Precigen Inc (PGEN) 2014 Q4 法說會逐字稿

Good day, and welcome to the Intrexon Corporation fourth-quarter and full-year earnings presentation.

(Operator Instructions)

Please note this event is being recorded.

I will now like to turn the conference call over to Mr. Christopher Basta, Vice President, Investor Relations. Mr. Basta, the floor is yours, sir.

Thank you. Good afternoon.

I am Chris Basta, Vice President of Investor Relations of Intrexon Corporation. Welcome to our fourth-quarter and full-year 2014 earnings conference call. Joining me today on the call are Mr. R. J. Kirk, Chairman and Chief Executive Officer, and Mr. Krish Krishnan, Chief Operating Officer.

During this conference call, we will make various forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of Intrexon are based on current expectations, and are subject to risks and uncertainties.

A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the Safe Harbor statement contained in the earnings press, release which was released earlier today, and is also available on our website under the investors link, as well as in Intrexon's most recent SEC filings for a more complete description.

The press release references and our discussion this afternoon may reference certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA earnings per share, and pro forma adjusted EBITDA earnings per share. Reconciliations to GAAP measures are contained in the earnings press release, as well as on the investor section on our website at www.DNA.com.

Now I would like to turn the call over to Krish Krishnan, our Chief Operating Officer. Krish, the floor is yours.

Good afternoon, everyone, and thanks for joining the call today.

R.J. and I are pleased with Intrexon's performance in the fourth quarter and first full year as a public company. In 2014, we continued to make progress against our strategic and operational objectives, and worked to establish industrial leadership in select businesses.

Within the health sector, which to date remains our most mature and advanced sector, we are working with our collaborators in a number of areas including cancer, orphan genetic disorders, blindness, infectious diseases, cartilage repair, and in the biology mediated production of APIs.

Our immunoncology program focusing on CAR-T therapies has been and continues to be a key focus for our team. In January this year, we completed an exclusive licensing pact with the MD Anderson cancer center, along with our collaborator Ziopharm Oncology. We believe the synergy between our technology platforms creates a powerful combination and a promising pipeline to fully realize the full potential of CAR-T and other cell-based therapies.

We recently acquired Actogenix, a European clinical stage biopharmaceutical company focused on the development and commercialization of a new generation of biological drugs called ActoBiotics. ActoBiotics represents a novel concept for oral administration of therapeutic proteins, and they are designed to be safer and more effective than injectable biopharmaceutical. We believe that while the applications of this novel platform are substantial and apparent within the health segment, it has significant utility to enable innovative solutions across our other food, animal health and consumer sectors as well.

We don't have enough time on this call to provide an update on every one of our collaborations, but we are significantly advancing most of these programs, and I will provide a few highlights. Along with our progress and partnership with Ziopharm, we continue to be pleased with the development of our -- development that our partner Fibrocell is making. We anticipate clinical data on the RDEB program in the second half of this year. We are also on track with our ocular program for the treatment of retina AMD in our joint venture with Sun Pharmaceuticals, include plans to move this into the clinic in the next six to nine months.

2014 was also marked by significant progress in the active pharmaceutical ingredient or API space, as we entered into an ECC with Sanofi, and two separate ECCs with Amneal Pharmaceuticals to develop improved production processes for targeted API. We achieved solid progress on our alkaloid program with Genopaver, which has now moved into the next phase of development.

As a reminder, while the majority of APIs are produced by chemical syntheses, or isolated from plant or animal cells, Intrexon's platform utilizes microbial-based expression to generate API through a single biological fermentation, seeking more consistent, scalable and cost-effective production than current methods allow. So in total, in this space we have four ongoing API projects, and the acquisition of the Budapest labs early in 2014 has enhanced our economic and operational productivity in this space.

The size of the global API market is estimated to exceed $100 billion, and so collaborations such as those described, we believe we can address a significant portion of the overall market. We are encouraged by the outlook and health for the remainder of 2015, as we expect to see new major alliances formed, and anticipate that our existing ECC partners should be in the clinic with up to 10 novel therapeutic candidates.

In the food sector, our acquisition of Trans Ova provides us with a leading platform in the bovine reproductive market, in which there are two high value protein industries, dairy and beef. Following the Trans Ova transaction, we recently acquired the remaining stake in Exemplar Genetics, which develops custom miniature swine models of human diseases.

Miniature swine represent a powerful investigational platform, since they are psychologically similar to humans, and surpass many of the limitations of neurine systems. With a broad pipeline of transgenic swine models for research on heart disease, cancer, cystic fibrosis, cardiac arrhythmia, neuromuscular and neurogenerative disorders, Exemplar's platform is designed to enable more predictive power, and the generation of novel therapeutics for a range of disorders for our channel partners.

Also last Friday, we announced that we entered into an agreement to acquire Okanagan Specialty Fruits, OSF, the pioneering agriculture company behind the Artic apple, the world's first non-browning apple. Through the acquisition, Intrexcon expects to expand its food programs to include trees yielding fruit that is more appetizing and convenient for consumers, while providing economic benefits for the entire fruit supply chain. With respect to the remaining sectors, I will just mention that in energy, our Intrexon Energy Partners JV is tracking to its development plan, and we're also pleased with our early approach in the environment and consumer sectors.

On the financial front, during the fourth quarter, our revenue totaled $31.1 million, an increase of over 336% over the fourth quarter of 2013. Net income was $18.8 million, or $0.19 per share. Cash consideration received for research and development services, otherwise known as cost recovery, in the fourth quarter covered 53% of cash operating expenses exclusive of the operating expense of the majority owned consolidated subsidiaries, and this number was close to 50% for the full year 2014.

Also for the full year 2014, total consideration received for technology access fees and cost recovery covered 111% of cash operating expense, again exclusive of the operating expense of the majority-owned consolidated subsidiaries. So in summary, we continue to strive to preserve shareholder capital, while we anticipate receiving significant backend economics from a variety of products across multiple industries and sectors.

Thank you, and we will open the call for Q&A.

(Operator Instructions)

Tycho Peterson, JPMorgan.

Hey, thanks. I wanted maybe to start off with a couple on the MD Anderson announcement. And as we think about the CAR-T initiatives, can you just maybe talk about some of the improvements you think you can make to their program to improve clinical response? And any specifics you can provide around who will run the CAR-T trials, where the manufacturing will be, and whether the next studies will utilize your technology?

That is a lot of questions, Tycho.

Sorry, R.J. (Laughter).

So yes, so how does -- I think your question, first question was how does our technology aid what they had already had going on?

Exactly, improved clinical response.

Yes, so as you have seen from the clinical data that has been provided by our partner, Ziopharm, the use of one of our switches in the clinic is demonstrated to actually work. We always like this biological effect or IL-12, because it is a real pressure test for a switch. Because even in an intratumoral expression, the therapeutic window for this particular cytokine -- because it is very potent and overdose is very toxic -- the therapeutic window is incredibly narrow. So the point is, we have demonstrated in many, many experiments, and now in two, coming to three clinical trials, that we can induce and regulate protein and/or bioactive RNA expression in vivo. So obviously, this technology when applied to CAR-T has multiple potential uses.

So, for example, the ability to regulate the amount of T-cell affinity for a target can be very, very useful. The ability to induce and regulate an immunologic adjuvant like IL-12 for example, could also prove very useful. And we don't want to get into more detail than, and I certainly don't want to get out ahead of our partner. But I think that gives you a flavor for what we can do.

So with regard to the switch, added to the Sleeping Beauty system, which gives us an ability to actually transvect to the CAR-T of the T cells rather, without the use of virus, plus additional technologies -- Tycho, I know -- remember seeing you being in Blacksburg, so you've seen our UltraVector platform. I have a joke, I have been saying to people in the field, including CEOs of companies that are entirely based on CAR-T, and it goes as follows. Isn't it amazing that the first time you created a vector, that successfully targeted a receptor, that became presumptively optimal, and they all get the joke, by the way.

I don't know how many people on this call will, but my point is, we are very good at engineering biology of that type and other types. We don't create single vectors, or just do them serially until one works, and then say we are done. So obviously, an ability to really optimize, what -- the thing that you are transvecting, the ability to induce and regulate it.

The ability to use our AttSite technology, which is another differentiator to actually modularize a genome or cell, so that you have created preestablished landing pads for transgene events, transgenic events, are completely unique to our knowledge. And we think the combination of these technologies really give us in our view, the leading technology platform. Well, obviously, we are not chronologically in the lead, but we do think we have the best technical suite to compete in the space.

And then, just a follow up, from your perspective you're only aligning with Ziopharm here, why not do licensing agreements with other CAR-T players, given the inherent risk around some of these therapies working in vivo and eventually being commercialized?

Yes, by no means do I want to rule that out. So I think our partner has intimated that -- so I know we're not out ahead of them in this case -- has intimated that we are in fact in discussion with multiple companies around the globe in this area. We want to stay open and collaborative. I agree with you, Tycho, it would make sense to collaborate, and I expect that we probably will.

Okay. And then just quickly on Trans Ova, the $100 million food projection this year, is that all Trans Ova, or is that factoring in the Apple business, and salmon, and anything else then? And then secondly, can you comment on Op margins? I think you said 10% in the past for Trans Ova. Last couple quarters, it looks like it was more like 20%, so just wondering what your thoughts are there?

Yes, so Trans Ova, I don't know -- we don't report segmentally like this, so but I will say Trans Ova had very, very good growth in 2014. And on the trend line that they are on, I shall not be surprised if they alone account for $100 million in revenues. So we wouldn't diarize around, even though we do expect the Aqua advantaged salmon to be approved in the near future, we wouldn't diarize around revenues for 2015 for that. Because after all, as soon as we start providing the smolt, which is what they call baby fish, to growing facilities it will take 16 to 18 months to produce a market-ready fish. So, obviously we're not even internally diarizing revenues for AquaBounty.

The Okanagan specialty fruit is similar. It will take two or three years to get into revenues with that. It is still a pending acquisitions, so I don't want to talk a lot about it, but I will say that we are very, very happy with it. We think it gives us an opportunity to have a market-leading position in a very high growth category, one that we can really enable to grow much faster.

And in this area, since I am on Okanagan, let me just mention, thematically, you have seen the kinds of bets we have made in food, and yet our return expectations are those of therapeutic developers, which is what Krish and I have done for many years. The three other sectors that we are in, provides the same kind ROI or we are not interested. So we are really not interested in doing low value add work of any type, or getting involved in a business that doesn't provide a superlative return. So why apples and/or other stone fruit?

There are two ways to differentiate a product, obviously, right? One would be to make the same thing that the others have, that the competitors have more cheaply. And there you could point to Aqua advantaged salmon as a case in point; the economics on the Aqua advantaged salmon, as compared with a wild type Atlantic salmon are extremely attractive. So if we can -- when that fish is marketed, we can pocket some of those economic, so for our shareholders, I think we will do very well.

The Arctic apple really illustrates a different case. Which is a case in which I do not know how many people on the call may have actually purchased the prepared sliced apples that are offered in the market today, but it is an interesting experience. First of all, this is a business that grows quite well. We've studied these companies. They do use chemicals in order to inhibit their browning, and they use cold chain, and a number of methods to try to make them marketable.

But to me, they do not seem the same as a freshly sliced apple, to be very blunt about it. So my point is, there is another way to differentiate even a commodity product, and that is by adding features that consumers will value. When we look at the growth of prepared sliced apples, for example, in the segment and then we see, recognize that they are not quite the same thing as a freshly sliced apple, we see a real opportunity to add value. And that to us, I think, can translate to margin.

So we are really excited about that, Tycho.

Okay. Great. Thanks. I'll let someone else hop on with a question.

Keith Markey, Griffin Securities.

Hi. Congratulations on a very good year, and a lot of great acquisitions.

I had a couple of questions, and I will start out with a couple on Okanagan, if you do not mind. I was just wondering, will the same kind of technology that is behind the Arctic Apple be applied to the fruits or vegetables that you have mentioned, the three others that apparently are in the pipeline, or is there something else that they have?

Keith, I don't think we probably want to get into that. I will say they have a pipeline, we have a pipeline. We really like Neal Carter and his team a great deal. We have known Neal now for well over a year, and had significant discussions with Neal and his team for that length of time. So we feel we know the business extremely well.

And I think going forward -- look, we wouldn't be doing this just to have a nice apple. When I got home from San Francisco on Saturday, my five-year-old actually took -- made criticism, and told me I think you paid too many dollars for an apple. (Laughter).

So, and I explained to him, well, there is more to it than -- well, first of all, it is not just one apple. (Laughter). And secondly, yes, there are other applications of -- I won't say the same technology but comparable technologies, in which you can really provide healthier -- and don't want to say healthier, because I don't want to make it an FDA issue -- let me just say more abundant food that is in a class that is healthy, because and I will assert that an apple slice is healthier, I think, in my view, my personal opinion than potato chips.

And yet they're not on all [fours with] potato chips, because they're not as convenient, and they are not crisp and snappy. And few of us really want to walk around with a paring knife in order to enjoy that. So there are a number of opportunities like that, we think in specialty areas that are actually more appealing, than contributing way upstream some technology to somebody who has got a 13-year development cycle time on some cereal grain.

All right, thank you. That is great answer, thank you. That was what I was looking for.

The other thing I was going to ask, is given your business to business model, are you going to be selling small trees? Or just what is it that the product is going to look like, can we touch it sort of thing? And what kind of economics do you get or do you expect to get from those products being shipped? With the salmon, you are selling eggs, and clearly, each one of them can ultimately give you a piece of royalty stream. But how do you that with a tree?

Well, there are multiple revenue models that are possible. We do have plans about this, Keith. It's is a terrific question, and I wish I could answer it today. But I think we're better off not doing so. I will say that we will optimize for ROI to our shareholders. We have had extensive discussions with Neal Carter at Okanagan about this, I know we see eye to eye on the possibilities.

But you shouldn't assume that you can't get royalties on apples, you actually can. I am not saying that we will do that. But you do, I will say -- the reason I thought your question is good, is because when you do that, when you confer something that really creates, something that should translate into a consumer preference, capturing those economics really deserve deep thought. And we are doing that, we have a team of people on it. And as I say, we're working closely with Neal Carter at Okanagan about this. I think you will like the result. But again, it's a pending acquisition. I don't really want to get too much into that.

Yes, I appreciate it, okay. I will look forward to that in time. And then, regarding the ActoGenix acquisition, it came with a small clinical pipeline. And I was wondering, are you counting their products as part of the 10 that are going to potentially be in the clinic this year? And secondly, do you plan to spin out that pipeline to another company perhaps in the near future?

Yes, again, a great question. Let me answer the second one first. The short answer is yes. That is our business model.

So we partner products, when we partner product opportunities, we try to, when that is possible. We do think that those two clinical stage assets are partner-able, and I wouldn't be surprised to see that we do in fact, partner them. I forget the -- your first part of the question.

I was just wondered they were counted in the 10 that were -- ?

Oh, if they are counted in the 10, well, we said up to 10. It could be more than 10, Keith. So I will say if we do count them, then I'm really confident that we will hit the 10. (Laughter).

Well, that sounds great, a level of certainty. Okay. And then I was just wondering, you're working on a rare disease with Fibrocell [RDEB] and another one with Agilis Friedreich's ataxia. Are there other rare genetic diseases of interest that you are already working on, and you are looking to partner out? Or are you looking for partners that might have a particular area of interest in that space?

Yes to all of the above. So when you think about it, monogenetic diseases alone, I think the last number I have heard from someone knowledgeable in the space is around 7,600 that are documented in the medical literature, and that is just monogenetic, and that there remain multi genetic diseases. And there remain genetic gene programs that can address diseases that are really only known phenotypically, that obviously involve massive genetic complexity.

So, yes, the number of opportunities are very, very high. Our team has been working on several these. Yes, we are in dialogue with several companies about several of these. So, I would expect us to continue to make progress in gene and cell therapy.

Great. Thank you very much.

Peter Lawson, Mizuho.

R.J., I wonder if you could just walk through the efficacy around the Sleeping Beauty CAR technology, how quickly do you think Intrexon's technology can increase the efficiency around that? What can Intrexon do to make that MD Anderson technology, just improve the chemical responses that we saw at ASH?

Yes. Well, the first thing that I would observe is that it is in the nature of this business, and I think all of the businesses, it is an arms race, right? So that the clinical data that you saw at ASH, you shouldn't suppose that is the limit of the technological demonstration that was made on the MD Anderson technology alone. And the same way, that clinical data that was out on an earlier version of the ActoGenix platform, I can tell you is not actually illustrative of what we think the platform does in its current version.

So in the same way, I will tell you that we are very confident that the data that would have come out of MD Anderson without us would be improving anyway. Secondly, the product development cycle time, even in this field where you get to do translational medicine pretty quickly, it's still on the order of a year. So, in terms of seeing in the clinic the combined technology is actually working, it is best to think in terms of a 2016 timeline.

So the first time, we see data is it kind of a 2106 event you think more than a -- ?

Yes. (Multiple Speakers). I am saying, you are going to see improved data, okay, in my opinion. But and you are going to see improve data both from things that we are doing, and things that they already had underway. But it is possible 4Q 2015, but I'm trying to be safe, and say 2016. But obviously, it would be great. We're targeting, just so you know, let's say it is our aspirational goal to be at ASH at the end of this year.

Got you. Thank you. That is really helpful. Is there anything else, any other technology within that space you need, or do think you are done and dusted for the first set of data?

We continue to develop technologies in this space. So, we had our regular Monday morning EMC call this morning, and learned about some really encouraging data in some new areas. So we are continuing to push forward. We have a very large team working on this. We continue to expand it. We continue to set the bar higher. So you can expect to see increasingly elaborate, and increasingly more regulated, controlled and potent therapeutic candidates.

And as you look across the entire portfolio, what are the lead products you think you would actually generate a product within the market -- in the marketplace from the partnerships you have?

Do you mean across the board or across the entire portfolio?

Yes, exactly.

We are actually very excited -- I mean, we will just to do it chronologically. We're very excited about the Ziopharm's GBM trial, which is good old RTS IL-12. So that will be going in the clinic very soon, and we're very excited about this particular therapeutic. As mentioned, in Krish comments, the RDEB trial, which will be getting underway pretty soon, is we think extremely important and highly encouraging, and we think this -- we will have data out on this later this year. What else clinically? (Multiple speakers -- inaudible).

That's the salmon clinically. Peter's question related to clinical. (Multiple Speakers). Well, let's -- oh yes, I forgot, yes. So you may recall that we have a joint venture with Dilip Shanghvi's company, Sun Pharmaceuticals, in the field of ophthalmic disease, and we do expect that our first therapeutic candidate. So this is a -- these are gene programs that will go in the eye, so there will only be one eye injection, one intrarvitreal injection, which is then regulated by an activator ligand.

In other words, the expression of whatever is encoded in gene program to be expressed, will then be regulated by an activator ligand, which could be dosed orally or with eyedrops. The first candidate, which we are very excited about will be in the clinic this year, as well.

Great. Thank you so much. Very helpful.

At this time, we will conclude our question and answer session. I would now like to turn the conference back over to management for any closing remarks. Gentlemen?

All right. Well, as always, I have absolutely no prepared remarks, as usual. (Laughter). But let me say, 2014 was actually for us a very challenging year. We actually were planning originally on IPO'ing in 2014 to be very candid, and when we saw the opportunity to IPO in 2013 we knew we really had to accelerate everything that we were doing, and we did. And so, the first thing I would like to do, is really commend our team, because the work that they did in 2014, the progress they made in that length of time was exemplary.

That said, as I wrote the team on New Year's Eve -- they will all remember this, I gave them a grade of a C, I think. And the reason for the grade, has really has nothing to do with let's say, their performance and the work that the team did on an absolute basis, but really on a relative basis. Because we remain just -- extremely excited about the opportunity that Intrexon has, and we get an increasingly amount of reinforcement and validation of our belief about how just vast our opportunity is.

Increasingly, we see it's becoming more tangible every day, that we can really be an industrial leader. This Company can be one of the great companies on this planet, and this is what we are applying ourselves to. When you consider our performance to the [15] in light of that, it was the minimum.

That said, however, when I see what we have teed up for 2015. When I see how the team is executing today, and at the same time as -- and we can't take credit for the timeliness of what we are doing, the kind of reception that not only we, but I think everyone who is involved with the engineering of biology must be receiving, but certainly, we see it from our perspective. I think 2015 is really going to be a tremendously vindicating year for all of us, for our shareholders, and everyone who has had confidence in us. So I want to thank everyone for that.

Thank you, sir, and to the rest of the management team for your time today. The conference call is now concluded. At this time, you may all disconnect your lines. Thank you, and take care, and have a great day everyone.