, and we hold an option to renew such lease for an additional 36 months.
We perform most of our testing in plants, or in-planta testing, at our “Evogene Farm,” located on two adjacent lots that we lease outside
Rehovot. The first lease covers approximately 13,500 square meters (or approximately 145,000 square feet) of land, and expires on July 21, 2025, and we hold an option to renew such lease for an additional 36 months. The second lease covers
approximately 10,000 square meters (approximately 108,000 square feet) of land and expires on May 14, 2021, and we hold an option to renew such lease for an additional 60 months.
The Evogene Farm contains greenhouses, which are used for various in-planta experiments of the company and its subsidiaries. During 2019,
we converted part of the Evogene Farm to a designated area for cannabis greenhouse as part of the activities of Canonic, our subsidiary which is focused on the area of medicinal cannabis. In addition, the Evogene Farm contains warehouses, office
facilities and seed banks. During 2018 and 2019, we subleased a portion of the Evogene Farm to an agriculture-tech start-up company.
In 2015, we established a research and development facility in the Bio-Research and Development Growth (BRDG) Park, developed by Wexford Science & Technology, a BioMed Realty
Company, at the campus of the Donald Danforth Plant Science Center in St. Louis, Missouri. We signed a six year lease, expiring November 1, 2021 and covering approximately 5,745 square feet lab facility. Starting March 2020, the facility accommodates
the activities of Lavie Bio Inc., a wholly owned subsidiary of our subsidiary Lavie Bio. A portion of the leased space, comprising approximately 1,200 square feet of lab and office space, is subleased to a biotech company since December 2017, under a
three-year sublease agreement.
Unless otherwise stated, all of our facilities are fully utilized. We have no material tangible fixed assets apart from the leased properties described above.
ITEM 4A. |
UNRESOLVED STAFF COMMENTS
|
There are no unresolved staff comments.
ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
The information contained in this section should be read in conjunction with our consolidated financial statements as of, and for the year ended, December 31,
2019 and related notes and the information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS as issued by the IASB. This discussion contains forward-looking statements that are subject to
known and unknown risks and uncertainties. As a result of many factors, such as those set forth under “Item 3. Key Information—D. Risk Factors” and “Special Note Regarding Forward-Looking Statements,” our actual results may differ materially from
those anticipated in these forward-looking statements.
Summary
We are a leading biotechnology company aiming to revolutionize the development of novel products for life-science based industries, including human health, agriculture, and
industrial applications, by utilizing cutting edge computational biology technologies. To achieve this mission, we established our unique Computational Predictive Biology, or CPB, platform, leveraging the revolutions in big data and artificial
intelligence and incorporating a deep understanding of biology. Our CPB platform aims to disrupt conventional life-science product development methodology, currently challenged by inefficiencies, by computationally designing the most relevant core
components for life-science products such as microbes, small molecules and genes.
Currently, we apply our technology and approach for the development of products based on microbes, small molecules and genes in three general industries:
|
(iv) |
Agriculture, focusing on the following target markets:
|
|
a. |
Agriculture biologicals, via our subsidiary Lavie Bio Ltd.,
|
|
b. |
Agro chemicals, via our subsidiary AgPlenus Ltd., and
|
|
c. |
Seed traits, via our Ag-Seeds division;
|
|
(v) |
Human health, focusing on the following target markets:
|
|
a. |
Human microbiome-based therapeutics, via our subsidiary Biomica Ltd., or Biomica, and
|
|
b. |
Medical cannabis products, via our subsidiary Canonic Ltd.; and
|
|
(vi) |
Life-science based industrial applications, currently focusing on castor seed varieties and agro-technical capabilities, through our subsidiary Casterra Ltd. (formerly Evofuel Ltd.), or Casterra.
|
Each subsidiary pursues its individual mission, focusing on the following objectives: (i) advancing its product development and pipeline, (ii) establishing its “go-to-market”, and
(iii) securing additional financial resources, if and when required.
To capture the value of the diverse applicability of our computational platform, our business model consists of two main pathways, both based primarily on the utilization of the
CPB Platform: (i) The establishment of market-focused subsidiaries to develop and commercialize product pipelines, meeting unmet needs in selected industries, and (ii) in certain other cases, engaging directly with strategic partners for the
development of specific products.
Key Measures of Our Performance
Revenues
Our revenues are principally derived from research and development payments under our collaboration agreements and related arrangements with our collaborators. Most of our
agreements with collaborators also provide for success-based payments, such as milestone payments paid by our collaborators upon the occurrence of certain specified events and royalty revenues based on the sales or transfer of products our
collaborators develop that contain, or are based on, our discoveries, which we license to them. We have not yet generated revenues from royalty payments.
Share Purchases
We have entered into share purchase agreements with Monsanto (now Bayer) and Bayer, which were signed in contemplation of our collaboration agreements with them. We attribute the
proceeds from arrangements under these agreements to the value of our ordinary shares issued to Monsanto and Bayer at the time of the investments as well as to the services we perform under the collaboration agreements. As a result, we recognized in
2018 and 2017 as revenues the excess payment, which is the consideration these investors paid for our ordinary shares over the market value of our ordinary shares traded on the TASE at the time of the investment. We did not record such revenues for
the year ended December 31, 2019.
Breakdown of Revenues by Operating Segment:
The following table presents a breakdown of net revenues by operating segment for the periods indicated.
|
|
Year ended December 31,
|
|
Operating Segment:
|
|
2019 |
|
|
|
2018
|
|
|
2017 |
|
|
|
(U.S. dollars, in thousands)
|
|
Agriculture
|
|
$
|
651
|
|
|
$
|
1,641
|
|
|
$
|
3,247
|
|
Industry
|
|
|
26
|
|
|
|
106
|
|
|
|
134
|
|
Human
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unallocated
|
|
|
76
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
753
|
|
|
$
|
1,747
|
|
|
$
|
3,381
|
|
Geographical Breakdown of Net Revenues
The following table presents net revenues by geographic breakdown of customers as a percentage of our total net revenues for the periods indicated. This data refers to the location
of the customer and does not take into consideration the location of the end-user (to the extent it is different).
|
|
Year ended December 31,
|
|
Geographical Region:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
United States
|
|
|
|
%
|
|
|
57
|
%
|
|
|
76
|
%
|
Germany
|
|
|
2
|
%
|
|
|
13
|
%
|
|
|
10
|
%
|
Israel
|
|
|
35
|
%
|
|
|
12
|
%
|
|
|
6
|
%
|
Brazil
|
|
|
28
|
%
|
|
|
6
|
%
|
|
|
-
|
|
Other
|
|
|
2
|
%
|
|
|
12
|
%
|
|
|
8
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of Revenues
Cost of revenues primarily consists of development costs incurred in conjunction with our collaborations, which include: salaries and related personnel costs (including share-based
compensation) for our research and development employees working on the collaborations; payments to third party suppliers that assist us in producing genomic data; and the cost of disposable materials (such as seeds, laboratory supplies, fertilizer,
water and soil). Cost of revenues also includes operational overhead costs such as: depreciation of our property, plant and equipment; costs related to leasing and operating our office and laboratory facilities and greenhouses; and expenses related
to retaining advisors, who primarily consist of biological experts.
Operating Expenses
Research and Development Expenses, net: Research and development expenses primarily consist of costs related to our internal or independent
research and development activities, as opposed to development costs incurred in connection with our collaborations (which are included in cost of revenues). These independent activities of ours consist of developing and improving our computational,
scientific and validation technologies, know-how and capabilities used by our subsidiaries and product divisions. Research and development costs include: salaries and related personnel costs (including share-based compensation); payments to third
party suppliers, mainly with respect to producing genomic data, field-trials and pre-clinical studies carried out by third parties; cost of disposable materials; expenses associated with participation in professional conferences; operational overhead
costs, which include costs related to leasing and operating our office, laboratory facilities and greenhouses; depreciation of property, plant and equipment; and amortization of intangible assets. Expenses related to our intellectual property, such
as legal and other costs associated with patent applications, are also included as research and development expenses.
In view of the COVID-19 outbreak, which has disrupted our operations starting March 2020, we adjusted our work plans and budget, reducing and delaying certain activities originally
planned for the second quarter and second half of 2020. Accordingly, we expect that our research and development expenses during 2020 will decrease from those of 2019.
Business Development Expenses: Business development expenses consist of costs primarily related to maintaining our relationships with our
collaborators and establishing new collaborations. These costs include: salaries and related personnel costs (including share-based compensation); expenses incident to business travel; and expenses related to legal and professional services. We
expect our business development expenses will remain at the current level during 2020.
General and Administrative Expenses: General and administrative expenses mainly consist of: salaries and related personnel costs (including
share-based compensation) for our general and administrative employees; expenses related to HR activities and employee benefits and welfare; expenses for consulting, insurance, legal, Directors’ and officers’ insurance, and professional services; and
other expenses associated with being a U.S. publicly listed company. We expect that our general and administrative expenses will remain at the current level during 2020.
Financing Income and Expenses
Financing income primarily consists of: interest income on our cash bank deposits and securities; income related to a revaluation of the marketable securities we hold, which
consist of money market funds, corporate bonds and government treasury notes; and foreign currency exchange income. Financing expenses primarily consist of: expenses related to bank charges and commissions; expenses related to a revaluation of the
marketable securities we hold; interest expense for our operating lease liability; and foreign currency exchange expense. The interest due on government grants is also considered a financial expense and is recognized beginning on the date on which we
receive the grant until the date on which the grant is expected to be repaid.
Taxes on Income
We do not generate taxable income in Israel, as we have historically incurred operating losses resulting in carryforward tax losses totaling approximately $119 million as of
December 31, 2019, to be carried forward indefinitely to future tax years. Accordingly, we do not expect to pay taxes in Israel for the foreseeable future, until we have taxable income after the full utilization of our carryforward tax losses.
Our U.S. subsidiary, Evogene Inc., is subject to U.S. income taxes. In 2019, the weighted tax rate applicable to Evogene Inc. was approximately 27.25% (federal tax and state tax
where the company operates).
Segment Data
We divide our operations into three operating segments – Agriculture, Human Health and Industrial applications, as follows:
|
◾ |
Agriculture: our agriculture segment includes our division and subsidiaries engaged in agricultural activities, including seed traits activity, ag-chemicals activity (now through our subsidiary
AgPlenus) and ag-biologicals activity (now through our subsidiary Lavie Bio).
|
|
◾ |
Human Health: our human health segment focuses on discovery and development of human microbiome-based therapeutics (through our subsidiary Biomica) and cannabis activity (through our subsidiary
Canonic).
|
|
◾ |
Industrial Applications: our industrial applications segment focuses on the development and commercialization of improved castor bean seeds for industrial uses (through our subsidiary Casterra).
|
The following table presents our revenues and operating loss by segment for the periods presented:
|
|
Agriculture
|
|
|
Industry
|
|
|
Human
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
651
|
|
|
$
|
26
|
|
|
$
|
–
|
|
|
$
|
76
|
|
|
$
|
753
|
|
Operating loss
|
|
|
(10,062
|
)
|
|
|
(419
|
)
|
|
|
(3,219
|
)
|
|
|
(7,466
|
)
|
|
|
(21,166
|
)
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,641
|
|
|
$
|
106
|
|
|
$
|
–
|
|
|
$
|
0
|
|
|
$
|
1,747
|
|
Operating loss
|
|
|
(7,674
|
)
|
|
|
(456
|
)
|
|
|
(1,608
|
)
|
|
|
(10,251
|
)
|
|
|
(19,989
|
)
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3,247
|
|
|
|
134
|
|
|
|
–
|
|
|
|
3,381
|
|
|
|
3,381
|
|
Operating loss
|
|
|
(8,347
|
)
|
|
|
(344
|
)
|
|
|
(502
|
)
|
|
|
(12,754
|
)
|
|
|
(21,947
|
)
|
A. Operating Results
Comparison of Period-to-Period Results of Operations
The following table sets forth our overall results of operations (on an unsegmented basis) for the years ended December 31, 2017, 2018 and 2019. The below discussion of our results
of operations omits a comparison of our results for the years ended December 31, 2017 and 2018. In order to view that discussion, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Comparison of Period-to-Period
Results of Operations” in our Annual Report on Form 20-F for the year ended December 31, 2018, which we filed with the SEC on April 29, 2019.
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
(U.S. dollars, in thousands)
|
|
Consolidated Statements of Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
16,987
|
|
|
|
14,686
|
|
|
|
15,791
|
|
Business development
|
|
|
1,686
|
|
|
|
2,084
|
|
|
|
2,029
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,947
|
)
|
|
|
(19,989
|
)
|
|
|
(21,166
|
)
|
Financing income
|
|
|
2,125
|
|
|
|
1,413
|
|
|
|
2,630
|
|
Financing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes on income
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
$
|
(20,838
|
)
|
|
$
|
(20,812
|
)
|
|
$
|
(19,115
|
)
|
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Revenues
Our total revenues decreased by $0.9 million, or 56.9%, to $0.8 million for the year ended December 31, 2019 from $1.7 million for the year ended December 31, 2018. This decline
was mainly due the completion of our gene discovery and optimization activities under our collaboration agreement with Monsanto (from which we had recognized revenues).
Cost of Revenues
Cost of revenues decreased by $1.1 million, or 77.0%, to $0.3 million for the year ended December 31, 2019 from $1.4 million for the year ended December 31, 2018. The decrease
primarily related to the decrease in revenues from R&D cost reimbursement, due to the completion of our gene discovery and optimization activities under our collaboration agreement with Monsanto.
Gross Profit
Gross profit increased by $0.1 million, or 42.0%, to $0.4 million for the year ended December 31, 2019 from $0.3 million for the year ended December 31, 2018, due to the combined
impact of changes in our revenues and cost of revenues, as described above.
Operating Expenses
Research and Development Expenses, Net. Research and development expenses increased by $1.1
million, or 7.5%, to $15.8 million for the year ended December 31, 2019 from $14.7 million for the year ended December 31, 2018. This increase in R&D expenses during 2019 was attributable to (a) payments made to third parties for (i) pre-clinical
studies conducted for Biomica, (ii) field trials conducted in target locations for Lavie Bio and (iii) the acquisition of a genomic-unique seed collection for Canonic, as well as (b) amortization of intangible assets.
Business Development Expenses. Business development expenses decreased by $0.1 million, or 2.6%, to $2.0 million for the year ended
December 31, 2019 from $2.1 million for the year ended December 31, 2018, constituting a non-material decrease.
General and Administrative Expenses. General and administrative expenses increased by $0.3 million, or 7.1%, to $3.8 million for the year
ended December 31, 2019 from $3.5 million for the year ended December 31, 2018, constituting an insignificant increase.
Financing Income and Expenses
Financing Income. Financing income increased by $1.2 million, or 86.1%, to $2.6 million for the year ended December 31, 2019 from $1.4
million for the year ended December 31, 2018. This increase was mainly due to exchange rate differences between the U.S. dollar and the New Israeli Shekel during the two years.
Financing Expenses. Financing expenses decreased by $1.6 million, or 74.8%, to $0.6 million for the year ended December 31, 2019 from $2.2
million for the year ended December 31, 2018. This decrease was mainly due to profit from marketable securities in 2019 as compared to loss from marketable securities in 2018.
Taxes on Income
For the year ended December 31, 2019, we recorded insignificant amounts for taxes on income in Israel due to advances on excess expenses and an insignificant amount of taxes with
respect to Evogene Inc. We did not record or pay taxes on income for the year ended December 31, 2018 in Israel due to our loss for the year. We recorded an insignificant amount of taxes with respect to Evogene Inc.
Loss
The amount of our overall loss decreased by 8.2% to $19.1 million for the year ended December 31, 2019, from $20.8 million for the year ended December 31, 2018. That decrease reflected the cumulative
effect of all of the above-described line items from our consolidated statements of comprehensive loss.
Application of Critical Accounting Policies and Estimates
Our accounting policies affecting our financial condition and results of operations are more fully described in our consolidated financial statements included elsewhere in this
annual report. The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure of
contingent assets and liabilities. We base our estimates upon various factors, including past experience, where applicable, external sources and on other assumptions that we believe are reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and could have a material
adverse effect on our reported results.
In many cases, the accounting treatment of a particular transaction, event or activity is specifically dictated by accounting principles and does not require management’s judgment
in its application, while in other cases, management’s judgment is required in the selection of the most appropriate alternative among the available accounting principles, that allow different accounting treatment for similar transactions.
We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance as these policies
relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included
matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.
Revenue Recognition
We recognize revenues when the control over the goods or services is transferred to the customer. The transaction price is the amount of the consideration that is expected to be
received based on the contract terms, excluding amounts collected on behalf of third parties (such as taxes).
We have entered into collaboration agreements under which we grant to our collaborators an exclusive license to intellectual property rights for the development and
commercialization of our proprietary product candidates. The agreements contain multiple performance obligations, including funding from periodic payments for research and development services, payments based on achievement of specified milestones
and royalties on sales of products sold by our collaborators that include the licensed traits.
Revenues from research and development services as part of the Company's collaboration agreements are recognized over time, during the period the customer simultaneously receives
and consumes the benefits provided by the Company's performance. Recognition of the service is throughout the services period and is determined based on the proportion of actual costs incurred for each reporting period to the estimated total costs,
subject to the enforceable rights. The Company charges its customers based on payment terms agreed upon in specific agreements. When payments are made before or after the service is performed, the Company recognizes the resulting contract asset or
liability.
Revenues from milestone events stipulated in the agreements are recognized upon the occurrence of event or achievement of the milestone specified in the agreement.
Share-Based Compensation
We account for share-based compensation in accordance with the fair value recognition provision of IFRS guidance on share-based compensation. Under these provisions, share-based
compensation is measured at the grant date based on the fair value of the award and is recognized as an expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award.
Share-based compensation expense was $1.6 million, $1.7 million and $2.2 million in 2019, 2018 and 2017, respectively. We selected the binomial option-pricing model as the most appropriate method for determining the estimated fair value of our
share-based compensation. The determination of the grant date fair value of options using an option-pricing model is affected by estimates and assumptions regarding a number of complex and subjective variables. These variables include the estimated
period of time that we expect employees to hold their options, the expected volatility of our share price over the expected term of the options (estimated using historical data from prior years, including historical forfeiture rates), share option
exercise and cancellation behaviors, risk-free interest rates, expected dividend yields (assumed to be zero as we have historically not paid and do not intend to pay dividends on our ordinary shares) and the price of our ordinary shares. In addition,
our compensation expense is affected by our estimate of the number of awards that will ultimately vest. In the future, if the number of equity awards that are forfeited by employees is lower than expected, the expense recognized in future periods
will be higher.
Government Grants
Government grants received from the IIA, BIRD and Canada-Israel Industrial Research and Development Foundation, or CIIRDF, are recognized as a liability if future economic benefits
are expected from the projects that will result in royalty-bearing sales.
A liability for the grant is first measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grant received and
the fair value of the liability is accounted for as a government grant and recognized as a reduction of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest method.
Royalty payments we make to repay the grant are treated as a reduction of the liability. If no economic benefits are expected from the research activity, the grant receipts are recognized as a reduction of research and development expenses, in which
case, the royalty obligation is treated as a contingent liability.
There is uncertainty regarding the estimates of future cash flows and the estimate of the capitalization rate that is used for determining the amount of the liability recognized.
At the end of each reporting period, we evaluate whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid (since we will not be required to pay royalties) based on the best estimate of future sales,
and if so, the appropriate amount of the liability is recognized as a reduction of research and development expenses.
Leases
We cannot readily determine the interest rate implicit in our operating lease for our principal facility in Rehovot, Israel. We therefore, it use our incremental borrowing rate,
IBR, to measure lease liabilities. The IBR is the rate of interest that we would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar
economic environment. The IBR therefore reflects what we ‘would have to pay’, which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease.
We estimate the IBR using observable inputs (such as market interest rates) when available and we are required to make certain entity-specific estimates (such as the Company's
stand-alone credit rating).
Intangible assets
On August 6, 2019, Corteva Inc. invested in the Company's agriculture biologicals subsidiary, Lavie Bio, by way of a contribution of all Corteva’s holdings in its wholly owned
subsidiary Taxon Biosciences, which included several intangible assets, and payment of an amount of $10 million in cash.
The fair value of intangible assets received through the Corteva investment is determined upon initial recognition by either one of three traditional methods in valuating an asset.
These methods include the market approach, the income approach and the cost approach. The pipeline products and potential products were valued by applying the income approach and the Microorganisms collection was valued using the cost approach.
The Company’s significant estimates in this analysis included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth
rate, and the tax rate. The Company believes the current assumptions and estimates utilized were both reasonable and appropriate. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s
estimates. If the Company’s ongoing estimates of future cash flows are not met, the Company may have to record impairment charges in future periods. The Company’s estimates of future cash flows are based on current regulatory and economic climates,
recent operating results, and planned business strategy. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns.
The useful economic life of the intangible assets acquired by us in this transaction was determined through years of development until final year of projected sales. When applying the income approach, the cash flows
expected to be granted by intangible assets are discounted to their present value equivalent using a rate of return that reflects the relative risk of the investment, as well as the time value of money. For each intangible asset a specific discount
rate was valuated using “Modified CAPM Build-Up Method”.
Impact of Israeli Tax Policies and Government Programs on our Operating Results
Tax regulations have a material impact on our business, particularly in Israel where we have our headquarters. The following summary describes the current tax
structure applicable to companies in Israel, with special reference to its effect on us.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax on their taxable income. In 2018 and 2019, the corporate tax rate was 23%. Capital gains derived by an Israeli company are
generally subject to tax at the prevailing regular corporate tax rate.
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for an “Industrial Company”.
The Industry Encouragement Law defines an “Industrial Company” as an Israeli resident company which was incorporated in Israel, of which 90% or more of its income in any tax year,
other than income from certain government loans, is derived from an “Industrial Enterprise” owned by it and located in Israel. An “Industrial Enterprise” is defined as an enterprise that is held by an Industrial Company whose principal activity in a
given tax year is industrial production.
The following tax benefits, among others, are available to Industrial Companies:
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◾ |
amortization over an eight-year period of the cost of purchased know-how and patents and rights to use a patent and know-how which are used for the development or advancement of the Industrial Enterprise, commencing in the year in
which such rights were first exercised;
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|
◾ |
under limited conditions, an election to file consolidated tax returns together with Israeli Industrial Companies controlled by it; and
|
|
◾ |
expenses related to a public offering are deductible in equal amounts over a three-year period, commencing in the year of the offering.
|
Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority. We believe that we currently qualify as an
Industrial Company within the meaning of the Industry Encouragement Law. There can be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above will be available in the future.
Law for the Encouragement of Capital Investments, 5719-1959
The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production
facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).
The Investment Law was significantly amended effective April 1, 2005 (which we refer to as the 2005 Amendment), further amended as of January 1, 2011 (which we refer to as the 2011
Amendment) and further amended as of January 1, 2017 (which we refer to as the 2017 Amendment). Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment
remain in force but any benefits granted subsequently are subject to the provisions of the 2005 Amendment. Similarly, the 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in
effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect
instead irrevocably to forego such benefits and have the benefits of the 2011 Amendment apply. The 2017 Amendment introduced new benefits for Technological Enterprises, alongside the existing tax benefits.
On October 24, 2010, we received a tax ruling from the Israel Tax Authority, according to which, among other things, our activity has been qualified as an “industrial activity”, as
defined in the Investment Law and is also eligible to tax benefits as a Beneficiary Enterprise, which will apply to the turnover attributed to such enterprise. The benefit period under this tax ruling ended in 2018, and since we did not generate any
taxable income in tax year 2018, we were not entitled to any tax benefits under this tax regime.
In addition, we have reviewed and evaluated the implications and effect of the benefits under the 2011 and 2017 Amendments, and, while potentially eligible for such benefits, we
have not yet chosen to be subject to the tax benefits introduced by the 2011 or the 2017 Amendments.
B. Liquidity and Capital Resources
Our working capital requirements generally reflect the growth in our business and have historically been provided by cash raised from our investors, payments from our collaborators
and government grants. As of December 31, 2019, we had cash, marketable securities and short term bank deposits of $46.9 million, of which $10 million were contributed in the transaction with Corteva, and working capital of $43.3 million, which is
calculated by subtracting our current liabilities from our current assets. As of December 31, 2019, we had $3.3 million of outstanding long-term indebtedness related to government grants.
We expect that our working capital and capital investment needs will be funded for the foreseeable future mainly by our cash and cash equivalents, marketable securities and bank
deposits we hold as well as from payments from our collaborators. Currently, our principal uses of cash are to fund our operations. In the future, cash may serve us in effecting M&A transactions for achieving inorganic growth in our different
segments of operation. We believe that our existing cash and cash equivalents, marketable securities and short-term bank deposits as of December 31, 2019 will be sufficient to meet our projected cash requirements for at least 12 months.
To the extent that existing cash, and cash equivalents, marketable securities and short-term bank deposits are insufficient to fund our future activities, we may need to raise
additional funding through debt and equity financing. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. The negative impact of the ongoing Coronavirus outbreak on economies and financial markets
worldwide may adversely impact on our ability to raise additional funds for our operations, if and when needed.
If adequate funds are not available to us on a timely basis, we may be required to delay, limit, scale back or cease our research and development activities, establishment and
maintenance of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.
Cash Flows
The following table presents the major components of net cash flows used in or provided by (as applicable) operating, investing and financing activities for the periods presented.
For a discussion of our net cash flows for the year ended December 31, 2017, please see “Item 5. Operating and Financial Review and Prospects— B. Liquidity and Capital Resources— Cash Flows” in our Annual Report on Form 20-F for the year ended
December 31, 2018, which we filed with the SEC on April 29, 2019:
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
(U.S. dollars, in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(15,929
|
)
|
|
$
|
(15,161
|
)
|
|
$
|
(17,666
|
)
|
Net cash provided by investing activities
|
|
|
15,245
|
|
|
|
17,353
|
|
|
|
37,139
|
|
Net cash provided by financing activities
|
|
|
814
|
|
|
|
297
|
|
|
|
9,306
|
|
Exchange rate differences - cash and cash equivalents
|
|
|
69
|
|
|
|
(114
|
)
|
|
|
159
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
199
|
|
|
$
|
2,375
|
|
|
$
|
28,938
|
|
Cash Used in Operating Activities
Cash used in operating activities for the year ended December 31, 2019 was $17.7 million and primarily reflects our overall loss of $19.1 million, as reduced, in part, by the
elimination of certain non-cash items that were taken into account in calculating, and that increased, our overall loss, including $2.4 million of depreciation expenses, $1.6 million of share-based compensation expenses, increase in other payables of
$0.4, and $0.4 million of expense due to the amortization of intangible assets; which reduction was partially offset by the elimination non-cash items that were taken into account in calculating, and that reduced, that loss amount, including the
increase in other receivables of $1.3 million and net financing income of $2.4 million.
Cash used in operating activities for the year ended December 31, 2018 was $15.1 million and primarily reflects our overall loss of $20.8 million, as reduced, in part, by the
elimination of certain non-cash items that were taken into account in calculating, and that increased, our overall loss, including $1.7 million of share-based compensation expenses, $2.0 million of depreciation expenses and $0.7 million of net
financing expenses, as well as by $1.4 million interest received; which reduction was partially offset by the elimination of non-cash items that were taken into account in calculating, and that reduced, that loss amount, including a decrease of $0.2
million in deferred revenues and other advances.
Cash Provided by Investing Activities
Cash provided by investing activities was $37.1 million for the year ended December 31, 2019. That primarily reflects $25.4 million of net cash proceeds from the sale of marketable
securities and $12.6 million of cash withdrawn from bank deposits, partially offset by $0.9 million of cash used for the purchase of property, plant and equipment.
Cash provided by investing activities was $17.4 million for the year ended December 31, 2018. That primarily reflects $31.9 million of net cash proceeds from the sale of marketable
securities, partially offset by $14.2 million of cash invested in bank deposits and $0.4 million of cash used for the purchase of property, plant and equipment.
Cash Provided by Financing Activities
Cash provided by financing activities was $9.3 million for the year ended December 31, 2019. That was primarily attributable to $10 million of cash provided by the issuance and
sale of ordinary shares of subsidiaries to third parties, offset, in part, by the use of $0.1 million for net repayments in respect of government grants and $0.6 million for the repayment of an operating lease liability.
Cash provided by financing activities was $0.3 million for the year ended December 31, 2018, which was primarily attributable to net proceeds from government grants.
Government Grants
Our research and development efforts have been financed, in part, through grants from IIA, BIRD, CIIRDF and the EU. From our inception through 2019, we received grants totaling
$7.4 million (including accrued interest) from the IIA, and repaid $3.4 million, in respect of refundable projects. We also received an additional $1.85 million from the IIA in respect of a non-refundable project. We have received grants totaling
approximately $1 million (linked to the U.S. Consumer Price Index) from BIRD and have repaid $0.6 million, whereas the remaining $0.4 million of grants from BIRD have been cancelled, as we decided to withdraw from the relevant project, as detailed in
Note 12 to the financial statements included in this annual report under Item 18. We have received grants totaling $0.8 million from the EU, which are not required to be repaid. As of December 31, 2019, we had four active research grants under which
we have received funding: three from the IIA and one from the EU.
See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Incorporation and Location in Israel—We have received Israeli government grants for certain of our research and
development activities. The terms of these grants may require us to satisfy specified conditions in order to manufacture products and transfer technologies supported by such grants outside of Israel. We may be required to pay penalties in addition to
repayment of the grants.”
IIA Grants
Under the Innovation Law, research and development programs that meet specified criteria and are approved by a committee of the IIA are eligible for grants. The grants awarded are
typically up to 50% of a project’s expenditures, as determined by the IIA committee and subject to the benefit track under which the grant was awarded. A company that receives a grant from the IIA is typically required to pay 3% royalties to the IIA
on income generated from products incorporating know-how developed using that grant (including income derived from services associated with such products), until 100% of the U.S. dollar-linked grant, plus interest at the annual London Interbank
Offered Rate, or LIBOR, is repaid. Certain benefit tracks do not require payment of royalties.
The obligation to pay royalties is contingent on actual income generated from such products and services. In the absence of such income, no payment of royalties is required. It
should be noted that the restrictions under the Innovation Law, including restrictions on the sale, transfer or assignment outside of Israel of know-how developed as part of the programs under which the grants were given will continue to apply even
after the repayment of such royalties in full.
The terms of the grants under the Innovation Law also require that the products developed as part of the programs under which the grants were given be manufactured in Israel and
that the know-how developed thereunder may not be transferred outside of Israel, unless prior written approval is received from the IIA (such approval is not required for the transfer of a portion of the manufacturing capacity which does not exceed,
in the aggregate, 10% of the manufacturing (in which case only notification is required)), and additional payments are required to be made to the IIA, as described below. It should be noted that this does not restrict the export of products that
incorporate the funded know-how.
Ordinarily, as a condition to obtaining approval to manufacture outside Israel, we may be required to pay royalties at an increased rate, and up to an increased cap amount of up to
three or six times the total amount of the relevant IIA grant, plus interest accrued thereon, depending on the manufacturing volume to be performed outside of Israel.
The Innovation Law restricts the ability to transfer know-how funded by the IIA. Transfer of IIA-funded know-how outside of Israel requires prior approval and is subject to payment
of a redemption fee to the IIA calculated according to a formula provided under the Innovation Law. A transfer for the purpose of the Innovation Law is generally interpreted very broadly and includes, inter alia, any actual sale of the IIA-funded
know-how, any license to develop the IIA-funded know-how or the products resulting from such IIA-funded know-how or any other transaction, which, in essence, constitutes a transfer of the IIA-funded know-how.
The IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-funded project to a third party outside Israel is subject to payment of a redemption
fee to the IIA calculated according to a formula provided under the Innovation Law that is based, in general, on the value of the transferred know-how, multiplied by the amount of grants received from the IIA (including the accrued interest), divided
by the total amounts expended by the grant recipient on R&D. To the extent any royalties were paid on account of the grants, such royalties will be deducted from the calculation. The redemption fee is subject to a cap of six times the total
amount of the IIA grants, plus interest accrued thereon, namely the total liability to the IIA, including the accrued interest, multiplied by six. If the grant recipient undertakes that for a period of not less than three years, at least 75% of its
relevant R&D positions will remain in Israel, then the cap will be reduced to three times (rather than six times) the total liability to the IIA, calculated as set out above.
Subject to prior approval of the IIA, we may transfer the IIA-funded know-how to another Israeli company. If the IIA-funded know-how is transferred to another Israeli entity, the
transfer would still require IIA approval but will not be subject to the payment of the redemption fee (although there will be an obligation to pay royalties to the IIA from the income of such sale transaction as part of the royalty payment
obligation). In such case, the acquiring company would have to assume all of the selling company’s restrictions and obligations towards the IIA (including the restrictions on the transfer of know-how and manufacturing capacity outside of Israel) as a
condition to IIA approval.
We are required to pay up to 100% of the amount of grants received by us from the IIA, plus interest at the LIBOR. In addition to paying any royalty due, we must abide by other
restrictions associated with receiving such grants under the Innovation Law. Those restrictions may impair our ability to outsource development of products containing our traits, engage in change of control transactions or otherwise transfer our
know-how outside of Israel and may require us to obtain the approval from the IIA for certain actions and transactions and pay additional royalties and other amounts to the IIA. We cannot be certain that any approval of the IIA will be obtained on
terms that are acceptable to us, or at all. We may not receive the required approvals should we wish to transfer IIA-funded know-how, manufacturing and/or development outside of Israel in the future. Furthermore, in the event that we undertake a
transaction involving the transfer to a non-Israeli entity of know-how developed with IIA-funding pursuant to a merger or similar transaction, the consideration available to our shareholders may be reduced by the amounts we are required to pay to
IIA. Any approval, if given, will generally be subject to additional financial obligations. Failure to comply with the requirements under the Innovation Law may subject us to mandatory repayment of grants received by us (together with interest and
penalties), as well as expose us to criminal proceedings. In addition, the IIA may from time to time conduct royalties audits and such audits may lead to additional royalties being payable on additional products. Such grants may be terminated or
reduced in the future, which would increase our costs. IIA approval is not required for the marketing of products resulting from the IIA-funded research or development in the ordinary course of business.
In January 2018, we announced participation in a three-year IIA-sponsored Phenomics Consortium to develop tools and systems for precision agriculture and innovative development of
agriculture products. In addition to Evogene, the Phenomics Consortium consists of several Israeli industrial companies and academic institutions. The goal of the consortium is to develop plant phenotyping technologies, including the generation of
comprehensive agricultural ‘Big-Data’ and the development of artificial intelligence algorithms for real time analysis of phenotypic data. The grant for the consortium was originally approved for calendar year 2018 in an amount of approximately $5
million, of which approximately $1.4 million was granted to Evogene. By the end of 2018, the grant was extended by an additional six months to a total period of 18 months until mid-2019, and the grant amount was updated to approximately $7.6 million
total, of which approximately $2.1 million was granted to Evogene. In June 2019, the IIA approved the continuation of the consortium following such 18-month period, until the end of 2020, which would complete a three-year workplan, and granted an
additional amount of approximately $7.5 million, of which approximately $1.8 million was granted to Evogene.
BIRD Grants
We have received two BIRD grants, covering the following programs: (i) a joint development program with DuPont-Pioneer (now Corteva) of research and development improvements to
soybean rust resistance; and (ii) a joint research and development program with Marrone Bio Innovations, or MBI, for discovery of novel modes of biological action for insect control.
Under these two BIRD programs, the grant for the joint development will be repaid: (a) from revenues received for the licensing of products developed under the project; (b) from
revenues generated from sales of products developed under the project; (c) from proceeds received from the outright sale of the technology developed under the project; (d) if we and our partner have concluded the development of a product within the
period of development defined under each of the programs; or (e) if within 66 months from the original grant date, in the case of our program with DuPont, or 60 months, in the case of our program with MBI, we and our partner to the development
program did not conclude the development of a product but nevertheless decide to continue the project. In each such case, the repayment will be in an amount of up to 150% of the total grant received, depending on the timing of the repayment.
As alluded to in this section above and as described in Note 12 to our financial statements that appear in Item 18 of this annual report, the grant received for the joint
development program with DuPont-Pioneer (now Corteva) has been repaid in full, whereas our liability for grants received for our joint research and development program with MBI has been cancelled.
CIIRDF Grant
The CIIRDF grant that we have received was also provided to us as part of a previous joint project of ours with Saskatchewan Wheat Pool Inc., operating under the name of Viterra,
to develop canola with improved yield and abiotic stress tolerance. This grant will be repaid from income resulting from the commercialization of a product developed pursuant to the grant project, at a rate of 2.5% of royalties on sales of such
product, in an amount up to 100% of the total grant received. Alternatively, we may repay the grant as royalties of 2.5% of the income we receive from licensing the product developed pursuant to the grant. Payment of such royalties is not required if
commercial revenues are not generated as a result of the project.
EU Grant
In early 2016, a grant application for a consortium for research in photosynthesis in which we participate within the EU Horizon 2020 Program for Research and Innovation was
confirmed. The consortium’s research program is focused on an innovative approach to modulate photosynthesis related pathways aiming to improve photosynthetic efficiency. Beyond us, the consortium includes academic institutions such as the Max Planck
Institute of Molecular Plant Physiology and the Institute of Terrestrial Microbiology, the Weizmann Institute of Science, and the Imperial College of Science, Technology and Medicine. Overall, we will receive a total of €0.9 million for our
participation in the consortium during the five-year project.
C. Research and Development, Patents and Licenses, etc.
We continuously invest, and have historically invested, in maintaining the technological capabilities of our CPB platform, which includes tailored ‘Big-Data’ databases,
interconnected data hubs and proprietary analysis and prediction algorithms. We also maintain laboratories, greenhouses and fields for conducting biological validation activities for our computational predictions.
Our ongoing research and development activities are funded mainly by internal resources, collaboration research and development payments and governmental grants. As of December 31,
2019, 86 of our employees, representing approximately 67% of our entire work force, were engaged in research and development on a full-time basis. For more information regarding our research and development activities, intellectual property and
licenses, please see Item 4.B. “Information on the Company—Business Overview.”
D. Trend Information
In recent years we experienced an increase in the cost we incur for procuring a directors and officers, or D&O, liability insurance, resulting from a general increase in the cost of D&O
liability insurance for smaller, dual-listed public companies such as us. This general increases has been tied to perceived heightened levels of risk for D&O insurers. Insurers have been increasing their level of compensation, in the form of
premiums, which they believe have not been commensurate with the risk being taken by them. In parallel, there has been an increase in the amounts of the deductibles payable by public companies in situations in which an insurable event occurs. If
this trend continues, it will increase our operational expenses and have a negative effect on our financial results.
Other than as described immediately above or disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events during our
current fiscal year that are reasonably likely to have a material effect on our net revenue, income, profitability, liquidity or capital resources, or that would cause the financial information included in this annual report to be not necessarily
indicative of our future operating results or financial condition.
E. Off-Balance Sheet Arrangements
We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which
includes special purpose entities and other structured finance entities.
F. Contractual Obligations
Our significant contractual obligations and commitments as of December 31, 2019 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
1,001
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,001
|
|
Employees and payroll accruals
|
|
|
2,071
|
|
|
|
-
|
|
|
|
- -
|
|
|
|
- -
|
|
|
|
2,071
|
|
Other payables(1)
|
|
|
1,339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,339
|
|
Liabilities in respect of government grants (undiscounted)(2)
|
|
|
37
|
|
|
|
303
|
|
|
|
985
|
|
|
|
2,474
|
|
|
|
3,799
|
|
Non-cancellable operating leases (undiscounted) (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________
|
(1) |
Consists of accrued expenses to be paid to suppliers and subcontractors, mainly for work related to our research and development activities.
|
|
(2) |
Consists of the projected repayments of government grants that partly fund our research and development activities.
|
|
(3) |
Consists of non-cancellable operating leases of our offices, laboratory facilities, greenhouses and motor vehicles.
|
ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A. Directors and Senior Management
The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this annual report.
|
|
|
|
Position
|
Executive officers
|
|
|
|
|
Mr. Ofer Haviv
|
|
53
|
|
President and Chief Executive Officer
|
Mr. Ido Dor
|
|
44
|
|
Chief Executive Officer of Lavie Bio Ltd.
|
Dr. Eyal Emmanuel
|
|
46
|
|
Chief Scientific Officer
|
Dr. Elran Haber
|
|
39
|
|
Chief Executive Officer of Biomica Ltd.
|
Dr. Arnon Heyman
|
|
43
|
|
Chief Executive Officer of Canonic Ltd.
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Mr. Mark Kapel
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43
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Executive Vice President Technology
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Mr. Eran Kosover
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43
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Chief Executive Officer of AgPlenus Ltd.
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Ms. Dorit Kreiner
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48
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Chief Financial Officer
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Directors
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Mr. Martin S. Gerstel(3)(4)
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78
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Chairman of the Board
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Ms. Sarit Firon(1)(2)(4)
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53
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Director
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Mr. Ziv Kop(1)(2)(3)(4)
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49
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Director
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Dr. Adrian Percy(4)
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54
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Director
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Mr. Leon Y. Recanati(3)(4)
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71
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Director
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Dr. Oded Shoseyov(1)(2)(4)
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53
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Director
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____________________________
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(1) |
Member of our Audit Committee.
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(2) |
Member of our Compensation and Nominating Committee.
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(3) |
Member of our Corporate Development Committee.
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(4) |
Independent director under the Nasdaq Listing Rules.
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Executive Officers
Mr. Ofer Haviv has served as Evogene's President and Chief Executive Officer since December 2004 after having joined
the company in January 2002 as Chief Financial Officer. Mr. Haviv serves as Chairman of the Board of Directors of our subsidiaries. From 2006 to 2007, Mr. Haviv served as a director of the company. Mr. Haviv is a Certified Public Accountant and
holds a BA in Accounting and Economics from Tel Aviv University.
Mr. Ido Dor has served as Chief Executive Officer of Lavie Bio, a subsidiary of Evogene, from February 2019. In
January 2018, Mr. Dor was appointed Executive Vice President & General Manager Ag-Biologicals, responsible for the overall management of the division. Previously, from November 2015 until his appointment as Executive Vice President &
General Manager ag-biologicals, Mr. Dor served as Executive Vice President & General Manager Crop Enhancement, responsible for the overall management of the Crop Enhancement division. Mr. Dor joined Evogene in 2011 as a Director of Business
Development and led the business activity of the Ag-Chemicals division. Prior to joining Evogene, Mr. Dor headed the Small & Mid-Size Enterprise business unit at the Israeli branch of SAP, the world leading organizational software company.
Prior to his role at SAP in Israel, Mr. Dor led a business unit at Niram Gitan Group, a leading Israeli management-consulting firm. Mr. Dor holds an M.B.A. and a BSc in Industrial Engineering - both from Tel Aviv University.
Dr. Eyal Emmanuel has served as Chief Scientific Officer of Evogene since January 2019 and previously served as
Evogene’s VP of Corporate Strategy from September 2018 until January 2019. In parallel Dr. Emmanuel is serving as the CEO of EcoBreed, an Israeli startup company and as the Chief Technology Officer of Agrinnovation – the Hebrew University’s internal
fund for agriculture. From September 2017 to September 2018, Dr. Emmanuel served as the VP Ideation and technology evaluation of Yissum Ltd., the technology transfer office of the Hebrew University. From 2014 to January 2017, Dr. Emmanuel served as
the Chief Science Officer & Head of R&D Crop Protection of Evogene. From May 2006 to September 2017, Dr. Emmanuel served in various managerial R&D positions, leading several of the Company’s key research programs. Prior to joining
Evogene, Dr. Emmanuel served as a researcher at LSRI, Israel’s premier life sciences research center. Dr. Emmanuel holds a Ph.D. and an MSc from the Weizmann Institute’s Department of Plant Science as well as a BSc from the Hebrew University of
Jerusalem, Faculty of Agriculture. Dr. Emmanuel also holds an MBA from the College of Management - Academic Studies (COMAS), majoring in Bio-Medical Management.
Dr. Elran Haber has served as Chief Executive Officer of Biomica Ltd., a subsidiary of Evogene, since January 2018.
Dr. Haber previously served as Chief Executive Officer of Therapix Biosciences (NASDAQ, TASE: “TRPX”) beginning in November 2015. Prior to that, from March 2014, Dr. Haber served as our Vice President of Business Strategy and Innovation. Dr. Haber
served for more than 10 years as Chairman and board member of several publicly traded and privately held companies, including Issta Lines Ltd. (TASE: “ISTA”) from 2007 to 2012, and American Express Global Business Travel – Israel (Histour-Eltive
Ltd.) from 2010 to 2012, and has been a member of various board committees and has served in senior executive roles in various life science companies. Dr. Haber holds a Ph.D. in Pharmaceutical Science and an MBA in Finance & Financial
Engineering, both from The Hebrew University of Jerusalem, Israel.
Dr. Arnon Heyman has served as Chief Executive Officer of Canonic Ltd. since April 2019 and as Vice President &
General Manager of Ag-Seeds since January 2018, previously serving as director of project management crop protection. Dr. Heyman’s team was in charge of all collaboration and internal project in the fields of disease control, insect control and
chemistry. Prior to Evogene, Dr. Heyman served as CTO of BondX Technologies Ltd. from 2009 to 2014. Dr. Heyman holds a PhD. in Biotechnology from The Hebrew University of Jerusalem (2008) and a MBA from the College of Management (2015).
Mr. Mark Kapel was appointed as Executive Vice President Technology in February 2018, previously serving as Director
of Information Technologies & Data Management from 2013. Mr. Kapel joined Evogene in 2005 and has held various positions in the company over the years. Mr. Kapel holds a B.Sc. in Physics & Computers from the Ben Gurion University of Negev,
an MBA specializing in Management of Technology from Tel Aviv University's Faculty of Management – Recanati Graduate School of Business Administration.
Mr. Eran Kosover has served as Chief Executive Officer of AgPlenus Ltd., a subsidiary of Evogene, since November 2018.
In January 2018, Mr. Kosover was appointed Executive Vice President & General Manager Ag-Chemicals, responsible for the overall management of the division. Previously, Mr. Kosover served as the Executive Vice President & General Manager
Crop Protection from November 2015 to January 2018, responsible for the overall management of the Crop Protection division. Prior to that, Mr. Kosover served as Evogene’s VP Project Management from April 2014 to November 2015, and was responsible
for managing all company collaborations and internal projects. From January 2009 to May 2011 Mr. Kosover served as a Business Development Manager. Prior to joining the company, Mr. Kosover was in charge of sales, business development and operations
in Atera Networks, an Israeli Hi-tech start-up in the field of SMB IT. Prior to Atera, Mr. Kosover worked as a Project Manager in various strategic consulting projects for Teva Pharmaceuticals (mainly Teva EU division). Mr. Kosover holds an M.A. in
Economics and a B.A. in Economics and Management, both from Tel Aviv University.
Ms. Dorit Kreiner has served as Chief Financial Officer of Evogene since February 2019. Ms. Kreiner has previously
served as CFO of a number of companies, including NRGene between 2014 and 2018 and Therapix Biosciences between 2011 and 2014 (TASE: THXBY). Ms. Kreiner also previously filled the position of Director of Finance of Evogene between 2004 and 2011.
Ms. Kreiner holds a BA in accounting and economics from Tel Aviv University, a Bachelors of Law from the College of Management and an MBA in Finance and Marketing from Tel Aviv University.
Directors
Mr. Martin S. Gerstel has served as our Chairman of the Board of Directors
since December 2004 and as a director since February 2004. In addition, Mr. Gerstel has served as the Chairman of Compugen Ltd., a predictive drug discovery and development company, from 1997 to 2017; Chairman of Keddem Bioscience Ltd., a drug
discovery company, from 2004 to 2016, and co-founder and co-chairman of Itamar Medical Ltd., a medical device company, from 1997 to 2017, where he now serves as a director. In addition, Mr. Gerstel has been a board member of Yeda Ltd., the technology
transfer company of the Weizmann Institute of Science, since 1994 and was a board member of Yissum Ltd., the technology transfer company of The Hebrew University, from 2003 to 2015. He is a member of the board of governors and the executive committee
of the Weizmann Institute of Science and the board of governors of The Hebrew University of Jerusalem. Prior to relocating to Israel, Mr. Gerstel was co-chairman and chief executive officer of ALZA Corporation, a U.S. pharmaceutical company
specializing in advanced drug delivery, which he helped to found in 1968. Mr. Gerstel holds a BSc from Yale University and an MBA from Stanford University.
Ms. Sarit Firon has served as a director of our company since she was appointed by the Board in August 2016. Ms. Firon
is the Managing Partner of Cerca Partners, a Venture Capital, co-investment fund. Previously, Ms. Firon was the Chief Executive Officer of Extreme Reality (XTR3D), a company that provides real time software-based, 3D motion capture technology,
using a single standard webcam. Prior to her role at Extreme Reality (XTR3D), Ms. Firon held roles as Chief Financial Officer at each of Kenshoo, MediaMind (NSDQ: MDMD, acquired by DG corp.), OLIVE SOFTWARE, P-CUBE (acquired by Cisco) and RADCOM,
LTD. (NSDQ: RDCM). Ms. Firon serves as the Chairperson of myThings, a global leader in customized programmatic ad solutions, which runs personalized retargeting campaigns on desktop, mobile and Facebook, since July 2015. Ms. Firon also holds other
board positions at DTORAMA and Protected Media. Ms. Firon holds a Bachelor’s degree in accounting and economics, and a Diploma in Accounting Advanced Studies, both from Tel Aviv University.
Mr. Ziv Kop has served as a director of our company since January 2014. Mr. Kop serves as a director of Outbrain Inc.
and Outbrain Ltd. Mr. Kop currently serves as Managing Partner at OG Tech Partners. From 2017 to 2019, Mr. Kop served as Partner at Marker/Innovation Endeavors VC. From February 2014 to June 2016, Mr. Kop served as chief operating officer and Active
Board Member of Outbrain Inc. a web-based content discovery platform. Previously, and since its inception in 2003 until June 2013, Mr. Kop was a Managing Partner at GlenRock Israel., a private equity investment firm, where he managed a portfolio of
growth companies in the fields of advanced technologies and healthcare, and served on the board of more than ten private and public companies. Prior to his role at GlenRock, Mr. Kop served as Chief Executive Officer of POC Management Consulting, a
leading Israeli consultancy in the field of strategic planning. Mr. Kop holds an LL.B. and an MBA from Tel Aviv University Law School and Business School and is a graduate of INSEAD’s Young Managers Program.
Dr. Adrian Percy has served as a director of our company since February 2019. Dr. Percy serves on the board of directors
of BioLumic, HiFidelity Genetics and Biotalys. He is a member of the science and technology boards of Terramera, Biotalys and Rothamsted Research. Dr. Percy currently serves as the CTO of UPL Ltd., is a venture partner with Finistere Ventures and
frequently acts as an advisor to companies through his own consultancy company, Nomad Technology Consulting. Previously, Dr. Percy served as the head of research and development for the Crop Science division of Bayer as part of its executive
committee. During his 16-year tenure at Bayer, he also led crop protection development activities for Bayer in North America and regulatory affairs activities across the entire division of Crop Science. Dr. Percy has held positions in the research
and development departments of Rhone Poulenc, Aventis CropScience and Bayer in France, Germany and the United States. Dr. Percy earned a bachelor’s degree in pharmacology at the University of Liverpool, as well as a master’s degree in toxicology and
a doctorate in biochemistry at the University of Birmingham.
Mr. Leon Y. Recanati has served as a director of our company since May 2005. Mr. Recanati has served as chairman and
chief executive officer of GlenRock Israel Ltd. since 2003. Previously, Mr. Recanati was chief executive officer and/or chairman of IDB Holding Corporation; Clal Industries Ltd.; Azorim Investment Development and Construction Co Ltd.; Delek Israel
Fuel Corporation; and Super-Sol Ltd. He also founded Clal Biotechnologies Industries Ltd., a biotechnology investment company operating in Israel. Mr. Recanati holds an MBA from the Hebrew University of Jerusalem and Honorary Doctorates from the
Technion Institute of Technology and Tel Aviv University.
Dr. Oded Shoseyov has served as a director of our company since November 2018. Dr. Shoseyov is the scientific founder of
14 companies, including: Futuragene Ltd., Collplant Ltd., Biobetter Ltd., GemmaCert Ltd., SP-Nano materials Ltd., Melodea Ltd., Valentis Nanotech. Ltd., Paulee CleanTec Ltd., Smart Resilin Ltd., Sensogenic Ltd., and Karme Yosef Winery. Dr. Shoseyov
is a faculty member of The Hebrew University of Jerusalem, where he conducts research in plant molecular biology protein engineering and nano-biotechnology. His group focus is on Bio-Inspired Nanocomposite materials. He has authored or co-authored
more than 200 scientific publications and is the inventor or co-inventor of 64 patents. Dr. Shoseyov is a TED speaker and a co-owner and winemaker of BRAVDO winery. Dr. Shoseyov received the Outstanding Scientist Polak Award for 2002, the 1999 and
2010 Kay Award for Innovative and Applied Research, the 2012 Israel Prime Minister Citation for Entrepreneurship and Innovation, and the 2018 Presidential Award for his contribution to the Economy and Society of Israel. Dr. Shoseyov holds a BSc from
the Hebrew University (1981), MSc from the Hebrew University (1982), and a Ph.D. from the Hebrew University (1987).
Arrangements for Election of Directors and Members of Management; Family Relationships
There are no arrangements or understandings with major shareholders, customers, suppliers or others related to the election of our board of directors or the appointment of
members of our senior management. There are furthermore no family relationships among any directors or members of our senior management.
B. Compensation
Aggregate and Individual Compensation of Officers and Directors
The aggregate compensation, including non-cash share-based compensation (consisting of expenses related to option grants), accrued by us in respect of the year ended December 31,
2019 to all persons who served as directors and/or executive officers during that year, was approximately $3.2 million. That amount includes approximately $0.3 million of gross compensation set aside or accrued for executive officers for purposes of
pension, severance, retirement, car, phone or similar benefits or expenses, but does not include business travel, relocation, professional and business association dues and expenses reimbursed to executive officers, and other expenses commonly
reimbursed by companies in Israel.
During 2019, we granted to our executive officers and directors an aggregate amount of 230,000 options, of which 2,500 were granted with an exercise price of NIS 5.61, 2,500 were
granted with an exercise price of NIS 5.63, 150,000 were granted with an exercise price of NIS 5.74, 7,500 were granted with an exercise price of NIS 6.19 and 67,500 were granted with an exercise price of NIS 8.53. Those options generally expire
within ten years from the date of grant. In addition, during 2019, a few of our officers, who serve as CEOs in our subsidiaries, were granted options to purchase equity of our subsidiaries, which are not detailed above.
The following table presents information regarding compensation accrued in our financial statements for the year ended December 31, 2019 for our five most highly compensated
executive officers.
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|
|
|
|
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Salary and related benefits
|
|
|
|
|
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Value of Options Granted(3)
|
|
|
|
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Ofer Haviv
President and Chief Executive Officer
|
|
|
366
|
|
|
|
76
|
|
|
|
96
|
|
|
|
538
|
|
Eran Kosover
CEO AgPlenus
|
|
|
208
|
|
|
|
-
|
|
|
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370
|
|
|
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578
|
|
Ido Dor
CEO Lavie Bio
|
|
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209
|
|
|
|
48
|
|
|
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404
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|
|
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661
|
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Mark Kapel
EVP Technology
|
|
|
199
|
|
|
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35
|
|
|
|
51
|
|
|
|
285
|
|
Dorit Kreiner
Chief Financial Officer
|
|
|
201
|
|
|
|
31
|
|
|
|
45
|
|
|
|
277
|
|
|
(1) |
All amounts reported in the table are in terms of cost to the Company, as recorded in our financial statements.
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|
(2) |
Bonus amounts shown in this table reflect bonuses that were paid in 2020 relating to the officers’ service in our company in 2019, as approved by our compensation and nominating committee and board of directors, and, with respect to
our Chief Executive Officer, also by our shareholders.
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|
(3) |
Consists of amounts recognized as non-cash expenses in our statement of profit or loss for the year ended December 31, 2019 in respect of option grants. Some of our executive officers were granted options to purchase equity of our
subsidiaries for which they serve as officers, for which the related expenses were recorded in our statement of profit or loss.
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Compensation Policy
As required by the Companies Law, we have adopted a policy regarding the terms of engagement of office holders (which include directors and senior executive officers), or a
compensation policy. The compensation policy serves as the basis for determining the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in
respect of employment or engagement. The compensation policy must relate to certain factors specified in the Companies Law, including advancement of the company’s objectives, the company’s business and its long-term strategy, and creation of
appropriate incentives for executives. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The Companies Law describes what factors have to be considered by, and what principles must be
included in, the compensation policy.
Our compensation policy was last updated in September 2019, at a special general meeting of our shareholders, following the recommendation of our compensation committee and our
board of directors.
Approvals Required for Compensation of Directors and Officers
Under the Companies Law, the compensation of each of our directors and our Chief Executive Officer requires the approval of our compensation committee, the subsequent approval of
the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of our shareholders at a general meeting (in the case of our Chief Executive Officer, the shareholder approval must include the
special majority described under “Item 6. Directors, Senor Management and Employees— C. Board Practices— Approval of Related Party Transactions under Israeli Law— Disclosure of Personal Interests of an Office Holder and Approval of Certain
Transactions”). The compensation of any other office holder (who is neither a director nor our Chief Executive Officer), if consistent with our compensation policy, requires the approval of our compensation committee, followed by our board of
directors. Compensation of any such office holder that deviates from our compensation policy also requires shareholder approval, including by the special majority described under “Item 6. Directors, Senor Management and Employees— C. Board Practices—
Approval of Related Party Transactions under Israeli Law— Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions.”
Compensation of Executive Officers
Our compensation for our executive officers is paid pursuant to written employment agreements that we have entered with each of our executive officers and is based, in part, on
each executive officer’s personal contribution to our management, operations and success. Such compensation is determined consistent with our compensation policy. For more information on our compensation policy, please see “—Compensation Policy”
above.
Each executive officer’s entitlement to an annual bonus is determined according to a formula that is consistent with the compensation policy and that links financial and
qualitative target-based goals and metrics related to the specific objectives within the responsibility of the relevant executive officer. The goals and objectives of our executive officers are determined by the compensation and nominating committee
and our board of directors. For each fiscal year, our board of directors determines the maximum target bonus for each of our executive officers, including our Chief Executive Officer. In the case of our executive officers other than the Chief
Executive Officer, assuming that the bonus terms conform to the compensation policy, such terms only require approval by the compensation and nominating committee followed by the board of directors. For our Chief Executive Officer, all terms of
employment, including bonus terms, require, in general, approval by a majority of our shareholders present and voting (in person or by proxy) at a meeting of shareholders, subject to the additional condition that either: (i) the majority voted in
favor includes a majority of the shares held by shareholders who are neither controlling shareholders of our Company nor have a conflict of interest (referred to as a “personal interest” under the Companies Law) in such matter, or (ii) the shares
held by the foregoing non-conflicted, non-controlling shareholders that are voted against the terms of compensation do not constitute more than two percent of the outstanding voting rights in our company.
Each of the employment agreements with our executive officers contains provisions regarding non-competition, confidentiality of information and assignment of inventions. The
non-competition provision applies for a period that is generally 12 months following termination of employment. The enforceability of covenants not to compete in Israel and in the United States is subject to limitations. The employment agreement of
each executive officer is terminable at will upon 60 days written notice by either party to the agreement, except for the employment agreement with Mr. Ofer Haviv, our President and Chief Executive Officer, which is terminable at will upon 90 days
written notice, by either party to the agreement.
Director Compensation
Our directors are entitled to cash compensation and equity compensation as follows:
Cash Compensation to Directors
All of our directors receive annual fees and per-meeting fees for their service on our board and its committees, in the following amounts:
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Annual fees in an amount of approximately $17,950 for directors not classified as experts and appro |