Intrexon Corporation XON announced that it has entered into an exclusive global licensing agreement with the privately held Surterra Wellness to produce specific cannabinoids with the help of its in-house proprietary yeast fermentation platform. The deal is worth a $100 million including milestones and royalties.
By dint of this contract, both companies are looking to develop new cannabis products to meet the growing and selective consumer demand in a cost-effective manner through an efficient supply chain management.
Shares of Intrexon rallied almost 13.2% following this news on Tuesday. In fact, the stock has surged 31.5% so far this year, outperforming the industry’s increase of 4.1%.
Per the contract, Intrexon will receive an upfront cash payment of $10 million and $15 million worth of Surterra common shares (privately valued) for exclusive access to its technology. Over the next five years, the company expects to receive around $20 million as research and development (R&D) expenses plus developmental milestones/royalties for each cannabinoid developed and commercialized.
The pact looks a good strategic fit for both houses. Notably, Intrexon’s proprietary yeast fermentation platform is on track to yield pure cannabinoids. With an exclusive access to Intrexon's technology for microbial production of cannabinoids, Surterra can focus on the research and development of specific cannabinoids to cater to the needs and demand of consumers related to such products in the future.
Intrexon’s proprietary yeast fermentation process will also reduce Surterra’s dependence on the conventional cultivation methods for cannabinoid production. Surterra can now focus on traditional agricultural methods, improve its yield consistency and purity plus produce rare cannabinoids in large quantities at lower cost.
Notably, this is the second strategic licensing agreement between the two companies to take place this year. Earlier this March, Intrexon announced a strategic licensing deal with Surterra to utilize its own Botticelli next-generation plant propagation platform for the production of the latter's specific cannabis cultivars for the Florida market.
Per the terms of the agreement, Intrexon will be entitled to royalties on Surterra's Botticelli-derived plantlet usage. The latter will deploy the Botticelli platform within its Florida cultivation facility to serve its operations in the state and will also be responsible for maintaining appropriate licensure at the production site.
Zacks Rank & Stocks to Consider
Intrexon currently carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the healthcare sector include Acorda Therapeutics, Inc. ACOR, Repligen Corporation RGEN and Merus N.V. MRUS, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Acorda’s loss per share estimates have been narrowed 6.5% for 2019 and 6.9% for 2020 over the past 60 days.
Repligen’s earnings estimates have been revised 12% upward for 2019 and 12% for 2020 over the past 60 days. The stock has surged 49.9% year to date.
Merus’ loss per share estimates have been narrowed 22.2% for 2019 and 17.2% for 2020 over the past 60 days.
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