Evogene (EVGN) Risk Analysis

Research and development in our fields of activity is expensive and prolonged and entails considerable uncertainty. We may spend many years and dedicate significant financial and other resources developing product candidates that will never be commercialized. The process of discovering, developing and commercializing ag-chemicals, ag-biologicals, seed traits, human microbiome-based therapeutics, medical cannabis products or castor varieties involves several phases and a long development period. The timelines for development of product candidates by us or by our collaborators may extend beyond our expectations for many reasons, such as: ? we or our collaborators may not be able to allocate the resources needed to develop product candidates based on our discoveries; ? we or our collaborators may revise the process of product development or make other decisions regarding the product development pipelines that may extend the development period; ? we or our collaborators may prioritize other development activities ahead of development activities with respect to the product candidates on which we collaborate; ? our discoveries may not be successfully validated or may not have the desired effect sought by us or by our collaborators; and ? we or our collaborators may be unable to obtain the requisite regulatory approvals for the product candidates based on our discoveries within expected timelines or at all. Most of the product candidates we or our collaborators are developing are in early development stages. We have little to no certainty as to which and when, if any, any of these product candidates will eventually reach commercialization. Because of the long product development cycle and the complexities and uncertainties associated with research in our fields of activity, there is significant uncertainty as to whether we will ever generate significant revenues or royalties, if any, from the product candidates that we or our collaborators are developing. For more information on the product development cycle of the product candidates we develop and a description of the phases of development, see the ‘Product Development Cycle’ paragraph under the description of each of our activity divisions and subsidiaries in “Item 4. Information on the Company—B. Business Overview”.

Our majority-owned subsidiary, Lavie Bio, is developing ag-biological product candidates, currently focused mainly on microbial-based bio-stimulants and bio-pesticides, through a novel approach, focused on plant-microbiome relationship. In certain of its ag-biological product programs, Lavie Bio funds its early stages of research and development efforts, while in others it funds the entire development program towards launch of a commercial product. Lavie Bio’s efforts to develop and commercialize novel ag-biological product candidates may fail for a variety of reasons, including: ? failure to establish the requisite infrastructure to enable the discovery and development of microbial bio-stimulants; ? failure to identify and develop microbial candidates that enhance plant performance at the desired efficacy and stability; ? failure to successfully complete development of microorganisms to achieve cost-effective and commercially viable products; ? failure to obtain and maintain patent and trade secret protection for its product candidates; ? failure to operate without infringing or violating the valid and enforceable patents or other intellectual property rights of third parties; ? inability to obtain sufficient funding to fully execute its business plan; ? failure to meet regulatory requirements; ? failure to establish efficient and reliable production and scale up capabilities of Lavie Bio’s products through third party contractors; and ? failure to establish cost-effective go-to-market models for selling its products. If Lavie Bio’s efforts to develop and commercialize ag-biological product candidates are unsuccessful, our results of operations could be negatively impacted.

Our subsidiary, AgPlenus, is currently developing solutions for crop protection through chemistry, or ag-chemistry. AgPlenus is developing these product candidates through a novel approach, focused on biologically significant proteins called “targets”. AgPlenus’ efforts to develop novel ag-chemical product candidates may fail for a variety of reasons, including: ? failure of its relatively novel target-based approach to lead to an effective product candidate or failure to identify chemical compounds that will display required level of performance; ? failure to establish cost-effective production of AgPlenus’ product candidates; ? failure to obtain and maintain patent and trade secret protection for its product candidates; ? failure to operate without infringing or violating the valid and enforceable patents or other intellectual property rights of third parties; ? inability to obtain sufficient funding to fully execute its ag-chemical business plan; and ? failure to meet regulatory requirements. If AgPlenus’ efforts to develop ag-chemical product candidates are unsuccessful, our results of operations could be negatively impacted.

We are developing seed-trait and insect control product candidates in our internal Ag-Seeds division. Our efforts to develop novel product candidates may fail for a variety of reasons, including: ? failure to identify and develop candidate genomic elements having the desired effect on the target trait in the plant of interest; ? failure to identify and develop toxin candidates having the desired effect on the target insects when inserted into the plants of interest; ? failure to obtain and maintain patent and trade secret protection for our product candidates; ? failure to operate without infringing or violating the valid and enforceable patents or other intellectual property rights of third parties; ? inability to obtain sufficient funding to fully execute the business plan; ? failure to successfully complete development of our seed trait product candidates; and ? our failure to meet regulatory requirements for seed trait and insect control product candidates. Furthermore, even if we are able to discover and begin to develop effective product candidates, we may not be successful if we are unable to find collaborators for further development and commercialization of the product candidates. If our efforts to develop seed trait product candidates are unsuccessful, our results of operations could be negatively impacted.

Our subsidiary, Biomica, is developing microbiome-based therapeutic product candidates and is heavily dependent on the success of such product candidates, which are in pre-clinical and clinical development stages. If Biomica is unable to advance its current or future product candidates through clinical trials, obtain marketing approval and ultimately commercialize any product candidates it develops, or experiences significant delays in doing so, our business will be materially harmed. Biomica’s product development efforts may be unsuccessful for a variety of reasons, including the following: ? failure to complete pre-clinical studies and clinical trials with positive results in which the FDA agrees with the design, endpoints or implementation; ? failure to receive regulatory approvals or authorizations for conducting our planned clinical trials or future clinical trials; ? failure to obtain sufficient financing for the development and commercialization of its product candidates; ? failure to obtain and maintain patent and trade secret protection and regulatory exclusivity for its product candidates. ? interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; ? failure to launch commercial sales of its products, if and when approved, whether alone or in collaboration with others. ? failure to enter into new collaborations throughout the development process as appropriate, from pre-clinical studies through to commercialization; ? failure to achieve acceptance of its products, if and when approved, by patients, the medical community and third-party payors; ? failure to effectively compete with companies developing and commercializing other therapies for the indications that Biomica’s product candidates target; ? failure to obtain and maintain coverage and adequate reimbursement by third-party payors, including government payors, for its products, if approved; ? failure to protect its rights in its intellectual property portfolio; ? failure to operate without infringing or violating the valid and enforceable patents or other intellectual property rights of third parties; ? failure to maintain a continued acceptable safety profile of the products following approval; and ? failure to maintain and develop an organization of scientists and business people who can develop and commercialize its products and technology. If Biomica’s efforts to develop microbiome-based human therapeutics are unsuccessful, our results of operations could be negatively impacted.

Canonic, our subsidiary, is developing medical cannabis products. Canonic’s efforts to develop and commercialize medical cannabis products may fail for a variety of reasons, including: ? failure to develop cannabis varieties having desired efficacy and stability; ? failure to meet regulatory requirements; ? failure to engage with, and successfully operate, contractors, in Israel and abroad, for performing cultivation and production services; ? failure to establish successful distribution channels, in Israel and abroad, for its medical cannabis products; ? failure to satisfy the requirements for the export of seeds, seedlings of finished products; ? failure to meet patients’ satisfaction; ? inability to obtain sufficient funding to fully execute its business plan; ? failure to secure cannabis cultivation facilities; ? failure to establish efficient and reliable production capabilities for Canonic’s medical cannabis products through third party contractors; and ? the market for medical cannabis products is relatively new and suffers from high uncertainty in many aspects, including demand, supply, pricing, regulation, customer preferences, etc. If Canonic’s efforts to develop and commercialize medical cannabis products are unsuccessful, our results of operations could be negatively impacted.

Our subsidiary, Casterra, is developing improved, high-yield castor bean seeds for use as a source of non-edible feedstock for industrial uses of castor oil. The supply chain in the market of castor oil for industrial uses is not well established and is evolving. In order for Casterra’s castor bean seeds to be an attractive feedstock for oil for industrial uses, it will need to demonstrate on a commercial scale that its castor beans can reliably be used as a cost-efficient feedstock for castor oil production. Casterra’s efforts to develop castor been seeds for industrial uses may fail for a variety of reasons, including: ? failure to reach desired yields of its castor seed varieties on a commercial scale to secure economic viability as bio-based oil feedstock; ? failure to establish an efficient mechanical harvest solution; ? failure to establish a cost-effective production of castor bean grains, allowing grower profitability; ? failure to reach large scale adoption of castor by growers, including the successful management of diseases and pests; ? failure to address the health and environmental risks posed by castor bean seeds, which contain ricin, a naturally occurring poison; ? failure to comply with any regulatory requirement related to sales of castor beans, and in particular those related to the import of such beans and the potential effects of ricin; and ? failure to establish efficient and reliable production and scale up capabilities of castor seeds, independently or through third party contractors. Casterra is operating in a new industry, with limited understanding of the dynamics involved in producing and selling castor seeds. Casterra has made initial commercial sales of castor seeds; however, we are unable to foresee as to when significant sales will commence. If Casterra is unable to adequately address any of these challenges, we may not find a market for our castor bean seeds and our results of operations could be materially and adversely affected.

Our success depends in part on our ability to identify discoveries that will improve crop performance, in our agriculture activity, obtain clinical benefits, in our human health activity, or improve industrial inputs, in our industrial applications activity. To develop these discoveries and product candidates into commercial products, we either license them to collaborators or develop them independently. Pursuant to our collaboration agreements in our agriculture activity, we are usually entitled, subject to certain conditions, to receive royalties on products that are based on, or integrate, these discoveries. In addition, certain of our agreements in our agriculture activity entitle us to upfront fees, research and development payments and milestone payments in the event that specified milestones are met. Except for Casterra’s castor seed varieties and our first products in our medical cannabis and ag-biologicals activities, none of our product candidates has completed the development process and become commercially available, and there can be no guarantee that any of our current or future product candidates will ever reach commercialization. Therefore, we currently do not earn royalties, nor do we have significant sales revenues from the sale of products based on our discoveries and product candidates. Nevertheless, our long-term growth strategy is based in large part on the expectation that such royalties and revenues from product sales will comprise a significant portion of our revenues in the future. If we or our collaborators are not successful in commercializing products based on our discoveries, we will not realize revenues from sales or royalties and may not earn a profit on our discoveries, which could materially and adversely affect our results of operations, financial condition and our long-term growth strategy and could cause us to cease operations. The manner in which we and our collaborators develop our product candidates in our various fields of activity affects the period that will pass until such products are commercialized, if ever. Product candidates based on our discoveries may never become commercialized for any of the following reasons: ? our discoveries and product candidates may not be successfully validated or may not have the desired effect required in order to become, or to be incorporated into, commercial products; ? the process of developing product candidates based on our discoveries is lengthy and expensive, and we or our collaborators may not be able to allocate the resources needed to complete such development within the desired timeline; ? we or our collaborators may decide to discontinue, pause, reduce, or alter the scope of the development efforts for our product candidates; ? we may fail to satisfy, in a timely manner or at all, relevant milestones under our agreements with our collaborators; ? regulatory conditions related to our product candidates may change in different territories, thus negatively affecting the relevant development processes and extending their length or limiting the commercialization of such product candidates; ? we or our collaborators may be unable to obtain the requisite regulatory approvals for product candidates based on our discoveries; ? our competitors may launch competing or more effective products; ? we or our collaborators may be unable to fully develop and commercialize product candidates containing our discoveries or may decide, for whatever reason, not to commercialize, or to delay the commercialization of, such product candidates; ? a market may not exist for products containing our discoveries or such products may not be commercially successful or relevant; ? we may be unable to protect the intellectual property underlying our discoveries in the necessary jurisdictions; and ? we may encounter production and scale-up challenges with respect to our product candidates that hinder their commercialization.

Lavie Bio’s research and development facility in St. Louis, Missouri may expose us to some of such operational risks, including: ? fluctuations in foreign currency exchange rates; ? potentially adverse tax consequences; ? difficulties in staffing and managing foreign operations; ? hiring and retention of employees and/or consultants under foreign employment laws which are not familiar to us; ? laws and business practices that sometimes favor local business; ? compliance with foreign legislation, being subject to laws, regulations and the court systems of multiple jurisdictions; and ? tariffs, trade barriers and other regulatory or contractual limitations on our ability to develop (and, when applicable in the future, sell) our solutions in certain foreign markets. Failure to manage the market and operational risks associated with international operations effectively could limit the future growth of our business and adversely affect our operating results.

The industries we are engaged in are subject to various factors that make our operations relatively unpredictable from period to period. For example, the testing of our product candidates may be adversely affected by circumstances both caused by us and those that are beyond our control. Factors caused by us include any failure by us or our collaborators to follow proper agronomic practice or suggested protocols for conducting our experiments, and failure to successfully complete such experiments. Factors beyond our control include weather and climatic variations, such as droughts or heat stress, or other factors we are unable to identify. For example, if there was prolonged or permanent disruption to the electricity, climate control or water supply operating systems in our greenhouses or laboratories, the plants and pests on which we test our discoveries and product candidates and the samples we store in freezers, both of which are essential to our research and development activities, would be severely damaged or destroyed, adversely affecting our research and development activities and thereby our business and results of operations. We have experienced these kind of failures in the past for unknown reasons, causing delays in our achievement of milestones and delivery of results, and necessitating that we re-start the trials. Any test failure we may experience is not covered by our insurance policy, and therefore could result in increased cost of the trials and development of our product candidates, which may negatively impact our business and results of operations.

Biomica’s product candidates are based on microbiome therapy, a therapeutic approach that is designed to treat disease by restoring the function of a dysbiotic microbiome. To our knowledge, no company has received regulatory approval for a therapeutic based on this approach. We cannot be certain that our approach will lead to the development of approvable or marketable products. In addition, the FDA or other regulatory agencies may lack experience in evaluating the safety and efficacy of products based on microbiome therapeutics, which could result in a longer than expected regulatory review process or evolving FDA standards and guidance, increase Biomica’s expected development costs and delay or prevent commercialization of its product candidates. Regulatory requirements governing microbiome therapies are still developing and may change in the future, which may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, delay or prevent approval and commercialization of our current or future product candidates or lead to significant post-approval limitations or restrictions.