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Edited Transcript of XON earnings conference call or presentation 9-Aug-18 9:30pm GMT

Q2 2018 Intrexon Corp Earnings Call

Glen Allen Aug 27, 2018 (Thomson StreetEvents) -- Edited Transcript of Intrexon Corp earnings conference call or presentation Thursday, August 9, 2018 at 9:30:00pm 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

* 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

* Tycho W. Peterson

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Intrexon Second Quarter and First Half 2018 Investor Conference Call. I would now like to turn the conference over to Steve Harasym. Please go ahead.

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Steven Harasym, [2]

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

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. In particular, this afternoon's press release and our discussions may reference certain estimates with respect to our financial performance, including estimates of our revenues and earnings per share for the second quarter and first half of 2018. A number of factors could cause actual results or outcomes to differ material from those indicated by our forward-looking statements. Please read the safe harbor statement contained in the press release as well as Intrexon's most recent SEC filings for a more complete description.

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

First, however, I would like to invite Joel Liffmann to give us an update with respect to the filing of our quarterly reports.

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Joel D. Liffmann, Intrexon Corporation - SVP of Finance [3]

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Thank you, Steve, and good afternoon, everyone. As you saw with the filing of our Form 8-K this afternoon, we will not be filing our Form 10-Q today as originally expected. Rather, we expect over the next few days to be completing the restatement of our first quarter Form 10-Q and then filing our Form 10-Q for the second quarter. The filings related to the second quarter and the restatement in the first quarter are due to our implementation of the common standard codification topic 606 effective January 1, 2018.

ASC 606 is a new revenue recognition accounting standard and requires that we change the way we recognize deferred revenues, which in our case relates to fully refundable -- fully nonrefundable and fully collected technology access fees previously recorded and prior to this year, recognized on straight-line basis. Recently in consultation with our external advisers, we've concluded that it was appropriate to revise our technical accounting analysis for certain aspects of ASC 606. As a result, we will be restating our first quarter Form 10-Q, which will result in a significant reduction of deferred revenue and accumulated deficit and a more modest downward impact on our revenues and earnings. We still need to complete the work on ASC 606 and on a preliminary basis, it appears that we will reduce the January 1, 2018, opening balance sheet deferred revenue account by $67 million, resulting in a balance of $210 million. This reduction will, of course, impact our reported revenues going forward but I'll remind all that these are noncash revenues and are being recognized over the next several years.

As I noted, we expect to file the restated Form 10-Q for the first quarter and the second quarter Form 10-Q sometime over the next few days. In the interim, however, we thought it would be helpful to provide estimates for revenue and earnings per share for the second quarter, and to provide you with an update on our actual business operations and the progress we are making from a scientific and commercial point of view. Please note that these estimates are just that, estimates, and they're subject to change and revision as we complete our review of the second quarter results.

We currently estimate that the second quarter of 2018, our revenues will be approximately $45.3 million. The net loss attributable to Intrexon will be $65.4 million, including noncash charges of $43.9 million. We estimate our earnings per share will be a loss of approximately $0.51 per basic share. These are, of course, preliminary estimates of results, based on our current expectations and are subject to finalization, including completion of our procedures for our Form 10-Q and completion of our technical accounting analysis for ASC 606.

We apologize for the inconvenience both to our shareholders and analysts by our delay, but we do not believe that the delay will be long and again, I point out that the matter is under consideration relating entirely to the classification and amortization of nonrefundable monies historically received, so any adjustments in these items are technical and purely noncash matters. On the other hand, we are excited to have this opportunity to update our shareholders on the business of Intrexon.

I would now like to hand things back over to Steve for the business update.

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Steven Harasym, [4]

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Next slide. When thinking about Intrexon, it's important to understand the process by which we address global challenges with the precise control of biological systems across microbes, plants, animals and human cells. At its core, Intrexon works to effectively express and regulate genes in a wide range of cells and organisms for a wide range of applications across a diverse spectrum of large end markets where we believe we can achieve high-performing and significantly differentiated businesses.

Next slide. As we review these platforms today, we continue to believe that energy and health will be the key drivers of value this year. While 2019 will be the year when our plant and animal programs have matured in scale to the point where they too will be measurable drivers of shareholder value.

I would now like to turn the call over to Bob Walsh for an update on one of our near-term value drivers, the Intrexon Energy program.

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Robert F. Walsh, Intrexon Corporation - SVP of Energy & Fine Chemicals Platforms [5]

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Thanks, Steve. The promise of Intrexon's proprietary improving Methane Bioconversion Platform with lower operational costs and capital expenditures per ton of product, higher conversion efficiency and the ability to scale down as compared to conventional natural gas upgrading technologies. Our process turns natural gas, the lowest cost and most widely available form of carbon into higher-value carbon outputs using a type of bacteria called the methanotroph that naturally metabolize methane which is a primary component of natural gas.

Next slide. Since the decoupling of oil and gas prices in 2009, a tremendous gas flow arbitrage has emerged from the divergence. Even today, as oil has risen above $65 a barrel, North American natural gas has not broken $3, equivalent to $18 oil. Although we expect some volatility, the long-term trend remains intact.

Next slide. Over the past several years, the Intrexon team has assembled and fine-tuned the genetic toolbox for its approach to methane upgrading. The commercial magnitude of this platform is immense. Our lead product 2,3-butanediol, which is catalytically converted into synthetic rubber is a $22 billion annual opportunity alone. And the 4 chemical and 2 fuel molecules being developed have a combined annual market opportunity in excess of $1 trillion. The synthetic rubber business is also growing ahead or above GDP as even electric cars require tires. This market opportunity has generated a high level of interest. We can share that our partnership discussions continue to advance, our plan to break ground on a commercial butadiene plant by the end of the year remains in place, we have narrowed the sites down to 2 locations with 2 different partners, both with significant and interesting infrastructure.

We're in the process of picking up engineering for the 2 sites for further optimization. Site selection was actually challenging due to the large number of suitable sites with existing infrastructure, which speaks to our ability to scale up after the first facility. For this first facility, we can share the following. The capital expenditure for 40,000 tons per year of 2,3-butanediol capacity further converted to 26,000 tons of butadiene is estimated at $75 million on a greenfield basis. Construction time is 12 to 15 months, depending on weather and trade availability and at July's butadiene contract price of $1,400 per ton, we are projecting a gross operating margin of almost $1,000 per ton, over $25 million of EBITDA. For modeling purposes, a large scale facility would produce 100,000 tons per year of butadiene, and we expect capital costs to not increase proportionally but to the 0.65 power.

Next slide. In the second quarter, there were measurable scientific advances. For 2,3-BDO, we saw an additional 22% increase in yield, putting this program further in the money. Intrexon's scientists continue to engineer the organism to improve utilization of natural gas as a carbon source, improving the potential operating margin. Further utilizing our proprietary toolbox, our scientists have developed strains with improved utilization components present in methane such as ethane that are typically burnt in the off gas. Please note that the economics I previously mentioned since components other than methane are burnt in the off gas. As we mentioned on our last call, we successfully converted 2,3-BDO into on specification 1,2-butadiene, which is the beginning point of synthetic rubber, and we did so at an efficiency of over 90%. This milestone provides further evidence of commercial viability and has expanded our partnering effectiveness.

Now I'd like to turn things over to Tom Bostick for an update on our health and vector control businesses.

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

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Thank you, Bob. Before I take you through some of our human therapeutic programs, I would like to announce that Dr. Helen Sabzevari, President of Precigen, will host an Analyst Day in Germantown, Maryland in Q4. At this meeting, Dr. Sabzevari will provide an in-depth review and update of our cell and gene-based therapeutic programs. We're excited for Dr. Sabzevari to expand on these programs in Q4 and we'll make details available in the coming weeks.

Next slide. Now for a review of our subsidiary ActoBio Therapeutics. The ActoBio platform offers many opportunities to address a range of conditions as it provides a unique delivery mechanism that synthesized therapeutics in L. lactis, a microbe used in food production that has a history of safety in humans. Further, the construction of the treatment can be done with limited genetic modifications and allows for scale.

Next slide. On this slide, you can see how we plan on advancing this platform across gastrointestinal, autoimmune and systemic diseases. ActoBio is progressing well with its plan to create the broadest and most advanced clinically staged pipeline of micro-based therapies, and we expect to partner either programs, the company itself or both in the near future. A few updates on the Acto pipeline. The safety data on the first patient who's complete in the Phase II clinical trial for AG013 in the treatment of oral mucositis. 24 patients were randomly allocated to this study and 19 of those patients completed the safety evaluation for oral mucositis, which is one of the most common adverse events associated with cancer chemotherapy. Oragenics, our partner, is now planning to begin enrolling the remaining 160 patients. Data from this study is expected to be available in Q3 2019.

Dosing of the first patient is imminent for AG019 Phase Ib, IIa treatment of early onset type 1 diabetes. This is a disease which impacts over 1 million children and adults in the United States, 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 a low-dose anti-CD3 to calm the immune system and stimulate T cell homing in the gut. This represents a game changing opportunity should the results in humans replicate our preliminary models. Our animal models showed up to 39% reversion with normal glycemic range in animals with early-stage disease. For enrollment, we're targeting 20 potential sites in the United States and 3 in Belgium.

Finally, in AG017, an immune tolerance approach for the treatment of celiac disease, we're targeting a Q1 2019 IND based on the cGMP clinical batch production and ongoing repeat dose toxicology study. I want to provide a brief update on Oxitec. Based upon our positive progress developing a manufacturing system for targeted exosomes as well as our progress loading diverse RNA molecule classes into them, we transitioned Oxitec from a 2-target oncology therapy company into a much broader drug delivery company. While our targeted exosome platform can be used for delivering small molecules as well as proteins, we're focusing our efforts on RNA-based therapies due to the continued commercial advancement of mRNA, micro RNA and diverse antisense therapies. With the expansion of the scope of Oxitec, Intrexon now owns 49% of the company. With the strong need of a very large number of therapeutics companies that are active in these kinds of payloads to safely deliver them on a cell targeted basis, we look forward to Oxitec becoming a drug delivery collaborator of choice and thereby, a very nice business for us.

Next slide. Shifting gears. I would now like to take some time to review and update you on our self-limiting mosquito program. Of note, we announced in June that Oxitec, a wholly-owned subsidiary of Intrexon, entered into a cooperative agreement with the Bill & Melinda Gates Foundation to develop a new strain of Oxitec's self-limiting friendly mosquitoes. This new strain is being constructed to combating mosquito species that spreads malaria in the Western hemisphere. The Anopheles albimanus strain will be developed to address one of the most significant vectors of malaria in the Americas. We are very excited about this opportunity to work with the Bill & Melinda Gates Foundation, and the scientific research has already begun.

Oxitec is making the shift from its first generation OX513 to its new second-generation OX5034 strain. In May, Oxitec launched the first field trial of this second-generation mosquito in the city of Indaiatuba, Brazil. This new strain has many technical and commercial advantages over the original OX513 strain. Oxitec will no longer require a large, centralized factory model to mass rear its mosquitoes as the new strain uses genetics to eliminate the need to mechanically separate males and females. In part, as a reflection of this new feature, Oxitec closed its mosquito factory in Brazil as the new strain will provide Oxitec far more flexibility in quickly servicing different locations with significantly reduced cost of goods. Additionally, given that OX5034 produces only viable male progeny, new product modalities are possible. Oxitec is currently designing a new product that once through the regulatory processes, will give Oxitec the ability to sell directly to the consumer in commercial markets rather than only to governments.

From a performance standpoint, OX5034 males mate with wild females and produce nonbiting male progenies that survive to adulthood, half of which carry on the self-limiting gene, allowing for a diminishing but multi-generation suppression effect, thereby reducing cost and improving suppression performance. Another unique benefit derived from OX5034 is the fact that a portion of each subsequent generation of surviving males persist in the environment, mating with wild females without passing on a self-limiting gene. As a result, those males introduce non-insecticide-resistant genes into the wild mosquito population. For areas experiencing insecticide resistance among wild mosquito populations, OX5034 can help reverse this. We believe this will provide significant value to pesticide companies and governments working to extend the life of traditional insecticides that today, are becoming increasingly ineffective, and for customers using integrated vector management approaches.

I would now like to turn things over to Nir Nimrodi for updates on our food and animal platforms.

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Nir Nimrodi, Intrexon Corporation - Chief Business Officer [7]

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Thank you, Tom. I will now take you through some of our programs and enterprises that are dedicated to food, animals and agriculture.

Next slide, please. To date, we have planted approximately 900,000 Arctic apple trees on 590 acres of orchards. This growth is in line with our expectations with plans to plant an estimated 1 million more trees in the spring of 2019. This aggressive planting grade is one of the largest planting campaigns undertaken by any company to date.

Okanagan Specialty Fruits launched sliced fresh apples in the fourth quarter of 2017 with a limited supply of fruit. Consumer reception to the apples has been very favorable. We expect to harvest approximately 10x more apples this fall as we did in 2017. This is going to allow us to increase our product presence to an anticipated 1,000 retail stores for an estimated 6-month period beginning the last quarter of this year.

This is the function of trees maturing to 3 years, the age in which they begin to produce viable fruit. Once mature, these trees can produce apples for up to 25 years. For this reason, as well as our plant growth and trees planting, we expect this to turn into a meaningful contributor, with $30 million to $35 million in revenues in 2020 and ramping very nicely thereafter into a considerable business. This forecast is higher than our original plan, thanks to the focus we have been making in our orchards. This fall's larger volume will give us our best test to date of the power of the Arctic apple to capture a significant share of the $500 million sliced apple opportunity in the U.S. and even grow it. As a reminder, we also continue to advance nonbrowning traits in avocados, pears, cherries and lettuce.

Next slide, please. 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 half the time and on less food required by any other salmon. The AquAdvantage Salmon is produced on land in controlled environments, which we believe will provide a higher-quality product, one free of antibiotics, vaccines and C pathogens. The salmon industry achieves $12 billion a year in revenues and we believe that we have the best asset in the field.

AquaBounty recently completed the second bulk sale of AquAdvantage Salmon produced from its farms in Panama. We are delighted to know that consumers already are enjoying this healthy and nutritious food while we continue production and market expansion activities. In April 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 know the U.S. government is presently working on issuing. AquaBounty is prepared to comply with the stated requirements and expect the decision in the near term. In the meantime, the Indiana facility is now stocked with traditional Atlantic salmon until the permission is granted to import our AquAdvantage eggs. AquaBounty continues to advance facilities in Canada and is also looking at options for new growing facilities.

Next slide, please. Trans Ova Genetics is the leader of bovine genetics in North America. As such, they are one of the leaders in production of elite breeding cattle in both the dairy and beef industries. The Trans Ova solutions work to expand genetic gains through IVF and embryo transfer. We mentioned in the past that we wish to allow more farmers access to elite genetics by creating embryos that they can simply purchase rather than relying only on IVF and other services. Since the beginning of the year, we have already sold thousands of embryos. These elite embryos are accelerating the productivity gains we want our customers to benefit from. We're pleased with the progress of this program and note that despite headwinds to the dairy and beef markets, Trans Ova marked year-over-year growth.

Finally, on Trans Ova, we have developed a technology that should provide us another option for improving the genetics of a herd and this is something that we call Razor. Simply put, Razor is the application of genomic coding to engineer elite bulls in a way so that while the bulls are engineered, the offspring will be normal, except for the fact that they will have some of the excellent bred-in genetics of the bulls that we engineered. While we have not been producing these bulls long enough for them to have offspring, we certainly like all of our data thus far. This is one of several initiatives that we have ongoing at Trans Ova that have the potential to move this business up the technology value-added curve.

Another enterprise showing great improvement is Exemplar Genetics. The genetically engineered miniswine drastically improves the predictive value of preclinical trials as compared to the traditional mouse model. In turn, this can help bring human therapeutics to market sooner. We are seeing a growing interest in our models and are enjoying accelerated revenue growth of this business, which is -- which we expect to attain profitability this year.

I'll conclude my comments on Exemplar by saying that Exemplar is not just a disease model company. The miniswine pigs are more similar to humans genetically and anatomically. Exemplar is the most advanced pig genetics company and already has collaboration in place in the field of regenerative medicine by allowing for cells and organs to be produced in these animals. We will provide further updates on these expanding market vectors as such updates become available.

Next slide, please. This is our program that produces black soldier fly based products. These insects are highly effective in converting waste to feed, producing about 1 million to 2 million pounds of usable protein per acre annually. In our joint venture with Darling Ingredients, EnviroFlight is advancing on schedule toward its goal to open the largest black soldier fly facility in the U.S. in 2018. This facility is built in a modular manner to allow for expansion based on market demand. Phase I, which will open in Q4 this year, will have the ability to produce 900 metric tons of product a year and is designed to scale up to 3,200 metric tons, and the current sales order book is looking very promising.

Next slide, please. Finally, with Intrexon Crop Protection, we continue to actively work with the leading agricultural company on self-limiting fall armyworm. The insect alone caused an estimated $13 billion in crop losses since 2016. Here, we are targeting damaging the insects without the off target effect of spraying additional pesticides. We continue to make progress in advancing our projects to help control fall armyworm in broad acreage crops. This technology provides an addition to existing grower tools in combating fall armyworm, which is a concern for growers throughout the world. A recent analysis supports our internal modeling that it is feasible to sustain trade effectiveness against this insect with appropriate application of our product. We expect to initiate field trials in Brazil, pending appropriate regulatory approvals.

In summary, as you can see, while the company currently devotes the majority of its resources to its efforts in energy and health, I hope you can see from this brief and incomplete sampling of other businesses that we're building, while we refer to 2019 as the year of plants and animals.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question today will be Jason Butler with 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, just following on from the plant and animal theme. Can you maybe give us an update on the Botticelli program and then just remind us what you think the TAM for the Exemplar Genetics miniswines are?

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

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Jason, yes, sure. Well, first, with Botticelli, our initial application of this technology, as you may recall from a couple of quarters ago when we first talked about it, is lettuce. And we mentioned earlier that we're working on nonbrowning lettuce so if you put the two together, you can realize that we're using Botticelli to accelerate development in nonbrowning lettuces. I can tell you so far, we're working in 11 different genotypes of lettuce. We like all the data that we're seeing, and we think this could really be significant in terms of improving its shelf life. We've also been working on tomatoes. All our data there are exceeding that as we believe anyone has ever produced by very consistently, 20 packs or something like -- (inaudible). And we are currently squared off with some very large companies that produce in row houses tomatoes around the world at very large volumes, so stay tuned for that. I think some people may recall that when we first talked about Botticelli, the social media kind of lit up the next day on an opportunity that we haven't thought of. But when we described the technology, suddenly people were calling us the day after our conference call saying, have you guys thought about using this in cannabis? So the answer was no, we had not thought of that, but we've given it a lot of thought since. And we've learned from the top companies growing cannabis in the world today, in markets where it's legal to do so, that Botticelli looks like a very, very promising enabler of that rapidly evolving consumer and medical industry. So we are very active in negotiations with some of these companies now. And again, just stay tuned but we're very excited about the process. There are other crops that we're working on right now in terms of proof of concept, and we'll be providing more details on these as the data becomes available. What was your -- what was the second question?

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

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The TAM for Exemplar.

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

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It's really hard to say, Jason. When you think about the size of Charles River labs, for example, which does I think, around $500 million a quarter. I don't know how much of that is in their mouse models, but I'm pretty sure it's the majority of it. And then when you consider for therapeutic developers what the predictability or the predictive value of rodent experiments in therapeutics disease models really is as compared with our (inaudible) miniswine. We think it just has a very, very good market. The real high-value add component though is that we are engineering (inaudible) we have the only FDA-approved, genetically engineered phase thus far on the market. And we continue to develop custom disease models with therapeutic companies that have significant appetite if you obtain superior knowledge of the phenotype, the phenotype side of a disease. And so that business is really going well. I don't think I can estimate the TAM today. It's already growing as what's just alluded to as Nir just mentioned. It's growing faster than we thought it would, and we're getting a lot of interest. What's really intriguing the heck out of me though now is the amount of interest we have in using our engineering of these pigs, which remember, these pigs are -- they'd probably be about the same size as a human being. And so now, we're engineering these pigs in the field of regenerative medicine. We have a couple of partnerships already and some more in negotiation now. And so we find this part as a -- we call it a value vector or something. We find that really intriguing, so it's really I think going to be 2 businesses. One is the -- well, we can look at it as 3. There will be standards to models in which we'll sell the pigs, right? Then there will be custom disease models, in which we can operate basically like a CRO and actually perform the work for a therapeutics company in pigs that have been engineered with particular human disease. And then the third element is to use all of these technologies, including our genetic engineering of these pigs to produce cells and potentially even organs for transplantation. So it could be quite fast, but we can (inaudible). I'm just thrilled it's going to be profitable this year, so it's tracking very nicely, but thanks for the question.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [6]

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Great. And then if I can, just one big picture question, R.J. Still seems to be let's call it a disconnect between the enthusiasm of you and the team versus -- and the progress you're making versus the traditional milestones investors look for in value. So can you maybe talk about how you think about continuing to incentivize innovation internally versus getting rewarded for that externally? And in that context, how does that impact how you think about the business structure with the changes you've made in the last 12 months, capital structure and access to capital?

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [7]

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That's a mighty big question, Jason. I'll just mention 2 things briefly, though. One is, I've realized more than anyone, because I hear a lot from our shareholders, maybe speakers for more of them, but we speak with our shareholders very frequently. And I think what they are really looking for is for us to drive something across the goal line in terms of a big attainment that really (inaudible) us through commercially, and that's our primary focus. We call 2018 the year of energy and health and I think we've got 1.5 quarters left in 2018 and I think we can deliver on both of those promises for 2018. The success of that type, Bob told you the latest numbers on 2,3-BDO. In my opinion, that product alone is worth more than the market capitalization of Intrexon. So I think the capital -- the share price and capital formation capabilities of the company will sort out in the near term once we produce such a success. The second part of your question is one that we've been working on for a couple of years. And I think we've already given some advice about how we're going to proceed. And we realized that Intrexon has been a broadly distributed genetic engineering company. It's really more than just genetic engineering. If you think about Botticelli and EnviroFlight and so on, it's really what when we say engineered biology, it's the application of principles of industrial engineering to biology more generally, but certainly includes synthetic biology. And we think about it broadly, we realize that we fly in the phase of existing pools of capital and standard industrial technology. I think the world likes to see therapeutic companies that are therapeutic companies as such. And certainly, the pharmaceutical industry has evolved along those lines. Heck, I remember, when I first started in the therapeutics industry, American Home Products not only owned Wyeth-Ayerst Labs, they also owned Chef Boyardee, right? And you don't see anything like that going on anymore. In fact, you'd see Pfizer struggling to get rid of their consumer products business and that kind of stuff because it's just not pharma enough. And the reason being would be that isn't because there are no resources that could be shared between those 2 -- there's not skill set, blah blah blah, and of course, there are synergies. I think it mostly relates to the fact that investors would rather see -- would rather -- would really like to be able to compose their own portfolio, their own investment portfolios. And so we're trending in that way. You heard a reference earlier to the fact that it's entirely likely that ActoBio is not going to be a 100% owned majority -- a 100% owned subsidiary of Intrexon. And eventually, I think you can expect to see that as an independent company, same with Precigen. Our ideal scenario for even energy, frankly, and Bob and I are -- we'll be meeting with some very senior people in the energy industry next week as part of that process. But our ideal scenario, what we're really fishing is a 50-50 joint venture between us and people in that segment. The reason that Intrexon doesn't have to own 100% of everything that it enables is because we're not going to run out of new things to do. We're very, very confident of that. And so once you know that, we realized this a couple of years to go, it really becomes incumbent upon us, I think, to allow the enterprises that we've enabled to enjoy their own life. That doesn't mean that we can't participate in their economic success. It doesn't mean that we can't benefit along with any other owner or partner, but that's the way -- I think that's the general trend line.

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Operator [8]

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And our next questioner today will be Tycho Peterson with JPMorgan.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [9]

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One for maybe, Bob. Just on the plant scale-up, you mentioned getting close to signing a partner there. Can you maybe talk to us how you think the economics? If you can talk about the $75 million cost, will they pick up most of that or how do you think about the split? And is the $25 million in EBITDA what you're committing to for 2020?

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

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Thanks, Tycho, it's a good question. A couple of different ways to think about scale-up and I think there's 2 different -- as you know, we're going down 2 different paths. One is the activity we have going on with Moelis on the strategic partnership and looking at that, and obviously, that has different capital formation around it. The other thing that we talked about in the past and you and I have talked about, can't remember when we last met, maybe in February, March is what we previously talked about is more of a total processing arrangement with a third-party. That's very common in the energy business, where they build, own, operate and maintain. And we give them a return of their capital and we take all of the commodity risks, which is that uplift I talked about, which is really the commodity risk. That also is the benefit of that co-location, which is we're very keen on because as I mentioned, the $75 million as a greenfield basis is if we had to build the roads, the rail, everything associated with that, there's no existing infrastructure. So that has the benefit of adding that infrastructure. So in some way, you're using other people's money, you have to pay a return on their capital, but you gain a lot of efficiencies in the sense of operational and capital efficiency. So that's kind of the scale-up. Does that help, Tycho?

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [11]

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It does. And then the contracts you'd be signing, these are kind of 5- to 10-year take-or-pay type contracts with the end customers, is that right?

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

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In the case of butadiene, most of those contracts, yes, they're 5- to 10-year take-or-pay monthly contracted -- monthly-negotiated prices.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [13]

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Okay. And then I guess, back over to healthcare for a minute. R.J., can you just comment if there's any update on Fibrocell following the interim safety data we saw for FCX-007?

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [14]

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I don't think we have anything to offer beyond what John Maslowski and the folks at Fibrocell have provided publicly, Tycho.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [15]

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Okay. And then I think you were also talking about making opioid collaboration there with Epimeron. Can you maybe comment on that (inaudible)?

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Robert F. Walsh, Intrexon Corporation - SVP of Energy & Fine Chemicals Platforms [16]

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This is Bob again, Tycho. Yes, and we have been and I think most recently, we announced that the collaboration with Epimeron produced a novel enzyme that they brought to plants that actually create -- causes the -- allows us to make thebaine, and I think we're patent protected. We really wanted to have that because it allows us to get the thebaine, which is the base for the opioids from that. We've made great progress on it and they're in a lot of discussions on it too. So it's quite exciting that we're the first ones to get there from a -- to eliminate the poppies and a lot of the issues that come around obviously, from certain countries and also just the cost of production and predictability.

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Tycho W. Peterson, JP Morgan Chase & Co, Research Division - Senior Analyst [17]

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Last one for me just on Trans Ova on the Razor technology. How far away do you think that is from being commercialized?

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [18]

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As estimated, we really want to see the offspring of the animals we created, the Razor animals we've created. So in pigs, it's maybe 0.5 year and in these bull calves we have, we have both -- well, we have 2 varieties, somewhat longer.

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Operator [19]

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And our next questioner today will be Robert Breza with Northland Capital Markets.

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Robert Paul Breza, Northland Capital Markets, Research Division - MD & Senior Research Analyst [20]

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R.J., most of my questions have been asked but not to get too technical, but you're a former lawyer by trade. So...

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [21]

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I did (inaudible) finding honest employment there, Robert.

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Robert Paul Breza, Northland Capital Markets, Research Division - MD & Senior Research Analyst [22]

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And so as you think about these negotiations that you're in with the 2 partners, have you moved beyond the letter of intent stage to contract negotiations? Or where are you at from a legal standpoint of view to like, get this locked and loaded for by the end of the year?

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [23]

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Well, I'm not sure which process you're referring to, but the answer would be the same regardless of the process. Because in any one of these processes, we probably have people at different stages. And as I've been wanting to hear on this call, that they're either in the front door or in the rear. So they're all in the front, but the real answer to your question is we're at a variety of stages with a variety of partners on a variety of projects.

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Robert Paul Breza, Northland Capital Markets, Research Division - MD & Senior Research Analyst [24]

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Okay. So but you do kind of have at least, like a letter of intent understanding of how things are going to progress, is that fair?

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

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Can you repeat the question? I'm not sure I follow it.

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Robert Paul Breza, Northland Capital Markets, Research Division - MD & Senior Research Analyst [26]

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Like, do you have a letter of intent kind of how things are going to progress and like, a general understanding?

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [27]

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Yes. So we're certainly circulating term sheets and we've delivered some terms of agreements as well. And that's -- I'm not sure I'm really getting the gist of your question. As I mentioned, I think we'll be where we wanted to be at the beginning of this year on energy -- by the end of this year. And I think you'll see some significant developments at each of our therapeutics companies as well in the remainder of this year. And let's not forget our partner ZIOPHARM, which I'd watch it pretty closely if I were you because we're pretty excited about what's going on there as well.

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Operator [28]

--------------------------------------------------------------------------------

And our next questioner today will be Derik De Bruin with Bank of America Merrill Lynch.

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Michael Leonidovich Ryskin, BofA Merrill Lynch, Research Division - Associate [29]

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This is Mike Ryskin on for Derik. Wanted to follow up on a couple of points you mentioned. On the Okanagan Specialty Fruits update on Arctic apples, you mentioned you increased the 2020 revenue forecast. In the past, you talked about $20 million in 2020 but then ramping over time as the planting space grows with a final number of $500 million in 2026 and 50% gross margins, EBITDA, et cetera. Just curious, the bump from $20 million to $30 million, does that flow through to the later years or is this more about you got more apples down this year? Or essentially I'm asking is where does this take your 2026 numbers?

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

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That's a great question, Derik. And I'm happy to provide the answer because it actually is the productivity per tree exceeded our original estimate, so it does flow through the later years.

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Michael Leonidovich Ryskin, BofA Merrill Lynch, Research Division - Associate [31]

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All right, that's helpful. And then a follow up on the EnviroFlight opportunity. Just curious there, can you talk a bit more about who your customers are going to be, how that's progressing and any kind of revenue estimate ballpark you can give us? You talked about the 900 metric tons scaling to 3,200, just give us something to size that opportunity.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [32]

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Yes, so unfortunately, I can't give you any detail about that. We're closing -- as you know, we're a 50-50 joint venture partner in EnviroFlight with Darling Ingredients and we closely coordinate messaging with them. So I can tell you that what we disclosed today in terms of the nameplate. Is that what it's called, Tom?

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Thomas P. Bostick, Intrexon Corporation - COO [33]

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Yes.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [34]

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Yes. The capacity...

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Thomas P. Bostick, Intrexon Corporation - COO [35]

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And leave it like that.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [36]

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And what we disclosed in terms of the nameplate and so forth, obviously, we have discussions in. Beyond that, I don't think we're able to disclose. Although we did allude to the fact that the order book is looking really good. What just fascinates me about this entire project is that every component has a market, even what they call the -- even with what they refer to as the brass, which is truly the waste product of growing billions of black soldier fly larvae. That has a very attractive market, we've learned and we're able to -- so we're able to sell a lot of components out of this production stream. And because of that, we're very happy to have the partner we have, because Darling has a lot of expertise in really figuring out the appropriate product mix and pricing and so forth. It's really what they do for a living. So we're really excited about this project.

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Operator [37]

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And this will conclude our question and answer session. I would now like to turn the conference back over to R.J. Kirk for any closing remarks.

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Randal J. Kirk, Intrexon Corporation - Chairman & CEO [38]

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Well, I don't -- for one thing, I don't really have much to say. I think as we've indicated, we're very squared off right now on -- we recognize our responsibilities. We're very squared off on executing and I think we will do so. So meanwhile, we do have exciting things coming up in other fields as we'll be talking about more in the future. We don't call 2019 a year of plants and animals for nothing. I'll mention that I was in a meeting with a senior U.S. government official and I was surprised about how much he knew about Intrexon. And then I learned that -- he told me 75% of the files that -- 75% of the files they have of genetically engineered animals are ours. And I never really thought about it from a regulator's respective before. But if you really combine and think about all the insects and the pigs and fish and et cetera, et cetera, it's really quite impressive. And it's a genuine position and industrial issue. It's just what we always hoped to obtain at Intrexon. And certainly, we want to see that turn into a big business. So just back to the original point, it's fundamentally about this. This is a company that I think as I've indicated in the press release, has really long displayed tremendous potential and leadership in the field of synthetic biology. But I'm a businessperson first and last. We got wonderful technologies in this company. In fact, about 70% of the people in this company work in R&D. Our big push right now is to add a lot of business. People helped us turn a lot of these projects into businesses and top of the order is energy and health, and that's our principal focus. We spend not only the majority of our time in those 2 areas but also the majority of the company's resources of really, every type this year into these 2 areas. So stay tuned. Thanks very much for your interest.

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Operator [39]

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And the conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.

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