14 August 2017 – Evolva (SIX: EVE) today announces its financial results for the period from 1 January to 30 June 2017 and provides a business update. The Powerpoint presentation and condensed half-year accounts are available on Evolva’s website. Analyst/media meeting details on page 6.
Summary of progress:
- EverSweetTM on-track for launch in 2018 with strong customer interest
- Nootkatone on track for USA regulatory approval in pest control 2H 2018
- Continuing to grow nootkatone’s customer base in Flavour & Fragrances
- Resveratrol revenues up strongly on the back of Veri-teTM branding
- Transformation to a product-based company continues and a review of its operational strategy initiated that will be further elaborated in Q3
- Evolva product sales up strongly and now accounting for 25% of total revenues (1H 2016: 11%), overall revenues comparable with last year
- Cash position of CHF 33.8 million on 30 June 2017 (31 December 2016: CHF 47.5m)
Simon Waddington, CEO of Evolva said, “This is an exciting time for Evolva to take the next logical step in our company’s transformation process into a product-based company. There is a considerable demand to bring natural ingredients to the market for health, wellness and nutrition and related fields. However, many are limited by supply chain issues. Our mission remains to solve such issues by delivering cost-competitive products, produced in a sustainable way through bio-production. Over the past 13 years Evolva has invested considerable resources to build a powerful and unique innovation engine to make complex ingredients, and importantly, link it to cost-efficient manufacturing processes. However, Evolva does not intend to invest large sums into own manufacturing facilities. We prefer to partner strategically with those who already have such assets, like we have done with Cargill. Similarly, we are now exploring a commercial strategy to rapidly expand product sales, working with market leading companies to bring products to market. We are evaluating our organisational structure to fit this focus. We will provide further details in Q3.”
NOOTKATONE AND VALENCENE
Nootkatone is a citrus ingredient that gives grapefruit its distinct fragrance. We launched our nootkatone product in August 2015 as a Flavour & Fragrance (F&F) ingredient for use in food, beverage, personal care and home care markets. In addition, we launched valencene, an F&F ingredient associated with oranges, in December 2015. The first half of 2017 saw a steady increase in our revenues in the F&F space.
We have further improved the production efficiency for both nootkatone and valencene, which keeps us on track to expand the number of potential commercial applications for these two products.
Next-generation pest control (particularly against ticks and mosquitoes) represents the largest global commercial opportunity for nootkatone. Evolva is focused on the USA for its first commercial launch, preparing the regulatory dossier to the US Environmental Protection Agency (EPA) for nootkatone’s approval as an ingredient for pest control. We anticipate receiving the EPA’s decision in the second half of 2018. We are also working on regulatory approval of nootkatone in a number of other geographies.
Evolva has engaged in discussions with the leading players in pest control and vector-disease prevention to ensure nootkatone achieves its public health and commercial potential around the globe.
In June 2017, Evolva confirmed a media report stating that the Company is negotiating a sole-source contract with the US Biomedical Advanced Research and Development Authority (BARDA) to advance the development and EPA registration of Evolva’s nootkatone product to help in the fight against the mosquitoes that transmit Zika virus. No further details can be provided at this time.
Evolva’s high-purity (>98%) resveratrol is the only resveratrol product made entirely by fermentation using natural and sustainable feedstocks. It has self-affirmed GRAS status in the United States and obtained Novel Foods authorisation for use in dietary supplements from the European Commission in January 2012. We have applied for regulatory approval in several countries outside North America and Europe and to date we have received approvals in India, Malaysia and Singapore. The key application currently is in dietary supplements with a focus on products for healthy ageing.
The first half of 2017 saw sales surpassing those obtained in the whole of 2016.
In February 2017, we launched Veri-teTM, the brand for our high-purity, sustainably-produced resveratrol, that reflects the high quality of our product. The launch of Veri-teTM opens up new opportunities for jointly branded finished products.
Production efficiency continued improving and we believe it will continue to do so in years to come, widening resveratrol’s market potential.
We have further increased our commercial reach by signing several distributor agreements during the first half of 2017. The efforts are beginning to bear fruit as our commercial pipeline has increased to some 150 engaged customer discussions. We intend to sign additional strategic distribution agreements and widen both the geographic and product ranges for resveratrol.
We are exploring specific market segments with customers and research partners, for example targeting improved bone calcification; improved cognition; and reducing periodontitis. In addition, we are studying the product’s potential in improving the growth of livestock, and performance in aquaculture.
In autumn 2015, our partner Cargill unveiled the branding of the next-generation zero-calorie sweetener under the name EverSweetTM. The product contains the great-tasting rebaudioside M (Reb M), and rebaudioside D (Reb D) and convincingly overcomes stevia’s previous taste issues. Evolva has developed yeast strains producing Reb M and Reb D.
We made good progress in 2017 to date. After the grant of a key EU patent in 2016, we received a pivotal patent grant (U.S. Patent No. 9,562,251) from the U.S. Patent & Trademark in February 2017. Of particular commercial importance, this patent protects methods for producing steviol glycosides for making Reb M by a number of production methods including fermentation, bioconversion, and other approaches. Evolva was the first company to identify and characterise several enzymes involved in Reb M biosynthesis pathways. Including this most recent patent, Evolva now has 17 granted and 88 pending applications around the world (including 2 granted in the US and 5 in Europe).
In April 2017 we announced a major collaboration agreement with Cargill for the production and commercialisation of EverSweetTM the next-generation stevia sweetener. Under the agreement, Evolva could receive up to 30% of the profits of the EverSweet™ business, determined as a function of the strain efficiencies achieved.
We currently expect the EverSweet™ product to launch in 2018. Under the commercialisation plan, the EverSweet™ product will be produced at Cargill’s advanced, highly efficient manufacturing campus in Blair, Nebraska (USA) through retrofitting existing facilities. The retrofit of Cargill’s fermentation facilities in Blair is progressing well and keeps the project on track for first production in 2018.
In parallel, Cargill is actively preparing the launch through various channels. The EverSweet™ product was presented at several industry conferences and samples have been shared with a large number of potential customers. Feedback is very positive, as customers are finding the EverSweet™ product can be used across a broad variety of product categories.
Evolva continues to transition from a Research and Development oriented organisation into a product-based company. We are evaluating our organisational structure to fit this focus. We will provide further details on the outcome in Q3.
The development of revenues continues to reflect the transition from R&D towards commercial products. Product revenues accounted for 25% of total income in the first half of 2017, versus 11% in the same period last year.
Revenue from corporate and public R&D partnerships declined as two of our major partnership projects have passed their peak. Moreover, the move to working with partners on a risk-sharing basis continues to have an impact. As we bear part of the R&D costs on risk-sharing projects ourselves, the short-term revenue contribution decreases, whereas the share in the future upside increases.
As forecast in March 2017, product revenues continued increasing strongly. This can largely be attributed to a steep increase in resveratrol sales. Not only do product sales in general ramp quickly, the pipeline of commercial prospects is also building fast and the distributor network continues to expand. In addition, the number of countries in which our products are approved rises quickly. Overall, this provides a good basis for further growth.
Cost of goods sold has increased as a result of higher sales volumes of our products as well as an increased headcount in this activity.
Overall R&D expenses for the reporting period decreased to CHF 13.4 million (-17%). The focus on application development has led to some costs moving from R&D to CG&A. A lower involvement of external Contract Research Organisations also was a factor behind the reduction of R&D expenses. As EverSweet is getting closer to launch, we were able to capitalise CHF 0.7 million worth of stevia-related development costs in the first half (none last year).
Commercial, general and administrative (CG&A) expenses have increased as sales and regulatory activities as well as application development related to our own products continue to grow. Headcount in these areas increased compared to the previous period.
The main element within “Financial items and tax” is the tax benefit of CHF 2.3 million (first half 2016: CHF 2.2m) related to deferred income taxes. On the other hand, currencies had a negative impact of CHF 1.6 million in the first half, versus CHF 0.1 million in the first half of last year.
Balance sheet and cash flow
The net loss and the cash outflow from operating activities remained at high levels, as expected, impacting cash and equity positions. Cash and cash-equivalents at 30 June 2017 stood at CHF 33.8 million, compared with CHF 47.5 million at year-end 2016. In March this year we strengthened our finances by entering into a CHF 30 million equity commitment provided by the financial investor Yorkville. During the first half of 2017, we have drawn CHF 3.2 million from this facility. Investments in fixed assets remained at a low level.
During the first half of 2017 the number of issued shares rose by 25.5 million to 424.2 million. Evolva created 25 million treasury shares from authorised capital in March, to be used for share issues under the Yorkville agreement as well as for other financing purposes. The remaining 0.5 million shares were related to employee option exercise.
Financial outlook 2017
We expect to continue expanding our customer pipeline. This, in turn, should boost product revenues, which we expect to at least triple in 2017 compared to last year. Subject to milestone achievements, we expect revenues from R&D in the second half to be slightly below the level of the first half.
In view of the ongoing organisational review, we expect to further sharpen our strategic focus over the coming months, which should also lead to a reduction of operating expenses, becoming effective in 2018.
The outlays for the Blair retrofit will begin in the second half of 2017 and peak in 2018. As mentioned in April, Evolva is looking into various funding scenarios for the retrofit investment.
The overall cash outflow is expected to remain consistent in 2017 and is covered by the current cash position and the additional financing facility from Yorkville.
Oliver Walker, CFO, commented, “Our finances developed in line with our plan, both on the top and the bottom line. The Yorkville equity facility that we agreed last March is working well and provided CHF 3 million of fresh cash to date.”
– Ends –
Press/analyst meeting and call at 10AM CET on 14 August 2017
Simon Waddington (CEO), Oliver Walker (CFO) and Scott Fabro (Commercial) will present the results in a meeting for media and analysts in Hotel Savoy Baur en Ville, Paradeplatz in Zürich.
The meeting will also be accessible via phone. Dial-in numbers:
+41 (0)58 310 50 00 (Europe)
+44 (0)203 059 58 62 (UK)
+1 (1)631 570 56 13 (USA)
A replay will be available as a podcast for 2 weeks after the call. The link to the podcast will be posted on Evolva’s website.