It is fifteen years since agritech company Evogene (TASE: EVGN; Nasdaq: EVGN) signed a collaboration agreement with Monsanto, which at the time was one of the world’s leading seeds companies. Evogene used the big data and artificial intelligence system it had developed to understand what genetic engineering should be applied to plants to give them properties such as resistance to drought and salinity, to improve yields, and so forth. "This is the deal we dreamt of when we founded Evogene," the company’s CEO Ofer Haviv was quoted as saying at the time.
Monsanto paid the groundbreaking Israeli company an advance of $15 million, and committed to investing and making further payments for each type of seed sold containing Evogene’s technology, potentially amounting to hundreds of millions of dollars. This was the largest of several similarly structured deals that Evogene made in that period, and it looked as though it just had to sit and wait for the money to roll in.
Several things went wrong. Regulatory processes for new seeds became longer, opposition arose to genetically modified plants, and in 2016 Monsanto was acquired by Bayer. Besides that, it turned out that the relationship between a gene and a particular property was far more complicated than had been thought. One property could be affected by many genes, each of them interacting with the environment in a complex way.
The products that were the subjects of the collaboration agreement thus never reached the market. It took time before Evogene realized how serious the problem was and before it made the market aware of the situation. In 2013, it floated its shares on Nasadq, mainly on the basis of the prestige of its past agreements. It later even announced that the agreement with Monsanto has been expanded and revealed that it had transferred 1,000 genes to the international company.
Shortly after the Nasdaq listing, the company’s share price, which at the peak in 2013 gave it a market cap of about $500 million, started to slide. Since then, it has fallen by 96%, giving Evogene a market cap of just $35 million. Another blow is Evogene’s accession to the inglorious club of companies under threat of being delisted from Nasdaq. For the company to avoid this fate, its stock needs to be traded at above $1 in ten sessions in the coming months - it is currently at $0.85. Evogene has announced that it will take steps to deal with that threat.
Evogene’s financials disclose meagre revenue of $237,000 in the first quarter of this year, with a loss for the quarter of $7.6 million. Its accumulated losses amount to $215 million.
After it publicly recognized that the promise of genetic engineering had faded, Evogene started looking for other revenue sources. In recent years, it has started to apply its technological capabilities in additional fields: biological pest control, precision chemical pest control, cannabis, and the human microbiome. "The current Evogene is built upon the infrastructure of the old Evogene, but the application is completely different," says CEO Haviv. "Genetic engineering is no longer relevant, except perhaps in a residual way."
The hope, of course, is to lift the sunken share price, not just by technical means, but by building confidence in "the new Evogene". In 2019, Evogene institutionalized its new approach by restructuring such that each field was the responsibility of a separate subsidiary that could receive external investment separately. The hope of course is that each will eventually make its own exit.
"Meanwhile I have the system, I have recruited a set of customers, and at the moment I am also financing them, in order for them to become a kind of shop window for us," Haviv explained to "Globes". Evogene does not rule out a future return to the model of strategic agreements with other companies, even though such agreements have not up to now yielded much in the way of success. It is also examining other areas of biology where its technology could be relevant, from agriculture to industry, and including both veterinary and human healthcare.
The subsidiaries, the "shop windows" are four in number, and two of them focus on the microbiome: Biomica, which is about to start a first trial in the area of changing the microbiome mix in order to improve the effectiveness of anti-cancer drugs; and Lavie Bio, which deals in "ag-bio", enhancing a plant by changing the mix of microbes in the soil in which it grows.
Lavie Bio has developed a product that improves the growth of wheat, with good timing from its point of view, thanks to the global shortage of wheat because of the war in Ukraine. The company has already posted initial revenue, "and in 2024 we hope we will already see that kind of revenue that’s worth reporting," Haviv says. Lavie Bio is the first example of the release of value by an Evogene subsidiary: it raised capital in 2019 at a valuation of $100 million.
Two additional companies are linked to plant genomes rather than to the microbiome. Canonic identifies desirable genes in cannabis plants. "We first of all test the effect of the plant on the human body, and by means of our system we gain understanding of the genetics of the plants that have the most beneficial effects," says Haviv.
The idea is not to engineer the plant genetically, but to guide crossbreeding of plants to make them produce the desired property. In the past, Evogene sought to convert its genetic engineering know-how into direction of crossbreeding for a variety of plants, but it now focuses this activity mainly on cannabis.
The fourth company is chemicals company AgPlenus. Although consumers are now not keen on chemical pest control, this is actually a $6 billion market. Evogene seeks to use its system to adapt products better to diseases and to plants, like personalized medicine.
"In this area, we don’t expect to launch products of our own, but rather to collaborate with major companies," says Haviv, "and we’re well aware that a chemical product with a new mechanism has a timetable like that of a drug." An initial agreement with Corteva Agriscience is already giving the company some revenue, even though there is as yet no product on the market.
"I have no subsidiary today that I don’t want to invest in, but not all of them will be successful," Haviv admits. "I learned that from the genetic engineering story. It looked very promising, but all the companies in that field have disappeared. We haven’t disappeared, because we raised money at the peak, $82 million, even though on the face of it we didn’t need it at the time, and that is what enabled us to get through this period, until we developed the more decentralized model."
Another field has been more or less abandoned. "We set up a company to produce fuel from castor-oil plants, and we even raised money in 2014 on the basis of this promise, but then the price of oil fell," Haviv says. "All the enthusiasm over clean fuels evaporated. I won’t go into that business again; it’s so much affected by fluctuations in oil prices."
In 2020-2021, Evogene raised $50 million at discounts on its market price. At the end of the first quarter of this year, it had $45 million cash.
Some investors benefitted from a dramatic rise in the company’s share price in February 2021 to a peak of $9.5. "Cathie Wood’s Ark Investment Management invested in us and swept the market along with it," Haviv relates, "but they grew very fast, and couldn’t hold a company of our size, and they exited at one go. That was actually at a time when we were making positive announcements. When a positive announcement is made and the share price plunges, the market thinks that there must be a catch. It’s a very frustrating experience.
"But I’m not concerned, because we are in talks with all kinds of investment bodies, and I believe that money will be found for the subsidiaries. The question is only at what valuation?" Evogene has no controlling core and no parties at interest.
Since the time when you were pioneers of big data in agriculture and healthcare, many other companies have come into this field. Do you feel greater competition?
"Good computing technology without understanding of the biology and of the process of product development will not make the difference."
A year ago, Evogene replaced its chairperson Martin Gerstel with Sarit Firon, who had been a CEO and venture capital investor in high-tech. "The subsidiaries are valuable companies, and the time has come to unlock their value, and Sarit is the right person for that," says Haviv.
Why is it so hard to extract value from the company?
Firon: "There’s a built-in gap between development of the technological infrastructure and development of the products, and, as far as the market is concerned, until there are products we basically don’t know whether the technology has any value. By 2015, we realized that we had to find a way of unlocking the value, and we decided to set up the subsidiaries, and now, finally, they have had success with products that demonstrate the potential of the technology."
Published by Globes, Israel business news - en.globes.co.il - on July 31, 2022.
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