30 March 2016 – Evolva (SIX: EVE) today announces its financial results for the period 1 January to 31 December 2015. The news release, annual report and Powerpoint presentation are available on the website.
- Press release in English
- Press release in German
- Annual report in English
- Annual report – summary in German
Summary of key items:
- Near term focus on three products: stevia, nootkatone and resveratrol
- Stevia – Cargill filed with FDA for “No Objection” letter on EverSweet™
- Stevia – EverSweet™ launch delayed beyond 2016
- Nootkatone – launched in H2 2015, regulatory process for tick repellency approval on track
- Nootkatone – expanded collaboration with CDC with focus on mosquitoes that transmit the Zika virus
- Saffron – to be partnered, will delay launch past 2016
- Vanillin – discussions with IFF for Evolva to take over majority of vanillin business
- Production – manufacturing efficiency for launched products improved by c. 50% in last 18 months
- Partnerships – entered two new partnerships during year (Takasago and Valent)
- Research – strong progress across most of the pipeline and partnerships.
- Corporate governance – we expect 2016 to see the start of a succession process at board level
- Revenues up 25% to CHF 13.4 million
- Cash position of CHF 83 million at year-end 2015. No debt
Neil Goldsmith, CEO of Evolva said, “Although we hit a number of important milestones during 2015, with nootkatone and valencene launched, and excellent results on several development programs (f.x. Roquette and Takasago) we also missed some, with the stevia launch not now taking place in 2016. We have decided to focus on ingredients with clear functional benefits to the end-user, and in the near term emphasise three key products: stevia, nootkatone and resveratrol. We believe these have the combined potential to propel us towards profitability. Outside this focus we will, until we reach profitability, increase the extent we work with partners.”
Jakob Dynnes Hansen, CFO, commented, “Revenues were up strongly in 2015. Costs showed an increase as well, reflecting that our products are reaching or getting closer to market. Our cash position is robust. As goal achievement didn’t match last year’s level, management compensation was reduced and our board voluntarily waived part of their compensation. At our shareholder meeting in May, we will be proposing some adjustments to our compensation policy that continues our policy of adopting best practice.”
Products (and partnerships)
Evolva’s fermentation-based technologies allow a wide range of natural ingredients to be made in a better way. Typically such ingredients are used in food, drink, cosmetics and personal care, consumer health, household products, pharmaceuticals and agriculture.
Since 2010 (when we commenced our current business focus) Evolva has built a significant pipeline of such ingredients made in yeast. For some ingredients we finance all the work ourselves, for others we collaborate with partners.
In a recent strategic review, Evolva’s board and management decided to focus on functional ingredients with clear benefits to the end user. In the next 2-3 years, this means focusing on stevia, nootkatone and resveratrol. Other products, such as saffron, will most likely be developed with partners. We believe our three key products, together with revenues from partnered products, will carry us to profitability. Long term we have no change in our view of our business and its potential – we see a large array of ingredients coming from one R&D and production platform. We have a balanced portfolio of products with no one product dominant in its potential for the company.
In the following sections we will further explain the progress of selected products. Product names in italics are code words for undisclosed products. Additional ingredients are in development.
We continue to see a great opportunity for our Stevia product, which is partnered with Cargill. The need to reduce sugar consumption and the pledges of large food companies to reduce sugar in their products continues to gain momentum. The need for alternatives to sugar is clear and stevia is well placed to be “the next big thing”. However for stevia to achieve its full potential, it is necessary to both significantly improve its taste and reduce its cost, both of which we believe our fermentation approach can achieve. We maintain our view that our stevia product can address a USD 4bn market (a number that can be reached on the basis of substituting roughly 50% of the HFCS and 10% of the sucrose used in today’s beverages).
Stevia represented our largest research programme during 2015, and at year-end we achieved a technical milestone, triggering a payment of USD 0.5 million from Cargill to Evolva.
In autumn 2015 Cargill unveiled the branding of the next-generation, zero-calorie stevia sweetener under the name EverSweetTM at SupplySide West in the USA, the first commercial target market for EverSweetTM. Cargill representatives have publicly stated that customer feedback to EverSweetTM was very positive, with our high expectations on the excellent taste of the product being confirmed.
During 2015 and early 2016 Cargill has entered material transfer agreements with a double-digit number of potential customers. Early in 2016, Cargill submitted its request for a no-objection letter to the FDA.
However, despite the above progress work during late 2015 and early 2016 has indicated that EverSweet™ production costs are currently above where we and Cargill want them to be for launch. This is as a result of a combination of factors, including strain characteristics; fermentation and downstream processing costs; facility conversion costs, production scale, and current customer indications on pricing. Both Cargill and Evolva have very recently concluded that it is prudent to delay launch until this situation is remedied. As a result we no longer believe that EverSweet™ will be launched in 2016. A development programme has been initiated to resolve the identified bottlenecks and ensure the delay is as short as possible.
Evolva does not see the above delay in commercialisation as significantly affecting the mid to long-term potential of EverSweet™. During 2015, Evolva informed Cargill that it intends to exercise its option to be 45% owner in the EverSweet™ franchise and this intention remains in place, subject to agreement on the final commercialisation terms.
We launched resveratrol at the end of 2014. Equipment availability and operational inefficiencies significantly limited production in 2015. We believe this issue will be resolved by mid-year 2016, in part due to process improvements made by Evolva.
As the result of the production limitations, sales in 2015 were significantly below projections at CHF 0.2 million, and we came close to “selling out” of resveratrol. During 2015 we introduced a yeast strain into production that significantly improves the efficiency of making.
Although sales were below expectations in 2015, the market feedback we obtained on the product is very positive, and we continue to believe in its mid to long term potential – if anything, our expectations have increased. In addition to the initial application in dietary supplements, we are exploring other areas with potential key accounts, including bone health, women’s health, oral care and animal nutrition. In October 2015 we participated at the Supply Side West conference in Las Vegas and provided customers with detailed technical support for resveratrol use in consumer healthcare products for bone health, blood glucose control, cognition and cardiovascular health. In September 2015 we made a donation to the University of Toronto (Canada) to support research on the use of resveratrol in managing periodontitis (a serious gum infection that damages the soft tissue and destroys the bone that supports teeth).
Evolva’s resveratrol is also being used in two other important studies, one on cognitive health in middle aged adults, and the other in the area of women’s health and focused on polycystic ovarian syndrome.
Over the years, resveratrol has been proposed as a safe natural product to support the long term management of conditions such as Alzheimer’s disease, cancer, diabetes and many other conditions. In 2015 a multi-centre Phase II clinical study in people with Alzheimer’s suggested that the compound, when taken in concentrated doses, may have benefit in slowing progression of this disease.
In August 2015, we launched nootkatone into the market as a Flavour and Fragrance (F&F) ingredient for food, beverages, personal care and home care products. Following positive market feedback, customers then progressed to integrate our nootkatone into their current and new product formulations. This process is time intensive and sales of commercial product only commenced in December. Sales for the year reached CHF 0.1 million. Since the initial launch we have continued to expand the scope of both customers and markets, substantially increasing the sampling of nootkatone and customer engagement.
We use Contract Manufacturing Organisations (CMOs) in North America to produce our nootkatone and in late 2015, we implemented into production a second generation strain. This new strain delivered 30% improved efficiency compared to the original strain used for launch, lowering the cost of goods to very competitive levels.
In the first half of 2015, we submitted a request to the US Environmental Protection Agency (EPA) to classify our nootkatone active ingredient as a biochemical, allowing for a potentially easier and faster process for registration of nootkatone for use against pests. We received approval from the EPA for this classification in August 2015. This keeps us on track to get nootkatone approved for protection against certain pests in the USA in early 2018. This should result in a very significant expansion of the addressable market.
We recently announced the expansion of our work with the US Centers for Disease Control (CDC) to research nootkatone’s effectiveness in tick-control to include an additional focus on mosquitoes, including those that transmit Zika, chikungunya, dengue, and West Nile viruses. CDC research has shown nootkatone both repels and kills the yellow fever mosquito, Aedes aegypti, and the black-legged tick, Ixodes scapularis which transmits Lyme disease.
Across the various applications for nootkatone, we continue to see the annual sales potential as reaching c. USD 100 million over time.
Our partner, International Flavors & Fragrances Inc. (IFF), introduced our vanillin product to the F&F market in mid-2014. Since its introduction, IFF has significantly widened the range of products into which our vanillin is incorporated. However, volumes remain low compared to our original expectations.
In order to more comprehensively explore the potential of our vanillin, we are currently in discussions with IFF to revise our collaboration to enable Evolva to commercialise vanillin in most markets, with IFF receiving royalties and supply guarantees. We currently expect to complete these negotiations in 2016.
We have developed a cost efficient manufacturing process at large production scale for valencene. Valencene was launched at the end of 2015 and we are now processing sample requests for prospective clients. We are currently working on a new strain generation with improved productivity and expect to move that into production later in 2016.
We have successfully developed yeasts that make all three of saffron’s key ingredients and entered scale up fermentation. Saffron extract and safranal have Flavor & Extract Manufacturers Association (FEMA) GRAS (‘’generally recognised as safe”) status and we are preparing a GRAS submission to FEMA for our product. We provided samples of some of our saffron products to a number of potential customers during late 2015 and received very positive feedback regarding its aroma and options for additional applications.
In line with our revised company focus, we aim to further develop saffron with a partner. This will likely move the launch to 2017 or later.
After delivering an initial yeast strain in May 2015, we provided Roquette with a final, improved version in the autumn of 2015, triggering a final payment of CHF 1.2 million to Evolva. The improved strain exceeds the predefined productivity goals by between 10% and 65%. This concluded our contribution to the specific Roquette product and Roquette will be responsible for the further steps towards commercial production. Evolva is now independently developing an additional product in the Ruby family to which it has retained all rights.
We announced the successful completion of the first phase of the Ajinomoto project in March 2015, which triggered a milestone payment of several hundred thousand Swiss francs. Phase 2 was completed in the second half of 2015, with the delivery of a viable strain and production route to Ajinomoto for the specific ingredient. Ajinomoto intends to further develop, scale up and commercialise this ingredient in-house.
This led to a new agreement with a focused field of Agate ingredients. Evolva is entitled to royalties on potential future product sales by Ajinomoto.
The partnership with L’Oréal progressed well, with a first milestone achieved in January 2015 and a second in November 2015. L’Oréal is performing initial applications tests. Given success in bringing Opal to market, we expect to generate future revenues from the L’Oréal collaboration in cosmetics and from our own commercialisation of Opal ingredients in other areas.
“Coral” is a family of structurally related ingredients with applications in food and beverages, that was partnered with Cargill in early 2015. Work is at an early stage.
“Tourmaline” covers several ingredients with broad applications in F&F, regarding which we entered into a collaboration with Takasago (Japan) in March 2015. Takasago has exclusivity for certain Tourmaline ingredients in F&F and selected additional markets. The project has commenced well and in March 2016, we announced reaching the first milestones, which triggered a payment of CHF 1 million to Evolva.
In March 2015, we announced the signing of an exclusive agreement with Valent BioSciences Corporation, a subsidiary of Sumitomo Chemical (Japan), to co-develop and commercialise a class of high-value active ingredients for use as next-generation agricultural bioactives. The program is proceeding well with early milestones reached.
Until 2010, we focused on the discovery and development of novel pharmaceuticals. Since then, we refocused onto the current business model. As a result we have out-licensed or sold the EV-077 and EV-035/GC-072 products. We still have certain success positions on these products. Main highlights in 2015:
- In the first half of 2015, the US government approved the transfer (“novation”) of the GC-072 contract to Emergent BioSolutions Inc. (USA). This triggered a payment of USD 4 million to Evolva, following an initial upfront payment of USD 1.5 million in December 2014.
- In August 2015, Serodus ASA (Norway), our licensee on EV-077, announced the randomisation of the first patients in a Phase IIa clinical trial with SER150 (EV-077) in patients diagnosed with diabetic nephropathy.
- PI Industries (India), our licensee on Pomecins, has discontinued further development and this program is now completely inactive.
Production and cost of goods sold (COGS)
We launch when COGS reach an acceptable level. Typically at the start of production of a new molecule, a production process is not fully optimized and there is lack of scale that together result in a relatively high COGS. Additionally sales are limited but investments into commercial awareness are higher, which lead to a negative impact on the bottom line. But a fast track to market is important to gain commercial insight and raise awareness of our product. Post launch, we continue work to improve the performance of the yeast strains as well as other production metrics that impact COGS. In addition we continuously update our contracts with CMOs to optimise the balance between speed and lowest sustainable COGS. We already have a very strong track record of improvements in production metrics, cutting COGS of our nootkatone and resveratrol products significantly post launch. This provides us with a high degree of confidence that we can build profitable product lines.
At year-end 2015, Evolva’s total headcount amounted to 163 full-time employees (year-end 2014: 144), of which 128 (year-end 2014: 116) were primarily involved in research, development and manufacturing, while the remaining staff are employed with managerial, commercial and administrative tasks.
During 2015, the number of shares outstanding rose by 70.3 million to 397.9 million, mainly due to the capital increase in September 2015. This comprised a placing of 62.4 million shares in a 3-for-16 rights issue with an offer price of CHF 0.92 per share. Total gross proceeds were CHF 57.8 million. Credit Suisse acted as lead-manager for the transaction, supported by Bank Vontobel and two selling agents. At the same time, Evolva issued 2.6 million shares in September 2015 which were added to treasury. Option exercise by Evolva employees triggered the issuance of 5.3 million shares over the year. At year-end 2015 Evolva’s market capitalisation was CHF 457.6 million (+6% versus year-end 2014). The Evolva share ended 2015 at CHF 1.15, a slight decline relative to the previous year-end. Liquidity stayed around the high level reached in 2014; on average, 2.1 million shares were traded per day in 2015 on the Swiss stock exchange, compared with 2.3 million in 2014. The value traded per day was a respectable CHF 3.0 million in 2015.
Revenue was up by 25% in 2015. The breakdown of overall revenues is as follows:
Revenue from R&D which derives from corporate and public partnerships amounted to CHF 9.1 million, almost the same as in 2014. Two partnerships expired in 2015, while several new ones got underway.
Product sales represented 2% of total revenue. The modest level of product sales reflects that sales of resveratrol were restricted by limited supply of product and that nootkatone was only launched in the second half of 2015.
“Other income” relates primarily to the sale of the EV-035/GC-072 asset to Emergent Biosolutions in 2014 and contributed c. 30% to total revenue in 2015 (2014: 14%).
R&D expenses rose by 52% to CHF 35.0 million. A major part of the increase was due to two non-cash expenses that do not reflect the underlying trend of R&D activities:
- An increase of the accrual of CHF 3.0 million for potential repayment on a former DTRA contract, as disclosed in the half-year report in August 2015.
- An increase of CHF 2.8 million in depreciation on intangible assets (primarily due to ordinary depreciation on acquired IP from Allylix).
Excluding the above two items, R&D expenses increased by around 26%. This increase was primarily due to the consolidation of R&D expenses at Allylix which was acquired in December 2014. The acquisition was the main driver of the increase in R&D headcount by 24% to 122 at the end of 2015. In addition, recruitments in the fermentation and DSP areas contributed to the increase in staff expenses of 37.5%. Finally, R&D staff expenses were impacted by the transfer of shares to former Prosarix shareholders who are now employed by Evolva.
In addition to staff costs, R&D expenses were impacted by increased research and regulatory activity on several of our programmes, in particular stevia and nootkatone.
Manufacturing expenses increased to CHF 1.6 million reflecting the substantial investment not only in the actual manufacturing of resveratrol and nootkatone but also in internal and external investments in improvement of the yield of these products.
The increase in SG&A expenses results from several areas. A major part is due to additional headcount and activities in Sales and Marketing, reflecting the increased efforts of bringing products to market. Furthermore, the integration of Allylix added both one-time and more permanent G&A expenses while the addition of one member to the Group Management Team (Chief Commercial Officer) in September 2014 also played a role.
Balance sheet and cash flow
Total assets amounted to CHF 232.2 million at the end of 2015 (2014: CHF 212.6 million) primarily due to an increase in the cash position. The cash increase was largely a result of the rights issue in September 2015. The company then issued 62.4 million new shares at a price of CHF 0.92, leading to gross proceeds of CHF 57.8 million. At the same time, we added 2.6 million shares to our treasury for later financing purposes. Exercise of options under our incentive programmes brought CHF 1.8 million in 2015.
Intangible assets declined by CHF 4.2 million due to ordinary depreciation of the patent portfolio. Property, plant and equipment dropped by CHF 2.1 million due to the sale of the former group headquarter in Basel, leading to the removal of both the asset and the related mortgage loan (under liabilities).
Inventory increased by CHF 2 million as a result of manufacturing of resveratrol and nootkatone. Current liabilities declined significantly due to the settlement of a series of liabilities related to the Allylix acquisition.
Total equity grew from CHF 175 million to CHF 203 million.
The net operating cash outflow increased to CHF 31.8 million (2014: CHF 19.9 million) mirroring four key factors: the higher expenses in R&D, manufacturing and commercial activities, the increase in inventory of final products and the settlement of liabilities which Evolva assumed from Allylix.
For 2016, we expect a significant increase in sales of resveratrol, nootkatone and valencene. On the other hand, income related to EV-035/GC-072 (30% of 2015 revenues) will not recur this year. Overall, we expect 2016 revenues to remain around the level of 2015, subject to product ramp and milestone achievement. We expect to see higher revenues in the second half of the year than in the first.
We are investing significant resources in new applications of our lead products and in further improving their manufacturing efficiency, which should both expand commercial potential. We expect modest growth in head-count connected to sales and marketing and production, whilst we expect R&D head-count to be flat.
During 2016 we expect to enter a commercial agreement with Cargill for the launch of EverSweetTM, and for the FDA to issue a No objection letter for the product.
As in previous years, we expect to enter 2-3 new important partnerships for new products and/or for new R&D programmes.
The cash outflow is expected to remain relatively high in 2016 but is well covered with the current cash position.
– Ends –
Press/analyst meeting and conference call at 10.00 AM CET on 30 March 2016
Neil Goldsmith, CEO and Jakob Dynnes Hansen, CFO, will present the results in a meeting for media and analysts at SIX Convention Point in Zürich. The meeting will be accessible via dial-in:
+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. The news release, annual report and Powerpoint presentation are available on the website.