Precigen Inc (PGEN) 2015 Q2 法說會逐字稿

Good afternoon, and welcome to the Intrexon Corporation first-half and second-quarter 2015 earnings conference call.

(Operator Instructions)

Please note: This event is being recorded.

I would now like to turn the conference over to Christopher Basta. Please go ahead.

Good afternoon. I'm Chris Basta, Vice President of Investor Relations for Intrexon Corporation. Welcome to our second-quarter 2015 earnings conference call. Joining me on the call today are Mr. Randal Kirk, Chairman and Chief Executive Officer, and Mr. Krish Krishnan, Chief Operating Officer.

During this 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, 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 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, earnings per share, pro forma adjusted EBITDA earnings per share, and pro forma net income. Reconciliation to GAAP measures are contained in the earnings press release, as well as on the investors 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.

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

RJ and I are pleased with Intrexon's performance in the second quarter of 2015. We recognize that biology can both inspire and create revolutionary solutions to the world's most pressing problems. We couple passion with a socially conscious purpose, empowering people to realize the products of a better, cleaner, healthier planet. And during the second quarter, we continued to progress our leadership position in the engineering of biology.

Within the health sector, our momentum continues to build as we pursue the potential of gene and cell therapies, and make a difference in patients' lives. During the quarter, some of our collaborators entered the clinic, or announced their intent to enter the clinic, enabled by Intrexon's platform to fight a number of diseases. ZIOPHARM has begun to recruit patients in clinical trials against brain cancer and breast cancer using the RheoSwitch controlled IL-12. The ability to tune and regulate the expression of this powerful cytokine and a broad array of other genes via our RheoSwitch technology opens the door to safer approaches within the growing field of gene therapy.

Fibrocell Science filed an IND for its lead gene therapy candidate utilizing an autologous cell platform engineered to express collagen VII for the treatment of the debilitating genetic skin disorder known as RDEB.

Oragenics is pursuing the development of biotherapeutics for oral mucositis, including clinical advancement of ActoBiotic AG013. Oral mucositis is among the most frequently reported adverse events associated with cancer therapy, affecting up to 500,000 patients annually. And AG013 offers a convenient oral treatment to deliver therapeutics that protect against, and repair, chemoradiation-induced damage of mucosal tissue. Additionally, Oragenics selected a lead candidate in the lantibiotics platform, which can provide an important new tool in the global fight against bacterial antibiotic resistance, which causes more than 2 million illnesses and 23,000 deaths each year in the US alone.

Our immuno-oncology program focusing on adoptive T-cell therapies continues to be a key focus, and we are pleased to announce that during the second quarter our exclusive collaborations and license agreement with Merck Serono to develop CAR-T therapies became effective. That resulted in the receipt in July of a $115 million upfront payment, of which ZIOPHARM received 50%. Additionally, Merck Serono has selected its first two CAR-T targets, and we have initiated research and development efforts on these programs.

In April, we also announced our CRADA with NCI, to which Intrexon and NCI intend to develop RheoSwitch-controlled IL-12 cancer therapies, utilizing autologous peripheral blood lymphocytes for the treatment of patients with solid tumor malignancies.

Finally in health, we were pleased to provide our shareholders the opportunity to participate directly in the value created by our collaboration with ZIOPHARM through the tax-efficient special stock dividend of the ZIOPHARM shares owned by Intrexon. At the time of the distribution, we noted that Intrexon shareholders may recognize further gains in ZIOPHARM shares [post the] dividend, driven by the ongoing development of ZIOPHARM's diversified pipeline and expanding collaboration opportunities, and we continue to believe that will be the case. Meanwhile, Intrexon's very significant economic interests in all of ZIOPHARM's programs remains intact, and a large focus of our Company.

Moving on to the food sector, Intrexon completed the acquisition of Okanagan Specialty Fruits, the pioneering agricultural company behind the Arctic apple, and the world's first non-browning apple without the use of any flavor-altering chemical or antioxidant additives. Intrexon's strategy in the food sector centers on responsibly harnessing the power of technology to produce wholesome, nutritious food that is more appetizing and convenient to consumers, and Okanagan fits very well within our approach. The US apple market is valued at over $2.7 billion annually. And with the rising demand for healthy snack alternatives, the fastest growing segment within this industry is fresh cut slices, which we intend to pursue. We have received interest from retailers throughout North America, and work is under way to establish large-scale plantings in strategic locations with global planters.

We also provided needed capital to AquaBounty Technologies, increasing our equity stake in the company, and we remain hopeful that the FDA will approve the AquAdvantage Salmon in the near term. While we await their decision, AquaBounty is making significant progress with their marketing efforts and preparations in several foreign markets for field trials to bring healthy, nutritious food to consumers in an environmentally responsible manner.

With respect to our efforts in energy, we expect our methane bioconversion platform to reach pilot stage by year end, and have our sights set on potential commercialization of this novel gas-to-liquids technology in 2017. As a reminder, our first commercial target is isobutanol, which, in comparison to other gasoline biofuel blendstocks, offers cleaner burning combustion with less corrosion, holds more of the gasoline's energy content allowing for higher miles per gallon, and its compatibility with the current petroleum infrastructure offers a dramatic improvement in the efficient transportation of the fuel itself. Our team remains focused on achieving the [deals] necessary to bring this drop-in fuel to market with our existing partner and future collaborators.

During the quarter, we also announced a multi-year collaboration with an investment fund sponsored by Harvest Capital Strategies. The fund is dedicated to the inventions and discoveries of Intrexon that we deem suitable for pursuit by a start-up. The relationship has implications across all the sectors we address, and will be complementary to our ongoing programs. It is important to note that this collaboration will not prohibit our ability to execute other collaborations and joint ventures. We believe this approach allows us to remain capital efficient by avoiding the use of shareholder investments to support early-stage development of innovative products while expanding our back-end economics across these ventures.

Now on to the financial front: During the second quarter, we achieved record revenues of $44.9 million and adjusted EBITDA of $54.4 million. Our net loss was $40.7 million or $0.37 per share and, excluding the ZIOPHARM special stock dividend, our pro forma net income was $0.9 million or $0.01 per share. In the second quarter, cash consideration received for R&D services, otherwise known as cost recovery, covered 60% of cash operating expenses excluding our majority-owned consolidated subsidiaries. Through the first half of 2015, our technology access fee and cost recovery covered 187% of our cash OpEx. And we are particularly pleased with the statistic, as our main objective at Intrexon is to build a significant portfolio of back-end economics across multiple industries and sectors, and while we are building that portfolio, not to burn shareholder capital.

Thank you. We are now ready for your excellent and thoughtful questions.

(Operator Instructions)

Our first question is from Tycho Peterson at JPMorgan.

Thanks. A couple questions first on Merck KGaA, could you talk a little bit about whether they've selected any targets to move forward in the clinic? It seems like in some of the presentations they haven't talked about CAR-T that much. I'm just wondering how they are prioritizing that.

Sure. Hi, Tycho. RJ here. The first two targets have been chosen. We have other targets under discussion, but as we related, I think, last quarter around the time we did the deal, as we discussed, these are not the same targets that others have chosen.

One reason we preferred Merck above any other potential collaborators is because they shared with us their view that we really need to leapfrog what is taking place in the clinic by others today. One could reasonably wonder whether anything out there today is a drug. Is it ultimately a commercial product? That said we think that the motif is extremely compelling. It definitely does usher in a new era of certain cancer therapeutics and probably some other therapeutics in other areas as well.

As we have highlighted in our S1 almost 2 years ago exactly with our IPO, as you may recall, Tycho, we have identified a number of industrial issues that really need to be solved in order for this motif to be practicable as an industrialized set of products. In Merck, we found a partner that shared our vision with respect to that, who really understood that once you begin engineering biology the same as to there as it is true in every other engineered sector of the economy, which is in order to win long-term it requires a continual commitment to innovation.

It's not our intention to get out there quickly into the clinic with another CD 19 CAR-T. Neither we nor Merck believe that is necessary or even desirable. We've identified novel targets. I can tell you that much. I don't think they would mind. The two targets that have been identified are novel. They employ a technology that we think give us an expectation of genuinely superior performance.

Okay. That's helpful. Maybe just a question on the business model in general, RJ, for a long time you've talked about sharing the cost burden with your ECCs, and 60% cost recovery this quarter is notable. If we think about Oxitec, you're taking on more cost burden here as you've done with Trans Ova and AquaBounty. Maybe just talk about how you think about the balance longer term in the business model, and margins, and how much of the cost you are willing to bear in partnerships in general going forward? If you could also just give us a quick pitch on Oxitec and how more mosquitoes is a good thing, that might be helpful.

Sure. Thanks, Tycho. First, as I mentioned in the press release our objective was never to achieve 60%. Let me first make a comment, 60% is actually excessive in our view, which means we are not growing quickly enough. It's not our objective to cover 60% of our cash OpEx through our customer recovery from our partners. The target is 50%, and this is something Krish and I decided very early on, and we don't want to be 50%. We don't wanted to be more than 50%. To us this is a very important number.

That 60% number, you should look at with a little bit of alarm as we did because it means that we're not growing rapidly enough. Now I say this on behalf of a Company that when we did the IPO a few years ago, had 200 people, and now with the Oxitec acquisition, we have about 700. Believe me; we're trying to grow. You saw some of the people we've hired that it required actual press releases, but I'll tell you in addition to those people are many others, so we are growing, but the point is we need to be investing in additional platforms and capabilities that will generate more ECCs.

Now the thing that really makes me ultimately, I won't say maximally proud, is not just I don't mean to say just, we believe we are performing very well for our partners. We can talk later if you would like about some of the things we've executed on, and have actually wrapped up or are close to wrapping up, in connection with some of her earlier ECCs. At the same time, we are able to find opportunities to acquire industrial products and industrial capabilities that allow us to leverage our technologies in a business that may be small today, and we will get to mosquitoes in a second, small or zero today in terms of revenue that we think can be quite large in the future.

While maintaining that 50% cost recovery and relying on deal money to cover the other 50% of our cash OpEx, we think there is additional juice here, if you like, in our ability to put together over time positions of genuine industrial leadership. We didn't feature this in the S1 because frankly, we thought it was too ambitious to mention, but when we began executing according to plan and actually had a plan, we found opportunities in which we could do this. You remember our discussing this in connection with Trans Ova, our acquisition of Trans Ova, which we think is fabulous business. It's going to be very significant one in the future.

We know long term, technology leadership almost never leads to a situation of persisting competitive advantage, but industrial leadership can. Over time it is our intention to acquire positions of genuine industrial leadership, and so far we have a few of those. One I mentioned is bovine genetics and bovine embryo production.

At the risk of going on overly long, let me tell you about the screensaver on my desk at home. The screensaver, my current screensaver is a picture of a beautiful -- it was taken about a month ago in Uganda, it's a beautiful Ankole cow. For those of you who don't know what an Ankole is, it's this beautiful brown cow that you see in Africa that has the horns they go straight up, and she is standing in a beautiful green pasture, and in the background is Lake Victoria. Suckling her is an absolutely fabulous Holstein Friesian calf. We know that calf genetically because we made her in our labs in Iowa.

That calf will grow up to be in any milk parlor in the world, Denmark, Wisconsin, what have you, a super achiever, the character I call Super Bossy, meaning the top performer in any milk product, in terms of milk product. You see this picture. I've been sending this picture around to Board members and friends as a joke/riddle that goes as follows. How the export a dairy industry to China, India, Africa, and the Middle East? Answer, FedEx.

My point is these positions of genuine industrial leadership, I don't have to tell you. For those on the call not familiar those industries, the beef industry is $180 billion per year. The dairy industry is $180 billion per year. This industry has not tracked the increasing productivity that's been realized over the last 50 years, like for example the chicken industry, not by a long shot.

When you talk to ranchers and you talked to dairyman, cattle genetics is the number one thing that they need for improvement. We are in dialogue with the government of India. We're in dialogue with folks in China. We have customers in the Middle East, customers in Africa, and we think this is going to be a very big business.

The mosquito, Oxitec, first let me direct you, I can't do proper justice to it that (inaudible) and Perry and the team that labored to create Oxitec over the last dozen years or so, we just think they are phenomenal. Let me direct you to their website because it's a very [fulsome] website. There are a lot of papers. I think there's actually article in the current nature biotech. Anyway, there are a lot of papers and a lot of study reports out there. In our view, I'll just say we have been looking at the field of beneficial insects for three years, and we've studied a lot of assets. This in our view is the very finest one.

Again, the leverage between Oxitec and our existing technologies is extremely good, so it's a very, very nice fit. It gives us an opportunity to go into a field that in the future we think can be very, very significant. The product that is most advanced if applied consistently around the world could essentially rid the world of dengue fever. This is an extremely horrible disease afflicting an enormous number of people, and it's prevalence across a swath of the globe that covers a population of, say, 2.4 billion people.

I would say if you look at the field data that have been published out of the field study done in Brazil for example, and you see their ability to knock down the disease vector for this disease, I think that, put it this way, if this asset were a biopharmaceutic, and it had the same level of efficacy as this, I can't remember the name, the Oxitec name, OX5013A or something, something real glamorous like that. This particular product, biopharmaceutical with the same efficacy against dengue fever obviously would be worth a very significant number of billions of dollars.

Now we've given a lot of thought to how we can commercialize this technology. We think we have some very good ideas about this. They have a pipeline of other products. Actually, one of them is actually featured in the aforementioned nature biotech article. We're very excited about this acquisition.

I want to point to you, just to direct answer your question, Tycho, is we think we can do both. We think we can continue to pay our cash OpEx through the combination of a deal money plus cost recovery while amassing positions of genuine industrial leadership that leverage us and allow us to grow these businesses.

Okay. I'm sure there are others who want to hop on with questions. I had just two other quick ones. One, you're structuring a lot of these deals with stock. Can you talk a little bit about that, with Oxitec for example, you're giving up $80 million of stock. Can you talk about how you think about the value that places on your own equity?

I will say in the acquisitions that we had made that involved our stock it's really securing a partnership. If you look at for example the fact that Neil Carter, who created Okanagan Specialty Fruits, is now a member of Intrexon's management team, and a very productive one. He's on every Monday morning management committee call, and he's a key team member. The same is true of David Faber at Trans Ova. We expect the same will be true of [Hayden] Perry.

The way to make partners is to enter into relationships in which the interests of the party our aligned. You know me. Tycho, you've known me for a while. I'm pretty jealous about equity. I don't really want to sell or give any equity that's not absolutely necessary, but in these cases though when we've calculated the value of having the teams that have really secured these positions of genuine industrial leadership, really marry Intrexon, and have the same interests that we do economically, it just makes a lot of sense.

Okay, and just one last one on Sun Pharma, it sounds like there may be some news coming on that one. You've had that deal for a couple of years now. Maybe just talk about how that has paced relative to your expectations, and where you see you are positioning within ophthalmology?

Yes, so we really like, I'll say, all the data that's been out so far this year, and I know the data to which you are probably alluding, has been highly encouraging to the approach we're taking here. I don't know how much we've disclosed about what we're doing here, but as you might imagine we are targeting what's Sam [Broder] refers to as the blinding diseases. These are the ophthalmic diseases that have maximal incidence really to date for the baby boom generation, and incidence is actually approximately that of cancer, so it's really interesting that biotech has missed in this field.

There are three approved biotech products for these diseases today. We are actually all for the same indication, and they are actually the exception that proves the rule because they actually work by down regulating a protein. The point being, squirting a protein intravitreally is a real bad idea because you are going to get a lot of toxicity. The (inaudible), strategy for example, actually like I say it reduces a protein instead of [infusing one].

Our basic idea here is our gene programs. The eye is immune-privileged, so if you want to put a gene program into a patient and have a high degree of confidence that the gene program will not be immune-silenced, the eye is actually a very good destination. There's a lot of literature to teach us what proteins would be efficacious against these blinding diseases for several of these indications at least, with the main problem always being toxicity from overdose. Actually in the clinical trial data from one of the players in the space, you actually saw, we believe, the effect of that.

What we have here is another use of our switch technologies. The idea is to put a gene program into the appropriate tissue in the eye, and then regulate, induce and regulate the protein expression with an eye drop. We think it's an extremely promising. You're right. We are making very good progress on it, and we'll have news about this in the coming quarters.

Okay. Thank you.

Our next question is from Andrew D'Silva of Merriman Capital.

Good afternoon, guys. Thanks for taking my call. I just have a few quick questions. First off, as far as your previously stated guidance called for $100 million in product and service revenues. I just wanted to confirm that was still what you are expecting, and if that is so, what seasonality Trans Ova genetics? I know the second quarter is typically the strongest period, but obviously you are growing the division quite quickly. I was just curious if you just saw Q3 and Q4 being largely flat as they relate to the second quarter, or how would you expect revenue there to shake up quarterly?

Then more of a long-term viewpoint, I know you look at a biopharma model, typical growth rate with everything that you try to get involved with. Can you explain what you are looking for as a catalyst for that segment to grow in more of a hockey stick motion down the road?

Sure. With regard to the areas I alluded, Andy, about industrial leadership, we think the thing to bear in mind on these is that, and the term that we use within Intrexon, is punching through. What does it take to turn the Arctic apple into something that really does penetrate that $2.7 billion US apple market, and then globally as well? The first thing that that requires is a lot of apples, so it takes two years to make an apple. I can tell you that's not a hockey stick. It's a hockey stick that is delayed by at least two years. Put it that way.

At the current moment, the first thing we did, actually even before we closed because we knew we were going to close was we bought an orchard, so we could produce a lot of wood. I don't want to get into apple cultivation here, but the bottom line is then with the wood, then you can supply those as grafts to the people who contracted to grow the apples for us, and we're signing these grower contracts now with growers around the country, as Krish mentioned. My personal view is that is going to be a very significant business with a very attractive operating margin.

This will be true for Oxitec. To a great extent this will be true for Trans Ova. I think we will continue to see terrific growth there. Several of the discussions we are having at Trans Ova relate to, as I mentioned, significant national efforts to better for example dairy genetics. These programs I think will result in a very nice growth of business that will occur over many years.

Beyond that we are not modeling financially beyond the constraints that we mentioned so many times, which is that we expect that we will be able to continue to grow the Company and cover all of our cash OpEx with a combination of deal money and cost recovery. You will see product and service revenue continuing to ramp I think across every business that we are involved in, but we're not giving any guidance about that specifically.

The previous guidance is still on the table? Is that a fair assumption, or has that changed?

I don't remember personally providing (inaudible) guidance, but if we did, then yes, it is still on the table officially. Obviously, my view based on everything that is going on is that we are seeing everything ramping across the board.

Okay, good. Then moving over to your JV with Sun Pharma, [AGTC] joined in, a collaboration with Biogen, the total contract could be worth slightly north of $1 billion if certain milestones are met. I was curious to know your thoughts on that, then how some of your lead candidates out of the JV compare with some of the lead candidate at [AGTC] and Biogen are progressing towards?

Yes. We're not going to comment on that, Andy. I appreciate the question, but for business competitive reasons I think I've already answered. I think I've already stated with regard to [our ophthalmic] program that we are extremely pleased with everything that we see, all the data we've generated, and we think this is going to be a very significant business. We refer to the JV as SMI ophthalmic, and I think our total economics in that JV ranges between 56% and 61% of operating profit.

I can tell you corporately, we enjoyed an extremely productive relationship with Sun. I think they're one of the smartest Companies that we have as partners. Dilip Shanghvi, the Founder and CEO of Sun, is just a phenomenal individual, a great character, extremely serious, extremely intelligent, very focused, and dedicated. This is just a wonderful, wonderful relationship. Many of our partnerships are. I used of the term marriage earlier, with regard to acquisitions, and I'll say these partnerships are equally like a marriage. We're really pleased with them.

Yes, I hear you on that. I wasn't really trying to get what your milestones and fees could be down the road. I was more interested in market comparisons for AGTC's opportunity with SLRS and XLRP versus what you guys have working internally right now, and maybe how you could compare the two on a total opportunity basis.

I'm sorry I didn't dig into this too much right before the call, but from what I remember you were dealing with things that were maybe more traditional pharma model than what AGTC was, and also perhaps maybe a larger pool of potential patients.

Yes. By pharma like model, do you mean the fact that will have the current revenue to the sale of the eye drops?

The eye drops. Yes, exactly.

To us that the very important part of this entire formula for this project. Absolutely.

Okay. Good. Just quickly going over to the energy segment, obviously using the (inaudible) to get isobutanol is a great way to increase the energy output. I heard you mention a little bit as far as it being a greener product for emission standards. Are you seeing any pushback right now from taking natural gas and converting it to isobutanol from an omission regulatory standpoint? I know that there's a lot of things in the works right now with EPA [carb] and the administration. I was wondering is isobutanol really up, from a green standpoint, that much better than natural gas, or is it closer to traditional gas and diesel? I'm just trying to figure out how that all shakes out.

Yes, in terms of emissions standards, after you make the adjustment for its energy density being the rough equivalent of gasoline, it's 97% [better than] gasoline. After you make that adjustment which would be a heck of an adjustment, then you could use natural gas as a proxy. In other words, definitely cleaner than traditionally manufactured gasoline, but it's not zero either. It's approximately that of natural gas, after you adjust for its vastly increased energy density.

It stays, on an energy output basis, in line with natural gas. That's the most important thing. I think natural gas outside of zero emission has being one of the major points many regulatory bodies are pushing, to gravitate that way away from diesel and typical gas. I was just trying to see if that fell into that emission standpoint, so it does.

Yes. What I'm saying is it's better than that because it's natural gas, but it's natural gas that's been made into a product that has a much higher energy density.

Got it. Okay. Then are you seeing other ways to modify methanotrophic other than creating isobutanol right now, maybe creating products for industrial materials, and stuff of that nature? If so, does that tie into the JV, or is that new opportunities that you can use in new ECC partnerships?

That's a great question, Andy. Yes, we do see additional opportunities for the methanotrophic bioconversion platform. The Intrexon energy partners venture itself has [of its field], I think, liquid fuels and lubricants, but there are lots of hydrocarbons that we can make. I think you could expect to see news about that in the coming couple quarters.

We've previously identified for example that we have produced Farnesene, which of course sometimes is a fuel and sometimes not, but we are looking at some opportunities there. I'm glad you raised it. We're seriously studying so a couple of opportunities there that are not liquid fuels or lubricants that represent very significant margins.

Got it. Thanks for the time, and good luck throughout the rest of the year.

Thank you.

Next question is from Keith Markey in Griffin Securities.

Thank you for taking the question. I'm just wondering if you might tell us what is the trigger or triggers that generate revenues for you from the Arctic apple? Is that the sale of trees, or is there something beyond that?

I don't know. Let me while I look at my two fellows with me. I don't know if we've actually disclosed our contemplated business model. We have not. I probably would decline to disclose it here, other than to say, have you tried an Arctic apple, by the way, Keith?

No, I haven't yet.

You could get one from Chris. It's an absolutely amazing thing. You try, for example, the dried sliced apple. We served three bowls of dried sliced apples in our last Board meeting, and those bowls were empty at the end of the meeting. It was amazing. When you taste this thing in that form, you realize that in several categories of apple, this is not just an improvement. This is actually enabling.

I have a bag on my desk. I've told this story to a few others. I have a bag of these apples on my desk, and I will leave it there is for as long as three months outside of the cold chain, and it stays utterly pristine. It's absolutely amazing. When you put a little slice of it on your tongue is like you just took, in a few seconds, as soon as it hydrates, it's like you just took a bite of a freshly picked Granny Smith apple. It doesn't have the chemical quality that we all just naturally associate. Frankly until I tasted it, I didn't realize until I tasted this, that every dried piece of fruit I've ever had sulfur on it. When you taste this you realize what a dried piece of fruit is supposed to taste like, and that somewhat my point.

There are some categories in which, and what I'm getting at is the business model. There are some categories in which we are likely to vertically integrate because the joke I've said inside is I just refuse to do an ECC was somebody because they have a slice around a [bagger]. There are some specific segments of the apple market in which vertical integration is really going to be the best. As you go back toward the apples that are available at your supermarket, then that's going to require somewhat different business model.

Okay, thanks. I just had a few technical questions about Oxitec. For instance, I wasn't quite sure if they actually have approval from whatever the agencies are that are supposed to approve that type of an insect treatment. They have two for instance, the yellow fever one that I think you mentioned earlier, and another one for cotton pests, I think, boll worm. The boll worm is shown as a commercial pilot, and the other one is a commercial scale-up/optimization stage. Are those approved? I wasn't even sure. Then if they are approved, where and who does it?

Right. There's even more nuance around. I don't know if we have enough time on this call. Remember, too, and I'd ask you to bear this in mind, we haven't actually closed this transaction. I don't want to get into too much detail about this. Let me just say that there is actually a distinction. There's another distinction you should bear in mind, which is approval to conduct a program for which you could charge versus approval to actually sell mosquitoes.

Brazil, in terms of regulatory status, is the most advanced, and they are the most advanced regulatorially, but beyond that let me just leave it at that. We think we have an excellent pipeline there. The data are consistently excellent, and we are absolutely thrilled with this acquisition.

The next question comes from Peter Lawson with Mizuho Securities.

RJ, you've a really nice, varied list of ECCs. Have any of these partners put Intrexon's partnership or technology on hold? I'm just trying to work out, work through, some of those ECCs to work out which are front versus back burner.

On hold. Historically, we had one ECC that we actually terminated for failure of the partner to exercise diligence. I guess you could have viewed that as being on hold, but that was I think shortly after the IPO. That partner recently entered into a new ECC with us. In other words, they entered into another ECC after we terminated them, or around the time we terminated them on the first one, and then recently we entered into a new one with them. They are executing very well on both of those. The short answer, with that caveat, I can't think of any place where we are on hold, as you said.

On the other hand, there are, we haven't announced this because I don't think it's really material, but there are ECCs that will be coming to one on an API project where we actually come to an [end], is that right?

We've completed the work.

Yes, we've completed the work, and we've handed over the engineered cell line. Our partner, the pharmaceutical company in that case, now is going to turn that into a product and hopefully pay us a lot of money. There is a cycle to these things, Peter. Some of them will eventually complete. They were designed to complete, and you will see new ones being signed over time, of course.

The [new Qwest NK] collaboration, how's that proceeding? How does that dovetail with the Merck collaboration?

I see. Beyond the disclosures that Company made, you'll note, I got a couple of calls around the time they filed their S1, and when they had their IPO. Why didn't Intrexon ever mention this? Why are we learning about this in some other Company's S1? I'll just say there's a reason we don't talk about all the technology we have, either license or internally developed. Those reasons relate to competitive reasons. Here, I will say that we are doing work. We have publicly stated we are doing work in [NK], and with regard to [NK92], I'll just leave it at the disclosure that was made by that Company and their S1.

Got you. Thank you. Then, just with the acquisitions of various companies, Trans Ova, the Arctic apples, how should we think about the long-term model, and how should we think about margins? I had always assumed it was this royalty model, but it looks like it's changing somewhat with the acquisitions.

It's being complemented. We should sit down sometime and really take you through the full implications of our business model, but currently we count about seven different ways we get paid. I don't think that I would ever, were I in your shoes, I don't think I would ever attempt to model Intrexon as a sum of the parts. That's going to be increasingly the case as we continue to grow and diversify, which is exactly what you just commented on. I think it's already at the point of impractical, and I think we are tending in the direction of impossible because by the time you've finished, you would have to start again, if you get my point.

Yes.

There are other analytical methods that people have employed in such cases. We can talk about that off-line sometime.

Okay, but should we think that there's been any regression towards more of a traditional business, [P&L] business?

I see your point. Okay, no. Not at all. Really, you should think about this as a building with a foundation, or a ship and we're talking about the bow structure versus the stuff on top of the deck. With regard to the bow structure that is exactly as we've always described, and so far as Krish and I currently contemplate, we have no intention of ever changing it. We think it's a wonderful way to build a business, in this area of economy which is, these are life scientists. It takes years to develop some of these products.

How do you get from here to there without going to the next folks on this phone call every year and asking for more money? That's not our intention. Worse, asking for more money for us to burn. If we ask you for money, we're going to tell you what we want for it. It won't be to spend it on our own operations. With regard to that part, that's completely inviolate.

What you are talking about is that we've been able to build structure on top of the deck that is going to give us a great long-term future. As I mentioned earlier, I'm very proud of our team for being able to do that because we have to be totally focused on success with these ECCs. Otherwise people will stop coming to us. At the same time that we've been able to find great acquisitions and new partners like the folks at Oxitec and Dave [Faber] and his team, at Trans Ova and partner at Okanagan.

These will become increasingly important parts of the business because we are deliberately selecting businesses that are relatively small when we find them because we don't want to dilute our shareholders to acquire a product or service line excessively. These are in relations to our market cap really quite modest acquisitions. What really gets us excited though is that at a very modest acquisition cost, we are finding opportunities that we think will turn into billion-dollar businesses in the future, and so that is our motivation with regard to that.

I guess in some future time as these businesses do turn into billion-dollar businesses, yes, I think maybe in retrospect people will say, it's a product or service Company. That's not our intention, and if that turns out, I will just say that will just be a retrospective analysis. I remember when Jack Stafford was running American Home Products. It turned into Wyeth. I think they owned a Wyeth drug company, and they also canned Chef Boyardee. They were selling canned spaghetti and drugs and a few other things. My point is, if you are succeeding at all things that you are doing, there are no shortage of analysts to explain how brilliantly synergistic those things are. The key is to succeed.

Got you. Thank you. Then we've seen some really interesting pre-clinical data. When do we see the first phase I, phase II data from partners?

I think we have phase I and phase II data out there on the number of things, including on one thing it's not even partnered. It's the data on AG014 out there? Yes. That's not even partnered. Those data are out there, Peter.

I guess I'm asking when is the next data we see?

I see. Yes. As far as the programs that are in the hands of our partners, I'm just not going to get out ahead of them on that. Whatever they say is what we adhere to. I just mentioned the only unpartnered one that we have that is clinical stage at the current moment is AG014, and I'll tell you we have a lot of people looking at that. I anticipate you will see that partnered in the near future.

Got you. Thank you so much.

Our last question is from Robert Breza and Wunderlich Securities.

Hi. Thanks for taking my question. First of all, nice quarter. Just a couple quick questions, one, if you could talk a little bit about the longer term potential of the fund? Then I think in a previous question you answered and talked a little bit maybe, but I would love to get a little better understanding about the synergies across the division in the platform in terms of how you think about sticking to that 50% number that you talked about in your call here. Really thinking about all the different projects here, that's going to be obviously a [bogey] that's going move plus or minus, I would assume, 5% plus, but I wanted to get your thoughts. Thanks.

Sure. I understand the question, the second part was synergies, and the first part was?

Around the potential of your new fund.

Yes, the fund. Such a cool idea. Whose idea was that, by the way? Not mine.

We're going to talk about mosquitoes and apples after this.

Yes. As we began squaring off with larger and larger companies, and I'm actually got to go to London soon to meet with an extremely large one, and it is in London, which is the most convenient place, so we're each traveling half the distance or something. Anyway, so as we began squaring off with larger and larger companies, we found that our team was really not terribly interested in forming new relationships around a greenfield projects with tiny companies, even though we have seen on the numbers. Consider what the value that we had given to ZIOPHARM already and to Fibrocell. Clearly, those opportunities are there, and maybe we're trying to do too much, but it just seemed like industrial waste for us not to do those.

Yet our team had discovered that the interface on one of these partnerships really cost us the same thing, whether it's a big deal or a small deal, whether it's a big company or a small company. It's linear in relation to deals, in relation to the number of ECCs. With regard to the small ones I just didn't want to see them go to waste, but on the other hand I certainly understood our teams' reluctant to enter into a lot of them, with very tiny companies, venture backed companies, and so forth.

We developed this idea, and really [for expedience], what if we could house them all in one place until they really became significant? Some of them would fail in early stage development, and others would really turn into real companies. What if you were really dealing with the same team of people with regard to a host of these little opportunities? We socialize this with a number of investment management firms and selected one. Id' say they were all interested. It really is an interesting, from a fund prospective, I think it's historic really, and so we contracted with this fund.

They have the right of first negotiation, the right of first look, at anything that we think, really we call it [VC stem co]. Anything that really looks like a [VC spin co]. There are some other parameters around that, but I think they all make a lot of sense. We have five sectors, and so the objective is that we can look to establish around 10 companies per year through this fund. We got the thing done recently, and we actually sent them our first proposal recently. Krish and I review these things before they go over, and we kick them that mostly to our team, for more work by the way. We've sent one over to the fund manager. We got another one today that looks really good. I think we will be able to keep up our end of the bargain, and we think the fund manager will do a very good job.

Perfect.

The synergies are obvious. If you look at the world and you look at a field like, it doesn't matter, food or therapeutics, we know that you can make a therapeutic in goat milk. You can make a therapeutic in a plant. You can make a therapeutic [in a periodic] expression system. You can make a therapeutic in a (inaudible) cell line. You can make a therapeutic inside the human, or you can take one of his own cells out, like we're doing at Fibrocell. Take one of his cells out and expand it. Put the gene program in there. Put the cells back in.

Those skill sets are discrete. Nobody's going to have a drug company that knows how to do all of those things. What we've (inaudible) in Intrexon is a number of silos, and all this report to Krish, and he runs an unbelievably well, a number of operational silos where the expertise is contained within that silo. They look across all the programs that require input from them.

If you think about it this way, our genome editing unit, those people don't care if they are working on a human primary T-cell or an artichoke genome. I think that's one reason this number zoomed to 60%, by the way, is precisely because, and I hadn't not planned on this, but I think that we actually from an operational efficiency perspective, we actually scale. I hadn't planned that would be so. It means were going to have to grow a little bigger.

That's a great point. I'm officially transferring, Rick, Krish, everybody to state of Minnesota, to do better apple research and export all the mosquitoes.

While you say that, but I have to complement the University of Minnesota for its wonderful honey crisp apple. That was a fine, fine creation.

It was. Thanks, guys. Have a great quarter.

Thanks.

This concludes the question-and-answer session. I would like to turn the conference back over to RJ Kirk for closing remarks.

All right. First off, thanks, everyone, for tuning in, as they say. First, I have to thank our team. I think they are executing so well literally today better than ever. Those who been with us for a while know that I'm a harsh grader. I'm not an easy grader anyway, but we are very, very pleased at the job that the team is doing.

At the time of our IPO, we explained to everybody. We did an IPO because we needed your money. We IPO'd for three other reasons, and we've seen all three of those reasons be satisfied over time.

One of those reasons was that we wanted an ability to recruit the best and brightest people, and increasingly we've see that has really come true. They're not only the best and the brightest, and I know there are a lot of very bright people in the world, and I'm not saying that all the brightest people are at Intrexon by long shot. What I'm saying is we're getting really good people, and we're getting people who share our zeal in the prosecution of the programs that we are operating. I think we all share a real visceral sense of the significance of the moment in which we live.

This business that we are embarked, and here I'm not even talking about Intrexon necessarily. We are trying to realize it with Intrexon, but this business that were embarked on, I think is arguably and industrially the most interesting industrial vector, the greatest industrial vector, that any of us on this call will experience in our lifetimes. I think probably for a couple billion years on either side of that moment.

Think about just in broad terms of what is actually happened. DNA developed enough sentience to start writing itself, to start rewriting itself. We are DNA. We are part of the biosphere. In 1963, Brenner, Crick, they understood the relationship between the sequence and proteins and, then 1972 you have the world's first successful DNA experiments. 26 years later, we have got a line code printout of the software that everybody on this call runs on. Things in the future are really not going to look quite like the past.

It's because as an industrial vector, once the DNA actually develops this sentient, deliberate ability to rewrite its own code, then you are like Captain James T. Kirk, who actually changed the program when he was at Academy. I can't remember the name. Tom Reed, our Chief Science Officer, would know all about this. Anyway, it's just an exciting time, tremendously exciting time to be in this field, and we can't take credit for the opportunity, and that's really my point about that. I think were pretty humble about that.

We're always careful to point out to people that without Intrexon, everything we're talking about, do you want to know if beneficial insects are going to be a huge multi billion dollar industry? The answer is I believe with 100% certainty that's so. That is whether Intrexon ever makes any contribution in that field.

The things that we are seeing are just tremendously exciting, an opportunity. Think about dengue fever and that application of that Oxitec technology. There is a real opportunity there to completely, like in 5 or 10 years' time. I haven't actually talked to them how long it would take, so maybe I shouldn't talk top of mind, but I can't help myself. Dear SEC, please see the forward-looking statements section of the presentation.

Here's an opportunity to wipe out, to rid the world of dengue fever. As an example, and to do so with virtually zero impact on the environment, I think the possibilities, and we see new ones popping up all the time, the possibilities that people are realizing are really showing that synthetic biology is very, very real, and that we are seeing real benefit from this the Arctic apple, the AquAdvantage Salmon, the Oxitec platform, the things we're doing at Trans Ova, and the things many teams in many companies are doing around the world. I have to say everything that interest people about immuno-oncology is all based on synthetic biology, those fantastic results that have been reported by Dr. June and Dr. Rosenberg, and people like that. Pioneers, all enabled by synthetic biology.

I think with regard to cancer, let me quote Sam [Broder]. After this last ASCO, Sam observed to me that he either told me three years ago that these data that were presented this last weekend at ASCO were the data, I would have said that was, and I'll delete the adjective, that was science fiction. I would have said that's science fiction. The point is that if the world is moving so quickly, the technology is moving so quickly that even a Sam [Broder] is amazed, I'll just say we all have a lot to be amazed about.

We're just very fortunate to be part of all this, and we're very fortunate to have the shareholders we do. I'm pretty sure you all know how committed we are to you. Thanks.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.