Eden Regulatory News (EDEN)

29 September 2020

Eden Research plc ("Eden" or "the Company")

Half Yearly Report

Eden Research plc (AIM: EDEN), the AIM-quoted company focused on sustainable biopesticides and plastic-free encapsulation technology for use in crop protection, animal health and consumer products industries, announces its interim results for the six months ended 30 June 2020.

Financial highlights

· Revenue for the period of £0.75m (H1 2019: £0.58m)

· Product sales £0.73m (H1 2019: £0.45m)

· Upfront and milestone payments of £0.02m (H1 2019: £0.13m)

· Operating loss for the period increased to £1.01m (H1 2019: loss of £0.63m)

· Cash and cash equivalents of £8.66m (H1 2019: £1.36m)

Business & Operational highlights

· Successful fundraise of £10.4m gross in March 2020 adding a number of new institutional investors. 

· One year exclusive Evaluation Agreement signed with Corteva (NYSE: CTVA), the fourth largest agriculture input company in the world in seed treatments.

· Organic approval received for Mevalone in Italy and Spain.

· Appointment of Mike Carroll as Director of Regulatory Affairs and Aoife Dillon as Global Head of Biology and Development.

Lykele van der Broek, Chairman, commented:

"As a result of our successful fundraise in March we have begun work expanding into new product categories, with a focus on new insecticide formulations and seed treatments. Throughout the period we have made several commitments to further our ambitions in these areas.

In particular, our exclusive one-year evaluation agreement with Corteva Agrisciences represents the first use of Eden's products and technology in the treatment of seeds and is an initial step into this area across a range of functional uses and seed types.

We have entered into new markets with our three EU-registered active ingredients (geraniol, eugenol and thymol) receiving approval for use in organic farming in the EU earlier this year, leading to our entry into two of the biggest European organic markets of Italy and Spain in conjunction with Eden's partner, Sipcam Oxon S.p.A.

Our presence in Europe also continues to grow through new authorisations for both Cedroz™ and Mevalone®, and we anticipate further approvals in Europe and further abroad will follow in due course.

Despite the uncertainty created by the Covid-19 pandemic, we have made continued progress in expanding our business resources. Most pleasing has been the establishment of new product development capabilities in-house, which will save significant time and money compared to out-sourcing, and we have been able to attract high-calibre talent to our team, who will play an integral role in capitalising on the opportunities in our pipeline going forward."

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Eden Research plc

Chief Executive's statement for the six months ended 30 June 2020

Results

Revenue for the first half of the year was £0.75m compared to £0.58m for the same period in 2019.

Product sales increased to £0.73m (H1 2019: £0.45m).

Overheads were higher than last year at £0.97m (H1 2019: £0.68m).

Loss before tax for the period increased to £1.02m (H1 2019: loss of £0.65m).

Capital Raising

The key corporate milestone in the period was our successful capital raise of £10.4m (gross) in March 2020. This was fundamental to positioning us to capitalise on the work we have done to date and to move forward expeditiously with our programme to develop new, effective insecticide products as well as pursuing other key opportunities such as seed treatments.

The Board remains confident in the market opportunity for biopesticides, which is growing at a compound annual growth rate of approximately 15% per annum and is projected to be worth more than $10 billion by 2025. While the use of conventional pesticides has been fundamental to the farming revolution over the last 100 years, governments and consumers have increasingly begun to acknowledge the potential risks posed by conventional pesticides to human health and the environment. This has led to well-publicised bans or severe restrictions on the use of some common pesticides in many countries around the world.

Eden's technology and products can solve many of the issues associated with the use of conventional pesticides, including reducing or eliminating the use of microplastics in farming. We continue to make progress towards realising the opportunities identified by the company at the time of the capital raise, as exemplified below.

Regulatory Update

Product approvals

In January 2020, Eden reported significant progress in its entry to the organic market, receiving clearance for the use of its three EU-registered active ingredients, geraniol, eugenol and thymol, in organic farming following inclusion in the EU's Organic Production Regulation.

Following the initial clearance of its active ingredients, Eden confirmed it had received approval for its foliar biofungicide product Mevalone®, branded "3LOGY®" in Italy and "Araw®" in Spain, for use in organic farming. Post-period end, Eden also received organic approval for Mevalone in France. Eden's entry into the organic grapes market is important given the rate of growth of organic grape farming, and the fact that an allowance for use in organic production also adds a competitive advantage in the conventional farming markets. Organic wine production is forecast to increase by 70% in Spain between 2018-2023 and Italy's organic vineyards account for 15.5% of its total vineyards, the highest proportion in the world.

Early in the period, the onset of the Covid-19 pandemic created uncertainties regarding the timelines of regulatory processes and procedures in the agriculture industry. Whilst the impact remains uncertain, we were pleased to receive several authorisations across a range of geographies from late May onwards (although a number of key authorisations are still pending).

Eden's commercial collaborator, Eastman, received a repeat of the emergency authorisation for Cedroz™ in the key territory of Italy, and at the same time the full authorisation of Cedroz in the Netherlands was granted. Italy is considered a key market for Eden's products, and it was positive to see that after an initial successful summer harvest in 2019 under the initial "emergency use" authorisation, Eastman was granted its second 120-day pass to coincide with the upcoming growing season. Whilst the "emergency use" authorisations do not influence the full approvals coming through, they help illustrate the strong demand for biopesticide products in the region.

In the same month, Eden was notified that in Greece, the list of authorised uses for Mevalone was expanded to include several minor diseases on olives and tomatoes. Post-period end, Eden has announced additional approvals in the region with the authorisation for the sale of Cedroz in Greece and the authorisation for the sale of Mevalone in Serbia, both to be sold to the market via regional distributor K&N Efthymiadis ('KNE').

There have been four further authorisations post-period end: the authorisations of Eden's bio-fungicide in Australia, for use on both wine and table grapes under the trade name "Novellus"™, and the authorisations for Eastman to sell Cedroz™ in Spain and France. These are considered important opportunities for Eden and should make an impact on future sales.

We previously reported our expectations to receive US EPA approval for the sale of Mevalone and Cedroz in the United States during 2020. However, partly due to Covid-19 and consequential operational challenges at the EPA, the approval has disappointingly continued to be delayed and timing remains uncertain. The Company continues to actively engage with providing additional data to the EPA to advance the process and assist where possible.

Patents

In the period, patents for Eden's Sustaine® encapsulation technology and compositions for insecticide products were both granted by the US Patent Office ("USPTO"). The initial patent provides broad compositional protection for the encapsulation of terpenes in hollow cell wall particles. The second patent provides protection for the use of compositions in a method of killing mites or treating/preventing mite infestation, which is an intended use for Eden's new insecticide products. Both of these patents had been pending for several years, and so we are pleased to note that a change in patent prosecution strategy yielded the desired results relatively quickly. Also of note is that the USPTO granted Eden patent life adjustments providing protection until May 2030 for Eden's covered products in the important US market.

Post-period end, the patent protecting Sustaine encapsulation technology was granted in Australia. The patent is for "Encapsulation of High Potency Actives" allowing for the combination of Sustaine with a wide range of active ingredients, including from third parties.

Commercial Partnerships

In January 2020, Eden established a new partnership in the form of a one-year exclusive evaluation agreement with Corteva Agriscience. The agreement granted Corteva time to evaluate Eden's Sustaine encapsulation technology and several formulations in specific biological seed treatment applications in certain major territories and, if successful, will lead to Corteva being granted exclusive distribution rights.

Corteva will have until the end of 2020 for the exclusive evaluation of products which were developed using Sustaine in select seed treatment applications. Following this, Corteva may enter into an exclusive agreement for the distribution of products in the EU, Russia, Ukraine and Turkey. This would represent a major milestone for Eden as it will be the first use of Eden's products and technology in the treatment of seeds and would be an initial step into this area across a range of functional uses and seed types. Success in this area could also mark Eden's first entry into key broad acre crop markets, diversifying Eden's focus beyond high value fruit and vegetables.

Work at TerpeneTech continues on the commercial launch of a head lice treatment product. Though the timing of a commercial launch in the UK has become less clear, in part due to issues surrounding Covid-19 and its impact on certain retail product offerings, we do note that TerpeneTech is in advanced conversations with another commercial partner covering numerous territories outside of the UK. This partially validates the strong commercial demand for safe and effective head lice treatment products globally, and it highlights the shortage of products that meet the demand of today's consumers. TerpeneTech's sale of biocidal geraniol continues to develop positively, with demand for biocides strengthening as a result of the Covid-19 pandemic.

An amendment to the existing licence agreement between Eden and Bayer Animal Health for animal health products was reported in May, for the purposes of progressing the final development of a portfolio of Bayer products based upon Eden's technology and know-how. This amendment involved an increased investment in the project, which was facilitated in part by Eden's successful capital raise in March. Bayer also completed the sale of its animal health business to Elanco, and the relevant agreements have now been transferred to Elanco.

Post period end, we joined the NIAB EMR viticulture consortium, where we are working together on a project with the viticulture and wine team to develop biocontrol solutions for its members and UK vineyards. This is an important project for the UK wine industry, and we will provide further updates on the progress and outcomes of trials in due course.

COVID-19 update

In March 2020, we published a statement regarding our position on Covid-19. At this time, we stated that we had experienced no direct operational impact and reassured our stakeholders about our strengthened balance sheet and our ability to progress with plans in our pipeline.

As the pandemic has evolved, we have started to see some disruption, and there have been some issues with the import and export of products. In addition, some regulatory authorities are working at reduced capacity. The latter has the potential to impact the Group's on-going product approvals with regulators around the world, which are required for it to sell its products in a broader range of markets to generate new revenues.

The wine industry has clearly experienced major disruptions to production and also demand, which in turn will impact our business. Europe's 2020 wine harvest began relatively early following a warm growing season, but in many areas, it was taking place against a backdrop of lost sales - largely due to the economic impact of Covid-19 lockdowns. The countries that rank highest for total wine consumption (the United States, UK, Spain, Italy, France, etc.) are also the countries that have experienced the most severe impact of the coronavirus pandemic. 

Net decreases in both volumes and sales values are projected for parts of Europe due to a fall in bar and restaurant sales, and travel and tourism, resulting in a rising surplus of wine. This has been somewhat countered by the rise in supermarket and e-commerce sales in some regions in the short run, but this is not reflected across all markets.

Eden's foliar biofungicide product, Mevalone®, is currently used primarily to treat botrytis on table and wine grapes in Italy, France and Spain. The need for Mevalone in the upcoming harvest will therefore naturally decrease as a result of the major cutbacks on production to meet demand. In Italy, domestic demand for wine is expected to fall by almost a third and exports have also fallen. Wine makers in Italy fear a loss of around €1 billion this year, or 9% of total sales because of the pandemic.

It remains too early to anticipate the effect that this will have on demand for Eden's products, but it is clear that there is the potential for reduced demand in cases where there is a strong surplus of grapes due to weakened consumer demand. Growers clearly will not continue to invest in agricultural inputs in order to treat crops that may not be harvested or that may be disposed of.

Thus far, the Company has not seen a significant change on its toll manufacturing operations. However, social distancing and other travel restrictions have undoubtedly impacted the ability of our distributors to interact with customers in order to provide field support and promote newer products. Growers' reduced ability to harvest crops due to the lack of appropriate labour may also impact on their investment in agrochemicals. 

Given the uncertainty regarding the level and duration of any disruption in each of the markets in which the Group operates or plans to operate, it is difficult at this stage to assess what, if any, commercial and financial impact there may be. We will continue to provide updates as appropriate.

Team Development

It has been a busy time for the Eden team as we have executed on our plans to expand our in-house capabilities and attract high calibre talent.

In mid-April, Dr. Michael Carroll joined as Eden's Director of Regulatory Affairs. Mike is a leading figure in the field of crop protection products development and registration with over 30 years of international experience in the agrochemical industry, having worked in the UK, Germany, Belgium and the USA. Mike served tenures of over 10 years at both Dow AgroSciences and Monsanto Agricultural Group, holding various positions including Global Registration Manager and European Registration Manager. More recently, Mike served as Head of Research and Development for Arysta EMEA, the largest region in Arysta LifeSciences' business.

Post-period end, Eden opened a new laboratory facility at Milton Park to allow the Company to do more in-house, including formulation, microbiological screening, plant and seed evaluations and analytical work. The opening of the new facilities coincided with some new hires, including the appointment of Dr. Aoife Dillon to the role of Head of Biology. Eden will continue to rely upon the outsourcing of certain functions, such as regulatory field trials, but the development of expanded in-house capabilities will enable the Company to accelerate product development and commercialisation. These capabilities are already operational and are playing a key role in the development of new insecticide products.

Dividend

There was no dividend paid or proposed for the six-month period. The Board continues to monitor its dividend policy.

Outlook

Following our successful capital raise in March, Eden is in a good position to capitalise on the work it has done to date and move forward expeditiously with its new, effective insecticide products and pursue other key opportunities in its pipeline. Our work on the development of insecticide formulations has been progressing as expected. We plan to update the market on these promising developments in due course.

Our agreement with Corteva Agriscience was Eden's first significant milestone in developing and commercialising, via partnership, a product using Sustaine in the new application area of seed treatments. As announced previously, Corteva currently has until the end of 2020 for the exclusive evaluation of products which use Sustaine in select seed treatment applications. Following this, Corteva may enter into an exclusive agreement for the distribution of products in the EU and potentially several other countries. This would represent a major milestone for Eden as it will be the first use of Eden's products and technology in the treatment of seeds and would be an initial step into this area across a range of functional uses and seed types. Our work with Corteva has progressed largely as planned, and we will update the market on this exciting opportunity as soon as we are able to do so.

We have made positive progress with various regulatory approvals coming to fruition towards the end of the period and post-period end. The approvals are fundamental enablers to increasing our addressable market and, subsequently, sales over the second half of the year and going forward in 2021.

Despite the disruption caused by Covid-19 during the period, we were able to build our team and make some key new hires, as described above. Our new appointments tied in with an exciting development post-period end when Eden opened its new laboratory facilities at Milton Park which will allow the Company to do more in-house, including formulation, microbiological screening, plant and seed evaluations and analytical work. In the second half of the year, we aim to continue to make positive steps towards the development and commercialisation of our products, bolstered by our new in-house capabilities and resources.

Eden Research plc - Consolidated Statement of Financial Position as at 30 June 2020

Eden Research plc - Company Statement of Financial Position as at 30 June 2020

Eden Research plc - Consolidated Statement of Changes in Equity as at 30 June 2020

Eden Research plc - Company Statement of Changes in Equity as at 30 June 2020

Eden Research plc - Consolidated Statement of cash flows for the six months ended 30 June 2020

 Cash and cash equivalents comprise bank account balances.

Eden Research plc - Company Statement of cash flows for the six months ended 30 June 2020

 Cash and cash equivalents comprise bank account balances. 

Notes to the Interim Results

1. The information in these financial statements does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and is un-audited. These financial statements have been prepared in accordance with the AIM rules, and IAS 34 has not been adopted. A copy of the Company's statutory accounts for the period ended 31 December 2019, prepared under International Financial Reporting Standards as adopted by the European Union, has been delivered to the Registrar of Companies and is available on the Company's website. The auditors' report on those accounts was unqualified and did not contain statements under section 498(2) or section 498(3) of the Companies Act 2006.

2. Nature of operations and general information 

Eden Research is a technology development and commercialisation company with intellectual property and expertise in encapsulation, terpenes and environmentally friendly technologies to provide naturally occurring solutions for the global agrochemicals, animal health, and consumer product industries.

Eden's encapsulation technology harnesses the biocidal efficacy of naturally occurring chemicals produced by plants (terpenes) and can also be used with both natural and synthetic compounds to enhance their performance and ease-of-use. The technology uses yeast cells that are a by-product of numerous commercial production processes to deliver a slow release of natural compounds for agricultural and non-agricultural uses. Terpenes are already widely used in the food flavouring, cosmetics and pharmaceutical industries.

Historically, terpenes have had limited commercial use in the agrochemical sector due to their volatility, phytotoxicity and poor solubility. Eden's platform encapsulation technology provides a unique, environmentally friendly solution to these problems and enables terpenes to be used as effective, low-risk agrochemicals.

Eden is developing these technologies through innovative research and a series of commercial production, marketing and distribution partnerships.

3. Accounting Policies 

Basis of Preparation 

These interim condensed consolidated financial statements are for the six months ended 30 June 2020. They have been prepared following the recognition and measurement principles of IFRS. They do not include all of the information required for full annual financial statements and should be read in conjunction with the financial statements of the Company for the year ended 31 December 2019.

These financial statements have been prepared on the going concern basis and under the historical cost convention.

Going Concern

The financial statements have been prepared on a going concern basis which contemplates the realisation of assets and the settlement of liabilities in the ordinary course of business.

The Group has reported a loss for the period after taxation of £1.02m (H1 2019: £0.65m). Net current assets at 30 June 2020 amounted to £9.81m (30 June 2019: £1.88m).

The directors have prepared budgets and projected cash flow forecasts, based in part on forecasts provided by Eden's commercial partners, for a period of two years from 31 December 2019 and they consider that the Group will be able to operate with the cash resources that are available to it for this period. The ability of the Group to continue as a going concern is ultimately dependent upon the amounts and timing of cash flows from the exploitation of the Group's intellectual property and the availability of additional funding to meet the short term needs of the business until the commercialisation of the Group's portfolio is reached.

The forecasts adopted only include revenue derived from existing contracts and, while there is a risk these payments might be delayed or not occur if milestones are not reached, there is also potential upside from on-going discussions and negotiations with other parties, as well as other "blue sky" opportunities.

In addition, the Group has relatively low fixed running costs and has a demonstrable ability to delay certain other costs, such as the forecast Research and Development expenditure, in the event of unforeseen cash constraints.

The directors have also considered a scenario whereby the Group receives no revenue from the date of this Report. On this basis, the directors believe that the Group has sufficient cash to cover a period of at least 12 months from the date of this Report.

The directors have been and will continue to closely monitor performance against cash flow projections that have been prepared for the period to 31 December 2020, and beyond, and are confident that the Group will be able to rely on the necessary cash resources at least at the levels referred to above.

On this basis, the directors consider it appropriate to prepare the financial statements on the going concern basis. The financial statements do not include any adjustments that would result from a failure by the Group to meet these forecasts.

These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2019, except for the application of the following standards at 1 January 2020:

· Amendments to IFRS 3 Business Combinations (issued on 22 October 2018)

· Amendments to IFRS 9, IAS 39 and IFRS17: Interest Rate Benchmark Reform (issued on 26 September 2019)

· Amendments to IAS 1 and IAS 8: Definition of Material (issued on 31 October 2018)

· Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018)

The adoption of these new standards would not result in any material changes to the financial statements.

The accounting policies have been applied consistently for the purposes of preparation of these condensed interim financial statements.

Copies of the interim statement are available from the Company at its registered office, 6 Priory Court, Priory Court Business Park, Poulton, Cirencester, Gloucestershire, GL7 5JB, as well as on the Company's website.

4. Group profit/(loss) per share

Loss per share - basic has been calculated on the net basis on the loss after tax of £1.03m (30 June 2019: £0.65m, 31 December 2019: £1.13m) using the weighted average number of ordinary shares in issue of 255,812,826 (30 June 2019: 207,189,337, 31 December 2019: 208,244,677).

Loss per share - diluted has been calculated on the net basis on the loss after tax of £1.03m (30 June 2019: £0.65m, 31 December 2019: £1.13m) using the weighted average number of ordinary shares in issue of 255,812,826 (30 June 2019: 207,189,337, 31 December 2019: 208,244,677).

5. Reconciliation of loss before income tax to cash used by operations - Group

Reconciliation of loss before income tax to cash used by operations - Company

6. Intangible assets - Group

Intangible assets - Company

7. Investment in equity accounted investee

8. Subsidiaries

Non-controlling interests

The following table summarises the information relating to the Group's subsidiary with material non-controlling interest, before intra-group eliminations: