30 March 2017 – Evolva (SIX: EVE) today announces its financial results for the period 1 January to 31 December 2016 and provides a business update. The news release, annual report and Powerpoint presentation are available on the website. Scroll down for analyst/media call details.
- Press release in English (PDF)
- Press release in German (PDF)
- Annual report 2016 (English)
- German summary report 2016
Summary of key items:
- Strong growth in commercial pipeline for nootkatone, valencene and resveratrol
- Progress in build-up of commercial capabilities (including online sales)
- Distributor network widened significantly
- Further reduction of production costs across the board
- Expanded EverSweetTM IP portfolio with pivotal patents for producing the best-tasting stevia sweeteners via fermentation
- Agreement with Cargill on the stevia project expected to be announced next week
- EverSweetTM on track for launch in 2018
- Nootkatone on track for launch in insect control in 2018
- Solid progress on partnered projects
- Revenues of CHF 9.6 million (2015: CHF 13.4 million)
- Costs under tight control
- Cash position of CHF 47.5 million on 31 December 2016
- Finances recently strengthened with a standby equity facility of CHF 30 million
Neil Goldsmith, CEO of Evolva said, “Whilst 2016 was in many respects a challenging year, it also saw Evolva successfully continue its transition away from being a pure-play R&D company to having its own launched products, supported by capabilities in areas such as manufacturing, regulatory, application development and sales. Regarding the stevia programme, we have seen good progress in the discussions with Cargill and expect to announce an agreement in the course of next week.”
Oliver Walker, CFO, commented, “Our commercial pipeline is developing very favourably, providing a basis for top-line growth. Our cash position going into 2017 is good and the recent Yorkville facility further strengthens and expands our financial toolkit.”
Products and partnerships
Evolva’s technologies allow a wide range of natural ingredients to be made in a better way. It is our strategy to gradually build a portfolio of ingredients for use in the healthcare, nutrition and wellness sectors, with some being commercialised by us, and others via partners.
We have built a significant pipeline of ingredients, with everything being made in yeast. For some ingredients we finance all the work ourselves, for others we work with partners, whilst yet others have come via acquisitions. In this section we will focus on the progress of our three key products.
Product revenues increased almost fourfold in 2016 to reach CHF 1.1 million. We had expected an even stronger increase. The primary reason for the shortfall was customer conversion taking longer than expected. Despite this the sales trajectory is clearly positive and the customer pipeline continues to improve.
NOOTKATONE AND VALENCENE
Nootkatone is a citrus ingredient that is associated with the characteristic grapefruit smell. We launched our nootkatone product in August 2015 as a Flavour & Fragrance (F&F) ingredient for use in the food, beverage, personal care and home care markets. As a spin-off to the nootkatone programme, we also launched valencene, an F&F ingredient associated with oranges, in December 2015. In the second half of 2016, we switched production to a strain with approximately 50% better efficiency than the one we used for launch. Production costs are already at a very competitive level for the F&F application. We currently use contract manufacturers to make nootkatone.
We see global pest and disease vector control (including ticks and mosquitoes) as the largest commercial market opportunity for nootkatone, although sales will not commence until we have the necessary approvals in place. We are making good progress in the process with the US Environmental Protection Agency (EPA) for nootkatone’s approval as insect repellent, and given this continues, we expect approval in 2018. We are also working on regulatory approval of nootkatone in a number of other geographies.
In April 2016 we signed a license agreement with the US Centers for Disease Control and Prevention (CDC), granting Evolva the exclusive worldwide patent rights to develop and commercialise nootkatone for the control of a wide range of disease and virus vectors such as ticks, mosquitoes, fleas, flies, lice, bed bugs, and other biting insects. And in July we announced that the US National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), is sponsoring studies to test Evolva’s nootkatone against mosquitoes infected with Zika virus. The study evaluates nootkatone in multiple formulations against wild type and insecticide-resistant mosquitoes that carry the virus.
During 2016 we worked with multiple potential customers, as well as on our own behalf, in demonstrating the utility of nootkatone against a wide range of insects and related pests. We currently have more than 50 active discussions with potential customers and partners for pest and vector control, representing a more than doubling of the pipeline from end 2015 (though of course the majority of the discussions are still relatively early). Part of this work involves the design of new repellent formulation against mosquitos, ticks and bed bugs.
Evolva’s resveratrol has a high-purity (>98%) and is the only resveratrol product made entirely by fermentation using natural and sustainable feed stocks. 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 countries outside North America and Europe. The key application currently is in dietary supplements.
Our resveratrol product generated its first sales in 2015, but initially sales were limited by supply chain issues. We successfully removed these in mid-2016 and believe supply will no longer be a limiting factor going forward. This resulted in accelerating sales growth in the second half of 2016.
In February 2017, we launched Veri-teTM, the brand for our high-purity, sustainably produced resveratrol. With a strong brand reflecting the high quality of our resveratrol, the launch of Veri-teTM opens up new opportunities for jointly branded finished products.
Cost of Goods Sold (COGS) continued to decline during the year and we believe it will continue to decline strongly in years to come, widening resveratrol’s market potential.
We have further increased our commercial efforts by building up small sales teams in key territories while at the same time signing agreements with distributors. The efforts are beginning to bear fruit as our sales pipeline increased from c. 50 prospects in the spring of 2016 to c. 130 prospects currently. We intend to sign additional distribution agreements and widen both the geographic and product ranges that our resveratrol is sold into.
Looking ahead a bit further, we believe our resveratrol product can be applied in various additional areas. We are exploring selected applications with potential key accounts and research partners, including in connection with improving bone calcification and reducing periodontitis. In addition we are studying the product’s potential in improving the growth of livestock.
A surprising potential future use of resveratrol may be as a key ingredient for lightweight fire- and heat-resistant composites and coating materials. We are working together with the US Navy in this area. We have produced and delivered a resveratrol formulation specifically targeted for this use and will continue to work with the Navy to advance this new class of composites. In addition to the benefits for the US Navy, we see potential for a broad spectrum of civilian applications.
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 D (Reb D), and rebaudioside M (Reb M) and convincingly overcomes stevia’s previous taste issues. Evolva has developed yeast strains producing Reb M and Reb D. Stevia represented our largest R&D programme during 2016.
We made solid progress in 2016. First, we were granted a pivotal patent (EP2742142) by the European Patent Office on a novel technique for producing the best-tasting stevia sweeteners (“steviol glycosides”). In February 2017 we received a pivotal patent grant (U.S. Patent No. 9,562,251) from the U.S. Patent & Trademark Office covering commercially highly viable production methods for manufacturing better-tasting value-added steviol glycosides. 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 13 granted and 81 pending applications around the world (including 2 in the US and 5 in Europe) related to production of steviol glycosides by various methods including fermentation, bioconversion, and other approaches.
Another key milestone was the issuance by the US Food and Drug Administration (FDA) of a GRAS (Generally Recognized as Safe) No-Objection letter, qualifying EverSweet™ for use in food and beverages.
We currently expect EverSweet™ to launch in 2018. Under the 2018 launch plan, EverSweet™ will be produced initially at Cargill’s advanced, highly efficient, manufacturing campus in Blair, Nebraska (USA) through retrofitting existing facilities. Evolva and Cargill are additionally examining an accelerated move to a new facility that may also act as a production hub for other Evolva products, including nootkatone and resveratrol, and those of certain Evolva partners. This plan is subject to the successful completion by spring 2017 of ongoing negotiations between Evolva and Cargill. It is expected that debt financing of some activities, notably production capex, will be involved.
Selected developments on other products and partnerships
At year-end 2016, Evolva’s total headcount amounted to 177 full-time employees (year-end 2015: 163), of which 131 (year-end 2015: 128) were primarily involved in research, development and manufacturing, while the remaining staff are employed with managerial, commercial and administrative tasks.
Key financials*) Gross proceeds from placement of shares and option exercises.
Revenue from R&D, which derives from corporate and public partnerships, amounted to CHF 7.6 million, down 16% from 2015. Part of the decline can be attributed to the completion of Evolva’s active contribution to two projects (Roquette, Ajinomoto). In addition, new projects with external partners increasingly take place on a risk-sharing basis, meaning we bear part of the R&D costs ourselves. If and when these projects result in marketed products, we will also receive a larger share in the upside.
Product revenues showed an increase, both for resveratrol and nootkatone, but were still below expectations. The main reasons for the shortfall were the supply chain bottlenecks for resveratrol during the first half of the year and customer conversion taking longer than expected. Despite this, the sales trajectory is clearly positive and the customer pipeline continues to improve.
Other income in 2016 relates to a transfer of intellectual property rights from Evolva to a 20% associate company. The large amount of other income in 2015 involved the sale of the EV-035/GC-072 asset to Emergent BioSolutions.
Manufacturing expenses rose, reflecting the increase in sales of resveratrol and nootkatone, but also internal and external investments in improvement of the yield of these products.
R&D expenses decreased by 6% in 2016, but adjusted for non-recurring charges, they were up slightly – reflecting the development of the R&D headcount. The nonrecurring charges are related to an increase in provisions for a former DTRA contract.
Commercial, General and Administrative expenses rose by 18%, triggered largely by the increasing commercial headcount and by regulatory expenses for bringing our products to market, nootkatone in particular.
The main element within “Financial items and tax” is the tax benefit of roughly CHF 5.2 million related to deferred corporate income taxes. Currencies had a positive impact of CHF 0.8 million in 2016, versus CHF 0.3 million in 2015. Financial lease and interest income/expenses amounted to CHF 0.3 million on balance in 2016, roughly the same as in 2015.
Balance sheet and cash flow
The net loss and the cash outflow from operating activities remained at high levels in 2016, as expected, impacting cash and equity positions. Cash and cash-equivalents at year-end 2016 stood at CHF 47.5 million and provide a good basis going into 2017. We recently further strengthened our finances by entering into a CHF 30 million equity commitment provided by the financial investor Yorkville.
Investments in fixed assets remained well under control, totalling CHF 1.0 million in 2016. In addition Evolva acquired CHF 0.2 million worth of laboratory and computer equipment under financial lease arrangements.
Financial outlook 2017
We expect to continue successfully enrolling many more customers to test our products. Given the long lead time to acquire and ramp up customers, we expect product sales to show broadly similar growth dynamics as in 2016. And subject to milestone achievements, we expect revenues from R&D in the range of the achievements in 2015 and 2016.
The headcount is planned to remain overall stable, but to show a shift from early research towards scale-up and applications development as well as sales and marketing.
As in previous years, we expect to enter 2-3 partnerships for new products and/or for new R&D programmes.
The cash outflow is expected to remain relatively high in 2017 but is well covered by the current cash position and the additional financing facility from Yorkville.
At the beginning of 2017, the Board of Directors (BoD) determined that 50% of the 2016 goals had been achieved (compared with a 60% achievement of the 2015 goals). As a consequence, the BoD decided to skip the cash bonus for management (previous period: 3.5%). The amount of equity compensation was also strongly reduced. Overall Group Management Team compensation declined by 7% in 2016 to reach CHF 3.2 million.
The BoD compensation does not contain variable components, hence purely depends on the number of BoD members. In 2017 for the first time, the BoD’s equity compensation takes the shape of RSU instead of options. In light of the poor share price performance, the BoD has decided to waive 50% of its RSU compensation, after waiving 25% last year.
Based on input from shareholders and proxy advisors, as well as a peer group analysis, the Compensation Committee recommended switching to Restricted Stock Units (RSUs) at the AGM of May 2016. The shareholders approved the related change to the Articles of Association, enabling their introduction. The BoD has decided to grant RSUs to everyone qualifying for the equity incentive scheme, starting with the grant in February 2017 (EVE10).
The BoD also decided to extend the vesting scheme for the 2017 grant such that the first vesting takes place three years after grant, followed by two other vesting in the following years. The total vesting period therefore extends 5 years. Like options granted in past, the staff member needs to earn these RSU by providing service to the company during the vesting period.
During 2016, the number of shares outstanding rose by 0.8 million to 398.7 million due to the exercise of employee options. At year-end 2016, Evolva’s market capitalisation was CHF 291 million. On average, 1.6 million Evolva shares were traded per day in 2016 on the Swiss stock exchange, compared with 2.1 million in 2015. The value traded per day amounted to CHF 1.1 million in 2016.
The Evolva share ended 2016 at CHF 0.73, down from CHF 1.15 at the end of 2015. The performance was in line with the average of our peer group. Only one of our nine peers managed an increase in 2016 while the other eight showed declines varying between 3% and 75%.
– Ends –
Press/analyst call at 10AM CET on 30 March 2017
Neil Goldsmith (CEO) and Oliver Walker (CFO) will provide an update on progress in a call for analysts and media. The dial-in numbers are:
+41 (0)58 310 50 00 (Europe)
+44 (0)203 059 58 62 (UK)
+1 (1)631 570 5613 (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.