Precigen Inc (PGEN) 2016 Q2 法說會逐字稿

Welcome to the Intrexon Corporation second-quarter and first-half 2016 earnings conference call.

(Operator Instructions)

Please note this conference is being recorded. I would now like to turn the conference over to Christopher Basta. Please go ahead.

Good afternoon. I am Chris Basta, Vice President of Investor Relations for Intrexon Corporation. Welcome to our second-quarter 2016 earnings conference call. Joining me on the call today are Mr. Randal Kirk, Chairman and Chief Executive Officer; Mr. Geno Gemano, President; and Mr. Joel Littmann, Senior Vice President, Finance.

During this conference call 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 Intrexon's business 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 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 per share. Reconciliations 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 Geno Gemano, Intrexon's President. Geno, the floor is yours.

Thank you, Chris. Good morning or good afternoon, everyone. Thank you for joining our second-quarter and first-half 2016 earnings call. We certainly appreciate your support and interest in our Company. Earlier today we issued a press release with our second-quarter earnings and we filed our 10-Q with the SEC. I hope you had a chance to review the reported financial results.

Before I get into a discussion of the quarter and our outlook for the remainder of 2016, I'd like to take this opportunity to discuss a few observations that I have made since joining Intrexon as President about two months ago. For starters, our technology platforms are outstanding and enable us to pursue exceptional opportunities across all five of our market sectors. The Company's executing well against aggressive plans for the robust pipeline of 30-plus collaborations already in place. Progress towards commercialization of several important products is becoming more visible each quarter and I'll touch on some of these in just a moment. Of course, all of this is being driven by contributions from the talented employees across Intrexon.

Additionally, after spending 30 years in big pharma where development of drug candidates generally succeed or fail in a more or less black-and-white manner, it is very exciting for me to be working with the innovative platform technologies that have broad application across multiple market segments. Once we make our technology platforms work for one application, the next application is somewhat de-risked and our ability to engineer new products, perhaps spanning several of our sectors, utilized in that technology is enhanced. To provide some examples, a few of these platforms in-house today include our L lactis platform, where our ability to engineer this microbe to produce a variety of bio effectors has now become well established. We already have six collaborations underway around this microbe in our health and food sectors and we're just scratching the surface of its full potential.

Methanotroph bioconversion platform, our engineering work with the methanotrophic bacteria continues to modify this unique microbe to deliver fuels and chemicals at high efficiency and low costs, leading to higher projected margins for a wide variety of products across a broad range of markets. Building from microbes to organisms, what's been accomplished in insects at Intrexon and its subsidiary Oxitec is truly amazing. The ability to target a single insect species that is damaging crops or spreading disease without indiscriminately impacting the environment opens the door to large opportunities for Intrexon across three verticals that we focus on, health, agriculture and the environment. Our switch platform is at the forefront of inducible control and regulation of genes for bio-based products spanning therapeutics, gene therapy and agriculture. This simple point is that we have cutting-edge tools that engineer target cells or organisms into factories that can produce a number of biological effectors or bio-based effects that have broad applicability.

Moving on to the quarter, in this quarter we saw our revenues grew 17% year over year to $52.5 million. Adjusted EBITDA was $110.7 million and we recovered 279% of our cash OpEx through deal money, cash recovery and products and services revenues. Our team delivered solid progress across many of our existing collaborations, initiated another exclusive channel collaboration and announced plans to spin a portion of our Intrexon crop protection subsidiary, which is dedicated to bio-based control of agricultural pests and disease during two of our platform -- using two of our platform technologies.

Here is a little bit more detail around some of our subsidiaries and collaborations. Starting off with Oxitec, from the deployment perspective Oxitec was granted a significant expansion in its Piracicaba, Brazil, where the program grew in size to protect 65,000 people in total, up from 5,000. The increased commitment from Piracicaba is a testament to the promise of our innovative solution and the severity of the threat associated with dengue, Zika and Chikungunya transmission through the dangerous aedes aegypti mosquito.

In addition, we recently reported data from Piracicaba's epidemiologic surveillance service to show during the full year of deployment of our Friendly Aedes solution in the CECAP/Eldorado district there was a 91% drop in the number of in dengue cases compared with 52% reduction in the rest of the municipality, demonstrating that our solution cannot only reduce the number of mosquitoes in an area but also can reduce the disease transmission that occurs with those mosquitoes. We look forward to seeing this promising affect on a larger scale with our expansion into Piracicaba's downtown city which started last month. Oxitec also initiated its second deployment program in the Cayman Islands during in the end of July. This popular tourist destination welcomes over 2 million visitors annually and we're honored that they chose our solution help combat the mosquito and the disease that it transmits.

In the United States Oxitec has recently received a final finding of no significant impact from the FDA for a trial in Florida. This important finding came after extensive review by the FDA whose team consisted of experts from the FDA Center for Veterinary Medicine, the Centers for Disease Control and Prevention and the Environmental Protection Agency. We are encouraged by this regulatory development for our solution at the forefront of a new paradigm in effective mosquito control. Our pipeline with Oxitec is strong and we continue to engage with agencies in numerous governments and non-governmental organizations in multiple countries and municipalities. We expect our ongoing negotiations the lead to broader adoption of Oxitec solution in 2016. In anticipation of increasing demand, we started construction of a new plant in Brazil in the second quarter which we expect to come online within the next three months and also started planning our first large-scale egg factory to help meet anticipated demand.

Moving on to the food sector, during the quarter AquaBounty's AquAdvantage salmon received commercial approval from Health Canada roughly 6 months after US approval by the FDA. Having these two countries opening the door for this healthy, wholesome and more environmentally friendly fish to find its way to supermarkets and ultimately to consumers is a positive development. Field trials in Argentina and Brazil have also commenced. AquaBounty also acquired an additional hatchery facility for scale up of commercial salmon eggs production. We remain confident that the AquAdvantage approach will play a meaningful role in the $11 billion salmon market and that future applications of our technology and aquaculture will produce additional species to further compete in the $150 billion global aquaculture industry.

During the quarter, EnviroFlight, our joint venture with Darling Ingredients focused on animal feed markets, was presented with the DSM innovation award in aquaculture which honors transformative innovation within the aquaculture industry. EnviroFlight's scalable production of Black Soldier Fly larvae has substantial potential as a plentiful source of high-quality, high-nutrient feed for aquaculture and we are pleased with this recognition of our approach.

Before moving on from food here are some additional developments from the quarter in this sector. Trans Ova's overall business was slightly weaker than we expected during the second quarter, mainly on the product sell side of the business, given continued cyclical weakness in cattle demand. We continue to invest in reproductive technologies that will drive Trans Ova's future growth and profitability.

Our Okanagan subsidiary completed its 70,000 tree-planting goal for 2016 and have 300,000 trees scheduled for planting in 2017 and over 500,000 trees under contract for 2018. Okanagan's pre-commercial launch is scheduled to begin in the fourth quarter of this year and we continue to invest in broadening this non-Browning technology to other apple varieties as well as additional fruit and vegetables.

Moving on to the consumer sector, during the second quarter we entered into an ECC with AD Skincare, a startup backed by the Harvest Fund. AD Skincare is focusing on the development of an advanced topical delivery system that aims to deliver biologically active ingredients to improve signs of facial aging. In addition to the delivery system, AD Skincare will also screen and develop new biological actives for anti-aging skin care.

In the energy sector, as recently presented at the Society for Industrial Microbiology and Biotechnology Conference, our methanotroph program toolbox development has progressed to the point of near equality with yeast-based programs. This unite microbe consumes methanes via natural gas as its energy source, enabling an inexpensive source of carbon to be converted to more valuable fuels and chemicals. As you likely know, both IEP and IEP II utilize this promising bioconversion platform. With respect to IEP, our pilot plant had its first full quarter of operation and we continue to make progress with isobutanol yield improvements. Will still early, IEP II, which is targeting 1,4-butanediol or 1,4 BDO, which is used in plastics and polyurethane, it is tracking to plan.

Shifting to the healthcare sector, Intrexon's suite of technologies is enabling a number of cutting-edge gene and cell therapy products for our collaborators spanning a broad set of therapeutic applications in cancer, rare diseases, infectious disease, opthalmology, and other areas. During the quarter we announced certain amendments to our ZIOPHARM oncology ECCs in the fields of oncology and graft-versus-host disease to improve alignment between both companies as ZIOPHARM broadens it pipeline and advances multiple therapeutic programs into the clinic, including control gene therapies, non-viral Car-T, viral Car-T, NK cell platforms and non-viral TCRs.

ZIOPHARM recently announced plans for a phase 1 clinical trial using lentiviral based Car-T to express CD33 CAR patients with relapsed or refectory acute myeloid leukemia, which have very poor prognosis. This will be the second trial to be initiated at the MD Anderson Cancer Center under the R&D agreement between ZIOPHARM, Intrexon and MD Anderson. We expect to hear more from our partner on this program as the year progresses.

With respect to ZIOPHARM's non-viral Car-T approach, data from the first-in-human non-viral Sleeping Beauty CD19 CAR T-cell therapy was just published in the Journal of Clinical Investigation. Results showed favorable long-term follow-up in patients that received either autologous or allergenic Car-T therapy. Our teams continue to advance sleeping beauty designs in both Car-T and TCR and we look forward to reporting updates as the programs continue to advance. We also continue to be encouraged by the data from the phase 1 clinical trial utilizing our RheoSwitch controlled Ad-RTS-IL-12 for controlled production of IL-12 via gene therapy in patients with glioblastoma. While early, we also believe the data has positive implications for ZIOPHARM's planned combination trial with RTS-IL-12 and a checkpoint inhibitor in glioblastoma.

During the second quarter, our collaborator Fibrocell initiated patient recruitment for its phase 1 clinical trial for recessive dystrophic epidermolysis bullosa, a rare disease impacting roughly 5,000 people worldwide using FCX-007 their lead gene therapy candidate developed in conjunction with Intrexon. In fact, Fibrocell just announced it enrolled the first two subjects in this trial during July and expect to treat the first patient by year end. Fibrocell's second gene therapy candidate developed in conjunction with Intrexon is FCX-013, for the treatment of linear scleroderma, which impacts roughly 40,000 patients worldwide. During the quarter FCX-013 received orphan drug designation from the FDA. More recently our collaborator Agilis Biotherapeutics announced its gene therapy candidate, AGIL-FA, is the first gene therapy to receive orphan drug status in a rare disease notice Friedreich's ataxia.

These two recent orphan drug designations now bring a total of six in which Intrexon related programs have been granted orphan drug designations, five in the US and one in Europe. As many of you know, this designation provides our collaborators with development and commercial incentives including seven years of market exclusivity in the United States, prioritized consultation by FDA on clinical sites in clinical studies and certain exemptions from or reductions in regulatory fees.

Additionally in health, our subsidiary Exemplar Genetics ExeGen low-density lipoprotein receptor miniswine became the first genetically engineered miniswine model reviewed and cleared by the FDA for commercial use as a research model. This model is designed to enable superior translational research and better predictive efficacy in the generation of new treatments for cardiac disease. This powerful investigational platform has generated interest from several players in the gene and cell therapy space and we currently have up to a dozen additional models in Exemplars existing pipeline.

Finally, I'd like to touch on the formation of Intrexon Crop Protection, or ICP. ICP is a wholly owned subsidiary dedicated to biological control of agricultural pests and diseases. Through the utilization of Oxitec's diverse self-limiting gene platform for insect control as well as our ActoBiotic system for the expression of targeted biologics for pest and disease management programs, our approach is designed to precisely target single-pest species and thereby avoid many off-target effects of conventional pesticide applications on the broader ecosystem. We believe this fills a meaningful gap in crop protection for high-value products where existing approaches are increasingly inefficient due to safety concerns and increased insect resistance to chemicals and pest resistance to genetically engineered crops. This platform currently has two collaborations with leading players in the agricultural industry.

Several milestones and objectives were achieve during the quarter and we been building out the team under the leadership of Doctor Sekhar Boddupalli, President of ICP. As stated previously we intend to spin off a portion of Intrexon Crop Protection to our shareholders subject to various conditions. We also recently introduced Florian Technology, an on-off regulation switch system that exhibits the capability to regulate the timing of flowering as well as selectively activate specific plant genes through topical application of an activator. Initial application efforts with existing and new agricultural partners will focus on near-to-market opportunities in turf, floral and forage industries. We look forward to updating you on our progress in the future.

With over 30 collaborations, approximately $321 million in cash and equivalents, equity securities with a market value of approximate $39 million, as well as preferred stock worth $120 million, a portfolio of operating subsidiaries with outstanding management teams and business prospects, we exited the second quarter of 2016 in the strong position to execute our strategies in this year and beyond. Thank you.

Operator, we'll open for questions.

(Operator Instructions)

Tom Shrader, Stifel.

Good afternoon. It's quite an overview, Geno. You're still sure you want this job? (Laughter) Two questions out of 202. You made the comment that the methanotrophic efficiencies are nearing those of yeast. What does that mean? I mean, they start with different things, they make different things. Can you give us a sense of what you're quoting there?

Well, really what it means is that we're able to engineer the microorganism as well as you can engineer yeast, which is it has more -- we have more experience with, so we're getting to the point where we have confidence in our ability to engineer the outcomes that we're looking for.

So it's sort of total carbon as numerically total carbon conversion is the same? Just not sure what metric that's quoting.

Tom, this is RJ. What he means is we're getting to the point in our knowledge of the metabolic pathways of the organism itself, the methanotroph, that's it's becoming as predictable and as facile as yeast is.

Okay.

It wouldn't be appropriate to make a direct comparison, carbon to carbon, as you know because methanotroph by definition is taking a completely different carbon source.

Right. Just one sort of large-picture question. You've renegotiated the ZIOPHARM relationship. You have a pretty dynamic new Head of ZIOP who's got a lot of ideas of his own. Is the plan still for everything Intrexon does in oncology to go through that mechanism? You have kind of your own large immuno-oncology force. Is it still all going to be through ZIOPHARM or is the change in royalty maybe a sign that you'll do things outside? Just curious if you are comfortable talking about where that might go.

Yes, as we've discussed in the past, this is a very broad field that ZIOPHARM enjoys and to be clear, to the best of my recollection, the field is something like in vivo expression of anti-cancer effectors for the purposes of cancer therapeutic or prophylactic effect. There was a subsequent amendment that removed those motifs that would target primarily an infectious organism. Even given all that, it is a very broad grant of field. It does impose on ZIOPHARM obviously a corresponding diligence obligation, so while I can't today make a prediction as to whether it would ever be narrowed, I can say today most of the things we are working on in cancer are in partnership with ZIOPHARM.

It sounds like is already inability for them to sort of opt out if it gets -- if the pipeline gets too big because of the diligence requirement.

That would have to be a negotiated matter.

Okay. Thanks a lot.

Jason Butler, JMP Securities.

Hi, thanks for taking the questions. Just first one on the update on the Oxitec pilot project in Brazil. You spoke of the 91% drop in dengue cases. Can you just speak to how, when you are working with governments from different countries right now that are asking you to design these kind of studies and what they're looking for specifically. Are you seeing a corresponding drop in both mosquito count and disease in the areas that you're looking at?

To the best of our knowledge this is the only study that has made that comparison, that has made the comparison between reduction in mosquitoes and a reduction in disease incidence.

Okay, great. When you think about the design of these studies do you think that this kind of study is what governments are looking for to get confidence in efficacy?

I think that epidemiologists and research-oriented scientists will certainly be interested in some of our applications in doing epidemiologic studies. In fact, we have ongoing dialogues with a number of the international and also nationally based organizations that would like to do these studies in tandem with our deployment so you shouldn't be surprised to see those. On the other hand, I don't think that it's a -- don't think it's something that people are looking for as a condition precedent. Certainly this is not the case with the FDA. Our trial that hopefully will be getting underway in the Keys is focusing on an endpoint of reduction in mosquitoes.

On the other hand, I would just mention, I would say that the relationship between disease vector control, this is not a new thing. The relationship between vector control and disease incidence is actually historically pretty widely acknowledged. I mean, there is a reason that -- there's a historic reason why the CDC is located in Atlanta, Georgia. I doubt few people on this call -- I doubt many people on this call will know the reason and the reason is that were formerly the Malaria Control Board and they essentially wiped malaria out of the United States through disease vector control.

Great. That's helpful. Just a quick question on the IEP pilot plant. Can you just review for us your goals for scale up for 2016. Do you still expect to be at commercial scale in 2018?

It's hard to nail down expectations in this field. Gino and I spend a lot of time with Bob Walsh, who Head of our Energy Sector. We think that this is probably our largest single team deployed to one single object in the entire Company. It's a fantastic team but as Bob is fond of pointing out to Geno and I, look, when you're doing a world-first instance thing it's not always a linear progression, or as he says, is not a straight line.

I can't today to you exactly what dates we will be at that various yield points, but we can observe that we've made tremendous progress. The numbers are tracking very well and we do still anticipate the timing that you mentioned. That is our goal. But I can't tell you for sure that we'll get that goal for the reason stated. Obviously, our scientists are dealing with technical issues. Actually they discovered technical issues that no one else had ever encountered before. Some of them they solved, some of them remain to be solved, but our overall is performance is very good in our yields continue to improve.

Great. Helpful. Just a last bigger picture question for me. Thinking about the crop protection spinout and that structure, can you just speak to what specifically you found appealing both to Intrexon and you that will be appealing to shareholders in that structure and if it's a structure you think has applicability in other industries?

It will have applicability from time to time, but let's review. It's a very good question. Why did we find this compelling case in this case to really somewhat depart from our normal business model in order to surrounds a project with its own enterprise management team, its own balance sheet, in fact it's own, ultimately we intend an expect, it's own publicly traded security. The reason was as follows. We actually have relationships with companies on our electus platform in agriculture. We have relationships with companies particularly pertaining to the GM insects for the reduction of agricultural pests and we were fielding numerous inbound inquiries on both platforms pertaining to agriculture.

We realized that there will be economies of scale in production, in regulatory, in commercial and commercialization and that the use of either of these platforms, the continued use and the continued development of each of these platforms, will accrue more knowledge to us so we recognize that in order to capture the economies of scale that would flow if you kept them all in one place, then rather than partnering out individual insects and that kind of thing, it would make more sense to put them in-house; put them, in this case, ICP and recruit an executive team that is focused on that enterprise. So while we can't say we'll never do it again, I can't say that will always seek to do it, either.

I think the fact and circumstances of this case really drove us to this conclusion and because of some accounting and tax accounting matters that are really somewhat beyond me, it's our understanding that we'll be able to make this dividend to our shareholders on a highly tax-favored basis. As we demonstrated last year in the case of our dividend of -- what was it, $190 million worth of ZIOPHARM shares -- I think it's incumbent on a management team to deliver value to shareholders when it can. This really accomplished every -- it accomplished multiple objectives in one project, so we're very keen on it and we're very excited about its prospects.

Tycho Peterson, JPMorgan.

Great. Thanks. Maybe just starting (inaudible) RJ or Geno, can you give us a sense of capacity and how quickly you can ramp to meet demand on a larger scale? Any real world implications from the FDA (inaudible) finding and whether the fact that there's still a fair amount of consumer pushback from locals where the pilots are being contemplated?

You're talking about the scalability of what, precisely?

Your Oxitec capacity. How quickly can you ramp.

Well, right now in order to treat a new territory we would put in a completely vertically integrated plant that would proceed from egg production to the rearing of the larvae and pupae and then actually sort of headquarter the insect release. I think the start-up time on this plant is around five months from start to finish to get into business. We are examining plans today that will allow us to accelerate that as our discussions around the world become broader in their geographic reach. We've learned that this particular mosquito has egg viability of at least six months, which means that it should be possible for us to build a centralized or maybe two or three semi-centralized, if you like, egg production facilities to supply the world demand and in that case, we would be able to deploy more quickly than in five months.

Ryan MacDonald, Wunderlich Securities.

Just quickly following up from that previous answer, the -- about the two to three centralized products production facilities, is the facility that you're currently building, the expanded facility in Brazil, is that one of -- would that be considered a centralized product production facility?

No, it's a fully integrated facility.

Can you describe that or expand upon the difference between the two, sorry?

Yes, so what we do today is we produce the eggs and then we actually rear those eggs into larvae and pupae in our production environment. Then depending on the release method, we package them into the release packages for release in the field. Okay? That's what a fully integrated facility does. What we're saying is that we think that we could we may be able to obtain some significant economies of scale through centralized egg production because these eggs are viable for at least six months, so that means that we could centralize the egg production portion, which is actually the high-tech part and then we could, in the field, do the lower tech part which would be the rearing of the insects and their release.

So the real answer is today, in answer to Tycho's question, it's five months. Five months is five months, right? But what we're pointing to is the fact that we have a team that is working on this now to see if we can get that number down significantly by building initially one and then we'll move to others, centralized egg production facilities.

(Operator Instructions)

Derik De Bruin, Bank of America Merrill Lynch.

Hi, Derek.

Good afternoon. I have another Oxitec question. With regards to the field trial in Florida, what are the addtional requirements before the trial can commence? Now that the FDA has issued a finalized [fonzi] our understanding is that they will be a referendum on the municipality in November. Is that the last hurdle or is there something else that you need to do before they commence? Do you need any additional criteria? What's the readout on the trial; is it six months?

Where unaware of any further hurdle and I'm not actually sure when the readout is. It's in the study design. I will observe the sort of time period that you mentioned does -- has shown in our trials conducted elsewhere a very significant knock down of the (inaudible) but I'm not sure exactly when the readout is. It should be on something on that time scale.

Keith Markey, Griffin Securities.

Hi, Keith.

Hi. Thank you for taking my questions. I was just wondering if the demand for the Trans Ova products and services varies significantly with the size of cattle herds and meat prices.

On the existing business it does. As Gino indicated, it's very much subject to the cyclicality of that type of market. But you should bear in mind that it wasn't because of that market that we made this acquisition. We made this acquisition because we believed that we could obtain a more advanced understanding of the reproductive biology of the bovine species and that we could apply engineering in order to make frozen bovine embryos (technical difficulty) product for us at a much lower cost than is possible today. We continue to work towards each of those objects, i.e., in the biology and in the engineering and we're very encouraged by everything that is going on there.

But look, I'm a business person first and last. I'm the last person in the world to walk away from some numbers. The numbers are the numbers. I just want everyone to bear in mind that it wasn't an interest to go into cattle farming or ranching that was the underlying reason for this particular acquisition. This acquisition allowed us to obtain the best expertise in the world in, in vitro fertilization in high throughput creation of frozen bovine embryos that can be shipped anywhere in the world.

That as a gating item is in an essential platform and now we are applying more advanced reproductive biology and engineering to that task to see if we can really make this a leading platform for the improvement of bovine genetics, both dairy and beef, and ultimately if we really succeed on this thing, it could compete significantly in the field of reproductive biology. In other words, if we can get the cost of these embryos, knowing their genetics, down to a price point that is low enough, then this could come a significant play in how you make new cows.

Thank you. At one point I think you were even talking about advancing the same approach to other species. Can you tell us a little about whether or not you are moving in that direction as well?

We are. We have some projects going on in pigs, both in the United States and in China, but our first target is in the bovine species. If you think about our overall food strategy, we've talked about this before. Its protein feed animals, food animals rather and specialty crops. If you look across the entire span of protein food animals, there are two opportunities that immediately loom large. One is aquaculture. I think that one is pretty obvious. The economics of aquaculture, especially when you bring it on land and do it in a re-circulating aquatic system, it's truly game changing. As Gino mentioned, I think he shared some numbers with you just a moment ago. It is just a phenomenal opportunity, especially given the asset we have in the AquAdvantage salmon.

The others in the bovine species, because when we talk with cattlemen around the world, and this is true up to the present time, the number one thing they want is improved genetics. This is true worldwide and it's ultimately because the feed conversion ratio on the cow really hasn't moved. In the last 50 years, the fee conversion ratio on the chicken has dramatically improved and consumers really -- I think we're all spoiled by what a marvelous industry that is. If we could achieve that kind of delta in bovine, then this is an enormous, absolutely, absolutely enormous opportunity. As I said we're excited about it. It looks like a worthwhile objective for our efforts and we are continuing to pursue it.

Andrew D'Silva, Merriman Capital.

Hi, good afternoon. Thanks for taking my call. I'll just keep it one quick question here. A couple of calls ago you mentioned you completed the development of an API with one of your ECC partners and I was wondering if there was any additional insight you can provide on that? Have you started to generate revenue from the commercialized ECC product yet and are any of the other APIs that are in your queue ending their developmental stage?

Two questions there, although we'll say it was one. No, we can't disclose who the customer was or where they are on it, but I will say we've made full delivery of the cell line to the customer. I can tell you they are scaling it now and they intend to use it. But I don't have greater color than that to offer you on that.

With regard to when is the next one, we are actually hopeful of seeing the next one completed in the near future. I can't give you the exact date but I think one of the largest ones that we've been working on for some time, a very ambitious target, is showing very good results at the present time and both the team and the partner are very excited. Geno and I had reports from them recently on this. But I don't think we're in a position to give a date certain as to when that will that project will ramp up.

All right. Thank you very much.

Tycho Peterson, JPMorgan.

Thanks, just one follow-up, RJ. Can you talk about the rationale for amending the ECC with ZIOPHARM just in your operating profit (inaudible).

Yes, it's actually related to the question we had earlier on this topic. I think that was from Tom Shrader, right? ZIOPHARM, in order to fully execute its diligence obligation on our field, in other words really to do all the things that we could do in this field, needs to be able to finance itself. We became concerned and ZIOPHARM became concerned that under a 50% operating profit obligation that, that could prove difficult. Realistically, Geno and I talk about this a good deal and we had a very candid conversation with our Board about it.

As you might imagine, this was a very well-considered item at our Board and at ZIOPHARM's Board and certainly by the management teams before that. We think that it was very much in our interest to do the amendment. If you ask my personal opinion, I think it was in our interest to do the amendment at zero consideration, but the lawyers tell me that I'm not allowed to have a personal opinion, so let me to you our corporate opinion. It was a very fair transactional on both sides, okay? It would've been very difficult for ZIOPHARM really to form the kind of [image] and to form the kind capital they probably will need as they get a lot of these cell therapies in the clinic. Their expenses will increase and I think investors at that time might baulk at pulling up the kind of money ZIOPHARM would have to raise if they are running multiple phase 2 and 3 trials as we really anticipate they will be doing in the future.

The second thing is, again, this is really just a personal observation but as you know, Tycho, I've been involved in the sale of a few companies and we should all recognize that if under that kind of obligation, ZIOPHARM would essentially never be a target, would never really be an acquisition target under a 50% operating profit obligation to Intrexon. We do think it was in our interest to across the board to agree to this amendment and I do think that it really serves the interest of both parties very well.

Okay. Thank you.

Ryan MacDonald, Wunderlich Securities.

Just on the Okanagan business, with the 70,000 trees now being planted can you remind us when those would be reaching the market for sale in 2017?

Sorry, are asking about how long does it take to grow apples from a new tree that is planted? It's two years.

Two years, okay. So then revenue opportunity there were not then necessarily be until 2018?

Yes, on anything that you planted in 2016, then you have fruit in 2018. You have your first fruit.

All right, thank you.

I wouldn't focus so much on the numbers today. You should bear in mind that what we're doing, we actually bought an orchard now. I think we're are we're or buying or leasing the second orchard? We're leasing the second orchard. In order to grow enough graft wood, and I think the last number that Geno mentioned in his comments, which was I think 500,000 graphs, 0.5 million graphs we'll have for this next year. That's really cool and so what you could expect is this kind of geometric progression. Obviously, we this is an outstanding asset, one that is truly, how can I put it, potentially eclipsing in the category.

The apple industry has been in a state of decline for many years and we think that this asset, this technology really addresses the main reason that, that is so. As Neil Carter, who heads up this team and really created Okanagan, has said on apple today, a whole apple today represents more of a commitment that a modern consumer really cares to make. He is not wrong. And so we think this is really wonderful technology. My point is I wouldn't focus on 70,000 trees, 300,000 trees, 500,000 trees, except to realize that this represents a geometric progression that we think will continue to expand in time for many years.

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

Terrific. Thanks for everyone for participating. I just want close by mentioning one thing. This is almost to the day -- our company became a public company three years and one day ago, so happy birthday to us. (Laughter)

Happy birthday to XON, at least, as a public company. One of the most rewarding things of my entire career has been to watch this Company mature. We rolled out a novel business plan in January 2011. No one had ever heard of exclusive channel collaboration. That was something that we really -- I could go back even earlier, just the whole ultra-vector architecture itself was so novel and Tom Reed's creation. Tom was the Founder of this Company in 1998, we should acknowledge.

So we did our first business, we adopted an unusual business model. It was experimental. It was as every bit as experimental as some of the underlying science. We executed on that model in January 2011 and we built a very unusual organization. Is not even shaped like other organizations. It took me quite a while to sell Geno on it, as a matter, of fact. He'd be first to admit to you. He was fine with it once I told them that both the divisions and the matrix -- and the vectors would stop at him. He is okay with that matrix as long as it all stops with him, so that's cool.

My point about that structure is that is really going to enabled us to scale and we're really seeing the benefits of that. It gives us a level of scalability that I frankly have not seen in any other business in the life sciences. We begin that and then we had some targets. We had some objectives, business targets, as we begin to really morph this thing into a real business and then we did our IPO three years ago and we said at that time, and I think many people on this call will remember, that we had some financial targets in mind.

They weren't your usual kind of financial targets. It wasn't that we expect earnings (inaudible) it was that, look we want to get to 50% cost recovery of cash OpEx by the first quarter of 2015. We expect deal money to represent the other 50%. We think that this is such a huge return area for investment that we would really like to for the foreseeable future take any surplus above that and really invest it in this field.

We executed that plan while we continued to roll out our business model and by the second quarter of 2014, we accomplished those financial objectives and we've been able to maintain them ever since. I'm feeling very gratified at this point and then we, of course, went to work on the next thing we would have to work if Intrexon would really succeed in the way that we had planned and that is, this Company badly needed professional management. We need to be able to recruit the best and the brightest people in the world in order to execute the mission because this is a very ambitious mission that we have.

So I'm really delighted. I talk about in the press release here. I'm really delighted to see, first of all, on an almost daily basis our report from HR that shows the new hires. We're growing organically practically every day. The current number of employees is over 800. We continue to grow. On a good day, I will look at these reports from HR and look at the backgrounds of these scientists and I am just blown away. And so we continue -- on a good day we will see five or six of these things, so very, very exciting. Then as we think about our executive ranks, we've really made some outstanding contributions recently. They given me tremendous confidence that Intrexon is going to be a real figure in the world going forward.

Very recently we announced that we recruited Andy Last, who will be our new Chief Operating Officer, I think starting at the end of this month. He's phenomenal. It's very difficult to find somebody with this level of character, with background across so many disciplines that are of relevance to Intrexon and on top of that, and being a nice guy and being that intelligent and being that hard working, he happens to be British which will enable us to translate because, of course, I can tell you, can guess which division, as President Kennedy once observed, which division of ours we actually have the greatest level of communication problem with. It's Oxitec, of course. Just kidding. Well, not entirely kidding. I think -- was that Kennedy's line, we'd be united by a common language? Anyway, so anyway very happy to have Andy on board and were all really looking forward to working with him.

Then finally on to mention, to my right here Geno Gemano. Look, I think most people know the story Geno. He is too modest to ever mentioned this. He's never told me this but I know for fact Geno was beyond doubt ever the most highly recruited Senior Life Science executive in the world when we were able to convince them to join Intrexon. If you'd like to talk to him or have access to his psychiatric file, you'll have to check with Geno on that but I'll say were very gratified and pleased to have his leadership here. We previously announced that even when Geno joined on June 1 we announced that the plan here is for Geno to inside of two years become CEO of this Company, which would allow me to transition to Executive Chairman, which in reality, I think many of you know this, will allow me to pretty much do the part of my job that I actually probably do okay on. It is not like you're ever going to lose me.

I just want to mention -- and then Joel has joined us one year ago. Recently Fred Hassan has come on our Board and I think, by the way, many people observe to me, I think we have the best Board in the -- arguably of any corporation in the world. We see this throughout the organization. The level of talent upgrade that people who are joining us now like Geno and then I just want to mention now having worked with Geno for a couple of months, I can say that everything I was hoping this organization would get by having someone like Geno joining us has really come true. I just want to extend my thanks to you.

Thank you.

Thank you, operator.

The conference is now concluded. Thank you for attending. You may now disconnect.