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Edited Transcript of XON earnings conference call or presentation 8-Nov-18 10:30pm GMT

Q3 2018 Intrexon Corp Earnings Call

Glen Allen Nov 9, 2018 (Thomson StreetEvents) -- Edited Transcript of Intrexon Corp earnings conference call or presentation Thursday, November 8, 2018 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joel D. Liffmann

Intrexon Corporation - SVP of Finance

* Nir Nimrodi

Intrexon Corporation - Chief Business Officer

* Randal J. Kirk

Intrexon Corporation - Chairman & CEO

* Robert F. Walsh

Intrexon Corporation - SVP of Energy & Fine Chemicals Platforms

* Steven Harasym

Intrexon Corporation - VP of IR

* Thomas P. Bostick

Intrexon Corporation - COO

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Conference Call Participants

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* Jason Nicholas Butler

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Michael Leonidovich Ryskin

BofA Merrill Lynch, Research Division - Associate

* Robert Paul Breza

Northland Capital Markets, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Intrexon Third Quarter 2018 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Steven Harasym, Vice President of Investor Relations. Please go ahead.

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Steven Harasym, Intrexon Corporation - VP of IR [2]

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Welcome to Intrexon's Third Quarter 2018 Investor Call. I'm Steve Harasym, Vice President of Investor Relations at Intrexon, and I'm joined by Bob Walsh, Senior Vice President of Energy and Fine Chemicals; Nir Nimrodi, Intrexon's Chief Business Officer; Thomas Bostick, Intrexon's Chief Operating Officer; and Joel Liffmann, Senior Vice President of Finance. R.J. Kirk, our CEO, will join us for Q&A at the end of the call.

During this conference call, we will make various forward-looking statements. Investors are cautioned that our forward-looking statements 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 our forward-looking statements. Please read the safe harbor statement contained in the earnings press release today as well as Intrexon's most recent SEC filings for a more complete description.

This afternoon's press release and our discussions may reference certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA per share. We use these financial measures as a more accurate estimate of our ongoing financial position. Reconciliations to GAAP measures are contained in earnings press release as well as on our Investors section on our website.

On today's call, we will provide an overview of our core businesses, highlighting progress over the last quarter, with a focus on what we anticipate to be near-term drivers of shareholder value. The recap will be followed by a financial update from Joel Liffmann, and we'll conclude with a Q&A session, which will be led by our CEO, R.J. Kirk.

Next slide. Before we jump into the business update I would like to begin by highlighting the paradigm that is so unique and exciting to Intrexon. Engineered biology is the largest industrial revolution the planet has ever seen. Intrexon's precision engineering capabilities and the best and brightest scientists make us the technical and industrial leader in the field. The attainable values give us the opportunity to pursue targets that are difficult technologically but promising for global health. At the same time, we meter our approach by augmenting our platforms for use across multiple targets. We will be highlighting this throughout today's call.

I would now like to turn the call over to Bob Walsh for an update on our energy and fine chemical programs.

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Robert F. Walsh, Intrexon Corporation - SVP of Energy & Fine Chemicals Platforms [3]

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Thank you, Steve. Next slide, please. Intrexon's proprietary Methane Bioconversion Platform turns low-cost natural gas into higher-value fuels and chemicals, using a type of bacteria called methanotrophs. These bacteria naturally metabolize methane, which is the primary component of natural gas. Current technologies to upgrade methane into liquid products have both high operating expenses and capital (inaudible), in addition, do not scale down efficiently. They can only be deployed in limited geographies such as the Middle East and Africa. Our approach is designed to enable lower operational cost and capital expenditure per ton of product, coupled with high conversion efficiency and the ability to scale down as compared to these technologies.

Next slide. Intrexon's team has built and optimized a genetic toolbox for approach to methane upgrade. The chemical and fuel targets enabled through this platform offer significant market opportunities. Our lead product, 2,3-butanediol, commonly called BDO, is a precursor to synthetic rubber and a $22 billion market opportunity alone. Not to mention, the synthetic rubber market is also continuing to grow. In total, the 4-chemical and 2-fuel molecules in our pipeline have a combined annual market opportunity in excess of $1 trillion.

Next slide, please. Now I'd like to provide an update on our Methane Bioconversion Platform and [picked] our progress against several key objectives. First, in our lead program, 2,3-BDO, we are now producing BDO from natural gas and roughly 50% of the theoretical final target yield for our commercial scale facility and well above our target yield to select the site and break ground for a 40,000-ton, 2,3-BDO capacity, small-scale commercial plant. This would result in approximately 26,000 tons of the final product after the catalytic step to produce butadiene.

The other programs, isobutanol, 1,4-BDO, are progressing. Remember, this is the platform, and much of the strain engineering applied to all molecules and the fermentation improvements are 100% transferable. Equally important, we invest in the completion of the level 2 engineering design and planning for this 40,000-ton facility and have repeatedly demonstrated our ability to match performance from 1-liter bench-top fermenters to our 500-liter pilot plant. This 500X scale-up is significant, as the pilot plant fermenter design is the same as for the first commercial facility down to pumps and control systems. The bench-top design does not scale. This means the 2,3-BDO production is reproducible to small scale and in large scale on natural gas and consistent with our final engineering economic model. During this year, we have also moved to continue its fermentation, which is the basis for industrial production, and have sustained production runs exceeding 1,000 hours without any reduction in output.

As for the partnering process in which we are engaged, we are negotiating with multiple parties, with the 2 deal structures outlined last quarter: partnership at the Methane Bioconversion Platform level and a toll processing level. These are not mutually exclusive alternatives, so I am limited as to what I can say because of the stage of these negotiations.

Next slide, please. Turning to fine chemicals. In September, we announced that through Intrexon's proprietary technologies, we engineered a yeast strain to produce low-cost, robust and consistent cannabinoid output via fermentation. This process of microbe has the potential to provide greater supply chain security and higher purity products at a lower cost than extraction from plants for traditional chemical synthesis. Further, this versatile strain was designed to enable the production of cannabinoid thoroughly improved today in minuscule amounts in plants as well as novel cannabinoids. At scale, the company anticipates production of pure cannabinoids at cost of goods sold of less than $1,000 per kilo compared to today's market prices above $10,000 per kilo for comparable quality. The current market is estimated at $9.2 billion annually. Through the same process, we continue to work on other APIs that have the potential to bring a wide range of drugs to the marketplace at lower cost.

With that, I would like to turn the call back to Steve for an update on Precigen.

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Steven Harasym, Intrexon Corporation - VP of IR [4]

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Thank you, Bob. Now moving on to Slide 10. Demonstrating the creative ingenuity of our team at Precigen, they recently recorded data on a multigenic therapeutic candidate that, in appropriate preclinical models, suggests potential superiority to approved anti-PD-1 checkpoint inhibitors. Further information on the Precigen portfolio in some of the candidates will be addressed in the upcoming Investor Day.

I would now like to turn the call over to Nir Nimrodi, who will provide an update on ActoBio in our commercial assets.

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Nir Nimrodi, Intrexon Corporation - Chief Business Officer [5]

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Thank you, Steve. Now for a review of our subsidiary ActoBio Therapeutics. The ActoBio platform offers many opportunities to address a range of conditions as it provides the unique delivery mechanisms of synthesized therapeutics in L. lactis, a microbe used in food production that has a history of safety in humans. On this slide, you can see how we plan on advancing this platform across gastrointestinal, autoimmune and systemic diseases. ActoBio is progressing well in its plan to create a clinically staged pipeline. During the third quarter of this year, ActoBio regained the rights for 2 therapies that have been previously partnered with Harvest. By doing so, ActoBio has control over a broader and deeper pipeline and expects to have a total of 4 products in various clinical development stages by mid-2019.

Next slide. In this slide, you can see the key milestones ActoBio recently achieved. Our partner, Oragenics, continues to enroll patients in the Phase IIb clinical trial for AG013 for the treatment of oral mucositis, which is one of the most common adverse events associated with cancer chemotherapy. The enrollment goal is 160 patients in the U.S. and Europe. The Belgian clearance to enroll patients was recently received. Data from this study is expected to be available in late 2019.

Our potential disease modification therapy for type 1 diabetes is advancing well. ActoBio dosed the first patient at Yale in late October in the AG019 Phase I/II study. Type 1 diabetes is a disease which impacts over 1 million children and adults in the U.S., with no treatment available for the underlying condition. The Phase Ib portion of the trial will deliver AG019 alone to demonstrate safety, and the Phase IIa portion will include the low dose of anti-CD3 to calm the immune system and stimulate T cell homing in the gut. This represents a disease modification opportunity to the result in human replicate our preliminary models. Our animal models showed up to 89% reversion to a normal glycemic range in animals with early-stage disease. For enrollment, we are targeting 20 potential sites in the U.S. and 3 in Belgium.

Finally, in AG017, an immune tolerance approach for the treatment of celiac disease, we're targeting an IND in Q1 2019.

Next slide. Shifting from Human Therapeutics, I would like to provide you with an update on our products that are in the market.

Next slide. The 2018 Arctic apple harvest is now finished with strong results. This season, we harvested also Arctic Granny apples in addition to the Arctic Golden. We harvested more than 2,100 bins, well above our initial estimates and 10x more product than last year. We expect to be in more than 500 stores, initially launching this November with sliced fresh apples, whole apples and ApBitz dehydrated apple snacks. The focus of this present season will be on further validating product demand and confirming our expectation for prospective product performance. Okanagan continues its growth and is now ready to plant 1 million trees in the spring of 2019. This effort will double our tree count to 2 million by mid-2019.

Next slide. Trans Ova Genetics is the leader of bovine genetics in North America, supporting elite breeding in both the dairy and beef industries. Our investment in building dairy genetics that will feed the world reached another peak, as our team has created 6 bull calves that ranked at the top of the global Holstein bull population. Our team believes that there are only 10 others of this quality in the entire world. Together with Trans Ova's elite theme of genetics, each such bull will enable Trans Ova to create thousands of embryos that will create substantial dollar value to the farmers.

We previously reported that since the beginning of the year, we have sold thousands of embryos and have implemented programs with key partners that will provide us access to the data to validate our approach and reinforce the benefit of our genetics. We are pleased with the progress of this program and continue to see year-over-year growth.

Another enterprise that continues to experience growth is Exemplar Genetics. The genetically engineered miniswine that improves the predictive value of preclinical trials as compared to the traditional mouse model continue to see strong interest from existing and new customers. Exemplar results are focused on expanding its business beyond miniswine disease model into a generative medicine. (inaudible) is not a theoretical one as the first engineered pig with the potential ability to produce organs for human transplant was recently born and will be followed by additional pigs in the coming weeks.

Next slide. EnviroFlight is our program that produces black soldier fly larvae product. In our joint venture with Darling Ingredients, EnviroFlight is advancing on schedule towards its goal to open the largest black soldier fly facility in the U.S. by the end of this year. EnviroFlight recently issued invitations to the opening of its first commercial site. The event will take place later this month. The facility is built in a modular manner to allow for expansion based on market demand. Phase 1, expected to be open by end of November, will have the ability to produce 900 metric ton of product a year and is designed to scale up to 3,200 metric tons. In early September, the FDA has recommended the approval of black soldier fly larvae to be used in poultry diet. And according to EnviroFlight's management team, we're now recording orders for the product that is expected from the new facility.

Next slide. Now for a recap on AquaBounty, our majority-owned subsidiary and the owner of our lead protein product in food, the AquAdvantage Salmon, a salmon that achieves market weight in 1/2 of the time and on less food required by other salmon. In April of this year, the FDA approved an Indiana land-based facility to raise the AquAdvantage Salmon, but the program remains on hold, pending final labeling guidance, which we understand the U.S. government is presently working on issuing. AquaBounty is preferred to comply with the stated requirements and expect a decision in the near term. In the meantime, the Indiana facility is stocked with traditional Atlantic salmon until the permission is granted to import AquAdvantage eggs. Finally, AquaBounty continues selling the AquAdvantage Salmon in Canada.

In summary, we continue to build and grow revenues in our core businesses as we head into 2019. We have strong and experienced teams leading each one of these commercially staged enterprises, and we're excited to support their growth.

Now I would like to turn the call over to Tom Bostick for an update on Botticelli and Oxitec.

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Thomas P. Bostick, Intrexon Corporation - COO [6]

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Thank you, Nir. I would like to begin with an update on our Botticelli program. The Botticelli platform is a next-gen tissue culture technology that replaces cloning without impacting downstream processes and products. It is designed to enable high-volume propagation of numerous strains of plants with genetic purity. The ability to rapidly multiply proprietary plant lines in smaller areas offers significant advantages to conventional methods, and the ability to generate sterile plants potentially eliminates disease risk associated with cloning.

Next slide. We have demonstrated proof of concept data for high throughput regeneration in 2 important commercial crops: lettuce and tomato. And we are further exploring its use for both indoor and broad acre crops.

Next slide. Shifting gears, I would like to review our self-limiting insect programs. In October, we announced that Oxitec, a wholly owned subsidiary of Intrexon, entered into a second cooperative agreement with the Bill & Melinda Gates Foundation to develop a new strain of Oxitec self-limiting friendly mosquitoes. This Anopheles stephensi strain is being designed to combat malaria in India, the Middle East and the Horn of Africa. This project will utilize Oxitec's second-generation technology, which is designed to reduce pest population and possibly help reverse pesticide resistance in pest insects, unlocking additional potential value for traditional insecticide companies whose products are losing effectiveness. For our Aedes aegypti work, which focuses on the vectors of dengue, Zika and yellow fever, we continue to transition our second-generation technology known as 5034. As a reminder, the 5034 produces only viable male progeny, and new product distribution and commercial modalities are possible. Oxitec is developing a new commercial distribution product, and we expect to begin field trials on this product in 2019. We continue to believe that this new technology will provide significant value to insecticide companies, commercial facilities like hotels and resorts, governments looking to extend the life of traditional pesticides but today are becoming increasingly ineffective as well as customers using integrated vector management approaches.

I now turn the call over to Joel Liffmann for a financial update.

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Joel D. Liffmann, Intrexon Corporation - SVP of Finance [7]

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Thank you, Tom. I'd like to make some brief comments about our financial performance during the third quarter.

Third quarter and 9-month revenues were $32.4 million and $117.4 million, respectively, decreases of 30% and 37% from the prior year periods. In short, our reported revenues reflect a strategic decision made last year to ramp down from the ECC model to the product-driven operations that Bob, Nir and Tom just discussed. These internal programs and platforms represent our most compelling commercial opportunities.

Total operating expenses for the quarter were $98.9 million and $286.1 million for the year-to-date period, increases of 8% and 9% over the prior year periods. Research and development expenses are approximately 45% of our total operating costs and reflect the investments we are making in the novel and important programs that my colleagues highlighted earlier. Research and development expense increases have been the primary driver of operating expense growth this year as we move closer to commercialization on certain programs and commence new ones.

Third quarter adjusted EBITDA was a loss of $28.9 million and compared with a loss of $16.4 million in the year-ago period. The year-to-date adjusted EBITDA was a loss of $75.3 million versus $25.5 million in 2017. We began the third quarter with a $200 million convertible note offering and ended the quarter with a cash balance of $246.6 million.

We also reported common and preferred equity securities in our ECC partners with a value of roughly $163 million. After the close of the quarter, we announced that all of the preferred shares we held in ZIOPHARM were retired.

I refer you to the earnings release and the 10-Q for additional financial information.

We'll now open the call up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Jason Butler of JMP Securities.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [2]

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First one, I know you said that you are going to give more color on the PD-1 candidate at the R&D day. But can you give us any color on the type of vector you're using or any ability to control expression? Any just big picture thoughts about the construct.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [3]

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Yes, it's a very good question, Jason. And I regret that we can't actually provide -- we know what it is, obviously, but let me just encourage you and everyone to stay tuned for your invitations for Precigen Investor Day. The sample from the Precigen portfolio that we display here was chosen, obviously, with a lot of thought and discussion between Dr. Sabzevari and myself. And the reason I like this particular one is it really shows you the level of thought that -- how can I put it, the level of potential achievement that this team is displaying. This is clearly big-league stuff. There's a -- it's a very significant portfolio. I feel -- I visited Germantown recently. I told the team there that, "Look, I've been closely connected to a number of therapeutic companies that were successful." And in every case, I can say, "Look, it requires good technology, it requires a good team, it requires a good leader." I think we have a great leader, a great team and great technology in this case, but also some intangible elements, and that is so much in evidence at Precigen. I was -- I left my most recent meeting there just completely overwhelmed. And I think that you're going to be very pleased at the Investor Day. Can't tell you more about this particular therapeutic candidate here. But we did want to show it to you just so you -- like I said, so you can see the level of ambition and ingenuity that this team is exhibiting.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [4]

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Okay, great. And then just one question on the cannabinoid platform. Just as we think about the potential progress here over 2019 in terms of yield, et cetera, can you just maybe compare the challenges you might face versus what you have, the progress you've made with the methanotrophs? You're working with yeast, so -- to scale up, follow a more established path, for example, with this platform?

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [5]

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Yes. Let me ask Bob to respond to this one. He's -- this is in his...

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Robert F. Walsh, Intrexon Corporation - SVP of Energy & Fine Chemicals Platforms [6]

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Got it, R.J. Thanks, Jason. Yes, that's a great question. You're right on that it's in yeast. A lot of these things, they don't have recovery and all that. It is great, awesome science. They're doing great work. But there's a lot -- there's much fewer unknowns, as you say. And so it's going to -- it will be a faster pattern than methanotrophs by far. I mean, I think we even said today, we've made good progress there, and it's becoming commercially relevant.

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Operator [7]

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Our next question will come from Robert Breza of Northland Capital Markets.

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Robert Paul Breza, Northland Capital Markets, Research Division - MD & Senior Research Analyst [8]

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So you guys -- kind of piggybacking on the last question. As you think about the whole bioconversion platform here with 2,3-BDO and other extensions, I guess, would be the best way to characterize it, how do we think about the site selection first? When does that start to impact revenue? And then how do we think about the overall isobutanol portfolio, et cetera?

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [9]

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Bob, do you want to take this?

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Robert F. Walsh, Intrexon Corporation - SVP of Energy & Fine Chemicals Platforms [10]

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I'm back. Yes, I'm here. It's a good question. When you think about it, it's really a continuum that as we move our -- as we improve our economics, and previously, we've said we're in the money, right, on a cash basis on -- if you took our lab scale results and put it in the economic model. And it's really a progression on 2,3-BDO that we are in site selection, as we've said. We're not -- due to the condition of our negotiations, we're not saying anything further. But you start site selection before you're at your final yield because the scientists have a lot of great confidence they're going to continue to move it forward. And you're -- it's a 12- to 15-month process between detailed engineering and all that to get to start up and then you go in a start-up mode that takes you a few months to ramp up. So from time of putting a shovel in the ground to some real revenues, there's probably a period of roughly 12 to 18 months, depending on whether other factors, too, resource availability. And we are very focused on 2,3-BDO right now. I think that's the way to think about that. It is a platform. And to the extent we prove out 2,3-BDO at larger scale, most of that facility is a cookie-cutter now. It doesn't matter what it makes now from an engineering perspective. And so the next molecule, isobutanol, for example, would be able to go to a much larger scale, too. So we're very focused on a 2,3-BDO prove-out at the small-scale commercial plant.

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Robert Paul Breza, Northland Capital Markets, Research Division - MD & Senior Research Analyst [11]

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So maybe this is a follow-up to that from an engineering perspective and, like you said, putting the shovel in the ground and getting a plant up and running. I would assume and -- so correct me if I'm wrong here, but I would assume a lot of the products that people will be using within these facilities are going to be somewhat custom-made to move from small scale to large scale. Is that a fair assessment or...

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Robert F. Walsh, Intrexon Corporation - SVP of Energy & Fine Chemicals Platforms [12]

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Well, from an engineering perspective, we're really trying not to invent anything. So a lot of these facilities are already in use in different industries, for example, different gas, liquid interchange, for example, the fermentation. The recovery process is -- I'm a chemical engineer. It hurts me, but it's not rocket -- it's not hard-core engineering. It's proven processes. So from an engineering perspective, we're really trying to use, as much as we can, proven technology at scale. The cool science in the -- in taming the methanotroph from something people said couldn't be done to making 2,3-BDO is really the answer. And the other beauty is that this really is not a custom product. 2,3-butanediol going to butadiene is synthetic rubber for tires, ABS. It's going to an existing large market. Yes, you need to be on specification, but you're not inventing some new flubber or something. It's a -- you're going into a large existing market with a lot of large existing customers that are large players.

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Robert Paul Breza, Northland Capital Markets, Research Division - MD & Senior Research Analyst [13]

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Just maybe one other follow-up. As you look at Okanagan -- this is not for you, Bob, I guess. Sorry. I'll take you off track. But as you look at Okanagan, you mentioned kind of doubling the capacity of trees going from 1 million to 2 million. What are the early signs of demand that you're seeing that -- I mean, obviously, I've tasted the apples. I think they're great. So, I mean, I know the product. But you still got to convince consumers, retailers, et cetera. Or just kind of trying to dig into what other additional insight you guys might have seen that maybe we don't know.

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Nir Nimrodi, Intrexon Corporation - Chief Business Officer [14]

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This is Nir. Thanks for your question. What customers up until now seems to like the most about the product is the fact it tastes better, it lasts longer and it doesn't brown. So the message is very simple. It resonates well with the customers. The very few that ask questions about how we have designed the product received the answer very, very well. They actually appreciate the transparency and the confidence in which we are describing the advantages of the product. So we're quite confident that the product will continue to meet high demand. And currently, I wish we had more product. We are totally constrained by the supply and not by the demand.

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Robert Paul Breza, Northland Capital Markets, Research Division - MD & Senior Research Analyst [15]

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Well, put some miracle grower around those trees.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [16]

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We're working on the quantity...

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Nir Nimrodi, Intrexon Corporation - Chief Business Officer [17]

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We are working hard on the quantity. This is -- the planting campaign thus far is probably the most aggressive that any company has ever taken with any food tree, and it's going to intensify next year.

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Operator [18]

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(Operator Instructions) The next question will come from Derik De Bruin of Bank of America Merrill Lynch.

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Michael Leonidovich Ryskin, BofA Merrill Lynch, Research Division - Associate [19]

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This is Mike Ryskin on the line for Derik. I want to continue on that last topic, the Okanagan apples. Last quarter, you sort of gave us an update, a time line and progression for the ramp. And you talked about $30 million to $35 million in revenues in 2020, up from the original $20 million. I just want an update on how you're tracking towards that and if we could extrapolate anything for 2019. You talked about geometric expansion. So is it fair to think that we could see $10 million to $15 million in revenues in 2019 then?

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Nir Nimrodi, Intrexon Corporation - Chief Business Officer [20]

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We did not provide guidance for next year intentionally. We want to -- we wanted, first of all -- we want to go. We wanted to confirm the productivity goals we have. Next year, obviously, it should generate many more apples. The reason we, however, provided guidance for 2020 announced earlier is because the ramp-up is really very steep. The trees are still young, and we're planting more this year than we did in the last 2 years combined. So we would refrain from providing specific guidance for next year, but we reiterate our assumption for 2020, with more confidence.

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Michael Leonidovich Ryskin, BofA Merrill Lynch, Research Division - Associate [21]

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Okay. That's helpful. And then you mentioned (inaudible) we've talked about for some time, the shift from the ECC-driven model to the product development model. But as you [did that], obviously, you're going to incur higher cost. And if we look at the -- some of the cash burn and the net loss attributable to Intrexon, it continues to grow as you invest in these platforms. How do you think about the balance sheet and where you are? And do you foresee any additional need to raise capital as you continue to invest in these platforms?

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [22]

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Yes, we're very comfortable with our current capital position. Everything that we're doing -- I think I mentioned that in the press release, by the way, it is in the press release, which is this has long been our plan and our wish and our goal, to become a company that is product-based. And I'm thrilled with our current portfolio and the prospects on these products. And remember, it's not that we said that we're not interested in partnering. What we said was that we are very interested in partnering mature platforms and products, because the value of those partnerships, a, is, obviously, orders of magnitude larger, the value of a partnership, by doing that. The other thing is, if you got something really great, then you can literally exact. You can be more selective in the partnering process, and you can look for partners who bring more to the table than just money, people who bring infrastructure, like as Bob discussed on the Methane Bioconversion Platform partnering. Obviously, a major energy company, any of the ones who we're currently in discussions with, they bring a lot to the table in terms of infrastructure and capability beyond the financial contribution. So we always planned on making this transition. We're very excited about the rate at which we're making it, and we're content with our current capital position.

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Operator [23]

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We'll move on to the next question then. Our next question will come from [Daryl Weber], a private investor.

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Unidentified Shareholder, [24]

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I just got a couple of questions here, starting off with your cannabinoids. (inaudible) the other day. Do you believe we are at the point where we are scalable on any of the ideas you guys are working on? And so is this something that is partnerable in the near term? Turning to Botticelli. I saw we had some news today on tomato. Maybe you can expand on what that means as far as the business. And is there interest for Botticelli with respect to cannabis? There's a male plant and a female plant, so maybe if you could talk about that a little bit. And lastly, you talked about organ transplant since we're going to have our first piglet with an organ. What would be proof of concept? (inaudible) would that be? And what kind of market is that for? That's very exciting.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [25]

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Thanks, [Daryl]. I think it was 3 questions. I'll skip the first one because I think Bob Walsh really already answered that in terms of the scalability of the cannabinoid expression platform, but let me move on to Botticelli. So Intrexon, this is one of those examples -- I'm so happy we have this one, in fact, because as I've said for years, and you've heard me say this for years, Daryl , when you have a company that's doing a bunch of world-first instance, very, very ambitious projects, that we believe the result of which is ultimately inevitable. I mean, even given our belief of -- that the result is inevitable, if not by us, then by someone, the real issue becomes how long is it going to take you to do that. And so we hedge against that. As Steve mentioned in his remarks, we hedge against that by doing several things, many things, actually, in parallel, because we know that some of them will take longer than we would like, but some of them may actually have a much more accelerated pathway to commercialization. So with regard to Methane Bioconversion Platform, I will say one of the things I'm proudest of in Intrexon is that we stuck with that platform, we believed in it, we saw that it ought to be achievable. The first -- I mean, I have -- I sing the highest praise to Bob Walsh and his team there in South San Francisco, because it was very difficult work. As he -- as Bob mentioned in his comments, the prior literature actually said you couldn't engineer this organism. I mean, there were a lot of professors who believe that and a lot of literature that indicated that. Obviously, we've been very successful in doing so, and the team has done a terrific job. My point is this, how long did it take us from inception of that program to the first time we told the world, "Gosh, this is really looking good. We think we're in the money on this thing." It was about 5 years. I wish it had been 3, but I'm glad it wasn't 7. Conversely, Botticelli was a creation of our brilliant AgBio team just late last year, about midyear, third quarter, I think, last year. And this thing is already a commercial platform. So we are in advanced discussions with large-scale growers of a number of crops, from tomatoes to lettuce, to cannabis and industrial ham. And we're thrilled with the reception the technology has received. And as indicated, as you alluded to in our press release, the first deployment of Botticelli will be in tomatoes, where we will be working with a major international producer. More about this in the coming days. You should bear in mind that the way we think about Botticelli, each relationship is going to start with what we call the optimization phase, in which the partner/customer will give us his -- give us tissues from his cultivars of interest, and then we will optimize the Botticelli system to produce the most efficient outcome that is possible, in our view, on those cultivars. So it's -- we've seen this in the many lettuces and tomatoes we've done, in which -- some of them are frankly 10x more productive than others. But even at our lowest-yielding Botticelli product, it's still much more efficient than any other means of producing these plantlets. So we're very excited about the platform. So we'll start with the optimization phase. It's not really possible for me to tell you how much money this turns into on a particular installation until we get through that optimization phase. So the first stage of each one of these deals is going to be that optimization phase. But we think it's going to create a very sticky relationship. And I'll say the attitude of everybody we're in discussion with indicates that they realized that this is most likely going to become a fundamental part of their business. In terms of contract term, for example, none of them are asking for it to be shorter. So anyway, we're very encouraged by the response we've had to this. And like I said, I love to have this as an example of something we were able to take direct to the market and commercialize. We're hiring more commercial people on this. We're expanding on a worldwide basis our outreach and pretty excited about it. With regard to the pig that you asked about, we're really excited about this program, but we're not at liberty to provide more detail on it today. It's a very -- go ahead, Nir.

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Nir Nimrodi, Intrexon Corporation - Chief Business Officer [26]

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I would add -- yes, R.J., you're right. We cannot disclose more information about this particular collaboration. However, if you think about the use of our capabilities in regenerated medicine, you can use our miniswine pigs. And our ability to genetically modify them to produce both cells, that could be used for human therapeutics and complete organs. We're pursuing both produce right now, and both were collaboration. The market potential for each would be quite high, obviously higher in the organs but also in the cell area. So stay tuned and we will share more information in the future.

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Unidentified Shareholder, [27]

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Great. Just one last follow-up. (inaudible) Botticelli. R.J., could you explain Botticelli to the audience in a clear fashion? I think that everyone could understand, because I -- in the field, there is some confusion as to what Botticelli really is. Maybe you could expand on that in layman's terms, possibly.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [28]

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So unfortunately, it is technical, [Daryl]. I'm not really sure how to -- but I can tell you what the result is. What we've demonstrated on the Botticelli platform is that we can begin with certain tissues or with [seeding] of plants and turn those into many genetically identical plants, bypassing the need to actually go to seed and germinate the seed. So it was originally developed by our team, frankly, as a research tool, because it would enable -- if you were developing a trait, it would enable you to shrink the time that is required to do that from, say, 5 years down to 2 years. What we realized once they demonstrated, once they showed us the data on what they've achieved initially in lettuce, what we realized was it is certainly interesting from that perspective and should really be useful to practically anyone who is developing traits in plants, at least until we find out that it doesn't work in some plants, but we haven't experienced that yet. The direct-to-market idea, though, is to provide it as an alternative to propagation. And plant propagation is a huge industry despite its costs, and this, we think, gives us -- it gives us an ability to introduce a lot of efficiency. Furthermore, with regard to plants that are inherently, genetically variable, and that's most of them, they're all genetically variable, to some extent, but some are more so than others, this gives the producer the ability to standardize his product. So, for example, in cannabis and hemp, we're particularly interested because that -- those plants are genetically unstable and -- which means they require constant breeding in order to maintain a certain level of output or whatever it is you're seeking to have, whether it's some industrial CBD or what have you. And this will enable us to actually standardize the plant for a producer. So it should. It should allow us to do that. And so we're very excited about it. And as I mentioned, the large-scale growers that we're in discussions with are very excited as well. But thanks for the question.

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Operator [29]

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This will conclude our question-and-answer session. I'd like to turn the conference back over to Mr. R.J. Kirk for any closing remarks.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [30]

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Oh, I forget the closing remarks. I mean, I forget to think about it in advance. But let me just thanks -- thank, once again, our very patient shareholders. I'll mention that a short while ago, I bought about $100 million worth of stock at New York currently traded price, and I don't do things for show. My confidence in the ultimate success and even the near-term success (inaudible) of this company has never been higher.

If -- share price aside, if you told me at the time of our IPO, so 63 months ago, that we would be sitting here and you showed me this conference call and the 10-Q that was filed today and the press release that was issued today, if you -- I've been in that time machine that you've taken forward 63 months to see this, I will just tell you, today -- where we are today, the achievements that we've made would vastly exceed my most optimistic expectations at the time of our IPO.

So I think the company has been very, very successful programmatically. It's not a darling of investors because it's not a simple story. It's not a story that simpletons can easily understand. I'm not putting anyone down. But I'm just -- it's not a story that is simply understood, let me put it that way. And, frankly, a lot of investors are very time-constrained. And it actually takes time to understand Intrexon. I'm not going apologize for that because it's inherent to the strategy that we embarked on, i.e., as I mentioned earlier. In order to succeed, in order to have the belief in our own survival, we had to be targeting multiple applications of our synthetic biology in parallel. Today, I'm very glad we did that. But my point is, it doesn't convey in a very short period of time to the average investor. What does convey to any investor, however, ultimately, is successful products, products that make a difference in their markets, products that make a difference to people, and that's our focus.

So we always knew when we deliver those, right? And in volume sufficient to -- for people really to notice. I mean, frankly, we have delivered them when I think about the Arctic apple, for example. I haven't met a single individual who's tasted the Arctic apple, presliced, and whoever wanted to have the other kind again, right? So I echo Nir's point. I wish we were not production-constrained because we sure don't look like we're demand-constrained on that.

So -- but on the other hand, it's -- as compared with the complexity of many of our other achievements, growing a lot of apples -- and by the way, I have a newfound appreciation based on my recent visit to Okanagan of what's involved just in doing that. So I don't, in any -- by any means, diminish the skills and the focus and hard work required to do that. But all that said, that's all we have to do at this point. We have to grow a lot of apples, and we do indeed have to figure out how to market them.

Everything -- every good salesman in the world has the same saying, right, which is good products sell themselves. I'll tell you, that's what good salesman say so you don't notice that they're good salesmen, okay? So clearly, we have a job to figure out how to market these apples ultimately. We're taking this job very seriously. I think I did mention this in the press release. Really, across the board, we have to do that.

I've been candid with you all before on prior calls that even with Bob Walsh having been a big shot at Shell and all that, it has taken us a while to figure out how to talk with a major oil company in a way that will enable them to understand the Methane Bioconversion Platform, precisely because it is so different from anything else they've seen. First thing they think of is it's a biofuel, right? So they think that we're actually breaking sugar down. We're actually doing carbon downgrading. No. It's the opposite of a biofuel, in fact. We're actually upgrading carbon, which, of course, creates value instead of destroys value. To somebody from outside the energy industry like me, that seems a very compelling point. To people in the energy industry, typically, at that point, you get perplexity. What on earth could you be talking about?

So it's taken us a while. The point is, everything has to be marketed, and it has to be marketed to the constituents that count, the people who consume it, the people who want to buy it, the people who want to process it, whatever it is you're selling. And we're very, very engaged on that now, really, across the board. And I think we're making very, very good traction.

We will -- Intrexon, I think, will be a successful company, and it will be a successful company because we're going to have, I think, very successful products. In fact, every indication is exactly that.

So thanks very much. Thanks for your support and interest. And we look forward to speaking to you in the very near future.

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Operator [31]

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