Intrexon's (XON) CEO Randal Kirk on Q3 2014 Results - Earnings Call Transcript

Nov. 14, 2014 12:32 AM ETPrecigen, Inc. (PGEN)
SA Transcripts profile picture
SA Transcripts
129.67K Followers

Intrexon Corporation. (XON) Q3 2014 Results Earnings Conference Call September 13, 2014 5:30 PM ET

Executives

Christopher Basta - Vice President, Investor Relations

Randal Kirk - Chairman and Chief Executive Officer

Krish S. Krishnan - Chief Operating Officer

Analysts

Keith Markey - Griffin Securities

Tycho Petersonat - JPMorgan

Daryl Weber - Wells Fargo

Chris Guttilla – Deutsche Bank

Operator

Good afternoon. And welcome to the Intrexon Corporation Third Quarter Earnings Conference Call. All participants will be in listen in mode. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Chris Basta, Vice President of Investor Relations. Please go ahead.

Christopher Basta

Good afternoon. I am Chris Basta, Vice President of Investor Relations for Intrexon. Welcome to our third quarter 2014 earnings conference call. Joining me on the call today are Mr. Randal Kirk, Chairman and Chief Executive Officer, and Mr. Krish Krishnan, Chief Operating Officer.

During this call, we will make various forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995.

Investors are cautioned such that forward-looking with respect to revenues, earnings, performance, strategies, prospects, and other aspects of the business, of Intrexon Corporation, are based on current expectations and are subject to risks and uncertainties. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the Safe Harbor statement contained in the earnings press release, which was released earlier today, and is also available on our website under the Investors link, as well as Intrexon's most recent SEC filings, for a more complete description.

The press release references and our discussion this afternoon may reference certain non-GAAP financial measures, including adjusted EBITDA, earnings per share, and pro-forma adjusted EBITDA earnings per share. Reconciliations to GAAP measures are contained in the earnings press release, as well as on the Investor section of our website at www.dna.com.

Now I would like to turn the call over to Krish Krishnan, our Chief Operating Officer. Krish, the floor is yours.

Krish S. Krishnan

Thank you, Chris. Good afternoon, everyone. R.J. and I are pleased with Intrexon's performance this last quarter, as we've made significant progress against our strategic and operational objectives. We expect that you had the opportunity to read the press release and will provide additional color on our program in this call.

As many of you know, a key component of our commercial strategy is based on establishing or expanding exclusive channel collaborations, we call them ECCs, with companies in health, food, energy, environment, and consumer sectors where we believe our technology can have a significant impact.

In the last quarter, we formed exclusive channel collaborations with two new customers, Sanofi and Histogenics, and added a new collaboration with an existing partner, Amneal Pharmaceuticals. In addition, we also made good progress on several existing collaborations.

Within the health sector at Intrexon, we are devoting significant resources to our immuno-oncology program that focuses on synthetic biologic approaches, the CAR-T therapy and allogeneic cell-based process. We believe our platform holds the promise to fully realize the potential of CAR-T and other cell-based therapies, while overcoming some of the well known challenges associated with current programs, such as ENI [ph] toxicity, off target effects, and uneconomical manufacturing.

We are pleased with the progress we are making through our collaboration with Fibrocell to treat a rare connective tissue disorder known as our RDEB. This disease causes severe blistering and areas of missing skin and has the highest rate of morbidity and mortality of all of the genetic blistering disorders.

In the third quarter, Intrexon and Fibrocell had a collaborative pre-IND meeting with the FDA. We also initiated clinical material manufacturing for our genetically modified human dermal fibroblast expressing collagen VII, and as disclosed by Fibrocell, we plan to file an IND in the first half of 2015 and look forward to getting into the clinic to help these patients as soon as possible.

The third quarter also represented a significant period with regards to our efforts in the active pharmaceutical ingredient, our API space. The size of the global API market is estimated to be in excess of $100 billion, and the vast majority of APIs, as you know, are produced by chemical synthesis or derived from plants and animals. Intrexon's approach utilizes microbes to produce APIs in a fermentation process much more efficiently than current production methods.

We announced the establishment of an ECC with Sanofi, as I said before, a significant player in the API category. This collaboration will help and enhance production process for a specific family of Sanofi's marketed APIs and will leverage Intrexon's technology to increase overall yield, leading to improved economics for the department.

We also expanded our relationship with Amneal, a large US generic drug manufacturer, with a second product collaboration for a targeted API. So we now have like four ongoing projects in the API space and the acquisition of the Budapest lab earlier this year has been economically and operationally productive for us in this space.

Lastly in health, we announced an ECC – a new ECC with Histogenics. Through the exclusive collaboration, Histogenics will employ its expertise in novel solutions for musculoskeletal related conditions and Intrexon will enable development of an off-the-shelf allogeneic chondrocyte cell line for cartilage repair.

The targeted these – of this ECC is to integrate these are allogeneic cells with Histogenics proprietary scaffold platform and manufacturing process. I just want to point out that if it sounds like I'm reading off of a script, I really am actually.

In the food segment, it’s been three months since we closed the Trans Ova acquisition and we're instituting programs to capitalize on the synergistic effects of mutual technologies. We have in place a unique leading reproductive platform in the bovine industry that supplies two end markets, dairy and beef.

Global expansion is the key part of our growth strategy with Trans Ova and we're pleased to share with you a recent development with a wholly owned subsidiary of Trans Over called Viagen.

Viagen and its business partners, Wuhan Chopper Biotechnology, received approval to operate a domestic business in China, utilizing Viagen's toolkit and to improve genetics in the porcine and bovine markets.

With respect to the remaining sectors, I'll just mention that, in energy, our Intrexon Energy Partners JV is tracking to its development plan and we're pleased with our ongoing efforts, both in the environment and consumer sectors.

On the technology front, we're pleased to report that one of our largest ECC collaborators has been enabled on our BeyondBio platform, while another recent collaborator has expressed an interest in using the platform. And its important to know that enabling our partners on this platform allows them to kind of self analyze their existing industrial problems and design solutions to these problems using our technologies.

For us, provides an efficient way of getting repeat business with existing customers, we end up staying close to their problems and allow us to operationally scale rapidly. We continue to invest significant resources into this BeyondBio platform.

Let me now provide a brief financial and operational update. I'm giving the third quarter, our revenue totaled about $21.2 million, an increase of over 250% over the third quarter of 2013.

Net loss was $52.7 million, including non-cash charges of $44.8 million, attributable to Intrexon. Adjusted EBITDA was $1.2 million [ph] or $0.02 per share.

Cash consideration received for research and development services, what we call cost recovery in the third quarter covered 59% of cash operating expenses, exclusive of the operating expense of the majority-owned consolidated subs.

We target a 50% cost recovery and having exceeded this objective in 3Q has allowed us to invest additional capital and resources in a variety of new platform technologies.

In addition, through the first three quarters of 2014, total consideration, which includes technology access fees, reimbursement of research and development expenses, combined 125% of cash operating expense, again, exclusive of the expense of the majority-owned consolidated subs.

So in summary, we continue to strive to preserve shareholder capital, while we enable a vast array of products for which we believe Intrexon and its shareholders will enjoy significant back end economics across multiple industries and sectors.

That said, we open the call for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Keith Markey of Griffin Securities.

Keith Markey - Griffin Securities

Hello thank you for taking my question. I was wondering if you could elaborate a little bit about the work you are doing in the business and…

Randal Kirk

Keith, I am sorry, we can't hear you, could you repeat the question?

Keith Markey - Griffin Securities

Can you hear me now?

Randal Kirk

Yes.

Keith Markey - Griffin Securities

Okay. Yes, I was wondering if you could elaborate on the Histogenics collaboration agreement and perhaps tell us a little bit more about the focus of the genetic modification if that's what it is.

Randal Kirk

Hi, Keith. This is RJ. Thanks for the question. I think we have a pretty extensive press release out on that transaction and we don't want to go beyond what we've agreed with our partner to can be disclosed.

So I think I'm fairly safe in saying as Chris just described the focus, you know, they are working with metalogix congress sites (ph) with their proprietary matrix, with their existing program and the focus of our collaboration is to develop if you like an off-the-shelf allograft congress site obviously which would improves economics for that entire area.

I think we reported in the press release something like 500,000 cartilage tears in the United States alone. The existing treatment modalities are, how can I put it, not entirely satisfactory.

So we're really excited by the partnership and to us it’s clearly an area of unmet health needs and one that really capitalizes on some areas in which we feel that we have some tremendous capability.

Keith Markey - Griffin Securities

Okay. Thanks. And then if I just, if you could provide us a little bit of information about Wuhan the relationship with Viagen?

Randal Kirk

Yes, we'll provide more guidance about that going forward Keith. This is an event that really relates to Chinese government approval and to be perfectly candid, we're not entirely sure what we are allowed to say. So here we're not just operating under the normal structures with which we're all familiar, but also Chinese law. And so contracts that we haven’t become entirely familiar with ourselves.

Obviously this deal was already underway at the time that we acquired Trans Ova.

Keith Markey - Griffin Securities

Yes.

Randal Kirk

And as you know Viagen has a very strong position, so I mean, just from the public domain I think it’s known to anybody who would make a reasonable inquiry that Viagen has a strong position in the cloning of especially pigs.

So, anyway they have a very strong technology base in that area. I think it's generally known that China has you know, we saw a Chinese company I think last year acquired Smithfield. They have a very strong interest in protein feed animals and developing their infrastructure in that area.

They are very I'll say scientifically guided around the area of genetics. They have a strong interest in – so interest in food, strong interest in technology and this is a project that involves both.

Keith Markey - Griffin Securities

Okay. Thank you.

Operator

The next comes from Tycho Peterson at JPMorgan.

Tycho Petersonat - JPMorgan

Hey, thanks. Now that you've got close on Trans Ova, can you maybe just talk a little bit about that opportunity overall? And I guess do we have to think about any seasonality for that business forward?

Randal Kirk

That's a good question, Tycho. There actually is some seasonality to the business and we're really getting on top of that now. But as you might imagine there are some things that we want to do with that business, but we haven’t fully disclosed yet.

But let me paint in sort of a broad brush. If you think about the strides that have been made in the major protein feed animals and in terms of improving their economics to the consumer, I don't think that there is any other segments that comes as – you know, that has done as well as boilers, meaning chickens, unless it would be fish grown [ph] in agriculture, which you know we are active in this area as well.

But chicken certainly demonstrates what can be done with a combination of a standardization of genetics and industrial process in which the industrial process informs the genetics and vice versa.

And so like I think the benefits of the consumer chicken has been amply demonstrated over – for those of us who live long enough to actually know how these prices are tracked in constant dollars.

But these kinds of additional economics have largely not occurred in the beef industry or in the dairy industry. But I'll say especially the beef industry. So, in terms of standardization of genetics and being able to pursue a program in which what we know and what we're capable of learning about the animal genetics actually helps make the food proteins more efficiently.

Cattle certainly lag although obviously it’s very, you know, it’s an enormous area. Around $180 billion per year in beef, $180 billion per year ex-farm and dairy worldwide and yet the genetic variability is very high. And so we're really excited about our acquisition of trends over just a great, great business.

They've been supplying bovine embryos and demonstrated that they can shift these things you know, in virtually anywhere in the world. So frozen bovine embryos, and so as a way of conveying a high value package of DNA, it's really I think the ultimate expression in that field. Frankly, everything that’s downstream from a Trans Ova does is farming – is ranching or farming.

So it really takes us to the, you know, as you say the high water mark in terms of our ability to add value. And we were all ready – I will just mention look, we went hunting for something like Trans Ova and the reason we did was because we were in a dialogue with the number of companies around the world who had educated us on the huge market demand for improved bovine genetics.

So we think this is going to be a great platform for us to sell and improve bovine genetics. The margins as we expand that I think are extremely attractive and we think this is going to be a great business for us – a very significant part of Intrexon's business.

Tycho Petersonat - JPMorgan

Great. And then you mentioned the elusive AquaBounty fish earlier. I don't know if you're going to comment on whether there is any updates there. But I mentioned it because there was approval I guess by USDA and not FDA or GM Potato [ph] recently and then it looks like Oregon and Colorado have rejected balance for labeling GM products. So is there any kind of movement there on AquaBounty, I guess is the question?

Randal Kirk

Yes, thanks for question. I was hoping somebody would ask it, so I could say. In fact, we have had, the company has had and this is a little bit out of school, because obviously as you know AquaBounty is a publicly traded company, but it is majority owned sub of Intrexon.

But I will say that, we do know that dialogue with the FDA is very encouraging. We believe that the FDA intends to approve the Aquadvantage salmon. We to noted the news items to which you just alluded Tycho and we view these positively because they do seem to indicate a political shift and maybe not a shift, so let say a evolution at least that should work in favor of the approval of Aquadvantage salmon. But our understanding from the agency is that approval is imminent.

Tycho Petersonat - JPMorgan

Okay. And then are you able to talk about your plans around CAR-T? Obviously you know, some of that may be locked up with ZIOPHARM. But are you able to comment at all on kind of commercialization plans and how you think about partnering up the technology?

Randal Kirk

Yes, thanks for the question. But the short answer is no. You know, we – as you know, it’s a field of intense interest around the world. We alluded in the press release to significant transactions underway and I think we'll just leave it – we'll just leave the statement with that.

Tycho Petersonat - JPMorgan

Okay. Fair enough. Thank you.

Randal Kirk

Thanks, Tycho.

Operator

The next question comes from Daryl Weber, Wells Fargo.

Daryl Weber - Wells Fargo

Hey, guys nice quarter. All my questions Tycho just asked. I guess, I'll just ask one final question, with respect to the CAR-T therapy, you know, manufacturing seems to be a big issue. Can you guys talk a little bit about how your ability to manufacture and allogeneic approach versus autologous, maybe give some sheds and light on that?

Randal Kirk

Not really. For the reason I just alluded to Daryl.

Daryl Weber - Wells Fargo

Okay.

Randal Kirk

You know, we have not made a secret of the fact that we think we have a lot of contribution to make in this field and they are in the areas that, you know, the one you just named and in other areas as well, in this field.

We view CAR-T as an extremely important, I think ultimately historic transition in the field of therapeutics. We think ultimately it will be viewed as the first exemplar of a new generation of therapeutics that since no one else has named it, we will be bold enough to name it that we called synthetic immunology.

And as such, obviously it’s just a tremendous time to be focused on this what we believe is going to be a generational change in therapeutics. It’s very consistent with the other projects that we have underway, including the one that we were just talking about related to Histogenics actually.

So –but you are right, I mean, manufacturing is certainly one issue as Krish mentioned off-target toxicities another, you know, that really goes to the ability to regulate the expression of the targeting protein among other issues. And so, we feel very well equipped to make a solid contribution in this area and we look forward to doing so.

Daryl Weber - Wells Fargo

Thank you.

Operator

Our next question comes from Craig Stephenson (ph) Harvest Capital.

Unidentified Analyst

Hi, guys. I wanted to ask you about the ECC developments. One, how you source potential new ECC partners. And two, can you give us – I'm not sure pipeline is the right word, but can you kind of break it down between domestic and international companies that have expressed interest in going forward with you?

Randal Kirk

Okay. I'm not really sure. We have never really classified even our existing ECC, let alone those in our queue. So I just really to be shooting from the hip to even to attempt to your answer your question Craig, either one…

Unidentified Analyst

Okay…

Randal Kirk

So you know, deal sourcing in general, we were receiving more inbounds now than was the case when we opened for business in 2011. And in general we are in talks with more multinational companies today, than what we ever have been.

So the thing about a multinational company is that it doesn’t really, it doesn’t really matter so much where they're headquartered…

Unidentified Analyst

Right…

Randal Kirk

As you know, because most multinational companies have approximately the same geographic mix across the world. And so, I think that's fair. I think we said in the last quarter that our queue was heavily weighted in favor of discussions with larger companies…

Unidentified Analyst

Right…

Randal Kirk

It’s certainly even more true today.

Unidentified Analyst

Okay. Great. Thank you.

Randal Kirk

Thanks, Craig.

Operator

The next question comes from Pete Lawson at Mizuho.

Randal Kirk

Hi, Pete. Peter, are you on?

Operator

Okay. We'll move on to Keith Markey at Griffin Securities.

Keith Markey - Griffin Securities

I had two questions about BeyondBio, one was whether or not you charge anybody for use of the BeyondBio functionality. And secondly, whether you had any interest or desire at this point to try to install it with any of the academic centers in synthetic biology?

Krish S. Krishnan

They are both great questions close to my heart. Keith, my first comment right now what we're doing is simply offering BeyondBio within our existing ECCs. So if there's a company that’s gone through project with us, we try to get them up to speed on BeyondBio with respect to the second and third projects and as I said in my script, trying to get them educated in identifying their problems which they actually have a good idea, designing a solution, just make them that much closer to us and allows us to be much more focused on the science part as opposed to the physical interactions or conversations. And then obviously as you know, it makes the customer base pretty sticky.

So the answer to your first question is right now no. But as we get more large customers, this is an important area for us and we're going think about how best to monetize the BeyondBio platform within our business model of an exclusive channel collaboration. So that's the first part.

In terms of the academic institutions, I think that it is – it’s definitely on our radar time .We're starting with our customers. I mean, you can imagine a lot of these guys in academic institutions graduate and go work for one of our ECC partners.

So getting them early and getting them to think the way we think about synthetic biology is really and in many ways it actually accelerates their own PhD research programs by being able to look into our database and figuring out what has worked in the past and what's not worked in the past.

So yes, we are starting to form an operational group around this concept of academic institutions, but it is a little bit too early for me to flush out any details on that. So we are aligned with the idea and hopefully you will hear more about it next year.

Keith Markey - Griffin Securities

Thank you very much.

Operator

Our next question comes from Pete Lawson at Mizuho.

Peter Lawson – Mizuho

Hi. Sorry about my technical problems. On the par (ph) conversion project, I'll ask two questions if I may and I've got some existing background noise. On the par conversion, I wonder if you can give us an update there on the project and then what concerns you the most about the business over the next two years?

Randal Kirk

All right. I'm not sure I've got the second question, but your first question related to our natural gas upgrading platform, is that it?

Peter Lawson – Mizuho

Yes exactly. And the second question is just about concerns around the business and what concerns you the most over the next couple of years in the Intrexon business…

Randal Kirk

For the entire Intrexon business. That's a great question. All right, with regard to natural gas upgrading as Krish mentioned in his remarks, we're very much on track with the projections that we have made really even before we started. So as you might imagine the (inaudible) was not an organism when we began that the metabolic networks for which I had actually even been elucidated.

So we were really starting from scratch in order to build bioinformatic models around the this organism in order to even begin to make calculations about what could be possible for various end product. But we saw the potential, I mean, and you understand the drive behind this thing is the fact that natural gas really represents the lowest cost of carbon in the world that comes in a freely accessible form, with our huge transportation costs, with our enormous biomass and without it coming in trucks like coal.

Anyway, highly usable industrially ready, plug-and-play source of carbon, at now just historic lows in terms of cost per count in carbon. So obviously highly attractive, to do natural gas upgrading.

So with Ivana Trump (ph) we have another opportunity starting off with a bacterium that naturally eats methane. I understand this organism can be found really anywhere on the sea floor in which, at any point in which natural gas is venting. So this organism is been around a long time.

The natural organism doesn’t do much of anything useful and we – as we've been reporting, we've engineered this organism to make isobutanol. We've also engineered another variant (ph) into this organism to make farnesene.

And so the main genomic engineering project that we have going on in our industrial commerce division around isobutanol program is to improve the yield and we watch this, Krish especially watches this very closely. We get frequent updates and we have a timeline an expectation about what we are – what we should see at various moments in time.

I am actually, as I mentioned I think on last quarter's call, you know, the – outside shareholders can appreciate the way we can obviously, and this is inherent, I'm sure it's in every company. What excites us versus what you might find more exciting. What I found exciting was Krish is rather, live remarks that the thing is on track. Because if that thing stays on track for a while longer, it's huge, it’s absolutely enormous, and you're not going to hear any big Hoo-Ha about it.

As I've guided before, when we start building the demo plant, you'll know that we think we're very significantly in the money in terms of yield and being in the money on a drop in fuel has is – that is seafloor that could replace a significant percentage of the gasoline that’s consumed in the world, would be a very, very big deal indeed.

So we find that very exciting. I can't give you numbers today. We are not going to blind numbers, but as I said, in terms of the next milestone guidance point if you like, when you see Bob Walsh and team breaking ground on the demo plant you will know that we think we're on the money on that. With regard to - did you mean challenges or problems or are those the same thing?

Peter Lawson – Mizuho

Just your concerns over the next couple of years, so it could be just worries within the business, acquisitions you need to do?

Randal Kirk

It's a great question. We do think about this quite a bit. This is really an area which Krish and I are in discussion pretty much on a daily basis. It is actually a daily basis.

Yes, I don't mind sharing with you. One of our shareholders actual posed the question to us a couple of months ago and I thought it was such a good question. I probably botched the answer because it was at the end of a day of meetings in New York. I thought he was just asking about milestones. What milestones do you see coming up? I gave him those.

Then over the weekend, I realized he was really asking what challenges we are facing, for which we may not actually already know the answer or don't feel that we can diarize today. Do I think we're going to hit our production yield target on isobutanol? Yes.

I know we have a wonderful team of scientists and engineers engaged on that and I know they're going to have problems and they are going to continue to have problems. But we are very confident that they are going to overcome those. So I don't consider that to be the sort of challenge that Krish and I should be focusing on.

So what are the challenges that we see for which we may not know today fully the answer? One you have actually heard alluded twice during this call and that is our ability to scale our interface with our collaborators. Maybe because Krish and I had some significant experience in pharma, the alliance interface model that we adopted was basically pharma alliance management. To be honest, pharma alliance management is not a very good interface for a collaboration.

If we had to adhere to that, we would not be able to grow this Company to the size that we think that we can otherwise. Certainly, for the number of ECCs we have today, it is an adequate interface model. But to do 10 times that number would really be difficult and to do 100 times the number would be absolutely impossible.

So this BeyondBio platform that Krish described is an extremely important. And some version of that, just to name one challenge, we need some version of this BeyondBio platform really to work. It needs to be functional. It needs to work for our partners. It needs to work for us.

And not just to reduce administrative burden or something like; what we are really getting at here is it's inherent in our business model that we need the best thinking from our ECC partners. And they need direct access to our tools and they need to be doing it rather than telling us what to do, in terms of their design intent.

So we need to get them that hands-on experience with our entire tool set, with our expert system, so that they benefit from everything that has been learned under the operation of this system and based on our platforms. That is a challenge. We are not saying we have solved it. What we're telling you is that we're working on it. So that is one.

Another one, you asked about M&A. I'll say today it’s not that big a deal for us. We think that our business model is a very good one, and just as it sits today, is going to be highly productive for us for the next several years. You saw us make this Trans Ova acquisition, but that was not really a diversification move. When you think about it, going to the embryo is the same thing in animal -- look, a seed is an embryo, right?

So that's, as I mentioned to Tycho, in response to Tycho's question, that is really the high water mark for DNA value-add. So if we see any other acquisitions like that, that really meet the criteria that we saw exhibited in the case of Trans Ova, we will be happy to do it. But beyond that, I'm not really sure how big M&A is going to be for us over the next, say, two years anyway. Okay.

Peter Lawson – Mizuho

Great. Thank you so much.

Randal Kirk

Thanks.

Operator

Our next question comes from Chris Guttilla at Deutsche Bank.

Chris Guttilla - Deutsche Bank

Hey guys, how are you? My question is pretty simple. Can you explain the rationale of what makes a deal like SunFarmer or IEP or OvaScience a JV versus an ECC like you did with Sanofi?

Randal Kirk

First, I have to give credit where it's due, and I hope our shareholders who actually recommended that we do JVs is on this call, so that he'll know that I'm giving him unnamed credit. But first thing I want to mention is we really like our significant shareholders who offer us advice. If you look at it from my point of view, I am a majority shareholder here. I don't have any reason to sell you guys anything.

We are in partnership and we want our significant shareholders to give us advice. So the first thing I have to acknowledge here is that this whole idea of doing the JV came from one of you and it came up around the time of the IPO. The way it was expressed was, gee, as you advance this model, and as you begin to hit your targets, financial targets in terms of covering that cash OpEx with deal money and cost recovery, might it be possible for you to have even more economics than the ECC would provide.

So that maybe you get one-half paid for the early work. And then as you go downstream, and really the value proposition, we'll say, the probability of success increases, maybe the amount that you have to invest increases, too. But remember the POS is increasing quite dramatically, too, as you go downstream, in time I mean, and along the developmental pathway. We took that to heart and we said on some occasions we are going to do that.

So in the case of Intrexon Energy Partners, look, what we learned while we were talking with major IOCs and major gas companies and so forth is that those companies really would prefer to do business on that kind of platform under a tolling arrangement anyway. So what was it -- what could one of them actually bring to the table other than money and the answer was nothing.

So we went to our energy-savvy shareholders and friends and said, why don't we just do this as a financial vehicle with the financial discipline that we are not going to be spending our shareholders money to do product development. But here is an opportunity, let's see what -- wouldn't this be a great opportunity to finance this in partnership with Intrexon? That was the creation of the IEP.

Basically, Intrexon has 50% economics on -- and by the way, there's more to natural gas upgrading than liquid fuels and lubricants, so I should mention that obviously we are not partnered on anything that can be made from -- we think we can make plenty of things, by the way through the engineering of the methanotroph. But outside the fields of liquid fuels and lubricants, we are completely un-partnered.

But just to get straight back to your question, it is really for us a matter of titration. We really like these JVs, but we are not going to do so many of them that we deviate from what we've told you we were going to do, which is really work hard to balance the inputs and outputs. We're not trying to maximize our cash take today. What we are really trying to do is maximizing the value of the back-end economics on those ultimately product, so that they will flow to our bottom line on a completely unburden basis. This is our focus.

One way of maximizing the back-end economics would be, to the extent we can max those inputs and outputs on a contemporary basis, would be to have greater economics in some of these projects. I'll just close by mentioning that, in our deal queue today, we do have a couple of JV discussions going on in which, frankly, we could have done at it as ECCs. And we have taken the negotiation in the direction of why don't we really just cost-share and risk-share, after the point at which we're getting ascription of technology value for our contribution, because some of these projects to us just seem so compelling. We would regret it if we ended up as merely a passive stakeholders in something that was really huge.

Chris Guttilla - Deutsche Bank

So what should we expect going forward as more deals are announced, JVs are ECCs?

Randal Kirk

That's what I'm leading you to. It really is going to depend on our ability to -- look, rule one, we are going to try like crazy to match those inputs to outputs. We don't want to spend shareholder money on product development. That's what want around here, okay? So it depends on how things go, what we have to do to achieve that rule.

Than having achieved that rule, and you just heard Krish report, and you see these numbers, our goal on cost recovery is 50%. In third quarter, it was 59%. Clearly, we have some money to spend to develop more platforms or to invest in JVs. So we are going to.

But the point is we're really -- rule one, hit our numbers; then rule two, spend the surplus on additional economics, additional back-end economics in that array of products, those ultimately commercialized products. So what I'm really telling you, Chris, I cannot give you numbers today, I'm just saying how the flowchart works in terms of our decision-making.

Chris Guttilla - Deutsche Bank

Okay, great. Thank you.

Operator

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

Randal Kirk

Okay, thanks. If it sounds like I'm not reading from a script, I'm not - listen, we have now been public for a little over a year. We had some definite objectives that we were pursuing in becoming a public company, but none of them involved accessing public capital.

But nevertheless, we were very sure that we needed to become a public company in order to achieve the very ambitious objectives we have for this company.

I just want to give credit to the team, because by my life, we are way ahead of schedule. We have done everything that we said we were going to do. They have done everything that I said they were going to do, is a better way to put it.

So I'm proud of them. I don't know how much more fortunate I could be. Thanks to everyone.

Operator

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

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.