Precigen Inc (PGEN) 2017 Q2 法說會逐字稿

Good afternoon, and welcome to the Intrexon Second Quarter and First Half 2017 Financial Results Conference Call. (Operator Instructions) Please note that today's event is being recorded. I would now like to turn the conference over to Mr. Chris Basta, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. I am Chris Basta, Vice President of Investor Relations for Intrexon Corporation. Welcome to our second quarter and first half 2017 earnings conference call.

Joining me on the call today are Mr. Randal Kirk, Chairman and Chief Executive Officer; Dr. Andrew Last, Chief Operating Officer; Dr. Helen Sabzevari, Senior Vice President, Human Therapeutics; and Mr. Joel Liffmann, Senior Vice President, Finance.

Slides that will be presented on the call today can be viewed on the Investors section of our website, dna.com, by clicking on the link for Intrexon Corporation second quarter and first half 2017 financial results conference call.

During this conference call, we will make various forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of 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 and adjusted EBITDA per share. Reconciliations to GAAP measures are contained in the earnings press release as well as on the Investors section of our website.

Now I would like to turn the call over to Andy Last, Intrexon's Chief Operating Officer. Andy, the floor is yours.

Thank you very much, Chris, and good afternoon, everybody, and thank you for joining our second quarter 2017 earnings call. We appreciate your support and interest in Intrexon. Earlier today, we issued our earnings press release and filed our Form 10-Q. We hope you've had the chance to review the reported financial results.

Our business remains focused on the industrialization of engineered biofactories to bring superior and environmentally responsible solutions to the commercial marketplace across 5 verticals: health, energy, food, consumer and the environment. And during the second quarter, we continued our momentum in this endeavor.

The transition of Precigen into a fully integrated pharmaceutical development company and leading player in gene and cell therapy continues, and we are targeting year-end for its completion. This will provide us with a number of options regarding strategic and structural alternatives to maximize shareholder value. The consolidation of health-related assets into Precigen is progressing and the company has accelerated recruiting key personnel and executives.

On that note, I would like to welcome Dr. Helen Sabzevari to the call today as the new Senior Vice President of Intrexon Human Therapeutics division and Head of Research and Development for Precigen.

Dr. Sabzevari is internationally recognized for her work in the field of immuno-oncology and has an impressive track record in drug development. She has held senior leadership roles at EMD Serono, the biopharmaceutical business of Merck KGaA; the NCI; and most recently as Founder and CSO of Compass Therapeutics.

During her tenure at EMD Serono as Senior Vice President of Immuno-oncology, Dr. Sabzevari brought forward numerous preclinical and clinical assets, including what has become one of most promising molecules in immuno-oncology, the anti-PD-L1 antibody avelumab. Prior to EMD Serono, she led translational research programs to deliver novel vaccines and immunotherapies at the NCI.

We are excited to have Dr. Sabzevari on the management team and look forward to her leadership in taking our innovative therapies from bench to bedside. Under Helen's guidance, we are evaluating Intrexon's health programs, both partnered and internal, with a view to enabling what we believe will be an extensive internal and external pipeline of therapeutic candidates utilizing a broad set of tools and genetic engineering capabilities. Helen will provide some comments later on, after which Joel Liffmann will cover financials before we open the call for Q&A.

During the second quarter, Intrexon added 2 collaborations that capitalize on our expertise in microbial expression platforms and fermentation processes. The first is with Johnson Matthey, a leading provider of complex active pharmaceutical ingredients and an ideal partner to capitalize on efficient fermentation production of peptide-based APIs. Under the terms of this collaboration, Intrexon will receive reimbursements for R&D costs as well as milestone payments and future royalties.

We also entered into a research collaboration with Huvepharma. This is the first to use our new proprietary fungal expression platform to produce a new animal feed enzyme that they have developed. This agreement expands Intrexon's reach into the large animal feed additives market where we see many opportunities to apply bio-based production methods.

During the quarter, we also announced EnviroFlight, our joint venture with Darling Ingredients, plans to construct the largest commercial scale black soldier fly larvae production facility in the United States. This plant will enable the expansion of high-quality BSF ingredients for sustainable animal feed and nutrition. Initial BSF larvae production is expected in the first quarter of 2018, and the product will be sold into the livestock, agriculture and pet food markets.

Also in the food sector, our majority-owned subsidiary, AquaBounty, announced the purchase of a land-based aquaculture facility in Indiana to produce AquAdvantage Salmon. This facility will have an annual capacity of 1,200 metric tons with opportunity for expansion, representing over $10 million a year in potential sales of locally grown antibiotic- and vaccine-free Atlantic salmon.

More recently, the company achieved a major milestone with the very first sales of the eco-Friendly AquAdvantage Salmon in Canada. AquaBounty is currently evaluating opportunities for larger facilities in the U.S. to increase their production for the $2 billion a year U.S. Atlantic salmon market.

The second quarter was also a busy one for our wholly owned subsidiary, Okanagan Specialty Fruits. In preparation for the first commercial sales of Arctic apples this fall, the OSF team has laid the foundation for our entry into the $500 million a year U.S. sliced apple market. Several retailers have made commitments to place Arctic Golden slices on store shelves beginning in October. Feedback from consumers also continues to be encouraging as our 2017 survey shows over 90% of consumers are either very satisfied or satisfied with Arctic Golden slices, reinforcing our belief that our preservative-free, nonbrowning Arctic apples will be well received and generate substantial market expansion in the coming years.

OSF has completed over 75% of this year's scheduled plantings with additional trees being planted this fall. As previously disclosed, between 2017 and '18, we expect to plant approximately 800,000 trees, and by year-end 2020, we plan to have a total of 4 million Arctic trees in the ground.

This initial phase of planting sets the stage for meaningful sales growth as these trees reach maturity. To put that in perspective, we expect Arctic sliced apples to eclipse $20 million in sales in 3 years' time, $100 million in 5 years and to generate over $500 million in revenues, with gross margins above 50% and EBITDA of approximately $200 million in 2026. Our longer-term model is $1 billion per year in sales with attractive margins and ROI.

Additionally, Intrexon continues its commitment to new product development and advancing its platform technology to enhance variety of tree fruits, including cherries, pears and avocados as well as valuable vegetables such as lettuce. Each of these affords Intrexon potential partnerships opportunities as we focus on the apple business.

Now shifting to the environment sector. Our wholly owned subsidiary, Oxitec, continues to expand into new territories and regions with our Friendly Aedes aegypti mosquito control solution. During the quarter, we further advanced our regulatory case studies in India and are expecting results by year-end.

We also announced an MOU to bring our solution to the city of Cali in Colombia. In July, we announced our second multiyear revenue-generating contract in Brazil for the first time in the state of Minas Gerais. These recent developments confirm our superior control of the dangerous Aedes aegypti mosquito is increasingly becoming recognized. And we are engaged in a number of contract discussions with further expansion. We intend to invest in additional production capacity in order to meet anticipated demand in both existing and new regions.

From a regulatory perspective, our non-persisting Friendly Aedes is the most stringently evaluated mosquito-based vector control solution and has excelled in these extensive evaluations. Most recently, our Friendly mosquito received a positive evaluation from the National Institute of Public Health and the Environment in The Netherlands, which concluded negligible risk from our technology to human health and the environment. This 74-page report issued in July adds to an extensive review from the FDA whose team includes members of the CDC and the EPA, the National Technical Commission for Biosecurity of Brazil as well as the WHO.

Additionally in June, Oxitec solution received a supportive position from France's High Council for Biotechnology.

In the energy sector, our team continues to push the boundaries with our methanotroph bioconversion platform that we've designed to enable the highly profitable use of low-cost natural gas to replace oil to manufacture industrial products.

We have achieved 6 different high-value molecules to date using single-step fermentation with our platform. And the 4 products actively under development: 2,3-BDO, isobutanol, 1,4-BDO and isobutyraldehyde have a total addressable market that exceeds $100 billion annually.

With respect to our 2 partner molecules, isobutanol and 1,4-BDO, we continue to make progress on the technical hurdle regarding the isobutanol program. We have made improvements and attained higher isobutanol yields, but we still have work to do and expect to provide an update on our progress later this year. The 1,4-BDO program remains on schedule.

As discussed on our last conference call, our yields on 2,3-BDO and isobutyraldehyde place these valuable unpartnered chemicals in the money based on the current natural gas prices. This achievement led Intrexon to retain Moelis & Company during the second quarter to advise us on strategic and financial options with respect to our platform and the specific products being generated, and this engagement is proceeding.

We are pleased to report that on top of the 30% increase in 2,3-BDO yields achieved during the first quarter, we have maintained solid momentum and achieved an additional 30% improvement in 2,3-BDO yields achieved during the second quarter.

Additionally, our bioengineered microbes designed to transform natural gas into 2,3-BDO were utilized in our 500-liter fermentation pilot plants in south San Francisco. We successfully ran the plan continuously for over 100 hours with the microbes performing as expected and repeated this test with the same positive results.

Running 2,3-BDO at pilot plant level with no contamination issues is important and indicative of the scaling potential of this microbe. We are shifting the 2,3-BDO produced to multiple chemical catalyst companies for conversion to butadiene and quality testing.

From a commercial perspective, butadiene is an important chemical utilized in the synthetic rubber industry and other markets and its annual sales are estimated near $22 billion. Combining the cost of producing 2,3-BDO through our platform and converting it to butadiene, our projected costs are sub-$1,000 per metric ton, resulting in industry-leading markets in this sizable market opportunity. We anticipate selecting a site for a small-scale (inaudible) facility by year-end and subsequently kicking off detailed design of a plant that could break ground in 2018. For this and the remaining unpartnered products, we will announce further developments as appropriate.

Now I would like to discuss our collaboration with the Harvest Intrexon Enterprise Fund managed by Harvest Capital Strategies. Thus far, the fund has established 6 startups in the health, consumer and food space and today, we'd like to update you on progress on Thrive Agrobiotics, a startup focused on nutrition for piglets.

Pork is the most widely eaten meat in the world, accounting for 36% of global meat consumption. It is estimated that by 2050, global consumption in animal protein will be 2/3 higher than current levels, and increasing production of healthy pigs will be vital to meet this growing demand in a sustainable manner.

In the porcine industry, early weaning is a common practice that can result in healthy fast-growing pigs and help drive overall production higher. However, the transition of piglets at weaning from their mother's milk to solid feed is a significant change and can be challenging. Piglets can experience health issues, low-food intake and poor growth post-weaning due to an immature digestive tract.

Therefore, to be most effective, early weaning requires correct levels of nutrients and high-quality digestible ingredients. The product in development by Thrive Agrobiotics uses our ActoBiotics platform through expressed proteins that support enhanced growth, nutrient uptake and gut maturation in order to improve early weaning outcomes in piglets.

An efficacious cost-effective biologic that easily integrates into current commercial practice and increases healthy fast-growing piglets is a high-value target that would help confront the aforementioned issues and help achieve a more sustainable pork supply.

We recently reached a milestone with positive data from an in-vivo animal study, resulting in roughly 10% to 12% more total weight gain over the 3-week dosing period in pigs. Additionally, we have developed a new formulation with a favorable cost of goods that is commercially relevant. Thrive is now preparing for a large pig study using this feed additive.

We are also making progress across a number of other Harvest-led startups and look forward to sharing more details on these in the future as we reach milestones and further advance this progress.

The remainder of our operational update today will be centered on our health sector. As we have previously discussed, 2017 is shaping out to be a breakthrough year for the company with respect to the number of programs moving into the clinical setting.

As detailed on the clinical development outlook slide, our collaborators now 6 programs transitioning to clinical stage utilizing our gene and cell therapy platforms. This is significantly up from 2 years ago, and by year's end, we anticipate the number of clinical trials may be in the double digits as we expect INDs to be filed for our Xogenex cardiac program, a second rare disease program targeting linear scleroderma and additional oncology programs amongst others. In nearly 3/4 of these programs, we've bear no cost for the clinical trials and are positioned to receive potentially significant royalty streams upon commercial successes by our collaborators.

Notably, this is just the clinical outlook for 2017. We have a broad pipeline of additional programs moving toward clinical stage in 2018 and beyond. One of these programs is our promising next-generation CAR T therapy program with the biopharmaceutical division of Merck KGaA and ZIOPHARM.

As disclosed during the second quarter, this distinctive methodology centers on 2 technologies: Sleeping Beauty nonviral gene integration and our proprietary rare switch platform to regulate expression of membrane-bound interleukin-15 co-expressed with CARs that are expressed on a wide range of tumor types, including hematologic malignancies and solid tumors.

Another program that will utilize Sleeping Beauty to treat cancers is the CRADA that Intrexon and ZIOPHARM have with the NCI. The research conducted under the CRADA will be carried out under the direction of Dr. Steven Rosenberg, and as ZIOPHARM highlighted on their call last week, progress continues towards clinical evaluation of Sleeping Beauty's ability to deliver personalized neoantigen TCR therapy in solid tumors.

We believe these upcoming Sleeping Beauty clinical studies will offer further insight into the advantages of nonviral approaches over other viral-based methods for introducing genes encoding CARs and TCRs into T-cells. As the most clinically advanced nonviral gene transfer method, Sleeping Beauty's clearly leading the charge.

Additionally, we continue to be excited by the point of care CAR-T program as ZIOPHARM is moving closer to the clinic. This has the potential to revolutionize CAR-T manufacturing approaches by significantly reducing time and cost and, thus, enabling broader availability and adoption of these promising T-cell therapies.

We also had another -- a number of other important updates during the quarter in oncology, including ZIOPHARM's positive update ASCO on its recurrent rGBM study with its initiation of stereotactic arm, which enables pediatric studies on a planned anti-PD-1 combination therapy of our controlled IL-12 gene therapy in brain cancers. And FDA's acceptance of an IND for the Phase I trial of CD33 CAR T-cell therapy targeting relapsed refractory AML that is expected to treat the first patient in the third quarter.

In rare diseases, our collaborator Fibrocell Science completed dosing the first cohort in its Phase I/II trial of its leading gene therapy candidate FCX-007 for the treatment of RDEB and initial data from the trial is expected end of third quarter. Additionally, Fibrocell was granted a rare pediatric disease designation for FCX-013, its second gene therapy candidate developed in conjunction with Intrexon for the treatment of linear scleroderma, a chronic autoimmune disease.

As reflected on our release today, there are also several positive preclinical therapeutic updates during the quarter using Intrexon's technology. In addition to maintaining forward progress in our health programs, we're continuously strengthening our technology platform.

To that end, Intrexon completed the GenVec acquisition. One of the key projects getting underway is the development of a viral platform with a payload capacity that exceeds 30kb, significantly above current viral delivery methods ranging from 4kb to 9kb. While this platform will have numerous applications in ex vivo cell-based therapies, its greatest potential lies in the advancement of groundbreaking in-vivo therapeutics that complement Intrexon's multi-gene programming and keen focus on safety with limited off-target effect.

So with that, I would like to turn the call over now to Helen for some commentary.

Thank you very much, Andy. Good afternoon, ladies and gentlemen. It's definitely a privilege to be here at Intrexon. And I just decided to actually share some of my view, and I hope you don't mind a very unscripted and uninhibited with you today in regard to...

They're used to that, Helen.

The vision that we have for Precigen and also the opportunities that exist at this point. As you're aware, I joined Intrexon in close to a month ago and obviously, have been quite familiar with the platform over the years as I have kept my eyes on their cutting-edge technologies.

What is different and, for me, what was exciting in order to join Intrexon Precigen is really the number of the platform that Intrexon has been able to either internally develop or acquire over the years. This is really unprecedented. I have worked both in big pharma and I have also cofounded biotech and I have never seen anything like this.

As I came in and I took a deep dive in the number of the programs that Intrexon had started and pushing forward to with the clinic, it became very clear to me. And as a result, I was really discussing this with the leadership of the Intrexon, that what I was seeing was something that I have never seen previously, either in big pharma or in a biotech.

The reality of this situation was the breadth of the platform and the evolution of this platform was shocking to me at this point. The result that I saw and the possibilities to take them forward under the roof of Precigen is something unique that neither biotech is capable of doing it or pharma because a variety of reason, which we can go further in our question and answers.

However, one of the aspects that really excited me is not only the existence of the program that currently is there with the technologies, but the ability to combine these things. I come from the field of immuno-oncology, which you're all very well aware of. The biggest -- right now, the trend in immuno-oncology is combination but unfortunately, has been random combination, which can lead to billions of dollars in clinical trial not necessarily adding that much to the survival of the patient.

What I saw as a uniqueness of Intrexon and Precigen is having the platform that it can fit like a puzzle together very specifically to devise a precision medicine for the patient. This is what makes Intrexon or Precigen different, so we can actually come with combinatorial pathway is very specific for a specific indication.

A good example of this is the RTS-IL-12 that Intrexon has forwarded and now passed the Phase I, successful Phase I and moving toward the Phase III. IL-12 has been considered one of the miracle molecules actually in immunology. Unfortunately, many, many years ago, as you're all aware of, due to the toxicity that arose in the clinic, they have stopped.

Intrexon has come up with a switch that can actually turn on and off the expression of this molecule. So in a way, finding a method together across the toxicity. I have worked in my capacity with IL-12 over the years in many direction. And the data that I saw here was quite compelling for me to see how we can control this molecule and use and harness the benefit of IL-12.

In the setting of rGBM, of course, our company is moving forward. But more interestingly, we have identified new indication with a combinatorial pathway with checkpoint inhibitor, and we are moving this in 2018 into the clinic, which will speak to the breadth of the technologies that we have.

For the -- also, to give you another example of where our technology is, I have decided 2 areas that I'm going to speak to you very shortly about, one is the CAR-T cell and one is CAR Tregs. In the next slide, what you see is the challenge. I'm sure you have seen this slide many times. The biggest challenge of all the pharma is biotech. Anyone who plays in this arena, is simply get away from the toxicity. If you have developed an army of T-cells that is so specialized and they have become such a killer, when you unleash it, you have to have a way of bringing them back. And up to this point, this has been the biggest task and challenge for the field.

If you go to the next slide, what we are seeing is actually Intrexon, through the platform and technology that they put forward many years ago and they evolved it, now is paying off, and they have been able to turn on and off the switches that can either activate or deactivate these T-cells by just simply taking a pill.

And the moment that the patient takes the pill, the T-cells are activated. The moment you stop it, the T-cells are become deactivated. And in the next slide, I'm not going to bother you with too much scientific, and I'm sure in the future, we will have more time to do this. But if you look at the right-hand side of this diagram, it's very simple. With the switches that genetically has been engineered in the T-cells, CAR-T cells, you can see the CAR expression. The green is when you are taking the pill, the veledimex, is on, meaning your T-cells are quite active, they are the killer.

The red is off. The moment you take away the veledimex, the T-cells go back to their naïve neutral zone and they stay quiet. Underneath, we also have been able to develop another switch there and this is more of a safety, a second safety if you may. And that is a kill switch. In the case that everything else fails, then we have a switch that can actually directly kill these T-cells. And this is the level of sophistication that, to be very frank, I have not seen before in any of the competitive arenas, and I have to say I'm quite aware of our competition.

So in the next slide, what I like to address is the IL-15. Why the switch? And as Andy alluded to, why is it important in the field? Actually right now, this is -- Intrexon is a front runner in this field for a simple reason.

Another issue is you have seen a lot of CAR-T in the hematological, and probably the first approval this year would be in the hematological indication. Solid tumors have been lagging behind because number of things have to come together. One advancement that is absolutely necessity is the survival of these T-cells and expansion of it.

But more importantly, going back to what Andy mentioned about the POC and the way that Intrexon is envisioning to provide these CAR-T without any expansion outside and directly sending it to the patient, the IL-15 membrane-bound switch becomes extremely important because now, instead of doing all of these manufacturing outside, you're going to be doing it internally inside the patient, with the control switches that at any time you can turn it on and off.

This is -- reduces the time going from manufacturing to the patient, which unfortunately, we lose a lot of patients' lives during that time. But also, it gives the control over toxicity. And this is the beauty of this system that when I came in and I looked at it and I very openly express that to our leadership that I am amazed at the amount of the knowledge data that exist and the program that we can make forward and move forward.

In the next slide, what we're going to discuss is not only in the cancer and the field of the cancer immunology, but another area that benefits tremendously from this technology platform is autoimmune diseases. I always say autoimmune disease is a flip side of the cancer. In cancer, we are trying to activate the immune system. In autoimmune diseases, we are trying to suppress the immune system.

And one of the major players in the autoimmunity is what we referred to as T regulatory cells, which are suppressive T-cells that they keep the immune system in check. In the diseases of autoimmune disease, many of the times, you can see that the Treg suppressive activity is lost. And that is one of the major causes of the autoimmune disease.

In that breadth, what we have done and what Intrexon has established is a CAR Treg, which is very unique, a front-runner in the field and in the next slide, I'm just going to give you a caveat, show off a little bit of data. In the future, we will obviously address this much more.

But here, after producing the CAR Treg, what we have done is we have tested this. And what you see is the percentage of the inhibition of T-cell activity, meaning suppressing the immune system. The cells that we have generated, when we put it with other activated T-cells, now they suppress them. And this is exactly what you need in the field of autoimmunity, lupus, Crohn's disease, IBD.

So what we have here is -- this is the 2 examples. But at the same token, as we discussed, ActoBiotics is the area that is a platform that we have internally, which addresses not only the microbiotics of the area and using microbial as the producing different peptides. But in combination with any of these either in the field of autoimmunity or cancer immunology, can add the advantage that is unprecedented. And no other, by the way, other companies have all of these platform under the same.

And finally to speak to the GenVec because we discussed the possibility of the GenVec. But now, we have the possibility of also developing cancer vaccines that can be combined or a vaccine against infectious diseases that can be combined here.

So I hope in that few minutes, I was able to give you an overview of what we think about Precigen. The capabilities that Intrexon has put in place are now under the umbrella of Precigen, what we can harness and bring a new combinatorial pathway that is based on the indication has been precisely designed for the combination.

And when I said that this is a change in a paradigm of the biotech and pharma, that's what I exactly meant. When you look at the biotechs, they are small units with a small portfolio. When you look at pharma, they have portfolios and they have certain platform but currently, they are randomly just combining with anything and everything in order and hope that something will come out of it.

What we are going to do is develop a very unique portfolio, continue with a portfolio that we have, add in the different areas, combining and very in a precision immunology and medicine and using the platform to advance the cutting-edge technology and bringing new treatments for the patients.

So with that, I thank you for your attention, and I will pass it to Joel.

Thank you, Helen. And I'll move quickly on our financial comments today, so we can get to your questions. Today, we reported second quarter and 6-month revenues of $54.4 million and $107.9 million, respectively, representing increases of 3.7% and 12.5% over the same period last year.

Collaboration and licensing revenues were 52% of total second quarter revenue and increased by 2.5% year-over-year. Product and service revenues increased by 4% as our Trans Ova subsidiary saw an uptick in demand for certain bovine reproduction services.

Second quarter SG&A expense was $38.5 million, an increase of $8.2 million from a year ago. The increase primarily reflects growth in our employee headcount and legal and professional fees as we grow our company.

R&D expense in the second quarter increased by 20% to $34 million as we are continuing to invest in our multiple platform technologies. And as Andy mentioned, a number of our partnered programs move into preclinical and clinical phases of development.

Second quarter adjusted EBITDA was a loss of $1.6 million compared with the prior year loss of $5.4 million. Cash received for research and development services covered 46% and 50% of our cash operating costs, excluding operating expenses and of consolidated subsidiaries for the second quarter and first half, respectively.

Total consideration received from all operating sources were approximately 65% of consolidated cash operating expenses in both the second quarter and year-to-date periods. At the end of the second quarter, our deferred revenues were $285.3 million. We had a consolidated cash and liquid investment position of $157.2 million, and we also held equity securities and preferred stock in our ECC partners valued at approximately $168 million. More detail regarding our results can be found in the 10-Q that we filed earlier today with the SEC.

With that, I'm going to turn it back to the operator for opening up the Q&A line.

(Operator Instructions) Our first question comes from Jason Butler of JMP Securities.

I have 2 questions on the health care sector. First, I guess a bigger picture question on Precigen. Can you talk a little bit about how you plan to prioritize programs and the -- I guess, the strategic options you have for these different programs versus the capital resources that are going to be required for broad pipeline? And then I have a follow-up on the CAR Treg program afterwards.

Jason, this is R.J. I'm not sure I'm following your question. You want to know how we're going to prioritize among our many programs in therapeutics?

Right. And how you're going to decide what strategies to apply to different programs. Or are you looking at different therapeutic areas, different technologies? Just broadly, how do you determine capital allocation?

Yes. So as you know, we have a pretty strict discipline at Intrexon. So we've -- as Joel just went over the numbers for you, and these numbers are in line with our plan that we've had in place for several years. So today is -- actually, this week is our -- celebrates our fourth anniversary as a public company. And we always said we wanted to cover really all of our operating expenses with partners' money. And that should be roughly allocated according to -- 1/2 from cost recovery and 1/2 from deal money. And we've been able to sustain that, I think, since the second quarter of 2014. And so far as we look into the future, we think that can remain the case. So with regard to our partner programs, they have dedicated teams. Really all of our programs pretty much have dedicated teams in therapeutics and certainly by program type. So it's not really that we have a lot of programs that compete for resources internally. And so long as we can adhere to a conservative financial model, the one we have in place and the one we've been living by, we see virtually unlimited ability to expand. So I don't think choosing between them. Maybe what you're really getting is which ones would we favor developing internally versus in partnership?

Right. I guess when we -- when we're thinking about Precigen, we're envisaging a broader pipeline of internal programs versus partner programs. Is that the right way to think about it?

Yes, it is, certainly in part, yes. So let me tell you what we're trying to do. We alluded to it in the press release, but let me just be very clear about the 4 things that the team signed on to, to complete in the remainder of this year. We don't want to get ahead of ourselves, but these are all things that we think we can complete this year. The first thing is a lot of legal and accounting. So in other words, legal, to get the assets that are procured, really health care assets into Precigen, to get those assets that are actually shared among sectors other than health, to get those licensed over to Precigen with a service agreement in place. Think of, for example, our ActoGeniX platform as an example of that one. And so that is well underway. The financial accounting is looking really good. It's -- I was inspired when I saw it. So it's an early cut. So nothing to publish today but -- anyway, so all of that's well underway. The second thing is, of course, to recruit a first-rate enterprise management team that is genuinely commensurate to the potential of the most significant gene and cell therapy company on the planet.

So in my view, when you consider our technologies, both by breadth and depth, just the number of them, the number of platforms that we have, right, whether it's RTS or nonviral transduction, the ActoBiotics platform, et cetera, et cetera, et cetera, the LEAP platform, on and on, we don't see anyone who comes anywhere close to Intrexon in terms of technology breadth. And then let's talk about depth, right? We believe fundamentally -- I think this was covered in our S-1 4 years ago, fundamentally the next generation of biotech relies principally on 2 motifs: number one, being able to control the gene program, whatever that gene program is, being able to control its activity in real time, all right? The second thing is clearly multigeneity. The entire world of biotech relied chiefly on single gene solutions. And we saw the need to move beyond that into multifactorial effectors, as Helen was just describing. We see this increasingly vindicated everywhere today. I think the researchers at NCI published a paper in Nature about 2 days ago that clearly show that being effective in cancer is going to be a multigenic exercise and just not going to do it with a mAb. You're not going to do it with a gene program with a single gene, or frankly, even a CAR-T that just has the CAR. So we're feeling pretty vindicated by everything we're seeing around that.

And so Helen is certainly a shining example of the kind of people we need in Precigen in order to succeed because obviously, just having the technology is not enough. It really requires a first-rate team. But the great thing about being able to recruit a team of the quality of, say, Helen -- I don't know if we'll ever get any more Helens. But anyway, we have been recruiting some other drug developers. We've been successful. We have another drug developer who actually reports to Helen who's actually very, very good, and we're very proud of him. And so we have a number of recruits. We've made more ongoing. We have some searches going on, right, Andy, right now. And so the great thing about being able to recruit from the basis of having such a technology platform is it's almost a self-selecting universe. You should realize -- and I find this is true really in every industry to which I've ever had an exposure. The top people, they can go to work pretty much anywhere they want. They're always going to do well financially and so forth. So they really have their options. Well, you have to think about what kind of people they are and why they are in the fields they are. Having the most interesting capability and being able to do the most interesting and impactful work is the winner. That's how you get the best people. And I think that's what we've got.

So that's number two. Number three, frankly, although we don't have anything that is under active consideration today, since I'm asked frequently by you and others, Jason, let me go ahead and acknowledge that at some point during the development of Precigen, it's going to -- we should look at some of our smaller ECC partners to see if they would be a better fit inside of Precigen than outside of Precigen. But again, let me point out that we have none of those under active consideration. I'm really, really stating a somewhat obvious proposition there. The fourth thing is, look, if we're setting it out as a separate company, obviously, what we're thinking about is capital, how to capitalize that company so that it can, in fact, take on more and more of its own internally developed platform. That's going to require independent financing. So the really good news here is we've exposed this opportunity to a number of major investors around the world, sovereign wealth funds and so forth. And we see very, very strong and clear interest from major investors who would like to own a piece of Precigen over the long term. So those are our objectives to really complete by the end of this year. Obviously, there are other opportunities that will come up in 2018 and subsequent years, and we'll be interested in examining those. But first things first. Those are the 4 things we want to accomplish. Did that answer your question?

Yes, that's really helpful. And maybe if I could just quickly squeeze in the Treg question just from a technological perspective. Are there any key difference between a Treg cell and an effector T-cell that makes it more or less challenging to direct it to a certain antigen?

Right. I think from a perspective of the function, as you can imagine, they are quite different. So to identify -- and this is what I am extremely proud of the Intrexon team, that they have accomplished that. They had to identify a number of the pathways that they have to be either knocked in or knocked out in order to be able to establish a Treg outside of the body, obviously, and to bring this now and expand. And then we can return it to the patient. So yes, there are differences and -- in their activities and also in the sort of the constructs that they need to be used, which as you can imagine at this point, we obviously cannot discuss publicly.

Our next question comes from Derik De Bruin of Bank of America.

This is actually Mike Ryskin on for Derik. A couple of quick questions for you. One is on the -- sort of both on the EnviroFlight and the Thrive Agrobiotics. Appreciate the update you gave there, but I was curious if you could talk a little bit more about what the next steps would be beyond scaling up production. Is there something that has to be done in terms of getting approval from the USDA or the EPA potentially? Just wondering how -- what are the barriers for adoption and getting these out to the market? And then the second question was on the Oxitec platform. And one area that I noticed you didn't update on the call was on the Florida Keys potential trial. So I was wondering if you had any news there.

Yes, thanks, Derik. This is R.J. So first, with regard to, I think, both Thrive and the BSF larvae from EnviroFlight, they both do require USDA approvals. The USDA is, I think, among the science and technology agencies. Fortunately, over the last several years, what we've all seen, we've all seen some reason for both Intrexon and others sometimes to be frustrated with some of these agencies. The USDA is actually not one of them. I think they're the shining star in terms of genuine science-based regulation and consideration. So we're very optimistic. Frankly, if we can't get the USDA approval, we don't want to market the product anyway. So -- but we're optimistic about what we're doing in both cases. Some of the regulation, think about for black soldier fly larvae, are actually vestigial of the fact that insects are regarded in food as a contaminant. Well obviously, in this case, we're going to feed these to insectivores and it's almost purely insect. But even -- but there are regulations pertaining to that. I mean, that flow from the fact that insects are originally in food considered to be a contaminant. So anyway, so we're up for that. We're very aware of that. Some regulatory filings are in already pertaining to the EnviroFlight product and more underway. Your second question related to field trials in the United States, Florida Keys?

Yes, an update on the Florida Keys trial, yes, yes.

Yes, yes. So as you know, we received a finding of no significant impact and an environmental assessment from the FDA some time ago. The Monroe County Florida [voters] held a referendum. The neighborhood in which the original site was designated voted against deployment of our mosquito. But the rest of the county voted for deployment of our mosquito. So we're working with the Monroe County officials, the Mosquito Control District down there, to designate another area for that field trial. And we'll have more to say on this topic in the near future.

Our next question comes from Tom Shrader of Stifel.

A couple of -- so the GenVec, the adenoviral program, is part of the game here to build in tissue tropisms? Or are you -- are they all going to go to the liver? Just as we try to guess about where you're going to go with this program, what can you tell us? So much of gene therapy is focused on the CNS. Is that a possibility for your approach? Or what can you tell us?

Yes, this is R.J., Tom, and then Helen will speak just because she knows more than I do. But in general, I mean, the first thing to note about this library of adenoviruses, of course, is that they are gorilla adenoviruses. So that's the first thing that really drew us to this. I mean, I think it's no big secret that we've been trying to acquire GenVec for a few years, and I think this was our third attempt to do so. We've always been drawn to this library because the gorilla adenoviruses should have a considerably reduced, if any, immunogenicity in man, whereas the other adenoviruses can be expected to encounter a much higher incidence of immunogenicity. Our first objective for a global vector, of course, is to render it gutless so that should have no immunogenicity, right? Now beyond that, there are many, many possibilities. And tissue tropism is definitely something we're focusing on. And to that, I'll turn to Helen.

Yes, absolutely. I think as R.J. mentioned, the possibilities with the adenoviruses on many different direction front. I think he alluded to some of the usage in the infectious diseases that we would be able to clearly go after some of the chronic infections even. It's huge. In the field of the cancer vaccines, the possibility of addition of number of genes and -- that can be expressed simultaneously in these vectors. And this would allow us to create a unique cancer vaccine that can be combined with our other platforms, and it can be either CAR-Ts or with our ActoBiotics as we are using it in the near future, not only in the autoimmune setting but also in gastrointestinal indications. It will offer a huge advantage, actually something that no other companies will have access to at this time.

Yes. Consider, Tom, just as an example, I mean, if we're talking about prophylactic vaccines, right, the ability to have a gene program that expresses the antigen that is regulated by the switch so that you can provide boosting, right, through application, for example, of a topical cream or take an oral pill 3x. I started out with the vaccine business and I'll tell you, among vaccines that do reach approval, ultimate efficacy is driven by compliance, and the number one compliance issue is getting those boosters. So the ability to give -- hand the patient the cream and say, "Put this on once a week for 3 more weeks," or whatever is potentially huge in this thing. So we're really excited about the vaccine potential as well.

Okay. And quickly in the fish purchase, is this the tip of the iceberg for your manufacturing? Or just I think based on what you said, this would -- this plant could cover 0.5% of the market. Is this -- do you expect many more purchases like this? Or is this a CapEx-intensive business? Just what you can say about the build-out in fish.

Yes, yes. So first of all, bear in mind, this is a majority-owned subsidiary, right, AquaBounty. They have their own financials. They have their own shares that trade on Nasdaq and so forth. We do not expect them to have to pony up whatever they've provided on this particular exercise at all times as they advance their plans. I don't want to get out ahead of AquaBounty in terms of sort of setting the course. But of course, we are very familiar with them. The necessity here, of course, Tom, is to demonstrate that the scalable operation of an RAS system that is designed for these particular fish produces the sort of economics that we believe should be displayed. And those economics will drive, I think, a lot of opportunity for worldwide expansion of this opportunity -- worldwide expansion of this fish, which we believe is superior. But I have to confess to you. The main thing that really excites me -- of course, getting this plant is extremely exciting, but I'm tremendously excited by the fact that today, Canadian diners are actually enjoying this fish. Now it's not hugely financial significant -- it doesn't have huge financial significance today.

But Tom, you know how many people, and for how many years, told us this would never ever happen. And let me remind you and our other investors that we acquired our nearly half interest in -- our initial ownership position in AquaBounty for $6 million. And so we're feeling pretty vindicated. We saw it. Others didn't. We were told by many, many people that it would never ever happen and it did happen. And so it's making me feel, along with our energy program and some other things we have going on in therapeutics and so on, pretty vindicated that our view of the future -- and like I was talking a few moments ago, Biotech 2.0, I mean, look, almost every day, we see increasing vindication of the view that was really set forth in our S-1 4 years ago. It's about multigeneity. It's about induce -- ability to induce and regulate expression in real time like we do with IL-12 today. So we're feeling pretty vindicated. And so we think it's a hugely vindicating move. The press, since Friday, I think, AquaBounty released this news Friday, that Canadian diners are now enjoying this fish, has been, I would say, 95% positive. A newspaper in Fairbanks, Alaska published today an extremely favorable article. And of course, Alaska is the state of -- the senator that has been our most vocal opponent. So anyway, we're just feeling really good about this. Like I couldn't resist the temptation to brag to you, Tom.

Our next question comes from Tycho Peterson of JPMorgan.

R.J., a question on energy maybe to kick it off. You called out last quarter there has been a technical hurdle. Has that been overcome? And just any commentary on time lines for the broader energy transaction with the hiring of Moelis. Just curious as to how that process is going.

Yes. As Andy mentioned in his remarks, Tycho, we continue to work with what we believe to be the most significant remaining challenge on isobutanol. But let's put this in perspective. First of all, this was a program that was partnered -- we sold a 50% interest in this program to cover everything we thought would be required to reach success. We're not there yet but we are still within budget, too. So it's not like we're actually spending Intrexon shareholder capital toward this object. But now let's really put it in perspective. Isobutanol is potentially a replacement for gasoline. We always talk about it as a fuel additive, and the numbers we publish would say, oh, it could be $80 billion, et cetera. That's a fuel additive. But if you really look at it, look, it's 98% of the energy density of gasoline. It is less caustic. It is cleaner. It -- so it can move in the same transport system. And if you handed it to a gas blender -- now I'm talking about outside the United States now, so outside of the regulatory regime that we operate within in the United States. If you handed isobutanol to a gas blender, low price, moderately cost, isobutanol to a gas blender, he would think that he has the best starting material that he's ever received. In fact, he'd then be able to use his gunkiest, cheapest stock in order to formulate ASTM gasoline. So we think that the ultimate market for this particular molecule is in an astronomic range and so well worth the effort. So while it is true that we are not yet -- we're not declaring that we have a victory in isobutanol, our team believes that we're very close, and they continue to struggle with what they believe to be the last remaining hurdle. At the same time, to get to the second part of your question, as we reported at our -- on our last call, we are very much in the money, commercial -- with commercially significant yields, on 2 very significant multibillion-dollar molecules. And this led us to hire -- we've named the banker, I think, publicly, right. So we have Moelis & Company. And that process -- to potentially partner the entire platform. That process is now underway across the world. And like the British say, Andy, watch this space. We'll have more on this later.

Okay. And then as we think about both AquaBounty and the Arctic apple, just curious on a couple of things here. Pipeline for follow-on products. You mentioned a few in the slides. When could we see development there? And then pricing, I guess the salmon's being priced at kind of market rate, is that right, about $5.30 per pound? And should we assume similar pricing on the apple?

No, you should not. So it's always been our objective to see -- and I believe this is stated by Dr. Stotish at AquaBounty, to really see the AquaBounty salmon for what it is, which is nutritionally identical to a wild-type salmon, noted -- with the chief differences being it will be grown closer to market so it will be fresher. It won't have antibiotics and vaccines on it, and it will be free of sea lice. So if you want those things, then you probably won't like this salmon. So -- but really, it should be -- we've always imagined that the salmon should really be regarded just as the FDA said in their ultimate report. It's nutritionally without any noticeable difference. In the case of the Arctic apple, however, this is one of the reasons we're really looking forward to this fall's harvest because as Andy mentioned in his comments, we'll be doing some very deep market research to test what kind of price premium this apple should command. So unlike the salmon, we do believe that the pre-sliced Arctic apple will deserve what the people in ag bio call a trade premium. And so we'll be in a better position to model. I can tell you that on the numbers that Andy provided during his comments, these were based on the absolute minimal price premium that we're capable of imagining. I think the market research could turn out to support a larger price premium, in which case our profitability will be higher than what we have projected.

Okay. And then last one, could you get EnviroFlight revenues next year? I know you're scaling up production there. Just curious as to when you think that starts to impact the P&L.

We should start to see some small revenues building next year, but we're not going to make any projections on those numbers quite yet, Tycho. We want to get the plant up, running, secure the customer contracts and then have a good time reporting the results as we move forward.

(Operator Instructions) Our next question comes from Robert Breza of Northland Capital Markets.

Maybe just as a follow-up to the prior analyst, R.J., as you think about the energy platform longer term, do you think about anticipating spinning that out as an individual asset per se? I mean, how do you think about the energy platform longer term?

Yes. It's a really good question. And I have to tell you, when Bob Walsh and his team produced the data, they've showed us that we really have a technical success in -- on 2 of these significant molecules. I think I may have mentioned on the last call, the first thing I told our board is I'm not smart enough to figure out the answer to the question you just asked, so we better get some people who are smarter than we are. So that's the reason -- initial reason we hired Moelis & Company. And then we later transitioned -- as we did our work with them and talked to some people in the industry, we later transitioned to a transaction-based engagement for Moelis because we clearly see both options on the table. So let me answer and thank you for the question because it's a really good one.

So there's a potential. We really have 2 markets we look at. There are 2 markets for partners. One is major chemical companies. We're talking worldwide-class chemical companies. And the other would be IOCs, international oil companies, who have access to a lot of gas. In the former class, it stands to reason that some of them could be more interested in particular chemicals than others. So for example, if they have some complementary assets and skills that they have already a large market share. If you look at something like 1,4-BDO, I think there are only 4 significant -- there are only really 4 companies, I think, in the world that make that stuff, 4 or 5. So some of them are pretty rarefied already. And so it's unlike somebody else could really look at 1,4-BDO and say, "I got to have that." So I think what we're likely to see among the chemical companies is the possibility of doing more than one deal, really a segregated -- a set of deals around another molecules with each company. We'll see how that works out.

On the other hand, the IOCs, we view them as potentially really being more interested in the entire platform, partnering with us on the entire platform because to an IOC, what does this technology represent? In my view, it represents the most compelling proposition ever to occur in history that rebalances oil versus gas. So if you look at the -- you consider the entire petrochemical complex, the 15% of gross world product that is represented by these molecules, right, all of it except for natural gas and the tiny sliver of what we call NGLs, natural gas liquids, which are sort of accidentally made from natural gas for all intents and purposes, is -- occurs from the breakdown of oil. Now despite that, we know that the lowest-cost source of industrial available carbon in the world today is natural gas. So -- and the only significant technology that's ever been developed to upgrade natural gas into more complex hydrocarbons is Fischer–Tropsch. So that was developed, I think, in 1923. It's massively -- it's extreme -- it produces a fixed ratio of the complex hydrocarbons.

So some of them are really good. Some of them are not so good and some of them are actually, frankly, unmarketable. It's -- this is produced in a massively exothermic reaction. So it's either -- depending on how you build your plant, it's either incredibly inefficient, right? Or if you want to recapture that energy and put it back into the process, then it's incredibly, incredibly high in terms of CapEx. So our technology is a simple fermentation step. It's very, very low in CapEx and it's very low in OpEx. I should mention Fischer–Tropsch, which is the only -- like I said, the only technology out there that really performs significant upgrading. I think there are -- I can't remember the number, Andy, like 10 or 12 Fischer–Tropsch plants in the entire world. This is a technology that if we're able to get it to work on a large number of molecules, that we all -- everybody's always saying game-changing. And I would just say if this is game-changing, then everybody else is -- if this is merely game-changing, then everything else is an exaggeration, every other use of that term because this, I think, will be really the biggest thing that's ever happened in terms of natural gas upgrading potential and the ability to equivocate gas to oil. We think this will be very, very compelling to IOCs not only because, A, they'll want it but B, they will genuinely fear a world in which their competitor has this and they do not.

The next question comes from Keith Markey of Griffin Securities.

I just have one question. I was wondering if you might be able to give us an update on the type 1 diabetes program.

Thanks, Keith, for the question. But because of some ongoing developments in this program, I'm going to have to pass. I'll say this program is under very active discussion, and we have some moving parts we can say. But because of the moving pieces, I'd rather defer on this question for now.

Yes, you should just stay tuned. We'll get there.

Yes, exactly.

And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. R.J. Kirk, Chairman and CEO, for any closing remarks.

Thank you. Well, as I've observed, this is the fourth -- our fourth anniversary as a public company. It hasn't always been fun. I know it hasn't always been fun for our public shareholders who expected our stock was just going to go up every week. And that said, I have to tell you, I think that our intrinsic value today is an all-time high. I say that in full recognition of the fact that our market capital -- our market -- I think our share price in the summer 2015 was in the high $60s. But we, as a management team, and I know I'm speaking correctly on behalf of our board, we focus on intrinsic value. And we do this knowing that, look, a company that is based on doing world first instance things can't expect in a world that loves conventionality, right, and only likes novelty if it's being done by someone who is 90% conventional.

It's the new thing for them. It's -- we're General Motors and we made like a new car. It's better than the old car but it's a car still, right? So we understand the world in which we operate. We knew when we went public 4 years ago that it would likely be the case for many years that our market capitalization would be less than what we judged to be our intrinsic value. But there were some benefits by being a public company that we have reaped. We still believe that those are valid. So we like being a public company. But I just want to acknowledge. I know that it has at times been painful for some of our public shareholders.

All that said, I'm very comforted when I look at companies like Amazon and Netscape. And I see that these companies, their share prices really didn't do well for the first 3 or 4 years after their IPOs either. We've built this company to be potentially one of the greatest companies in the world. And when I consider that potential for engineered biology today, I'm more than ever convinced that we chose the right field in which to lead. If you had told me 4 years ago -- because you're right, I mean, it's certainly true. I had -- I thought that this would evolve more quickly than it did. I mean, the ecosystem, not us. I think we've done great. But I thought the ecosystem would evolve more quickly than it did.

And what I mean by that is I thought that, for example, major -- big pharma would understand that they really need to be multigenic and they need to be able to induce and regulate gene programs. I thought that would occur to them before now. The truth is it's occurring to them now. One of the reasons it's occurring to them now is because they just realized over the last year that, gosh, some of this 1990s era gene therapy technology is really cool. And so they bought into some of that, but having bought into some of that, it's really opened their eyes, and we're having really good dialogues on that front.

So I see the ecosystem improving now. My point is it has not -- it didn't advance as quickly as we hoped it would. That said, we adapted and we -- what we -- how we adapted was we found that in a world in which people are not yet getting the importance of engineered biology and the potential of what we refer to as Biotech 2.0, that means that the assets are underpriced. And so for example, in 2015, we acquired some great assets at some incredible valuations, valuations that I think are tiny, tiny fractions of what those platforms ought to have been valued.

So we saw the opportunity to acquire positions with genuine industrial leadership like with Oxitec, like our acquisition of what is now our ActoBiotics division in Belgium and Okanagan Specialty Fruits. That was also in 2015. And so we took full advantage. So in a way, it's actually moved our developmental cycle forward more rapidly than we could have projected under our ECC model exclusively. And so now we're an amalgam of marketed products already across the board. Again, we have approval of the world's first genetically modified food animal. We have approval -- regulatory approvals on the world's first genetically engineered mosquito. We have approval on the world's first genetically engineered fruit. And we see market acceptance. We see regulatory acceptance. We see market acceptance and we see this expanding. So we're mighty encouraged.

I say all this just to say on the one hand, I don't think we have any apology to make. I just want you to know I'm sympathetic to our shareholders. On the other hand, I think that our prospects are extremely good now not only because of what this team has achieved but also because of the evolving ecosystem.

I will just observe. Helen and I were just discussing before the call. Count the number of big pharma companies that basically are completely retooling their entire R&D, right, their entire -- that have just declared this within the last 2.5 weeks: Lilly, AstraZeneca, Sanofi, GSK. Well, how much money do you think that puts on the table for a genuinely world-changing R&D, right? In other words, it's one thing for them to get it but it's another thing for them to have a budget to do anything about it. And what I'm pointing out is, and we see this across the industries in which we're operating, these companies now not only get it but they have the budget to do something about it. So we're really encouraged.

So again, thanks to all the shareholders, thanks to our team, and we look forward to speaking to you again soon.

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