20 March 2018 – Evolva (SIX: EVE) posted its financial results today for the period from 1 January to 31 December 2017, and provided business highlights that illustrate how the Company is executing on its strategic transformation plan which was put in place last August.
Elements of this transformation have included accelerating growth of our commercial products, building stronger R&D operations, successfully streamlining our operations and fortifying our cash balance. These elements have provided Evolva with a strong base to grow our product revenues while strengthening our world-class research and development capabilities to bring important products to market quickly.
Key business highlights
- Today, in a joint press release, Cargill and Evolva announced the official start of the commercial production of EverSweet™ to fill customer orders. Additionally, Cargill and Evolva reached a new agreement for the EverSweet™ sweetener which replaces the existing agreements, and adds certain additional high intensity sweeteners.
- Under this new agreement, Evolva will receive a royalty percentage on the sales of EverSweet™, which will accrue to Evolva as soon as EverSweet™ starts generating revenues
- Evolva will benefit from a significant reduction of operational and capital expenses while maintaining long term value
- Nootkatone pest control products
- Evolva has filed for US EPA registration for the active ingredient nootkatone, a process that is expected to be completed by the end of 2018
- In parallel, Evolva is actively engaged in discussions with leading pest control product companies to supply nootkatone for next-generation tick and mosquito products
- Resveratrol products
- Following on the heels of the launch of our Veri-teTM brand, revenue growth is accelerating
- Product sales up by 82% in 2017 to reach CHF 2.0 million
- Overall revenues were CHF 6.8 million (2016: CHF 9.6m), the decline being related to the reduced activities on contract R&D work, which is in line with our announced strategy
- Cash position of CHF 97.2 million on 31 December 2017 (31 December 2016: CHF 47.5m)
Evolva CEO Simon Waddington said, “The commercial launch of EverSweet marks the fifth product platform that Evolva has advanced from concept to market. We are very proud of this track-record and look forward to advancing further products that meet important societal needs. Evolva is a world-leader in applying cutting edge biotechnology to allow for sustainable bioproduction of next-generation ingredients that positively impact the health, nutrition and protection of people and animals.”
Evolva CFO Oliver Walker commented, “Our finances are developing in line with our financial plan. We have a solid cash position of almost CHF 100 million, remain debt-free, and have significantly trimmed our burn rate. By any measure, Evolva has never been in such a strong financial position.”
The PowerPoint presentation and accounts are available on Evolva’s website. Analyst/media call details on page 6.
In April 2017, Evolva announced a major collaboration agreement with Cargill for the commercialization and production of the EverSweet™ product.
Today, Evolva and Cargill issued a joint press release announcing that Cargill has started commercial production of EverSweet™ to fill customer orders. In addition to hitting this new production milestone, Cargill and Evolva reached a new agreement for the EverSweet™ sweetener, which replaces the existing agreements, and adds certain additional high intensity sweeteners.
This new agreement has some key advantages for Evolva over the previous agreements:
- Evolva will receive a mid-single-digit royalty on EverSweet™ sales, which will bring EverSweet™ revenue to Evolva significantly sooner than under previous agreements.
- It relieves Evolva of significant operational and capital expenses associated with building out the EverSweet™ business in the near term and for production capacity expansion in the future, reducing Evolva’s obligations to Cargill to USD 18 million, payable over the next 12 months.
- In keeping with our new capital-light production strategy, Evolva will no longer require access to Cargill’s fermentation capacity in Blair, Nebraska, and will instead simply continue to produce resveratrol, nootkatone and valencene through its existing contract manufacturing arrangements.
The start of commercial production follows on from the positive feedback Cargill has received from customers following extensive testing of EverSweet™ across a broad variety of product categories.
The parties also maintain a strong intellectual property estate. After receiving a key EU patent grant in 2016 (EP2742142 B1), Evolva received two pivotal patent grants from the U.S. Patent & Trademark in February 2017 (U.S. Patent No. 9,562,251) and in April 2017 (U.S. Patent No. 9,631,215) covering highly commercially viable production methods for manufacturing better-tasting value-added steviol glycosides.
These patents are of particular commercial importance and protect key steps leading to the production of Reb M by a number of production methods including fermentation, bioconversion, and other approaches. Including these most recent patents, Evolva now has 23 granted and 105 pending applications around the world (including three granted in the US and five in Europe) covering production methods.
NOOTKATONE AND VALENCENE
Evolva markets nootkatone to the F&F and consumer goods industries. The focus areas are food, beverages, personal care and home care. We are generating sales from several of the leading companies in these areas. Our customers are located around the globe.
Next-generation pest control (particularly against ticks and mosquitoes) represents an additional, and substantially larger, commercial opportunity for nootkatone. Evolva has been working in close collaboration with the US Centers for Disease Control and Prevention (CDC) on the use of nootkatone against a wide variety of biting pests, such as the mosquitoes and ticks that transmit a multitude of diseases. The goal is that nootkatone can one day be used for the benefit of global public health against other important biting pests, such as the Ixodes tick which transmits the bacterium that causes Lyme disease.
In September 2017 we were awarded a sole-source contract by the US government. This CDC-funded contract (No. HHSO100201700015C) has a value of USD 8.35 million to Evolva and is expected to run until March 2019 with a possibility of extension. Its key objective is to advance the development of safe, effective, and sustainably sourced next-generation products that can provide a new form of protection against select mosquitoes that can carry diseases like Zika.
We expect the EPA (US Environmental Protection Agency) registration of nootkatone to be completed by the end of 2018.
We continue to successfully produce nootkatone and valencene at our contract manufacturing sites. Consistent with prior year’s performance we have, again, significantly 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.
Resveratrol revenues accelerated in 2017. In February 2017, we launched Veri-teTM, our branded high-purity, sustainably-produced resveratrol. The launch of Veri-te™ opens up new opportunities for jointly branded finished products. We increased our commercial reach by signing several distributor agreements. The efforts are bearing fruit, with our commercial pipeline roughly doubling over the past 12 months. We intend to sign additional strategic distribution agreements and widen both the geographic and product ranges for resveratrol.
Our resveratrol product has a number of regulatory approvals (EU Novel Foods, US Self-Affirmed GRAS), which enables broad commercial use in multiple applications in key markets. Our resveratrol has also been approved in markets such as India, Malaysia and Singapore. We also offer the product at Pharma grade (API – Active Pharmaceutical Ingredient) quality.
We continue to produce our resveratrol through contract manufacturers with 100% First Pass Quality, a record that now extends from 2014 through all of 2017. Significant gains in production efficiency were achieved again in 2017, as projected, and further improvements are expected for 2018 and beyond.
Profit & loss
Revenues from Research & Development (R&D) projects, commissioned by external partners, declined to CHF 4.8 million in 2017 as compared to CHF 7.6 million in 2016. This reflects our previously communicated strategy to gradually wind down milestone-based R&D projects in order to put our full focus on product development and the commercialization of our products.
In line with previous guidance, product revenues increased to CHF 2.0 million in 2017 as compared to CHF 1.1 million in 2016. Our products resveratrol and nootkatone each showed strong growth rates. The sales trajectory remains positive and the customer pipeline continues to improve.
Manufacturing expenses rose, reflecting the increase in sales volume of resveratrol and nootkatone, but at a lower rate than corresponding product sales.
Overall R&D outlays amounted to CHF 28.2 million in 2017, down 15% on 2016. This amount includes one-off restructuring expenses of CHF 3.0 million, but excludes capitalized R&D expenses of CHF 3.9 million (2016: none). Capitalized R&D expenses involve mainly staff costs and third party services related to development work on the stevia project.
Commercial, General and Administrative expenses rose by 28%, triggered largely by regular, contractual termination payments to management members and staff who were given notice in the restructuring. Total restructuring related expenses amounted to CHF 1.4 million. Moreover, expenses increased due to the further strengthening and expansion of commercial activities to boost product sales.
Overall restructuring charges within the various expense categories were CHF 4.4 million in 2017, staying within the estimate of CHF 5 million, which we communicated at the end of August.
The main element within the item “Financial items and tax” is the tax benefit of CHF 7.0 million related to deferred corporate income taxes. On the other hand this item includes our share in the loss of an investment in an associate of CHF 0.5 million, related to the project with River Stone Biotech, LLC. The impact of currency movements was negative by CHF 0.2 million in 2017, compared with a gain of CHF 0.8 million in 2016. Lease expenses and interest were roughly unchanged compared to 2016.
Balance sheet and cash flow
The key change in the balance sheet last year was the strong increase in the cash position to CHF 97.2 million, up almost CHF 50 million on 2016. The two successful financing transactions in the autumn of 2017 yielded a total of CHF 86 million. The impact of the capital increases also appears on the other side of the balance sheet under “Equity”.
Two Indian venture funds completed the conversion of their minority interest in Evolva’s Indian subsidiary into a shareholding in Evolva Holding SA in 2017, leading to the removal of the item “Non-controlling interests (NCI)” from the balance sheet. At yearend 2016, this item represented a value of CHF 1.9 million.
The provisions at year-end 2017 include an amount of CHF 4 million for two former research contracts for the US Defense Threat Reduction Agency (DTRA). As we expect the final settlement of the project evaluation within the next twelve months, the related provision moved from long to short term liabilities. The short term provisions also include CHF 2.3 million associated with the restructuring.
Total investment in laboratory refurbishments, which was prompted by the concentration of R&D activities primarily in Switzerland, remained well below our earlier forecast of CHF 1 million.
As we are continuously strengthening our commercial activities, which also includes an expansion of our sales force, our commercial pipeline is becoming broader and deeper. As a result, we expect our product revenues to further grow strongly and at least double compared to 2017. Revenues from R&D partnerships will continue declining in 2018, in line with our strategy of winding such relationships. In addition, we expect to see first royalty income from EverSweet TM, albeit very limited, in 2018.
We are confirming the cost saving targets we announced in August 2017, which will take full effect starting in the second quarter of 2018. Overall, we expect to reduce the loss in 2018 following the restructuring of our company.
Next-generation pest control represents an important additional commercial opportunity for our nootkatone product (particularly against ticks and mosquitoes). We expect the EPA (Environmental Protection Agency) registration of nootkatone to be completed by year-end 2018.
– ends –
Press/analyst call at 10AM CET on 20 March 2018
Simon Waddington (CEO) and Oliver Walker (CFO) will present the results in call for media and analysts.
+41 (0)58 310 5000 (Europe)
+44 (0)207 107 0613 (UK)
+1 (1)631 570 5613 (USA)
The Powerpoint presentation and annual accounts are available on Evolva’s website. 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.